[Bill Williams UMKC 31 January 2003 12:20 PM CST]
Rick,
If this is going to go back to TCP, then maybe you could explain to me why
TCP's stuff has been removed from the BEST of the CSGnet archive?
Bill Williams
[From Rick Marken (2003.01.31.1420)]
Bill Williams (UMKC 31 January 2003 12:20 PM CST) --
Rick,
If this is going to go back to TCP, then maybe you could explain to me why
TCP's stuff has been removed from the BEST of the CSGnet archive?
Are you referring to the archive of posts at
http://www.ed.uiuc.edu/csg/documents/docindex.html ? If so, I don't really manage
that set of items. What TCP stuff has been removed? From where?
As far as going back to TCP. All I can go back to on TCP is the fact that I liked
his book "Leakage". I had never before read a book on economics (macro or micro)
that made any sense to me. In fact, I never thought that economics was very
interesting or that it could be scientific. But TCP's framework for understanding
economics made sense to me right away. I don't think TCP's work on economics is
perfect nor do I think it is comparable in significance to the work of his son WTP
(it's rather like comparing the works of Leopold to those of his son Wolfgang A.
Mozart). But TCP made sense to me. I think he made a great conceptual start. And
some of his conclusions turn out to be more consistent with the facts than he even
imagined (rho leakage turns out to be almost perfectly correlated with inflation).
He clearly understood the macro economy as a closed loop system. His analytic work
needs a basis in working models (it was my own work in implementing TCP's
equations as a working model that led me to discover that his conclusions about
the effect of leakage on growth rate were put into his equations as an
_assumption_). But despite the mistakes and overreaching I believe that TCP's
basic approach to macroeconomic analysis-- the closed loop control approach -- is
correct. I still have not read anything on macroeconomics that impresses me as
much as does "Leakage", in terms of clarity of presentation or fundamental
soundness of approach.
Best regards
Rick
···
--
Richard S. Marken, Ph.D.
Senior Behavioral Scientist
The RAND Corporation
PO Box 2138
1700 Main Street
Santa Monica, CA 90407-2138
Tel: 310-393-0411 x7971
Fax: 310-451-7018
E-mail: rmarken@rand.org
[From Bill Williams UMKC 31 January 2003 8:00 PM CST]
Rick,
So, tell me where does the money go when it leaks?
Bill Williams
[From Bill Powers (2003.02.01.1713 MST)]
Bill Williams UMKC 1 Feburary 2003 4:00 PM CST
>If you're really interested in where the
money goes, there is a large literature from back in the late 1940's which
treats the question in detail. Using the online Journal Storage you can
readily access this material by searching for "money flows." At this point
I don't see that there is any reason to approach the issues as if there is
any mystery involved.
Well, some of us can find it that way. I am not an institution or an
individual affiliated with any publisher, so I can't use it. Perhaps you
might consider summarizing the information for those of us without academic
connections.
Best,
Bill P.
[From Bill Powers (2003.02.03.1328 MST);
Rick Marken (2003.02.03.0820)--
>I really would like to know what is
wrong with the "underconsumptionist viewpoint"? And what is wrong with the
notion of "leakage" to which the "underconsumptionist viewpoint" is
equivalent?
I won't try to respond for Bill W., but my answer is from another point of
view anyhow. Neither underconsumption nor leakage is defined in terms of a
working model (though leakage would be easier to define), so we can't say
what effect either of them would have, or if they are the same thing. One
can "underconsume" because of a reluctance to spend money one has, or
because one does not have any money to spend, or because nothing offered
for consumption is, for the time being, appealing enough. Leakage can be
caused by a loss of buying power through accident (money in burning
mattress), bad investments in some other economy from which there is no
return (savings and loan scandals), or -- and I doubt that this ever
occurred to TCP -- through too many borrowers paying back their debts and
not enough of them defaulting or taking out new and bigger loans. Repaying
loans destroys money just as surely as burning it does.
In a discpline in which just about every possible explanation has been
offered for everything (with good or bad justification), it is always
possible to say that any idea is "just ****ism," fill in the blank. That
certainly holds true in psychology and philosophy. Perhaps it is also true
in economics. But nothing is "just" anything else. It's an irrelevant
criticism.
Best,
Bill P.
[From Bill Powers (2003.02.04.1006 MST)]
Bill Williams (2003.02.04) --
Bill, this was a wonderful post that I will consider at length. I just
wanted to express my admiration and appreciation, as well as my thanks for
the extended and welcome outpouring of your thoughts and hopes. My
expectations of your success have taken a large leap upward.
Best,
Bill P.
[From Bill Powers (2003.02.04.1051 MST)]
>The short answer is that there are two categories of income. Investment
goods and >consumption goods. The underconsumptionist variety of theories
focus on a short fall of >consumption.
I am curious as to their explanation of this shortfall of consumption. This
is like what economists seem to be saying today -- that we have to
stimulate more consumption to get the economy back on track. There seems to
be a general sense that consumers can just consume more any time they want
to -- whether they have any money or not. For some consumers that is
undoubtedly true, but I don't think it's true for most consumers. What's
your take on that?
>A short fall relative to the potential production which, as an
engineering matter, an >economy is capable of producing.
That's a different sort of shortfall from what TCP was talking about.That
kind he treated as a growth rate that was less than the potential growth
rate (which he estimated from the performance during World War 2 when
leakage, as he measured it, was zero).
What TCP called "leakage" is what economists call "savings": the difference
between total income and total expenditures by consumers and producers. As
I understand it, economists don't have any direct measure of savings; it's
computed as that difference. The last mention of savings I saw in the news
was estimated that way. TCP observed that _composite_ entities, consumers
and producers, don't actually have any significant steady-state savings
_rate_, because everything they save in a lifetime is ultimately withdrawn
(un-saved). Composite entities are made of individuals at every stage of
their lives, so at any moment, people are both saving and withdrawing at
the same time. The _net_ savings rate must therefore be smaller than the
maximum rate at which any individual saves, and could be essentially zero
with fluctuations either way.
So if the 7% annual excess of income over expenditures that is seen in the
last 100 years does not represent savings, where did (most of) the
difference go? TCP's hypothesis was that this number, or something close to
it, represents money that is lost to the economy by any number of
mechanisms, including physical destruction and poor overseas investments or
loans, as well as unfavorable balances of trade. He didn't really try to
guess. The main point was that you can't simply scale up from the economic
history of one family to the composite history of 50 million families. One
family might, in its peak earning years, save 7% of its income for old age,
but at the same time, another family has reached the years where it must
draw down its savings to survive, and this rate of withdrawal has to be
subtracted from the other family's rate of savings to compute the overall
saving rate at the macro level. The net rate will be a lot closer to zero
than the maximum rate.
>TCP makes a point about the volume of investment being relatively stable.
