Looking at the Data

[From Rick Marken (2004.08.13.1313)]

Note: This post contains material that may be considered inappropriately
political by some readers. If you don't like to read such posts, please do
not read any farther. If anyone does read it and concludes that it is
inappropriate for CSGNet, then perhaps we can also have a discussion of what
is or is not appropriate for CSGNet.

···

-----

I'm posting a brief article by Michael Kinsley, who is currently the editor
of the LA Times Op/Ed page. Apparently Kinsley likes to spend his spare
time the way I do, looking at data. In this case, Kinsley uses data from the
President's Economic Report to see how well the economy does under
Democratic vs Republican administrations.

What Kinsley finds seems to contradict the truism that Republicans are
better for the economy than Democrats. Of course, that depends on what one
considers a "better" economy to be. But in terms of standard measures like
growth, unemployment and inflation, the economy has done better (higher
growth, lower unemployment, lower inflation) under Democrats than under
Republicans. Several years ago there was another article that showed that
even the stock market fared better under Democrats than under Republicans,
even when the Hoover administration was eliminated.

These kinds of observations make me wonder where these economic "truisms"
come from. They certainly don't seem to come from looking at the data. When
you look at the data you find that, contrary to other truisms, investment
does not actually lead to growth, high taxes do not actually suppress growth
and the Fed funds rate has virtually no effect on growth. So where do these
truisms come from?

At least the basic truisms of psychology are based on observation. The idea
that stimulus causes responses is based on observations such as the patellar
and other reflexes; the idea that behavior is strengthened by rewards
(reinforcements) is based on the observed tendency for animals to repeat
rewarded behaviors (the basis of animal training). PCT doesn't deny the
observations; it simply denies the _explanations_ of the observations. But
in economics it seems that, in many cases, we have explanations for
observations that don't actually exist.

Best

Rick

---
Democrats vs. the GOP: Do the Math

Michael Kinsley

COMMENTARY

You know how sometimes, when it's really, really hot, you get this urge to
crank up the old spreadsheet, download a bunch of numbers from the Web and
start crunching away like there's no next fiscal year?

Me neither. But I did spend a bit of the past week watching the Democratic
convention on TV, and I needed something to exercise my mind while that was
going on. Convention season is the one time every four years when we pretend
that political parties matter. In general, we have accepted the reality that
campaigns for national office have become entrepreneurial, united more by
shared political consultants than by old-fashioned parties.

So I thought I'd see if there was a difference between the parties that
transcended the differences between the candidates. Is one of them, for
example, a better steward of the economy? One year won't tell you much, or
even one administration. But surely differences will emerge over half a
century or so, if they exist.

With that thought, I headed for the Web. Specifically, I went to the charts
attached to the President's Economic Report, released in February. There, I
downloaded like a madman and then distilled the mess into a few key stats.

The figures I'm using are from 43 years, 1960 through 2002. I didn't choose
the years in order to skew the results; these are the years that were
available for the categories I wanted to include.

The results are pretty interesting. Maybe presidents have little power over
the economy. And we know that they must fight with Congress over the budget.
Still, elections are based on the premise that who you vote for does matter.
So let's at least entertain that assumption for a few minutes.

It turns out that Democratic presidents have a much better record than
Republicans. They win in a head-to-head comparison in almost every category.
Real growth averaged 4.09% in Democratic years, 2.75% in Republican years.
Unemployment was 6.44%, on average, under Republican presidents, and 5.33%
under Democrats. The federal government spent more under Republicans than
Democrats (20.87% of GDP, compared with 19.58%), and that remains true even
if you exclude defense (13.76% for the Democrats, 14.97% for the
Republicans).

What else? Inflation was lower under Democratic presidents (3.81% on
average, compared with 4.85%). And annual deficits took more than twice as
much of GDP under Republicans than Democrats (2.74% of GDP versus 1.21%).
Republicans won by a nose on government revenue (i.e., taxes), taking 18.12%
of GDP, compared with 18.39%. That, of course, is why they lost on the size
of the deficit.

Personal income per capita was also a bit higher in Republican years
($16,061 in year- 2000 dollars) than in Democratic ones ($15,565). But that
is because more of the Republican years came later, when the country was
more prosperous already.

There will be many objections to all this, some of them valid. For example,
a president can't fairly be held responsible for the economy from the day he
takes office. So let's give them all a year. That is, let's allocate each
year to the party that controlled the White House the year before. Guess
what? The numbers change, but the bottom-line tally is exactly the same:
higher growth, lower unemployment, lower government spending, lower
inflation and so on under the Democrats. Lower taxes under the Republicans.

But maybe we are taking too long a view. The Republican Party considers
itself born again in 1981, when Ronald Reagan became president. That's when
Republicans got serious about cutting taxes, reducing the size of government
and making the country prosperous. Allegedly. But doing all the same
calculations for the years 1982 through 2002, and giving each president's
policies a year to take effect, changes only one result: The Democrats pull
ahead of the Republicans on per capita personal income.

As they say in the brokerage ads, past results are no guarantee of future
performance.

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

[From David Goldstein (2004.08.14.0117)]
[ About Rick Marken (2004.08.13.1313)]

Rick,

Let us say that you are correct and that the belief is not based on fact.
So it is based on imagination?
What is being accomplished by imagining this?

Is it possible that this is a fact for selected segments of our population?
And that their local experience is generalized to the economy incorrectly?

It is hard for me to imagine that the people who believe this are not basing
it on their own experiences.

