Notes on Economy, Interest Rate And The Speed Of Time

A Theoretical Perspective

Euro crisis | Population and economy | The Central Bank | Interest calcylus | Resonance | Income | Growth | Golden ratio

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Usually, we imagine that the time elapsing in the same absolute rate, completely independent of where we are as long as we remain the earth's surface. One hour in New York or London is as long as one hour in Stockholm or Moscow. The timing works just fine when we measure the time for example in various sports activities: Usain Bolt's record time of one hundred meters applies everywhere. But how is system time in different economic systems. Has the system time in Tokyo or Beijing the same values as in Stockholm? It can of course occur, but it is likely enough that the economic time passes with different speed. Differences in time has to do with the fact that central banks and the governments decide the length of the clocks pendulum and frequency by different interest rates. It is a wellknown fact that the economy becomes increasingly globalized and then it is of fundamental importance which rate policies is pursued in different countries. Knowing the economic time is of increasing importance.

Let me first introduce some big numbers. For the most part you can manage quite well with the analysis of your everyday finances with the help of the four operations in much the same way as putting together earnings calculations. But if we try to look beyond the individual's or company's micro-state then the relationship of all individual micro-state will become important. The number of relationships that may be developed is n(n-1)/2 (between n points in space, there exist n(n-1)/2 distances). In a country like Sweden with a relatively small population of 9.5 million the number of possible relationships in the order of 4*10¹³. A country like Germany with a population of over 80 million have relationships in order of 3,2*10¹⁵. China's population is just over 1.3 billion will achieve the unimaginable figure of 8,4*10¹⁷ possible relationships. Given these large numbers, it is perhaps easier to understand the difficulty of analyzing cause and effect behind human social, economic or political behaviour. While one might argue that most relationships are so insignificant so one can ignore them. The same argument would perhaps a medieval physicist retain about the general gravitational constant if he ever knew anything about gravity.

The importance of large numbers is reflected in statistics which in turn is essential for public institutions, ways of making predictions for the future. Forecasts governing the central banks' interest rate policy in different countries and by changing the interest rate they reset their respective clocks at regular intervals in order to bring economic development to - which is desirable - go in a fairly reasonable pace with the circadian rhythm (which specifies the limits and conditions for human work) and which to some extent could be said to be the basis for the natural rate. What the central banks are trying to do is simply to find the right frequency for economic activities. The Swedish Riksbank has rightly considered it essential that the price of economics in memory of Alfred Nobel alongside the purely scientific significance also emphasizes its practical significance and impact on society at large and the contribution to public policy. But the key question is whether the theoretical progress of economic science is so advanced that it can help to increase welfare. Another important question is whether the method development in statistics and econometrics can be said to be theoretically innovative. Nonetheless, the Riksbank's Economic Prize over the years has been given to "persons in economic science have produced work of outstanding importance" and that has been shown to have practical application in key economic forecasting. The ECB has made use of their econometric methods, and we can now observe the effect of this monetary policy.

In light of the economic turmoil in the world and especially in Europe, one can ask whether the practical application within the central banks activities has been particularly successful? It has of course long been known that lack of knowledge in many respects complicates economic projections, which intends to describe the development over time. It is precisely this that is so important to try to understand: how central banks' interest rates are linked to economic activities over time in countries with completely different economic conditions.

The euro crisis: Greece is living on borrowed time!

It is not particularly difficult to understand why there can be large differences between countries' interest rate policies. Within the euro area it is the Central Bank, ECB, where the Central Bank of Greece is an integral part, which dictates monetary policy while the Bank of Greece is responsible for implementation of the ECB's interest rate policy or in other words - the ECB decide the economic life by the policy rate, and in the euro periphery countries, where economic time follows a completely different speed, the ECB-time is rushing away from them and since you can not live on borrowed time, the bankruptcy is waiting within a few weeks or months! The Greeks are experiencing today just the beginning to the end for the EMU Policy Project. If Germany's economy is at the same rate as circadian rhythm, the economic clock frequency is 1/24 = 0.041667, while Greece's economic clock frequency is 0.025, it means that Greece's economy is 16 hours behind each day. If you recount to the real interest rate it is equivalent to an interest rate of 4.1 percent in Germany and Greece would have a market rate of around 10,5 percent since Greece in addition to the German interest rate must also continue to produce daily for for for for an additional 16 hours, which corresponds to the frequency 0.0625.. The German key rate should in that case be around 1.9 percent, while the Greek key rate in the same way would be just under 1 percent, but with a central bank for the whole euro area, it is impossible to apply different interest rates for the various euro zone countries with the current rules for the monetary policy.

But if the economic times in Europe do not follow one clockwork somewhere in Germany or France, the difficulties will reach beyond economics, the really serious problems - which also rebounds on economic development with enormous power - is the political coordination and attempts to create uniform rules for all states, which are connected to the EU. To create a uniform legislation not only in strictly economic context but also in social, cultural, and perhaps ultimately even in religious world, will eventually result in even greater crisis than the one that is visible today in the economy. Political institutions that has got far reaching authorities may be equated with communism, and the catastrophic faith in economic planning. Communist countries have not been particularly successful in view of Human rights and welfare development. China's economic advance should be for the time being regarded with a certain healthy skepticism. China's GDP per capita shows the corresponding sum of $ 8.000, but the question is whether farmers and workers in remote regions do achieve this income? The Chinese welfare is foremost centered to the large and important port and industrial cities, where also the welfare and wealth is most developed except for the central government in Beijing.

Thus it is not possible to assume that co-operation in Europe always leads to positive results. It is certainly easy to be convinced of all the beautiful speech on cooperation across borders. But it is also easily seen that the politicians in the national parliaments might get too excited themselves and believe that all problems can be solved if everyone follows a uniform set rules. So simple and straightforward is not the nature of the economic man.

