Invisible hand blamed for financial crash

Market Failure for lack of regulation, Invisible hand blamed for financial crash and spiraling death of a star
An unregulated business cycle falls on a pattern of steep booms or expansion,growth and proportionally equivalent steep busts or contraction ,recession, that can lead to a deep depression, the recovery cycle being directly proportional to the size of the initial boom. The final result of the end cycle of the boom is a shift of market power balance, the rate of change in capital accumulation, a shift of purchasing power because of the shift of wealth ,a redistribution of wealth, a concentration of aggregate supply and financial assets in a few hands and an equally inverse diminishing of aggregate demand that is worsened during the bust by a shift in value, assets lost value, fall in real estate prices, salaries ,etc. lost value of Bank financial assets freezes Banks, that increases more the concentration of aggregate supply and financial assets and catastrophically worsened by a government supply sided financial bailout that increases even further the concentration of aggregate supply and financial assets therefore exterminating aggregate demand , creating a freezing or stagnation because the falling rate of profit begins at the lower end of the market distribution chain therefore crashing distribution by finally exterminating aggregate supply also and eventually forcing government to finish the cycle according to the Eisenhower complex scheme or Spiraling death of a star. In order to avoid this a government demand sided approach should be used.
The problem is fictitious capital if it never existed and is the result of over valued assets because of a market manipulation by speculative gambling strategies that artificially inflated and drove up the price or value, inflating the bubble, you cant restore its original value unless you repeat the same cycle that pushed their false value during the boom.



welcome to EP richard

Blog posts need to be with more "meat". They need to be referenced, complete with links, graphs, statistics and they need to be in depth.

This is more of a comment or an Instapopulist.

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I am not an economist or

I am not an economist or mathematician, I am a theoretical logician ,who studies the structure of systems through rational theoretical and some but less empirical enquiry.
All systems whether the universe, our body, an ecosystem are primarily based on an economizing or maximizing principle , this is the reason for symmetrical principles for the purpose of complying with the essential principle of saving energy for the optimization of light transfer , systems that lack free will obviously have no creativity but a human system is restricted by the law of liberty, Gods commandments, without moral loyalty to justice the system fails. Any aberration will increase the consumption of energy by interfering with the transfer of light or energy.
An ecosystem depends on the transfer of light for energy any distortion of symmetry becomes an aberration that reduces the maximizing or economizing principle, fermats principle of least time, a distortion would change the ratio between the angle of reflection and the angle of incidence therefore wasting energy.

1. principle of equality or symmetry of form, polar or static opposites,spherical aberration

2. principle of equity or symmetry of force, dynamic opposites, off axis aberration

3. principle of synchronization or symmetry of period, non linear dynamic opposites, chromatic aberration

4. principle of liberty or optimization, regulation

In order for real progress or evolution a system needs to follow a vision of optimization, if the system is leaded by the same wrong values it continually falls in the same cycles or mistakes and history continues repeating itself.
There was the true Light which, coming into the world, enlightens every man”

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Richard Campos

well, EP is an economics site

it's economics and it's specifics. We're not much into philosophy here or vague abstractions. We like facts, statistics and details.

While one can conceptually describe a time machine through abstract "analysis".....making one that works is a whole other matter.

We like to focus on what can actually work.

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axiomatic truth

Principle´s of complex systems are axiomatic truths,laws of the universe, structural foundaton is self evident truth
and part of a coherent theory of truth or theory of all theories.

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Richard Campos

E=MC(2) and....

We indeed write, C+I+G+X-M= GDP and even use

labor model equation

and I will assuredly add LaTex if others wish to use it.

That said, words so vague that one must parse the vagueness to see the fog are concepts that assuredly need to be blown back to planet Earth.