PCT yours,
David
David M. Goldstein, Ph.D.

···

----- Original Message -----
From: "Richard Marken" <marken@MINDREADINGS.COM>
To: <CSGNET@listserv.uiuc.edu>
Sent: Friday, August 13, 2004 4:17 PM
Subject: Looking at the Data

[From Rick Marken (2004.08.13.1313)]

Note: This post contains material that may be considered inappropriately
political by some readers. If you don't like to read such posts, please do
not read any farther. If anyone does read it and concludes that it is
inappropriate for CSGNet, then perhaps we can also have a discussion of

what

is or is not appropriate for CSGNet.

-----

I'm posting a brief article by Michael Kinsley, who is currently the

editor

of the LA Times Op/Ed page. Apparently Kinsley likes to spend his spare
time the way I do, looking at data. In this case, Kinsley uses data from

the

President's Economic Report to see how well the economy does under
Democratic vs Republican administrations.

What Kinsley finds seems to contradict the truism that Republicans are
better for the economy than Democrats. Of course, that depends on what one
considers a "better" economy to be. But in terms of standard measures

like

growth, unemployment and inflation, the economy has done better (higher
growth, lower unemployment, lower inflation) under Democrats than under
Republicans. Several years ago there was another article that showed that
even the stock market fared better under Democrats than under Republicans,
even when the Hoover administration was eliminated.

These kinds of observations make me wonder where these economic "truisms"
come from. They certainly don't seem to come from looking at the data.

When

you look at the data you find that, contrary to other truisms, investment
does not actually lead to growth, high taxes do not actually suppress

growth

and the Fed funds rate has virtually no effect on growth. So where do

these

truisms come from?

At least the basic truisms of psychology are based on observation. The

idea

that stimulus causes responses is based on observations such as the

patellar

and other reflexes; the idea that behavior is strengthened by rewards
(reinforcements) is based on the observed tendency for animals to repeat
rewarded behaviors (the basis of animal training). PCT doesn't deny the
observations; it simply denies the _explanations_ of the observations. But
in economics it seems that, in many cases, we have explanations for
observations that don't actually exist.

Best

Rick

---
Democrats vs. the GOP: Do the Math

Michael Kinsley

COMMENTARY

You know how sometimes, when it's really, really hot, you get this urge to
crank up the old spreadsheet, download a bunch of numbers from the Web and
start crunching away like there's no next fiscal year?

Me neither. But I did spend a bit of the past week watching the Democratic
convention on TV, and I needed something to exercise my mind while that

was

going on. Convention season is the one time every four years when we

pretend

that political parties matter. In general, we have accepted the reality

that

campaigns for national office have become entrepreneurial, united more by
shared political consultants than by old-fashioned parties.

So I thought I'd see if there was a difference between the parties that
transcended the differences between the candidates. Is one of them, for
example, a better steward of the economy? One year won't tell you much, or
even one administration. But surely differences will emerge over half a
century or so, if they exist.

With that thought, I headed for the Web. Specifically, I went to the

charts

attached to the President's Economic Report, released in February. There,

I

downloaded like a madman and then distilled the mess into a few key stats.

The figures I'm using are from 43 years, 1960 through 2002. I didn't

choose

the years in order to skew the results; these are the years that were
available for the categories I wanted to include.

The results are pretty interesting. Maybe presidents have little power

over

the economy. And we know that they must fight with Congress over the

budget.

Still, elections are based on the premise that who you vote for does

matter.

So let's at least entertain that assumption for a few minutes.

It turns out that Democratic presidents have a much better record than
Republicans. They win in a head-to-head comparison in almost every

category.

Real growth averaged 4.09% in Democratic years, 2.75% in Republican years.
Unemployment was 6.44%, on average, under Republican presidents, and 5.33%
under Democrats. The federal government spent more under Republicans than
Democrats (20.87% of GDP, compared with 19.58%), and that remains true

even

if you exclude defense (13.76% for the Democrats, 14.97% for the
Republicans).

What else? Inflation was lower under Democratic presidents (3.81% on
average, compared with 4.85%). And annual deficits took more than twice as
much of GDP under Republicans than Democrats (2.74% of GDP versus 1.21%).
Republicans won by a nose on government revenue (i.e., taxes), taking

18.12%

of GDP, compared with 18.39%. That, of course, is why they lost on the

size

of the deficit.

Personal income per capita was also a bit higher in Republican years
($16,061 in year- 2000 dollars) than in Democratic ones ($15,565). But

that

is because more of the Republican years came later, when the country was
more prosperous already.

There will be many objections to all this, some of them valid. For

example,

a president can't fairly be held responsible for the economy from the day

he

takes office. So let's give them all a year. That is, let's allocate each
year to the party that controlled the White House the year before. Guess
what? The numbers change, but the bottom-line tally is exactly the same:
higher growth, lower unemployment, lower government spending, lower
inflation and so on under the Democrats. Lower taxes under the

Republicans.

But maybe we are taking too long a view. The Republican Party considers
itself born again in 1981, when Ronald Reagan became president. That's

when

Republicans got serious about cutting taxes, reducing the size of

government

and making the country prosperous. Allegedly. But doing all the same
calculations for the years 1982 through 2002, and giving each president's
policies a year to take effect, changes only one result: The Democrats

pull

ahead of the Republicans on per capita personal income.

As they say in the brokerage ads, past results are no guarantee of future
performance.

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

[From Rick Marken (2004.08.14.2340)]

David Goldstein (2004.08.14.0117)--

Let us say that you are correct and that the belief is not based on
fact.

