[From Bruce Gregory (2004.0803.1342)]
Rick Marken (2004.08.03.1020)
I recalculated investment as a proportion of GDP less investment
(I/(GDP-I)), rather than just as I/GDP So, for example, private
investment
was calculated as Ip/(GDP-Ip). I've attached the results. The results
are
almost exactly the same as when I used I/GDP.
Thanks. I, at least, find the results very interesting.
Bruce Gregory
"Great Doubt: great awakening. Little Doubt: little awakening. No
Doubt: no awakening."
[From Rick Marken (2004.08.03.1240)]
Bill Powers (2004.0.8.03.0905 MDT)--
Rick, consider this. Let I be the rate of investment, and T be the rate of
all other tranactions. GDP is then equal to I + T, since an investment is a
transaction and counts toward GDP (I believe this is what Kenny is
referring to). Obviously, even totally unproductive investments will
increase GDP because they are transfers of money or value. Correct me,
Kenny, if this isn't what you meant. As a result, you should measure the
lagged correlation between I and (GDP - I), so as not to be looking at the
correlation of I with itself. You should find a lower correlation.
Here are the correlations with the corrections for investment included in
the calculation of both investment and GDP. So the correlations here are
between I/(GDP-I) with d(GDP-I)/dt. Again, they look almost exactly the
same as the correlations I obtained originally. The largest change is for
the Ip (private investment) data, where the correlations do come down a bit
(maximum positive correlation goes from about .33 to about .28). But the
basic relationship is still clear: growth leads investment, not vice versa.
Best
Rick
--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400
[From Bill Powers (2004.08.03.1340 MDT)]
Kenny Kitzke (2004.0.8.03.1235 EDT) --
>(Ken)See Bill Powers remark to you. Investment/GDP is not a valid measure
>of Investment. So, neither are your conclusions about Investment valid.<Valid/invalid is a bit of an overstatement. Inaccurate is more like it.>
If one uses inaccurate data for the measure of Investment to draw
conclusions about what Investment does or does not do, I would suspect
that the conclusions would be invalid.
I would rather say that inaccuracy of the data will be reflected in a
corresponding inaccuracy of the conclusions. If I predict that the growth
rate will be, on the average, 5% per year and it turns out to be 4%, does
that show that the analysis is invalid, or simply that it is in error by
20%? Compared with another analysis that predicts a -5% growth rate, the
first prediction, though in error, is in far less error than the other one.
So if those are the only two predictions available, which one would you bet on?
In Rick's lagged correlation, we can see the correlation of growth in GNP
with previous and later rates of investment (rate is the right unit, since
GNP is a quantity and and its annual growth is a quantity per year, to be
compared with amount of investment per year, also a quantity per year).
Sorry to have been ambiguous. On the left side, the correlation is between
investment rate at various times prior to the measurement of GNP; on the
right, it is between investment rate at various times after the measurement
of GNP. On the left, we see that the correlation is negative, and on the
right it is positive. If I am not mistaken, the data sets go back some 200
quarters or 50 years. The correlation is calculated with "now" centered on
each quarter and the sum of the products of investment rate and growth rate
is computed for each lead and lag up to 5 or 6 quarters relative to each
"now." Each data point in the final plot represents the average of 200 such
measurements and shows the overall average. So as an average measure it is
probably pretty reliable.
"Correlation" might be the wrong term here, because we don't know the
uncertainty in these measures. If the uncertainty is very small and not
random, then we are looking at a low-noise signal-detection process and the
result is crystal clear. If the uncertainty is large, the results are less
convincing. However, it is significant that the traditional assumption
(investment causes growth) would predict exactly the opposite result from
that found: the correlation of prior investment rate with today's growth
rate should be high, and the correlation of investment rate after now
should be low or negative. It would be possible to calculate the chances of
such a reversal, even at correlation levels of 0.4, occurring by chance. I
won't venture to do that, but Rick knows how since he wrote a book on this
subject.
The fact is that the result after subtracting out the investment rate from
growth in GNP is nearly the same as before (is that what you did, Rick? Now
that I think of it, the correlation should have been between investment
rate in dollars per year and growth rate in (change in GNP per year -
change in investment quantity per year).
If, as TCP found, investment runs at around 20% of GNP, the measure of GNP
will be changed by only 20% when investment rate is subtracted, and the
effect on the result would be expected to be minor, especially if the noise
level is high,
=======================================
Now it may be that the tables of investment rates that Rick used are not
what should have been used to predict growth rates. Perhaps when people say
that increasing investment will increase GDP (by more than the amount of
the investment, thanks Kenny), they are referring to some other meaning of
the word investment. If so, we need to know what other measures are meant,
and where to get them, so we can do the lagged correlations properly. There
is no need for this discussion to be based on "I believe this" and "I
believe that" when we can look at the record and see what has actually
happened in the past. We do not need to establish a position on these
questions and defend it, when we can find out the truth.
