I mention another fine article by economy taken from
http://www.politicaonline.net/forum/showthread.php?t=366856 The article deals with the housing bubble but can somehow adapt to speculation usually associated with cycles economici.Una easy reading for all would say that those who want to know more about the recent news may have the pleasure of reading.
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Schumpeter's lesson: real estate bubble, where are the economists?
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Well, it seems that the housing bubble about to burst. What is striking, however, is the absolute silence recorded among economists right now, in addition, also the comments of these days seem to completely ignore the fact that this was to be expected speculative crisis. The fact is that those who now occupies the economy does not know all the theories of the economic cycle, at least those models more attractive, dynamic and historically located, the current development theories (Harrod, Domar, Solow) appear to be overly influenced by the Walrasian paradigm, forcing algebraic with an explanatory power that are weak. Mathematical formalisms are not enough to confer authority to the analysis! Abstraction is only useful if it helps to understand the risk of sounding realtà.Correndo the topic, but I will have to redeem in the future, I summarize the theory of Schumpeter's business cycle: in it, drafted by the Austrian in 1911 and completed in 1939 (Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process, New York and London, McGraw-Hill, 1939, abridged edition edited by Rending Fels, New York and London, McGraw-Hill, 1939 of which a version Italian: The capitalist process. the economic cycle, Torino, Basic Books, 1977) is clearly stated that the development wave (cycle) is the form that economic development takes in the era of capitalism. But, assuming to start from any point of static equilibrium, what sets in motion the cyclical pattern? Schumpeter identifies internal causes and external causes to the economy, about the first (wars, earthquakes, etc.). The economist can not say anything, while the latter are technological innovations, which, since it is usually economic, sometimes end up the lens of economics. Schumpeter supposed to start from a situation of perfect static equilibrium, in which the assumptions of perfect competition apply, constancy of the population, lack of savings and everything you need to meet the requirements of a circular flow that repeats the same. We also assume that, in the model of capitalist society, there will always be the possibility of new combinations and people able and willing to implement them (the motivation is the prospect of profit). "Some people, therefore, designed and built, more or less rapidly, plans for innovation, anticipations of profit associated with different, and get ready to face obstacles related to both the new and unknown man are suppose [...] a new company, is a new installation and commission new equipment to existing firms. As for the necessary funds by the banks to lend them. Then withdraw money from cash balances so obtained, is to issue checks to those who provide goods and services, both have the necessary liquid to pay for these supplies. [...] He distracts from the previous destinations of the quantities of goods they need through its own demand for capital goods. Other entrepreneurs followed him, and still others after them in growing numbers, to innovate, which is becoming easier for those who come after, thanks to the accumulation of experience and the disappearance of obstacles' (p. 161). What we observe nell'esplicarsi of the above? First, Schumpeter assumes that entrepreneurs spend their deposits at once, except for a minimum reserve. Second, since there is no unused resources at the beginning (in the event of circular flow), the prices of factors of production will increase, and so did the money incomes and rates of interest. Third, the revenue increase, at the expense of entrepreneurs in investment goods, with those of workers temporarily employed at a higher salary, and those of all those who receive more payments. However, until this point, it is reasonable to assume that there is still an increase in production. This is what happens until the plant starts operating, the first contractor. "Then the picture changes. The new goods - that is, the new consumer goods - entering the market. If all goes as planned, are taken away immediately, just to those prices at which the entrepreneur expects to sell [...] A stream of revenue will flow into the account of the entrepreneur, a wise enough to repay during the life of the installation and equipment initially purchased, the total debt contract, plus interest, and leave a profit for the entrepreneur. [...] New businesses coming into operation one after the other and place their products in the market for consumer goods, increase the total production of consumer goods [...]» (pp. 163-164) . these new markets, according to Schumpeter, entering the market at a pace too claimed to be absorbed smoothly. In Specifically, the old business, pursuers, who have before them several possible scenarios, not raised according to a fixed rule: some are part of new scenarios, others are dying not being able to adapt, others are looking for a rationalization. However, even the competitive advantage of the driving force tends to fade, since, as they are products entering the market and the repayment of debts increase quantitatively important, entrepreneurial activity tends to decrease and eventually disappear altogether. Just push the business ceases to act, which moves the system from its previous area of \u200b\u200bbalance, the system embarks on a struggle towards a new equilibrium. Let's see then the first emergence of a cyclical pattern. Observables are "two different stages during the first of which the system moves away from a position of equilibrium under the pressure of business, while during the second approaches the equilibrium position to another. Each of these two phases is characterized by a particular sequence of events. It is enough that the reader think about what these phenomena, to find out exactly expressible by "prosperity" and "recession" (pp. 170-171). It is necessary to emphasize that nothing in the diagram