I didn't say that the beliefs I mentioned (such as the belief that
investment leads to growth) were not based on fact. Maybe they are. I
just haven't found the facts on which such beliefs are based. The facts
I'm finding could not possibly be the basis of beliefs like "high taxes
stifle economic growth". The data I'm finding shows precisely the
opposite of most of these beliefs.

So it is based on imagination?

Apparently. Most beliefs, particularly those that are very strongly
held, are based on imagination.

What is being accomplished by imagining this?

My guess is that many of these beliefs make people feel good about what
is basically their own greed. A wealthy person who believes that taxes
stifle growth can see his desire to pay less tax as a positive
contribution to the society rather than simple greed.

Is it possible that this is a fact for selected segments of our
population?

Sure. Though I think nearly everyone in the US believes things like
"investment spurs growth" and "tax cuts spur growth".

And that their local experience is generalized to the economy
incorrectly?

Yes, this probably has a lot to do with many of these beliefs.
Investing will certainly grow one's own company and cutting taxes will
certainly grow one's own wealth.

It is hard for me to imagine that the people who believe this are not
basing
it on their own experiences.

I'm sure they are basing these beliefs on their own experiences. They
just don't seem to be basing them on their experiences of the
macroeconomic data.

Best

Rick

···

---
Richard S. Marken
marken@mindreadings.com
Home 310 474-0313
Cell 310 729-1400

[FRom Dick Robertson, 2004.08.14.1310CDT]

···

From: Richard Marken marken@MINDREADINGS.COM

Date: Friday, August 13, 2004 3:17 pm

Subject: Looking at the Data

[From Rick Marken (2004.08.13.1313)]

Note: This post contains material that may be considered
inappropriatelypolitical by some readers. If you don’t like to
read such posts, please do
not read any farther. If anyone does read it and concludes that
it is
inappropriate for CSGNet, then perhaps we can also have a
discussion of what
is or is not appropriate for CSGNet.

It’s OK with me, but I do salute your putting on a warning label for the squeemish.


I’m posting a brief article by Michael Kinsley, who is currently
the editor
of the LA Times Op/Ed page. Apparently Kinsley likes to spend his
sparetime the way I do, looking at data. In this case, Kinsley
uses data from the
President’s Economic Report to see how well the economy does under
Democratic vs Republican administrations.

Interesting.

These kinds of observations make me wonder where these economic

"truisms"come from. They certainly don’t seem to come from
looking at the data. When
you look at the data you find that, contrary to other truisms,
investmentdoes not actually lead to growth, high taxes do not
actually suppress growth
and the Fed funds rate has virtually no effect on growth. So
where do these
truisms come from?

I have read that Karl Rove is a great admirer of Machiavelli. Could that be the answer to your question?

Best,

Dick R.

[From Dick Robertson, 2004.08.14.1312CDT]

···

From: “David M. Goldstein” davidmg@SNIP.NET

Date: Saturday, August 14, 2004 0:19 am

Subject: Re: Looking at the Data

[From David Goldstein (2004.08.14.0117)]
[ About Rick Marken (2004.08.13.1313)]

Rick,

Let us say that you are correct and that the belief is not based
on fact.
So it is based on imagination?
What is being accomplished by imagining this?

Is it possible that this is a fact for selected segments of our
population?And that their local experience is generalized to the
economy incorrectly?

A good hypothesis all right, but…

It is hard for me to imagine that the people who believe this are
not basing it on their own experiences.

Well, your imagination might be enhanced by taking a look at a new book
“What’s the Matter with Kansas” by, nuts, Sr. moment I forgot his name.

Anyhow,

Best,

Dick

From[Bill Williams 13 August 2004 12:10 PM CST]

[From Rick Marken (2004.08.13.1313)]

Rick is once again approaching economic questions from the standpoint of an autodictate. He says,

At least the basic truisms of psychology are based on observation.

And,

The idea that stimulus causes responses is based on observations

How anyone after Hume could think that a "cause" can be inferred from an observation is a bit of a surprize.

Perhaps some of the problems with PCT could be corrected if the proponates would take the time to read Hume?

Bill Williams

In a message dated 8/14/2004 2:16:23 PM Eastern Daylight Time,
R-Robertson@NEIU.EDU writes:

<< Well, your imagination might be enhanced by taking a look at a new book
"What's the Matter with Kansas" by, nuts, Sr. moment I forgot his name.
Anyhow,
Best,
Dick >>

Thomas Frank also writes in TNY; great book which tries to explain how the
conservatives are winning America buy convincing then to control for "cultural
issues" rather that economics.

Chuck Tucker

[From RIck Marken (2004.08.15.1120)]

Bill Williams (13 August 2004 12:10 PM CST)

Rick Marken (2004.08.13.1313)--

The idea that stimulus causes responses is based on observations

How anyone after Hume could think that a "cause" can be inferred from
an observation is a bit of a surprize.

I think the only way to infer cause is through modeling. Conventional
psychologists took observed stimulus-response relationships at face
value and explained them in terms of a causal model; the "general
linear model" that is the basis of research in psychology. PCT
proposes an alternative model of behavior in which observed
stimulus-response relationships are seen as actions aimed at protecting
controlled variables from disturbance (what you are seeing is not
stimulus-response but disturbance-action according to PCT).

