Masters Consulting Group Economic Research
The Role of The Physics to Economics Model (PEM) in Driving U.S. Economic Growth
For many years, Masters Consulting Group has been deeply involved in primary economic research. We believe that time spent seeking new ways to understand how economic events flow through to actual outcomes, which in turn affect the balance of wealth, can have significant benefits for our clients, the American economy, and the future of academic study relative to the field of economics.
Our Proprietary Economic Research Model, The Physics to Economics Model (PEM), views the creation (and decline) of wealth in the world’s economies from a physics-based perspective. By applying the physical laws of natural science to the wealth equation, we’re able to more clearly identify economic inputs, measure economic activity, and develop solutions that drive economic growth.
Reversing the decline in U.S. global market share
In 1960, the U.S. controlled a 40% global market share of business, producing 90% of the world’s automobiles, as well as its own clothing, ships, aircrafts, and general consumer goods—all at globally superior prices. The U.S. not only possesses the richest combination of natural resources in the world, but at a scale greater than all other nation states. Yet, today, production output on the part of the U.S. is almost nonexistent, and global market share has fallen to a mere 15%. Upon examination of five decades of social and economic trends, it’s evident that the gradual weakening in U.S. global market share is due in large part to the implementation of domestic social science beliefs. In addition, because social science beliefs cannot be pinned down to a single universal truth, the result is policies that have an increasingly detrimental impact year-over-year. The fact that America is more than 100% in debt and domestic manufacturing is dying fast, is further evidence of this truth. Interestingly though, some manufacturing has beaten the trend and have excelled.
The Role of Physics in Driving Wealth
Why should economics be viewed as a physic-based field of study? By applying the “Physics to Economics Model (PEM)” to the U.S. economy, we’re able to demonstrate how a physics-based approach to the U.S. economy could help reverse these trends and significantly increase American wealth where traditional measures of economic performance and growth fail.
We believe the long-accepted academic definition of economics as a “social science relating to the production, consumption, and distribution of goods and services,” is impractical when applied to problem solving since it’s presented in a circular, rather than a unit form. Thus, it doesn’t conform to the laws of natural science and can’t be calculated. Nor does it reflect the observations of how global economies operate. Such a definition is without a first principle—a basic, foundational, self-evident proposition or assumption that cannot be deduced from any other proposition or assumption. Without a first principle, it is impossible to understand a subject matter.
The Physics to Economics Model follows the logic of physics in defining economic input as a form of energy (that which resists force). When viewed as a unit of energy through a physics-based model, economic input can be effectively measured using the equation: E= 1/2e(Tr)2, which is explained in detail below. As a scientific first principle of economics, The Physics to Economics Model offers far more rational answers to questions that have perplexed economists for years, including:
- What is wealth?
- How does trade affect the nation state?
- What increases/decreases aggregate domestic wealth?
- What is a job?
- What is a tax?
- Is government debt good or bad for the economy?
- Why does the carbon tax actually increase pollution?
- Do food stamps increase or decrease wealth?
Understanding the Wealth Equation
What must happen to increase aggregate wealth? Something physical must take place for any type of change to occur. This is the essence of The Physics to Economics Model (PEM) as explained by the equation: E= 1/2e(Tr)2. This formula, which has become the logo of Masters Consulting Group, denotes a unit of economics where there is a clear cause and effect.
In the following example, economic input is viewed as a unit of energy, much like electricity. The economic impact of a unit of electricity might be defined as: electricity plus fuel burned, lessened by government costs such as taxation, regulation, debt expense, trade losses, and natural counterforces. The input of energy is lessened by counterforces which is a summation of force (∑f). The summation of force then, if positive, moves the economy (e) in time (t), which is acceleration (a) and is demonstrated by a change in transaction. A transaction is distance and it moves in time as d/t, which is velocity (v), a transaction rate is transaction in time (Tr).
When the economy accelerates, the result is a change in velocity (Δv) in a change in time (Δt) = (Δv/Δt)=a which is a change in the transaction rate Δ(Tr) divided by a change in time= Δ(Tr)/ Δt which is acceleration, which means the economy (e) is moving faster than it was previously. The force causes the change in electricity + fuel burned and/or a reduction in the counter force or both simultaneously.
Once the economy (e) moves (changes position due to demonstrated acceleration) the output event is a Δ in wealth as the demonstration from kinetic energy (KE). KE = kinetic energy in economics occurs when the electricity + fuel burned was transferred into the economy as evidenced by a change in the transaction rate (Tr) and a change in time.
Δ = change
T = transaction
R = rate = Δtime
TR= transaction rate = velocity = v
(Tr)2 = velocity squared (v)2
e = the economy which is the ownership entity of a free people and resists force to increase.
This means that as the government inputs money into the economy it can cause both an increase in stock prices and a weakness in growth at the same time. The cause of this occurrence is the value of the government stimulus is subtracted from purchasing power and simultaneously added into stock prices. In physics a government stimulus is zero input. Therefore the change in purchasing power plus the change in stock prices must also equal zero based on the physics to economics model.