Monday, May 25, 2009

Classicals vs Quantums in economic theory, comment

This distinction between the two groups will never disappear. I have hard time distinguishing the differences among economists because they often switch between the two models.

But, the central difference between the two is whether they assume measurement uncertainty is the agent is small relative to the returns to scale. When the measurement uncertainty is small, then the supply chains will have more stages in production, they have larger numbers of measurable eigenfunctions, the number of eigenfunctions being best estimated in the real economy by the number of terms points in the financial yield curve.

When the estimation uncertainty is large, then the number of eigenfunctionsts in the yield curve is small. Quantum theory will show this using multi-stage queuing theory for multiple goods under conditions of coherency.

Under the assumption of small uncertainty the perturbations of the economy about equilibrium can be considered smooth, even though each price change and inventory adjustments are quantized still.

The difference between depression economics and normal economics, as Krugman calls it, is the difference between when the smooth assumption holds and when it does not.

Incoherence in the economy results when a technological shock creates a difference in the natural eigenset in one or more sectors of distribution. The macro economy is no longer operating from the same set of eigenfunctions, and incoherence is demonstrated by bubbles as the economy re-establishes the proper, and natural set of eigenfunctions on the yield curves.

The bubble economy is executing a sort of Ramsey equilibrium process, and that process often ends up with the supply chain that maintains the largest lot sizes in its economies of scale, like IBM, GM, or the government. During readjustment back to the proper eigenfunction set, the process starts with sectors that have the greatest economies of scale, the largest lot sizes.

So the answer is, stop, they are both right. One being a very efficient estimator of price adaption near equilibrium, the other being seen by us as a restructuring by Ramsey Theory.

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