But, this >part of >his arguement is based upon using an accounting figure
that measures payments >made to capital accounts intended to pay-off debts
( either real or implicit ) which >have in the past been taken on when
capital equipment has been purchased. The >proceedures within firms to make
payments to these "sinking funds" are surprizingly (at >least to me)
stable. However, the actual creation and purchse of "real"
capital >equipment is more variable than consumption. If you look at time
series for the >creation, sale, purchase of investment goods, it would
appear that to account for the >total level of economic activity it is
necessary to explain _both_ the factors that >determine the level of
consumption but also the factors that determine the level of >investment.
TCP was looking at the total investment rate, which might well correspond
to the sinking funds you mention. This was simply to account for where all
the income went: it went to wages, capital distributions, and investment.
Whether the investment money was used to buy new equipment or to maintain
existing equipment, or was simply retained, was not of interest except as
far as it affected the part of income available for distribution back to
consumers and the markup over cost of production required to balance the
equations. Also, if total investment money remained constant in good times
and bad, then arbitrarily increasing its amount would not have any effect
on the economy. At a more detailed level, we might guess that if the
economy starts picking up (for example through an increase in productivity
and population), the producers might well spend more of the available
investment money on new equipment and less on simply keeping the old plant
working. This would produce the observed increase in investment in new
machinery on which one investment index is based. But as TCP pointed out,
there's no advantage in increasing production unless you also increase the
amount paid to consumers so they can afford to buy the increased amount of
product. Consumers are not sitting on infinite piles of money which we only
have to persuade them to spend. This is in line with your comments about
treating equations as equations.
If you look at the onset of the "Great Depression" during 1932 investment
fell from an index number of 120 to about 60.
I take it this index is given in terms of new machinery orders. It's a
management decision as to whether to spend investment money given (one
might even say donated) to a company on new machinery, maintenance of old
machinery, acquisition of other companies, higher management salaries, or
whatever. Money is money. The index needed for TCP's purposes would include
all of those, and its best measure would be total amount of investment
money given to a company and diverted from its income for investment
purposes of all kinds. TCP would have treated investment money simply as
another part of income, to be disposed of in any of the available ways
including wages, distributions, profits, rents, royalties, fees, interest,
and maintenance.
Anyway, even Keynes acknowledged that goods made by one manufacturer and
sold to another disappear from a macroeconomic treatment -- "a wash," he said.
>As a MA student 1969 _Equation and Equlibrium in Marshall and Keynes_ I
worked my way >through this literature and came to the conclusion that it
was possible to simplify >matters if one defined the income relationships
in terms of a system of simultaneous
>equations of time rates.
I think you were smack on target at that point. As far as I can see, TCP
never thought in terms of simultaneous equations even as he was solving
them by the seat of the pants. There were a lot of things he never thought
of, such as human agency. As far as he was concerned management decisions
were random and cancelled out to zero effect. I didn't argue with him. As
you are aware, arguing with him would have been pretty futile, especially
for me.
>Behavorists treat casuation as a sequence in time in which an external
forces which is >prior in time "impacts" upon a subject and the result is a
"response" which takes place >later in time. Behaviorists think of this as
"the method of physics." But, it isn't. >Properly handled force and
causation in physics are continuous in time rather than >sequential.
Yes indeed. You can read entire physics texts and never find "cause and
effect" mentioned. The equation for gravitational acceleration is F =
M1*M2*G/R^2. So what "causes" a object to be accelerated is its own mass,
the mass of another object, a fundamental constant, and a distance. There
isn't even an event to talk about. How behaviorists could have thought they
were imitating physics is a mystery to me. I have likened those claims to
the beliefs of Cargo Cultists, who cleared rocky runways and put up bamboo
control towers to attract the great silver birds filled with cargo for
them. Form without substance.
>It's not that decisions about consumption are primary and investment
decisions are >seconday, or vis versa. Instead _both_ are going on
concurrently and they are equally >important. The task then is to
understand the process involved in their interaction. >And, that
interaction can as a practical measure be understood, and only understood
in >a reliable way, as an analysis specified in terms of simultaneous
equations of time >rates.
Yes. To see in what ways they are important we simply have to work them
into a simulation so we can see the effects of pursuing different policies.
The human mind, unaided, is simply not able to unravel very many
interacting processes, or predict what they will do.
>After working the question over in the MA thesis, I went at it again in a
dissertation >_Mathematical aspects of Veblenian Economics_ 1972. It was
One of Veblen's principle >arguements that economics had to be
reconstructed in terms of "the life Process."
Wonderful discussion here of how you came across control theory and what it
meant to you. I'm very glad to know the details.
>However, in contrast to Bill's work when I look at what T.C. Powers has
attempted to do >in economics what I find is quite different. I'm not
saying anything about TCP's work >in structural chemistry which is
distinguished and has been recognized as such. But, >when TC Powers
attempted to construct a novel analysis of the economic process
his >experience as a structural chemist didn't provide him with the sort of
scholarly skills >to make a judgment about where to begin.
The final book suffered from the fact that when he reached his nineties,
TCP was no longer able to hold in mind more than a short span of his
writings at once. He spent most of each day re-reading what he had written
days to years before. In short, he left the final re-writing of his book
much too long, at least 10 years too long.
In fact, TCP studied economic writings for some 20 years before he
seriously thought about writing the final book.His copy of Keynes' General
Theory is dog-eared from re-reading. I would not be surprised if many of
his most valuable insights simply disappeared into the mists before he
could elucidate them.
>As I remember it, when Bill Powers sat down an examined his dad's work,
he found that >in places A was equal to B, and A was equal to C, but B and
C were not equal to each >other. And, commenting on this difficulty said,
"This is going to be difficult to >explain."
Yes, but most such errors were cleared up as I went over his derivations
and found the problems. The biggest problem I found was that the growth of
the economy was simply postulated and not derived from first principles as
he claimed. That didn't sink in until much later, but even if I had notice
it earlier nothing would have happened. TCP's reaction to any proposal that
he had made a mistake was explosive, sometimes followed by "Well then I had
better just give up the whole thing, and it's all your fault." It took very
delicate handling to get him to admit an error and then correct it. But I
have to say that this was probably not his general way of behaving. I was
his son in whom he was not, generally, well-pleased, and to be corrected by
his son was the next thing to intolerable.
I consider TCP's main contributions to have been his clear vision of the
difference between composite entities and individuals, which economists
have clearly not seen (in my limited experience), and his attempts to work
up a system of realistic equations and interpret them in terms of available
data. He had the basic concept of system analysis and the inclinations of a
research scientists to back it up. But he did not know about simulation,
nor did he have any concept of a human agency being important in the
workings of the economy. He considered my work with control theory (theory
being a red-flag word) to consist primarily of (and I quote a quote I am
not likely to forget) "stewing in my own juice." There was never any hope
of incorporating control-theory concepts into his thinking.
>Its not that I have a bias against TCP's stuff that has resulted in my
having rejected >I've pointed out what I percieve as mistakes such as the
confusion between payments to >a capital sinking fund, and expenditures
upon capital equipment. It isn't true that my >objection to TCP work is
non-substansive in character.
I think it's off the track for reasons laid out above, but it's not that
important and I don't hold it against you. My own reasons for considering
TCP's work as, at least, unfinished are probably more extensive than yours,
though I have a harder time being cooly objective about the old despot.