Population and economy

U.S. has roughly 32 times the population of Sweden and their GDP is roughly 34 times as large as Sweden´s. Countries that have reached the same industrial level has apparently similar total production of goods and services (GDP). Germany has about 8.5 times the population of Sweden and also 8.5 times as high GDP. Compared with Greece, Germany has 7.7 times as large populations while Germany´s GDP is 10 times greater. Economic activity in countries with high GDP relative population is stronger than in countries with lower GDP: economic transactions has quite simply a faster pace in the U.S., Sweden or Germany than in countries in southern Europe. If the population in countries with lower GDP to hold approximately similar welfare development, the result is inevitably high budget deficits and sharply increased government debt. It's just a matter of simple arithmetic.

The population therefore plays a crucial role in the production of goods and services. The waiting time due to changes in the policy rate - roughly the time from the central bank's decision to a new business cycle - has in fact to do with Thomas Malthus' theory of population in the economy (exponential growth): the growing population sooner or later leads to lack of food to famine as a result (exponential growth). The size of the population in fact determines how changes take place in an economy over time. Population significance consist above all in the fact that it is linked to precisely the size and movements, oscillations or transactions if you like, that a given population produces each day, month or year. The hypothetical time-pass, or the waiting time 1-2 years, as the Riksbank mentions in reports and Christopher Sims statistics apparently shows, seems of course - despite the lack of theory - quite realistic, but his general argument about the time pass without the most fundamental - namely that the clocks are different speeds in different economies. This can be easily illustrated by comparing the ratio between GDP and population. If you do not take into account population, then all countries to exhibit same time impact relative normal time, which is 8760 hours per year. For 2 percent, the waiting time 2.1 years in the general case (without regard to population) and for 3 percent accordingly 1.4 years and for the normal rate (ie, based on the normal time) 1 year. The following table shows the delay time factor of some countries due to the changes in the policy rate :GDP divided by the number of oscillations (by the frequency for different rates and population):

Particularly characteristic of this simple comparison is that the U.S. and Sweden and Germany and - strangely enough - also Ireland and perhaps Italy and Spain ports in a separate division, while Greece and South Korea fall into an intermediate position, and China, Russia and Ukraine in yet another location. It shows how easily population size relative to GDP affects the waiting time for economic change through the policy rate.But one can wonder why countries that are in crisis with large government budget deficits can have as high GDP numbers? And one more question - where has the money gone that countries have borrowed? Something's obviously wrong, when yet a larger proportion of the population have no money and income. With so much debt should the countries in the euro zone have carried out massive infrastructure investments, for example. Another conclusion might be that these countries - Greece, Ireland, Portugal, Italy and Spain - has an incredibly outdated institutional infrastructure, which enables the money literally rushes through the social machinery without doing any good at all to finally end up in idleness somewhere in hidden treasures. That is not something you need to be surprised about if the money seems to disappear during the process in countris with a backward social structure, since it has long been known that politicians and government officials from high to low in developing countries with poorly developed institutional structure simply put money in their own pockets.

The figures in the table is evidence that the economic inertia increases with economic development. Countries with high GDP relative population appears to have longer to get through the economic changes, while in countries such as China and Russia with lower GDP relative population changes get through more quickly. Furthermore we can - based GDP measure - possibly also point out that a more even, while higher average welfare can have a delaying effect. Similarly, it may also be mentioned that such standard of living of the masses in China increases by one tenth of one percent per year will give more than one percent increase in China's GDP. And the same for Russia and Ukraine. Countries with the lowest time factor has probably the greatest potential to increase economic growth.

It may also be appropriate to point out that the closer a key interest rate approaches one, the closer in time would presumably be an economic recession. Even in this case, one might also argue that countries with high GDP relative to the population - according to the same mathematical calculations - have a much higher time factor, ie it takes considerably longer to recover from an economic recession or crisis.

The Golden Ratio

The table raises additional comments if you like, but let me just finish with one comment. At normally low interest rates around 3-4 percent should a reasonable ratio between the populations economic movements (transactions) and GDP at least follow the golden ratio, ie the ratio between GDP and the number of oscillations on the market (or transactions) be at least 1.6 (golden ratio ≈ 1.618) in developed democratic countries. In the table above Ireland is actually at the top, while Sweden, USA and Germany are very stable on all interest rates, even if the U.S. and Germany with strong GDP could increase its population with a tenth of a percent. The problem of poverty among population is of course the greatest obstacle to reach the mark, and a simple lesson from this is then it is reasonable to increase public action to partly overcome problems with the population size, and maintain a high level of welfare for the whole population.

To achieve the desired relationship between GDP and population requires the governments and parliaments in densely populated countries have a strong ambition to increase the general welfare of the population through the efforts of health, education and training, justice and other important social institutions. Most important, may be the creation of constitutions which promotes democratic development.

Debt problems for countries in southern Europe and the U.S. have created chaos in the markets recently. The agreement reached Euro area countries on 27 th October means in principle a debt reduction for Greece by 50 percent, the capitalization of banks and establishing an emergency fund of €1000 billion. At present one can clearly distinguish large differences between the euro countries: with a common central bank but fragmented fiscal policy, more and more countries may fall into the same debt crisis as Greece. If increased fiscal union is formed, countries with weak industrial structure will end up in great need of financial aid packages due to wages and employment in these countries are not in phase with the economic growth process in countries such as Germany. Similar problems are common in countries with regional differences in industrial structure and the corresponding labor markets.

