Isaac Newton invented the calculus to differentiate efficient and effective causes. These causal identities are inherent to Aristotelian logic, and Newton intended to dispel the confusion associated with using this logic to describe the ontology of objective reality.
Despite the success of using the calculus — now, in the age of science, contemplating the efficient role of artificial intelligence to effectively determine things — the logic of the efficient and effective cause still obtains.
Especially in the realm of politics and economics, efficient and effective causal identities are used to win contentious arguments. Public policy derives from the understanding of causal identities, and if a party to the process can convincingly argue what causes something, like poverty or economic growth, public support tends to derive from the apparent ontology, the natural legitimacy, of an objective reality, despite how it may have been derived.
A good example is the current use of Zero Interest Rate Policy (ZIRP).
ZIRP derives from the last credit-default crisis and management of the Great Recession to date. Simply put (as I keep saying), ZIRP is being used because we are still experiencing the recession.
When the Fed chair recently testified on Capitol Hill, analysts were all atwitter. How can the Fed consider a rate cut with “solid” economic growth and record-low unemployment?
Is it just a coincidence (or a naturally occurring ontology) that an actual, continuing, recessionary trend (indicated by ZIRP) effectively supports equity values against a naturally occurring, declining rate of profit (“the risk” being efficiently managed by the Fed to derive the intended effect)?
It appears that the Fed causes the record equity valuations we see now; but no, it is an effective cause.
The efficient cause is record, and still rising, income inequality; and many analysts say it will result in (or cause) negative rates (NIRP), like in Europe.
The result is record, and rising, private debt, along with public debt, which means that most people do not own the rising value of equity shares. Instead, combined with the tax cuts (the TIF), the “little people” own all the liability associated with the rising value. (See other articles by griffithlighton on Risk-Transfer Vehicles.) For most people, at the current rate of change, their equity value is effectively negative — it is derivative, which means it can be changed.
The derivative value (the intended result and the rate of change) is the focus of a deliberate process, and in the US it is the 2020 presidential election.
Senators Sanders and Warren will efficiently cause the rate of change needed to reduce the liability; but (like I have been telling you) without actually reducing the risk.
The actual risk is still always there, fully assumed in priority, no matter what kind of tools central bankers come up with to efficiently ZIRP and NIRP its effective, causal identity.
griffithlighton 