Iceland Votes Against Austerity Analysis of Icelands Debt-GDP

Volcanic lavenders at Englands Leeds-Bradford airport during the 2010 aviation shutdown due to dust particles from Icelands volcanic eruption.

Einstein liked to ride his bicycle. Ruth liked to play baseball. Einstein said, Life is like riding a bike. To keep your balance, you must keep moving. Both of them performed at the highest levels in their chosen fields and had a work function.

Summary
The Debt/GDP ratio and the great austerity debate are revisited here, in the light of the recent Iceland election results, by appealing to baseball statistics and Einsteins work function from physics. A simple linear law, y = hx + c, can be shown to relate the GDP x and the Debt y. The slope h is the rate of change of debt with respect to the GDP and is often found to be a constant. The nonzero intercept c in this law like the work function in Einsteins photoelectric law, which tells us something about the difficulty of producing an electron from a metal using a photon of a fixed energy. Babe Ruths work function tells us about the difficulty of producing Hits (H) as At Bats (AB) increase. Likewise we must deal with a work function in many other problems. This affects the Debt/GDP ratio and the conclusions that we draw from our (x, y) observations.
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20.0
18.0

Debt, y [$, Billions]

16.0
14.0

y = 3.494x - 29.357 (2009-2012) After Crisis

12.0
10.0 8.0 6.0 4.0 2.0 0.0 0.0 5.0 10.0 15.0 20.0 25.0

y = hx + c = 0.434x + 2.845 r2 = 0.775 2002-2008, Before Crisis

GDP, x [$, Billions]

Figure 1: Graphical representation of Icelands GDP-Debt data, obtained from the global debt clock, at The Economist (click here). Linear regression analysis was used to determine the x-y relation BEFORE the crisis. The straight line joining (x, y) pairs for 2009 and 2012 is plotted AFTER the crisis. Iceland, a small island country in the North Atlantic, with a population of just 320,000, with Reykjavik as its capital, a land famous for its glaciers and geysers, was made even more famous in 2010 by a volcano with an unpronounceable name (Eyjafjallajkull) which disrupted worldwide air traffic. Everyone who has crossed the Atlantic has flown over Reykjavik. Iceland is making news again this morning (April 28, 2013) for having voted out the politicians who instituted austerity programs as the countrys debt soared following the financial crisis in October 2008, see Refs. [1, 2]. The Debt and GDP data compiled in Table 1 was obtained from Ref. [3].

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Table 1: Icelands GDP-Debt Data for 2002-2012

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
140 120

GDP, x $, billions 8.311 10.678 12.852 15.531 16.345 17.850 16.893 12.154 12.444 13.310 13.191

Debt, y $, billions 6.150 7.656 8.855 9.412 8.859 10.014 11.690 13.114 15.144 16.797 16.740

Debt/GDP ratio [%], 100(y/x) 74 71.7 68.9 60.6 54.2 56.1 69.2 107.9 121.7 126.2 126.9

Reinhart-Rogoff threshold

Debt/GDP, y/x [%]

100 80 60 40 20 0 2000

2002

2004

2006

2008

2010

2012

2014

Time, t [Calendar years]

Figure 2: The Debt/GDP ratio (converted to a percent) for Iceland, obtained from the global debt clock, at The Economist (click here).
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Iceland provided a test case for the Reinhart-Rogoff (RR) findings; see Ref. [4], which has now taken the world by storm, following the recent discovery of a coding error in the Microsoft Excel program, Refs. [5, 6]. The coding error, it is believed (by RR critiques), led RR down the road to conclude that high Debt/GDP ratios, above a threshold level of 90%, lead to a stifling decline in the GDP growth. The error has now gathered worldwide attention, since many liberals believe that the RR conjectures have been widely cited by heartless conservative politicians, both in the US and Europe, to justify (often massive and socially injurious) cuts to government spending, in order to reduce the growing public debt; see Refs. [7-19]. This got even a non-economist like me interested enough to investigate the behavior of the Debt/GDP ratio, see Ref. [20], because of my long standing interest in how such y/x ratios behave; see bibliography of articles listed under Ref. [21].
0.025