Both the general linear and PCT models explain the same observed
relationship between stimulus and response. The observed relationship
is not in dispute; just the explanation. I don't see quite the same
thing happening in the case of the observed relationship between
investment and growth, for example. What we see at the macro level is
a clear negative relationship between these variables when investment
leads growth and a clear positive relationship when investment follows
growth. This observation does not seem to square with the idea that
investment causes growth. But rather than showing how a model in which
investment causes growth can account for this observation (just as PCT
shows how a model in which stimuli do not cause response can account
for the observed relationship between stimulus and response) those who
believe that investment causes growth have simply disputed the
observation. This would be like someone denying that stimuli cause
responses by saying that the observed relationship between stimulus and
response hasn't actually been observed.

I think scientists have to agree on what is observed before they can
start usefully _disagreeing_ about why it's observed. Indeed,
scientists have to agree on what is an observation and what is an
explanation. Is the idea that "investment leads to growth" an
observation or an explanation? If it's an observation, then I would
like to see where it is observed. I did not observe that relationship
between measures of investment and growth in the economic databases. If
it's an explanation, then I would like to see how it is able to explain
the observed relationship between investment and growth.

Regards

Rick

···

---
Richard S. Marken
marken@mindreadings.com
Home 310 474-0313
Cell 310 729-1400

[From Dick Robertson, 2004.08.16.2200CDT]

···

From: “Charles W. Tucker” PROFCWT@AOL.COM

Date: Sunday, August 15, 2004 11:43 am

Subject: Re: Looking at the Data

In a message dated 8/14/2004 2:16:23 PM Eastern Daylight Time,
R-Robertson@NEIU.EDU writes:

<< Well, your imagination might be enhanced by taking a look at a
new book
“What’s the Matter with Kansas” by, nuts, Sr. moment I forgot
his name.
Anyhow,
Best,
Dick >>

Thomas Frank also writes in TNY; great book which tries to explain
how the
conservatives are winning America buy convincing then to control
for “cultural
issues” rather that economics.

Chuck Tucker

Chuck, thanks for the enlightenment on Frank’s name again. I thought that book so good that when i returned it to my library I resolved to buy one soon as I can get around to it. But, do you mean that Frank writes a regular column in the TNY? I’ll have to take a look.

Best,

Dick .>

From[Bill Williams 15 August 2004 11:10 PM CST]

[From RIck Marken (2004.08.15.1120)]

Bill Williams (13 August 2004 12:10 PM CST)

Rick Marken (2004.08.13.1313)--

The idea that stimulus causes responses is based on observations

How anyone after Hume could think that a "cause" can be inferred from

an observation is a bit of a surprise.

I think the only way to infer cause is through modelling. >Conventional
psychologists took observed stimulus-response relationships at >face
value and explained them in terms of a causal model; the >"general
linear model" that is the basis of research in psychology. PCT
proposes an alternative model of behaviour in which observed
stimulus-response relationships are seen as actions aimed at >protecting
controlled variables from disturbance (what you are seeing is >not
stimulus-response but disturbance-action according to PCT).

Both the general linear and PCT models explain the same observed
relationship between stimulus and response.

As far as I know the psychologists never actually got around to defining either a "stimulus" or a "response."

As far as what "you would like to see"

If it's an explanation, then I would like to see how it is able >to explain the observed relationship between investment and >growth.

For the umpteenth time, gross investment includes a large element of user cost which is a measure of the consumption of capital goods. There is no necessary relationship between gross investment and net investment. However, only net investment results in a change in capital used for production. If you don't understand the concepts behind the numbers, then there doesn't seem to me to be much hope that the analysis is going anywhere.

One of the main sources of dispute in the various economic threads has been the merits of Keynesian theory. In the Keynesian nomenclature investment is used to designate a change in the stock of capital. (see p.102. Gen Th) The analysis of a contemporary economy is rather obviously an analysis of a capitalist economy. Consequently it would be prudent to recognize how capital, capital costs, and income are defined, and also mis-defined in contemporary usage when the term investment is being used. There is also a problem involved in thinking about causation as a sequence. The psychologists use of a time sequence-- stimulus ( whatever it is) --> organism -- response (what ever it is) is usually thought of such that the stimulus takes place in time period one, the impact on the organism in time period 2 and the response in time period 3. This relationship is thought to be borrowed from Newtonian physics, but this is a misunderstanding on the part of psychologists who didn't understand much about the physics they were appealing to.
Now, this time sequence approach borrowed from behaviorism is being applied to economic relationships. Plus the terms for cost, investment, etc are being equivocated. Looking at cross sectional data it is evident that periods of high investment are associated with periods of high-level of income and low levels of income are associated with low levels of investment. The Keynesian analysis provides an explaination of this relationship.

I told Bill Powers half a decade ago that I wasn't interested in his dad's economics. I explained that his dad's economics was a version of what is known as the "Under Consumptionist School." At that time Powers told me that he'd get Rick to do it. "Doing it" as I understood it then and now amounts to, what ever Bill Powers says, proving his dad was right.

The most interesting thing about this most recent breakout of PCT economics to me is that is importing into the PCT domain, an idea concerning sequential causation that was a characteristic of behaviourism. For an explanation of what is wrong with this notion see the appendix to _B:CP_.

One of the things that importing a control theory analysis into economics might accomplish would be a sorting out of the difficulies involved in Keynes' conception of the economy. Professor Bruun's dissertation really does provide a good starting point for such an effort, but Bill Powers seems to have lost interest in Brunn's work when he realized that she was at least as much, if not more of a Keynesian, than I am. Rick at one point said he was going to read Bruun's dissertation, but then Rick finds the "Running Naked in the Forest" a more appealing approach.

