Economics and Hydrology
Jie checked out from the local Plano Library “the Commanding Heights,” which is a 3-volume TV series. I watched the first volume. Basically this volume discussed the economic ideas of Keynes and the Chicago school.
In Keynesian theory, the government should be involved in economy directly to regulate the economic activities. When the time is bad (or recession time when the unemployment rate is high), the government should increase spending at deficits to increase the employment rate. When the time is very good (or bubble time when the inflation is very high), the government should reduce spending and increase savings. Many think that the Keynesian theory had saved the American economy during the Great Depression time when the US government increased spending to increase employment rate. The government let people work at roads, reservoirs, and other public goods.
The economic problems in the early 1970s could not be cured by the Keynesian theory. The economy was in stagflation when the unemployment rate was high and the inflation was high as well. This situation was considered impossible theoretically in the Keynesian framework. So the Chicago School of economics of free-market system came into dominance. Hayek in 1974 and Milton Freedman in 1976 were given the Nobel Prizes for their contributions in economic theory. By then the Keynesian theory was no longer very popular any more. Hayek and Freedman’s economic thoughts were fully embraced by Regan and are fully accepted as common sense today. The US economy has enjoyed the longest expansion for the last several decades ever since.
Why these theories did worked in one period and did not work in other periods like the Keynesian theory of economics? I could not answer the question.
Today after lunch, the weather was not hot enough for me to play golf. The teacher in my Golf class once said that temperature below 40F would not be good for playing golf. So I went for a walk along the small creek near my home. The walk took about one hour as usual. The creek flow was above normal. The rain over the last two weeks is still contributing to the above-normal flow in the White Rock creek. By watching the flowing water, my mind went to think water in the world. Why is there just the right amount of water in the world so that everything works perfectly as it is?
The water is flowing to the lowest points which are the oceans and terminal lakes around world. Then it is picked-up by the Sun and up into the air and come down as rains or snows, which gives live along the way. Whatever is left will come back to the oceans or terminal lakes again. This hydrological cycle is going on again and again. Every thing benefits from water.
What happens if there were too much water so that everything was submerged in the water? The world would be a totally different world. I could not imagine if there were fish then. I have to think further but not too further so that I have to think in terms of religious beliefs.
There are two things in this balance. One is the average depth of water on the Earth. Another is the variation of height of landscape such as the mountain peaks and the ocean abysses. If the variations of landscape (in elevation) are larger than the average depth of water, the world can work as it is. If the variation of landscape was smaller than the average depth of water, everything would be underneath the water surface.
So the perfect world is the balance between the average depth of water and the elevation variation of landscape. Water is working towards evening out all the variations while the internal force of the Earth is working just hard enough to keep the earth surface rugged enough to make this perfect balance between water and land.
Then I came back to think about the Keynesian theory and Freedman theory of economics. The Keynesian theory worked during the extreme volatility time of economic activities while the Freedman theory works much better when the economic volatility is mild as it is today. This way their respective theories can have their places in economics at all times.
In Keynesian theory, the government should be involved in economy directly to regulate the economic activities. When the time is bad (or recession time when the unemployment rate is high), the government should increase spending at deficits to increase the employment rate. When the time is very good (or bubble time when the inflation is very high), the government should reduce spending and increase savings. Many think that the Keynesian theory had saved the American economy during the Great Depression time when the US government increased spending to increase employment rate. The government let people work at roads, reservoirs, and other public goods.
The economic problems in the early 1970s could not be cured by the Keynesian theory. The economy was in stagflation when the unemployment rate was high and the inflation was high as well. This situation was considered impossible theoretically in the Keynesian framework. So the Chicago School of economics of free-market system came into dominance. Hayek in 1974 and Milton Freedman in 1976 were given the Nobel Prizes for their contributions in economic theory. By then the Keynesian theory was no longer very popular any more. Hayek and Freedman’s economic thoughts were fully embraced by Regan and are fully accepted as common sense today. The US economy has enjoyed the longest expansion for the last several decades ever since.
Why these theories did worked in one period and did not work in other periods like the Keynesian theory of economics? I could not answer the question.
Today after lunch, the weather was not hot enough for me to play golf. The teacher in my Golf class once said that temperature below 40F would not be good for playing golf. So I went for a walk along the small creek near my home. The walk took about one hour as usual. The creek flow was above normal. The rain over the last two weeks is still contributing to the above-normal flow in the White Rock creek. By watching the flowing water, my mind went to think water in the world. Why is there just the right amount of water in the world so that everything works perfectly as it is?
The water is flowing to the lowest points which are the oceans and terminal lakes around world. Then it is picked-up by the Sun and up into the air and come down as rains or snows, which gives live along the way. Whatever is left will come back to the oceans or terminal lakes again. This hydrological cycle is going on again and again. Every thing benefits from water.
What happens if there were too much water so that everything was submerged in the water? The world would be a totally different world. I could not imagine if there were fish then. I have to think further but not too further so that I have to think in terms of religious beliefs.
There are two things in this balance. One is the average depth of water on the Earth. Another is the variation of height of landscape such as the mountain peaks and the ocean abysses. If the variations of landscape (in elevation) are larger than the average depth of water, the world can work as it is. If the variation of landscape was smaller than the average depth of water, everything would be underneath the water surface.
So the perfect world is the balance between the average depth of water and the elevation variation of landscape. Water is working towards evening out all the variations while the internal force of the Earth is working just hard enough to keep the earth surface rugged enough to make this perfect balance between water and land.
Then I came back to think about the Keynesian theory and Freedman theory of economics. The Keynesian theory worked during the extreme volatility time of economic activities while the Freedman theory works much better when the economic volatility is mild as it is today. This way their respective theories can have their places in economics at all times.
posted by Unknown at 5:40 PM
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