>You can look it up. Payments to sinking funds are surprizingly stable,
while capital >purchases are variable.And, it is the purchases of equipment
that are associated with >the employment required to create the equipment.
Let's not say yea or nay to any such proposals. We will put sinking funds
into the model and we will have the managers spend them in various ways and
we will see what happens. I already have an "investment fund" in the model
(not used for anything yet) just because a place is needed for money to
come into and go out of when we get around to such things as influences on
productivity from new machinery, maintenance, invention, and so forth. I
can't predict the outcome and nobody else is likely to guess exactly
correctly, either.
So, I'm satisfied that Bill's description of the way he is constructing
the Econ model is correct. Wolfgang's report that the simulations match
the results obtained by the analog board are reassuring. I don't see any
reason at this point to bring in conclusions reached by Bill's dad,
Keynes, or french marxists for that matter. Suggestions from any source
may prove helpful or not as the case may be, but the point, or the
potential point can be approach from an analysis based upon first
principles carefully considered.
I feel that we are at last moving down the right road. All we have to do is
step carefully and not commit ourselves to any premature conclusions or
beliefs about anything, but just concentrate on the problems at hand and
their correct solution. I expect you to keep an eagle eye on developments,
and after you get the hang of the approach, to start building the model
with me. And after that, I fully expect you and your students to take the
model "where no man has gone before." Since this is about economics, you
can call your effort "Store Trek."
Best,
Bill P.
[From Bill Powers (2003.02.05.1629 MST)]
I offer a number of ideas here as flat assertions; please understand they
they are all proposals, not pronouncements.
Bill Williams (2003.02.05) --
>Money is constantly being created and and destroyed. Governments do it by
printing >money and collecting taxes. People do it by declaring bankrupcy.
BAnks do it when the >make and collect loans. Banking is sort of a strange
business, but there really isn't >any mystery about it. THere's a fair
amount of US currency that becomes in effect the >reserve currency for
other nations, and for either formal or informal "dollarization." >So,
there are all sorts of "leaks" and what I've term "fountains" in which
money comes >into existence and then disappears.
Fine. But we won't get far if we start with the most complex possible
picture. That's a good way to discourage an orderly attempt to make sense
of things. I always have faith that nothing is as complex close up as it
looks from afar. The basic relationships are all simple in economics; they
only look complex when there are a lot of them happening at once, But
that's what computers are for.
Money is created by loans or extending credit. Fine, we can put that in the
model. Money is destroyed by repaying loans or simply spending it or
lending it outside the confines of the local economy. We can put that in
the model, too.
Then, as you say, we realize that the government ultimately creates money
by printing it. But none of this creation and destruction is done at
random. For the most part, people keep pretty close tabs on money, and even
when they don't, the money exists and is used, and the books always balance
in nature whether they do on paper or not. You can't buy goods that haven't
been made; you can't spend money you don't have.
>Figuring out quantitative what's going on with all these different
activities can be >quite a job. But, its puzzled me why would one want to
trace the flow of money around >in terms of a circuit. But, walking to the
plazz to get something to eat, I conducted >a thought experiment ( deganken
? ) and attempt to trace the flow of money around in a >circuit from
producer to consumer and back. It was a little bit surprizing, but
the >result was that I came up with questions such as how to account for
what happens when a >consumer doesn't spend all that is recieved as wages,
and what happens when a producer >takes the money recieved from a consumer
and pays off a loan. Now I wasn't seriously in >danger of becoming trapped
in an alternative world, but it did in a sense illuminate >for me how TCP
reached the conclusions he did.
Yes, but he had no way to construct a model of the ideas in his head, and
the complexities are such that the only way to handle them properly is with
a model.As you will see in Econ004, there is no "flow" of money. Money
disappears from one account and pops up in another, while a quantity of
goods passes the other way according to their price. Price determines how
much money is needed to obtain a given amount of goods to fulfill the
consumer's needs and wants; wages and other distributions determine how
much money the consumer has with which to satisfy those needs and wants. Of
course any variable in such a system can be expressed in terms of all the
other variables, so we could eliminate hours worked, or wages, or money, or
goods and services, from the equations without losing anything but
intelligibility. But there is no reason not to retain all the variables
with which people actually operate; the computer doesn't care.
>If you assume money makes the circuit go then it seems entirely
reasonable to attempt >to follow the money because the money is something
of a causal force.
I suppose that makes a certain amount of sense, but from the PCT
standpoint, what makes the system go is the fact that people want things
and make whatever efforts are necessary to get them. If nobody wanted or
needed anything there would be no economy. The motor is in the human
agents, not in the goods and not in the money.
Then I decided when I'd had enough of chasing money around the circuits,
to find out what I had to do to convert the gestalt I was in at that
moment to the Income/expenditure model. It took me a while, but what I
found was that the INcome/expenditure model isn't about a circuit. And it
isn't about money as such. Instead, like its title indicates its about
EXPENDITURE.
I take it that you mean the exchange of money for something non-monetary of
value. You will find that in Econ004, income and expenditures take place,
as do labor and consumption. What is an expenditure for one party is a
sale, and income, for another. What is income for one party becomes that
which is available for expenditure and thus income for someone else.
What happens to money is of minor or no concern-- except in so far as
what's going on has an effect upon expenditure-- expenditure upon the
current production and consumption of real goods.
Let's not assign relative importances to links in a chain. There's no need
to. All the parts of the system operate as they operate, money going one
way and goods the other, all under the influence of human needs and wants.
That's our approach for getting control theory into economics. If you focus
on one aspect of the system at the expense (pun not intended) of another,
the picture will become distorted according to your subjective feelings
about relative importances.
The focus of the analysis ought to start with real economic actitities and
then add money to the analysis rather than starting with money and
considering employment and production as an effect of money.
I suggest that we avoid doing either one. We don't _have_ to consider "real
economic activities" or money as either causes or effects. We don't need to
be concerned about cause and effect at all. All that's necessary is to see
how one variable is a function of many other variables, and via various
closed loops, of itself. Causation is much too primitive an idea for
handling that sort of system analysis. What we are going to find, and what
you will already see the beginnings of in Econ004, is that the critical
variables increase and decrease _together_ as a result of being related as
they are. If you want a parallel to physics, don't think of billard balls
passing effects along one to another. Think of a double star, in which each
star is in orbit around the other and neither is the sole "cause" of the
motions of either star.
Money isn't a causal agent. Now texts don't do a good job of making
this point. They retain the circuit illustrations which are misleading,
but people have taught the course for the last two centuries have made
the circuit stuff a part of their course so why change now? However, if
you look at a circuit analysis isn't money being treated as a causal force?
It's treated as if it had physical momentum -- once you start the flow
going, it keeps going until something stops it. I'm certainly with you on
this point.
If money doesn't make the wheel of circulation go around, what does?
Since there is no wheel of circulation, nothing is needed to make it go
around. Instead, we have some people using money as a means of making goods
come into their posession, while they and other people use labor and goods
as a means of making money come into their posession. The human agents are
making everything happen. Without them, any apparent flows would stop
instantly.
