A note on economics

[From Bruce Gregory (2010.01.23.1245 UT)]

One of the few predictions made by the "efficient markets" theory is that financial bubbles are impossible. When confronted by something as obvious as the collapse of the real estate bubble, efficient-market economists must scramble to find causes rooted in government actions, not the instability of the market. Despite the fact that the evidence does not support these stories, efficient-market fundamentalists continue to repeat them. The alternative is just too unpleasant to confront.

Bruce

Government actions and the instability of the markets are often related. Leverage is associated with increased risk and instability. A tax system that double taxes dividends and capital gains while single taxing debt financing leverages up the economy increasing the necessity of layoffs during an economic downturn. A fiat money system that "prints" money through a pyramid of credit also increases leverage and instability. Artificially low interest rates further incentives risk taking and discourages savings. The quasi-governmental agencies, FANNIE and FREDDIE also had a role in financing risk taking. I don't know of any economist that thinks financial bubbles are impossible in a fiat money system. Full employment equilibrium is not in vogue anymore either.

-- Martin

Bruce Gregory wrote:

···

[From Bruce Gregory (2010.01.23.1245 UT)]

One of the few predictions made by the "efficient markets" theory is that financial bubbles are impossible. When confronted by something as obvious as the collapse of the real estate bubble, efficient-market economists must scramble to find causes rooted in government actions, not the instability of the market. Despite the fact that the evidence does not support these stories, efficient-market fundamentalists continue to repeat them. The alternative is just too unpleasant to confront.

Bruce

[From Bruce Gregory (2010.01.23.1600 UT)]

···

On Jan 23, 2010, at 10:07 AM, Martin Lewitt wrote:

Government actions and the instability of the markets are often related. Leverage is associated with increased risk and instability. A tax system that double taxes dividends and capital gains while single taxing debt financing leverages up the economy increasing the necessity of layoffs during an economic downturn. A fiat money system that “prints” money through a pyramid of credit also increases leverage and instability. Artificially low interest rates further incentives risk taking and discourages savings. The quasi-governmental agencies, FANNIE and FREDDIE also had a role in financing risk taking. I don’t know of any economist that thinks financial bubbles are impossible in a fiat money system. Full employment equilibrium is not in vogue anymore either.

Once again, I must bow to your superior knowledge and grasp of economics (and the myth of climate change). I hope I’ve learned my lesson.

Bruce

[From Rick Marken (2010.01.23.1430)]

Bruce Gregory (2010.01.23.1600 UT) to Martin Lewitt--

Once again, I must bow to your superior knowledge and grasp of economics
(and the myth of climate change). I hope I've learned my lesson.

I think everyone is pretty much shooting in the dark when it comes to
economics. What I find puzzling (or infuriating) is how so many people
who claim to be experts in economics, particularly those on the right,
seem to simply ignore the data. I think that, with respect to
economics, we are in E.coli mode: since we don't really know how
things work, we implement a policies that we might think will work
(equivalent to E. coli implementing a new direction of motion) and
then we should see whether things are getting better or worse.If they
are getting better, stick with the policy, if worse, change. I
thought that is why we (as a society) keep macroeconomic data; to see
whether things seem to be getting better or worse as a result of
policy changes. But it seems that data is either irrelevant to
conservatives or they are looking at different data. For example,
after Bush implemented his policies of low taxes, low regulation, and
high war we saw a budget surplus turn into a huge deficit, stagnant
wages, increased poverty, skyrocketing unemployment, etc. A sensible
E. coli would have switched course since it was clearly moving
directly down the chemical gradient, away from it's goal. But
conservatives still think that these policies are terrific. So they
are either ignoring the data or they are paying attention to other
data, like the huge increase in wealth discrepancy, that they consider
a good thing.

I can understand the general electorate acting counter-productively;
not many people pay attention to the aggregate economic data. But I
really don't understand how those who consider themselves experts in
economics can continue to advocate for policies that have consistently
been followed by such poor results. It's got to be either an
ideological fixation on the means as "correct", no matter what the
actual consequences, or a preference for the consequences that tend to
follow those policies. Or both. Who knows?

