Business Thinking And Actuality
Norwegian economist Ragnar Anton Kittil Frisch is known as one of the founders of modern economics. Not only did he coin the term "macro economics," but he also invented modern econometrics, working on a time series in the 1920s and linear regression analysis in the 1930s. Some of his principles are used in business cycle theories and he's credited with making important contributions to microeconomics' production theory. Today his work is found in economics books and university classrooms around the world, where students learn to test different theoretical economic situations with math and statistics.
For people without formal training and advanced levels of study in applied economics, the language of econometrics can be overwhelmingly complex. Perhaps this is why most students never really hear about it until their third or fourth year of economics college. Journalists often report the end results and findings of economists when they talk about housing market trends or labor economics predictions, but much of the back-end work is never seen or understood by the public. Today, econometric experts are needed by large corporations, financial institutions, public administrations and research institutes who require quantitative methods of analyzing data, forecasting, modeling and forming policy.
One problem with econometrics is that, occasionally, the integrity of the results is called into question, since it is so easy to manipulate statistics to achieve a desired conclusion. As a result, most economists will submit their work to multiple peer reviews before publishing their findings to improve the validity of the studies. Despite its critics, this study of applied economics is far more useful in predictions than random guesses. Whether it pertains to stock markets or budget planning, this forecasting method is a valuable tool.
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You don't need a degree in economics to see that we're in a serious economic recession. The Meriam-Webster Dictionary defines a recession as "a general slowdown in economic activity." Similarly, the Encarta World Dictionary says a recession occurs when there is a "contraction in the business cycle" of buying and production. Truly hindsight is 20/20, as we can now see how precariously the financial fate of our nation was throughout the nineties and new millennium, placing all our stock on a housing and construction gamble. Yet many Americans are still asking, "How did we get here?" And more importantly, "Why did no one see this coming?"
An economic recession is ugly. Consumers lose their jobs, lose their homes, file for bankruptcy and tighten spending. Businesses shed jobs, cut wages, lay-off employees and collapse. Lending institutions have trouble collecting from debtors and this dries up their liquid assets. Investors see drops in profits and nervously pull their money out. As a result, our Gross Domestic Product declines and our nation as a whole becomes poorer. Is there no end in sight for our current despair? Global economics experts have a thing or two to say about the current crisis.
Predicting an economic recession is challenging, since so many factors can affect the ebb and flow of the economy, but education economics professors say there are some obvious predictors. A stock market drop often precedes the start of a recession, they say. In "Stocks For the Long Run," the author mentions ten recessions that were preceded by a stock market downturn 0 to 13 months prior, although other experts suggest half of the declines (of 10% or more) since 1946 have not been followed by recessions. In fact, half of the declines occurred once a recession had already started. Another way to look at economic stability is to look at the profit from 10-year/3-month Treasury securities, although it sometimes takes 6 to 18 months to show a recession after declines. A third predictor is a three-month rise in unemployment rates and jobless claims. Lastly, real estate markets often weaken before a recession, although microeconomics experts say this can go on for long periods of time before a recession ever hits.
Economic theory has become a popularity issue, even a political football of the elitists. Sound Friedman school economic theory has been put in the box by politicians favoring the drunken spending theories proposed by Keynesian economic theory. Theory need building on quantifying realistic relationships and accounting for potential cyclical explosions.
The economic recession has spread its insidious tentacles outside of the U.S. to global economics, hurting countries like Latvia, Estonia, Iceland, Ireland, Lithuania, Seychelles, Venezuela, Ukraine and Jamaica. Economics research shows that even the UK, Japan, China and Canada are feeling the pinch of America's pain. There's no telling how long we'll be in this recession or what the formula is for digging out, but many Americans are willing to trust the Obama-Biden administration with the task, while simply hoping and praying that we'll see a turnaround soon.
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