0.020

GDP, x [$, Trillions]

x = 1.784y 0.0019 r2 = 0.776 (2002-2008) Before Crisis

0.015

0.010

0.005

x = 0.283y + 0.0084 (2009-2012) After Crisis

0.005 0.010 0.015 0.020

0.000 0.000 -0.005

Debt, y [$, Trillions]

Figure 3: Icelands GDP-Debt data, from The Economist (click here). Although the debt is plotted on the horizontal axis, the mathematical symbol y is retained for this variable. Linear regression analysis was used to determine the x-y relation BEFORE the crisis. The straight line joining (x, y) pairs for 2009 and 2012 is plotted AFTER the crisis.
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If a straight line, with the general equation y = hx + c, does not pass through the origin, the ratio y/x = h + (c/x) is NOT a constant and will either increase or decrease, as x increases, depending on the numerical values of the slope h and the nonzero intercept c made by the straight line on the y-axis; see discussions in Refs. ]20-26]. In mathematics, the variable x, plotted on the horizontal axis, is usually considered to the independent variable and the variable y, plotted on the vertical axis, is taken to be the dependent variable. I have plotted the GDP on the horizontal axis in Figure 1 only because it appears as the denominator x in the ratio y/x = Debt/GDP. No causation regarding an increase in the Debt and the GDP is implied by this choice. The same graph is re-plotted with Debt on the horizontal axis in Figure 3. Did the increase in the debt, between 2002 to 2008, lead to the rising GDP of Iceland? Or, was a rising GDP accompanied by an increase in the debt? The answer, at this point, is a matter of opinion and no two economists seem to agree. My main purpose here is simply to call attention to this remarkable, simple, and surprisingly overlooked law relating the Debt and GDP for all countries. This is discussed in Ref. [20]. Since the discovery of the coding errors in the RR 2010 working paper, I have studied the GDP-Debt data (2002-2012) for several countries and prepared similar x-y graphs for USA, UK, Canada, Germany, Greece, Ireland, Netherlands, Australia, Japan, Singapore, Malaysia, Brazil, Russia, China, Israel, and Kazakhstan (covering the entire range of Debt/GDP ratios). All three types of (linear) behavior which can be conceived theoretically are observed. These are: Type I with h > 0 and c < 0, Type II with h > 0 and c > 0 and Type III with h < 0 and c > 0. The GDP-Debt graphs for the years 2002-2012 can be seen to show transitions between these three types of behaviors, similar to that observed for Iceland here. Russia, with a very low Debt-GDP ratio, is the only country in this list which has been able to reduce its debt while increasing its GDP (2002-2008). However, since the events of 2008, even the Russia situation has reversed itself and we see debt increasing with increasing GDP; see Figure 4.

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0.20

Debt, y [$, Trillions]

0.16

2002

2012

0.12

0.08

2008 2009

0.04

0.00 0.00

0.40

0.80

1.20

1.60

2.00

2.40

GDP, x [$, Trillions]

Figure 4: Russias GDP-Debt data, from The Economist (click here). Between 2002 and 2008, the Debt/GDP ratio decreased from 46.4% to 7.0% and then started increasing again. Correspondingly, the GDP-Debt graph reveals the linear patterns illustrated here, with the best-fit lines as indicated. BEFORE 2008: Type III, h < 0, c > 0, y = -0.069x + 0.167, with r2 = 0.942 and AFTER 2008: Type I, h > 0 and c < 0, y = 0.108x 0.0412, r2 = 0.768