Best

Rick

···

--
Richard S. Marken PhD
rsmarken@gmail.com
www.mindreadings.com

[From Bill Powers (2010.01.23.1555 MST)]

Rick Marken (2010.01.23.1430) --

I think everyone is pretty much shooting in the dark when it comes to
economics. What I find puzzling (or infuriating) is how so many people
who claim to be experts in economics, particularly those on the right,
seem to simply ignore the data.

...

I can understand the general electorate acting counter-productively;
not many people pay attention to the aggregate economic data. But I
really don't understand how those who consider themselves experts in
economics can continue to advocate for policies that have consistently
been followed by such poor results. It's got to be either an
ideological fixation on the means as "correct", no matter what the
actual consequences, or a preference for the consequences that tend to
follow those policies. Or both. Who knows?

Well said. A policy that concludes that a certain level of unemployment is optimal is clearly advocating consequences that most people who have to work for a living find frightening and intolerable. It's pretty clear whose interests are not being considered.

Best,

Bill P.

[From Bruce Gregory (2010.01.23.2322 UT)]

[From Rick Marken (2010.01.23.1430)]

I can understand the general electorate acting counter-productively;
not many people pay attention to the aggregate economic data. But I
really don’t understand how those who consider themselves experts in
economics can continue to advocate for policies that have consistently
been followed by such poor results. It’s got to be either an
ideological fixation on the means as “correct”, no matter what the
actual consequences, or a preference for the consequences that tend to
follow those policies. Or both. Who knows?

I share your puzzlement. In fact much of my focus on goals resulted from my effort to understand how some economists, including Nobel laureates, could ignore data and propose explanations that violated elementary rules. Psychologists call the phenomenon confirmation bias, but that is a label, not an explanation. I concluded that they had become so wedded to their stories that they simply ignore conflicting evidence. Some economists, on the other hand, behave just the way I expect those with a respect for the facts to behave. Alan Greenspan seems to be the only market fundamentalist to say “I was wrong.”

Bruce

[From Rick Marken (2010.01.23.1540)]

Bruce Gregory (2010.01.23.2322 UT)

Alan Greenspan seems to be the only market fundamentalist to say "I was
wrong."

Yes, I respect the guy for it. When I have mentioned Greenspan's
recantation in my fruitless discussions with "market fundamentalists"
(better description than "wingnuts", I suppose;-) it is simply
ignored.

Best

Rick

···

--
Richard S. Marken PhD
rsmarken@gmail.com
www.mindreadings.com

[From Bruce Gregory (2010.01.24.0051 UT)]

[From Rick Marken (2010.01.23.1540)]

Bruce Gregory (2010.01.23.2322 UT)

Alan Greenspan seems to be the only market fundamentalist to say “I was
wrong.”

Yes, I respect the guy for it. When I have mentioned Greenspan’s
recantation in my fruitless discussions with “market fundamentalists”
(better description than “wingnuts”, I suppose;-) it is simply
ignored.

I learned that euphemism from Joe Stiglitz. His book Freefall: America, Free Markets, and the Sinking of the World Economy is superb. The blurb on the back cover by Paul Krugman says Stiglitz is “an insanely great economist.” I hate to differ with Paul, but Stiglitz is one of the sanest economists I know.

Bruce

[From Martin Lewitt (2010.01.23.1728 MST)]

What is being described as "confirmation bias" may merely humility before the difficulty in extracting cause and effect from a complex nonlinear system where the time histories are too short for statistical significance and controlled experiments are not possible.