Bill Williams

[From Rick Marken (2004.08.16.0910)

Bill Williams 15 August 2004 11:10 PM CST]

For the umpteenth time, gross investment includes a large element of user cost
which is a measure of the consumption of capital goods. There is no necessary
relationship between gross investment and net investment. However, only net
investment results in a change in capital used for production. If you don't
understand the concepts behind the numbers, then there doesn't seem to me to
be much hope that the analysis is going anywhere.

I would like to see the relationship between net investment and growth. I
was not able to find an entry for "net investment" in the National Income
and Product Accounts (NIPA) database , which was the source of my investment
and growth data (Economic Research - St. Louis Fed).

In the definition of variables in the NIPA database I found this:
"Investment in capital is measured by private fixed investment and
government gross investment".

I had used "gross private investment" as the measure of private investment.
Given the definition above, it may be that "private fixed investment" is
more like what you call "net investment". So I re-ran the analysis with
"private fixed investment" as the measure of private investment (Ip). The
results are basically the same, although the positive relationship when
investment follows growth is less pronounced for the investment private
curve.

RSM

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

[From Rick Marken (2004.08.16.1100)]

Bill Williams (15 August 2004 11:10 PM CST)

I told Bill Powers half a decade ago that I wasn't interested in his dad's
economics. I explained that his dad's economics was a version of what is known
as the "Under Consumptionist School." At that time Powers told me that he'd
get Rick to do it. "Doing it" as I understood it then and now amounts to,
what ever Bill Powers says, proving his dad was right.

Bill Powers never asked me to do the work on his Dad's model. I got
interested in TCP's model on my own and developed my computer model as a way
of understanding the relationships involved in TCP's analysis. I think it is
correct to call TCP's model an "under-consumptionist" model, though
under-consumption only occurs if there is unspent income. And there is
unspent income only if there is maldistribution of income. What's wrong with
the under-consumptionist idea, anyway? Did someone disprove it?

The most interesting thing about this most recent breakout of PCT economics
to me is that is importing into the PCT domain, an idea concerning
sequential causation that was a characteristic of behaviourism.

Not at all. You are confusing observation and explanation. I have observed
that prior variations in investment are negatively related to subsequent
variations in growth. This is an observed fact. I think it is an interesting
observation because it seems to be inconsistent with the idea that
investment is a "stimulus" for growth. It makes me wonder where the idea
that investment causes growth came from.

Regards

RSM

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

From[Bill Williams 16 August 2004

[From Rick Marken (2004.08.16.0910)

Bill Williams 15 August 2004 11:10 PM CST]

For the umpteenth time, gross investment includes a large >element of user cost
which is a measure of the consumption of capital goods. There >is no necessary
relationship between gross investment and net investment. >However, only net
investment results in a change in capital used for >production. If you don't
understand the concepts behind the numbers, then there doesn't >seem to me to
be much hope that the analysis is going anywhere.

I would like to see the relationship between net investment and >growth. I
was not able to find an entry for "net investment" in the >National Income
and Product Accounts (NIPA) database , which was the source of >my investment
and growth data (Economic Research - St. Louis Fed).

In the definition of variables in the NIPA database I found >this:
"Investment in capital is measured by private fixed investment >and
government gross investment".

Unfortunately the definition you quote appears to be contradictory. A change in capital is a change net investment and therefore a change in capital is not as your source says "measured" by a report of gross investment.

The difficulties encountered it seems to me to have been adaquately discussed by Keynes in the _Gen Theory_ pages 102-4.
Note on page 102 while the user-cost aspect of a change in capital between 1928 and 1931 actually increased from 435 to 439, (millions of pounds) the estimate of net investment fell from 358 to 43 over this period. (Ths according to Colin Clark.)

On page 104 in the Gen Theory Keynes goes on to say, that,

"Above all, net capital formation suffered an appalling collapse after 1929, falling in 1932 to a figure no less than 95 per cent below the _average_ of the quinquennium 1925-1929."

The "Great Crash" and the following "Great Depression" I would argue presents a or even _the_ pivotal event that tests how a capitalist system functions. The drastic shift in what _Keynes_ defines as investment of as he says 95 % from the years 1925-29 to 1932 is consistent with Keynes' assertion that investment (as he defines it) and consumption vary so that when income varies investment varies in the same direction as consumption but at a greater rate, or

dI/dt and dC/dt should be expected to have the same sign, and the

absolute value of {dI/dY}/dt should be expected to be greater than {dC/dY}/dt.

I think this is expressed correctly-- Keynes for some reason, however, avoids saying it this way.

The whole point of the Keynesian system is that it replaced two earlier conceptions, expounded by the Underconsumptionist, and the Over Investment schools. Bill Powers' dad's argument is a variation on the Underconsumptionist school-- which argues that to increase income the only thing that counts is increasing consumption. The Over Investment shool, however, argued that it was the colapse in investment that caused the colapse in employment and thus of consumption. Keynes' system explained both the dependence of investment upon consumption, as well as the dependence of consumption upon investment. When the systems of national income accounting were created in the 1930's and especially after Keynes' _Gen Th_ the details came to reflect an eclectic blend of the inter-war opinions concerning the business cycle and the then new conception of a Macro economy. Because the authors of the acounting systems were of divided opinions about the causal connections between componates of the system, there is, seemingly, no end of oddities involved in the definition of, and explaination of various terms. The only solution, an interum solution anyway, is to understand the historical and ideological context in which the national income accounts were created, the theoretical assumptions that went into the accounting system, and how ideologies and theoretical struggles have gotten us where we are today.