If we simply try to find out what the truth is, as nearly as we can from
available data, all reason for argument disappears. We all move around to
the same side, wanting to know how things really work and devising the best
ways we can think of to find out. Our previous beliefs and convictions on
the subject become irrelevant; what we have learned in the past or thought
we know becomes irrelevant. All that remains is to agree on ways to let
nature tell us the answer.
I hope we can do that.
Best,
Bill P.
[From Bill Powers (2004.08.03.1439 MDT)]
Rick Marken (2004.08.03.1240) --
Here are the correlations with the corrections for investment included in
the calculation of both investment and GDP. So the correlations here are
between I/(GDP-I) with d(GDP-I)/dt.
You read my mind.
But the basic relationship is still clear: growth leads investment, not
vice versa.
No, if we're going to do things in the spirit of scientific enquiry in this
group, your reaction to getting this result should be "What's wrong with
this result?" You should start looking for loopholes, you should calculate
probability of occurrance by chance, you should look for alternative
explanations. If you're going to conclude that growth, not investment, is
the independent variable, you will be going against a century or so of
statements by smart people that the opposite is the case, so you will have
to be even more skeptical than they are. Otherwise you risk the ultimate
disaster, of being a dissenter who has made a mistake and instead of being
the first to find it, is the last.
Your result seems to indicate that changes in investment rate lead changes
in GNP. But do they really? How could that appearance be an illusion? Is it
possible, for example, that NEITHER variable is the independent variable,
and that both depend on other variables, one with more lag than the other?
That remains a possibility, doesn't it? And if that proves to be true, what
happens to your confident statements about causality? Never mind that other
confident statements about causality will also be destroyed -- that's not
your problem. Your problem is to become known as a person who does not saw
off the limb he is sitting on, but makes sure of his results before putting
his reputation on the line.
It's my problem too, and explains why I am so cautious.
Best,
Bill P.
[From Rick Marken (2004.08.04.0910)]
Bill Powers (2004.08.03.1439 MDT)
Rick Marken (2004.08.03.1240) --
But the basic relationship is still clear: growth leads investment, not
vice versa.No, if we're going to do things in the spirit of scientific enquiry in this
group, your reaction to getting this result should be "What's wrong with
this result?"... Otherwise you risk the ultimate disaster, of being a
dissenter who has made a mistake and instead of being the first to find
it, is the last.
That's great. Now you can bet that the new mantra of the scientifically
challenged will be "Bill Powers says that Rick's results are a mistake and a
disaster" 
If you're going to conclude that growth, not investment, is the
independent variable, you will be going against a century or so of
statements by smart people that the opposite is the case, so you will
have to be even more skeptical than they are.
I hope I didn't give the impression that I think growth is an independent
variable. All I've done is look at the data and found that the observed
relationship between variations in growth and investment are not what I
would have expected to see if investment were actually the cause of growth.
I presented this finding on CSGNet because I _am_ skeptical about it. I was
hoping that those who claim to be knowledgeable about economics would not
only show me what they thought were flaws in my calculations but also the
observations that led to the conclusion that investment causes growth in the
first place. One flaw was pointed out: it was suggested that investment
should be subtracted from GDP in all calculations involving GDP. As we saw,
fixing that flaw did not change the results at all. It still _looks like_
investment is caused by growth, not vice versa. I'm still waiting for
someone to point to the data that led to the belief that investment causes
growth.
Regards
Rick
--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400
[From Bill Powers (2004.08.04.1131 MDT)]
Rick Marken (2004.08.04.0910)--
That's great. Now you can bet that the new mantra of the scientifically
challenged will be "Bill Powers says that Rick's results are a mistake and a
disaster"
OK, tell you what. You write that Bill Powers has become senile and doesn't
understand control theory any more, and I'll write back saying that you now
understand control theory better than anyone alive, and our socially
challenged ex-friends can then snip and rearrange the words to make them
say anything they want to. Might as well let them have some fun. Does
anyone really care what they say any more?
Best,
Bill P.
[From Kenny Kitzke (2004.08.04.1250EDT)]
<Bill Powers (2004.08.03.1340 MDT)>
<I would rather say that inaccuracy of the data will be reflected in a
corresponding inaccuracy of the conclusions.
Then, have it your way. It seems to me to be a quibble (I like trying to use words that start with q, since there are relatively few of them). Hopefully, all of us would have as a reference perceptions: carefully defined terms and variables, accurate data, proper analysis methods of the data and valid conclusions. And, when it appears that work presented to the CSGNet fails to meet those references, I, and anyone else should complain. Hopefully, it will be meant, conveyed and received as constructive criticism, where the goal is to increase knowledge and understanding. That would be a forum that is valuable and professional and one you would be gratified to be on or to recommend to a collegue interested in PCT/HPCT.
<The fact is that the result after subtracting out the investment rate from
growth in GNP is nearly the same as before (is that what you did, Rick? Now that I think of it, the correlation should have been between investment rate in dollars per year and growth rate in (change in GNP per year-change in investment quantity per year).>
This is a good example of why I get so frustrated with Rick’s analyses and claims to have discovered something profound—something the experts in economics (whatever that means) have missed.
