Liberal Arts Blog — Geometry (II) Paean to the Circle: Pi, the Circular Flow Diagram, the Stock Market Cycle
Liberal Arts Blog — Monday is the Joy of Math, Statistics, and Numbers Day
Today’s Topic: Geometry (II) Paean to the Circle: pi, the circular flow diagram, the stock market cycle
Circles are everywhere. Start with the sun. Then there is the moon when it is full. Humans have been obsessed with circles since time immemorial. Think Stonehenge and crop circles. Greeks considered the circle to be the perfect shape because of its many-fold symmetries. The circle of life is a great image. And a wonderful Disney song. Every natural cycle — from water to carbon to nitrogen — is depicted as a circle. One of the most important images in economics is the circular flow diagram. And in finance, there is no more important graphic to graft into your brain than that of the stock market cycle in order to fix the madness of the present into a broader, recurrent pattern. Today, a focus on three high points in my personal relationship with the circle. Experts — please chime in. Correct, elaborate, elucidate.
THE MIRACLE OF Pi — Not Just a Number, it’s a ratio, a beautiful constant
1. Ask most people what “pi” is and they rattle off a number: 3.14, or 3.145, or 3.14592835….
2. But really it’s a ratio — of the circumference to the diameter of a circle.
3. Of every circle. The size does not matter. The miracle of miracles!
NB: Does that not blow your mind? If not, I’m really sorry. What’s the big deal? Well, for one thing, it proves that God is a mathematician. For another, it proves that he has a sense of humor. Third, it is definitive proof that “3” is a magic number. For the role of Archimedes, Newton, Euler (and many others) in the history of pi, click on the following link:
THE CIRCULAR FLOW DIAGRAM
1. Economics is about supply and demand, right? And the supply side is business. And the demand side is the consumer. Right?
2. Wrong.
3. Both households and firms are both on the supply side and the demand side. Households supply their labor and savings and demand goods and services. Firms supply goods and services and demand labor and capital.
THE STOCK MARKET CYCLE — what to buy and when
1. When everyone is happy and employed, sell everything.
2. When everyone is freaking out, load up the truck.
3. Easier said than done. After being an aggressive trader, I decided that Buffett was right — buy great companies for the long term. But that’s not as easy as it sounds either. Sorry.
Timing Market and Economic Cycle Phases
YOUR TURN
Any thoughts on triangles?
Please share the coolest thing you learned this week related to math, statistics, or numbers in general.
Or, even better, the coolest or most important thing you learned in your life related to math. This is your chance to make someone else’s day. And to consolidate in your memory something you might otherwise forget.
Or to think more deeply than otherwise about something dear to your heart. Continuity is key to depth of thought.