Perhaps the one idea that nearly everyone, at least nearly everyone in economics, has adopted (Chicago School too) is the proposition or truism that "Expenditure is income." Prior to Keynes many people thought that the solution to the great depression was to reduce cost (that is expenditures). Even Roosevelt initially ran on a platform of reducing expenditures.

In the Keynesian system of national accounts savings and consumption vary in the same direction-- a relationship that I note sometimes puzzles financial reporters. Financial reporters often have the idea that the solution to any economic problem is to reduce expenditures-- this wasn't helpful in the context of the great depression. Othodox economic policy seems to have made things worse, and people became so crabby that we fought WWII at least partly as a result.

I had used "gross private investment" as the measure of private >investment.
Given the definition above, it may be that "private fixed >investment" is
more like what you call "net investment". So I re-ran the >analysis with
"private fixed investment" as the measure of private investment >(Ip). The
results are basically the same, although the positive >relationship when
investment follows growth is less pronounced for the investment >private
curve.

As I see it, what you have attempted is an extension of Bill Powers' dad's dispute with the overinvestment school which emphasized the role, or even the dominance of the role of investment in the economy. My position which is, in part an adoption of the Keynesian theory is that there is a connection, a causal connection, between investment and income, and that there is also a connection, a causal connection, between consumption and income. The underlying argument is the assertion that expenditure is income. This 2/3's of a century ago was a very novel idea. Thus Roosevelt's promising to balance the budget.

I have to say, I made a bad mistake when I mistakenly concluded that Bill Powers regarded his dad's retirement interest in economics with a good deal of bemusement. Economics really is a serious business, unfortunately people choose up sides long before they have any real idea of what they are up against. Fortunately Keynes provided a better explaination for how a capitalist system works so that what is in some respects a bad system ( capitalism ) has held together and defeated, or at least outlasted, an even worse system ( a communism based on Marxist/Lenninism ). Unfortunately outlasting an even worse system isn't going to of much comfort when things don't go well.

Bill Williams

From[Bill Williams 16 August 2004 1:40 AM CST]

[From Rick Marken (2004.08.16.1100)]

Bill Williams (15 August 2004 11:10 PM CST)

I told Bill Powers half a decade ago that I wasn't interested in his dad's

economics. I explained that his dad's economics was a version of what is known
as the "Under Consumptionist School." At that time Powers told me that he'd
get Rick to do it. "Doing it" as I understood it then and now amounts to,
what ever Bill Powers says, proving his dad was right.

Bill Powers never asked me to do the work on his Dad's model.

All I know is that after I refused to work on Bill's dad's econonmics Bill Powers said, "Well, I'll get Rick to do it." And, low and behold-- there Rick is telling us how great an economist Bill's dad is. You know what? Now that I have become sensitive to the appearance of the term "leakages" I notice that it isn't at all a term that is unique to Bill Powers' dad's economics-- not at all. I think it is sort of dated, like the causual use of the term "hording" when what is meant is liquidity preference.

I never said anything about, Bill Powers "asking" you to prove his dad right. I am merely stating what Bill Powers said to me, which was "Then I will get Rick to work on it." However, what he said then isn't that much difference from what Bill Powers has been telling you in public on the CSGnet recently.

You talk about "observed facts." I guess this would be more of the sort of thing that initially impressed me with Bill Powers' dad's claim about the constancy of investment to income over a hundred year period. Except somehow he closed his eyes to what happened during the depression.

So how about the "non observed facts" such as Keynes' observation regarding the 95 % decline in investment from 1929 to 1932? I suspect that Colin Clark's numbers may understate the decline.

Rather than continuing to make claims about what you think are "observed facts" you really do need to read Prof. Bruun's explaination of what these supposed "facts" represent.

Are you by-the-way aware of the specialty forensic accounting? Joseph Stiglitz in his 2003 book _The Roaring Nineties_ makes some interesting points about the possiblities availible in a chapter "Creative Accounting." I got the clue about the possiblities associated with accounting when I was on the staff of the Colorado Mental Health Office. The program director for some time went around moaning about, "... all my best accountants are in jail." And, they were-- all the ones with an immagination were in jail. But, take a more significant and more recent case-- the controversy over CEO compensation byway of options. Capital or something or other has sure been getting transferred-- whether or not the transfer is officially an "obsrved fact" depends upon how much guts the CPA has when the quarterly report gets printed and signed off.

If you were genuinely serious about doing economics there are things that you could do to inform yourself. As far as I can judge you haven't exhibited the sort of sustained interest that result in your becoming even modestly informed regarding the issues involved. There really is something fraudulent involved. Claims are being made that ordinarily one would think are intensionally dishonest. But, it is difficult to sort things out. Was Freud dishonest or self-deceived? Did John Watson knowingly tell a fib about his experiments with "Little Albert?" If that is there really was a "Little Albert." Who was fooling who when Mead came back and told her "observed (or at least anthopological) facts" about sex in the South Pacific? And, lets not leave out Alfred Marshall. Marshall was the economist who made the Giffen paradox an issue. If the Giffen paradox had any validity then Orthodox economic theory was refuted. But, Marshall rather than developing the paradox instead went on to devote his life to revising ( 9 editions mind you ) his very orthodox textbook.