In the case of savings and loans, one can also argue that the golden ratio is shown again in a key interest rate at 2 percent savings can at best give 3.2 percent if you want to save money and bank lending is then approximately one percent higher, or 4.2 percent. To cope with the debt burden the debt should not exceed about 60 percent of GDP, which again follows the principle of the golden ratio. This relationship has a significant impact on how much debt it can be possible to have without facing bankruptcy. The debt burden grows namely faster than their own savings or growth. For a country like Greece's the debt burden almost impossible to fix, even after the agreement on a debt reduction to 120 percent of GDP. Only the interest on Greece's debt in 2012 will then be $19 billion, which only that is 5.7 percent of Greece's GDP in 2009. According to the OECD's report of August 2011, privatization and development of assets in the years 2011-2017 is estimated to €15-50 billion with a potential growth of around 1.7 to 2.5 percent in the long run. According to the OECD Greece need to impose structural reforms that change the labor and product markets closer to an international best practice or standard, tax evasion must be fought, a more efficient public sector to restore confidence between citizens and government. In order to halve debt until 2035 there has to be a surplus of 5-6 percent of GDP fr.om 2015th It's hard to believe that the OECD's forecast can be realized when already in 2011 interest on government debt is closer to 6 percent of GDP. The goal is that Greece should have reduced the debt to 60 percent (golden ratio again!) Of GDP in 2035. 24 years is a long time to wait for the people in Greece!

U.S. debt

The debt problem has also become the main issue in American politics: The Republicans as well as European politicians believe that significant cuts in government spending is the right medicine to reduce the huge debt, and they also mean that one can not raise taxes to increase government revenues. Still they argue that savings and investment must increase to create growth. But the question here is how politicians think, and not least, I wonder what advisers political leaders and governments are listening to. From macroeconomic identities - to refer to traditional economics - we have learned that S + T = G + I (S = saving, T = taxes, G = government spending and I = investment). That is: lower the public expenditure lower savings and investment too! The logic behind republican or conservative ideas is sometimes hard to understand. In order to increase savings and investment, thus creating conditions for growth, government revenues must also increase by imposing a progressive taxation of income in the layers above average that also increases with higher income! It is difficult to see any other solution to the debt problem. From an ethical standpoint, it's also reasonable that the tax burden increases with income, but the ethical standpoint becomes even more apparent and necessary from a theoretical perspective (cf. the concept phase ). The similarity to family economy is striking: do children pay family debts from their pocket money? NO!, the family's debt problems are paid by those who keep the money, ie parents, who also is responsible for the debt problem. On the national level it is without a doubt those with the highest incomes that should pay most of the nations's debt problems. It can only be done by raising taxes for high earners. U.S. tax burden which is about half of the tax burden in the Scandinavian countries. U.S. should have no problem with increasing state revenue.

Time

The philosopher Protagoras idea that "man is the measure of all things" describes a theoretical approach that has influenced large parts of the scientific view, but perhaps not so much in the social sciences, which is still heavily influenced by the Aristotelian view of motion, change and growth. When we use the concept of time to describe different events it is natural that we start from a human perspective. What kind of measurement of the time we use as a yardstick or norm is fundamental. Protagoras relativism can be an appropriate approach. What standard we use for our measurements can give very different results. Therefore, time is important, and time can (usually) be measured in different ways in different systems. The pre-Socratics - where Protagoras's philosophy belong - used two words for time: Chronos, sequential time, and Cairo, or "time in between", in rhetoric "take advantage of the opportunity, event" - and Kronos is the only time that can be measured. Chronos is depicted as "Father Time", an old wise man with a long beard - he has sometimes said to turn the Zodiac.

The time or timing is, however, usually in relation to the human experience of time, which is so strongly tied to the division of time associated with the circadian rhythm 24 hours - ie, from seconds to minutes, hours, days, weeks, months and years. If we take a human life to about 80 years, the trees' life to a few hundreds of years, it is still quite modest periods of time we are dealing with if we set our time relative the universe or galactic time. And even more importantly, the time when we consider life after the seasons, where plants and animals follow an era that does not quite harmonize with the human norm. It is clear that time is not an absolute or clear-cut concept, but we allow ourselves to use a classification of time units relative to ourselves and the earth, or our place in the solar system.

Interest rate fluctuations and time

Based on our economic perspective, time is crucial to the whole economic system, and it is also closely associated with great interest. Interest requires that the time elapsing in a certain rate and thus can interest be described as a speed relative a certain quantity or value. One feature of the economic system is that at low interest rate increases mass while the gravitation decreases in the system but also economic activities and transactions decreases (!). At a low interest passes economic time with a lower speed than our normal circadian rhythm. A low interest rate of one percent creates not as great differences in wealth that an interest rate of four percent. At a high growth increases the activity and raises rates increasing differences in income (through increased wages, high resource utilization) and wealth: the greater the increase in GDP of a country, the greater the disparity in wealth - if the market is left alone with no government interference. Particularly significant is that in developing countries, where an increasing share of the country's wealth amassed by a handful of people. The rich get richer because of the lack of a developed social infrastructure and political marketing and distribution of the wealth that growth creates. In a country like Sweden one can find that low-paid workers has approximately 1.3 times as high income as unemployed, while highly paid on average about 2.8 times as large income than low-paid (2.8 ≈ 1.3⁴). What is difficult to understand for most people - economists and politicians included - is that large differences in income and wealth actually limits growth and prosperity. Didstribution of welfare requires that inequality decreases. Economic equality is as important to a nation's wealth as the right to expression and freedom of thought (and all other freedoms). One of the government primary task is increasing the distribution of economic resources, not to limit the economic space. If a few percent of the population, the really wealthy part, loose some of their wealth while the whole population enjoy greater economic freedom increase the activity of the whole economy. An economy out of balance will anyway lose huge "amounts of energy" if you did not dampen the resonance of certain parts of the system. It remains only through tax mitigate inequality and spread prosperity to the entire population and thus increase the activity and transactions within an economy (see explanation of damping in the yellow column, right).