And, there's another problem with the wheel of circulation driven by
money. It encourages thinking about the process in terms of a causal-
sequence, rather than a causal process.
I agree. I double-agree, if there is such a thing. I'd even try to drop the
use of the word cause except in an informal sense.
Best,
Bill P.
[From Bill Powers (2003.02.06.1440 MST)]
Bill Williams (2003.02.06a)--
>I may have created a misleading impression in my comments about my
thought experiment.
I won't worry about it. Now that I have a way to transmit code to you, we
can get down to nuts and bolts. A lot of what we've been discussing is
throat-clearing, and I think we can get more specific soon. Source code for
Econ004.txt is attached.
>You say regarding TCP that
[He] had no way to construct a model of the ideas in his head, and
the complexities are such that the only way to handle them properly is with
a model.Everybody's been in this position.
Well, yeah, but I don't think he knew he was.
>Well, the links I'm most interested in consist of employment and production.
Its employment and production that provide the means of life-- the fuel,
the fiber and corn we have to have to exist.
I meant, let's not make one link more important than another, at least not
until we can show it's a higher-order system.
>Whatever my "subjective feelings" about things, including calories, I
don't see that >insisting at least tentatively upon treating economic
questions in terms of a "life >process" neccesarily "distorts" the analysis.
That isn't what I was referring to. To pick a nonexistent and therefore
neutral example, to say that the economy is all about selling things would
be to distort the picture, as would be the case for saying it's all about
buying things. Everything that goes on in part of the economy, and
everything in a closed loop is necessary to close the loop.
>I'm not sure there is actually a disagreement between us regarding "first
principles."
I agree. We just get tangled up in words now and then.
I don't mean to ignore, not permanently at least issues I haven't
responded to as yet in your's and Ricks posts, but I'm planning on paying
more attention to stuff here for the next few days.
Not a problem. I have to ignore things in your posts just to keep caught
up, more or less. When the going gets tougher, the tough won't be talking
so much. I'm glad to read your ideas about curricula and such, and wouldn't
want to miss them, but they don't necessarily call for more than a "Roger"
now. Important ideas will come around again as they need to be talked about.
Best,
Bill P.
econ004.txt (93 Bytes)
[From Bill Powers (2003.02.06.1456 MST)]
Rick Marken (2003.02.06.1120)--
>The _H. economicus_ paper is basically the same one I presented at the
2000 >CSG Meeting in Boston. ... Bill Powers has also expressed (to me
personally) >his dislike of the paper after it was published in _More Mind
Readings_. I >don't recall exactly what Bill Powers didn't like about it.
But I think it >would be nice if both Bills would re-read the paper and
post their criticisms >on CSGNet.
I'm not sure you really want that. I assumed that this was a very
introductory paper, not to be taken too seriously since it left so much out
and was pretty undeveloped. While it's possible to make a model too
detailed, it's also possible to make it so general and abstract that it's
incomprehensible. Figure 2 is more of a conceptual diagram than a picture
of a working system -- nobody could figure out what your model is from that
diagram. And just who or what is capable of perceiving PQ' - P'Q' is not
explained. What I didn't like about this model was mainly that I couldn't
make sense of it. I don't think there is a composite GNP controller. That
implies a person or group who has a goal for GNP, monitors actual GNP, and
converts the difference into an action that can increase or decrease GNP. I
don't think there is any such thing, group, or person. Maybe you can
convince me there is.
One problem with your model is that you draw quantitative conclusions from
it well before you have given anyone reason to believe the model is working
properly and that its behavior is to be believed. We need to see detailed
evidence that this is in fact a proper model and that everything going on
inside it is plausible. The discussion is much too sketchy to support your
conclusions. Your conclusions about the relationship of rate of growth to
leakage, for example, must be based on something you didn't talk about,
because I see nothing in the model that can "grow." You simply put in an
increasing reference level for GNP, which naturally makes GNP grow (or stay
the same or decline) in whatever way you make the reference level grow or
remain constant or decline. So of course leakage has no effect! Neither
does anything else in your model have an effect on growth. At least this is
how it looks to me -- have I missed something vital?
>Perhaps the paper can then serve the useful purpose of uniting Bill
Williams >and Bill Powers in their efforts to build a PCT based model of
the economy.
Well, I think we're managing to work together, if tentatively, pretty well.
You are, of course, welcome to join in -- I don't mean to reject you along
with your model. I've been working for quite a while now to build up
something that works more or less plausibly (remember CHMP001 back in Dec
2001? This went up to CHMP008 by Jan 2002, and the present model is Econ004
-- four more versions beyond CHMP in the past year. I assume I showed you
CircFlow.pas from 1998, and the efforts following that. It should be
obvious that I have not tried to publish the first version that seemed to
do something.) There are variants that need to be tested even at the
present stage (giving the capital-income recipent control of plant income
via the capital/waqe ratio, for example) and of course there's a huge
amount of work left to do beyond that in future versions. One big plus you
bring to the discussion is that you have some experience with Delphi, which
I assume we'll need when array sizes go beyond what Turbo Pascal can handle.
>I just reread the _H. economicus_ paper myself and I think it's pretty
good. >Not perfect but OK. Indeed, I think it's a nice first step in the
direction >of building a PCT based economics. But if it's not, I think it
would be >useful to know why.
I think it's a giant leap, but not in the right direction. You became
satisfied with it before you had done nearly enough work on it. Approving
too much of one's own productions is risky. Better to let others do the
judging -- another name for overly favorable self-evaluation is bragging.
Back in grammar school, I thought the height of humor was when someone told
someone else who was bragging, "Don't break your arm," meaning, I
discovered, " ... patting yourself on the back."
As to the rest of your post, I think it's much too early to be drawing
sweeping conclusions about economics. Of course you might get lucky and be
able to claim that we "heard it here first," but what usually happens when
people do this is that they end up hoping everyone has forgotten their
hasty guesses. We will do better taking it step by step and making sure of
our ground as we go along.
Best,
Bill P.
[From Bill Powers (2003.02.07.1037 MST)]
Rick Marken (2003.02.06.2200)--
>OK. I imagine the diagram could be better.
Then make it better. It's not much help as it stands. It is hiding errors.
>I guess one thing I was trying to do was model at the aggregate level,
the same level at which TCP was describing the behavior of the circular
flow. The variables whose behavior I am trying to model are aggregate
variables, like GNP. So the agents are really conceptual agents.
That's not an answer to my objection. If you want to see what the model
predicts about the growth of GNP, you don't make GNP a controlled variable
and give it an exponentially-rising reference level. If you do that, you'll
get out of the model precisely what you put into it, an
exponentially-rising GNP. That is exactly what TPC did: declared that
economic output depends on exponents, and then gave the impression that he
had proven that it rises exponentially. In other words, the way you're
going to prove that GNP rises exponentially is to make sure it rises
exponentially. What kind of modeling is that? It would be like proving that
the outfielder runs along a curved path by giving him reference levels for
direction of running in X and Y that correspond to the curved path you
observe. In your baseball model, you at least show how the directions of
running are functions of error signals in some _other_ control systems than
the direction-of-running systems. The fact that they are curved _emerges_
from the operation of the model; there's nothing in the model that
specifies the curvature directly, as your rising reference level for GNP
specifies how GNP is to behave.
