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Guest Post: It's Far Deeper Than Broken Okun

Tyler Durden's picture




 

Submitted by Jeff Snider, President & CIO, Atlantic Capital Management

It's Far Deeper Than Broken Okun

ZeroHedge’s post on the apparent breakdown of Okun’s “Law” (http://www.zerohedge.com/news/okuns-law-latest-casualty-central-planning...) highlights the ongoing tragicomedy of how the science of central economic planning eventually confounds, and then consumes itself.  Economics is, after all, a social “science”, an elaborate study of human beings and, most importantly, human interactions.  Robert Okun, for his part, merely observed in 1962 that when “output” (whatever statistical measure is en vogue) rises by 3%, the unemployment rate seems to fall by 1%.  For some reason, economics assumes that if it is true in the past, it will be true forever, so it was written into the canon of orthodox economic practice.

Economics has inferred causation into that relationship, giving it a layer of permanence that may not be warranted.  Econometrics has always had this inherent flaw.  The science of modern economics makes assumptions based on certain data, and then extrapolates them as if these assumptions will always and everywhere be valid.  There is this non-trivial postulation that correlation equals causation.  In the case of Okun’s Law, it seems fully logical that there might be causation since it makes intuitive sense – more economic activity should probably lead to more jobs, and vice versa.  But to assume a two-variable approach to something that should be far more complex is more than just dangerous, it is unscientific. 

In fact, Okun’s Law has already been adjusted somewhat, most famously by Ben Bernanke and Andrew Abel in their 1991 book.  It was upgraded to a 2% change in output corresponding with a 1% inverse change in unemployment.  Apparently with the economic “success” of that period, Okun needed a re-calibration.

Any such academic exercise means a careful review and study of the time series of economic data.  Most of these academic papers focus on finding a new regression or other statistical relationship that better “fits” erstwhile independent variables into each other’s gravity.  As it was with Bernanke and Abel, Okun’s law in 2000, updated by the new data set of the Great “Moderation”, needed to harmonize with the new data series of the 1980’s.  Bernanke and Abel were not disagreeing with Okun, rather they were measuring some of the additional complexity that goes into the relationship between output and employment.

The academic sense of understanding the economy requires ceteris paribus.  In order to make econometric models manageable and statistically meaningful, complexity has to be trimmed and managed.  It is far easier to incorporate simple relationships that appear to work over specific periods of time than to try to estimate the massive and dynamic complexity that the real world exhibits.  The grand mistake of economics is this sense of permanent simplicity.

In terms of broken Okun, simplicity has meant that it only measures the quantity of jobs.  Okun’s practitioners assume, ceteris paribus, that a new job is a near-perfect substitute for an existing job (or a lost job from the current dislocation).  In the case of job growth since the recession trough in 2010, though, “new normal” jobs are not perfect substitutes for lost bubble/artificial jobs.  Newly created employment just does not produce the same wage income as the previous bubble paradigm (a lot of this disparity can be seen by the greater proportion of part-time jobs, far more than economic models predict).

This complexity and nuance extends even beyond wage income.  A job in the preceding artificial period also meant easy access to cheap credit money.  So job growth during the twenty plus years previous to 2007 meant both wages and available credit money (NINJA were not marginally significant until the very late bubble period).  New jobs in 2010, 2011, or 2012 (and likely beyond) not only produce less wage income, there is no additional boost through credit, and therefore less marginal economic activity per new job unit.  So numerically, the number of jobs, unqualified by any additional measurements, has grown without living up to the expected output growth (of course there are other factors as well, especially the negative effects of ZIRP on savers and the corporate preference for financial innovation over productive innovation, as well as the negative effects of commodity prices acting out central bank inflation expectations, but those would mean that money itself has changed in terms of how it relates to the economy – the academic sense of velocity – which should lead to all sorts of soul searching among monetary policy planners).  On an apples-to-apples basis, new employment simply does not and cannot match the artificial boost of the preceding period, so a simple number quantification is less than useful.  

Instead of questioning these simplified relationships and laws, mainstream economics attempts to explain all of this through a hugely negative output gap (in other words, the theories are correct, the results are flawed).  Believing that past relationships still hold on largely untransformed terms, they believe that the economy should be growing much faster than it has.  To make up that massive gap, the Fed embarks upon its real dual mission of making sure no large credit creators ever fail (money elasticity) while pushing investors into “risk” (and out of the supposed paradox of thrift) by making safety or saving expensive.  The Fed keeps banging its head against the wall, trying greater and more costly interventions all in the vain attempt to close the theoretical output gap that does not really exist (results over theory).  If economics would see that the previous paradigm of leveraged wage income is what is permanently broken (along with economic circulation through asset inflation, commonly known as the wealth effect), it might be able to conclude that the Great Moderation was really nothing more than artificial growth that won’t be returning.  Then punishing the economy through intervention might be seen as counterproductive as it has really been.

