Saturday, March 5, 2011

The Economy Stupid?

This phrase was coined by James Carville during Bill Clinton's campaign in 1992. Most pundits claimed it helped Clinton connect with those imperiled by the recession that was underway then, or not, as was later shown to be the case. It is still up for debate how much this helped, versus say a strong third party challenge from a certain peculiar Texan.

This begs the question today. Most who proffer this think the economy needs to be "fixed" by government intervention. Things like stimulating consumer demand or spending on infrastructure. The theory is that these create demand that gets the economic machinery moving. This is true, but typically true as a 5K vs a marathon, in other words it is short-lived and typically not sustainable. Like it or not, this is a tool that could be used, but like all tools, it should be only applied in the right application.

The ups and downs of a market economy are driven in part by two distinct types of disruption; Cyclical and Structural. Cyclical disruptions are driven by the business cycle. This cycle is constantly seeking, or oscillating around, a balance between supply and demand. Structural disruptions are driven by big changes in the structure of an economy. These are typically large shifts in supply and/or demand driven by technology, war, political shifts, or major behavioral shifts. I contend that government intervention may ease a cyclical disruption, but that it will aggravate a structural shift. So what was the 2008/2009 Recession and it's aftermath, cyclical or structural? What do you think about government policy shifts and their effect?

So following a "systems thinking" approach, we would approach these questions in a logical sequence;
  1. Determine the nature of the problem.
  2. Determine an application or technique to solve said problem.
  3. Execute application to solve problem.
  4. Test or analyze results.
  5. Verify and close, or modify plans and approaches and return to Step #2.
These steps will be subject of future posts where we'll explore these questions in the context of the current economic situation in the US. Hopefully lively and enlightened discussions will ensue.


  1. J--

    First, welcome to the babblesphere. I look forward to future postings. Engineering applied to politics? Good luck with that. ;-)

    Regarding your methodology above, for instance, would be an intriguing exercise in political engineering. For instance, economics is very much a semi-science (Jerry Pournelle would call it a "voodoo" science). It has numbers and statistics, to be sure, and can describe its specific field of study in general terms, but it cannot yet predict with any great certainty or generate many repeatable experiments because initial conditions are constantly changing. Politics is even worse, dealing as it does with micro- and macro-environments that are rather subjective.

    The above aside, let's say that the economy can be treated as a social engineering problem. This assumes a couple of things: that the people executing government "solutions" to economic problems want them "fixed" in a way that benefts the private sector. That's a big if.

    I'll be interested to see how you'd approach the problems I posited above. I have additional thoughts and theories about this topic, but I'll pause for now.



  2. Let me quote Ayn Rand in relation to government intervention versus free markets and Laissez Faire economics. "America's abundance was created not by public sacrifices to the common good, but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes. They did not starve the people to pay for America's industrialization. They gave the people better jobs, higher wages, and cheaper goods with every new machine they invented, with every scientific discovery or technological advance- and thus the whole country was moving forward and profiting, not suffering, every step of the way." It seems that we have lost our way when it comes to economic and individual freedom.

    Mike B