Where Wea are At today

Paul Krugman has a nice Post on the Business cycle, with admission that advocates of Keynesian theory took it far beyond Keynes’ desires and comments. He is kind enough to place the focus on the Wear-Out theory of Capital Construction; a basic Statement that there is a Point simple Mechanics cannot preserve continued Production operations (check Cuba under the American embargo, or the Philippines’ final loss of the Jeep Taxis of WWII). Paul does not mention the altered loci inherent in every Recovery, where the economy reorients to a new system of Goals. I mention this factor because it most adequately reflects the stall in the Economy, and the Means by which Recovery is attained.

The Economy runs along in a Boom generating all those great effects that Everyone loves about Booms. Everything is going fine until there is a Point where most Business managers realize that their facilities have the capacity to produce what Consumer Demand wants, and they need to find Investment opportunity outside their own area of expertise. They quickly perceive that real Productive capacity needs little funding beyond what it already does possess. Business talent lack real capacity to switch from Investment to Consumption; they possessing neither Time or Inclination (personal embellishments being quickly funded and realized–I knew one Corporate leader with 7 Homes in all the Vacation Hotspots in the World, while he spent 95% of his time at his New York home). Business leadership invariably adopts the proposition to extend Credit to Consumers, so they will buy more Product and make the Business leadership more Money. Trouble appears in this program, because Consumers have a limited capacity to borrow, based upon their capacity to pay off the loans. Business again finds itself with a build-up of Cash drawing a limited capacity of Profit; the limitation of the Profit ordered by the build-up of Cash.

It is obvious that economies stall because of the failure of technological evolution. Busts occur when previous Production practice has been fully-funded, and new technological opportunities for Investment fail to appear is sufficient quantity to provide the actual Stimulus for Production. Government can attempt infrastructure construction, but there is a primary limitation here; infrastructure sufficient to present Travel opportunity and Business Product movement has no Time-component Restraint, and will not attain the Speed necessary to accomplish the Stimulus required. Welfare Transfers only maintain previous Production schedules; they do not expand them. Business expansion depends on factors hard to duplicate by Government, and attempts to do so can make Business conditions more difficult for both Consumer and Business. It is where We are today! lgl