[From Bill Powers (2008.09.26.0919 MDT)]
For all of you with PC’s that show the time in the system tray at the
bottom of the screen, do the following, now:
To check the date, move the mouse pointer over the time digits (or
double-click on them) to make the date appear, and see what the date is.
Come back here and say the date to yourself.
Now say the time that was showing when you read the date.
When I do that, thinking about checking the date, I find I have to look
again if I want to notice consciously what the time is. I SAW the time!
But I didn’t see it.
This also works if you ask someone with a wristwatch how long it is until
lunchtime. Then cover the wristwatch and ask them what time it
Good example of perception and consciousness not being the same
Rick Marken (2008.09.26.0730) –
Gary Cziko (2008.09.26
Can you elaborate on why you believe that “those on the top
can’t spend it”?
I had always thought that wealthy people had bigger homes, more and
expensive cars, sent their kids to expensive schools, bought
clothes, etc. Isn’t this because they spend lots of money?
I mean that they can’t use all
(or even most) of their money for
consumption. Yes, someone making a million a year spends (consumes)
more than one making $50,000. The latter probably spends all
socking away 0; the former may spend $500,000. So there’s 1/2 a
million that is being socked away. Open loop economists see that 1/2
million as money that is now available for investment; it’s a
“stimulus” for growth, because investment leads to
production. That’s the open loop view. The closed loop view
by data) is that when you increase production you have to have
consumers available to pay back the producer for the investment that
caused the increase; consumption and production are the two main
components of a closed loop… When most of the consumers are making
$50,000, there is no “demand” (money) left to buy the
production. Of course, if the $50,000 consumers borrow money they
maintain the increased production resulting from investment. But at
some point the debt has to be paid by the $50,000 consumers who have
no money to pay it because wages are stagnant. And that’s what just
Something like that. I think you have the right idea but not the details
We desperately need a working model of the economy. I don’t accept your
first try because it proposes an imaginary control system that
doesn’t really exist – the one that has a reference level for growth
rate (or any other global feature of the economy). There is no reference
signal for growth rate, except of course in a few individuals who can’t
control it anyway.
Kenny scoffs at what you say, but that is just hot air. Nobody actually
knows how this economy works, especially not economists. This is
demonstrated, as you point out, by the economic events of the last decade
that culminated in the current frantic attempts to fix the natural
consequences of following current beliefs about economics. I don’t think
this is the time for anyone to claim that they understand the economy
unless they want to be asked if they planned all this in advance, and
To add a bit to your picture, with which I mostly agree: There are
low-end (Walmart) and high-end (Mercedes dealership) markets. The poor
patronize the former, the rich the latter. The rich spend more per
purchase to buy the high-end goods and services, but most of the money
they pay goes to the owners of the business enterprises, many of whom are
probably also rich; workers are not paid commensurately more just because
the goods they make are made better and cost more. More, yes, but a
Mercedes assembly-line worker or delivery-truck driver does not make 10
times the salary of a Chevvie worker. The owners (other than pensioners
or small investors) buy at Neimann-Marcus; the workers at
This means that the buying power of the rich tends to circulate among the
rich. That’s why “trickle-down” doesn’t work. The rich just get
richer. It’s really funny how people can look at a simple demonstrable
fact like that, and even talk about it, and still not see it.
The other aspect of your analysis is important, too. Investment is
certainly needed when a company wants to expand its operations or start
new ones. But it’s perfectly obvious that a company that expands its
production of something that nobody wants or has the money to buy
is just going to go broke, and the investors will lose their money. So
before the expansion, the company has to try to make people want its
product, or more of it, and make sure they have enough money to buy it.
There is always a chance that the appeal of the product will not be
sufficient for the new revenue to cover the cost of expansion (or
startup), in which case again the company goes broke. Or someone else
could start a competing line that has more success, with the same result
for the first company. All sorts of things could happen, which is why
entrepreneurs have to have a lot of insurance against failure, such as
incorporation to limit personal risk or selling non-refundable stock to
investors. And of course the entrepreneurs think that because they choose
to take such risks (or subject others to them, more usually), they are
justified in charging all that the market will bear for their products if
they succeed. And when they succeed, they feel that they are much smarter
and deserving than other people, especially people who show that they are
failures by being poor.
Therefore, the idea that it’s possible to expand the economy simply by
pumping more investment money into it is just silly: it’s like trying to
make a runner go faster by force-feeding him – after all, faster runners
use more food than people just trotting along do, so if we give slow
runners more food we can make them run faster, right? Duh.
Adding investment does no good unless there is already a demand for more
of a product. And the money paid for the product, which is the producer’s
income, comes from the money that producers in general pay (as wages or
capital income) to the people who are going to buy the product. One
company can expand by luring customers away from other companies, but
it’s not possible for ALL or even a significant number of companies to
expand that way unless they have borrowed enough money to pay the workers
and investors who are going to produce and also buy the added products.
The overall rate of expansion determines how much money is needed for new
investments. And in the final analysis, new investments have to come from
borrowing, because that’s the only place new money can come from.
That is why Republicans are the Borrow-and-Spend party. They’re used to
operating that way. The Democrats, the Tax-and-Spend party, are used to
having to pay as they go, so they have the old-fashioned belief that you
have to pay for what you get out of your income or your savings. Both, of
course are right when considered in the proper context. But without a
closed-loop model of the economy, neither one can see that the other is
Nobody in economics or business, that I know of, understands how to
analyze closed-loop systems. We control theorists don’t know everything
there is to know about them, either, but we know a hell of a lot more
that the economists or businessmen or workers seem to know about them.
The first President Bush spoke of voodoo economics; he didn’t realize
that that’s the only kind there is. Economics is even more primitive than
psychology was before PCT.
I think someone should approach the new President, whoever he turns out
to be, and explain some of these things when the economic advisor is on
vacation. If there’s any big new project that this country (and the
world) needs, it is a Manhattan Project aimed at finding out, at long
last, what an economy is and what determines how it works. There is no
reason why the American economy can’t produce everything that everyone
needs and wants, just considering the talents of workers, inventors, and
managers. Those abilities don’t depend on the financial system, but only
on human aspirations, skills, and creativity. But the financial system is
like a brain tumor that interferes with the natural operation of the
system, so that when it hypertrophies, it sucks out all the precious body
fluids that the rest of the system needs and sickens the whole process of
I think that can be fixed, if we really try.