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Ricardian equivalence is an ideal state that assumes proportional distribution of income and savings and proportional growth of income and savings which is the case for a natural system of energy distribution without free will , like plants or animals. In an ideal state you wouldn’t need a stimulus because you wouldn’t have a depression. But in our real state of disproportional distribution a lower percentage has savings capacity and the majority doesn’t have savings capacity therefore government demand sided spending stimulates the economy because the majority spends the money instead of saving. In a free will system in order to keep equilibrium and avoid chaos you have to regulate distribution of income by keeping a relationship between the lower bracket and the upper bracket avoiding dispertion that would collapse the critical angle of consumption-production, like the critical angle of a light beam,fermats principle of least time or the critical angle that supports the wing of aircraft, bernoullis principle . The critical angle allows for the proportional difference of potential that,transmits light, that supports an aircraft wing in flight and the adequate difference of potential that allows for consumption to breed production. .A supply sided tax cut widens the critical angle in favor of an inverted pyramid during a recession would not be an incentive for investment because of the falling rate of profit and would concentrate income even further on the top income bracket who have greater savings ability on the contrary stimulating aggregate demand by government spending transfers liquidity to the consumers who spend all their income because they have no savings potential. Therefore driving the difference of potential for production of goods. Market power or purchasing power of the majority of consumers pushes production. A Potential Difference in favor of consumer purchasing power is what keeps the equilibrium of growth and avoids the collapse of the system because consumer purchasing power is the base of the pyramid and a greater amount of money at the base generates the difference of potential necessary to push the motor of the system, just like the difference of pressure that lifts an aircraft in the air.

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Richard Campos

We like to focus on what can actually work.

And a large part of what this site has pointed out to me is that the axiomatic assumptions of the free market system, save one, don't work.

That one: the law of supply and demand as a limit.

The rest, seem to be based on wishful thinking more than actual math.

Moral hazards would not exist in a system designed to eliminate fraud.

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Maximum jobs, not maximum profits.

Rant: It is freedom and democracy

that fosters innovation and supports creativity not American capitalism.

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this would make an exceptional blog post/article

To see the correlation to major innovation and the size of the middle classes, social mobility, support for innovation.

A lot of innovation begets more innovation. In other words electricity and it's properties spawned a host of innovations, the car, the transistor, we can go through a list of things ...but somewhere someone was given support and enabled to do that initial research, investment.

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I think its a troika of the three

You can remove one of the three to get innovation, the question becomes then of the quality and rate of such endeavors. Between democracy, freedom and capitalism. that's the right concoction where you get things really moving. But like I said, it is possible to get innovation removing one, just would you get the same stuff or less by removing one of the legs of this three legged stool? Reward for such strides towards innovation are also asked under each scenario.

This was my problem with the libertarians who constantly scream "freedom" or "liberty."  Yet what do they mean by that?  Pure freedom as having the ability to do whatever you want?  The term "Democracy" has been bandied about to mean all sorts of things from voting rights to putting workers in control of a company.  I would like some clarification here by the definition being used for Democracy.  But still, it's the weekend, I just got home from a nice wedding and feeling to get the juices flowing.

Lets start with democracy. Now I'm assuming here you mean a real pluralistic voting environment where the average person can choose whom to vote for.  Well, you have countries like Singapore which had essentially a one-party state under Lee Kwan Yu.  There is also the Peoples Republic of China, Korea under the military juntas, Nazi Germany, the list goes on and on.  But in each situation, you had companies or folks coming up with new products or innovations on established ones.  Still, were they able to reap the fruits of their labor?  In many instances, surprisingly yes, one could make money or get a better home.  So long as you don't challenge the party in power, they don't care (see the PRC).  Of course we then get to the next leg, Freedom.

Freedom, I'm speculating here (and please correct me if I'm wrong) meaning civil rights like freedom of movement, speech, etc.  Well once more, you have instances where innovation has come even with the removal of freedom.  Scientists, in the past and especially those deemed "enemies of the state" held in capitivity, created things for their overseers.  The Russians used captured Nazi scientists, after the war and still under the "protection" of the KGB (or was it still called the NKVD??) to advance the USSR's rocket program.  The scientists working on North Korea's rocket program have neither Democracy nor Freedom, yet they are on the cusp of launching the Taipong Dong 2 missile into orbit.  In the Peoples Republic of China, one does not have many of the freedoms we take for granted, yet you have many new products coming out of that place (not to mention newly minted billionaires!).

This brings us to the last leg, capitalism. Now let me get classical here and go with it meaning a market based system where one is financially compensated for services rendered or products produced. Or for this argument, are those innovating getting paid or getting a piece of the action?  Many scientists or have come up with products we use every day either also been entrapaneurs who started up businesses selling us those products, or employees in research & development for a company.  Now they could get a royalty, but many don't, they just get a pay check and hopefully a bonus.  But what if we removed financial compensation from this?  Would we get innovation?