A focus on "goals" and "results" ignores the importance of the means. It is not at all clear that western materialistic democracy out performs terrorism as a means of social organization. Societies organized by terror such as Saddam's Iraq, Castro's Cuba, the Shah's Iran, the PRK, the PRC etc often can boast lower crime rates, more "equitable" distribution of goods and greater levels of explicit social harmony and satisfaction with their government. It is entirely possible that ignorance within the care of a loving leader is bliss when compared to the alienation and perpetual dissatisfaction of the consumer society. Terror is effective and powerful. It is intoxicating. The two D.C. snipers were able to paralyze a multi-state area. Minorities are able to control much larger majorites. If happiness is jut a chemical state in the mind, what physical law prevents terror from achieving it more efficiently, with a smaller resource footprint upon the planet.

Sarah Palin writes something that I believe explains why Christian fundamentalists gravitate towards classical liberalism, that is conservatism in the U.S.:

"But I do believe in a few timeless and unchanging truths, and chief among these is that man is fallen ... Commonsense Conservatives deal with human nature as it is -- with its unavoidable weaknesses and its potential for goodness. ... We don't trust utopian promises from politicians. The role of government is not to PERFECT us, but to PROTECT us. -- to protect our inalienable rights"

In one of those enlightening convergences, anthropology is reaching pretty much the same conclusions. The humanitarian "virtues" are not the sum total of what it means to be human. The "vices" are just as much a part of human nature and perhaps an equal contributor to the evolutionary fitness of our ancestors. Anthropology, in a sense, confirms humanity's fallen nature. Modern humans did not emerge from Africa into a garden of eden, but into occupied territory. Neanderthal and home erectus, and much human diversity are no longer with us. Even though markets and constitutionally limited government may not be inherently stable or optimally efficient, they may be worth the investment and commitment required to maintain them.

regards,
    Martin L

···

[From Bruce Gregory (2010.01.23.2322 UT)]

[From Rick Marken (2010.01.23.1430)]

I can understand the general electorate acting counter-productively;
not many people pay attention to the aggregate economic data. But I
really don't understand how those who consider themselves experts in
economics can continue to advocate for policies that have consistently
been followed by such poor results. It's got to be either an
ideological fixation on the means as "correct", no matter what the
actual consequences, or a preference for the consequences that tend to
follow those policies. Or both. Who knows?

I share your puzzlement. In fact much of my focus on goals resulted from my effort to understand how some economists, including Nobel laureates, could ignore data and propose explanations that violated elementary rules. Psychologists call the phenomenon confirmation bias, but that is a label, not an explanation. I concluded that they had become so wedded to their stories that they simply ignore conflicting evidence. Some economists, on the other hand, behave just the way I expect those with a respect for the facts to behave. Alan Greenspan seems to be the only market fundamentalist to say "I was wrong."

Bruce

[From Bill Powers(2010.01.24.0103 MST)]

Martin Lewitt (2010.01.23.1728 MST) --

What is being described as "confirmation bias" may merely humility before the difficulty in extracting cause and effect ...

I haven't noticed a great deal of humility on the part of economists.

A focus on "goals" and "results" ignores the importance of the means.

I hope that those interested in this thread can remember that CSGnet is a discussion organized around PCT. "Goals and results" are indeed the story. Even what we call "means" are important only because they relate to other (perhaps conflicting) goals together with results that we control relative to those goals.

The problems of societies arise because the behavior each person employs to control the results that relate to his goals affect the results that other people are controlling, whether toward the same or different goals. That is one of the ways I would translate economic principles into PCT principles. I think that by translating the terms and propositions of economic theories into PCT we stand a chance of making some sense of them, or extracting whatever sense there is in them. Trying to translate PCT into the theories and commonsense terms of economics will only make gibberish of PCT. And trying to translate PCT into the language of ordinary political argumentation is simply to ignore it. There are lots of other forums that ignore PCT; if that is what anyone wants to do, I think those other forums would be a good place for it.

I don't object to ordinary political argumentation here on CSGnet if it is presented as data and followed by a PCT analysis of the argumentation itself (as opposed to what the argumentation is about). Again, we stand a chance of making some sense of this mode of interaction, or extracting whatever sense it makes. But ordinary argumentation which flauts the principles of PCT is interesting only if it can show why one or more of the principles ought to be dropped or changed. That requires starting with an understanding of the principles of PCT, not continuing to flaut them out of mere ignorance.