You acknowledged my criticism of Rick comparing a variable I, which is supposedly “Investment,” to GDP which includes I as a component to look for a correlation between I and GDP. This is faulty analysis. Why he reacts to your critique and not mine is a mystery to me. But, the fact that the revised analysis did not seem to change the conclusion does not satisfy me at all. Why?
Well, for one, you suddenly realize something I was aware of from the outset. You now question the correlation of the rate of Investment against GDP and want to correlate the rates of I and GDP against one another.
As I had said before, the discovery by your father that Investment remains an essentially constant fraction of GDP over many years (at least years not including catastrophic events such as wars or economic depressions) was not new to me. And, you can tell this just from looking at a line graph of the fraction of I in GDP. No correlations are needed. No lagged correlations are needed.
But, does that fact of emperical history disprove the conventional notion that increasing Investment will lead to increased GDP? I say, no. Does a lagged correlation (and a weak one to boot) prove which, if either, leads to another? That is what Rick is claiming he discovered. That GDP drives Invesment; not the other way around. To which I said, and still say, balderdash.
Add to this stew the fact that the variable being plotted by Rick for “I” is not what I suspect politicians or economists mean when they claim that we should increase I to increase GDP. For example, the variable called “Gross Private Domestic Investment” by the Department of Commerce has about one-fourth of its content coming from the Residential sector of Investors. Is Residential Investment really what the politicians are claiming needs to be increased to spur the economy? Or, is it business investment in production-oriented structures, equipment, software etc.? And, what about Investment done by Government? Is it not in the claim? It surely is not in the variable Rick is plotting and correlating.
So, my point is that when one wants to enter a field with limited knoweldge and make claims that all the experts are wrong and here is the analysis that proves it, one needs to do their homework on what the variables mean before making such announcements or deducing conclusions of a general type. I think Bill Williams has made that point repeatedly to Rick (and you to I suppose) but with a lot of scoffing and not many definitive reasons for his skeptism and criticism. I have tried to give some examples for consideration and offered ideas for improvement to both Rick and you.
But, I do not claim to be an economics teacher or expert. From both a knowledge and time standpoint, I find it difficult to offer adroit and sufficient help to Rick or you in making credible models or studies of Economics based on closed loops or cumulative PCT phenomena. I do wish I could as I think it would provide a different perspective to the classic economic models and theories.
<Now it may be that the tables of investment rates that Rick used are not
what should have been used to predict growth rates. Perhaps when people say that increasing investment will increase GDP (by more than the amount of the investment, thanks Kenny), they are referring to some other meaning of the word investment.>
Oh how nice it is to deal with a reflective man, looking for truth and appreciating input from others. This is the way to go about increasing our understanding of what is going on in our world.
<If we simply try to find out what the truth is, as nearly as we can from
available data, all reason for argument disappears. We all move around to the same side, wanting to know how things really work and devising the best ways we can think of to find out. Our previous beliefs and convictions on the subject become irrelevant; what we have learned in the past or thought we know becomes irrelevant. All that remains is to agree on ways to let nature tell us the answer.
I hope we can do that.>
What a breath of fresh air. I hope so too, but what does nature know anyhow (purely rhetorical)?
[From Kenny Kitzke (2004.08.04.1425EDT)]
<Bill Powers (2004.08.03.1439 MDT)>
<Your result seems to indicate that changes in investment rate lead changes
in GNP. But do they really? How could that appearance be an illusion? Is it
possible, for example, that NEITHER variable is the independent variable,
and that both depend on other variables, one with more lag than the other?
That remains a possibility, doesn’t it? And if that proves to be true, what
happens to your confident statements about causality?>
Wise advice. And, with the weak correlations (even for the lagged ones), I would immediately suspect that neither is a dependent variable to the other would be a most logical possibility.
<No, if we’re going to do things in the spirit of scientific enquiry in this
group, your reaction to getting this result should be “What’s wrong with
this result?” You should start looking for loopholes, you should calculate
probability of occurrance by chance, you should look for alternative
explanations. If you’re going to conclude that growth, not investment, is
the independent variable, you will be going against a century or so of
statements by smart people that the opposite is the case, so you will have
to be even more skeptical than they are. Otherwise you risk the ultimate
disaster, of being a dissenter who has made a mistake and instead of being
the first to find it, is the last.>
Shades of Boston, perhaps?
Bill, you are a scholar and a gentleman, and quite humble besides. This builds respect and esteem and makes friendships worthwhile. My hat is tipped to you, my friend.
[From Bill Powers (2004.08.04.1245 MDT)]
Kenny Kitzke (2004.08.04.1250 EDT) --
<I would rather say that inaccuracy of the data will be reflected in a
corresponding inaccuracy of the conclusions.Then, have it your way. It seems to me to be a quibble (I like trying to
use words that start with q, since there are relatively few of them).
I don't think it's a quibble to distinguish between 90% right and 0% right.
Invalid means 0% right to me. Rick's analysis was not invalid. In fact it
turned out that correcting your "quibble" made no appreciable difference in
his results.
<The fact is that the result after subtracting out the investment rate from
growth in GNP is nearly the same as before (is that what you did, Rick?
