Hydraulic
From Hobson's Choice
In mechanics, "hydraulic" refers to the exploitation of a useful feature of liquids, viz., that they are not compressible. Hence, one use a small mechanical device, such as a hand-operated crank, to push down on a thin column of oil, and that thin column can be applied to a very wide column to lift a car.[1]
We often use the term "hydraulic" to refer to the tendency of some social sciences (most notably economics) to treat their subject as if it were just like a hydraulic pump. Hence, economic events or forces that are "lumpy" and erratic are treated as if they are so fine-grained as to be liquid.
Examples
In the branch of economics known as "open economy macroeconomics," changes in the exchange rates of currencies are erroneously treated as if they occurred smoothly and in reaction to gradual changes of underlying fiscal/monetary realities. In reality, there is scarcely any picture "big" enough for which this is true. Instead, foreign exchange markets consist of traders who have a natural tendency to "overreact" to available information on fiscal realities, so that a gradual correction to fiscal realities is inherently in violation of the self-maximizing behavior of economic actors.
This flaw can be extended to all kinds of economic developments, such as labor markets. Labor is not a commodity despited repeated insistences by economics that it is. The fact that labor markets do not behave in the same manner as commodities for consumable goods is a tip-off. Compare labor to a real commodity, 97-octane gasoline. The consumer may be well aware of the fact that it's December is ending, and automotive fuel prices are likely to increase over the course of the following year, but she can't really arbitrage that. It's not really practical to buy her annual volume of gasoline consumption (probably about 600 gallons, for an employed adult) and take advantage of the lower seasonal prices. Consumers therefore respond to price signals on a monthly basis, and more dramatically on an annual basis. But employers do contemplate the longer-term outlook when hiring; and a person in the labor market does not have the option of withholding labor based on spot labor prices, the way a gasoline refinery can use periods of low energy prices to replenish its feedstocks.
Another example is "vulgar" Keynesianism, sometimes referred to as "hydraulic" Keynesianism. While the actual formal system is far more sophisticated, the usual model tended to be taught as if economic agents, such as employers or financial markets passively responded to predictible trends without trying to arbitrage over longer terms.[2] The most embarrassing problem with this was the concept of the Phillips' Curve, which reflected an historic trade-off between inflation and unemployment. The entire concept of the Phillips' Curve began to crumble, beginning with the catastrophic climb in crude oil prices (1970's) and the collapse of the Bretton Woods system of fixed exchange rates ('71-74). During the 1970's, the US economy suffered inflation rates in excess of 14%, while the unemployment rate sometimes exceeded 10%.[3] However, public discussions of economic policy, including those conducted since the alleged replacement of Keynesianism, have tended to assume the continuously variable flexibility of fiscal and monetary policy.
See Also
Notes
- ↑ See, for example, Howstuffworks, "A Hydraulic System"
- ↑ See The Short Run's intro to the multiplier concept.
- ↑ For an excellent discussion of the rise and fall of the Phillips Curve, plus the mixed results of efforts to rehabilitate it, see Phillips Curve
James R MacLean (12:26, 30 December 2007 (PST))