If that artificial paradigm is now past tense, then so many of the “laws” upon which the social science of economics rests should also be rethought.  This is particularly true since mainstream economics (especially econometrics) “grew up” during the Great Inflation and Great “Moderation” – the very periods of over-active central banking and credit production.  Just because a relationship held during that specific time period does not mean it should then be extrapolated through all time.  Economics is not physics, what seems to hold today may not hold tomorrow (this should be very apparent when a theory or set of beliefs fails to exhibit predictive ability).  The real economic world is one marked by dynamic processes that are not well understood by academic theories wedded to their elegant, but ultimately static, mathematical constructions.  Structured finance and securitizations, as an example, worked extremely well under static assumptions (such as real estate prices only move in one direction), but once the dynamic world moved beyond statistically assumed financial tolerances it was a total disaster.  The paradigm shifted but the theories and causal assumptions did not until after it was all over – again, not a very scientific result.

Economics should be undergoing a more rigorous examination of its philosophical bonafides, especially since it has shown very little predictive capacity (hard science needs to be both predictive and replicable, a standard economics has not, nor will ever, meet).  The foundations of mainstream economic thought should be shuddering at the prospect of being so wrong so often.  Every assumption and relationship should be re-evaluated as to whether it was really true in the universal, timeless sense, or whether it was simply captured by a specific pattern in a defined and limited data series (such as the over-worn trope that low interest rates are always stimulative).

For impartial observers, there was a rather clear demarcation between the “new normal” of this recovery and the artificial bubble period, turbo-charged by trillions in securitized debt, that preceded it.  Okun’s law is not broken, it was simply never a law or rule of thumb to begin with.  Bernanke and Abel were probably correct that a 2% output change led to a 1% inverse change in unemployment at the time they wrote their book.  The hubristic mistake of modern economics is believing Okun, and every other economic law, to be a universal property of all economic systems at all times.  The world is more complex than that, and capable of changing in ways that cannot be oversimplified.  Sometimes correlations are coincident to larger interactions and patterns, and not causation at all.

Real estate prices do, in fact, go down as well as up.  Low interest rates do not always stimulate economic activity.  Most importantly, economic potential is not simply a measure of economic output from 2003-2007.  Every economic and monetary intervention (all that ails this current economic age) flows from this mistake of oversimplification and pattern bias.  There would be no need to punish savers.  There would be no special place afforded to the oversized behemoths of credit production and finance.  Hell, there would be no place for the overgrown financial economy to begin with if economists would admit that the world does not easily fit within the Garbage In Garbage Out confines of mathematically modeled oversimplifications. 

The biggest simplifying mistake in economic history was believing that a centrally planned, debt-based economy was a near-perfect substitute for a real capitalist economy, working bottom-up through unfettered price discovery, that values real production.  That such soft central planning apparently worked during the Great Moderation is nothing more than pattern bias, a flawed theory captured by a unique data set of oversimplified variable relationships.  The fact that it is all breaking down now is solid evidence of that paradigm shift, an invalidation of previous assumed causal relationships, not some ephemeral headwinds. 

Economics is really nothing more than opinionated interpretations and analysis.  But this kind of subjectivity does not jibe with central planning.  Economic control is much easier to accomplish if it is conducted under the veneer of objectivity and science, especially when your marginal goal is historic impoverishment through debt.  Although, that might be too harsh for most economists since they simply believed their own theories, including the idea that the marginal pace setter of artificial economic activity, asset price inflation, only moves in one direction.  Their scientific observations of the Great “Moderation” told them so, and so they remained captured by their own work.  The fact that an entire asset class had collapsed during all that moderation should have been a huge and unmistakable warning to economists to truly observe and learn the dangers of extrapolation and the short-comings of trying to create a science out of pattern bias and oversimplification before deliberately charting a course for historic impoverishment.  But even that oversimplifies what might really be the problem here – that modern economics is not only not a science, it is an ideology.

 

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Mon, 02/13/2012 - 23:41 | 2156353 lolmao500
lolmao500's picture

Okun law is broken because all the ``growth`` is deficit government spending and ``banking profits`` based on virtual and mark-to-unicorn assets.

Mon, 02/13/2012 - 23:46 | 2156365 AgShaman
AgShaman's picture

Virtual and mark-to-unicorn assets?

Is that something like painting price targets....soze they know where to shit the skittles for us?

Mon, 02/13/2012 - 23:53 | 2156378 withnmeans
withnmeans's picture

Don't forget this mark-to-unicorn asset process is only possible if you possess pixy dust "printing machines", and a massive amount of green ink and paper, paper, paper.....

Tue, 02/14/2012 - 00:48 | 2156440 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Is the BoJ buying ETFs again or what?  Because that spike on the Nikkei is unreal.  The big money came in half way through the spike too, and at the end.  Unreal.

Wed, 02/15/2012 - 00:48 | 2160661 Thomas
Thomas's picture

Brokun's Law

Tue, 02/14/2012 - 00:20 | 2156414 Silver Bug
Silver Bug's picture

I think we can all agree, theres more than just Okun broken.

 

http://ronpaul2012blog.blogspot.com/

Tue, 02/14/2012 - 00:25 | 2156422 sgorem
sgorem's picture

i love this place. ZEROHEDGE FOREVER BITCHEZ!!!!! Tylers for presidente! and the sheeple fall asleep watching "dancing with.....", "da grammy's".......or whatever........