What bugs me is that you know better than this. You have never, to my
knowledge, made this mistake before.
Individuals compare income (PQ' at the individual level) to expenses
(P'Q' at the individual level). My PQ' - P'Q' controller is a
representation of the aggregate control over their balance sheets
exerted by many individuals.
So are they trying to make PQ' = P'Q'? That denies leakage right there; if
there is actually leakage of money from the system, it is impossible for
PQ' to equal P'Q', if I interpret those symbols correctly. Your model
contains no source of money to replace the leakage disturbance. so the
books clearly cannot balance. You claim in your paper that the manager
makes PQ' = P'Q' by changing the price, but changing the price does not
supply the needed money. Your system will run out of money -- remember that
leakage happens continuously, not just once. A continuous inflow of money
is required to compensate for it. If you have set up the equations so this
is not necessary, your model is incorrect.
>
>The evidence I gave that the model is working properly (given what I
wanted the model to do) is presented in Table 1, p. 169. This table
shows that the model does what it was designed to do: produce behavior
(of Q/Q' and inflation, at least) that matches the behavior of these
variables, according to TCP's model, as a function of leakage.
But it does that only because you specifically made it do that. And there
has to be an error in your model, because Table 1 shows the rate of growth
increasing at a constant 13% a year, while in fact the amount of money
available for spending is decreasing at the assumed leakage rate. There is
no way that the rate of spending can be increasing according to the
indicated inflation rate while the rate of growth is remaining constant in
terms of goods purchased. The amount of goods may be increasing year by
year, but inflation is increasing faster, so there is a net loss of output
in constant dollars -- exactly as the Circular Flow model predicts.
This is what I mean by not making sure your model works correctly before
drawing conclusions from it.
I'm sure I could have done a better job of
validating the model. But the model did do what I built it to do.
So why didn't you just make GNP increase at 13% per year, so you could say
the model is correct, since GNP increases at 13% per year? Essentially
that's what you did by making the reference level increase 13% per year.
I
agree that the discussion might have been too sketchy. But I don't know
what detailed evidence (other than what I presented in Table 1) you
would want to prove to yourself that this is a "proper" model.
Look at Econ004.pas. It's not complete and it may even be mistaken, but it
is a proper model. No behavior is simply assumed to happen and then made to
happen that way. The books actually balance, both for goods and for money.
If you put leakage into it, the total amount of money in the system will
decline and if no new money is supplied, the system will go broke. In your
model, all the money can be removed and the system will go right on working.
>I don't think your conclusion that "of course leakage had no effect" is
correct. The increasing reference for GNP corresponds (somewhat) to
TCP's intrinsic growth rate; I think it represents the growth in demand
for GNP that results simply from population growth.
None of that is in your model, and your model can't really work for that
reason. Leakage has no effect in your model because you have not provided
any way for it to have an effect. Leakage can't step in and rewrite your
equations to give itself an effect.
I constructed the
model to mimic the behavior of TCP's model. And my model succeeds at
doing that.
Except for the effect of leakage. Imitating the behavior is trivial. I can
construct a model for stopping a car by saying its velocity decreases
exponentially to zero. That duplicates the behavior of the real car. But
the whole point is how that result is achieved; the essence of the model is
in the how, not the what. Your model contains no how, or no valid how.
I thought that the effect of leakage on growth rate would
"fall out" of the model. But it didn't, and that's how I discovered that
TCP had put the effect of leakage on growth rate in as an assumption.
But you did the same thing: you assumed a constant growth rate by making
the reference level grow at a constant rate. Of course there was no way
leakage could have an effect on growth rate when you specifically set up
the model so _nothing_ could materially affect growth rate.
In
fact, _change_ in leakage does affect growth rate.
How could it? You show the growth rate in Fig. 1 as constant at 13% per
year. If you changed the leakage, it would still be 13% per year. If you
think that a change in leakage affects growth rate, you've made another
mistake. It might have a transient effect, but there can be no other kind
of effect. And it is not a transient effect we're talking about.
>I really have very little experience with Delphi. And I really don't
have any time to work on that model; I'm juggling 3 projects at work and
3 other PCT related projects at home right now. And I don't think I'm
particularly good at economic modeling, anyway. So I think I'll just let
you guys proceed.
That's beginning to sound like the wisest course. But if your home projects
with modeling are to fare any better than the economic model, you should
consider very carefully what we're discussing here. Your model works by
magic, and that is not how you have normally made models in the past. If
you don't figure out exactly where you went wrong, you could make the same
mistake again.
Best,
Bill P.
···
> >I just reread the _H. economicus_ paper myself and I think it's
pretty
> good. Not perfect but OK. Indeed, I think it's a nice first step in
the
> direction of building a PCT based economics. But if it's not, I think
it
> would be useful to know why.
>
> I think it's a giant leap, but not in the right direction. You became
> satisfied with it before you had done nearly enough work on it.
Approving
> too much of one's own productions is risky. Better to let others do
the
> judging -- another name for overly favorable self-evaluation is
bragging.
> Back in grammar school, I thought the height of humor was when someone
told
> someone else who was bragging, "Don't break your arm," meaning, I
> discovered, " ... patting yourself on the back."I'm not patting myself on the back. I publish this stuff to show others
what I'm doing and and to get help and suggestions. The feedback I got
on this paper before I published it -- when I presented it at the
meeting and discussed it on CSGnet -- seemed OK. I do appreciate your
criticisms, though I don't really understand some of them. It doesn't
seem like a giant leap in the wrong direction to me. The model did what
I wanted it to do (simulate the behavior of the circular flow as per
TCP), and I learned something from it (that TCP put the effect of
leakage on growth rate in as an assumption). I wasn't trying to solve
all the problems of economics. I was just trying to do what I said in
the paper: develop a mechanism that could produce the results predicted
by the circular flow analysis.> As to the rest of your post, I think it's much too early to be drawing
> sweeping conclusions about economics. Of course you might get lucky
and be
> able to claim that we "heard it here first," but what usually happens
when
> people do this is that they end up hoping everyone has forgotten their> hasty guesses. We will do better taking it step by step and making
sure of
> our ground as we go along.Maybe you are right. I think by "step by step" you mean from individual
interactions up to the economy as a whole. Maybe that's best. I was
approaching it from the macro level as a first step. My step by step
would work down, increasing the resolution of the model as that seemed
necessary. The economic data is macro data so I'm building models at
that level. But you may be right; the best approach may be to go from
the individual level up. I do look forward to seeing the behavior of
your model and seeing how it explains fluctuations in macro variables
like Q/Q', unemployment, growth rate and inflation. I suspect, however,
that your approach may be like trying to account for tracking behavior
by modeling individual cells and their interactions with each other and
with external forces. But I really hope it is successful.Best regards
Rick
---
Richard S. Marken
MindReadings.com
marken@mindreadings.com
310 474-0313
[From Bill Powers (2003.02.07.1917 MST)]
Rick Marken (2003.02.07.1330)--
>Since you don't have Excel, I will try to write out the model as
procedural code
and we can go over it and see if I did, indeed, put in my conclusions as
assumptions.