Now that I think of it, the correlation should have been between
investment rate in dollars per year and growth rate in (change in GNP per
year-change in investment quantity per year).>This is a good example of why I get so frustrated with Rick's analyses and
claims to have discovered something profound---something the experts in
economics (whatever that means) have missed.
Have you read any of Rick's posts all the way through? He has cited two
sources in the economics literature that discuss exactly the same analysis,
and acknowledges that they were published before he did his analysis. Why
do you now say that he claims to have discovered something the experts in
economics missed? He said nothing of the sort. Rick missed the same obvious
fact that I missed, and I commended you for picking up on it (or knowing it
all along). Rick then corrected the error. What's your beef?
You acknowledged my criticism of Rick comparing a variable I, which is
supposedly "Investment," to GDP which includes I as a component to look
for a correlation between I and GDP. This is faulty analysis.
Yes, but you don't seem to have followed what happened after that. The
potentially faulty analysis was corrected, and the calculations were done
again, and the "faulty analysis" proved to have had only a trivial effect.
I'm glad you caught the problem; this is how scientific interchanges are
supposed to work. Why make such a big deal of it?
Why he reacts to your critique and not mine is a mystery to me.
Because you didn't explain it clearly. He didn't understand what you meant.
But, the fact that the revised analysis did not seem to change the
conclusion does not satisfy me at all. Why?
I think I know why: because you want Rick to be wrong, and your attempt to
prove him wrong failed.
Well, for one, you suddenly realize something I was aware of from the
outset. You now question the correlation of the rate of Investment
against GDP and want to correlate the rates of I and GDP against one another.
Kenny, did you read what I said at all? I said you had a good point because
I is indeed part of GDP, and explained that to Rick in a way you did not --
clearly. When Rick understood what was meant, he promptly made the
correction and did the calculation over again. It turned out to make no
significant difference in the results, but it might have done so. He was
willing to take the risk of having his previous result overturned -- he did
the recalculation anyway. You're looking so hard for some excuse to deny
his results that you're not even paying attention to what's going on.
As to your last sentence above, it seems to say the same thing twice. I
have no idea what it means.
I really don't understand this hate campaign against Rick. It only reveals
that you harbor feelings that you know in your heart are not right. When
you start fishing around for imaginary problems, it's clear that you're
more interested in putting him down than in exploring the truth of what he
says. You are not a stupid man, Kenny, but what you're doing is stupid.
Hating is a bum's game. It's beneath you.
Best,
Bill P.
[From Bill Powers (2004.08.04.1312 MDT)]
Kenny Kitzke (2004.08.04.1425EDT)--
Bill, you are a scholar and a gentleman, and quite humble besides. This
builds respect and esteem and makes friendships worthwhile. My hat is
tipped to you, my friend.
You're not off the hook yet, buddy. What I said applies to you just as much
as me or Rick or anyone. All this desperate effort to prove you are right
and someone else is wrong is dumb, counterproductive, despicable, and
useless. I've got a lot more words lined up there if those don't make the
point. I am not going to be satisfied until everyone gives up all this
deplorable attacking and defending, which is not the way grownups are
supposed to behave. The day you stop treating Rick (or anyone else) as a
pariah and a scapegoat will be the day I thank you for your complements. I
am disgusted, and plan to stay that way at least until tomorrow. After
that, we go to either Green or Orange.
Best,
Bill P.
[Martin Taylor 2004.08.04.1658] (Written then, but apparently not sent)
[From Kenny Kitzke (2004.08.04.1250EDT)]
This is a good example of why I get so frustrated with Rick's
analyses and claims to have discovered something
profound---something the experts in economics (whatever that means)
have missed.
Whether they missed it or not, Rick's analysis showed that investment
(as defined by the databanks from which he took the numbers) does not
lead to growth (as defined by the databanks from which he took the
numbers). The data are clearly NOT compatible with that theory.
What Rick did not show is that growth causes sunsequent investment.
What he showed was that the data are _compatible_ with that theory.
You acknowledged my criticism of Rick comparing a variable I, which
is supposedly "Investment," to GDP which includes I as a component
to look for a correlation between I and GDP.
The criticism may well have been correct, but what could its effect
have been on the analysis? You could easily have determined that,
without ever looking at Rick's actual lagged correlations.
The answer is that including I within the GDP numbers would increase
the zero-lag correlation. X correlates better with X + Y than with Y.
Whether including I in the GDP measure would increase the correlation
at other lags would depend on the autocorrelation function of I.
Presuming that the autocorrelation function of I remains positive for
more than one quarter, the graphed correlation would again be too
high (high-positive, that is). And if you compare Rick's first graph
with his most recent, you find that is the case, though the
difference is almost trivial. Removing I from GDP increases the
NEGATIVITY of the leading correlation, enhancing his initial
conclusion.
This is faulty analysis.
It's all very well to criticise faulty analysis, and in the long run
it is good to do so. But when you criticise the implications drawn
from a faulty analysis, it sometimes helps to see whether correcting
the fault would enhance the conclusion or refute it.