The general procedure I recommend is to first translate the ideas of economics (or information theory or SR theory -- whatever other idea is being discussed) into factual rather then theoretical language: what are the phenomena that the other theory is intended to explain? Then, starting with the phenomena rather than the other theory, we can ask how PCT applies to those phenomena. In this way we can keep the biases of each theoretical domain from being imported into the other along with the subjects we're trying to discuss, which simply degenerates into 'tis-so-'taint-so arguments or appeals to authority. Also, by insisting on the translation into phenomena, we can guard against reported facts that turn out to be imaginary, since they are based not on observations but on belief in the theory (like the law of supply and demand). Smuggling theories into factual reports is, of course, a popular pastime in scientific circles (consider all the reports that refer to any observed action of an organism as a "response"), but if we want to get anywhere we have to try to get rid of such contaminations.

If I seem a bit impatient with the wasting of time, consider that I probably have less of it left to waste than anyone else on CSGnet has.

Best,

Bill P.

[From Bruce Gregory (2010.01.24.1155 UT)]

[From Martin Lewitt (2010.01.23.1728 MST)]

Sarah Palin writes something that I believe explains why Christian fundamentalists gravitate towards classical liberalism, that is conservatism in the U.S.:

“But I do believe in a few timeless and unchanging truths, and chief among these is that man is fallen … Commonsense Conservatives deal with human nature as it is – with its unavoidable weaknesses and its potential for goodness. … We don’t trust utopian promises from politicians. The role of government is not to PERFECT us, but to PROTECT us. – to protect our inalienable rights”

My brother-in-law, who lives in Alaska, sent me the following link:

http://community.adn.com/adn/node/147046

Bruce

Ernie

FYI … Although I appreciate Powers’ focus on beginning with phenomena stripped of theory, I still believe his dismissal of the “Means” and singular concern with “goals and results” is misguided although comfortable for HIS preferred theory of understanding the world. I now am getting a deeper understanding of how Powers thinks which helps me to understand the benefits and limitations of PCT. Sometimes I think you have relaxed your natural skepticism and have fallen in love with PCT as a theory of everything (ijncluding innovation and learning).

bjm

···

— On Sun, 1/24/10, Bill Powers powers_w@FRONTIER.NET wrote:

From: Bill Powers powers_w@FRONTIER.NET
Subject: Re: A note on economics
To: CSGNET@LISTSERV.ILLINOIS.EDU
Date: Sunday, January 24, 2010, 2:53 AM

[From Bill Powers(2010.01.24.0103 MST)]

Martin Lewitt (2010.01.23.1728 MST) –

What is being described as “confirmation bias” may merely humility before the difficulty in extracting cause and effect …

I haven’t noticed a great deal of humility on the part of economists.

A focus on “goals” and “results” ignores the importance of the means.

I hope that those interested in this thread can remember that CSGnet is a discussion organized around PCT. “Goals and results” are indeed the story. Even what we call “means” are important only because they relate to other (perhaps conflicting) goals together with results that we control relative to those goals.

The problems of societies arise because the behavior each person employs to control the results that relate to his goals affect the results that other people are controlling, whether toward the same or different goals. That is one of the
ways I would translate economic principles into PCT principles. I think that by translating the terms and propositions of economic theories into PCT we stand a chance of making some sense of them, or extracting whatever sense there is in them. Trying to translate PCT into the theories and commonsense terms of economics will only make gibberish of PCT. And trying to translate PCT into the language of ordinary political argumentation is simply to ignore it. There are lots of other forums that ignore PCT; if that is what anyone wants to do, I think those other forums would be a good place for it…

I don’t object to ordinary political argumentation here on CSGnet if it is presented as data and followed by a PCT analysis of the argumentation itself (as opposed to what the argumentation is about). Again, we stand a chance of making some sense of this mode of interaction, or extracting whatever sense it makes. But ordinary argumentation which flauts the
principles of PCT is interesting only if it can show why one or more of the principles ought to be dropped or changed. That requires starting with an understanding of the principles of PCT, not continuing to flaut them out of mere ignorance.