Fine, I'm willing.
Best,
Bill P.
[From Bill Powers (2003.02.11.1130 MST)]
Rick Marken (2003.02.10.2220)--
Rick Marken (2003.02.07.1330)--
>Since you don't have Excel, I will try to write out the model as
> procedural code and we can go over it and see if I did, indeed,
> put in my conclusions as assumptions.Bill Powers (2003.02.07.1917 MST)--
>Fine, I'm willing.
OK. First I'll say that, after reviewing my arcane little model in some
detail, I
think that what is mainly wrong with it is that one of the controllers
controls
P'Q', which is GNP measured in terms of the current price per good, P'.
This is
ridiculous. It means that this controller could get what it wanted if we just
raised the current price per good (P' in the model) and left the amount of
goods
consumed, Q', constant. I selected P'Q' as a controlled variable for one
system
because that was the variable going round the circular flow in _Leakage_.
As you're seeing, P'Q' is not a unique variable, because an infinite number
of pairs of values of P' and Q' will produce the same number. To control
the product says only that if it remains constant, P' and Q' must be
varying in opposite directions, so P' = K/Q'. Increasing or decreasing GNP
can be done by increasing and decreasing P' and Q' together, or in any
proportions that make the product increase and decrease as needed.
Having
the system control this variable _may_ be an example of putting my conclusion
(that constant leakage has no effect on growth rate) in as an assumption.
But I
don't think so. What's wrong with the model is that one of the agents
should be
controlling for Q' (the stuff), not P'Q' (the money).
That's one thing.
In order for leakage to have an effect, you must provide a way for it to
have an effect. You're saying there is no effect, because "The model
assumes that when P is increased to P', the composite GNP controller is
able to borrow exactly enough money to make up for leakage." If the leakage
is made up by borrowing, then the total money coming in to the producer is
the same as it would be without leakage or borrowing In that case, the
producer should be able to pay exactly the same amount as before to the
consumer by way of wages and capital income (at the expense of going
steadily further into debt). The implication is that there is no need for a
price increase; the total producer income consists of P - LP + (a borrowed
amount LP), leaving the net producer income at P. If the price were to be
increased. the producer would have to pay the consumer more in order to
allow the whole product to be purchased; otherwise, unsold goods would
build up in inventory. If you had actually put a source of money equal to
the leakage into the model, you would have seen that autoinflation would
not occur.
What's confusing here is that the price at which goods are bought has to be
the same as the price at which they're sold, and the quantity that is
bought has to be the same as the quantity that is sold -- unless you have a
place for inventory to grow and shrink, and reserves in which money can
accumulate and be used up. TCP didn't appreciate this problem, either. It's
simply not possible for P to be different from P', or Q from Q'. If you
don't keep track of where the money is, you can have consumers buying goods
without enough money to pay for them, or the total money slowly draining
out of the system. If you don't keep track of how much you're paying the
consumers, you won't know if your income is large enough to cover the cost
of production. The equations in your model may be formally true, but they
can't be factually true.
Best,
Bill P.
The spreadsheet model works something like this. The GNP (P'Q') controller
controls for a reference amount of P'Q' (P'Q'*) by increasing (or decreasing)
production of Q':Q' = Q'+.0001*[100*(P'Q'* - P'Q')-Q'] (1)
(I'll just use the numbers I used for gain and slowing in the model; dt is
1 so I
think of each iteration as a year. That makes the computations a tad
clunkly but
the systems are stable; they control).The cost to the producer of producing Q', PQ', is
PQ' = P*Q' (2)
Where P is the production cost per unit Q'.
P'Q' is the proportion of PQ' which is received by the composite consumer
and used
to consume GNP (P'Q'):P'Q' = PQ' - L*PQ' (3)
where L is leakage. If L = 0 then there is no leakage and all of PQ' is
received
by the consumer. When there is leakage, P'Q' <PQ' and P'Q' will be less
than P'Q'*
and, by equation (1) the composite GNP controller will act to increase what it
receives by increasing production of Q'.At the same time that the GNP controller is trying to control for P'Q' by
increasing or decreasing production of Q', the composite manager is trying
to keep
P'Q'= PQ' by adjusting the price of Q' to the composite GNP controller. The
output of the composite manager isP' = P+.000001*(0-(P'Q'-PQ') (4)
When the cost of production, PQ', is greater than the amount received from the
consumer for purchase of what was produced, P'Q', the composite manager
raises the
price of the goods produced. So during each iteration of the model, goods are
produced at a price per unit of P and sold at a price per unit of P'. When
there
is no leakage, P' always equals P. When there is leakage, P' is slightly
greater
than P. This, of course, is where money has to be pumped into the system. The
model assumes that when P is increased to P', the composite GNP controller
is able
to borrow exactly enough money to make up for leakage. Note also that
increasing
P (as P') affects the value of the quantity controlled by the GNP controller,
P'Q'. When there is leakage, the quantity controlled by the GNP controller is
affected both by that controller's own efforts to increase P'Q' (by increasing
production of Q') and by the composite manager's efforts to keep P'Q' =
PQ' (by
inflating the price, P', of the Q' that is produced).I can see that this is not a pretty model. But, as I said, it produces the
behavior described by TCP's equations. That is, the effect of L on Q'/Q (I
calculate Q, potential production, in a parallel GNP control loop in which
P'Q' is
not affected by leakage) and on inflation rate (dP/dt) is exactly what is
predicted by TCP. L has no effect on growth rate (dP'Q'/dt), not because
I can
make P'Q'* change at a particular rate, but simply because it doesn't. TCP
said L
does have an effect on growth rate but that conclusion of _his_ was really an
assumption. On page 101 of _Leakage_, TCP simply assumes that growth rate
is the
algebraic sum of intrinsic growth rate and leakage rate. The relationship
described in equation 2-29 on p. 101 is not a derived conclusion; it is an
assumed
conclusion. I would not have noticed this if I hadn't gone through the
modeling
exercise.Best regards
Rick
--
Richard S. Marken
MindReadings.com
marken@mindreadings.com
310 474-0313
Best,
Bill P.
"Pay no attention to that man behind the curtain."
The Wizard Of Oz
"Convince a man against his will;
He's of the same opinion still."
