Nobel in Economics

CSGnet Archive CSG2001
1

[From Bjorn Simonsen (2002.10.13.10.30 EST)]

from Rick Marken (2002.10.10.1050)

So I suggest that we discuss Kahneman's work and evaluate it from a

perceptual

control theory perspective.

Thank you Rick for the URL to "Foundations of Behavioral and Experimental
Economics: Daniel Kahneman and Vernon Smith.

The traditional postulates in economics are unbounded rationality, pure
self-interest (expected-utility theory) and complete self-control.
These postulates are drawn up to make an over-complex world more survey able
for them who describe the economic world. They found some variables and made
them constant and wrote theories. They had the knowledge that this was a
simplification and that later scientists would let them be variable.
Economics is a young branch of knowledge.

In the last years the economy faculties are mostly supplied with
psychologists and sociologists. Daniel Kahneman is one of them. He is a
cognitive psychologist and he laid hold of the human rationality. He (and
Tversky) contributed with a decision theory under uncertainty. And he
described that human decisions are not marked by rationality.

His "law of small numbers" tells us that individuals attribute the same
probability distribution to the empirical mean from small and large samples.

If Kahneman had been a PCT-er he would have known that this is more a
description of he perceiving relationships among events. The people in the
experiment may have been controlling quite other things. (B:CP page 155).

His Prospect theory (1979), Decision-making under uncertainty is explained
well in PCT. I think Bill Powers formulated the same in other words in 1973.
My interpretation of his Prospect theory is that individuals try to perceive
what their reference tell them to perceive.
In the paper Rick referred to (section two in this mail) page 17 the author
writes: " ..... First, in prospect theory, the decision maker is not
concerned with final values of wealth _par se_, but with changes in wealth,
"delta"w, relative to some reference point. This reference point is often
the decision-maker's current level of wealth, so that gains and losses are
defined relative to the _status quo_. ......"
This is PCT. (?? what do you say?)

I think decision-making could be an interesting theme.

Bjorn

2

[Bjorn Simonsen (2002.10.13.10.30 EST)]

from Rick Marken (2002.10.14.1010)
Bjorn Simonsen (2002.10.13.10.30 EST)

The traditional postulates in economics are unbounded rationality, pure
self-interest (expected-utility theory) and complete self-control.

Do you happen to know why those assumptions are made? Or how do they fit

into

macro-economic models?

I tried to indicate; those assumptions are made to simplify a theory
describing a complex world. I asked Arne Kinserdal ( a local professor in
economics) and his answer was the same. But if you still ask if I know why,
my answer is no.
Macro-economic is the study about national assemblies as "national income
accounts", "employment and unemployment". For me the variables in
macro-economic are incompatible relative to the variables in micro-economic.
I am not able to answer your last question.

His "law of small numbers" tells us that individuals attribute the same
probability distribution to the empirical mean from small and large

samples.

Do you know why this is a big deal to economists?

I don't think "the law of small numbers" is a big deal to economists. I
think psychologists working at the business schools and universities discuss
"the law of small numbers" with the senior economists the same places, and
the senior economists are thinking about the law (just thinking about it). I
also think the Nobel committee gave the Nobel price in economics to Kahneman
to give a signal to the senior economists (micro-economics) just as the
Nobel committee in Norway used the occasion to signal its displeasure with
President Bush's policy toward Iraq (NY Times.

Who ever thought that people intuitively understand sampling distributions?

What does knowing >that the variance of the distribution of a sample
average decreases as the square root of sample >size (according to the law
of large numbers) have to do with

economic behavior?

I don't think you perceived my comment to Tversky and Kahnemans reflections
about the law of small numbers. I wrote that the intuitively understand
sampling distributions is an example where Tversky and Kahneman controlled
for their perceptions of relationships. It is not an example describing the
real world. So my answer to your first question is that Kahneman thinks that
people intuitively understand sampling distributions.
I am not clever enough in the science of marketing to answer your second
question.

If Kahneman had been a PCT-er he would have known that this is more a
description of he perceiving relationships among events. The people in the
experiment may have been controlling quite other things. (B:CP page 155).