The general procedure I recommend is to first translate the ideas of economics (or information theory or SR theory – whatever other idea is being discussed) into factual rather then theoretical language: what are the phenomena that the other theory is intended to explain? Then, starting with the phenomena rather than the other theory, we can ask how PCT applies to those phenomena. In this way we can keep the biases of each theoretical domain from being imported into the other along with the subjects we’re trying to discuss, which simply degenerates into 'tis-so-'taint-so arguments or appeals to authority. Also, by insisting on the translation into phenomena, we can guard against reported facts that
turn out to be imaginary, since they are based not on observations but on belief in the theory (like the law of supply and demand). Smuggling theories into factual reports is, of course, a popular pastime in scientific circles (consider all the reports that refer to any observed action of an organism as a “response”), but if we want to get anywhere we have to try to get rid of such contaminations.

If I seem a bit impatient with the wasting of time, consider that I probably have less of it left to waste than anyone else on CSGnet has.

Best,

Bill P.

[From Bill Powers (2010.01.25.0966 MST)]

Hello, Bart, and welcome to CSGnet. And please don't tell me that I've had another senior moment and everybody else remembers you!

FYI ... Although I appreciate Powers' focus on beginning with phenomena stripped of theory, I still believe his dismissal of the "Means" and singular concern with "goals and results" is misguided although comfortable for HIS preferred theory of understanding the world.
  I now am getting a deeper understanding of how Powers thinks which helps me to understand the benefits and limitations of PCT.

I think you misread me, or didn't follow the thought far enough -- or else I was too terse. All I was doing was pointing out that unacceptable means for achieving one goal are considered bad because they violate other goals that we have. The issues are always between goals, reference levels, values, not between behaviors. Behaviors are just variations of muscle tensions. It's the results that are thereby controlled that are the point, and results are judged in terms of the goals (reference conditions, values) that we adopt.

Sometimes I think you have relaxed your natural skepticism and have fallen in love with PCT as a theory of everything (ijncluding innovation and learning).

Sometimes? What do you think the rest of the time, and do I get more than 50% approval? In fact, I stick with PCT because so far it explains more than any other theory I'm familiar with. But it's always good to look at alternatives, so by all means give us some to look at.

Best,

Bill P.

···

At 07:20 AM 1/24/2010 -0800, Bart Madden wrote:

I regret that I have been forced back into "lurker" status by huge
projects going on at work. Work on my dissertation (in which I hope to
create an artificial world filled with PCT-based agents) has been
postponed until Spring.

However, I wanted to point out that the economics profession is indeed
undergoing a significant rethinking of first principles. See this link
to a Newsweek article that briefly describes it.

http://www.newsweek.com/id/232111/page/1

Bill, I take it from your post that your health is not good. I am
deeply saddened by this.

Frank

···

-----Original Message-----
From: Control Systems Group Network (CSGnet)
[mailto:CSGNET@LISTSERV.ILLINOIS.EDU] On Behalf Of Bill Powers
Sent: Sunday, January 24, 2010 2:54 AM
To: CSGNET@LISTSERV.ILLINOIS.EDU
Subject: Re: [CSGNET] A note on economics

[From Bill Powers(2010.01.24.0103 MST)]

Martin Lewitt (2010.01.23.1728 MST) --

What is being described as "confirmation bias" may merely humility
before the difficulty in extracting cause and effect ...

I haven't noticed a great deal of humility on the part of economists.

A focus on "goals" and "results" ignores the importance of the means.

I hope that those interested in this thread can remember that CSGnet
is a discussion organized around PCT. "Goals and results" are indeed
the story. Even what we call "means" are important only because they
relate to other (perhaps conflicting) goals together with results
that we control relative to those goals.