Mon, 02/13/2012 - 23:48 | 2156369 WonderDawg
WonderDawg's picture

Or, as the article stated, it was never a law at all.

Tue, 02/14/2012 - 01:56 | 2156560 StormShadow
StormShadow's picture

Saying that GDP rising 2-3%=1% drop in unemployment makes sense. 

To say that dropping unemployment by 1% by fudging the living shit out of the unemployment #s (as was just done) is gonna result in GDP rising 2-3% is utter nonsense.

Mon, 02/13/2012 - 23:47 | 2156366 geneb
geneb's picture

That's what she said.

Mon, 02/13/2012 - 23:51 | 2156374 jerry_theking_lawler
jerry_theking_lawler's picture

jesus Tyler....where do you find the time....

 

you must have empty red bull and 5 hour energy cans laying all over the place....

Tue, 02/14/2012 - 00:32 | 2156429 LowProfile
LowProfile's picture

There's more than one Tyler, and you seem to have overlooked that this is a guest post.

Tue, 02/14/2012 - 01:09 | 2156477 Kimo
Kimo's picture

If you think this is good, you should see Tyler's other web site!

Mon, 02/13/2012 - 23:53 | 2156375 non_anon
non_anon's picture

Okun took over Occam's razor?

Mon, 02/13/2012 - 23:57 | 2156383 bigwavedave
bigwavedave's picture

more jobs yes. but in china. doh!

Tue, 02/14/2012 - 01:58 | 2156566 StormShadow
StormShadow's picture

Hell, I'll move to China for a job.  Yeah, wages may be a tad bit on the low side, but hell rent's gotta be damn near free with all the empty apartment buildings they go over there.  Damn, maybe that was their plan all along.  Build it and they will come!

Tue, 02/14/2012 - 00:00 | 2156385 LetThemEatRand
LetThemEatRand's picture

Whether The Bernank is just a useful idiot is open to debate.  But it seems pretty clear that most of the guys who run the world know exactly what they are doing and understand how money and economies work quite well.  They have figured out how to redistribute massive wealth into their private pockets by growing debt in everyone else's.  It's good to be the .01%.

Tue, 02/14/2012 - 00:05 | 2156393 Sophist Economicus
Sophist Economicus's picture

Whether The Bernank is just a useful idiot is open to debate....

 

Tis true, but the fact that you are a most unuseful idiot there is no doubt....Didn't know the union halls were having people work the night shift trolling   LOL

Tue, 02/14/2012 - 00:11 | 2156398 LetThemEatRand
LetThemEatRand's picture

Ad hominem -- how quaint.  Gotta love Randers and their big brains, great ideas and compelling arguments in favor of their ideology.

Tue, 02/14/2012 - 00:24 | 2156420 StychoKiller
StychoKiller's picture

Everyone that disagrees with you is NOT necessarily a disciple of Ayn Rand; check your premises.

Tue, 02/14/2012 - 00:34 | 2156431 LowProfile
LowProfile's picture

Correlation does not necessarily imply causation.  Where did I just read that...  Hm...

...Guess he doesn't actaully READ the articles on ZH...  He just trolls 'em!

Tue, 02/14/2012 - 00:52 | 2156452 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

He calls out an arguement as ad hom, and then uses ad hom.  HAHAHA!!!  That shit was funny.  You're funny Rand!

Tue, 02/14/2012 - 00:06 | 2156394 LongSoupLine
LongSoupLine's picture

Any "law" with inferrences to "data" that is inherently not only flawed, but simply outright false, manipulated and manufactured is a law that will quickly be referrenced over to chaos theory.

Hence, we are in Chaos Theory territory with multiples upon multiples of bifurcation points.

In conclusion...silver...bitchez.

Tue, 02/14/2012 - 00:55 | 2156461 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Where the hell is this butterfly everyone speaks of?

Tue, 02/14/2012 - 07:40 | 2156797 LongSoupLine
LongSoupLine's picture

It's now "Mothra"...in Japan today (how appropriate).

Tue, 02/14/2012 - 00:15 | 2156405 Rincewind
Rincewind's picture

This is all very true and in line with Steve Keen's work. I truly believe that all these economists and financial wizards are just playboys lacking proper scientific and mathematical backgrounds.

It makes me sick and angry how these shitheads run everything to the ground with their flawed theories.

Tue, 02/14/2012 - 00:56 | 2156462 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Roubini fits that mold.

Tue, 02/14/2012 - 00:34 | 2156415 sasebo
sasebo's picture

Want to see how stupid & incompetent Mr. Bernanke & all the other useless asshole economists really are? Read the paper by Claudio Borio and Piti Disyatat of the Bank of International Settlements, “Global imbalances and the financial crisis”. These guys knocked the shit out of Bernanke last May & he still hasn't been able to respond. Just too stupid I guess.

Any body remember asshole Bernanke's stupid theory about foreign savings causing the 08 crisis? Well Mr. Borio & Mr. Disyatat knock the shit out of that stupidity.   