But why does Kahneman think that this behavior (estimating population means
based on same means) has anything to do with economics?

I don't know, but Kahneman is a scientist and a teacher at a business school
and he is a member of the Econometric Society. Maybe there are some
disturbances where he is.

His Prospect theory (1979), Decision-making under uncertainty is explained
well in PCT. I think Bill Powers formulated the same in other words in

1973.

My interpretation of his Prospect theory is that individuals try to

perceive

what their reference tell them to perceive.
In the paper Rick referred to (section two in this mail) page 17 the

author

writes: " ..... First, in prospect theory, the decision maker is not
concerned with final values of wealth _par se_, but with changes in

wealth,

"delta"w, relative to some reference point. This reference point is often
the decision-maker's current level of wealth, so that gains and losses are
defined relative to the _status quo_. ......"
This is PCT. (?? what do you say?)

Actually, it doesn't sound much like PCT to me (except for the use of the
word "reference"). It sounds like adaptation level theory, where a

perception

is defined relative to an internally specified reference (adaptation)

point.

If prospect theory says that the decision maker acts so as to bring wealth

to

a reference point, then it is PCT-like. Of course, to be truly PCT-like it
would also have to explain what the perceptual variable "wealth" (or

"change

in wealth") is and why that variable is assumed to be controlled.

Here I will comment two things. First I didn't write that the prospect
theory sound much like PCT. If you reread it I wrote that Bill Powers in
1973 formulated how people decide and they do it when they control their
perceptions.

Second, You may be right. You are the PCT-er if anyone among us are that
more than others. But I am under the delusion that if Kahneman had learned
PCT. He would say: "A decision maker control his perceptions (his wealth
_par se_) relative to his reference by generating an action (making a
decision) that tends strongly to counteract the disturbing influence on his
reference." I asked him, but he is as you a busy man.

I think decision-making could be an interesting theme.

I do to. I think economics is based on the idea that economic behavior
involves decision making. I think this is dead wrong. I think economic
behavior involves _control_, and only rarely decision making (which is

simply

internal conflict resulting from attempts to control for incompatible
results).

I too. But I am not sure I agree with what you wrote in the brackets. I
remember you wrote 990919:

When there is a conflict between control systems there is
no way to resolve the conflict (eliminate error) by
generating the "right" outputs; that is, you can't solve
the conflict at the level of the conflict itself.

I think you meant we can't control for the results?

Could you or anyone else on the net give us a concrete example of how
Kahneman's findings (about, say, the "law of small numbers") are used in
economic models?

Maybe there is a marketing man among us?

Bjorn

3

[Bjorn Simonsen (2002.10.18.23:00 EST)]

from Rick Marken (2002.10.14.1010)
Bjorn Simonsen (2002.10.13.10.30 EST) (should be 2002.10.18,22:45 EST)

Actually, it doesn't sound much like PCT to me (except for the use of the
word "reference"). It sounds like adaptation level theory, where a

perception

is defined relative to an internally specified reference (adaptation)

point.

If prospect theory says that the decision maker acts so as to bring wealth

to

a reference point, then it is PCT-like. Of course, to be truly PCT-like it
would also have to explain what the perceptual variable "wealth" (or

"change

in wealth") is and why that variable is assumed to be controlled.

Here I will comment two things. First I didn't write that the prospect

theory sound much like >PCT. If you reread it I wrote that Bill
Powers in 1973 formulated how people decide and they do >it when they
control their perceptions.

Second, You may be right. You are the PCT-er if anyone among us are that

more than others. But I >am under the delusion that if Kahneman had learned
PCT. He would say: "A decision maker control >his perceptions (his wealth
_par se_) relative to his reference by generating an action (making >a
decision) that tends strongly to counteract the disturbing influence on his
reference." I >asked him, but he is as you a busy man.

You _are_ right

I asked Kahneman

Do I understand the prospect theory correct when I express that the decision
maker generates actions (behave) and changes the perceptions of wealth until
it corresponds
with his references.

