Sorry Economists, Your Profession Is Not Science
The ability of humans to leave the Earth was defined centuries before they had sufficient technical capability to actually make it happen. From Kepler and Newton, the mathematics is almost too simple; the equation for orbital velocity is given just three variables, as the square root of the gravitational constant times the mass of the Earth divided by the radius of the intended orbit. Getting to that point of orbit is a bit more tricky, but still well-defined. You need total energy to both overcome the Earth's gravity and then propel whatever object at that orbital speed.
For a 1 kg object to reach a 100 km height (not yet orbit), the total requirement is revealed as 980,000 joules by simple equation, and 967,000 in reality when factoring the slight decrease in gravity that much further from the Earth's center. The orbital velocity for that 1 kg satellite is 7.85 km/s, requiring about 30 times as much energy to stay in orbit as to get to that height.
The fact that the mathematics was all very well defined meant that people could focus more so on the mechanical means to actually accomplish the tasks. That was the real problem, figuring out the means and methods of making the math work. In 1903, Russian scientist Konstantin Tsiolkovsky determined how to use Newton's mathematics for the exchange of momentum (conservation laws) in the form of a rocket and really its nozzle(s). His rocket equation governs the whole arena, as any intended vehicle must balance the delta V (the energy expenditure against gravity), the energy available in any propellant, and the propellant mass fraction.
The latter refers to the weight problems that arise from propellant itself included within the overall weight of the vehicle. By adding more fuel, you add more weight, thus requiring more fuel for your fuel. In the Saturn V rockets that took US astronauts to the moon, the total weight of the vehicle at launch was 85% rocket fuel. According to NASA, the Saturn V's payload to orbit was just 4% of its mass at liftoff.
Huge imbalances dictated by Tsiolkovsky's rocket equation further mean that there is much, much less margin for error in the engineering. NASA says that the Space Shuttle at launch is designed to handle only 3 G's (3 times the force of gravity) for the "stack", with a margin of error of only 10%. In the decades of trials and efforts to achieve even that, the technological problems of such complex operation mean effectively smaller windows for successful completion. For instance, in the early days of the Mercury Project, one launch of the Saturn booster yielded just four inches in height not because of any miscalculations of the equations and math, but because of the minute difference in the length of one prong of a power plug (apparently a worker had filed only one side down to make it fit properly, which the launch system then detected as a difference in power and interpreted it as a cutoff signal to the engine).
All of these factors and failures (and there were a lot in the early days) had to have been on the mind of John Glenn on February 20, 1962. The launch of Friendship 7 (his capsule) meant that Glenn was the third American in space but the first person to actually make a full orbit and fulfilling centuries of mathematics and careful study. Of course, getting him up there was only part of the story, as there was still the small matter of keeping him there and getting him back. Neither of those factors was technically simple, either, as Glenn was forced to demonstrate at the end of his first orbit when a jammed yaw attitude jet forced him to abandon automatic control in favor of his own flight skill.
He returned safely, however, and NASA was on to the moon in seven and a half years. It was the precision of the mathematics that made it possible, leaving only the technical specifications and capabilities as variables in the human equation. The physics served as just that sort of anchor by which all effort could be judged; the numerous explosions and, sadly, loss of life in the endeavor of space flight hasn't been in the equations, it has been in the imperfect ability of systems to reflect and carry them.
Had there been no realized mathematics for the physics, the amount of trial and error required to figure out space flight would have made it literally impossible. Even knowing the physical numbers ahead of time, the task is only undertaken with massive cost and difficulty, as noted above with very small tolerances, suggesting that complexity is perhaps an unannounced variable (pun intended) in realizing the equations through actual exertion. In other words, the fact that people were able to do it all (and then repeat) almost diminishes the appreciation of such a narrow window for success.
The study of economics, by contrast, has proceeded as if it were very much like physics though without any appreciation for that window; that there are universal laws that can be determined and stated as mathematical equations but "universal" being a term of art. Among these is the concept of hysteresis. This is nothing more than the economic equivalent of launching a vehicle to a specific height and then giving it enough momentum to achieve stable orbit. Economists have decided that only a central bank or central government can initiate such force, and that without it the economy will remain stuck on the ground or crash from temporary orbit.
Either monetary or fiscal "stimulus" is intended as the rocket fuel for economic orbit. It seems to have been forgotten, judging by the very conspicuous lack of acknowledgement last week, but that was the very nature of the American Reinvestment and Recovery Act now past its seventh anniversary, a.k.a., the "stimulus" bill. Even though the actual format was in many ways a political giveaway to various constituencies, that didn't matter to economists because "spending for the sake of spending" supposedly amounts to economic fuel of varying degrees. If you recall, that was exactly how it was presented, as if undertaking this massive spending via fiscal un-restraint would be wielded with something like the precision of Kepler's orbital velocity equation.
From Paul Krugman in January 2009:
"The starting point for this discussion is Okun's Law, the relationship between changes in real GDP and changes in the unemployment rate. Estimates of the Okun's Law coefficient range from 2 to 3. I'll use 2, which is an optimistic estimate for current purposes: it says that you have to raise real GDP by 2 percent from what it would otherwise have been to reduce the unemployment rate 1 percentage point from what it would otherwise have been. Since GDP is roughly $15 trillion, this means that you have to raise GDP by $300 billion per year to reduce unemployment by 1 percentage point.
