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What Obama Does Not Know by Richard J. Maybury
I have read a few articles by Mr. Maybury, and found his writings very interesting. He has the ability to explain complex matters in a clear and simple to understand manner. In this quoted article, he suggests that the majority of the main stream economist and current administration have no idea of the economical conditions we are facing, and hence the solutions being proposed and implemented will no doubt fail at the end. The reasons being: 1. economics is not just money, labor, and goods. It is more of a human ecology, a vastly more complex system than most economicist would realize. 2. Most economicist would adhere to certain economics model(Keynesian, Monetarist, etc.), and hence limiting their understanding of matters in the real world. 3. Many economicist have misunderstanding of money demand/velocity.
I feel his explaination of money demand/velocity especially enlightening(well, at least for me
). He suggests that money velocity is mainly determined by human psychology, and hence, while it is easy to study the money supply(money base, M2, M3, etc.), it is extremely difficult to predict human behavior due to fear/emotion.
This quote is golden IMHO: "The biggest problem with velocity and money demand is they can turn 180 degrees overnight."
So, we are all attempting to study, understand, or better to foresee the inflation/deflation future and its timeline, with all kinds of data, charts, models, and theories. Ka-poon or not, when and how. We might miss the major turning points, if we ignore human psychology aspect of our economic/financial activities. Time to study Behavioral Economics?
Have any of you read his books? Are they good?
I have read a few articles by Mr. Maybury, and found his writings very interesting. He has the ability to explain complex matters in a clear and simple to understand manner. In this quoted article, he suggests that the majority of the main stream economist and current administration have no idea of the economical conditions we are facing, and hence the solutions being proposed and implemented will no doubt fail at the end. The reasons being: 1. economics is not just money, labor, and goods. It is more of a human ecology, a vastly more complex system than most economicist would realize. 2. Most economicist would adhere to certain economics model(Keynesian, Monetarist, etc.), and hence limiting their understanding of matters in the real world. 3. Many economicist have misunderstanding of money demand/velocity.
I feel his explaination of money demand/velocity especially enlightening(well, at least for me
). He suggests that money velocity is mainly determined by human psychology, and hence, while it is easy to study the money supply(money base, M2, M3, etc.), it is extremely difficult to predict human behavior due to fear/emotion. This quote is golden IMHO: "The biggest problem with velocity and money demand is they can turn 180 degrees overnight."
So, we are all attempting to study, understand, or better to foresee the inflation/deflation future and its timeline, with all kinds of data, charts, models, and theories. Ka-poon or not, when and how. We might miss the major turning points, if we ignore human psychology aspect of our economic/financial activities. Time to study Behavioral Economics?
Have any of you read his books? Are they good?
Velocity is the speed at which money changes hands. When demand for the money is high, money changes hands more slowly, and velocity is low.
When demand for the money is low, velocity is high.
A key point is that velocity and money supply can act as substitutes for each other. A 10% rise in velocity has the same effect as a 10% rise in money supply.
The biggest problem with velocity and money demand is they can turn 180 degrees overnight. If people trust the currency, and suddenly perceive some kind of big threat to their futures, money demand can shoot up.
That's exactly what happened last year. The supply of dollars certainly did not go down, but when the real estate crash happened, people became so frightened they were afraid to let go of their dollars.
Within a few days, money demand shot up, people stopped spending and held onto their dollars, and this had the same effect as an instantaneous deflation of the money supply.
If you don't spend your money, that's the same thing as taking it out of circulation.
This can instantly cause the equivalent of a sharp deflation of the money supply by 10 or 20 percent, or more.
..................
So, speaking economically, I think that is where we are now. Changes in money demand and velocity are running everything.
And, my key point is, it's all controlled by emotions. By fear.
What are you more afraid of? The dollar becoming worthless? Or losing your job and running out of dollars?
The whole world is constantly shifting back and forth between those two fears, so money demand bounces up and down like a yo-yo, and velocity — the speed at which the money changes hands — does, too.
These wild shifts in money demand and velocity have the same effect as massive, instantaneous shifts up and down in money supply. It's like we're having a huge inflation, then a deflation, every few hours — because our fears change every few hours — because the politicians have all this arbitrary power and we don't know what they're going to do to us!
Now, do you see why it is so important to see the economy not as a machine but as an ecology. Machines don't feel, they don't have fear, or joy, or optimism.
But people, biological organisms, do have feelings. They do fear, and their fears can change instantaneously.
The human ecology, especially these days, is driven very largely by emotions.
How are the politicians and bureaucrats who are playing God ever going to control, or fine tune, or repair, or speed up or slow down, our emotions?
When demand for the money is low, velocity is high.
A key point is that velocity and money supply can act as substitutes for each other. A 10% rise in velocity has the same effect as a 10% rise in money supply.
The biggest problem with velocity and money demand is they can turn 180 degrees overnight. If people trust the currency, and suddenly perceive some kind of big threat to their futures, money demand can shoot up.
That's exactly what happened last year. The supply of dollars certainly did not go down, but when the real estate crash happened, people became so frightened they were afraid to let go of their dollars.
Within a few days, money demand shot up, people stopped spending and held onto their dollars, and this had the same effect as an instantaneous deflation of the money supply.
If you don't spend your money, that's the same thing as taking it out of circulation.
This can instantly cause the equivalent of a sharp deflation of the money supply by 10 or 20 percent, or more.
..................
So, speaking economically, I think that is where we are now. Changes in money demand and velocity are running everything.
And, my key point is, it's all controlled by emotions. By fear.
What are you more afraid of? The dollar becoming worthless? Or losing your job and running out of dollars?
The whole world is constantly shifting back and forth between those two fears, so money demand bounces up and down like a yo-yo, and velocity — the speed at which the money changes hands — does, too.
These wild shifts in money demand and velocity have the same effect as massive, instantaneous shifts up and down in money supply. It's like we're having a huge inflation, then a deflation, every few hours — because our fears change every few hours — because the politicians have all this arbitrary power and we don't know what they're going to do to us!
Now, do you see why it is so important to see the economy not as a machine but as an ecology. Machines don't feel, they don't have fear, or joy, or optimism.
But people, biological organisms, do have feelings. They do fear, and their fears can change instantaneously.
The human ecology, especially these days, is driven very largely by emotions.
How are the politicians and bureaucrats who are playing God ever going to control, or fine tune, or repair, or speed up or slow down, our emotions?
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