The New Mix

I have always adored Menzie Chinn’s authorship because it invariably drifts into the unintelligible for all but the Specialist. It is always a beautiful example of macroeconomic modeling, where the Dots connect only with a few hours of study. Mark Thoma
tries to translate Menzie Chinn’s estimates, and explain them. The Result is very good, though it made him suffer from Communication problems as well. Mark failed to clarify that the older models to which Menzie Chinn refers, are based on an undersized economy in comparison to the current economy, requiring a new system of weights due to the alterations in Production practice, and does not reflect that actual utilization of fiscal policy has shown a failure to attain the expressed goals while generating Side-Effects which tend to warp the Production structure. By the time that the new models are adjusted, the Recession will hopefully be over! Robert at Angry Bear thinks to outline where Menzie Chinn’s modelism is wrong, but loops back into the confusion.

I will try to translate my own version, and undoubtedly begin to sound a little weird. The old economic models never worked, at least not until they were severely tweaked by historical review of the facts; these are the famously designed ‘filters’ mentioned occasionally among economic peers of the realm. The economy has since grown, expanded in new directions, and the modus of operation has altered; all insisting as Mark points out, that new models need to be constructed, though new ‘filters’ can be designed for the Short-Run. There is the additional problem that monetary policy has fallen far short of expectations, generating a multiplex of outcomes depending on circumstances. I am not saying that Economists are as confused as the Federal Reserve was in the 1930s, but it may appear close.

The Period of Time since 1996 until the Present could itself be considered the anomaly, where artificial inputs of technology and funding produced an Employment and Production level not before seen, basically through the expansion of Risk -spread and utilizing uneven economic development to reorder Production methods. The final result has been the education of undeveloped labor forces in production technologies unsuitable for their domestic environment, and educating developed labor elements in coordination of diverse production dispersion; labor which will disappear with the development of economic development suited for domestic consumption. We are currently entering a Period of great Creative Destruction, as economies realize they don’t have to spend such vast Labor Costs on the jobs which were the highlighted Golden Child of the previous Period. Wall Street and financial sectors are simply finding no one wants to support them in the style to which they have become accustomed; the Rest of the economy and labor force uncomfortable but not suffering. lgl