The average tinkerer may not be thinking about money when they're designing that gadget in their garage.  Indeed, you've had many where the science of the product and not the economics were more important.  But still, that inventor who had spent years in his garage or basement coming up with something, when they finished and showed it to a friend who said "that's cool, I'd definantly would use it" was probably thinking $$$ soon afterwards.  But say we lived in a system where you invented something and the state just took it and at most all you got was a plaque commemorating your discovery, but then the state took your thing and made money off of it.  The incentive may not be so great to come up with something.

Still, you have had inventors where it was not the money.  During times of war you have had engineers come up with rifles or bombs while working for their armies.  Sergei Simonov was one who helped come up with new guns for the Red Army during WW2. There was no financial incentive here, nor could he hope after the war for royalties.   But nevermind war items, in centrally-planned economies where free markets are discouraged, you've had scientists coming up with products.  In the former Eastern Bloc, because not all Western technology could be easily procured, scientists had to come up with ways to reverse engineer much of the technology, like a CMOS memory chip.  East Germany had companies like VEB Robotron who routinely came up with products.

Of course we're leaving out the big economic white elephant in this discussion.  Innovation does not come cheap.  Whether it is a tinkerer in the garage utilizing his time and money, or a centrally-planned Industrierverband Fahrzeugbau, you can't ignore costs.  To me this where the capitalism part really comes in, because in such systems you need the money to continue with research or even operate the enterprise.  You can plan, of course, in a centrally-planned system, but variables can change.  Set the price all you want on a commodity with a finite resource, but eventually pressure will build and costs will have to go up.  The German Democratic Republic (GDR), like many of their Socialist bretheren, used to eat up a lot of the costs up front to maintain the appearance of stable prices.  But we all saw what happened in the long run.  In the end you need a market to better guage price/costs or things will get out of control. 

So could you have innovation without Democracy or Freedom or Capitalism?  The answer is yes, but the costs are in this author's opinion, too high. 

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Point of clarification

You have to understand when I made this comment I was still angry from the night before when I spent most of the evening at a dinner party debating (more like arguing) with several market fundamentalists who expounded upon the greatness of capitalism. Funny though the capitalism they talked about was "American capitalism". Certainly not a classical form of capitalism. I believe there is a big difference especially considering current events.

After having the benefit of a day and two final four games to think about what I ranted about I believe it is still true. I don't disagree with your last statement. But what I am saying is to foster innovation to grow and to increase innovation to have new innovation on continuous basis- freedom and democracy play a much bigger role than "American capitalism".

I welcome the various examples that you offered and I admit I am not well versed about military systems. However, and correct me if I am wrong, the examples you cited with innovation in weapons systems were limited and still behind the U.S. Or maybe it was luck that Wernher von Braun came to U.S. instead of the Soviet Union. I don't know. Even with the concept of reverse engineering in East Germany maybe that was all they were capable of doing and not developing the initial technology or innovation.

I am going to examine my rant more closely and try and provide support from it. But, thank you for providing reason and rationality in my time of anger.

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Market fundamentalism has

Market fundamentalism has proven itself to be a failure as has pure Ayn Rand/Adam Smith thought. Markets do not automatically self-correct, and for all its instinctive natural power, pure self-interest (and the invisible hand) ultimately lead to these imbalances. Hence, total de-regulation and/or laissez-faire are inept ideo-theorems. The conservative revisionists are now trying to explain away the fact that all the Reagan Revolution did was to get rid of "excessive" over-regulation. Yes, explain this to Phil Gramm & Co. that axed Glass-Steagall, among others.
Conservative revisionism is shallow at best and views economic history according to cycles rather than progression. Consider the fact that today there are fewer major global oil companies, not more. A cyclical validity would suggest a contrary to this progressive economic concentration.

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cyclical repetition

Richard Campos
In order for real progress or evolution a system needs to follow a vision of optimization,if the system is leaded by the same wrong values it continually falls in the same cycles or mistakes and history continues repeating itself.

You must have Javascript enabled to use this form.

Richard Campos