Tue, 02/14/2012 - 00:58 | 2156464 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The BIS has been calling out Keynesian policy since before the Fall of '08.  The BIS will have the final say.  Interesting though that Bernanke is a shareholder of the BIS.  So is Obama, and Greenspan.

Tue, 02/14/2012 - 01:06 | 2156472 sasebo
sasebo's picture

Evidently these guys couldn't care less about bernanke owning stock -- they knocked the shit out of him anyway. Still no response.

Tue, 02/14/2012 - 01:15 | 2156489 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Well yeah, they'll leave him hanging on a lampost with a few million tucked in his trousers, so what?  Fiat is nothing to the guys at the top.  They own CORPORATIONS.

Tue, 02/14/2012 - 02:06 | 2156570 sasebo
sasebo's picture

I just don't understand why no response. Surely B. & others are aware of the paper even though there evidently was a big effort to suppress it. And these are the guys who keep an eye on all the CB's. They aren't just some knuckle heads.

Tue, 02/14/2012 - 02:16 | 2156591 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

B thinks he is safe on the inside.  He doesn't know that the devil would sell his brother out for a daydreamOops.

Tue, 02/14/2012 - 01:30 | 2156506 trebuchet
trebuchet's picture

they finger credit creation as the culprit. 

 

The problem with that argument is that credit has been created since double entry book keeping was invented and probably before

 

just like current account and financing imbalances were around for many centuries

 

if only things were that simple the DSGE models would have had those issues to pat long itme ago

 

 

Tue, 02/14/2012 - 02:02 | 2156551 sasebo
sasebo's picture

I think the point they're making is that there's credit & then there's credit. Like where would all the big banks be without Bernanke creating all the funny money?

Tue, 02/14/2012 - 00:21 | 2156417 valkir
valkir's picture

Okun and Occam argue abour razor,with Onan.

Tue, 02/14/2012 - 00:22 | 2156419 Archon7
Archon7's picture

It's possible to fit straight lines to gentle curves, and still do a pretty good job of predicting things... as long as the curve remains "gentle".  If the curve goes parabolic off one end or the other of the data series your straight line model no longer works.

Tue, 02/14/2012 - 00:29 | 2156421 Caviar Emptor
Caviar Emptor's picture

 

 

SF Fed President Williams: "Vital that we keep the monetary policy throttle wide open"

Yeeeehaaaa!!!

It's gonna be  a biflation jam_bo_ree!!!

And he goes even further:

 

This will help lower unemployment and raise inflation back toward levels consistent with our mandates. And we want to do so quickly to minimize total economic damage. The longer we miss our objectives, the larger the cumulative loss to the economy.

 

http://www.calculatedriskblog.com/2012/02/sf-fed-president-williams-vita...

He and Ben will be fiddling while Rome is burning. And Athens. And Madrid. And Lisboa. Don't forget Damascus, Cairo, Ankara, Bagdad, Muscat, Kabul, Islamabad and a few others. 

Tue, 02/14/2012 - 00:53 | 2156455 Archon7
Archon7's picture

Sweet jeebus, they want to crash the system.

Tue, 02/14/2012 - 01:07 | 2156475 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I read it wrongly the first run through, but I have had a beer.

This will help lower unemployment and raise inflation back toward levels consistent with our madness.

Tue, 02/14/2012 - 00:35 | 2156434 FreeNewEnergy
FreeNewEnergy's picture

New jobs in 2010, 2011, or 2012 (and likely beyond) not only produce less wage income, there is no additional boost through credit, and therefore less marginal economic activity per new job unit.

 

Show some proof, otherwise, your elegant exposition of the world's economic problems are nothig more than neat prose and speculation.

Tue, 02/14/2012 - 00:50 | 2156447 chinaguy
chinaguy's picture

Ouch newbie & FFS review the trend of withholding taxes...in spite of "new" jobs added or the amount of temp jobs added compared to full time - per BLS data - or shit retail jobs added compared to professional jobs lost.

This site assumes you have a modicum of background & does not intend to hold your hand every step of the way.

Not saying you shouldn't call "BS" if the shit sticks, but don't make an ass of yourself.

 

Tue, 02/14/2012 - 01:28 | 2156504 LowProfile
LowProfile's picture

Dude, seriously.  STFU and go read something, like, Idunno... The last three months of ZH.

Tue, 02/14/2012 - 00:36 | 2156435 hyper-critical
hyper-critical's picture

Guest posts from Atlantic Capital are always a treat

Tue, 02/14/2012 - 00:36 | 2156437 Schmuck Raker
Schmuck Raker's picture

Fuck'n A

Tue, 02/14/2012 - 00:37 | 2156438 sgorem
sgorem's picture

i have only one question about all of this shit, ie., fraudsters, corrupt .gov, banksters, brokers, politicos, dealers, etc., when in the hell is someone going to die?