A totally "free" system, which is not subject to any restrictions, laws, institutions, etc., are at the mercy of self-oscillations, which eventually leads to the systems motion will stop by itself, ie there is no growth or development of such systems. Typical examples of systems where growth and development ends is the so-called tribal societies. But even closed totalitarian system can be understood as a system which literally kills growth and development. The more degrees of freedom as a social system allows the more possibilities for development. Physical individuals have in a sense some similarities with rigid bodies and could thus be said to have six degrees of freedom, but the problem is of course a bit more complicated than that, I imagine. Currently we see the political consequences of economic inequality and lack of democratic rights throughout the Arab world. Riots spreading rapidly from Tunisia, Egypt, Bahrain, Yemen, Algeria, Iran, Libya, and now in September 2011, the Syrian government has tortured, killed (murdered) many thousands of the Syrian people who express their desire for a free society. The rebellion in Libya has fortunately got rid of the Gadaffi regime and the Libyan people have begun the difficult journey to freedom.

NOTE: Time, frequency and interest rate - important

A simple system for rotational motion is a harmonic oscillator or a simple pendulum that swings back and forth between the boundaries A and B. Rotational movement can best describe the time lag in the economic system and the relationship between period, frequency, and - in this case - interest rates! Periodic systems are characterized by rotational movement. in the abstract representation of the movement of a point moving in a path and after some time recovers the same position with the speed and acceleration (if no impact on its business). If you know of oscillation period T (the time required for entire rotational movement) one can also calculate the rate by angular velocity and time. Because of the angular velocity w (the velocity or the speed with which an activity is moving in a path, pendulum motion) is equal to 2πf radians (f = frequency). Oscillation rate w is given generally by 2π divided by the time T which gives w = 2π/24 = 0.261799 (in radians, which is in degrees ≈ 15.176 and 0.261799 / 2π = 2.388^° ≈ 0.04166..7 = T ^-1). If you convert degrees to minutes, you will find that one minutes corresponds to 0.166 ... 7 degrees, and multiplied by 60 and we take 24 * sin 10 ^°we get 4.166..7. An almost similar resulatat is obtained by multiplying T ^-1with 100, ie the percentage corresponding to the natural circadian rhythm. In the special case with pendulum may be normal for the time T 24 sin (2πf * t) gives the rate of interest. For example, the normal circadian rhythm 24 hours expressed as a rate ≈ 4,167 per cent can be expressed by 24 sin (2πf*t) or in a more generalized form: 24 sin (wt), where w = 0.166 .. 7. For normal period 24 hours t = 60. Relative to 24-hour rhythm, it is obvious that we here have to do with different phases . Relative normal rhythm you get sin (wt + Φ), ie with a different oscillation, ie different interest rate differs with the angle Φ, which transferred to the time means that the clocks strikes different relative the normal 24-hour clock (see below section on the Riksbank's clock).

The following table gives some examples of calculations. (Same frequency and rotational speed means permitting movement relative to a fixed axis, ie, all movements is subject to the same conditions but at different distances - ie income radius - from the center).

Similar relationships go beyond the intuitive notion. (See further below the Riksbank's clock). Something that also seems to be a rimig question is whether the interest rate´s time impact on our behavior and our health. Economists have obviously not taken into account any financial quantities like that to make calculations, but it's probably an indisputable fact that the economic system´s time also affects our health through stress or lack of sleep or eating habits. What effect has shifts on the natural circadian rhythm and stress? What does the "deadline" mean in media? School Time 9-4, 9-5 office hours? What happens if the economic system time changed by the interest rate? Fortunately, changing the interest rate is normally quite slowly, but what if it suddenly abrupt shifts occurs in different directions? Panic on Wall Street, and in countries with large hidden deficits almost revolutionary unrest erupts like in Iceland, Ireland, Greece or Portugal. "The economy imploded, the real estate sector is dead; building construction is on hold and you have left empty, half-finished buildings", said Sweden's ambassador to Ireland. With "implosion" means a violent incident in which an object is destroyed by a radially inward force, which pulls all the parts (wiktionary) towards the center.

The social science - but also common sense - thinking, however, remain dependant on the old Aristotelian philosophy. Political and economic ideas are strongly influenced by everyday life concepts. It seems natural to try to describe events by extrapolating and refine commonsense principles discovered through our daily experience. Based on individual behavior and perceptions of events attempts to understand events at a higher level, strongly convinced that it is only a matter of scale. But in everyday language and concepts changes and even events in our everyday world is distorted, which seems to be guided by principles that are alien to our intuitive notion. And not least in the economic world is it enough to rely on our daily experience. Political and economic thinking is conservative in the sense that it is based on the Aristotelian philosophy. Moreover trying seeking support in the traditional and conservative financial thinking, which is still influenced by the same philosophy. Conservative ideas of Edmund Burke's 1700s to John Stuart Mill liberal political and economic ideas have had to undergo a facelift to suit modern conditions, but the basic ideas of individualism and natural class differences remain important especially in conservative and liberal parties.

In the political talks beliefs and ideas about society remains largely tied to the philosophical debate from the 1800s, which, despite Newton's well-known ideas still have more in common with the medieval thinking before Copernicus and Galileo. In the social sciences an activity/motion demands an agent, someone or something that causes or creates movement. According to Newton's thinking, an activity will continue in uniform motion without an external agent or influence. Activity/motion is only relative to the observer.