Embroidery by Grammy Alice
[From Bill Powers (20034.02.11.1537 MST)
Rick Marken (2003.02.11.1330)--
> Bill Powers (2003.02.11.1130 MST)--
>I do still think that the basic idea behind the model is correct, the
idea being that the aggregate producer must continuously be paid back by
the aggregate consumer the amount paid to the aggregate consumer as the
cost of producing Q. I'll just have to build a model that captures this
fact in a realistic way -- not by controlling for weird variables like P'Q'
That would be good. I suggest creating intermediate variables: cash
reserves and inventories, for both producer and consumer. Then, if wages
are paid to the consumer (W and K), money is take from the producer's
reserve and put in the consumer's. If goods are purchased, a quantity of
goods goes from producer inventory to consumer inventory, and a
corresponding amount of money (determined by price) from consumer reserve
to producer reserve. I tried to talk TCP into doing this but he saw no use
in it.
If you do it this way, the aggregate producer will be paid back in the
correct manner as the consumer makes purchases, and the producer will pay
the consumer as required to allow the purchases to be made. The books will
balance and purchases and sales will entail identical transfers of goods
and money.
In Econ004, the manager of the plant controls plant inventory by varying
prices in the logical way: too much inventory -- lower the price. Too
little -- raise the price. This brings the price to the equilibrium level.
You can easily introduce leakage just by making money disappear from the
cash reserves without showing up elsewhere in the system. I have not yet
worked out how to introduce growth; any contributions in that area are welcome.
···
.
Best regards
Rick
--
Richard S. Marken, Ph.D.
Senior Behavioral Scientist
The RAND Corporation
PO Box 2138
1700 Main Street
Santa Monica, CA 90407-2138
Tel: 310-393-0411 x7971
Fax: 310-451-7018
E-mail: rmarken@rand.org
[Bill Williams UMKC 1 Feburary 2003 4:00 PM CST]
Rick,
As I pointed out quite some time ago in Boston quoting Joan Robinson,
"Economics is a serious subject." When I read T.C. Power's manuscript some
years before it was published, it was quickly apparent that what he had
done was to repeat with some variations a version of an old tradition in
economics known as "underconsumptionism." I'll quote what Peterson and
Estenson have to say in discussion of the underconsumptionists.
Although the term "underconsumption" lacks a precise meaning, the
underconsumptionist approach to the business cycle sees the ultimate
collapse in boom conditions as caused by a failure of spending by
consumers to keep pace with production, leading eventually to a
glut of unsold goods. The reasons why consumption fails to keep
pace are not always clear; sometimes they are the result of hoarding,
sometimes of excess savings, or sometimes they are simply the belief
that the system does not pay out sufficient funds to buy back the
what is produced. Why the latter happens is not always clear,
although it is a theme that runs through the underconsumptionist
literature. The roots of the underconsumptionist viewpoint trace
back to Thomas Malthus, one of the early classical economists. p. 610.
It might surprize you to know that the term "leakages" is not origional to
Powers having been a part of the underconsumptionist literature. See
Peterson p. 266, 352-3, 364-5. where it used as a sort of folksy
anachronism.
When I read T.C. Powers manuscript some years before it was published, it
was apparent that, probably without being aware of it, he had absorbed from
some source the tenents of underconsumptionism. For example he claimed that
the investment rate was almost a constant which is a feature of the
underconsumptionist doctrine. And, he had figures to prove it!
Unfortunately what he'd done was to confuse payments to capital sinking
funds for actual investments. Contra Powers, investments are more subject
to fluctuation than is consumption. (See Peterson p. 297.)
What I recommended at the time when I read TCP's manuscript was that
discuss his ideas with some people with some training in economics. He
wasn't inclined to do so. In his view, he'd figured stuff out, and that was
that. My attitude was fine. I'd fulfilled what I saw as my responsiblity
to be helpful, and I forgot about "Leakages." It never occurred to me that
Bill Powers took his dad's ideas seriously. There are, or at least were, a
number of people of a certain age who had been very much impressed by the
events of the Great Depression and in later life attempted to construct an
explaination of how such a thing was possible. And, while they often
approached the question in great earnestness, they rarely if ever
familiarized themselves with the literature of economics. Consequently they
nearly all of them ended up repeating with minor variations ideas that they
had been casually exposed to by assorted reading or discussion.
I don't see that there's anything remotely shameful in someone naively
attempting in issolation to figure out what's wrong with the economy and
economic theory. And, for the most part I think the sorts of remedies that
are generated by the underconsumptionist theories are helpful. But, TCP
exhibited something of his arrogance when he ventured into a criticism of
Keynes' thinking of the economic process as a collection of, and only a
collection of, individual agents. That quite clearly was not Keynes'
position. On the contrary, it was Keynes who provided the convincing
explaination for why it was neccesary to consider _the economy as a whole_
and why an individual analysis of events such as the Great Depression was,
for some purposes, inadaquate. TCP by his criticism of Keynes for a
position that was completely the reverse of the one Keynes constructed,
indicated how very little he understood of economic theory. There are
unpleasant words to describe the mixture of intellectual issolation,
confusion, and arrogance that TCP "Leakages" exhibits. I haven't used them,
but you can be sure that other people do.
Not too long ago after commenting with great confidence about the behavior
of aircraft which you didn't remotely understand, you said, that you ought
to stick to what you know. An excellent idea. Either that or consider
approaching questions with which you are unfamiliar in a way that begins by
modestly acquainting yourself with the subject-matter. The way you've
presented TCP's work on the CSGnet, in my judgement, if it has any effect,
is only going to cast doubt on the plausiblity of applying control theory
to an analysis of human behavior. If you're really interested in where the
money goes, there is a large literature from back in the late 1940's which
treats the question in detail. Using the online Journal Storage you can
readily access this material by searching for "money flows." At this point
I don't see that there is any reason to approach the issues as if there is
any mystery involved.
Bill Williams
[From Bill Williams UMKC 5 Feburary 2003 11:15 PM CST]
Marvel of marvels! The email that I thought had vanished found its way to
the CSGnet.
[From Bruce Nevin (2003.0207 13:27 EST)]
Bill Powers (2003.02.06.1456 MST)--
Rick Marken (2003.02.06.2200)--
Superfluously, I admire the tone of this exchange: forthright, clear, free of opinionated (ad hominem) language.
I do have a question about one analogy:
Rick Marken (2003.02.06.2200)--
···
At 01:05 AM 2/7/2003, Richard Marken wrote:
I suspect, however,
that your approach may be like trying to account for tracking behavior
by modeling individual cells and their interactions with each other and
with external forces. But I really hope it is successful.
For this analogy to be valid, there must be a "superorganic" control system of which humans are the "cells." Are you asserting this?
/Bruce Nevin
[From Rick Marken (2003.02.301.0810)]
Bill Williams (UMKC 31 January 2003 8:00 PM CST) --
Rick,
So, tell me where does the money go when it leaks?
That's a very good question. I don't think we'll have a good answer to
it until we do a pretty complete job of modeling the macroeconomy,
including entities, such as banks, treasuries and investment systems
(stock markets), that are involved in the production and loss of money.
The only answer I have right now is that leaked money is money that
leaves the circular flow. That is, it is money that is received by the
aggregate producer and not returned to itself as the aggregate consumer.
Money, of course, is more than just cash. A lot of it is just numbers on
a balance sheet. So a lot of leaked money probably goes to places like
the place where the money I had in my 401K went.