Tue, 02/14/2012 - 04:15 | 2156701 NorthPole
NorthPole's picture

Not even in Greece has a single member of the political and financial elite been indicted, let alone served time. Hell! Messrs Papademos ( centeral bank chief 1994-2002, personally responsible for the book-cooking) Papandreou ( prime minister, son of one and grandson of another one ) and Samaras ( chieftain of Papandreou's main competition ) are still in charge. And that's in a country where it should be painfully obvious to anyone with half a brain that those are the very people who have collectively been raping the country and its citizens in the rear end for decades and their place is -at best- in jail!

 

So answering your q: don't hold your breath.

Tue, 02/14/2012 - 00:39 | 2156439 FreeNewEnergy
FreeNewEnergy's picture

Man, that did not come off properly. Sorry. Nice work. keep it up, The despots are desperate.

Tue, 02/14/2012 - 00:44 | 2156444 Zgangsta
Zgangsta's picture

Mmmmm....

http://www.businessweek.com/news/2012-02-13/bank-of-japan-adds-to-moneta...

For a midnight snack, nothing hits to spot like some good old QE!

Tue, 02/14/2012 - 01:11 | 2156480 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Thought so.

Tue, 02/14/2012 - 00:49 | 2156449 slewie the pi-rat
slewie the pi-rat's picture

 

 

  • so wrong
  • so often
  • so doomed
Tue, 02/14/2012 - 03:03 | 2156626 Phil Free
Phil Free's picture

 

 

  • so what?
Tue, 02/14/2012 - 01:00 | 2156465 Caviar Emptor
Caviar Emptor's picture

Ok. Here it is for all you theoreticians: Central planners at the Fed crossed the line when they decided that, to heal capitalism, they needed to willfully violate a central tenet: that imbalances and inefficiencies are auto-corrected by free markets.

The monetarists decided that instead of letting capitalism heal itself, the idea was to willfully AMPLIFY imbalances (!) by creating a perpetual motion machine of deficit spending, monetary expansion and inflation. By expanding credit to fuel an import binge from Asia coupled with mass offshoring of jobs and industries. The net results speak for themselves with 30 years of declining real median income and out of control twin deficits (Federal budget and trade balance) and a gutted manufacturing sector. 

Their view is that we need to intensify the policies that lead up to the crisis: more inflation, looser monetary policy. And of course corporate welfare in a million different ways.  

Tue, 02/14/2012 - 01:11 | 2156481 wandstrasse
wandstrasse's picture

and how about if exactly these results were the intention of the whole debt-fiat-exercise? A debt-enslaved population which screams for more government power and more government charity and a ridiculous collection of weapons and soldiers is all what TPTB asked from Santa.

Tue, 02/14/2012 - 04:38 | 2156715 NorthPole
NorthPole's picture

Partly. The system of fractional reserve has indeed been purposefully engineered to serve the interests of the 0.1% elite, but what we have been seeing since 2008 is - IMHO - a real, uncontrolled explosion. TPTB really try to keep the lid on, but since Keynesism is the only way to keep it rolling for some more time, that is what they will be doing until some permanent reset ( read: war ) can be prepared and executed.

 

But how are they going to do this war if - this time - with all the nuclear gizmos, the elite is for the first time on the hook to be exterminated themselves?

Tue, 02/14/2012 - 01:12 | 2156482 Kimo
Kimo's picture

Surfs Up!

Tue, 02/14/2012 - 01:13 | 2156484 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Welcome to Introductary Macro Economics everyone.  Please have a seat, your Prof will be with you shortly....

Tue, 02/14/2012 - 01:20 | 2156496 adr
adr's picture

That was a whole lot of words to say: I had a job paying $75k and I lost it. The only job I could find pays $30k so I can't buy the same ammount of stuff. So my new job, although equal in terms of employment status, is not equal in terms of economic status.

In other words: Less money made = less money to spend, which leads to lower economic growth. To maintain growth the missing money must take the form of debt. Without there ever being enough money earned to pay for the increased debt, the debt can never actually be paid. The only outcome possible is default.

Such a simple concept and so easy to understand. I don't know how the Krugmans of the world are so blind to the simple irrefutable truth of this fact Perhaps giving in to this understanding would mean admitting that increasing wealth without increasing personal productivity is not actually possible.

Tue, 02/14/2012 - 01:30 | 2156507 LowProfile
LowProfile's picture

"I don't know how the Krugmans of the world are so blind to the simple irrefutable truth of this fact"

Because that doesn't help re-elect the giant douche (as opposed to the turd sandwich).

Tue, 02/14/2012 - 01:25 | 2156499 Peak Everything
Peak Everything's picture

There is one solid law in economics but very few people are aware of it:

$1 US (1990) = 9.7 mW

http://www.inscc.utah.edu/~tgarrett/Economics/Economics.html

It's a little complicated but well worth the effort to study since it pretty much explains everything you need to know about the economy.

Tue, 02/14/2012 - 01:35 | 2156511 LowProfile
LowProfile's picture

Solid as a rock...

...assuming stable value currency, non-gamed inputs, etc. Pretty much like every other economic "law".

That said, if you could account for fucking the other numbers, that does seem pretty solid.

Except for the AWG voodoo (that's pure unadulterated mil-spec globalist control-meme bullshit).