"Now, what we're hearing about the Obama plan is that it calls for $775 billion over two years, with $300 billion in tax cuts and the rest in spending. Call that $150 billion per year in tax cuts, $240 billion each year in spending.
"How much do tax cuts and spending raise GDP? The widely cited estimates of Mark Zandi of Economy.com indicate a multiplier of around 1.5 for spending, with widely varying estimates for tax cuts. Payroll tax cuts, which make up about half the Obama proposal, are pretty good, with a multiplier of 1.29; business tax cuts, which make up the rest, are much less effective."
By Krugman's math, Keynes math, he expected that impact of the "stimulus" would be to shave off 1.7% from the unemployment rate over the two years of the ARRA. In his view it was too small even at $775 billion (mimicking, in very close ways, the more fuel equals more weight problem; but that is giving Keynes math far too much credit). At the fifth anniversary for the ARRA, Krugman was in much more difficulty just describing what it purportedly accomplished:
"With the passage of time, it has become clear that the act did a vast amount of good. It helped end the economy's plunge; it created or saved millions of jobs; it left behind an important legacy of public and private investment...
"So why does everyone - or, to be more accurate, everyone except those who have seriously studied the issue - believe that the stimulus was a failure? Because the U.S. economy continued to perform poorly - not disastrously, but poorly - after the stimulus went into effect.
"There's no mystery about why: America was coping with the legacy of a giant housing bubble. Even now, housing has only partly recovered, while consumers are still held back by the huge debts they ran up during the bubble years. And the stimulus was both too small and too short-lived to overcome that dire legacy."
To "prove" his point that the ARRA did some good, Dr. Krugman cites "investments" in "green energy and medical records." Solyndra and precursors to Obamacare? That's it? Americans are forgiven for thinking that even if the overall size fell somewhat short, green energy and medical records should not even populate the list of its best achievements let alone make the top; they were assured orbit, not the four inch flight.
As for the short run, the "stimulus" was supposedly needed because without it the economy would have been much worse - Great Depression worse. As has become commonplace, the citations for proponents reside only in the counterfactual, as in "jobs saved." This harkens back to the original assumption that without intervention an economy will not rebound or even grow. Recessions are not and have never been permanent, and the only suggestion of a Great Depression scenario was economists misunderstanding money (there were no long lines at ATM's replaying the convertibility strike of the early 1930's). It is sheer lunacy, as by population alone any economy at its very core will grow. Even a minor amount of efficiency, through capital deployment, will add to that baseline.
The nature of efficiency escapes Keynes math, as is plain in the last paragraph of Krugman's 2014 column cited above. In the last two sentences he betrays the whole sordid works; what "dire legacy" was the ARRA to overcome if not that it was prior intended stimulus to begin with? Not only that, it was Paul Krugman who once argued in favor of a housing bubble to get out of the one before that (dot-coms). Thus, we apparently needed massive, but not enough, fiscal stimulus in order to overcome the "dire legacy" of the past stimulus so that the term "jobs saved" would take its rightful place as a universal punchline. To that damning reality, Krugman can only qualify as "those who have seriously studied the issue."
Regular Americans that were promised an actual recovery, promises made with full realization of the housing bust and financial panic, mind you, are to be dismissed as unqualified if ever believing the ARRA was a failure because orthodox economists got some medical records and a smattering of green jobs (that didn't last either). These are the people who also can't figure out Donald Trump and Bernie Sanders. The political revulsion is over this technocracy that holds not even the slightest technical capabilities.
As I write repeatedly, the descriptions of these sorts of things depend only upon the tense of the perspective; fiscal spending "will" work; QE "will" be powerful; the ARRA "will" shave off 1.7% unemployment. These claims are delivered with Keynes math behind them, only to relent in the past tense to some variation of "was disappointing." With 2015 ending in only recessionary uncertainty and 2016 beginning much worse, disappointing may turn out the best case for all "stimulus" on the only count that matters.
Part of the overall confusion stems from the fact that we are supposed to believe that the ARRA was completely different from QE and ZIRP. They aren't; they are all just different methods of figuring hysteresis with Keynes math worked through the central bank and then the central government. Proponents had even in the earliest days of this period taken to excuses, as even the economists who delivered the ARRA instead (again, past tense) tried to blame statistics and in so doing undercut their whole thesis.
From the President's Council of Economic Advisors in their 2010 Economic Report of the President:
"Since the recession began in December 2007, 7.2 million jobs have been lost... This jobs deficit is much larger than the vast majority of observers anticipated at the end of 2008. This is not the result of a slow economic turnaround. On the contrary, as described above, the change in the economy's direction has been remarkably rapid given the economy's condition in the first quarter of 2009...