Add to this stew the fact that the variable being plotted by Rick
for "I" is not what I suspect politicians or economists mean when
they claim that we should increase I to increase GDP.
Rick claims only that he is using the figures supplied by the US
authorities, under the labels he uses. Quite probably those are not
what politicians mean, but presumably they are what at least some
Federally employed economists mean.
Whether Rick's analysis contradicts any theoretical principles used
by mainstream economists is quite another issue. I'm arguing here
only that with the data at hand, Rick's analysis is proper and there
are legitimate conclusions that can be drawn from it.
To repeat, one cannot demonstrate from Rick's data that high
investment causes a reduction in GDP a year later, nor can one
demonstrate that high GDP causes high investment a year later. But
both of those possibilities are _consistent_ with the data, whereas
the claim that high investment causes high GDP a year later is
_inconsistent_ with the data.
That's assuming Rick got the direction of lag right 
Martin
From[Bill Williams 19 August 2004 8:50 AM CST]
[From Bill Powers (2004.08.04.1312 MDT)]
<>Kenny Kitzke (2004.08.04.1425EDT)--
Bill, you are a scholar and a gentleman,..."
Except that is when he is getting ready to bite people.
and quite humble besides. This
builds respect and esteem and makes friendships worthwhile.
Maybe you could explain how threatening to bite people as you say, "builds respect" and so forth.
My hat is tipped to you, my friend.
While it might be safe enough to dof your hat, I would think it be prudent to keep your thousers on-- if a sudden urge came on Bill Powers to bite someone there is no telling what might happen.
Bill Williams
From[Bill Williams 19 August 2004 9:00 AM CST]
I knew there was a reason I didn't delete this post. As it turned out, Bill Powers didn't after all end up writing that,
"I'll write back saying that you now
understand control theory better than anyone alive,..."
Instead, what Bill Powers had to do was explain to Rick where he had gotten it wrong. A disturbance really isn't the cause of behavior.
Bill Williams
[From Bill Powers (2004.08.04.1131 MDT)]
Rick Marken (2004.08.04.0910)--
That's great. Now you can bet that the new mantra of the scientifically
challenged will be "Bill Powers says that Rick's results are a mistake and a
disaster"
OK, tell you what. You write that Bill Powers has become senile and doesn't
understand control theory any more, and I'll write back saying that you now
understand control theory better than anyone alive, and our socially
challenged ex-friends can then snip and rearrange the words to make them
say anything they want to. Might as well let them have some fun. Does
anyone really care what they say any more?
Best,
Bill P.
From[Bill Williams 19 August 2004 9:10 AM CST]
[From Rick Marken (2004.08.04.0910)]
That's great. Now you can bet that the new mantra of the >scientificall challenged will be "Bill Powers says that > Rick's results are a mistake and a disaster"
Actually Rick is the one who is a bit "scientifically challenged." He can't really "see" either a stimulus or a resonse.
And, I really do like Bill Powers explaination of why a disturbance is not the "cause" of behavior.
I will admit to having been stunned by Rick's cleverness in using a control loop to bring the two sides of an identity into equation.
Bill Willliams
Bill Powers (2004.08.03.1439 MDT)
Rick Marken (2004.08.03.1240) --
But the basic relationship is still clear: growth leads investment, not
vice versa.No, if we're going to do things in the spirit of scientific enquiry in this
group, your reaction to getting this result should be "What's wrong with
this result?"... Otherwise you risk the ultimate disaster, of being a
dissenter who has made a mistake and instead of being the first to find
it, is the last.
That's great. Now you can bet that the new mantra of the scientifically
challenged will be "Bill Powers says that Rick's results are a mistake and a
disaster"
If you're going to conclude that growth, not investment, is the
independent variable, you will be going against a century or so of
statements by smart people that the opposite is the case, so you will
have to be even more skeptical than they are.
I hope I didn't give the impression that I think growth is an independent
variable. All I've done is look at the data and found that the observed
relationship between variations in growth and investment are not what I
would have expected to see if investment were actually the cause of growth.
I presented this finding on CSGNet because I _am_ skeptical about it. I was
hoping that those who claim to be knowledgeable about economics would not
only show me what they thought were flaws in my calculations but also the
observations that led to the conclusion that investment causes growth in the
first place. One flaw was pointed out: it was suggested that investment
should be subtracted from GDP in all calculations involving GDP. As we saw,
fixing that flaw did not change the results at all. It still _looks like_
investment is caused by growth, not vice versa. I'm still waiting for
someone to point to the data that led to the belief that investment causes
growth.
Regards
Rick
--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400
From[Bill Williams 19 August 2004 9:20 AM CST]
I would like to point out something I noticed in Kenny's post, and that is his perception that,
"Rick's forray into economics was fueled by the work of your father['] ( Bill Powers' dad's effort to construct an alternative economic theory._"
Also, Bill Powers says that,
<Your impression that TCP was "trying to prove" some conjecture about investment is incorrect;>
What Bill's dad was "attemptiong to [dis] prove" was that investment plays an important role in the economy. I remember very well the claims that were verbally made to this effect. My contribution has been to ask, in the sense that investment is a conribution to capital formation is it true that there has been a constant 20 percent ratio between investment and income? I've pointed to Keynes statement that during the great depression in which this ratio has shifted, as the economists define it, by 95 percent.
