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IEA History |
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(Because IEA history coincides so largely with my own history, it probably makes sense to write it in frankly biographical format.)
Political background: "Political Obstacles to Full-Employment Planning." When I began my graduate study at Columbia in 1946, I was under the impression that the new Keynesian economic policies would make it possible for governments to prevent serious recessions if they heeded the advice of economists. But when the conservative majority in the post-war Congress took the "full" out of the final title (and crucial guts) of the original historic (Full) Employment Act of 1946, I realized the key importance of that "if." So my first Ph.D. thesis topic was "Political Obstacles to Full Employment Planning," and I learned how political ideology tends to be based on very explicit economic self interest. But my adviser turned down my initial 150-odd pages, saying they "sounded more like a Fortune Magazine article than a Ph.D thesis."
The beginning of empirical "structural/institutional" analysis. So I picked a more analytical topic: "Elastic Stimulants and Institutional Depressants: A New Approach to the Problem of Economic Instability and Depressions" (University Microfilms, 1956). This interest in determining "normal" long-run "structural" relationships (and short-run deviations therefrom) became a basic theme in my later empirical research and in IEA Pocket Charts.
The Keynesian "Achilles Heel." As I learned more about the original Keynesian analytical and policy system, I realized that it has a key conceptual weakness: it is basically tied to the "real" perspective of the the National Income and Product Accounts (NIPA), which are unable to deal with money and credit, leaving a "financial gap" between financial saving and the credit-financing of investment spending. And because some of the economy's most important functional relationships are in this financial gap, Keynesian analysis has to resort to an esoteric assortment of abstract and confusing non-empirical concepts, such as "ex ante/ex post," "propensities," "liquidity preference," and IS/LM curves. And since Keynesian policy tools reflect this conceptual weakness, they would be unable to maintain stable full-employment economic balance even if Congress followed economists' advice.
Money-flow analysis. So I was very excited when I learned about Morris Copeland's seminal 1952 NBER "Study of Money flows." But when I analyzed its conceptual framework I realized that it, also, had a fatal weakness: acceptance of the traditional static, double-entry bookkeeping, concept of money creation, which says that new money comes from the borrower-depositors who first receive it. This "credit-money" concept provides no way to empirically analyze the dynamic, functionaly-exogenous "multiplier effect" of money growth on economic growth. Unfortunately, this conceptual flaw still remains in the Federal Reserve's Flow of Funds Accounts (FOFA).
Development of IDMF conceptual framework. During a 1957-58 Ford Foundation Faculty Fellowship at the University of Pittsburgh, I developed what I have since called the Integrating Dynamic Money-Flow (IDMF) Conceptual Framework (or "model"). The credit aspect nets out intermediate ("pass-through") credit flows (much as the NIPA net out intermediate income and spending flows), making it possible to empirically trace the flow of financial saving from initial saver to credit-financed GDP investment. The monetary aspect opens up the monetarists' traditional "black box" and makes it possible to understand clearly, and analyze empirically, the key role of "New Money" in financing GDP growth. Together, these two conceptual innovations make it possible to functionally integrate FOFA money and credit data with NIPA income and spending data. A brief description of this model was first published in "The Flow of Funds Approach to Social Accounting" (NBER, Studies in Income and Wealth, 1962).
Developing the IDMF empirical model. During 1957-65, and again during 1971-82, the empirical aspects of this work benefitted greatly from the help of the late Stephen P. Taylor, a Columbia classmate who was Chief of the Fed's Flow of Funds Section from 1961 until his retiremehnt in 1985. I helped Steve on his further development of the FOF accounts, and he helped me build a FOFA-based empirical computer model of the IDMF conceptual framework. (Steve once told me that I was doing more serious empirical analysis with FOFA data than anyone else.)
The standard of reference: NBER "business cycle" vs full-employment growth-trend. Since I tend to have a distrust of mathematical computer models and their often faulty but hidden assumptions, I have done most of my own empirical analysis "visually," with "structural" charts (ratios to GDP or other functionally-relevant growth series). In the process I realized a basic conceptual flaw in the NBER "business cycle" analytical model and its "leading indicators." Since the NBER model measures fluctuations on an absolute basis, rather than relative to the economy's growth trend, an NBER "contraction" is an absolute downturn, rather than a recession from the growth trend. Consequently, on a functionally-appropriate growth-trend standard of reference, most of the "leading" indicators are merely coincident with the economy's operating rate. Thus,"cyclical" leads and lags are often quite different in these two perspectives, especially on the downturn. But the NBER's huge professional vested interest in their system still keeps them from systematically recalculatiing their business cycle analysis and "leading" indicators.
Founding of IEA, 1974, in Washington, D.C. This was motivated partly by a desire to get wider attention for the IDMF conceptual framework and to do further research on it, partly because I had long been dissatisfied with the available economic chart books, both government and private, and the continued use of the conceptually-flawed NBER "business cycle" framework.
"IEA Pocket Charts -- Key Indicators of Economic Performance and Relationships." This IEA "flagship" publication was visually incisive, analytically innovative, and technically sophisticated. The eight-page, 8.5" x 5.5" chartfolder included over 130 series in 25 chart panels -- so compact that it could easily be carried in a coat pocket to check the accuracy of other people's statements or data.
Subscriptions also included a monthly economic review, occasional special research reports, and several other innovative tools to help users do their own visual analysis:
Suspension of IEA research and publication. Unfortunately, IEA was not financially self-sustaining, and in 1980 had to suspend not only its current publications but also most of its empirical research -- at the very time that its innovative analytical framework could have been so useful in exposing the disastrous nature of the Federal Reserve's excessive anti-inflation policies and Reagan's irresponsible fiscal/military policies.
New vision for IEA future. We always hoped that IEA's innovative work could somehow be resumed. Now that the World Wide Web has changed the nature and economics of publishing, I am trying to get the most important aspects of the IEA system out on the Web where other people can more effectively learn about them and discuss them. My hope is that younger economists who are as turned off as I am by the current state of economic "science," and who are not so burdened by the traditional flawed economic theories and policy ideas, will become excited and challenged by this new approach, and that that could lead some research-oriented institution to "take IEA under its wing" to continue its innovative work. (See "Invitation to Research Collaboration".)
| Last revised: April 21, 1999 |
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