Wednesday, November 16, 2016

There is No trade deficit

Keynesians get stuck in a rut when asked about how to move funds within an economy. Their first perspective is to describe the Keynesian Circular Flow model.

This model presumes that with monetary injections, that is a monopolization of the price mechanism, you can stimulate demand to have it move through the economy.

Academia, touts ideologies where stimulation somehow comes from the central bank. This includes even your contemporary Monetarists, MMT and other schools of thought that use the IS-LM curves as their basic mode of reification to delineate shifting of aggregates.

As mentioned before, these ideas are abstract, and at best only subjective. Some believe hypostatization allows for better estimates. This may be true, yet this is only so for the private economy.

 Data is historical, it already happened. It makes for educated guesses. It cannot predict the future.

These aggregates for the mainstream economist are assumed averages derived from data. Econometricians make models to sell us ideas on how to manage economies. They are seducing their followers to obey government's writ upon them and the rest of the world. Government is the monopoly on coercion.

As described before, capital theory is everywhere existing, and at all times. Even at the level of the corporation or private enterprise, the theory of diminishing marginal utility still holds.

Companies use various factors in the production process. When they use too much, and take losses, they make cuts. These various factors are sold off, laid off, or moved to a different sector of the company where they can be used more efficiently.

This process is subjective. Entrepreneurs look at the price spreads, the rate of return. As mentioned before, this is the difference between buying costs and selling costs.

In the broader economy, the price spreads open and shrink. Sectors of the economy expand and shrink according to profit and loss. Profit margins expand and shrink. There is no equilibrium.

Due to having a monopoly of money, the government can coerce and attempt to stimulate it. This leads to ebbs and flows that create a business cycle at the macro level, in the broader economy.

This cycle should be quelled by allowing the free market to set prices based upon the value scales of individuals. Price spreads would compete.

Price spreads expand because there is a boom. Innovation has occurred and a new supply has been brought to the fore. Diminishing marginal utility sets in and price spreads shrink until companies fail or reinvent something new to stay in business.

When price spreads shrink, people pull out their factors and search for higher earning spreads (wider price spreads), of which to invest in. The wider the spread, the higher the rate of return. More profits are rendered.

Prices are indeed important, and if they are distorted, this causes a business cycle. The business cycle can be exacerbated by an over-issuance of credit money. Spreads are distorted, and due to a monopoly on money, can expand together and tend to shrink together.

Indeed there is a delay in the cycle's effects on the various stages of production, as the business cycle induces over-consumption at the higher order goods level first, later reaching the lower order goods level. This destroys wealth and can make some rich at the expense of others.

On the free market, those with better business acumen will seize on the translucent shrinking and expanding of the price spreads. Entrepreneurs take risks. The cycle is quelled due to competition in money. This includes competition in credit money.

The Treasury, and other government debt instruments, are dangerous. They are mechanisms that deceive investors to believe they are investing. They are in and of themselves, instruments of consumption.

I shall elaborate on this in a later post.

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