Bill's dad's work is consistent with the work of the underconsuptionist school which made similar claims, they made these claims because they were in intellectual competition with a school the emphasized the role of investment. Because Keynes' conception improved upon both the under-consumptions and also the over-investment school's approach, the very few remaining people who are advocates of either of these schools, such as TCP, Bill Powers, and Rick continue to argue for the un-importance of investment in the determination of income.
I find arguments for ignorance un-appealing.
Bill Williams
From[Bill Williams 19 August 2004 9:40 AM CST]
[From Rick Marken (2004.08.01.1150)]
>>Bill Powers (2004.08.01.1040 MDT)]
>>Arguing with Bill Williams is futile, Rick.
Bill Powers is a sore loser. What can you expect when you try to convince people that "it isn't going to cost the economy anything to send people to Mars." ???
I wonder, what was Bill Powers thinking, if that is he was thinking, when he posted this argument?
If CSGnet folk do get a refereed journal going, I hope this is a argument that gets subjected to review. So, I hope will Rick's argument that pedophiles would be good police officers.
Bill Williams
Bill Williams
From[Bill Williams 19 August 2004 9:40 AM CST]
In a post by
[From Rick Marken (2004.08.01.1150)]
I noticed that it is said that,
This gives one iteration of control for each change in r (if d is constant, as it was in Williams' program, then r and p don't change after the first iteration).
This is mistaken, "r" changes with every interation. How else could the behavior of the program be understood if the "control loop" portion is omited?
Bill Williams
Bill Powers (2004.08.01.1040 MDT)]
Arguing with Bill Williams is futile, Rick.
I know. I'm just interested in discussing economics and I use his posts as a basis for continuing the conversation.
You have said before, and say again of Bill's "marching band" model,
Your model, on the other hand, "worked" in the sense that it caused a different array of points to be plotted on the screen on each iteration of the program; however, it didn't control any variables at all.
In fact his model does control two variables for each marcher: their x and y positions. Each marcher is given a reference level for x and y position, and adjusts its perceived (and actual) position to match the reference position. So that is a set of controlled variables.
As I recall, his control loops went something like this:
o = k2(r-p)
p = k1 (o+d)
p = r
This gives one iteration of control for each change in r (if d is constant, as it was in Williams' program, then r and p don't change after the first iteration). I think it's fair to say that this is not a control loop -- at least not much of one.
What is not controlled is the variable Bill says is controlled, the relative spacing of the marchers.
Yes. That is certainly true.
Your position is weakened in the eyes of onlookers if you offer counterarguments that are not true, even if your adversary does not adhere to the same implied rules.
The onlookers who see merit in Bill Williams' arguments are not going to find any merit in my position even if I somehow managed to make only true statements all the time. I try my best to make true statements but I know that I'm going to be wrong sometimes (as will everyone). People who are opposed to my fundamental position will, indeed, use these mistakes to impugn the merits of my arguments, so it's certainly nice if I could try to avoid making mistakes. But even if I made no mistakes these people would use whatever they can to knock me. Look at the "ignorant slut" slander that was used against me (and the "biting" incident that bit you;-).
I think most of the mistakes I make are honest mistakes: for example, I really do think that Williams' program does not control any variables, in the sense of continuously acting to maintain a variable in a reference state while protecting it from disturbance. I assume that when I make mistakes like this (if it is a mistake to say that Williams' program doesn't really control anything) I will be corrected. That's how I think intelligent discussion should work.
Another problem is the argument about investment. Williams has objected that you are using gross investment instead of net investment, which judging from this post is true. Whether that is the wrong thing to use is another matter. He has never explained what is wrong with using gross investment, and apparently it is against his principles to offer such explanations
I was actually hoping (and still expecting) that someone other than Williams would give me the explanation.
When you argue with someone who doesn't play by normal rules, you gain nothing and risk a lot. Your adversary will never admit defeat, but will leap on every mistake you make -- and when you get irritated, you are likely to reply too fast and make mistakes.
I know this is true. That's why I don't argue with Williams. I am just trying to use his posts as a basis for getting people who can discuss these things like grown-ups to participate in a discussion about economics.
Best
Rick
---
Richard S. Marken
marken@mindreadings.com
Home 310 474-0313
Cell 310 729-1400
From[Bill Williams 19 August 2004 9:50 AM CST]
[From Rick Marken (2004.07.29.0930) says,
The control model of the Giffen effect is a working >implementation of the "subsistence" model in the same as my H. >economicus model was a working implementation of the
"leakage" model of the macro economy.
Maybe the most important difference between the two is that the Giffen effect, that is the control theory models of the Giffen effect have never been the subject of fundamental criticism. While your attempt to create a control theory implementation of Bill Powers' dad's "leakages" thesis was the object of Bill Powers assesment that it was "...a gigantic leap in the wrong direction." or some such criticism.