It is clear that debt reduction, growth in the debt, and the growth in the GDP must be carefully investigated using such GDP-Debt diagrams. The Debt/GDP ratio certainly does NOT tell the whole story. Now, it is up to the politicians, professional economists, financial analysts, business managers, and the voting public, to took it from here and reflect on how we use (or often abuse) y/x ratios such as the Debt/GDP ratio, the profit margin (ratio of profits y to revenues x), the unemployment rate (ratio of the number of unemployed y to the labor force x), or gun death rates and trafficPage | 6

accident related fatalities (y is the number of deaths and x some desired metric against which the deaths are compared, such as the vehicles miles traveled, VMT, for traffic accidents). The slope h in the linear law tells us about the rate of increase of the debt y as the GDP x increases (or vice versa, if the variables are flipped). When the GDP increases by a fixed amount x, the debt always increases by the same fixed amount y = hx. Most importantly, the data does NOT reveal a negative slope h (decreasing GDP) after the threshold of 90% was crossed following the financial crisis in Iceland, in 2008. The GDP dropped significantly but has continued to grow following the solid line in Figure 3, albeit at a lower rate. (With Ireland, following the financial crisis, a negative slope is observed, with GDP decreasing as the Debt increases; see Ref. [20].) It is the dramatic changes in the slopes that tend to grab our attention. However, equally important is the change in the intercept c. This generally escapes our attention. The linear law y = hx + c can be written as y = h(x x0) where x0 = - c/h is the positive intercept made by the graph on the x-axis. As we see from Figure 1, the intercept x0 was actually negative before the financial crisis and has increased, following the crisis, to a large positive value. The post-crisis Debt-GDP relation for Iceland was deduced from the (x, y) pairs for 2009 and 2012. Thus, y = 3.494x 29.357 = 3.494 (x 8.4) with x and y in billions and x0 = $8.4 billion. Since the intercept c was positive, the Debt/GDP ratio, y/x, was decreasing even as both GDP and Debt continued to rise between 2002 and 2008. The decreasing values of the Debt/GDP ratio during this period are thus misleading. What we are witnessing a constant rate of increase of the debt with increasing GDP, akin to the constant rate at which the distance traveled increases when a car is moving at a fixed speed of say 60 mph, unimpeded, on a highway. At 60 mph, the car covers a distance of 1 mile per minute, or 60 miles per hour. Likewise, if the acceleration a is constant, the speed will increase at a fixed rate. The acceleration due to gravity g = 9.81 meters per second squared, which means that the speed (or velocity) of a falling body increases at a fixed
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rate of 9.8 m/s (or 32.2 feet per second) every second. Acceleration tests for modern automobiles give the time take to attain a speed of 60 mph, from 0 mph (car at rest). The shorter the time, the higher the acceleration a. During this brief time, typically less than 3 to 5 seconds for most modern vehicles, the speed is increasing at a fixed rate; see the acceleration data for the 2012 Corvette plotted in Figure 5. As seen here, the highest acceleration values are typically less than the gravitational acceleration (a < g; here a = 7.02 m/s2).

Speed, or velocity, v [m/s]

