The 2011 Economics: Part One

Commentary on the 2008 and 2009 stimulus program.

In February 27, 2007 John Taylor wrote a op-ed for the New York Times justifying sending 360 tons of US currency in small bills to Iraq to assure US control of the Iraq government by bolstering the war torn economy. The value of the currency was $1.7 billion. And yes that was 720,000 pounds. The op-ed was written as the American public started to figure out that that the war in Iraq was about oil.

Who is John Taylor? John Taylor is a Professor of Economics at Stanford, a student of Milton Freidman, and a advisor to many conservative Republican congressman, especially the younger tea party Republican members. John Taylor is a prolific writer and on his web site he has a list of his writings. He also has a blog http://www.johnbtaylorsblog.blogspot.com/, which is a good read.

While much if not all of what he writs would be right on, if people reacting to economic situations were drones. His analysis is on the level of a sophomore Engineering student studying statics. The problem changes significantly when everything is in motion, with changing speed, direction and new factors are joining the equation. John Taylor says you can write economic rules to stabilize the economy. The problem with rules is some people believe a rule is really just a suggestion.

Looking at just two examples.

First the housing crisis. A well meaning George Bush promoted a campaign slogan, “the ownership society”. This immediately activated a loan industry and with incentives by banks to pay loan officers a commission for loans written. The number of houses built went up. The price of houses went up. This invited speculators in the market. It soon came to the point in 2007, a speculator would flib five or six houses a year and because of delayed first payment could own five or six houses. Builders were importing workers, legal and illegal to build houses to meet the demand for more houses. There were even commentators on TV saying that global warming would help house production by having a shorter winter season. Then along came 2008, and the crash began. John Taylor formula did not predict this. His creativity was now used making excuses.

Another problem of formula economics, is innovation. The other day Joan and I went to a concert in Minneapolis. We downloaded our tickets eliminating a printed ticket and a clerk to process our order. When we got to the parking ramp there was no attendant to receive payment. Just a station that dispensed a ticket. After the concert again no one to take payment. I put the ticket in the slot, I was asked by a recorded voice for my credit card, I put it in the slot, payment was approved and credit card returned. Two people without a job and I get to use $9.00 for another 20 to 30 days interest free. How does this fit into John Taylor’s formula’s?

Before I leave “Part one” of this Blog, I want to make one thing clear. I believe you can make economic forecasting with dynamic models. Using mathematical chaos theory, studying trends, probability and other methods. Part II of stimulus analysis coming soon.