I wonder, the Giffen effect in a sense "does the work" of exploding the claim by neo-classial economic theory that demand curves must slope downward. What "work" does the "leakages" ( no I will not call it a 'model') do?
Bill Williams
In a message dated 8/15/2004 2:36:12 PM Eastern Daylight Time, mmt-csg@ROGERS.COM writes:
[Martin Taylor 2004.08.04.1658] (Written then, but apparently not sent)
[From Kenny Kitzke (2004.08.04.1250EDT)]
This is a good example of why I get so frustrated with Rick’s
analyses and claims to have discovered something
profound—something the experts in economics (whatever that means)
have missed.Whether they missed it or not, Rick’s analysis showed that investment
(as defined by the databanks from which he took the numbers) does not
lead to growth (as defined by the databanks from which he took the
numbers). The data are clearly NOT compatible with that theory.
It is my understanding that the analysis done by Rick looked at the correlation of the published quarterly Gross Private Domestic Investment as a fraction of Gross Domestic Product with GDP.
If you think this analysis clearly refutes a general belief by many dedicated and capable economists that Investment leads to Growth, so be it.
Agree. And, for similar reasons, his analysis did not show that investment does not lead to growth—only that the data he analyzed was incompatible with that general belief.
You acknowledged my criticism of Rick comparing a variable I, which
is supposedly “Investment,” to GDP which includes I as a component
to look for a correlation between I and GDP.
<The criticism may well have been correct, but what could its effect
have been on the analysis? You could easily have determined that,
without ever looking at Rick’s actual lagged correlations.
The answer is that including I within the GDP numbers would increase
the zero-lag correlation. X correlates better with X + Y than with Y.
Whether including I in the GDP measure would increase the correlation
at other lags would depend on the autocorrelation function of I.
Presuming that the autocorrelation function of I remains positive for
more than one quarter, the graphed correlation would again be too
high (high-positive, that is). And if you compare Rick’s first graph
with his most recent, you find that is the case, though the
difference is almost trivial. Removing I from GDP increases the
NEGATIVITY of the leading correlation, enhancing his initial
conclusion.>
Of course, you are right. You know it and I knew it when I made my criticism. But, we are not doing the analyses or making the economic claims to have refuted common understandings in economics. Rick is.
Why would anyone wishing to do credible analyses make such a fundamental error in analysis. Why include in the analysis a red flag that any economist familiar with statistical methods would question? Isn’t it a matter of confidence in the analysis and the analyzer?
Have you noticed Bill Power’s acceptance of my criticism and his own admonishment of Rick to be more accurate and credible when stepping into fields of knowledge where he lacks credentials and making claims?
The correlation coefficient was already low with Rick’s initial inappropriate analysis. It was obvious it would get LOWER when corrected. All the more reason to question whether any claims of cause could be made at all. When the inappropriate analysis was corrected and made no significant difference, I see a justification that it did not affect the conclusion so was not important. Rick responded to my criticism, made the correction and showed his conclusion remained the same. I say balderdash. The original analyses was not trustworthy and the corrected analyses remained untrustworthy. The change I suggested was NOT the main criticism of his conclusion. It was just a clear error that detracts from the credibility of the analysis and the conclusion, which in my opinion was fundamentally errant. It reveals a lack of understanding of the variables being analyzed.
This is faulty analysis.
<It’s all very well to criticise faulty analysis, and in the long run
it is good to do so. But when you criticise the implications drawn
from a faulty analysis, it sometimes helps to see whether correcting
the fault would enhance the conclusion or refute it.>
As I have already explained, it was using admittedly low correlations (about 0.25) to speculate whether there is, or IS NOT, a causal relationship (negative or positive) that is suspect. A correlation cofficient of 0.5 is considered weak. Yet, we have Rick drawing conclusions as to relationships, or the lack thereof, with coefficients of closer to 0.25. If 0.5 is considered weak, what Martin would you call the result of r = 0.25? How about highly suspect?
Manipulating time frames in a lagged correlations that hardly increase the coefficient to try and determine which variable leads to (causes) the other to change seems like poor mathematics and poor analyses to me. I would be happy for you to convince me, and other control engineers and statisticians, otherwise. Since most dedicated economists are all wet according to Rick when it comes to analyzing economic data, perhaps all the statisticians are too?
Add to this stew the fact that the variable being plotted by Rick
for “I” is not what I suspect politicians or economists mean when
they claim that we should increase I to increase GDP.
<Rick claims only that he is using the figures supplied by the US
authorities, under the labels he uses. Quite probably those are not
what politicians mean, but presumably they are what at least some
Federally employed economists mean.
Whether Rick’s analysis contradicts any theoretical principles used
by mainstream economists is quite another issue. I’m arguing here
only that with the data at hand, Rick’s analysis is proper and there
are legitimate conclusions that can be drawn from it.>
I disagree and I gave you some things to reconsider. Ball is in your court (I’m a tennis player along with Robertson, Goldstein and Francisca-Winter’s delightful new wife). Please enlighten me.