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The economy of self-interest

The modern economic theory still rests on two of the 1800s great economists: William Stanley Jevons and Augustine Cournot. Both are extremely influenced by their contemporary political philosophy. Jevons says explicitly in his Theory of Political Economy that the theory is "solely based on a calculus of pleasure and pain - and the economy's objective is to maximize happiness by purchasing pleasure to, so to speak, lowest price of uneasiness ". The 1800s utilitarianism, utility philosophy, transferred to the sphere of economy. The utility function of a utility could be represented by the function a/x or a/x², and if you compare two utilities you could thus apply the law of inverse squares, but Jevons uses instead the derivative to describe relation between the two utilities. Jevons draws the diagram wellknown to all students of economy : the declining function of the utility curve which are cut by a growing function curve. At the intersection we would have y = r × sinΘ if we draw a strait line from origo, which from a mathematical point of view makes sense. The only problem is that Jevons knew nothing about how to calculate data, which he quickly admits, although he is on the right track when he argue that the theory can be described as "utility and self-interest mechanics" . It is difficult to understand why Jevons did not use in his time known and elementary theorems in the classical mechanics. It is - in principle - just to put the values (prices, income, etc.) in the functions. But Jevons was too much influenced by utilitarianism. He writes: "I feel no hesitation to accept the philosophical utilitarianism, utilitarian ethics, which in fact is the effect on people's happiness as a criterion of what is right or wrong"

Like Jevons Cournot is influenced by the classical mechanics and his exposition of the theory of supply and demand are not as influenced of utilitarianism. Cournot was born in 1801 while Jevons 1835, and Cournot was also influenced by mathematicians Laplace and Lagrange, and in particular Lagrange was the mathematician behind the - by economists battered - equation F(p) + pF'(p) = 0 (extreme values and constraints). Lagrange wellknown multipliers (λ = λ₁ ... λ_n) is used frequently in economic context, with no real economic-theoretical derivation. Influences from classical mechanics becomes especially clear when Cournot is explaining prices relative to one gram of silver (or 10 kg of wheat) as P/a. In mechanics the relationship (force by acceleration) equal to the mass, or m × a = P, and he refers to the 'laws of motion theory, founded by Galilei and completed by Newton " . If you follow the Cournot thought it should be noted that the price represents a economic force, and the economic mass is then equal to the income (price) divided by the acceleration. The theoretical implications in such cases extremely far-reaching.^[1] Cournot might as well continue his exposition on the relative values, and say that d²x/dt²gives the acceleration, while d²x/dy² in principle expresses the relative the change of the relative change, or in other words "it spreads!". But so far has not the political-economic thought yet become, and the conservative parties are contented with the use of sweeping statements about the dynamics of economics.

Economic policy

In election time we hear from various quarters "lowering taxes for ordinary workers," "raise taxes on the rich", "we want to focus on jobs", "we want to focus on welfare", etc. In the political world the leader acts as his party's own priest and professor: totally convinced that their ideas paves the way for prosperity and salvation for all. In fact, all of them are more or less wrong: lower the taxes and you risk what might be called Mugabe-effect: nothing happens, and the ruling and already wealthy in companies and the community put then money into their own pockets. Raising taxes without redistribution of income and wealth you will end up back in square 1. Even in the economic world there exists field of gravitation, since all economic activities are possible only if the existing forces that change the movement (that was also Cournot's view). Then it does not help to preach "it must pay to work". Tax cuts under that slogan contributes undoubtedly to increased inequality and high unemployment(which will be obvious later). Reduced taxes displaces only revenue curve upward, and have absolutely no effect on labor demand (see table on income at the bottom). During periods of high unemploymentgovernment expenditure and public investment are the only resources available - and actions should then focus on job creation activities that contribute to better income redistribution. An economic system left to itself will not be able to solve problems: Adam Smith's invisible hand is hopelessly inefficient in this case. It is only government action, focused on work, which can alter the relations between forces in the system. In addition to the Riksbank's price stabilization task through key rate, it is possible additional controls on bank lending, which may be considered. But there are undoubtedly already indirectly through The Riksbank's lending rate (key rate + 0.5%).

It may be in order to formulate some known ideas in connection with the IS-LM model to illustrate the central role of public expenditure and interest rate:

1. Investments is a function of income - crowding out^*raises interest rates (interest).Crowding out is a vague expression, which, although vague, it is not enough for an analysis. All the actions / activities create an equal opposite directed economic force, which in turn is compensating crowding-out phenomenon. The interest rate may rise if implemented by increased government borrowing. If financed by tax increase it creates an equal force in direction with consumption and investment.
2. demand for money (MD)is a function of income and interest - (Interest rate rise due to rising government borrowing in the money market).
3. Fiscal multipliers depends on the exchange rate. Floating exchange rate: increased capital inflow due to higher interest rate raises the exchange rate. Increase in the exchange rate gives lower prices. With fixed exchange rates, deteriorating current account balance as a result of higher prices leads to a real increase in the exchange rate.

It is not necessary to go into more detail on the economic theory building, it is sufficient here to note the central role of interest in any economic context. I only wish to emphasize that the interest rate deserves further analysis (se below) and its abstract mathematical representation.

What is so striking is that the interest rate is a crucial factor in virtually all economic activities. But in the political debate - as well as in economic research - they manage to create a complete mess of everything and thus only increase the ambiguity, which ultimately results in the not too startling idea that everything depends on everything. Let us take a step back to the political-ethical debate: The prerequisite for getting more people into work is that the demand for labor must increase. It's that simple. High unemployment may keep inflation at a low level but is a scourge on welfare, why the need for increased government investment when unemployment rate is one or two percentage points above the interest rate. Who else have the magic power to create jobs? With an unemployment rate of 6-9 percent, there's simply not work for all. And those unemployed cannot wait until the market show an increase in demand. They have bills to pay too. The slogan "it must pay to work" is effective only for people who already have a job as long as the interest rate is around 2-2.5 per cent. Tax cuts referring to that slogan undoubtedly increases inequality and high unemployment. Tax cuts only shift high income curve upward, and have absolutely no effect on demand for labor. The conservative position based on the belief that "jobs will spread" by itself reducing the tax on labor income remains a blind faith in the 200-year-old conservative principles. During periods of high unemployment government investment is the only way to repair problems - and actions should focus on job creation activities that contribute to better income distribution. It also means, necessarily some higher tax rates for high incomes. If a more equal income distribution can not be created through employment, it is likely to start developing a system for Citizens' salaries, which requires completely new ideological approach. The key is a more even income distribution, which also leads to higher welfare for all. The results of the 1930s population policy and child allowance introduction speaks for itself in that regard.