I am inclined to think that when there is an absence of a critical audience that the sort of standards that are ordinarily assumed to govern conduct do not apply. Certainly psychology during the 20th century exhibited a very strange inclination to pseudo-science-- Freud, Jung, Watson, Skinner, and in social psychology M. Mead. In the absence of an informed audience people will listen to and believe most anything. If people weren't inclined this way there wouldn't be as many new cults as there are. Or, that these cults protect themselves the way they do when their projected role is threatened. Of course the PCT hero's will tend to persist in their "Running Naked in the Forest." If you can't attract a large audience, then I guess a small but enthralled audience will have to do. Which leads to, once again, ask, "How many copies of the _Leakages_ tract have been sold?

Bill Williams

From[Bill Williams 17 August 2004 9:40 AM CST]

Since Rick did not respond to parts of my argument that I thought made a worthwhile point I have in this post in some places improved and extended my argument. I have used a pounds sign to indicate some of these improvements. The methodological points that Rick is attempting to make may not rise to the level of some of his past efforts which were chracterized by Bill Powers as "giant leaps in the wrong direction." but they do disclose what might be termed "staggers in the wrong direction."

[From RIck Marken (2004.08.15.1120)]

Bill Williams (13 August 2004 12:10 PM CST)

# Point 1:

Rick Marken (2004.08.13.1313)--

The idea that stimulus causes responses is based observations

I thought it was well known that the advocates of behaviorism never defined either a "stimulus" or a "response." So, in the absence of something that could be defined and observersed as either a stimulus or response, how did these supposed observations take place? End point 1

# Observation:

How anyone after Hume could think that a "cause" can be >>inferred from an observation is a bit of a surprize.

I think the only way to infer cause is through modeling.

Unless Rick intends to extend the concept of modeling to the advocates of behaviorism, this doesn't provide an answer to my puzzlement regarding how, anything can be inferred from "observations" that never took place, and never could have taken place in the absence of a definition of either a stimulus or a response, and perhaps in the absence of an actual organism in which these hypothetical, but never actual events could have taken place. As a matter of record, did anyone actually know, as a matter of observation, that the animal subject had perceived what was never-the-less an undefined stimulus, or that the animal subject had generated-- an again undefined term "resonse?" And, I am sure that Rick has encountered the argument that the John Watson's whole "little Albert" experiment was a sheerly fictional creation. If we are going to extend the concept of modeling to fiction, may I vote to include Charles Dickens? David Copperfield is I think probably more real that John Watson's "little Albert."

Conventional psychologists took observed stimulus-response >relationships at face value and explained them in terms of a >causal model;

As a matter of fact my assessment of what you call "the face value" of this work is that it had by the 20th century come to include so large an element of fraud, that it ranks right up there with Lysenko, Freud, Margrette Mead's social psychology, and orthodox economics as a tradition that was fraudulent.

The only reason any of this stuff got started, in my opinion, was the result of the lack of an audience sufficiently informed to promptly see what was wrong with the arguments that were being made.

So ( point 2 ) I am surprized to see you defending the idea that the behaviorists were doing science by making "observations"-- which they obviously couldn't do scienitific observations in the absence of a definition of whatever it was that a stimulus or a response was supposed to be.

I suppose it should not surprize me that after evidently not having understood that it is very difficult to observe something that is undefined as the terms "stimulus" and "response" are in the behavioristic tradition in psychology, you would go on to mis the point of the joke and not see that the concept of capital and income in economics have similiar difficulties. Yet the PCT economic thread, including Bill Powers' dad, Bill Powers, and you all seem not to have noticed-- like the behaviorists, the orthodox economists have managed to fool enough of the people enough of the time so that people actually believe when they are reading, or doing number crunching, that they are working with numbers that are "observed facts." The orthodox economists observed facts are no more "observed facts" than the orthodox psychologists ( Watson and Skinner's ) "observed facts" of "stimulus and response" are "observed facts."

Once again, I think that the good professor Bruun's dissertation makes this point rather nicely.

Your approach to economics can be compared to the story of the cow that jumped over the moon. Your problem is roughly that having believed that the income accounts are based upon "observed facts" you think what you are doing is "rocket science" and it ought to be quite obvious that it isn't. Until you understand that the tale told by national income accounts is not a matter of "observed facts" you are in the position of credulously believing something quite similiar to what would be the case if you thought that the orthodox psychologists were really making "matter-of-fact" observations and doing something that should be considered science-- which they were, in retrospect were not doing at all. Skinner, like Bill Powers, said he was doing something just like the physicists were doing-- making observations and drawning inferences.

So, what have you proved so far?

As I understand it your current argument amounts to a claim that the psychological pseudo scientists are better pseudo scientists than the economic pseudo-scientists, and that psychological pseudo science is better ( at least in your opinion ) than economic pseudo science. I would disagree. In my view economic pseudo science is way better than psychological pseudo science. You want my hard data? My, as you say, "observed facts?" Well, there is the fact that none of the PCT economic theorists-- Bill Powers' dad, Bill Powers, and then there is you-- have managed to understand the trick that the orthodox economists manage to pull. While I at least have managed to figure out that what the orthodox psychological pseudo scientists (the behaviorists ) call "observed facts" are nothing of the sort.

What more "proof" do I need that the economic pseudo-scientists are better pseudo-scientists than psychological pseudo-scientists? (point 3 ? )

You seem to think that the behaviorist had a causal model-- what they had was a pseudo-Newtonianism. It was never even remotely a causal model. Once you approach orthodox psychological pseudo-science (OPPS) from the standpoint of physics and the standpoint of actual mechanisms it ought to be obvious that OPPS was never as you mistakenly describe this tradition a "causal model." So, not having understood where your own field went wrong, you venture forth, even less prepared, to understand, as a certified Hero of PCT the elements of orthodox econmic pseudo-science.