50.0

2012 Corvette ZR1

40.0

30.0

20.0

v = 7.02t
10.0

0.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0

Time, t [sec]
Figure 5: The v-t graph for the 2012 Chevrolet Corvette ZR1. The point (0, 0) is included since at time t = 0, the vehicle is at rest and its speed, or velocity, v = 0. The initial acceleration, from 0 to 30 mph, is the slope of the straight line, labeled A, joining the points (0, 0) and (1.9, 13.33) and is equal to 7.02 m/s 2. The rest of the data seems to follow this straight line quite closely, suggesting a nearly constant acceleration over the range of speeds considered here. From elementary calculus, we learn that the slope of the x-y graph is the true measure of the rate of change. Instead of distance-time, or velocity-time, we often must consider movements of other types of spaces, such as the
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movement in the GDP-Debt space of Figure 1 or Figure 4. The slope of the Debt-GDP graph is thus a rate of change, just like the rates of change in the distance-time or velocity-time graphs. (Other examples are profits-revenues graph and income versus taxes graph. In the income tax problem, the slope is called the marginal tax rate.) However, we must also pay attention to the nonzero intercept c and its deeper significance. As discussed in several articles listed under Ref. [21], the nonzero intercept is like the work function conceived by Einstein, in 1905, to explain a puzzling phenomenon called the photoelectric effect. Very briefly, when light shines on the surface of a metal it produces electrons. In his 1905 papers, Einstein first shows that we can think of radiation in the form of light as a stream of photons, each with a fixed energy bombarding the metal surface. The photons strike the electrons inside the metal. One photon is imagined to knock out one electron. The process of energy exchange between the photon and the electron is a complex one (all of the photon energy is assumed to transferred to the electron) and will vary from one metal to another (the environment in which the electron is present). However, the simplest view is that the electron liberated from within the metal will have a maximum energy K = W where W is the work function. The work function is thus the minimum energy needed to produce an electron in this extremely complex process. It represents the energy that must be given up to bring the electron outside the metal the work done to overcome the forces that bind the electron to the metal. Since = hf, where f is the frequency of light and h the universal constant, called the Planck constant, this means K = hf W = h(f f0) where W = hf0 and f0 is the cut-off frequency below which no electrons are observed. The appearance of this cut-off frequency could not be explained on the basis of the then widely held wave-view of light (emerging from Maxwells theory of electromagnetism, which predicted the existence of electromagnetic waves, with a wide range of frequencies, all of which travel through the ether at the speed of light.)

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The work function can thus be taken as a measure of the difficulty of producing an electron from the metal. The slope h then tells us how this energy of the electron increases once the fixed minimum energy is exceeded. Using the baseball analogy (also invoked by Herndon in his discussion of errors made by RR, see Ref. [6]), we can compare this process to the difficulty of producing hits (H), or home runs (HR). A baseball player with a batting average BA = y/x = 0.200 might have 100 At Bats (AB = x) and 20 Hits (H = y) in a season. However, if we study the game-by-game batting logs of this player (see in Refs. [22, 23] and Babe Ruths stats), we will find scores such as (0, 0), (1, 1), (2, 2), (3, 3), (4, 4) where the first number x is the AB and the second number y is the Hits H. Thus, y = x and the player has the PERFECT batting average of y/x = 1.000 for these games. However, as we make more observations, we find scores of (1, 0), (2, 1), (3, 2), (4, 3), and even (6, 5) in the case of Babe Ruth. Thus, y = x 1. More generally y = hx + c where h = 1 and the nonzero intercept c = 0, -1, -2, etc. is related to the number of missed hits. As we aggregate the game-by-game stats over a month, or a full season, or over a full career, we find that the general law is y = hx + c where slope h < 1 and c is either positive or negative depending on the baseball player. For Babe Ruth, the nonzero intercept c < 0 and this gives rise to the perception that the more Ruth bats, the better he gets, since y/x = h + (c/x) keeps increasing (with c < 0) as the AB = x increase. The same considerations apply in many other problems. The nonzero c is like the work function of Einstein, or