Monetary Madness

You can't control a helicopter with just an accelerator. And yet economists and governments think that you can control a complex and multifaceted economy with just monetary policy, the variation in interest rates, the equivalent of an accelerator and brake.

Real economies have many dimensions. Each different facet of the economy has its own fluctuations and cycles which are independent of the others. To control such a multifaceted economy requires at least on instrument of control for every different component of the economy. In the case of the New Zealand (where I live) economy there is a prominent fluctuation related to the grouping of housing construction / net immigration / exchange rate. The fluctuations of this group are very substantial with consequent suffering in the building and related industries and indeed in all industries due to exchange rate extremes. An additional implement that could be used to control the wild swings in this sector would be to limit net immigration to some maximum. Those that really wanted to immigrate would still be able to a little later. No controls would be placed on citizens movement. The result would be to reduce extremes in exchange rates and in housing construction.

There are many other sectors of the economy that have fluctuations different to the monetary sector. These will vary from country to country and region to region. Finding suitable instruments, different sectors may be controlled.

However ultimately governments do need to accept that they cannot actually fully control events. When, as recently, they find that things went wrong, they do need to learn that throwing trillions of dollars away is actually a quite irrational reaction to what happened. Doing nothing would be preferable.

Category:

Education

Tags:

• raytomes
• monetary
• madness
• keynes
• keynesian
• economics
• policy
• cycles
• control
• government
• economists
• housing
• exchange
• rates
• migration
• immigration

[essmatl]

artynz wrote "I am surprised that no-one has realized this before."

Mayhap someone did, but had no voice. Mass media simply reports orthodoxy. YouTube, Google video, and the like, allow the unorthodox to be heard. That is what has been changed by the Internet.

I believe my fixed-income financial future is doomed, as I believe hyperinflation is a likely possibility on the reverse swing of the economic pendulum.

[artynz]

Essmatl, I agree that internet has allowed people to speak on things like never before. We don't know how long it will last with a small number of companies buying up everything.

Although there will be some follow on from the present crisis, I don't believe that we are in a situation that is anything like the great depression as some people think. The medium term outlook is good I think.

[shrunkensimon]

Ray, i agree with what the other two posters have put, although i would say it is more like they are pushing the swing as you described it, at correct moments. This amounts to conspiracy, and it is undeniable IMHO.

You can't fully control the economy. Its a organic system. However, if you control media, industry and the education system, you don't need to be able to control the economy 100% to create the illusions you wish.

[artynz]

These remarks would be more relevant to the video I posted the day before this one, dealing with the financial crisis.

I agree that you cannot fully control the economy. This video is aimed at explaining that you cannot achieve much of use to anyone with moneterism as a matter of mathematical and scientific fact. I am surprised that no-one has realized this before.

[Esoparagon]

Destroy wealth creation for the sake of a flatter graph. It's not worth it. The economy doesn't need to be controlled. It's megalomaniacal and authoritarian to want to control it.

[justnotcricket]

I wish you were my grandad :)

Anyway, we have a property bust every 15/17 years over here. Having grown up during the madness that is a property bubble, has impressed upon me the seeds of the idea that 'free markets' are a politically constructed nonsense...

...which leads me to ask: what makes you think policy makers want economic stability, let alone think it a virtue?

[junior00bacon00chee]

So I believe that if the economies of the world were actually aloud to develop under the prevailing condition of human freedom, that population levels would initially increase rapidly in underdeveloped areas but then level off the as the global standard of living tended to equalize and increase for everyone.

Under oppressive centralized regimes capital accumulation becomes capital destruction, and w/o savings they lack the means to actually raise their standard of living.

[junior00bacon00chee]

As long as there are no forced barriers to entry on markets, the profit margins will tend to diminsh towards zero (but never reach it) as more entrepreurs shift capital towards food production and away from other areas. So, the increased production as a response to demand will put a downward pressure back on the prices.

What we see today is that population levels actually level off and become slightly negative in developed countries, as far as i understand.

[junior00bacon00chee]

Productive capacity increases thanks to the global division of labor, capital accumulation (savings), and technological advancements.

As the population grows the demand for scarce food increases, and, all things being equal, puts an upward pressure on food prices, which incentivizes greater food production (b/c of the higher profit margins).

[artynz]

I don't see any reason why scarcity should decrease. Population rises and resources shrink. Malthus worked this all out centuries ago. But no-one wants to know. Everyone expects endless economic growth. Long term that is distastrous.

I agree that centralized (attempts at) control of markets leads to all manner of problems.

[junior00bacon00chee]

Oscillations in price are the inevitable result of living in a dynamic world. Over longer timescales however the overall trend should be for prices to decrease as the scarcity of goods decreases relative to the money supply. The large oscillations are the result of the controllers distorting the market by manipulating certain prices, such as the interest rate (which means supply and demand can get moreso out of synch).

Centralized control of markets leads to economic chaos and depotism.

[junior00bacon00chee]

I am convinced that economics cannot possibly be a natural science (and is rather a logical science like mathematics or geometry). This is because the degree to which people value things cannot be measured in any objective way (experience is private). Since a natural science requires objective measurement, economics cannot be a natural science.

Rather, the entire corpus of economic science can actually be deduced from a single axiom (and one postulate).