His answer was

no, not quite. What it does say is not very complicated, but you must study
it in an orderly fashion to understand it. Best,

DK

I dont think I am going to study it.

Bjorn

4

[From Rick Marken (2002.10.10.1050)]

The Nobel in Economics this year went to Daniel Kahneman, a psychologist who studies
human decision making under uncertainly. I am not that familiar with his work (most
of which was done with Amos Tversky, who was not able to share the prize since since
it is not awarded posthumously; Tversky was very young when he died several years
ago); it always seemed intensely uninteresting. And, of course, what I did understand
of it seemed completely misguided once I had learned how to look at behavior through
control theory glasses. But now that Kahneman's work has been recognized with a
Nobel, perhaps it's would be worthwhile to become more familiar with it. It would be
nice if one of us could write a critique of it from a control theory perspective.

So I suggest that we discuss Kahneman's work and evaluate it from a perceptual
control theory perspective. Could someone start by giving an short description of
what Kahneman did that merited a Nobel.

Best regards

Rick

···

--
Richard S. Marken, Ph.D.
The RAND Corporation
PO Box 2138
1700 Main Street
Santa Monica, CA 90407-2138
Tel: 310-393-0411 x7971
Fax: 310-451-7018
E-mail: rmarken@rand.org

5

[From Rick Marken (2002.10.10.1120)]

An official description of the basis for the Nobel award to Kahneman (and Vernon Smith,
about whom I know nothing at all) can be found at:

http://www.nobel.se/economics/laureates/2002/ecoadv02.pdf

Best

Rick

···

--
Richard S. Marken, Ph.D.
The RAND Corporation
PO Box 2138
1700 Main Street
Santa Monica, CA 90407-2138
Tel: 310-393-0411 x7971
Fax: 310-451-7018
E-mail: rmarken@rand.org

6

[From Rick Marken (2002.10.14.1010)

Bjorn Simonsen (2002.10.13.10.30 EST)--

Thank you Rick for the URL to "Foundations of Behavioral and Experimental
Economics: Daniel Kahneman and Vernon Smith.

You're very welcome.

The traditional postulates in economics are unbounded rationality, pure
self-interest (expected-utility theory) and complete self-control.

Do you happen to know ewhy those assumpions are made? Or how do they fit into
macro-economic models?

In the last years the economy faculties are mostly supplied with
psychologists and sociologists. Daniel Kahneman is one of them...

His "law of small numbers" tells us that individuals attribute the same
probability distribution to the empirical mean from small and large samples.

Do you know why this is a big deal to economists? Who ever thought that
people intuitively understand sampling distributions? What does knowing that
the variance of the distribution of a sample average decreases as the square
root of sample size (according to the law of large numbers) have to do with
economic behavior?

If Kahneman had been a PCT-er he would have known that this is more a
description of he perceiving relationships among events. The people in the
experiment may have been controlling quite other things. (B:CP page 155).

But why does Kahneman think that this behavior (estimating population means
based on same means) has anything to do with economics?

His Prospect theory (1979), Decision-making under uncertainty is explained
well in PCT. I think Bill Powers formulated the same in other words in 1973.
My interpretation of his Prospect theory is that individuals try to perceive
what their reference tell them to perceive.
In the paper Rick referred to (section two in this mail) page 17 the author
writes: " ..... First, in prospect theory, the decision maker is not
concerned with final values of wealth _par se_, but with changes in wealth,
"delta"w, relative to some reference point. This reference point is often
the decision-maker's current level of wealth, so that gains and losses are
defined relative to the _status quo_. ......"
This is PCT. (?? what do you say?)

Actually, it doesn't sound much like PCT to me (except for the use of the
word "reference"). It sounds like adaptation level theory, where a perception
is defined relative to an internally specified reference (adaptation) point.
If prospect theory says that the decision maker acts so as to bring wealth to
a reference point, then it is PCT-like. Of course, to be truly PCT-like it
would also have to explain what the perceptual variable "wealth" (or "change
in wealth") is and why that variable is assumed to be controlled.

I think decision-making could be an interesting theme.