New ideological approach requires new perspectives on tax and redistribution policies. In the current debate if tax should be flat or progressive, one must carefully parse through what can be considered reasonable in view of governments public commitments - the right to work, healthcare, education welfare, etc. and not least the impact of taxes on the interest rate. There is currently no evidence of the alleged dynamic effects of flat tax. In this context, again mainly conservative politicians and believers sets the tone of the debate. By the way, how is the economy in Iceland and the Baltic states, where the flat tax has been applied? With a flat tax of 20 percent for example, has sent 80 percent of the market to regulate. Again and again, it has proved that it is impossible to transmit as much scope for the market's free hand.

If we run the math a step further than the Minister of Finance and investigates mid-point and set the time for one so we get a point of comparison, which we call "hourpendulum" it is quite clear that when the "hourpendulum" is greater than one the equivalent income will be above 1 million. According to the clock that measures the natural circadian is the time period 24 hours. Interest runs daily 24 hours continuously and without interruption. Again we have to return to the very basic concepts. To calculate financing, depreciation etc it is commonly used the method of interest factors in the formula (1 + p/100)^tfor the normal interest calculations and Σ(1 + p/100)^tcompound interest calculations. The exponent reveals that the amount changes over time - i.e accelerated^[2]It is quite clear that at this point we must stop and think for a while over which basic units ought to be used in economic theory.

The central banks clock

The key rate and interest rate is linked to time, and it creates large time shifts in all economic systems. Now and then increasing or decreasing rate depending on what the central bank uses as a forecast basis for their action in order to timely bring the "right price" of money, while at the same time the economic period changes. The market is a guide for companies and individuals when calculations of loans for investment are made: they try to forecast the outcome of the investment and what it ultimately will cost over time. But are the projections of time onto the economic systems "eigentime" the same or can economic time significantly deviate from our normal time? The answer is negative, economic time and biological or normal time differ and only in exceptional occations they are the same.

Investment, production, employment, wages, consumption etc is affected through the interest rate - thus it is a force that applies to all economic activities. But by what mechanisms is the rate affecting economic activities over time. A velocity in the economic context can be manipulated only by changing the time period and hence the number 1/T. The units themselves can not be changed, ie we use a specific time unit for the measurement itself. A day is a day, a year is a year, but what if the day suddenly is divided into 36 hours? The interest ratecouldnt care less, since interest doesn't sleap or eat. If the interest rate or damping constant is reduced from one mode to another, it means that the period is extended and the opposite occurs for a raise. If the time for one activity increases then speed of income and acceleration also be reasonably slow - which is quite in order. And accordingly in an increase - the work may need to be performed at 8 hours instead of 10 hours. In both cases, economic activity is likely induce rationalization and structural change - as was the whole idea behind the National Bank's intervention. By changing damping coefficient for economic activity also change direction. This itself shows clearly by the formula: three percent 3/100 is 0.03, but the inverse is 33.3333, and 5/100 is 0.05 and the inverse 100/5 eqals 20. Work previously carried out in 10 hours, after lowered interest rate the work may be performed in eg 12 hours. By raising the interest rate increases, literally, the time pressure. Another way of putting it is that the rate of economic activity increases. The radius of the economic swing motion increases while the period may be shortened, which leads to a system's overall acceleration also increases. They are two sides of the same coin - to put it a bit ironic. Banks damping constants, ie interest rate, thus effectively cuts through the whole economic system. But National Bank's decision will not get any better than their calculations and predictions and not so rarely will the decisions be enforced at the wrong time. They do not have a clock that gives the exact time of the damping constant. If the central bank changes the time of the day, covering 24 hours to a day that has 33 hours, then, of course, the clock must be set to the new time. If the period of time changed from 24 to 33 so will the new financial year cover 502 days. The more balanced revenue and resource allocation is the faster development and greater prosperity for all. With a low interest rate, something occurs that you do not usually think of in the economic context, namely that the system time moves slower in an economic system with a low interest rate. A known phenomenon called time dilation. The cetral bank needs a new clockface for each damping constant decided whether to know the exact economic times. A financial year is normally longer than a calendar year (if interest rate, the damping constant, is less than 4.1667%).

But here we find the paradoxical fact that the effect of interest rate for individuals who need to borrow for a home loan, earnings are shrinking while the financial sector will demand more money. With a key rate of around 4%, the mortgage rate is up to 5-6%, which means that the period is shorter, and economic year in this case is somewhere between 260-304 days. This means that revenue value needs to be greater than 1 (medium income). The conclusion is of course that high incomes makes it easier to borrow for a house purchase. To create a certain balance between loans and revenue part of the interest is deducted through taxes, while individuals themselves - with a low income - are forced to tightening their own consumption to be balanced fully. He who has sufficient income need not worry about his own consumption. This means in fact that interest deductions through taxes involve the redistribution of resources. But those who have very low incomes find it difficult to even get loans and therefore they are also excluded from the redistribution of resources that is done through tax. In this case, the key interest rate should be around 3 percent and the mortgage rate should remain around 4.1667 percent, and also tax reduction should increase at the lower income bracket.