the baseball work function. The implications of this generalized notion of a work function also become obvious when we study the On-Time arrival records of different airlines, see discussion in Refs. [24-26]. An On-Time arrival is just like a Hit in baseball with the number of flights operated by the airline being analogous to the number of At Bats. Again, a careful study of all of the On-Time arrival records shows that the general law is y = hx + c. The On-Time arrival percent (or ratio) y/x = h + (c/x) will therefore favor the smaller airlines with small values of x (flights operated) if the intercept c > 0 (similar to the dashed line in Figure 1 with positive intercept). Thus, Virgin America, which operated the lowest number
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of flights (among the 14 leads airlines considered in the Airline Quality Report) was rated the best American airline in the 2013 AQR Report. Thus, the behavior of the y/x ratios, and the mathematical property of a straight line which does not pass through the origin, affects our understanding of many problems where we routinely make (x, y) observations and draw important conclusions. Unfortunately, the importance of the linear law, y = hx + c, and the significance of a nonzero intercept c have not been appreciated outside physics, especially by economists, financial analysts, and business managers. The consequences are the divisive debates on debts, deficits, austerity, quality ratings, unemployment rates, and various measures of corporate performance (and limits to profits and profit margins that we now see with Microsoft, Apple, etc., already predicted in the articles listed under Ref. [21] BEFORE such observations were reported). This is surprising since the two basic laws of economics, the laws of supply and demand, are often depicted as straight lines with nonzero intercepts in most elementary text books. It is hoped that the present analysis of the Debt/GDP ratio, in the light of the Reinhart-Rogoff errors debate, will bring much needed attention to the fundamental problem with the (ab)use of y/x ratios to understand the behavior of complex systems and the world around us, like the modern economies, and modern corporations, which affect many millions of lives. Finally, with respect to the Iceland situation [27-29], the Debt/GDP ratio was increasing from 2002 to 2008 and crossed the Reinhart-Rogoff (RR) threshold of 90% following the financial crisis which found Icelands main banks collapsing within a matter of days; see Ref. [30]. And, as suggested by RR in their discussion (about declining economic growth), the increased Debt/GDP ratio was accompanied first by a quantum jump to a lower GDP level followed by a significantly lower GDP growth rate between 2009 and 2012. Furthermore, the austerity prescriptions, exactly what RR might have recommended, were also put in place by Icelands Social Democrats who were elected to reverse the crisis created by the financial liberalization policies of
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the very same parties that have now been re-elected in 2013. Instead of seeking bold and innovative solutions to the problems that led to the crisis in the first place, the Social Democrats actually followed conservative solutions, like austerity and the debt reduction recommendations of the IMF and ivory tower economists (supposedly good in the long run). The results were, however, detrimental to individual citizens who had to endure high unemployment rates and increasing household debt levels. Icelanders have now decided that the Game is Over. The austerity experiment has been aborted in Iceland, at least for now. In other words, in real life, when it is a matter of survival, it is the short term, not the long term, that matters. The RR findings are often cited as economic answer for the long term. The long term is really the cumulative sum of many many decisions, small baby steps, made in the short term, just like the game-by-game batting logs of a good baseball player. The PERFECT batting average, as revealed by the law y = x, gives way to the less than perfect y = x + c, still with h = 1 and finally to y = hx + c, after aggregation of several tens of games with a slope h < 1 and c being either positive or negative depending on the skills of the individual player. The lessons that will be learned from the Iceland experience will be the ultimate judgment on the views advanced by Reinhart-Rogoff in their 2010 working paper, not the coding errors in their Microsoft Excel programs. Like Einstein would say [31,32], all the experimentation in the world will not prove him right but one good experiment can prove him wrong. The results of that one good experiment, I think, were announced last night (April 28, 2013).