I do to. I think economics is based on the idea that economic behavior
involves decision making. I think this is dead wrong. I think economic
behavior involves _control_, and only rarely decision making (which is simply
internal conflict resulting from attempts to control for incompatible
results).

Could you or anyone else on the net give us a concrete example of how
Kahneman's findings (about, say, the "law of small numnbers") are used in
economic models?

Best regards

Rick

7

[From Rick Marken (2002.10.19.0850)]

Bjorn Simonsen (2002.10.13.10.30 EST)

Macro-economic is the study about national assemblies as "national income
accounts", "employment and unemployment". For me the variables in
macro-economic are incompatible relative to the variables in micro-economic.

This may be true of economics now but I don't think it _should_ be true. I
think the behavior of aggregates of individuals should be derivable from
assumptions about the organization of the individuals themselves. I've made a
couple of stabs at showing what I mean by this. One of those stabs is in the
"H. economicus" paper that is reprinted in _More Mind Readings_. That paper has
its problems but I think it does show how control theory at the individual
(microeconomics) level could provide a basis for the behavior of aggregates of
individuals (macroeconomics).

Bjorn Simonsen (2002.10.18.23:00 EST)--

I asked Kahneman

Nice going!!

Do I understand the prospect theory correct when I express that the decision
maker generates actions (behave) and changes the perceptions of wealth until
it corresponds with his references.

His answer was

no, not quite. What it does say is not very complicated, but you must study
it in an orderly fashion to understand it. Best,

DK

I think you Norwegians did a _much_ better job with the Peace prize than the
Swedes did with the Economics prize.

Best

Rick

···

--
Richard S. Marken
MindReadings.com
marken@mindreadings.com
310 474-0313

8

[From Bill Williams UMKC 20 September 2002 5:00 AM CST ]

[From Rick Marken (2002.10.19.0850)]

[To]

Bjorn Simonsen (2002.10.13.10.30 EST)

I think you Norwegians did a _much_ better job with the Peace prize than the
Swedes did with the Economics prize.

So, who in your considered opinion ought to have gotten the prize?

Bill Williams

···

______________________________________________________________________
Do you want a free e-mail for life ? Get it at http://www.email.ro/

9

[From Rick Marken (2002.10.20.0715)]

Bill Williams (UMKC 20 September 2002 5:00 AM CST )

> [From Rick Marken (2002.10.19.0850)]

[To]
>
> Bjorn Simonsen (2002.10.13.10.30 EST)
>
> I think you Norwegians did a _much_ better job with the Peace prize than the
> Swedes did with the Economics prize.

So, who in your considered opinion ought to have gotten the prize?

Are you kidding? William T. Powers, of course!

Best

Rick

···

---
Richard S. Marken
MindReadings.com
marken@mindreadings.com
310 474-0313

10

[From Bill Powers (2002.10.20.0854 MDT)]

Bill W:

> So, who in your considered opinion ought to have gotten the prize?

Rick M:

Are you kidding? William T. Powers, of course!

Flattering but inappropriate. I'd suggest someone who can explain economic
interactions with a competent model, So far I don't think there is anyone
who can do that, so perhaps this prize might not have to be given every year.

I do wish that at least a few economists were commenting on the
relationship between consumer buying power and ability of a producer to
sell the product. Here we are again, with businesses madly cutting costs by
laying off each other's customers. Nobody is going to get a prize for
thinking up that brilliant move.

Best,

Bill P.

11

[From Rick Marken (2002.10.20.0820)]

Bill Powers (2002.10.20.0854 MDT)]

Bill W:
> > So, who in your considered opinion ought to have gotten the prize?

Rick M:
>Are you kidding? William T. Powers, of course!

Flattering but inappropriate...

I don't think so. Kahneman was awarded the prize, not for his economic modeling
but for his contributions to understanding aspects of human nature that are
presumably relevant to economics. I rate your contributions to understanding
those same aspects of human nature to be orders of magnitude more significant
than Kahneman's.

