Krugman resurrects the dead Economist, again

Let us review Quantum Mechanical economic theory and deflation/inflation.

In QM Theory we deal with the finite length of the productions chain. The finite dimensionality of production is reflected in the monetary yield curve as defined with a finite set of term, estimation periods, on the yield curve. We can only support a small number of term points of the curve.

Deflation is what happens when the economy reduces the length the distribution chains, and the yield curve reduces the number of investment terms. The reduction in rank is greater than required for the underlying technology because our choices are quantized between N and N-1.

Inflation is when the finite terms of investment is greater than can be supported by the underlying technology. We have a greater length of the production chains than is needed, because we are quantized to choose between N and N+1 for queue length.

We use the mathematical concept of a multi-stage queue to model the phenomena. Inversion in the yield curve occur because some inventories have to go to zero if we restructure the inventory queue. The zero bound in inventories causes the yield curve to have a momentary zero in its spectrum, which we see as an inverted yield curve.

The inventory queue is distorted when fat tail effects happen, like right now. The upper part of the yield is inflated the lower part deflated. What happened to demand? We will see new demand rise when the yield curve goes through a complete inversion, the upper part of the curve has to deflate.

All of this theory comes about because humans are at least endowed with a constant desired level of certainty, neither more or less. This endowment results in minimizing the interference of the terms across the yield curve. Investment terms have to be separated and numerated to minimize the interference between certainty bands across the yield.

Demand is there, but we cannot see the new demand because of measurement interference in the inflated part of the yield curve. From a path point of view, the problem is backing down one path so we may take the better path. Deflate to maximize observation, then re-inflate with better observation.

The technology in question is transportation during the larger deflations, transportation is undergoing restructuring and inevitably local and state governments are reluctant and try to continue to inflate. So we have contradictions, like Norma Mineta, the worst traffic planner in history, having a wonderful transportation research group named after him. Like Obama hailing from Chicago with the worst rail freight congestion in the nation, now pushing High Speed Passenger Rail. Finance, Fed and Treasury all trying to restore Humpty Dumpty. These large institutions occupy the fat part of the tail, and their monopoly power is draining as they are the last to capitulate.

What cures the recession is enough deflation such that economic agents can see what is happening, then the agents can choose a better path. Remember, for each "rank" change in the queue, all term points have to readjust, we get economic wide adjustment.

Take Keynes scalar view. Make it a vector. Add minimum variance estimation techniques. Accept a finite dimensionality and constant uncertainty. Add a biological bias toward collective action. Then you have the chain of economic thought from 1920 to 2010. An asymmetric, finite dimensioned, quantum mechanical system.