Reference list
1. Icelanders oust government over austerity program, April 28, 2013, by Balazs Koranyi and Robert Robertson, http://news.yahoo.com/icelandersoust-government-over-austerity-program-040554830.html Amassing assets
worth more than ten times Iceland's GDP, Landsbanki, Kaupthing and Glitnir collapsed in quick succession, dragging the entire country into a financial abyss in October 2008. The
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shiny Land Rovers that some Icelanders purchased, jokingly renamed 'Game Over,' were collected and taken offshore by enterprising Europeans, property prices tumbled, unemployment soared and the currency was only saved by capital controls that locked in foreign investors indefinitely. The Independence Party (which won the most seats to the Parliament in recent 2013 election) has been part of every government between 1980 and 2009, presiding over the privatization of the banks, the financial sector's liberalization and its eventual demise.

2. Icelanders oust government over austerity programme, , April 28, 2013, by Balazs Koranyi and Robert Robertson, http://in.reuters.com/article/2013/04/28/iceland-electionidINDEE93R02J20130428 (Reuters) - Fatigued by years of austerity and swayed by
promises of debt relief, Icelandic voters dumped the Social Democrats from power on Saturday, returning a centre-right government that ruled over its stunning financial collapse just five years ago

3. The global debt clock, The Economist,

http://www.economist.com/content/global_debt_clock
4. Growth in a Time Before Debt, by Carmen Reinhart and Kenneth S. Rogoff, http://www.nber.org/papers/w15639.pdf NBER Series, Working Paper 15639. On page 11, Over the past two centuries, debt in excess of 90
percent has typically been associated with mean growth of 1.7 percent versus 3.7 percent when debt is low (under 30 percent of GDP), and compared with growth rates of over 3 percent for the two middle categories (debt between 30 and 90 percent of GDP). Of course, there is considerable variation across the countries, with some countries such as Australia and New Zealand experiencing no growth deterioration at very high debt levels. It is noteworthy, however, that those high-growth high-debt observations are clustered in the years following World War II. And, on page 23, Why are there thresholds in debt, and why 90 percent? This is an important question that merits further research, but we would speculate that the phenomenon is closely linked to logic underlying our earlier analysis of debt intolerance in Reinhart, Rogoff, and Savastano (2003). As we argued in that paper, debt thresholds are importantly country-specific and as such the four broad debt groupings presented here merit further sensitivity analysis. A general result of our debt intolerance analysis, however, highlights that as debt levels rise towards historical limits, risk premia begin to rise sharply, facing highly indebted governments with difficult tradeoffs.

5. Does High Public Debt Stifle Economic Growth? A Critique of Reinhart/Rogoff, by Thomas Herndon, Michael Ash, and Robert Pollin, http://www.peri.umass.edu/236/hash/31e2ff374b6377b2ddec04deaa63 88b1/publication/566/ April 15, 2013.

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6. Guest Post: The Grad Student who took down Reinhart-Rogoff Explains Why Theyre Fundamentally Wrong, Business Insider, by Thomas Herndon, April 22, 2013, http://www.businessinsider.com/herndonresponds-to-reinhart-rogoff-2013-4

7. Guest Post, Reinhart/Rogoff and Growth in a Time Before Debt, by Arindrajit Dube, April 17, 2013, The Next New Deal, The Roosevelt Institute, http://www.nextnewdeal.net/rortybomb/guest-postreinhartrogoff-and-growth-time-debt See also references to internet blogs cited by Dube. 8. The Great Debt Delusion: How Math Keeps Proving Austerity Wrong, The Atlantic, by Matthew OBrien, April 16, 2013, http://www.theatlantic.com/business/archive/2013/04/the-great-debtdelusion-how-math-keeps-proving-austerity-wrong/275037/ 9. Revisiting Reinhart-Rogoff: Free Exchange, by R A, The Economist, April 17, 2013 http://www.economist.com/blogs/freeexchange/2013/04/debtand-growth 10. The Reinhart-Rogoff Debt-to-GDP Error: Why it Matters? By Dean Baker, Center for Economic Policy Research, April 18, 2013, http://www.cepr.net/index.php/blogs/cepr-blog/the-reinhart-rogoffdebt-to-gdp-error-why-it-matte 11. Tax research UK: Richard Murphy on Tax and Economics, When Economists are Wrong, we all Suffer, Posted on April 18, 2013, http://www.taxresearch.org.uk/Blog/2013/04/18/when-economists-arewrong-we-all-suffer-and-we-now-know-the-debt-obsession-is-whollymisplaced/comment-page-1/ 12. Reinhart-Rogoff Rebuttal says UMass Critics Politicized Debate, Bloomberg, by Sharon Chen, April 26, 2013, http://www.bloomberg.com/news/2013-04-26/reinhart-rogoff-disputeumass-criticism-of-debt-study-findings.html The economists acknowledged on April
17 that they had inadvertently left some data out of their calculations in the study, in response to a paper released on April 15 by three researchers from the University of Massachusetts at Amherst. Still, the error didnt change the basic findings of their research, they said. Reinhart and Rogoff today addressed the technical issues raised by their critics -- Ph.D. candidate Thomas Herndon and professors Michael Ash and Robert Pollin -- in particular that they had committed serious errors of selective exclusion of available data and unconventional weighting of summary statistics. Page | 14

Growth in a Time of Debt concluded that countries with public debt in excess of 90 percent of gross domestic product suffered measurably slower economic growth. It has been cited by U.S. House Budget Committee Chairman Paul Ryan and European Union Economic and Monetary Affairs Commissioner Olli Rehn in defense of their arguments against high budget deficits.

