Dust flux, Vostok ice core

Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Monday, September 19, 2011

Brilliant discovery in economics: A review of Johansen and Simonsen (2011)

This paper shows the kind of brilliant research that gets done now that economic commentary is only pursued by Ph.D.s.

In this paper, Johansen and Simonsen (2011) come to the surprising conclusion that (spoiler alert!) the US economy operates on Keynesian principles; which differs significantly from its official policy of creating credit whenever a problem appears.

The principal evidence offered in support of the author's conclusions is the following chart, showing that both the value of the Dow Jones Industrial Average (DJIA) and the amount of public debt have increased logarithmically since the late 18th century. And since correlation implies causation, the rise of the DJIA must be due to the increasing public debt.

Correlation between DJIA and U.S. public debt. From Johansen and Simonsen (2011).

Now that we understand how the economy works, it becomes clear how we move forward. Raise public debt. Boost the DJIA! The trickle down effects on the economy shall enrich us all.

Notice how public debt jumps at particular intervals--especially around 1812, 1860, 1914, 1940, and steadily after about 1965. These increases in debt relate to wars, proving the Keynesian adage that war is good for the economy.

Of course there might be a few other variables that increased over the same time, which might also contribute to that rising DJIA.

Population increased, as did infrastructure construction and economic activity. Might these factors have influenced the DJIA? Most of that economic activity had nothing to do with wars, but did have a lot do with increasing the American standard of living.

Probably the most important factor is the increased availability of cheap energy.

Looking at the chart again, I worry a bit about that last increase in the DJIA just before the end of the chart. Looks like it's about 5x more expensive than the historical trend. Quick! Somebody borrow more money!


Johansen, A., and Simonsen, I., 2011. Keynesian Economics After All. Submitted (but they don't admit where).


  1. a bit off topic but still not, can you make some pseude phase space analysis on precious metal prices of today? I hate those discontinously price jumps that occurs "randomly", and today it has been freaking 5 of them already


  2. I have a lot on my plate now but I'll see what I can do.

    I've gotten away somewhat from the higher-frequency activity as after the series on deconstructing algos I came to realize that my methods are not really suitable for studying manipulation.