The central banks obviously need a new clockface to keep track of the time of the exonomy. To create the new clockface the central bank must have basic knowledge of the amplitude and frequency of economic activities:

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The following formulas can serve as guidance for the central banks's new dial:

The above formulas apply not only to a few individual cases, but it is always in the same way that it always comes to velocity v (income/hour) is calculated by the following formula: r × sin Θ set the degree to 10° if you just multiply the degree for one minute = 0,1666..7° by 60; also a measure of the angular velocity (measured in radians per unit time)³. The economic time unit also explains in part why some developing countries have low growth and low incomes, high unemployment, high inflation (note) etc.etc and will continue to have so as long as "nothing happens". Developing country assistance will only perpetuate the current situation unless it is directly linked to increasing the population's income. Zimbabwe's a sad example of this trend.

Interest Calculations

For all economic activities, the interest rate is of paramount importance - whether it be for investment, productionor consumption. What will be crucial for the final calculation of the outcome obviously depends on the formal arithmetic. It is quite common that the forecasts and estimates do not measure correctly and/or indicate errors. And if calculation errors apears on a national level or in major commercial banks, the result could be disastrous. In what follows I shall show you two ways to count. In contrast to the usual method of calculation by interest factors I will use the usual equation for uniformly accelerated motion, which has the form v_o+ a × t. If one uses continuous interest e^rt, where's eα 2.718281828 ..., the result will be less at discount and more in compuond calculation. The following table is compiled figures on the change in the amount of SEK 100 for some years.

For shorter periods than two years nothing dramatic will happen, but over a number of years the differences become apparent. The column R × Amount show the traditional calculus, while column B + r × t shows a uniformly accelerated amount, which in a coordinate system is displayed as a straight line. The normal calculation results in a slightly curved line, because the total amount in this way will be calculated with the rate to the power of time (year). The calculation of factors to the power of time shows in fact that the acceleration is not uniform. This becomes even more obvious comparing differences in compound interest calculus. In the traditional compound interest calculus amount multiplied by the sum of interest rate factors to the power of time, whereas in the comparative calculation uses the primitive function to B + r × t = B × t + r × t²/2 for t > 1.

After 10 years difference multiplied by four million will be more than 123 million if everyone (= in this example, four million) set aside SEK 100 every year. If each year SEK 1,000 is set aside the difference increases to over 1.2 billion. For SEK 10,000 every year then the difference is more than 12.3 billion. In "normal periods" the monetary base is almost constant, apart from periods of crisis when it abruptly can more than double in a month or two. As an example, money supply M1 and M3 rose in July by 7.6 respectively 5.4% compared to July 2009.

Resonance

A problematic element in the periodic impulses is that they can create resonance if the impulse comes close to the natural frequency (oscillation), which occurs when a small impulse is forced on the system each turn (2π): the more self-resonant frequency in resonance with the forced frequence, the more increasing amplitude. A system that is exposed to a single impulse, and then left to itself will pretty soon come to a halt. When the amplitude of the fluctuations in the system decreases, the system is damped. The effects of an economic system, which fall into crisis by high inflation or the banks' inability to manage the balance between lending and deposit attracts national banks and governments to rectify the situation by national banks are trying to adjust the interest rateand governments are taking on the role of a sort of responsible family man and pays out big stimulus package, which is supposed to fix the crisis, but at the expense of all taxpayers. In one case, attempts to mitigate the system motions (amplitude), while in the second case, trying to keep momentum with the intent to prevent the system to halt by itself, thus creating a decline in demand, high unemployment and economic decline. To avoid large fluctuations governments apply a tighter or looser monetary and fiscal policies. There are a few economists - such as NY-professor Nouriel Roubini - have of course been warning of serious financial crises in the future, that has to do with the huge amount paid by different stimulus package with money borrowed from other countries.

From day to day it should hardly be noticed, but if it is months or years, it becomes clear how the above diagram illustrates a plausible economic development, with the possible exception of the crisis of 1929, as from one day to the other created an economic panic. In 2008, it took at least one month before the economic system world wide began to shake or crumble. However, it is clear that it is necessary to reduce the peaks to avoid destructive economic movements, as in the graph is denoted by the disaster. This can only be achieved through increased taxation of high incomes, ie those income levels where hour-pendulum is greater than 1 (see gi's in the table below). It is handy to assume that resonance occurs when the g-constant is greater than gravity (in this example π²≈ 9,86) - ie when gi equals one. One can not emphasize enough the fact that tax cuts help to remove or reduce income growth, and it occurs at the expense of a more equal income distribution. The conclusion is then that a tax increase for very high income reduces inflation but increases the welfare of all. Any form of bonus schemes should then also be penaltytaxed for the simple reason that they are contributing to increasing inflation and prevent a more balanced and acceptable distribution of income.

Revenue

To illustrate the above graph, I will present an example of economic quantities. The table below lists a number of more or less normal level of income with the lowest annual earnings set to the corresponding compensation from the UIF. To work a person need food, rest and sleep. After each day the body builds up the "energy", that the next day partly will be used during work-hours. During a week normally 8 hours will be used per day for work, five days a week. But it does not really matter the number of hours or days a week work is in progress - the number of hours per day is still 24, and thus time for work is the same as for the interest. While time is continuous so represents the work a periodic impulse, resulting in economic motion and changes over time. When we know the annual income divided with 8760 hours (365 * 24) we obtain the income per hour (if you want an even finer division per second then divide it again by 3600). Once the income per hour (fundamental economic speed) one can calculate the income per day, acceleration, and the economic inertial mass. We consider the economic circadian as one period, the system is similar to the nature of a mathematical pendulum: Assuming a material point suspended in a weightless wire, which swings back and forth between the endpoints A and B. Then we are given the opportunity to calculate the gravity g, rotational speed and angular frequency w.

