Tuesday, March 30, 2010

Is the Business Cycle a Result of Economic Napoleon Syndrome?

There is a well known reasoning to why some young men* insist on driving REALLY big trucks (this I won't further explain for obvious reasons). However, the point of this illustration is to compare this occurrence to Thornton's theory so play along here. Have you ever found your self screaming, biting off your tongue, or saying some thing way out of character along with matching hand gestures because you found your self cut off or nearly ran over by the stereo-typical young dude with a heme. As angry as you are in the moment you fail to think about the long term effects that this individual will face due to the fact that they think they are bullet proof. This individual most likely pays more than you do for their car (BIG truck) insurance and they are more likely to have a shorter life span as well. If anything the delusional assumption that they are on top of the world will serve to be their tragic flaw and there status will tumble and fall. Like the Greek master playwrights wove into their tales it's typically a charters hubris which serve to be the reasoning for their very demise.

But, can this apply to Economic systems? Can the modern towers of babble give us a hint to the next economic down turn? As far fetched as this seems if you look at it as a logic problem it seems to make sense. After all this what many grandmas and Disney movies warn us about and this humility stuff is supposed to be rather important. The golden rule of Karma would also validate Thornton's "Skyscrapers and Business Cycles" theory. However for me the "gut feeling" response to this thesis is skepticism this source of skepticism comes from the reasoning as to why Economists are often compared to Nostradamus; the whole well "the guy is right but he's made so many predictions he had to be right sometime thing". For Thorton this lies in the fact that his thesis seems to be one that is subjective sounding. To put it simply I refuse to fall down Thorton's rabbit hole without looking at his data, but at the sametime my life experience with the human nature and the consequences of dudes with big trucks makes me want to think his theory is true.

On a whole other thread ("hand signal raised hand") this podcast lead me on my own search and this also is probably another reason as to why I am reluctant to fully accept Thorton's presented thesis. This exploration involved a Wikipedia search (oh, how academic I know ;-) of the individual Irving Fisher. Thorton mentions Fisher and his name stuck out in my mind as if you take upper division ECON you are presented with the Fisher Equation. He mentions Fisher and his view of "perpetual prosperity" and how most economists like Fisher were totally unaware of the upcoming Great Depression except our Austrian friend Hayek. He presented the situation like ok there were the Keynesians in 1929 who were like "the Economy is fly!!! rock on!!!! Party like it's 1929!!!! invest in the stock market and build large buildings!!!!" and the lone Austrian who was trying to check in to a hotel but no one knew his name however he was right in the end. Basically the presentation that these are the only two groups and it almost works but...FISHER WASN'T KEYNESIAN (like former presidents Bush I and Bush II he was a member of the Skull and Bones but that's another story...) he is considered to be one of the first Neoclassical American Economics and much of his work was ignored while Keynes's stuff was getting praised. In fact even though Fisher was discredited by his lack observance in predicting the Great Depression he came up with a lot of theories which must be important as I recognize them from my Macroecon class (involving the quat. theory of money MV=PT and yep that it's related to the equation of exchange not to mention the Fisher equation which recognizes the diff. between real and nominal interest rates). Not that Fisher's views were always on par besides the GD mess up (he was in favor of Prohibition and thought that he could rid his daughter of schizophrenia by having sections of her bowel and colon removed (in anything I can come to the conclusion that people believe in very strange things)).

The point is that as far as schools of economics go it's not always the way we paint the picture. There are more different views and schools of thought in the Economics world than just the Keynesian and the Austrian. Sure, these can be closer or further to one of these ideologies but it's not black and white of course there's always shades of gray and perhaps this is why my gut feeling is reluctant to agree that yes the Business Cycle is simply a result of a Napoleon syndrome between countries and it can be measured by how tall they build their buildings.


remember :-) it's handy and keeps out the riff raff.

(*My Dad is very good at picking these guys out of a crowd and telling me "Camilla never date a guy like that, you see what he's doing...no respect...sigh"

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