Possible Worlds, Real Worlds and the Importance of Semantics to Economics (economies) and Other Disciplines
Pretty much what I’m saying here has been posted on Twitter previously, under my handle commandokon_9, and it runs along the lines of the accepted view I’ve held for a very long time (and in all types of disciplines, that won't be covered here).
Let’s start off with stating that a possible world can be any conceivable world, or ‘parts’ thereof (which is more usable, as ‘parts’ to possible worlds can be ‘connected’ to suit certain theories, objectives or other 'parts' etc). The real world, or what one can know of it (at t), and of course it varies between observations/people, is technically a possible world also. This is an important premise.
Now with semantics, most of the things we observe (etc) can be quantified in (hopefully) meaning and understanding, and conveyed for the same reasons and usefulness, practicality etc. But this can be in many circumstances, if not all, an evolving process, that has to have change, however small, as a requirement.
Just from these two paragraphs one can assume or conclude that a discipline like Economics or even Finance, would have evolving characteristics. I will elaborate on any of these points as I continue this post. But first, some connections to examples or more importantly to what I think is happening to ie monetary policy amongst other dynamics in our real world. A note, that most of this has been covered by me on Twitter, but I would also like to consolidate these thoughts here, and any feedback would be much appreciated.
The Federal Reserve has not just allowed-for more asset purchases to affect the real economy. The Fed, with the unprecedented levels of QEs and inclusive of the time and magnitude of the other QEs, has expanded notions of ‘money’ by helping make the concept of money 'elastic' in scope, extension and in application. What was once a more restrictive definition (to its then fullest extent and not just from some/a school of thought) or notion of ‘money’ (and this can include other terms like ‘capital’ etc), has become one with (much) less restrictiveness and quantifiable boundaries.
At the level which is important to you or I, this hasn’t changed as much as at the levels central banks, for example, are involved in or with. The cash in your wallet is still the same, although one may need more of it to buy a certain product, depending. I’m going to primarily focus on the higher order levels, of which central banks and co are the major players in.
I will also comment on why the Fed’s (less inclusive) attempt to boost the US economy with asset purchase programs, differs to the more holistic and (hopefully) successful attempt by Abe’s, the BOJ, industries (workers etc) attempt to boost their economy. The Japanese example is a unique one, given their circumstances of high productivity potential, their strengthening (over the decades) currency (which means that they can devalue it) and their across the board inclusive ethos to expand the Japanese economy. I don't believe in QEs without these specifics and without a high level of productivity and innovation.
At the heart of some of these assumptions is the notion that at that level, there is greater scope for manipulation (hopefully, in a positive way for the masses) of concepts like ‘money’ and the extension of them.
I will also state why innovation is so important to the development of one's economy and well being etc. And yes, the lack of innovation and productivity (in the real world; not talking about derivatives etc here) adds to the demise of one's economy. And I'm not saying that innovation through (controllable) derivatives initiatives adds to a demise. This is not necessarily the case over a stretch of time. But I do worry about many derivatives models. Not going into it here.
I have been a strong believer for a very long time that the lack of innovation is one of the key reasons why an economy does suffer over time, especially if that economy relies on innovation and developments.
There also has to be a displacement of fresh capital/debt into innovative and new areas to help prevent the flow of money from circulating into the same type of sets and classes in the real economy. If this doesn't happen then, with the unprecedented levels of asset purchase programs, prices of the same types of classes or sets can and in many instances will go higher. Some may call this an inflationary effect, if you're on the wrong side of the trade. Inflation is, to me, a relative concept and it does vary from circumstance to circumstance within a country.
Once again, all of this has been commented on by me on Twitter.
End of Part One ..