And, this leaves out other issues raised by me and Bill Williams which might explain why the general claim is true even though Rick’s analysis is correct and trustworthy (which I do not accept). This includes:
a) is it increases in gross or net Private Investment that economists think drives GDP?
b) is it the change in the Private Investment fraction of GDP (which Rick has used) or the change in absolute level of Investment that should be compared to increases in GDP before and conclusion is reached? (Bill Powers thinks it should be rates of change of both Investment and GDP that should be compared; which Rick has not done to my knowledge. What say you Martin?)
c) should residential investment be included to analyze the claim? (Rick uses it)
d) is the fact that even the fraction of Private Investment varies from year to year of roughly + or - 2.5% significant to the analysis and the conclusion? I know it is a huge chunk of money in the US economy?
e) is there a time frame inherent in the general claim or belief that increasing Investment will grow the GDP? I don’t know of one.
<To repeat, one cannot demonstrate from Rick’s data that high
investment causes a reduction in GDP a year later, nor can one
demonstrate that high GDP causes high investment a year later. But
both of those possibilities are consistent with the data, whereas
the claim that high investment causes high GDP a year later is
inconsistent with the data.>
These are statements that assume the variables are directly and exclusively interrelated. It reminds me of the engineering analyzes and experiments I have seen conducted over my career where all process variables are held the same but one when in fact, in complicated processes (and the economy is complex) the real system never behaves the way such models, or the contrived experiments, predict. That usually happens when one does not fully understand the complexity of the real system. Several people have wondered just how much Rick understands the economic system, the theories of how it works or even the definitions of terms essential to such understanding. I think this criticism is fair based on my own experience with free or limited market oriented economys and how they work.
<That’s assuming Rick got the direction of lag right
Even I will give him the benefit of the doubt on that one. :-))
Good hearing from you and sorry you could not make the conference.
Kenny
Amateur Economist and Psychologist
[From Rick Marken (2004.08.20.0850)]
From Kenny Kitzke
It is my understanding that the analysis done by Rick looked at the
correlation of the published quarterly Gross Private Domestic Investment as a
fraction of Gross Domestic Product with GDP.If you think this analysis clearly refutes a general belief by many dedicated
and capable economists that Investment leads to Growth, so be it.
The point wasn't to refute anything. I simply wanted to see what the
relationship between investment and growth is. What I found was not what
I've heard people say: that investment leads to growth in GNP. My
observation does not _refute_ that belief. Indeed, my model of the
relationship between investment and growth has investment producing growth
in _production_, but only to meet a reference for demand (consumer income)
for that production. What my results do call into question is the basis for
the belief held by "dedicated and capable economists" that investment leads
to growth in GNP.
Why would anyone wishing to do credible analyses make such a fundamental error
in analysis. Why include in the analysis a red flag that any economist
familiar with statistical methods would question? Isn't it a matter of
confidence in the analysis and the analyzer?
Now, now, Kenny. I corrected the "error" (it was not considered an error in
the paper I cited that was written by the _real_ economists -- see below--
who found the same relationship between between investment and growth that I
reported) and I did the analysis again with the same results.
Have you noticed Bill Power's acceptance of my criticism and his own
admonishment of Rick to be more accurate and credible when stepping into
fields of knowledge where he lacks credentials and making claims?
Yes, Bill liked your suggestion and I incorporated it into the analysis. So
are we back to questioning the results because I found them? Don't forget
that Attanasio, Picci, and Scorcu (2000) SAVING, GROWTH, AND INVESTMENT:A
MACROECONOMIC ANALYSIS USING A PANEL OF COUNTRIES, The Review of Economics
and Statistics, 82(2), 182�211, found the same thing -- independently,
before I did!
Rick responded to my criticism, made the correction and showed his conclusion
remained the same. I say balderdash. The original analyses was not
trustworthy and the corrected analyses remained untrustworthy.
Untrustworthy?
The change I suggested was NOT the main criticism of his conclusion.
What was the main criticism?
A correlation cofficient of 0.5 is considered weak. Yet, we have Rick drawing
conclusions as to relationships, or the lack thereof, with coefficients of
closer to 0.25.
The correlation is a measure of relationship. The question is how accurate
is that measure. The accuracy of the measure (the size of the confidence
interval around it) depends on the size of the correlation as well as the
number of degrees of freedom (pairs of data points) used to measure it.
Because my correlations were based on something like 220 data pairs, the
confidence intervals around them were rather narrow. I believe that the 99%
confidence interval around the most negative prior correlation (-.2) is
between -.37 and -.05, which means that with 99% confidence we can say that
the relationship between investment and growth when investment leads growth
is negative. Same is true when investment follows growth, though in this
case we can be 99% confident that the relationship is _positive_.
Since most dedicated economists are all wet according to Rick when
it comes to analyzing economic data, perhaps all the statisticians are too?
I have never said that "most dedicated economists are all wet... When it
comes to analyzing data". That's what you think I said, but I've never said
it, nor do I believe it.
RSM
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Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400