Tue, 02/14/2012 - 02:07 | 2156578 Peak Everything
Peak Everything's picture

Your comments suggest you have not studied this. Set aside a few days to read his papers and plan on a few passes before you will absorb it all. You will not regret the investment.

Tue, 02/14/2012 - 02:18 | 2156593 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Dollars equal toilet paper.

Tue, 02/14/2012 - 03:09 | 2156634 Phil Free
Phil Free's picture

Do you use $1's when you go?  Or do you opt to use the nicer $50 bill, $100 bill?

Tue, 02/14/2012 - 03:38 | 2156652 francis_sawyer
francis_sawyer's picture

Thanks for that link... It's a very interesting 'constant'...

What the average person might not grasp at first glance is that the comparison was made to WEALTH not MONEY... So if you look at it properly from that perspective, it's easier to see that the false imbalances that occur in tinkering with the money supply (which eventually rectify themselves), don't really change the equation...

Tue, 02/14/2012 - 03:15 | 2156638 DarkStarDog
DarkStarDog's picture

Economics is whatever Bennie and Timmah tells the sheeples. Everything else is just white noise. more inflatuon is all thr
Ese baedRds know how to do. Frick jackasses...

Tue, 02/14/2012 - 04:00 | 2156691 michael_engineer
michael_engineer's picture

The equivalent of Maxwells equations for the new normal economics :

http://www.zerohedge.com/news/observations-engineer


First Corrolary Principle :   Disaster Capitalisms Delusional Additive Property:

On the upslope of the Hubbert curve it kind of made sense to think of disaster capitalism in a positive way.  Broken stuff got fixed and generated GDP (but the disaster capitalism train of thought worked best if it wasn't YOUR stuff getting broken).  The negative affects of the disasters were masked by them happening on the upslope of the Hubbert curve where overall positive growth made the system as a whole bigger and better, even in spite of disaster setbacks in some places.   But on the downslope of the curve, disaster setbacks may not get fixed at all as there is little surplus if any to take from other needs.  Just look at Haiti as an example. 

 

Tue, 02/14/2012 - 04:25 | 2156714 onebir
onebir's picture

One of the best articles I've seen on ZH (& on the state of economics, & the world...)

Tue, 02/14/2012 - 04:48 | 2156722 BlackVoid
BlackVoid's picture

Fake growth numbers, fake unemployment numbers.

And they are surprised it does not work? LOL.

Tue, 02/14/2012 - 08:07 | 2156820 BadKiTTy
BadKiTTy's picture

One word for this article - awesome.

Loved the punch line.

K@

Tue, 02/14/2012 - 08:43 | 2156855 Benjamin Glutton
Benjamin Glutton's picture

you have to be a layman to understand and accept the obvious.

Tue, 02/14/2012 - 08:45 | 2156859 Sean7k
Sean7k's picture

I suggest the author read up on Austrian Economics- the "hard science" of economics. Keynsian and monetarist madness are hardly good examples. Economics is very predictable and reliable. However, the casual observer needs to do a little more study to find this out.

This is a very succinct deconstruction of the current economic status quo, but to assume that economics exists in an intellectual vacuum where Keynes, Samuelson and Friedman make sense, shows little mastery on the subject.

Ludwig Von Mises, "Theory and History" would be a good start.

Tue, 02/14/2012 - 10:13 | 2157106 Sandmann
Sandmann's picture

the "hard science" of economics.

 

No such thing. Merely another opinion that's all.  There are NO Constants in Economics.

Tue, 02/14/2012 - 08:49 | 2156865 dcb
dcb's picture

"The biggest simplifying mistake in economic history was believing that a centrally planned, debt-based economy was a near-perfect substitute for a real capitalist economy, working bottom-up through unfettered price discovery, that values real production."

I disagree, I think many know this, but those with money and power always have the ability to push their views. those that have this view, move highner, those that don't get excluded, federal reserve, treasury, etc. endow chairs, it is a way of getting the populace tobuy into the self interst of those who get the most benefits from such a system, reward those that go along with it, hurt those that don't.

Tue, 02/14/2012 - 09:10 | 2156903 Sean7k
Sean7k's picture

They only have that power and opportunity because of the police power of the state. This is a political, not an economic explanation. Your complaint does nothing to challenge the quotation you have used.

Tue, 02/14/2012 - 08:52 | 2156871 dcb
dcb's picture

I love the fact that output is usuallly measured in monetary units (gdp) so you can expand the number of monetary units (increasing output) while the actual number of goods produced drops. there are huge flaws in measurement, and by adjusting the ways one measures they can get the desired result.

Tue, 02/14/2012 - 09:11 | 2156901 Sandmann
Sandmann's picture

Economics is, after all, a social “science”, an elaborate study of human beings and, most importantly, human interactions

 

No it isn't ! It is a branch of Moral Philosophy. Adam Smith was a Moral Philosopher as was David Hume. That is why we speak of Utility Curves and Goods and Bads and have the notion of individual freedom and rational consumers, these are all tenets of Moral Philosophy. Hayek approached it as a lawyer, read his Constitution of Liberty and see Lawyer writ through. The real curse in Economics is the Bored Physicist who thought he could model Brownian Motion based on Gas Diffusion and make it Predictive.