Best

Rick

···

--
Richard S. Marken
MindReadings.com
marken@mindreadings.com
310 474-0313

12

[From Fred Nickols (2002.10.20.1700)] --

Bill Powers (2002.10.20.0854 MDT)

I do wish that at least a few economists were commenting on the
relationship between consumer buying power and ability of a producer to
sell the product. Here we are again, with businesses madly cutting costs by
laying off each other's customers. Nobody is going to get a prize for
thinking up that brilliant move.

Hmm. It seems to me that the folks doing the laying off have a set of
reference conditions that make eminent sense to them. It also seems to me
that for them to be concerned about "laying off each other's customers"
would require of them that they go up a couple of levels. El Presidente of
Company A, compensated for the short-term profitability (or share price or
whatever) does what is thought will produce the desired results and
probably doesn't care that the people being laid off are customers of
Companies B, C and D, nor that people being laid off at other companies are
customers of Company A.

It further seems to me that it is the structure and nature of executive
compensation systems (including their manipulability), not executives'
faulty grasp of economics or economic systems or PCT or a PCT-based view of
economics that leads to seemingly silly moves such as "laying off each
other's customers."

Fred Nickols
nickols@safe-t.net

13

[From Bill Williams UMKC 20 September 2002 8:00 PM CST

[From Bill Powers (2002.10.20.0854 MDT)]

I do wish that at least a few economists were commenting on the
relationship between consumer buying power and ability of a producer to
sell the product.

There are in fact "a few economists" who are commenting upon this absurdity.
I don't know how many fit the category you have in mind, but I'm confident
that there are several hundred. TAke a look at the "Post-Autistic economics"
pages on the webb, and other links.

best

Bill williams

···

______________________________________________________________________
Do you want a free e-mail for life ? Get it at http://www.email.ro/

14

[From Bill Powers (2002.10.20.21219 MDT)]

Bill Williams UMKC 20 September 2002 8:00 PM CST

TAke a look at the "Post-Autistic economics"
pages on the webb, and other links.

Thanks, Bill, I will.

15

[From Bill Powers (2002.10.21.0745 MDT)]

Bill Williams UMKC 20 September 2002 8:00 PM CST

>There are in fact "a few economists" who are commenting upon this absurdity.

I don't know how many fit the category you have in mind, but I'm confident
that there are several hundred. TAke a look at the "Post-Autistic economics"
pages on the webb, and other links.

Excellent link to truly revolutionary economists. I found the following by
Bruce Edmonds of the Center for Policy Modeling, UK:

But if we are to give up the chimera of numerical predictive models built
using a priori
principles, doesn't that mean we have to give up formal models and rigour?
I would say that we do not. What it does mean, however, is that we have to
use formal and computational models that are capable of capturing the
detailed behaviour as it is observed. We then need to constrain these
models as much as possible using observations of the relevant phenomena,
both in terms of the trajectories of the causal processes as well as the
outcomes; in terms of qualitative information (such as anecdotal accounts)
as well as quantitative data. Pinning down our models using only the
verification of predictive outcomes and an insistence on formal simplicity
will not be enough. We will need to capture the workings of the processes
stage by stage as they are observed.

This sounds like real modeling to me. Edmonds pins his hopes on "cognitive
psychology," but sounds as if he would be amenable to PCT modeling as well.

I have not done much with my "test bed" approach, since it needs guidance
from a real economist, but it seems to me it would be in line with what
Edmonds talks about. First we need a model of the transactions and
interactions that take place between real human agents, under the rules of
the game as it is actually played, and then we can start trying to model
the strategies, motivations, "decisions", and so on that consumers and
managers follow, using real instances of behavior as a guide. Keynes seemed
to have a model, but it was all in his head, so nobody else could figure
out how he deduced what would happen in this or that circumstance. It's
possible he was wrong, too, since the model was never stated so explicitly
that anyone could run it and come to the same conclusions, and thus check
up on his reasoning.