13. Carmen Reinhart and Ken Rogoff: Debt, Growth, and Austerity Debate, April 26, 2013, http://delong.typepad.com/sdj/2013/04/carmen-reinhartand-ken-rogoff-debt-growth-and-the-austerity-debate.html The academic
literature on debt and growth has for some time been focused on identifying causality. Does high debt merely reflect weaker tax revenues and slower growth? Or does high debt undermine growth? Our view has always been that causality runs in both directions, and that there is no rule that applies across all times and places. In a paper published last year with Vincent R. Reinhart, we looked at virtually all episodes of sustained high debt in the advanced economies since 1800. Nowhere did we assert that 90 percent was a magic threshold that transforms outcomes, as conservative politicians have suggested.

14. Is the evidence of austerity based on an Excel spreadsheet error? By Brad Plummer, April 16, 2013, http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/16/isthe-best-evidence-for-austerity-based-on-an-excel-spreadsheet-error/ 15. The Grad Student Who Took Down Reinhart Rogoff Explains Why they are Fundamentally Wrong, Business Insider, April 22, 2012, by Thomas Henderson http://www.businessinsider.com/herndon-responds-toreinhart-rogoff-2013-4http://www.businessinsider.com/herndonresponds-to-reinhart-rogoff-2013-4#ixzz2RZLUnJE8 16. How a student took down eminent economists on debt issue and won, Reuters, Edward Krudy, April 18, 2013, http://news.yahoo.com/student-took-eminent-economists-debt-issuewon-095347790--business.html 17. Reinhart and Rogoff are not being straight, Center for Economic and Policy Research, April 26, 2013, http://www.cepr.net/index.php/blogs/beatthe-press/reinhart-and-rogoff-are-not-beingstraight?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+be at_the_press+

18. Reinhart/Rogoff and Growth in a time before Debt, Blog Post by The Century Foundation, http://www.tcf.org/blog/detail/tcfbest-winnerreinhart-rogoff-and-growth-in-a-time-before-debt

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19. Robert Samuelson tries to Salvage Reinhart-Rogoff and Austerity, Center for
Economic and Policy Research (CEPR) Blog, by Dean Baker, April 25, 2013, http://www.cepr.net/index.php/blogs/beat-the-press/robert-samuelson-triesto-salvage-reinhart-rogoff-and-austerity 20. An MIT Non-Economists View of the Harvard-UMass Debt/GDP ratio and Economic Growth Debate, Published April 26, 2013, http://www.scribd.com/doc/138076426/An-MIT-Non-Economist-s-View-ofthe-Harvard-UMass-Debt-GDP-Ratio-and-the-Economic-Growth-Debate

21. Bibliography, Articles on Extension of Plancks Ideas and Einsteins Ideas beyond physics, Compiled on April 16, 2013, http://www.scribd.com/doc/136492067/Bibliography-Articles-on-theExtension-of-Planck-s-Ideas-and-Einstein-s-Ideas-on-Energy-Quantum-totopics-Outside-Physics-by-V-Laxmanan 22. Babe Ruths 1923 Batting Statistics and Einsteins Work Function, Published April 17, 2013, http://www.scribd.com/doc/136489156/BabeRuth-s-1923-Batting-Statistics-and-Einstein-s-Work-Function 23. Babe Ruth Batting Statistics and Einsteins Work Function, To be Published April 17, 2013, http://www.scribd.com/doc/136556738/BabeRuth-Batting-Statistics-and-Einstein-s-Work-Function 24. Airline Quality Report: An Analysis of On-Time Percentages, Published April 18, 2013, http://www.scribd.com/doc/136760664/Airline-QualityReport-2013-Analysis-of-the-On-Time-Percentages 25. Airline Quality Rating 2013, Purdue University, e-Pubs, April 8, 2013, by Dr. Brent D. Bowen (Purdue University, College of Technology) and Dr. Dean E. Headley (Wichita State University, W. Frank Barton School of Business) http://docs.lib.purdue.edu/aqrr/23/ 26. Airline Quality Report 2013: An Analysis of On-Time Percentages, Published April 18, 2013, http://www.scribd.com/doc/136760664/Airline-Quality-Report-2013Analysis-of-the-On-Time-Percentages 27. Iceland voters oust leftist government, Japan Times, April 29, 2013. http://www.japantimes.co.jp/news/2013/04/29/world/iceland-votersoust-leftist-government/#.UX0_5sq9Ggw Iceland voters oust leftist government Anger at austerity measures helps center-right opposition return to power
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AFP-JIJI