The problems of societies arise because the behavior each person
employs to control the results that relate to his goals affect the
results that other people are controlling, whether toward the same or
different goals. That is one of the ways I would translate economic
principles into PCT principles. I think that by translating the terms
and propositions of economic theories into PCT we stand a chance of
making some sense of them, or extracting whatever sense there is in
them. Trying to translate PCT into the theories and commonsense terms
of economics will only make gibberish of PCT. And trying to translate
PCT into the language of ordinary political argumentation is simply
to ignore it. There are lots of other forums that ignore PCT; if that
is what anyone wants to do, I think those other forums would be a
good place for it.

I don't object to ordinary political argumentation here on CSGnet if
it is presented as data and followed by a PCT analysis of the
argumentation itself (as opposed to what the argumentation is about).
Again, we stand a chance of making some sense of this mode of
interaction, or extracting whatever sense it makes. But ordinary
argumentation which flauts the principles of PCT is interesting only
if it can show why one or more of the principles ought to be dropped
or changed. That requires starting with an understanding of the
principles of PCT, not continuing to flaut them out of mere ignorance.

The general procedure I recommend is to first translate the ideas of
economics (or information theory or SR theory -- whatever other idea
is being discussed) into factual rather then theoretical language:
what are the phenomena that the other theory is intended to explain?
Then, starting with the phenomena rather than the other theory, we
can ask how PCT applies to those phenomena. In this way we can keep
the biases of each theoretical domain from being imported into the
other along with the subjects we're trying to discuss, which simply
degenerates into 'tis-so-'taint-so arguments or appeals to authority.
Also, by insisting on the translation into phenomena, we can guard
against reported facts that turn out to be imaginary, since they are
based not on observations but on belief in the theory (like the law
of supply and demand). Smuggling theories into factual reports is, of
course, a popular pastime in scientific circles (consider all the
reports that refer to any observed action of an organism as a
"response"), but if we want to get anywhere we have to try to get rid
of such contaminations.

If I seem a bit impatient with the wasting of time, consider that I
probably have less of it left to waste than anyone else on CSGnet has.

Best,

Bill P.

[From Bill Powers(2010.01.25.1055 MST)]

I regret that I have been forced back into "lurker" status by huge
projects going on at work. Work on my dissertation (in which I hope to
create an artificial world filled with PCT-based agents) has been
postponed until Spring.

I hope you have enough time to spend on this enormously important dissertation. You are probably headed toward the best model of the economic system we have seen so far, and if you do it, no reward will be too great for that service. I'm trying not to jinx you by naming it, but Simon got it for a discovery that is trivial in comparison.

However, I wanted to point out that the economics profession is indeed
undergoing a significant rethinking of first principles. See this link
to a Newsweek article that briefly describes it.

http://www.newsweek.com/id/232111/page/1

What good news! I was especially taken by the summary of the current consensus, followed by "Now that this view has been proven false ..."!

Bill, I take it from your post that your health is not good. I am
deeply saddened by this.

My health, though handicapped by COPD (whatever that really is), is not so much the issue as my age. Going by the family actuarial tables, I have around 13 or 14 years left. That's a number that almost has meaning to me. But don't be saddened: I've had a good run even now. There was a rather long time during which I thought, when a bit depressed, that if I got hit by a speeding bus, all the ideas I had been working on so hard would die with me. I don't think that's true now. There are too many people who, like you, have adopted and validated for themselves the same idea, and now the idea is alive in too many people to just die out. I'm sure it will be greatly modified as time goes on, as any new idea has to mature and be altered by contact with reality. But the camel's nose is clearly in the tent. In my Vulcan mode, I find that highly satisfactory.

Best of everything to you, and thanks for your kindness,

Bill P.

···

At 11:14 AM 1/24/2010 -0600, Frank Lenk wrote:

Thank you for your kind words and, with the help of CSGnet, I will do my
best to produce a model worthy of your efforts.

