Daily Archives: December 5, 2016

Why Economists Don’t Know How to Think about Wealth (or Profits)

By Steve Roth – “Wealth” is just the beginning. As Noah Smith has said so aptly, economics terminology is a dumpster fire. The carnage extends right down to (necessarily accounting-based) definitions of income, saving, and investment.

The national accounts and the terminology therein have both embodied and promulgated an incomplete (and deeply regressive) economic world view. Even accounting-based adepts often find themselves conceptually trapped inside these incomplete, inconsistent, jumbled, and muddled concepts and definitions.

Everyone agrees that government deficit spending and bank lending create “money” (much better: “assets”) in ways that are impossible in the simplified spending-equals-expenditures circuit diagram.

Nevertheless, a huge amount of economic thinking quietly operates inside that simple circular model. more> https://goo.gl/HUF5RZ

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Donald Trump’s infrastructure plan won’t work while he’s president

By Allison Schrager – Interest rates have been so low that the potential long-term national economic benefit from improving US infrastructure, such as roads, airports, bridges, and internet access, could easily outweigh the cost of borrowing money to do it.

Now US president-elect Donald Trump is pushing forward with infrastructure plans rooted in such analysis. But there are two vitally important wrinkles to the argument to consider:

  1. The right kind of infrastructure spending will take several years to have any perceptible economic impact; there is no instant   gratification here, given the nature of projects and the current low level of US unemployment.
  2. Interest rates are rising in anticipation of such spending, making borrowing to fund it more expensive.

The result is that the projects will ultimately cost more and, if the right projects are selected, any economic benefits will take longer to arrive.

It seems how well Trump’s infrastructure plan will work will depend on how patient he is. Given the state of the economy, boosting economic growth will require picking useful infrastructure projects. They have the potential to boost America’s productive capacity for years to come. more> https://goo.gl/vbypf1

Simulation Takes on Bigger Roles in Product Development

By Rob Spiegel – The real world isn’t what it used to be when it comes to testing. Simulation has created a world of new product testing that puts products through scenarios that cannot be duplicated by prototypes in the real world.

Instead of just testing an actual part physically, simulation can test an entire complex product – like a car – and see how each part performs in conjunction with the entire product – a form of accurate testing that can’t be done in the real world.

The exception is with composites and some 3D-printed parts. There is not enough data on the new materials and 3D-printed shapes to provide accurate simulation. That’s temporary, however. The data from the physical testing of composites and 3D shapes are getting fed into simulation programs so those programs can begin to include new materials and shapes into the digital world of simulation.

Simulation used to be a side function, something done after preliminary design to see how the product performs in the real world. Simulation has moved to the center of the process so the product’s performance can be evaluated as it is being designed. more> https://goo.gl/72FE3N

Preventing the Next Eurozone Crisis Starts Now

By Jean Pisani-Ferry – European leaders have devoted scant attention to the future of the eurozone since July 2012, when Mario Draghi, the European Central Bank’s president, famously committed to do “whatever it takes” to save the common currency.

For more than four years, they have essentially subcontracted the eurozone’s stability and integrity to the central bankers. But, while the ECB has performed the job skillfully, this quiet, convenient arrangement is coming to an end, because no central bank can solve political or constitutional conundrums.

Europe’s heads of state and government would be wise to start over and consider options for the eurozone’s future, rather than letting circumstances decide for them.

So far, Europe’s leaders have had little appetite for such a discussion.

The eurozone still lacks a common fiscal mechanism, and Germany has flatly rejected the European Commission’s recent attempt to promote a “positive stance” in countries with room to boost spending. Of course, when the next recession hits, fiscal stability is likely to be in dangerously short supply.

Finally, the governance of the eurozone remains excessively cumbersome and technocratic. Most ministers, not to mention legislators, appear to have become lost in a procedural morass. more> https://goo.gl/CsBcAJ