Economics is NOT a Science it has too many variables and too much interaction with the data, which is imperfectly measured anyway. Most Economic Data is bullshit because it is skewed to obtain a result and policy objective. The whole Western Culture is based on "selling the sizzle not the steak" and has forgotten PRODUCT in favour of PROCESS. It has elevated glorified CPAs and Money Lenders to the status of Entrepreneurs by calling it Private Equity instead of Loan-Sharking.

The System is Marxist because modern Western Society is Marxist, that was the triumph of the 1939-45 War to create the Hegemon of State Interference in Economic Life that had started in the 1914-1918 War with Germany's State Controlled Economy under Warlord Ludendorff.


Tue, 02/14/2012 - 09:41 | 2156984 Sean7k
Sean7k's picture

So, the study of economics stopped with Smith and Hume? That is the same as saying the study of science stopped with Galileo and Newton.

"Science" is hardly reliable, as it changes on a regular basis. All change in the sciences reflect our inperfect knowledge and the testing of new theories, that further that knowledge. Will not a unified field theory rewrite physics? 

Economics is no different. However, economics requires a method outside of mathematics, as mathematics requires stasis to get good results. There is little stability in human action. This is the foundation of praxeology and the best means for the testing of economic theory.

Tue, 02/14/2012 - 10:11 | 2157105 Sandmann
Sandmann's picture

Oh Sean you must have a limited grasp. I had not realised you wanted me to reproduce the whole Tree of Economic Thought from the front of Samuelson. Sorry, abject apologies - I forget how few people can grasp conceptual thought. Economics did not exist for Smith and Hume and probably only began with Ricardo and Marx and Pigou....but I thought you might grasp the concept of MORAL Philiosophy rather than continues to write about "Sciences" which is completely INAPPLICABLE to Economics.......which requires MORAL choices and is incompatible with selling people CDOs, CMOs, CDS and shorting portfolios they have been sold. It also makes The Gold Standard more an anchor than Quantitative Easing.......but if you think Wiener Series Equations are the way forward, take a bow and look around

Tue, 02/14/2012 - 11:19 | 2157336 GeneMarchbanks
GeneMarchbanks's picture

There is no MORAL 'philosophy' or constraints only "market" NIHILISM which is a replacement for religious belief in today's Western world. At least in the Anglo-sphere.

'..but I thought you might grasp the concept of MORAL Philiosophy rather than continues to write about "Sciences" which is completely INAPPLICABLE to Economics.......'

Very few people, even here, can grasp this. It only makes for incredibly deluded individuals and terrible confusion for the general population who wishes to participate in the discussion. If creditmoney is faith-based, how can anything in physics be of use?

Confusion is profitable, it's not by mistake banking wishes to operate this way, hence "Shadow" banking, "Dark" pools etc etc

Tue, 02/14/2012 - 15:57 | 2158669 Sean7k
Sean7k's picture

Funny Sandmann,

Economics existed for the Greeks. The Salamanca School in Spain furthered the study long before Smith. The same Smith that borrowed so heavily from Say and Contillion.

Your ignorance of scientific methodology in Economics does not mean it doesn't exist. Your use of moral choices further demonstrates your naivete. Your failure to respond to my comment regarding all sciences and their limitations illustrates your limited grasp of conceptual thinking. 

Your condescension is typical of the poorly educated, who actually think it bolsters their arguments. You have showed nothing to demonstrate that economics is not a science outside of your opinion and based on your writing, that is a very poor defense indeed. 

Tue, 02/14/2012 - 10:46 | 2157231 Variance Doc
Variance Doc's picture

Yeah, science is unreliable.  STFU.  Come back when you know more than nothing.

Are Newton's laws invalid?  No, they need some modification when dealing with the very large and small (e.g. velocity and subatomic dimensions).  They do work very, very well for things in between; just ask the boys at NASA when they sent their shit out into space.

Economics is NOT a science, because there is no experiment.  Science is a hypothesis supported with experimental evidence (data), which yields a theory.  The laws of physics, etc. (theories) have held up very well against all types of experiments - long before your dumb ass showed up.

Tue, 02/14/2012 - 16:10 | 2158737 Sean7k
Sean7k's picture

Fine, explain bridge failures. Explain walkways that collapse. Roofs on buildings. Explain how Stephen Hawking can come out with a new book and say how wrong he was about black holes. Explain any thousand of things that have been modified and changed over the centuries. If Newton's laws need modification- they are not correct except as a subset of the universal whole.

Every one in the hard sciences thinks they know it all. Tell that to the pioneers that were told xrays would cure cancer. Try and get the raw data to finish the scientific proof for GMO's. Never was supplied, but science has proclaimed them good.

STFU. Come back when you know more than the little world of science that has become your religion. I never said science was unreliable, I said, economics is no more unreliable than any other science.

Economics sets up expeiments all the time. They test hypothesis and collect data. They come to conclusions and have the raw data verified. Just because you lack knowledge of something does not defy its' existence. Science is a series of discoveries, built upon past knowledge. Some of that knowledge is proven wrong and dismissed. This is the process of progress. 