Frank

···

-----Original Message-----
From: Control Systems Group Network (CSGnet)
[mailto:CSGNET@LISTSERV.ILLINOIS.EDU] On Behalf Of Bill Powers
Sent: Sunday, January 24, 2010 12:42 PM
To: CSGNET@LISTSERV.ILLINOIS.EDU
Subject: Re: [CSGNET] A note on economics

[From Bill Powers(2010.01.25.1055 MST)]

At 11:14 AM 1/24/2010 -0600, Frank Lenk wrote:

I regret that I have been forced back into "lurker" status by huge
projects going on at work. Work on my dissertation (in which I hope to
create an artificial world filled with PCT-based agents) has been
postponed until Spring.

I hope you have enough time to spend on this enormously important
dissertation. You are probably headed toward the best model of the
economic system we have seen so far, and if you do it, no reward will
be too great for that service. I'm trying not to jinx you by naming
it, but Simon got it for a discovery that is trivial in comparison.

However, I wanted to point out that the economics profession is indeed
undergoing a significant rethinking of first principles. See this link
to a Newsweek article that briefly describes it.

http://www.newsweek.com/id/232111/page/1

What good news! I was especially taken by the summary of the current
consensus, followed by "Now that this view has been proven false ..."!

Bill, I take it from your post that your health is not good. I am
deeply saddened by this.

My health, though handicapped by COPD (whatever that really is), is
not so much the issue as my age. Going by the family actuarial
tables, I have around 13 or 14 years left. That's a number that
almost has meaning to me. But don't be saddened: I've had a good run
even now. There was a rather long time during which I thought, when a
bit depressed, that if I got hit by a speeding bus, all the ideas I
had been working on so hard would die with me. I don't think that's
true now. There are too many people who, like you, have adopted and
validated for themselves the same idea, and now the idea is alive in
too many people to just die out. I'm sure it will be greatly modified
as time goes on, as any new idea has to mature and be altered by
contact with reality. But the camel's nose is clearly in the tent. In
my Vulcan mode, I find that highly satisfactory.

Best of everything to you, and thanks for your kindness,

Bill P.

[From Rick Marken (2010.01.23.1240)]

Martin Lewitt (2010.01.23.1728 MST)--

What is being described as "confirmation bias" may merely humility before
the difficulty in extracting cause and effect from a complex nonlinear
system where the time histories are too short for statistical significance
and controlled experiments are not possible.

My point was simply that economists seem to pay more attention to what
the consequences of policies _should be_ (based on their theories)
than on what actually happens (the data). This has nothing to do with
cause and effect of even understanding anything about how an economy
really works. It's just a matter of seeing what actually happens after
various policy changes. And if what happens is not what is supposed to
happen (or what is desired) then I would suggest that a change in
policy is probably in order. As in the case of E. coli, these policy
changes may not end up making things better either; so you change
again. But sticking with policies when things are getting worse seems
like the wrong approach. For example, ater Clinton got his tax
increase the economy started to improve in many ways: the deficit was
reduced (eventually going into surplus), growth was robust,
unemployment was low, real income was increasing. So there was really
no reason to change that policy. When Bush came in he reduced taxes,
after which the economy started to decline in many ways: the surplus
turned almost immediately into deficit (this happen before 9/11),
wages became stagnant, poverty increased, and growth was anemic. I
think that, based on this evidence, Bush's tax policy should have been
changed, but it wasn't.

A focus on "goals" and "results" ignores the importance of the means.

The means for producing economic results, such as low unemployment,
are economic policies. But, as we know from control theory, in order
to achieve results it is necessary to be willing to vary the means if
necessary. So, for example, we have to be willing to vary tax policies
as necessary in order to produce intended results. Raising taxes, as
Clinton did, may not always improve things and lowering them, as Bush
did, may not always make things worse. But when things are going south
after implementing a policy there should be a willingness to augment
the policy.

When you don't know how to vary the means in order to produce an
intended result (such as full employment) an effective approach is
what we call E. coli control; to see how it works, look at my
"Selection of consequences" demo at
http://www.mindreadings.com/ControlDemo/Select.html.