To return to the question I sketched in, however, I'm still wondering if
there are any economists who are studying the connection between reducing
the income of consumers and the inevitable effect on reduced sales by
producers. I take it that it's still true that all income is either capital
income or wages, with most of it coming from wages and all of it being paid
out by producers as a cost of production. And I assume that Say's Law still
holds, saying that the total income must be just enough to purchase the
entire output in a steady-state economy (my paraphrase). Isn't it an
appropriate role for national government to point out, forcefully, that
layoffs and downsizing have the very opposite effect, macroeconomically
that businesses hope it will have on their own micro economy? It's like
pointing out that we can't _all_ live off our investments, if there's to be
anything to buy. If everyone invested all of their money, nobody could buy
anything.

Another quote from the Post-Autistic Economics web site (I think by
Galbraith): "Deliver us from abstractions!"

Best,

Bill P.

.

16

[From Bill Williams UMKC 21 SEptember 2002 7:00 pm CST ]

[From Bill Powers (2002.10.21.0745 MDT)]

Bill Williams UMKC 20 September 2002 8:00 PM CST

>There are in fact "a few economists" who are commenting upon this absurdity.
>I don't know how many fit the category you have in mind, but I'm confident
>that there are several hundred. TAke a look at the "Post-Autistic economics"
>pages on the webb, and other links.

Excellent link to truly revolutionary economists.

I'm not sure what's happened, but things seem to have reached a transition
point. It started in France two years ago, and spread from there. THere will
be a meeting next Fall here at UMKC to thrash out a "united front" program.
NOt sure I'm altogether in favor of this myself, there is a lot of very crass
opurtunism mixed in with the revoutionary plans.

This sounds like real modeling to me. Edmonds pins his hopes on "cognitive
psychology," but sounds as if he would be amenable to PCT modeling as well.

I have not done much with my "test bed" approach, since it needs guidance
from a real economist, but it seems to me it would be in line with what
Edmonds talks about. First we need a model of the transactions and
interactions that take place between real human agents, under the rules of
the game as it is actually played, and then we can start trying to model
the strategies, motivations, "decisions", and so on that consumers and
managers follow, using real instances of behavior as a guide. Keynes seemed
to have a model, but it was all in his head, so nobody else could figure
out how he deduced what would happen in this or that circumstance. It's
possible he was wrong, too, since the model was never stated so explicitly
that anyone could run it and come to the same conclusions, and thus check
up on his reasoning.

Unfortunately the way people are attacking the problem isn't likely to generate
consistency anytime soon. But, there is an ideological committement among the
heterodox/pluralist contingent to a more equal distribution of income-- so they
get many of the right answers on the basis of an overly complex and almost
surely faulty proceses of reasoning.

To return to the question I sketched in, however, I'm still wondering if
there are any economists who are studying the connection between reducing
the income of consumers and the inevitable effect on reduced sales by
producers. I take it that it's still true that all income is either capital
income or wages, with most of it coming from wages and all of it being paid
out by producers as a cost of production. And I assume that Say's Law still
holds, saying that the total income must be just enough to purchase the
entire output in a steady-state economy (my paraphrase). Isn't it an
appropriate role for national government to point out, forcefully, that
layoffs and downsizing have the very opposite effect, macroeconomically
that businesses hope it will have on their own micro economy? It's like
pointing out that we can't _all_ live off our investments, if there's to be
anything to buy. If everyone invested all of their money, nobody could buy
anything.

I think Keynes understood this as early as the end of World War one when he
broke with his government and published a tract _THe Consequences of the Peace_
which explained that GErmany couldn't pay the settlement if the germans weren't
allowed to trade-- that is sell goods to get the cash so that they could pay.
THe allied governments wanted Germany to pay, but not to be allowed to trade.

But, then I cann't convince very many people that profits in the aggregate are
zero-- which seems to me to be merely a matter of definitions. AS best I can
detearmine the problem starts when some previous preconception, LIke everything
depends upon saving more money, over-rides logic. I recently had a student who
kept insisting that somehow profits had to be a positive number -- sort of like
Bob Clark did one year at a CSG conference. I didn't argue with the guy.
Instead I waited until we had a seminar where the chairmen of the department
was around,( the chairman understands that if you subtract two numbers that are
equal to each other the result is zero ) and I ran the argument again. The
chairman understands the argument and says so, so this time the student didn't
bring up his objections again.