 

Tue, 02/14/2012 - 11:05 | 2157304 NorthPole
NorthPole's picture

'Science' is when you can set up a controlled, repeatable experiment that other teams can replicate. Now ask yourself if you can do such a thing in economics.

Tue, 02/14/2012 - 11:48 | 2157445 tony bonn
tony bonn's picture

statist economic theories are not about discovering the economic truth but about giving statist/totalitarian politicians a cover for their destructive economic policies...

if you can't dazzle them with brilliance baffle them with bullshit...

Tue, 02/14/2012 - 13:40 | 2158022 TheBillMan
TheBillMan's picture

Of course, as a statistical modeler, I could say that their model was wrong/simplistic to begin with.  That's the problem with modeling correlations particularly when we believe there is a causal relationship.  Regression models are designed to measure relationships, not causal direction.  The causal direction is inferred using assumption or theory.  Then there is the whole issue with time varying correlation structure, something the Wall Street types forgot about when measuring levered up portfolio risk.  Dumbasses.  I don't see a lot of economists talking about this either.  Whatever.  I'm just glad I got out of the whole financial racket years ago.

Tue, 02/14/2012 - 13:57 | 2158087 jmc8888
jmc8888's picture

The funny thing is, this should really be common knowledge for anyone that sniffs economics.  Probably the first thing taught, or better yet, the thing that is taught to discredit the need for teaching the rest of the crap. 

Sure it is obvious to some early on, and then they usually choose not to become an 'economist'.  So for decades you had a self selective process where only the greatest idiots actually bought into this crap.   But why would such a setup be necessary?  Because it enriched the oligarchy.  Because it funneled to them the 'best and brightest' to do their bidding.  Monetarism is an ideology of oligarchy (doesn't matter what form or school, they ALL benefit the oligarchy...just some more than others).

This was the scam.  Get everybody to believe in the 'science' of monetarism, and control the world through the applicable string this belief created.  Pure Aristotle bullshit.  Because if everyone believe's it....then it is truth. (which is why Aristotle was full of shit...if everyone believes bullshit is caviar, it's still bullshit, not caviar). 

Yes folks economics is nothing more than being the head of Groundhog day, determining whether the little fucker saw his shadow or not.  Then claiming it's a super secretive process you wouldn't understand, but it's real, and should have gotten a top tier school degree to understand.

It is definitely not a science.  Too bad the folly of statistics has now penetrated almost every 'scientist' in the world.  Therefore many of our scientists, aren't scientists, but guessers.  A bunch of useful idiots.  The reality in science, is gone, replaced by this bullshit. 

Then because this has been our way, living off of bullshit, instead of actually TRYING FOR ONCE to progress, since America has been in a physical economic depression since the Tet offensive....or 1968, people then wrongfully claim we can't technologically get past our current problems?  Sure we can, we've been spinning our fucking wheels for 40 years.  That's why we are at our limits.  We've bullshitted our 'margin of error' away.   How about actually doing some wealth creating projects and actually progress where our scientists engage in discovery instead of statistical indoctrination?   We're about to say we shouldn't try to do any science because our 'guessers' known as scientists in the corporatized, free trade, free for all fucktard lie didn't discover anything.  It's not like scientific discoveries are pieces of shit in your bed, which you can magically find by smell or touch.  Nope science isn't about your senses. Or we lie to ourselves and say 'there isn't any money'.  Which is another bullshit conception.  We can create credit for wealth creating projects. 

Fusion, Mag lev, space program, space, NAWAPA, desalnization.  These are projects that create wealth, increase supply, and can be done if we try.    Oh the wonders the human mind can conceive when the brain isn't shackled by monetarism, faux science, and false beliefs with self-limiting behaviors..

Glass-Steagall

(and you'll need to impeach Obama first)

Tue, 02/14/2012 - 14:25 | 2158193 stiler
stiler's picture

I would have to agree with GMB that "There is no MORAL 'philosophy' or constraints only "market" NIHILISM which is a replacement for religious belief in today's Western world."

Having past through the great falling away of the late 1800s and 1900s that Adam Smith knew nothing of, the great unwashed now worship skulls and WWE instead of being the great washed-in-the-Blood (of Jesus).

Which is not to say that God is irrelevant. The God of the Bible has a way of interrupting us @ very rude junctures.

Yet once more I shake not the earth only, but also heaven. And this word, Yet once more, signifies the removing of those things that are shaken, as of things that are made, that those things which cannot be shaken may remain. Wherefore we receive a Kingdom which cannot be moved.

Had anything shaken lately? What is, is made from things we cannot see.

Sun, 02/19/2012 - 21:03 | 2176327 q5251355
q5251355's picture

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Sun, 03/25/2012 - 17:48 | 2289108 lasvegaspersona
lasvegaspersona's picture

 the Fed embarks upon its real dual mission of making sure no large credit creators ever fail (money elasticity) while pushing investors into “risk” 

truer words....someone should tell Ben he has been caught cheatin'

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