"Some of the unanticipated rise in unemployment was the result of the worse-than-expected GDP growth in 2008 and the beginning of 2009 [i.e., about 0.4 percentage points]. CEA analysis, however, also suggests that the normal relationship between GDP and unemployment has fit poorly in the current recession...[A]lthough the fit of Okun's law is usually good, the relationship has broken down somewhat during this recession. The error was concentrated in 2009."
So much for mathematical precision. If you can't design stimulus for the actual economy because you can't ever really describe the actual economy, then stimulus is just a dart throw - which is "jobs saved." You can't claim to be able to launch an economy to orbit only to later admit that the equation of orbital velocity is subject to change without warning. The ideal in orthodox economics of precision is a lie, and a significant one because it is the foundation for the whole thing, monetary to fiscal. In quantitative easing that is exactly the point; as if Ben Bernanke could predict the precise quantity of "money" needed to push to orbit. The fact that he felt a second then third and even a fourth QE was necessary meant specifically there was never any "Q" to begin with.
Even if their math could work, it still won't if you can't even define the actual variables. Economists have been trying to launch a rocket with only a vague notion of Newton's momentum equations, no specific knowledge of the orbital velocity equation and then furthermore (and only after the fact) announcing that they were using very rough guesses for the weight and energy content of the fuel. From that we are supposed to believe "jobs saved" after a four inch flight that blew up on the pad?
Not only are economists missing that solid mathematical foundation that made space flight achievable, they still haven't solved any of the millions of technical issues inherent under the gross complexity of the economic system. The St. Louis Fed published a study in April 2015 that examined ARRA's effects upon thousands of school districts (where there was supposedly so many "jobs saved").
"To conduct this study, we used data on expenditures, both ARRA and non-ARRA revenue, and staffing levels for over 6,700 school districts from both before and during the ARRA period. We found that, during the first two years following the act's passage, each $1 million of grants to a district increased education employment by 1.5 persons relative to a no-stimulus baseline. Moreover, all of this increase came in the form of nonteaching staff. The jobs effect was also not statistically different from zero."
Most of the funds from the ARRA were directed to short-term capital projects rather than boosting hiring. Any economist might argue that even that did some good since it meant spending on construction and construction workers, but seven years later there is no legacy of that in an unemployment rate suggesting "full employment" where 15 million Americans are simply missing. Since November 2007, the prior peak, the labor force has expanded by just 4.5 million. Over the same period the civilian non-institutional population has grown by 19.5 million, leaving 15 million to wander the virtual streets of BLS desolation, completely and conveniently removed from the main employment statistics. It is unprecedented in any period except the 1930's (but then, unlike now, official figures counted you as either employed or unemployed; there was no statistical limbo like now), but it allows economists to suggest that monetary and fiscal stimulus might have had some impact rather than projecting the full scale of the failures (Bernie Sanders' critique).
Considering that there are about 252 million people in the potential labor pool, these 15 million "missing" amount to an enormous 6%! Stimulus through fiscal or monetary form is a joke on that count alone. Add in the massive opportunity cost of eight years on the fiscal side (anyone remember the "Bush tax rebate" and the $300 credits in early 2008?) and eight and a half on the monetary side, to somehow suggest that leaving 6% out of the potential labor pool (at the least) is somehow mild success is delusional. It makes a total mockery of medical records and green investments.
There is, of course, a far simpler explanation for all of this that doesn't involve any math whatsoever. Asset bubbles are terribly inefficient, and asset bubbles relate to monetary imbalances (with and without "stimulus") that have built up especially since 1995 (plot the S&P 500 on a chart and you don't have to even label the x-axis to guess where 1995 falls) far outside all the master models of Keynes math. Orthodox economics both fiscal and monetary are all predicated on the Phillips Curve in one format or another that only counts consumer inflation for the monetary variable. The "dire legacy" of the housing bubble was that economists purposely ignored financial innovation and the related monetary explosion.
The waste of such resources has undercut the very economic foundation.
"Thus, they [economists] were wholly surprised and unprepared for not just the size and scale of deterioration money and economy, but that it could have happened at all. The decrepit recovery thereafter similarly confounds, but it reveals to the awakened monetary sense of the credit-based reserve currency a singular truth about the US and global economy: it has shrunk. It's not that the recession in 2008 and 2009 performed that act, but more so that it revealed the destruction in economic potential from the monetary misalignment dating back a long, long time.
"We know without doubt that is the case because you can't simply lose 15 million potential workers and suggest anything else; only a shrunken economy would so significantly diminish in labor utilization."
The almost revolutionary level of frustration with this technocracy is this very point; they keep calling it science when it never works. No matter how much failure, and spectacular and repeated failure at that, the central point of contention for the economists never moves from faith in it. That is not science and people understand far more the difference than the Krugman's of the world ever give them credit for. Economists had no idea it was coming, no idea how big it was going to be, but still claimed they would fix it and then when it wasn't never failed to mention anyway that it all worked even though "worked" has to be whittled down to the most inconsequential. As 2016 progresses, they are already lining up to do it all again having never accounted for the real world's complexity outside their mathematically narrowed view. That's why I hesitate to call these "cycles" because in reality we are stuck in a single one until they are stopped. It is exactly a "dire legacy", though, unfortunately, one not yet fully written.