I think I'm convinced that Bruce Nevin's word "equvocation" is the source of
the difficulties. For some reason it seems like nearly everyone after defining
things, then at some point wants to change the definition, but continue the
argument.

HOwever, when the democrats believe that putting money in a "lockbox" is going
to solve problems, its hard to tell what the republicans do that will be much
worse-- except concentrate the wealth so that all the money will be safe in a
very few trustworthy accounts.

Another quote from the Post-Autistic Economics web site (I think by
Galbraith): "Deliver us from abstractions!"

Galbraith is now 93. STill in good health. I'd like to see him get the prize,
but not much chance of that I suppose.

best

Bill Williams

···

______________________________________________________________________
Do you want a free e-mail for life ? Get it at http://www.email.ro/

17

[From Bruce Nevin (2002.10.22 12:44 EDT)]

Bill Williams UMKC 21 SEptember 2002 7:00 pm CST--

···

At 03:28 AM 10/22/2002 +0300, William Williams wrote:

I'm not sure what's happened, but things seem to have reached a transition
point. It started in France two years ago, and spread from there.

I see a concise history at
http://www.btinternet.com/~pae_news/history.htm

18

[From Bill Williams UMKC 23 September 2002 2:00 AM CST]

Bruce,

When I said, "I'm not sure what's happened,..." what I meant to say was "I
dont' understand why the Post-Autistic Economics movement started when it did.
There's nothing that I perceive that's changed recently which one can point to,
at least that I know of, that would explain the "why" behind _what's_ taking
place. I can't see that there is anything at all that's new in the student's
complaints. And, why in France? I've asked European economists if they can
explain it, but they haven't had an explaination.

I'll venture a conjecture. Ever since the humiliations of World War Two, there
has been in French thinking something of a cosmological aspiration to restore
the glory of French culture. And, in the current context one way to do this is
to oppose whatever is the most obvious characteristic of American culture. And,
contemporary orthodox economics is an American creation-- Paul Samuelson's
_Foundations_ provided the model for the last half-centuries style of economic
research. So, there may have been in the French context a unique opportunity
for students to find a measure of support for a revolt against economic
orthodoxy -- because this orthodoxy was percieved to be one more irritating
example of the increasing dominance of American culture. So, the Post-Autistic
movement may have its source in an anti-American bias in French culture.

Bill Williams

···

[From Bruce Nevin (2002.10.22 12:44 EDT)]

Bill Williams UMKC 21 SEptember 2002 7:00 pm CST--
At 03:28 AM 10/22/2002 +0300, William Williams wrote:

>I'm not sure what's happened, but things seem to have reached a transition
>point. It started in France two years ago, and spread from there.

I see a concise history at
http://www.btinternet.com/~pae_news/history.htm

______________________________________________________________________
Do you want a free e-mail for life ? Get it at http://www.email.ro/

19

[From Rick Marken (2002.10.23.1130)]

Bill Powers (2002.10.21.0745 MDT)

Isn't it an
appropriate role for national government to point out, forcefully, that
layoffs and downsizing have the very opposite effect, macroeconomically
that businesses hope it will have on their own micro economy? It's like
pointing out that we can't _all_ live off our investments, if there's to be
anything to buy. If everyone invested all of their money, nobody could buy
anything.

I don't think so. Employers are consumers, too, after all, and the employer whose
business goes belly up is taken out of the consumption pool just as effectively as
is a laid off worker. I don't agree that government should try to coax (or force)
employers to not lay-off. Like rent control, it's likely to have worse side
effects than the well intended results.

I think what government has to do is point out, forcefully, that certain policies
are better than others for _everyone_. Rather than get too heavily involved in
regulating the private sector (as in rent control) I think government should
forcefully argue for the appropriateness of it's role as a redistributor of wealth
and as a "safety net" when the private sector fails large segments of the economy
(such the ~25% of children living in poverty in the US). What is needed is a
return to a highly progressive income tax (with no loopholes), possibly with a
negative income tax to deal with the unemployed and unemployable, and increased
government spending on useful infrastructure (rapid transit, roads, schools,
environmental cleanup, etc), to create employment and improve business and quality
of life.