indicates some kind of conclusion about the regularity of cycles and the duration depends mostly intensity of innovation, thus the cyclic process is structurally irregolare.Se innovations are embodied in new plant and equipment, consumer spending will increase at least as fast as spending on capital goods. Both will expand starting from the points of the system on which they had exercised the first impact and create the set of economic circumstances, which we give the name of prosperity. Hence the sign of two phenomena: first, the old companies will react to this situation and, secondly, many of them there "speculation." Those who want to take advantage of the situation, speculating, they will act on the assumption that the observed rates of change from their should continue indefinitely, and this attitude will advance the prosperity, causing a boom. In this way, the credit will not be limited to entrepreneurs and deposits will be created to finance the general expansion: each loan it raises another, as well as begin a series of price increases. Then come under those transactions that to become possible, involve an increase in actual or expected prices. Thus we have, in the cyclic process, the insinuation of the secondary wave, the effects of which overlap with the primary wave. The result of the new wave are the most visible of the first, since it is easier to see expanding the fire and the torch that has set it. Because of this difficulty, one often identifies the cause of speculation in the cycle, while neglecting the innovation that caused it, because more difficult individuazione.Anche prosperity secondary rupture is induced by a shift of the underlying process. Any state of prosperity, as ideally limited to essential primary processes, involves a period of failure that, in addition to the elimination of obsolete enterprises beyond any possibility of rehabilitation, results in a painful process of readjustment of prices, quantities and values, as they show the frame of a new balance system. Prosperity in the secondary are shaped rash actions, fraudulent, or otherwise unfortunate that not stand the test of the recession. The unsustainable speculative position involves many elements, including the deterioration of the minimum value of the other side elements will fall. So much of the current business and investment will suffer a loss when prices fall, as they will no doubt because the primary process. Also part of the debt structure will collapse. If you prevail in this case, panic and crisis, further adjustments become necessary, the values \u200b\u200bfall and every fall brings with it a further fall. For a time, the expectation pessimistic may play a decisive role, even though he does not hold up if not supported by objective evidence. It then outlines a cyclical pattern in four stages (note that in the first approximation, we found only prosperity and recession): prosperity, recession, depression, recovery. "Every time he plays a quantitatively significant meaning, this class of facts [the secondary wave] has a decisive effect on our scheme. Until we have taken into account, there were only two phases - "prosperity" and "recession" - in each unit of the cyclic process. But now we see that, under the pressure wave of speculation in the secondary and fall induced by it, our process, probably, but not necessarily, go beyond (in general, but can also remain below) the area which was moving towards balance. It crosses a new stage, that there was in the first approximation, and which will be defined by the term "abnormal liquidation" because of the fact that there is a downward revision of values \u200b\u200band a fall of operations, which are reduced - often random - below the equilibrium level. While during the recession there is a mechanism that seeks to bring the system toward equilibrium, now you develop a new imbalance: the system moves away again the area of \u200b\u200bbalance, as it did during the period of prosperity, but under the influence of a different thrust. Reserve at this stage, the term "depression". When the depression has followed its course, the system begins to resume its path towards a new area of \u200b\u200bbalance. This is our fourth phase, which we call "recovery" or "recovery". Then resumes the expansion up to the values \u200b\u200bof equilibrium "(pp. 181-182). Abandoning the assumption that innovation is the first reported the story, we must conclude that each phase of the cycle currently observable, and historically locatable, brings with whether the effects of previous waves and influence those later. Moreover, without loss of rigor and earning in realism, one must conclude that perfect competition is a phenomenon by no means frequent nell'ordinarietà the cyclical movement: the entrepreneurial drive is based on a world where imperfect competition, and innovation alter the same market, creating a situation for the innovator of competitive advantage which forces the others to adapt, in a first stage, the cost savings that allows the innovator's discretionary price is not observable in perfect competition. According to Schumpeter, the only real competition is established between the new emerging and old trying to survive, and this competition is neoclassical (host of the same companies that produce homogeneous goods) as a bombardment is the pressure to force a door chiusa.Schumpeter published in 1939 and these things seem to perfectly describe what happened in the housing market in recent years. Every economist should be careful to learn from theories so powerfully attached to the analysis of reality. It, however, the economics of our age prefer to overeat as mathematical formulas failed, leaving the economic system is overwhelmed and strangled by a financial system that has a short memory for ontological necessity: if market participants did capitalize on the past experience, warned by economists aware and not locked up in ivory towers, many disasters can be avoided. Instead, the speculative wave described by Schumpeter is emerging, the prospect of easy money and fast siren acts as a demon on the weak men, who hope to retire from the game on time and with pockets swollen. Someone there can. Others, more like Gollum from The Lord of the Rings, they fall into the fire so as not to give up their treasure ...
Carmelo Ferlito
