Network theory works, DSGE fails

Here is Stiglitz complaining that the economy does not follow his theory:

A busted bubble led to a massive Keynesian stimulus that averted a much deeper recession, but that also fueled substantial budget deficits. The response – massive spending cuts – ensures that unacceptably high levels of unemployment (a vast waste of resources and an oversupply of suffering) will continue, possibly for years.

Yes, did this under Clinton also if I remember. Information theory tells me that we will encode the process and do it more efficiently each time.

The European Union has finally committed itself to helping its financially distressed members.

Network theory says the most efficient result is to have German middle class pay for the bailouts.  The German middle class would prefer to requantize their government.

But, even as Europe’s leaders promised that help was on the way, they doubled down on the belief that non-crisis countries must cut spending. The resulting austerity will hinder Europe’s growth, and thus that of its most distressed economies: after all, nothing would help Greece more than robust growth in its trading partners. And low growth will hurt tax revenues, undermining the proclaimed goal of fiscal consolidation.

At some point the creditor nations have to accept their losses on prior bailouts and get on with business. Channel theory says Germany is more interested in the export drummer, the source of the bailout capital.

This episode serves as a reminder that central banks are political institutions, with a political agenda, and that independent central banks tend to be captured (at least “cognitively”) by the banks that they are supposed to regulate.

Chanel guys say central banks have low mutual entropy with the main economy. As a result they accommodate too many transactions in too little available bandwidth.

Why is all this happening to North Atlantic?
They have been hit by information technology, there is little we do that other countries cannot learn on their smart phones. Their comparative advantage in energy purchases is gone. This convergence of the developing via information technology really started in the 70s, and causes a series of bailouts and payment schemes for the dis-affected.  The discretion left for Congress has progressively dropped, in large chunks, as seen in the flattening of the yield curve since 1980.

The terms of trade changed suddenly, mainly for the USA, due to a need to maintain economies of scale and minimize redundancy. The trade channel has to be recoded, not necessarily in favor of the USA.

The stimulus causes all the screwed up side effects because it tried to forestall the change after the change had begun.

The main terms of trade that got changed is oil, making energy and energy efficient machines  the high multiplier.