Getting these things to happen is a political rather than an economic theory
problem. We really shouldn't have these problems in a liberal democracy like ours
but, unfortunately, this democracy is actually a plutocracy thanks to the Supreme
Court's remarkable ruling that money is speech. So we probably won't see much
improvement in the US (in terms of giving a voice to the growing ranks of the
poor, who are really the only ones suffering in this economy) until we have public
(only) funding of political campaigns, as in the more advanced democracies of
Europe. But, of course, the chances of this happening are slim and none since the
rich control the process that elects those who would vote on such a measure.

Ah well. My advice to people who live in the US regarding economics is similar to
my advice to them about healthcare: don't get poor (or sick). If you can't do
that, then I say move to Norway.

Best regards

Rick

···

--
Richard S. Marken, Ph.D.
The RAND Corporation
PO Box 2138
1700 Main Street
Santa Monica, CA 90407-2138
Tel: 310-393-0411 x7971
Fax: 310-451-7018
E-mail: rmarken@rand.org

20

[From Bill Powers (2002.10.23.1425 MDT)]

Rick Marken (2002.10.23.1130)--

>>If everyone invested all of their money, nobody could buy anything
.

I don't think so. Employers are consumers, too, after all, and the
employer whose
business goes belly up is taken out of the consumption pool just as
effectively as is a laid off worker. I don't agree that government should
try to coax (or force) employers to not lay-off. Like rent control, it's
likely to have worse side effects than the well intended results.

I left too much unsaid. I should have said "If everyone invested all their
money _and lived off the dividends and interest_, nobody could buy
anything." The reason, of course, would be that nobody would be working to
produce anything. There would be nothing to buy.

Of course it's also true that if everyone gives their money to corporations
to pay for capital upkeep and improvements, which is what investment
amounts to, there would not be much individual buying power left to buy
what is produced. Companies could buy from each other, but the workers who
receive the wages for making what is bought would, under the assumption,
invest that money back into the companies, so there would still be no
consumer buying power left to purchase the non-capital product. Only people
with capital income could buy anything, and there would be nothing to buy
because all the workers would have starved. So starting from either end,
layoffs do not work if everyone does it.

The trouble with downsizing to cut costs is that it cannot rationally be
adopted as a national policy (whether on purpose or just because business
managers follow trendy ideas).The more workers who are laid off, the less
buying power the composite consumer has with which to purchase the goods
and services being made by those who are still working. Because of that,
production must be decreased to prevent building up unsold inventory, and
that reduces producer income by the same amount that was saved by laying
off the workers. Another round of layoffs follows, and so on. This is a
positive feedback situation in which the whole economy must shrink and
eventually collapse.

I think what government has to do is point out, forcefully, that certain
policies
are better than others for _everyone_. Rather than get too heavily
involved in
regulating the private sector (as in rent control) I think government should
forcefully argue for the appropriateness of it's role as a redistributor
of wealth
and as a "safety net" when the private sector fails large segments of the
economy
(such the ~25% of children living in poverty in the US). What is needed is a
return to a highly progressive income tax (with no loopholes), possibly with a
negative income tax to deal with the unemployed and unemployable, and
increased
government spending on useful infrastructure (rapid transit, roads, schools,
environmental cleanup, etc), to create employment and improve business and
quality
of life.

I mostly agree. As a more general view, however, I think that government
(or national policy-making bodies of any kind) should pay attention to
precisely those aspects of the economy that are national -- in short, to
macroeconomics. What company A does relative to company B is irrelevant to
the national economy; what is relevant is what companies A through Z ALL
do. If regulators see downsizing spreading through the national economy as
a way of improving profits, they should apply rules across the board that
nullify this particular strategy, for example by increasing unemployment
compensation taxes enough (retroactively) to cancel the savings (or some
such idea based on better understanding than I have). The point would be
to penalize or nullify strategies which, if pursued nationally, would lead
to disaster, while leaving all other possibilities unregulated, without
playing favorites, and without micromanaging.

Best,

Bill P.