Apr 29, 2013

REYKJAVIK Icelands center-right opposition declared victory early Sunday in parliamentary elections as voters punished the leftist government for harsh austerity measures during its four years at the helm. 28. Iceland Opposition Poised to win General Election, by Jenna Gottlieb and Helen Lawless, April 28, 2013, http://bigstory.ap.org/article/austerityweary-iceland-votes-national-election A volcano-dotted North Atlantic nation with a
population of just 320,000, Iceland went from economic wunderkind to financial basket case almost overnight when its main commercial banks collapsed within a week of one another. The value of the country's currency plummeted, while inflation and unemployment soared. Iceland was forced to seek bailouts from Europe and the International Monetary Fund. Despite being widely blamed for the meltdown, the Independents and Progressives say they are now best placed to lead the economic recovery. The Progressives are promising to write off some mortgage debt, taking money from foreign creditors. Benediktsson's Independence Party is offering lower taxes and the lifting of capital controls that he says are hindering foreign investment.

29. Iceland Sours on Austerity as Pre-Crisis parties close on Power, by Omar R. Valdimarsson, April 26, 2013, http://www.bloomberg.com/news/2013-04-27/iceland-sours-onausterity-as-pre-crisis-parties-close-on-power.html Icelanders, burdened by more
than four years of hardship, are poised to oust the government and return to power the parties that steered the island through a banking-led boom that ended in economic ruin 2008. While Social Democratic Prime Minister Johanna Sigurdardottir has won praise from the International Monetary Fund and debt rating companies for her handling of the crisis, voters are burdened by excessive mortgage debt and an unemployment rate thats still more than double pre-crisis levels. Unemployment was 6.8 percent in March, up from below 2 percent in 2007, according to a monthly survey from the Statistics Office.

30. Iceland financial crisis (2008-2011) http://en.wikipedia.org/wiki/2008%E2%80%932011_Icelandic_financial_crisis 31. Brainy Quote, No amount of experimentation can ever prove me right but a single experiment can prove me wrong. Einstein was referring here to a good experiment, not a sloppy one. http://www.brainyquote.com/quotes/quotes/a/alberteins100017.html 32. Falsifiability, http://en.wikipedia.org/wiki/Falsifiability
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About the author V. Laxmanan, Sc. D.

The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the groundbased experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed quantum of energy conceived by Planck). The mathematical law deduced by Planck, referred to here as the generalized power-exponential law, might
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actually have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton. Finally, during my professional career, I also twice had the opportunity and great honor to make presentations to two Nobel laureates: first at NASA to Prof. Robert Schrieffer (1972 Physics Nobel Prize), who was the Chairman of the Schrieffer Committee appointed to review NASAs space flight experiments (following the loss of the space shuttle Challenger on January 28, 1986) and second at GM Research Labs to Prof. Robert Solow (1987 Nobel Prize in economics), who was Chairman of Corporate Research Review Committee, appointed by GM corporate management.

Cover page of AirTran 2000 Annual Report

Can you see that plane flying above the tall tree tops that make a nearly perfect circle? It requires a great deal of imagination to see and to photograph it.

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