The Crisis and How to Deal with It

Panel Discussion

I guess I should comment.

Paul claims we had a housing crash people do not feel as wealthy. Oh, and a financial crash. Well, we have also had an oil crash, transportation crash, and likely a coming crash in government goods. Why does Paul mention Keynes, Keynes does not predict the sudden crash of multiple sectors. Schumpeter does.

Note, all of this was preceded by a housing bubble, an oil bubble, a government bubble, transportation bubble. Why did all these bubbles form and why did they all crash nearly simultaneously? Keynes does not explain that, except by animal spirits. More on animal spirits later.

If Keynes and his theory only have a vague idea, as John Quiggin says:

"(rational optimization in competitive markets) can produce large changes in macroeconomic outcomes. "

why did we spend hundreds of millions in research to get from Keynes who made none of these predictions to this?

No, Paul. I am not someone who claims deep insight, I am someone who simply searches the Wiki for mathematical models that describe what Shumpeter seems to have predicted. I do not have the desire or need to try and justify Keynes to fit the facts. I have Wiki, its explanation of various mathematical models and an array of economists over 200 years, one of whom might just have predicted the simultaneous destructive recombination of multiple sectors.

Quantum mechanical theory will win this debate, in light of the rapid communications network which makes coherence obvious.

Scott Sumner says the immediate preceding event to these depressions is monetary policy mismatch. Scott got me on the right track, the key, as I paraphrase him, is that monetary events are always and every coinciding with sudden changes in aggregate GDP, and I think him for clearing that up. But Scott says it is the failure of monetary policy to understand events and react. Not so fast. Monetary policy is always just behind the curve, a little behind, not simultaneous. Monetary systems adapts fast, but they adapt just like any other good, that is the key.

So, we have a solution for today's depression, and yesterday's and 1870, and on and on and on, quantum adjustments to the structure of the economy.

Scott would want to stop the theory at money, not me.

If quantum mechanics models disruptive change, then what describes the when and where of technology shock that start the process. For, under coherence, there is nothing that can change things except an external shock.

That brings us back to Keynes, the one contribution in his career, we are animals.

Animals change their mind when they receive a rapid expansion of information about their environment. They change their long term models of where things are and how they move. They changed their mind when commercial radio suddenly appeared in 1928. They change their mind when international telegraph suddenly connected Europe and America in 1870. And when animals discover a whole lot more about where the goods are, they get a transportation constraint, the leading edge of disruptive recombination.

Scott needs to ask, why did important events suddenly appear in 1928? Because all across Europe the sudden realization by everyone that they could use radio for greater efficiency, and that resulted in a cascade of changed outlook. Just as today, he Internet opens a wider world of where goods are, our model of how things move changed.

So, to answer the question, what to do about it. Follow the disruption backwards, and solve each constraint, each bubble with innovation. Do not hold anything back, get on the backs of local governments and tell them, try new ideas, try new technologies, drag those inventions out of the lab, push change onto the government unions.

Try again Paul.