Thursday, January 14, 2010

The Approach is Everything

I like Menzie Chinn’s and try mightily to understand his Tables and Graphs, though they are way above my Pay grade. What I dislike most about all these fancy models remains the fact that none figure what has to be the addition of capital to the economy to maintain the growth pattern of 2007. This has always been the problem with such models; they neither indicate the capital stimulus of the base years, or give any amount of estimated Stimulus necessary to maintain productive capacity. Here is the thing: Stimulus measures are always outsize to the normal generated natural Stimulus, and invariably applied in areas which apply the most discordance to the natural flow of the economy. It does not matter what model one may utilize, no avowed Stimulus ever reaches the necessary Recipients to actually assume Stimulus, without being drained of Profits by the intervening elements. Stimulus is not easily derived or applied when the leadership cadres of the economy are allowed to replenish their coffers, before a Trickle-Down effort actually reaches those Parties which actually need the assistance; and then only at a Cut-Rate much below the initial assignment. It is from this level that the models should operate, but is information which is never viewed.

Brad DeLong undoubtedly disagrees with me on the above issue, but invests little time estimating How Much it cost to hire each additional Worker, after intervening Parties had been paid to hire those extra laborers in the first place; positions which entail specialized experience, not simply grunt labor which would have eroded core unemployment. I would expect as little as $2 billion of the $21 billion spent on Roads and Bridges actually reached the level of labor payrolls. Here is the basic problem with such Stimulus, as I further expect less than $10 billion went to actual materials payment. It is an expensive methodology to implement with little Return on the investment, and there should be far greater restriction on the dispersal of the funds.

I did not pursue this Post, except for the introduction to the links, though they may provide my Readers with a wealth of source material. I would like to touch upon an aspect that the author cited to state: A degree of inequality is necessary to establish a Collateral to attain the necessary investment funds, but after that point, sustained inequality will always be hazardous to growth. Proof of this assertion would require the alteration of economic modeling to follow the above commentary. We all have our set beliefs, and the above measurement is basically one of belief, though I believe statistical data can be formed to minimally prove my assessment. The Reader is admonished that academics at fundamental root is the development of a belief system; but one which should always be approached with moderation. lgl

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