In PCT models of behavior the means used to control lower level
results are themselves results controlled by even higher level
systems. This creates a problem in economics if the means are
controlled relative to a fixed reference. If, for example, a higher
level goal, such as having "small government' , leads to having a
fixed goal for "low taxes" then any attempts to increase tax rate, in
order to produce lower level results, like lower unemployment, will be
a disturbance and resisted. And the lower level result just drifts.

� It is not at all clear that western materialistic democracy out performs
terrorism as a means of social organization.

I don't think the choice is between democracy and terrorism. I think
this is a very extremist way to look at it. It suggests very strong
control for particular means (policies) and any variation from these
means is seen as terrorism or communism or dictatorship. What I was
advocating was a willingness to change policy when the data indicated
that, under current policy, macroeconomic variables were moving in the
wrong direction. And we have clearly been moving is a very wrong
direction since Clinton left office. Things are getting better now but
I think we went so far away from nominal without a course change that
it's going to take quite some time until things get better. Of course,
it's possible that they may never get better now; we may be too far
off the cliff and if the people whose policies got us here end up
getting back in charge -- people who seem unwilling to be flexible
about trying policies that may help make things better -- I'm afraid
we will end up (if we aren't there now) as the richest 3rd world
country in the world.

Best

Rick

···

--
Richard S. Marken PhD
rsmarken@gmail.com
www.mindreadings.com

[From Rick Marken (2010.01.28.1245)]

Rick Marken (2010.01.23.1240)--

My point was simply that economists seem to pay more attention to what
the consequences of policies _should be_ (based on their theories)
than on what actually happens (the data).

I see there was no reply to this. So I'll just repeat it by replacing
the word "economists" with the word "Republicans". After eight years
of horrible economic results resulting from their policies -- tax cuts
that were supposed to increase employment but actually increased only
the national debt and deregulation that was supposed to create a
robust economy but created only the destruction of the middle class --
Republicans are saying that the only way to save the economy is to
lower taxes and reduce regulation. I think this goes beyond ignoring
the data. It is either complete insanity, just plain meanness or
satisfaction with the way things went over the last 8 years.

By the way, one of the critiques of the excellent State of the Union
address that I heard was that Obama was wrong to blame our economic
problems (notably the huge deficit) on Bush. I think this is like
criticizing a historian for blaming the Holocaust on Hitler.

Best

Rick

···

--
Richard S. Marken PhD
rsmarken@gmail.com
www.mindreadings.com

[From Bruce Gregory (2010.01.28.2134 UT)]

[From Rick Marken (2010.01.28.1245)]

Rick Marken (2010.01.23.1240)–

My point was simply that economists seem to pay more attention to what
the consequences of policies should be (based on their theories)
than on what actually happens (the data).

I see there was no reply to this. So I’ll just repeat it by replacing
the word “economists” with the word “Republicans”. After eight years
of horrible economic results resulting from their policies – tax cuts
that were supposed to increase employment but actually increased only
the national debt and deregulation that was supposed to create a
robust economy but created only the destruction of the middle class –
Republicans are saying that the only way to save the economy is to
lower taxes and reduce regulation. I think this goes beyond ignoring
the data. It is either complete insanity, just plain meanness or
satisfaction with the way things went over the last 8 years.

If you are a Republican, your goals are to cut taxes and shrink the size of the social safety net. The story that accompanies those efforts is just window dressing. If the economy goes into the tank, well that’s unfortunate, but the economy will recover and in the long run we will all be the better for taking the medicine we need to take. Republicans tend to be empathy-challenged so this story suits them just fine.

Bruce

[From Rick Marken (2010.01.28.1930)]

Bruce Gregory (2010.01.28.2134 UT)--

Republicans tend to be empathy-challenged so this story suits them just fine.

I think that's terribly unfair. Republicans clearly show a strong
sense of empathy for the plight of the richest 1% of the population. I
mean they are really fighting for these people! What heroes!

Best

Rick

···

--
Richard S. Marken PhD
rsmarken@gmail.com
www.mindreadings.com