A summary of some basic economic parameters are given in the following table. From left, the Central bank's interest rate and the interest rate gives effects on income, the change of economic gravity, mass and angular frequency. Remarkably, at a doubling of the income so increases gravity with square: and a fivefold increase in income and thus give an increase of gravity by about 2⁵ = 32 times. It may also be worthwhile to see that mass, m*g, divided by revenue per hour gives us the result 9.86960, which is the same as π² downto five decimal places! The economic momentum is determined as follows: the inertial mass multiplied by the income per hour, m*v = E_i, and consequently, given the economic kinetic energy of m*v²/2 = E_ik.

The time period given by the formula:

Compiles it into a table of different income levels, we get the following contents:

It is natural to assume that the "ideal" - or perhaps more accurate maximum - income before tax of the current situation is around 300, 000 with a time period of 24 hours (if you compare hour-pendulum, g/π²). The g-column shows the acceleration of gravity for different levels. (If you take the length of radius = 1 and consider the movement of a one half turn^[4]= π and compare the acceleration of gravity ,the g-column, one can see that when g/π²=1 acceleration due to gravity g is always 9.86 regardless of what income level is chosen - and this give the important conclusion that the lower the interest rate, the higher the income necessary to meet the acceleration resistant up to that level.) At 3 percent interest rate requires an income of 734 000 before tax and 2.5 percent require an income equivalent to approximately SEK 1,265,000. This is fully in line with the above diagram: the closer the system's natural frequency you end up with interest, the stronger the system oscillations. Self-frequency seems to lie at 0.026526 for economic systems, no matter what income level you set, with the result that a forced damping constant, interest rate, which ends up in the vicinity of the system itself creates volatility in the coming catastrophic resonances if you only use the interest rate to regulate the economy. One consequence of this is that a tax cut strengthens the resonance, and accelerates a process that leads to disaster. In this case, this can be noticed by some personal incomes soar, while low income levels from unemployment insurance level + 100 000 is pushed back through the systems increased gravity. G-constant for unemployment compensation will be 7.88 and 0.8 hour-pendulum. With interest rate at 1.5 percent require an income of more than one million, giving unemployment compensation level hour-pendulum 0.15 and the g-coefficient 1,45. The dayperiod is then up to 66.67 hours!

A low interest rate moves the revenue curve upward, creating greater disparities between income levels. High income levels increase inflation and unemployment decreases if we are to believe mainstream economic theories. For those interested in trivia should note that the gravitycoefficient when the income is 300 000 will be greater then 9.86! A change in interest rates sets the economic velocity, economic period and all fundamental constants.

From a political point of view it might be noticed without any doubt that to achieve economic growth tax cuts contributes to the Mugabe effect. It is the hard truth of economic reality. Bonus and extreme salaries contribute similarly to this effect. And likewise give a tax increases for these income levels a positive effect if it helps to increase prosperity and income received for low income levels. This of course has to do with the fact that the total increase or growth acceleration is greatest and is more mobile in these income brackets (it is easier to push on a bike than a truck). Therefore, at least in hectic election times, one should ask the question why the majority of the workforce is significantly below this reported "maximum" income (SEK 300,000). By extension of this problem, one can also say that the majority of workers, unemployed and retired people have to pay for the few who are above maxincome to have a good time! High revenue specifically affects the money supply and other financial and economic parameters and - according to this the above example - particularly wages and incomes above SEK 300 000. The period of 24 hours would seem intuitively to be a "natural" period for comparison, but if the period extends to 33.33 drop frequency 1/T to 0.03 and similarly a higher interest rate to 5 percent increases frequency for the period to 20. The whole system's motion is due to the time that the national bank's market watch shows. Perhaps it is appropriate to introduce a new kind of "miss out": that is, a representative of the central bank each day on radio and television happily may exclaim: "It is seven o'clock and all is well!"

Every now and then one can hear critics saying our theory on economic issues must be renewed. Herman Weyl repeated on several occasions his critique of economic and political theory. Words, Weyl wrote, are dangerous tools. They work well in everyday life and the well-known, limited circumstances, but to extend them to wider spheres, without given the reality of light might have devastating effects. Future archaeologists, who in five thousand years will digg up tax returns and technical literature will probably date the financial records to the period before Galileo. Particularly clear, said Weyl, are the word's magic power in the political field, "where the word has a lot more suspended meaning and human passions so often drowns out the voice of reason".

Short on resonance - damping coefficient

Damping is used to describe the taking of energy from one system. The damping energy is transformed, which leads to energy loss in the system.

It is worth mentioning that damping only affects systems at resonance. It is common knowledge that damping lowers the amplitude of the transmissibility curve at resonance, and that it also reduces the rate at which the transmissibility curve 'rolls off' after resonance.

Model

Here, an attempt at a brief account of changes in a dynamic system, where parts are continuously exposed to different forces: the total change can be considered as a linear combination of changes in various "states". The speed with which - in economic terms - resources decays or convert is controlled by the amount of damping. Damping is a modal property, and each state has a damping coefficient associated with it. In general it should apply that heavily damped modes fades faster than the state with smaller damping rates.

In a dynamic model in compact form, the vectors n components and the matrices (A, B, C) are nxn matrices and it can be summarized by the following formula:

F(t)=A×d²I/dt² + B×dI/dt + C×w

där A="masscoefficients", B=dampcoefficients, C="stiffnesscoefficients"

To calculate the matrix coefficients, further detailed analysis by a numerical rating process with experimental data is needed, which can be a rather complex mathematical procedure.

It is evident that the analysis in my article is confirmed by economic studies, for instance economic research on how "reduction in capital taxes enhances economic activity" and how "wages, investment, consumption and output will increase". More precise - mainstream research confirm that reduction in taxes will increase the income of the rich and wealthy and decrease income for those with low income and wealth. It is also important to note the fact that tax reduction also increases the Mugabe-effect: due to income increase and the strategy to generate a increase in return to shareholders. But it is not necessary to refer to the rather oldfashioned utilitarian philosophy and concepts in decision- or game theory (quite common in microeconomic theory).

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