I seem to have lost confidence in PCT and the whole shebang when Bill Powers settled one of our arguments by claiming that his dad had proved Keynes was wrong, but that the paper in which his dad had proved this was stored, or more or less lost, somewhere in somebody's, I think it was Bill Powers' sister's, basesment. It was at that point that Bill Powers told me if I wasn't going to be a team player he'd get you to work on his dad's stuff. Ever since then I have wondered, what in this document moldering in somebody's basement proved that Keynes was wrong? But, obviously, nothing that I could bring to bear was going to trump these papers that were lost someplace-- probably in somebody's basement. They aren't by anychance in your basement are they? Anyway, at that point I began to get the idea that I wasn't really cut out to be a PCT hero.

Maybe if you told professor Bruun that she could be a PCT hero if only she would explain to you the difference between gross and net investment. Maybe at the same time she would be willing to throw in an explaination of User Costs, but this might be stretching it.

Bill Williams

[From Rick Marken (2004.08.17.0910)]

Bill Williams (16 August 2004)

Rick Marken (2004.08.16.0910) --

I would like to see the relationship between net investment and growth...

Unfortunately the definition you quote appears to be contradictory...

I'd still like to know on what basis economists conclude that investment
leads to growth.

The difficulties encountered it seems to me to have been adaquately discussed
by Keynes in the _Gen Theory_ pages 102-4.

Is this the data on which the idea is based? How did they calculate the
"user-cost" and "net investment" measures of capital investment?

"Above all, net capital formation suffered an appalling collapse after 1929,
falling in 1932 to a figure no less than 95 per cent below the _average_ of
the quinquennium 1925-1929."

Where did he get this data? I'd like quarterly net investment numbers for
1920 through the present. Also, since, as I recall, GNP took a precipitous
dive from 1929-1932, wouldn't investment also be expected to take a dive?
The relationships I found were between investment measured as a proportion
of GNP and growth measured in the usual way, as dGNP/dt.

RSM

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

[From Rick Marken (2004.08.17.0920)]

Bill Williams (16 August 2004 1:40 AM CST)

You talk about "observed facts." I guess this would be more of the sort of
thing that initially impressed me with Bill Powers' dad's claim about the
constancy of investment to income over a hundred year period. Except somehow
he closed his eyes to what happened during the depression.

So how about the "non observed facts" such as Keynes' observation regarding
the 95 % decline in investment from 1929 to 1932? I suspect that Colin
Clark's numbers may understate the decline.

I'd like to see the raw quarterly data from those years, going back to 1920
if possible.

RSM

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

[From Rick Marken (2004.08.17.0940)]

Bill Williams (17 August 2004 9:40 AM CST) --

Rick Marken (2004.08.13.1313)--

The idea that stimulus causes responses is based observations

I thought it was well known that the advocates of behaviorism never defined
either a "stimulus" or a "response." So, in the absence of something that
could be defined and observersed as either a stimulus or response, how did
these supposed observations take place? End point 1

These are not difficult things to observe. A stimulus is an event that seems
to lead to another. Pavlov saw that food in the mouth and, eventually, a
bell would lead to salivation: stimulus- response. Run you finger down an
infant's foot (stimulus) and the toes curl (response). Stimulus-response
relationships are easy to observe. Indeed, this reply is a response to the
stimulus of your "point 1" above.

So ( point 2 ) I am surprized to see you defending the idea that the
behaviorists were doing science by making "observations"-- which they
obviously couldn't do scienitific observations in the absence of a definition
of whatever it was that a stimulus or a response was supposed to be.

Perhaps you can't see things without definitions, but I can. Most people can
see the patellar and other reflex before they know what the words "stimulus"
and "response" mean. Indeed, it's these perceptions that are the meanings of
the words.

Your problem is roughly that having believed that the income
accounts are based upon "observed facts" you think what you are doing is
"rocket science" and it ought to be quite obvious that it isn't. Until you
understand that the tale told by national income accounts is not a matter of
"observed facts"...

OK. So the national income accounts data is not to be trusted. But the data
reported in Keynes in the _Gen Theory_ (for example, the note on p. 102
which shows the user-cost aspect of a change in capital between 1928 and
1931 increased from 435 to 439, while the estimate of net investment fell
from 358 to 43) is. Where did Keynes get his data?

RSM

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

From[Bill Williams 17 August 2004 12:45 PM CST]

[From Rick Marken (2004.08.17.0920)]

I'd like to see the raw quarterly data from those years,
going back to 1920 if possible.

I guess the thing to do if you actually want the data, is go find whatever data you want to find.

I don't understand why you are telling me this stuff. Do you expect me to go find the data?

Bill Williams

From[Bill Williams 17 August 2004 12:50 PM CST]

[From Rick Marken (2004.08.17.0940)]

Bill Williams (17 August 2004 9:40 AM CST) --

Rick Marken (2004.08.13.1313)--

The idea that stimulus causes responses is based observations

I thought it was well known that the advocates of behaviorism never defined
either a "stimulus" or a "response." So, in the absence of something that
could be defined and observersed as either a stimulus or response, how did
these supposed observations take place? End point 1

These are not difficult things to observe.

Now I understand. Rick can see "stimuli." This explains more than I need to know about Rick. Rick never really got over his training as a psychologist.

I however am not at all sorry that I can not see a GNP.

Bill Williams