Sunday, September 27, 2009

Understanding your local Economist--Lesson 1

I generally would not require my Readers to exam such a long Post, which I presuppose takes too many bites of too many subjects all at once. The fact stands that it is somewhat logically constructed, and capable of analysis. I attempted, since I started to read myself, to find some method to critique the material. I finally decided to state the end result, then go back and list the material from the Start. The End states basically that everyone wonders whether any type of macroeconomic monetary or fiscal policy will have effect, as the structure of a an extended economy possesses curtailing environs to cancel any structural impact, before that force can inflict stress elsewhere throughout the structure. Foresight of such impacts will minimize such resultant stresses even more rapidly, and can be implemented prior to the policy initiative to the greater adverse reaction to the force. What this means can be outlined that the economy considers Government action to be predictable and intrinsic to economic activity, so that the economy has integrated government performance into itself with the production of constraint boundaries.

Both Freshwater and Saltwater schools of economics have found themselves embarrassed by Recessions, and both found themselves stymied after the input of their proclaimed curatives which exhibited little real observable performance within the economy after application. The Real Business School suffers especially because of their insistence that economies cannot suffer Recession without government policy. Recessions will always occur naturally because the length of the Boom period generates too many Participants into Production, who overproduce for the Market size simply to maintain their own personal Profit ratios. Recession is the only natural mechanism to cancel the over-appropriation of Capital resources to production areas. Most economists have real difficulty in acceptance that Recessions are natural corrections, and should be left alone to perform their function. I know that I will hear about this discussion.

Economists nevertheless should occupy their time not with forestalling Recessions, but the study of How to restart economies after Recessions; economies sometimes amazingly slow at restarting prime production conditions. Some economists will immediately state that I am claiming the superiority of fiscal policy over monetary policy–that is untrue. First, fiscal policy is only beneficial if it is funded; this means that money is taken out of the hands of people who will not spend, and spent—this means Taxation. One need recognize that Recessions are basically a function of overInvestment; further Investment will not be a Solution which will work, even if it is in government securities. The Spending by market participants is the cure to Recession, whether government inspired or Private. This Spending must rise higher in relationship to Capital creation to be effective, so government increase of securities issuance is actually counterproductive. Only when there is greater Consumption in contrast to Capital creation do We find market participants willing and able to fund a Boom. This is the Happy Place for Economists. lgl

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