Friday, February 25, 2011

An economist making the Keynesian error

In both cases, the fiscal and monetary authorities should be asking themselves whether they've overestimated the performance of these economies and their ability to handle big, and largely unnecessary, short-term budget cuts. Ryan Avent of Free Exchange
He is talking about the downward revision of GDP that was just released in which fourth quarter GDP is now 2.8%, a meager showing. The revisions reflect quantization error, we cannot measure things with the same accuracy as before because the network rank is reduced, we have a smaller set of transaction rates. Hence, no successful search to sustainable patterns of trade (Kling), less netork density (Hidalfo-hausmann), lower precision (me)

The cause of the quantization error is exactly Ryan Avents solution, central government is not adapting and  is holding the economy in a reduced rank position. Going back to Hidalgo and Hausman, once again, what do they say? GDP growth is based on the ability of the economy to expand variability in products. Channel theory tells us that the economy cannot raise rank because some major component of the economy is stuck in reduced rank, mainly central government. minimal redundancy is an apation toward channel coherence. Ryan's solution makes things worse, not better.

Note: One of the major causes of the downward revision was... local governments are going broke. The govenrment channel is top heavy, and local govenrments cannot find solutions.

We see these continual downward revisions because the Keynesians are measuring the aggregate and ignoring the heteroskedacity. As in Leonhardt, measuring total government employment and calling is small, then what happens?  When the revisions come out and examine the dispersion and notice less variability in the retail end of government.

Catherine Rampell and Leonhardt are repeating this error today an will repeat it tomorrow.  Keynesians are unable to correct their curricula. Keynes gave them a pretend theory that allows fake socialism.

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