Best regards
Rick
···
--
Richard S. Marken
MindReadings.com
marken@mindreadings.com
310 474-0313
[From Rick Marken (2003.02.01.1800)]
Bill Williams (UMKC 1 Feburary 2003 4:00 PM CST)--
Rick,
As I pointed out quite some time ago in Boston quoting Joan Robinson,
"Economics is a serious subject." When I read T.C. Power's manuscript some
years before it was published, it was quickly apparent that what he had
done was to repeat with some variations a version of an old tradition in
economics known as "underconsumptionism." I'll quote what Peterson and
Estenson have to say in discussion of the underconsumptionists....The roots of the underconsumptionist viewpoint trace
back to Thomas Malthus, one of the early classical economists. p. 610.
That's interesting. But could you explain what's wrong with the
"underconsumptionist viewpoint". All you pointed out in Boston is that
leakage theory is bad economics. But you never really explained why. I'd like
to hear an explanation of what's wrong with the leakage model. If what's
wrong with it is that it is equivalent to a discredited theory (the
"underconsumptionist viewpoint") then I'd like to know why that theory was
discredited. I'm sure the underconsumptionist viewpoint is wrong if you say
it is but I'd really like to know why it's wrong.
Contra Powers [TCP], investments are more subject
to fluctuation than is consumption. (See Peterson p. 297.)
I don't think TCP said anything about investments being less subject to
fluctuation than consumption. TCP showed that capital investment seemed to be
a pretty constant proportion of GNP (about 18%). He may have looked at the
wrong data as a measure of capital investment. But that's not really related
to your point about the relationship between flutuations in investment and
consumption.
There are
unpleasant words to describe the mixture of intellectual issolation,
confusion, and arrogance that TCP "Leakages" exhibits. I haven't used them,
but you can be sure that other people do.
Who cares? It's the substantive criticism that matters. Heck, people use
unpleasant words to describe the mixture of intellectual isolation, confusion,
and arrogance that WTP's "Behavior: The control of perception" exhibits. Of
course people resort to name calling when they can't construct a substantive
rebuttal to ideas that challenge their own. Such people aren't really very
interesting, are they?
Not too long ago after commenting with great confidence about the behavior
of aircraft which you didn't remotely understand, you said, that you ought
to stick to what you know.
I said that in the context of a discussion of how a control model explained
the behavior of a pilot. I'm not an expert in piloting so I deferred to your
piloting expertise when it came to evaluating the merits of that model.
But I think we can talk about whatever we like on the net. We don't have to
limit ourselves to the topics in which we are credentialed. If we say
something that turns out to be wrong -- even if we say it in what appears to
be an authoritative way -- we learn from being corrected. I think the goal on
CSGNet should be to learn, not to be right or to win. I would like to learn
about economics. I'm sure you know a lot more about economics than I do. So if
I say something that is incredibly wrong about economics, instead of just
saying that it's incredibly wrong, how about explaining _why_ it's wrong.
That way, everyone "wins" by learning something new.
Best regards
Rick
···
--
Richard S. Marken
MindReadings.com
marken@mindreadings.com
310 474-0313
[From Rick Marken (2003.02.04.1220)]
Rick Marken (2003.02.03.0820)--
>I really would like to know what is
>wrong with the "underconsumptionist viewpoint"? And what is wrong with the
>notion of "leakage" to which the "underconsumptionist viewpoint" is
>equivalent?
"Williams, William D." wrote:
The short answer is...
Well, I'm certainly glad you didn't send the _long_ answer;-)
that there are two categories of income. Investment goods and consumption goods. The underconsumptionist variety of theories focus on a short fall of consumption. A short fall relative to the potential production which, as an engineering matter, an economy is capable of producing. Underconsumptionist theories focus upon this short-fall, and in competition with other theories which focus upon investment decisions, _typically_ argue that if policies are managed so that there is an adaquate volume of consumption investment will take care of itself.
In "Leakage" TCP defines leakage as the the difference between the amount paid to the aggregate consumer (including the consumer of capital -- what you call investment -- goods and services) by the aggregate producer and the amount that is simultaneously returned to the aggregate producer by the aggregate consumer. The distinction between income received for capital vs other kinds of goods is not really relevant to the notion of leakage as per TCP.
It isn't true that my objection to TCP work is non-substansive
in character. You can look it up. Payments to sinking funds are surprizingly stable, while capital purchases are variable.And, it is the purchases of equipment that are associated with the employment required to create the equipment. I would suggest that before, and/or if this goes any further you check this out.
TCP showed that his measure of capital expenditures (C), which was the sum of private (P) and government (G) capital expenditure , was a constant proportion of GNP. This doesn't mean that C (or P and G) doesn't vary over time. It does. But the proportion C/GNP remains surprisingly constant. But even if that proportion didn't remain constant, this would be irrelevant to leakage theory, which simple says that leakage exists when the amount of money returned by the aggregate consumer to the aggregate producer is less than the amount of money simultaneously received from the aggregate producer by the aggregate consumer (that amount being GNP).
If TCP's conception of the economy were to be corrected by taking into account the effect of capital expenditures rather than the accounting for sinking fund transfer payments, and the details were corrected so that eveything was expressed in terms of simultaneous equations, then I don't see offhand that I would have any fundametnal objections.
TCP's model was expressed in terms of simultaneous equations. It's a closed loop model, which I implemented as a control model and described in my H. economicus paper in _More Mind Readings_.
However, it is my impression that when an attempt was made several years ago to do a line by line check of what TCP had done the conclusion which was reached was that a lot
of inconsistencies were found.
There are many details missing from TCP's model, such as where the money comes from that makes up for the leaked money (and allows for the occurrence of autoinflation). And TCP did put a conclusion in as an assumption. The conclusion was the leakage affects growth rate (dGNP/dt). This effect of leakage is not derived from model (as is the effect of leakage on inflation, for example). Based on my examination of the data (and my own modeling) I am becoming convinced that leakage, if it exists, has an effect only on what TCP called Q'/Q -- actual over potential production of goods and services.
So, I'm satisfied that Bill's description of the way he is constructing the Econ model is correct.
Good. I agree. It looks similar to what I did but Bill's model has more details than mine. I was only modeling the basic circular flow of money described in Leakage (see Figure 1 on p. 162 of _More Mind Readngs_). The creation and loss of money just happened in the model. How it happened wasn't specified. If you have Excel , I can send you my model (based on TCP's analysis) and you can critique that.
So, RIck if you want to continue the discussion why don't you as a first step check on TCP arguement about the place of investment in the economy. It appears to me that what TCP says is not consistent with reports by Termin and others see Peterson 1992 _income, Employment and Growth_ p. 297. that investment is more variable than consumption?
OK. I'll check it out.
Best
Rick
···
--
Richard S. Marken, Ph.D.
Senior Behavioral Scientist
The RAND Corporation
PO Box 2138
1700 Main Street
Santa Monica, CA 90407-2138
Tel: 310-393-0411 x7971
Fax: 310-451-7018
E-mail: rmarken@rand.org