[From Frank Lenk (2011.04.25.23:25 CDT)]
I know I’ve been away for awhile, and now have 297 CSGNET messages to try and read…so the conversation may well have roamed well beyond this.
Bill - Just a small correction. It was Jean-Baptiste Say to whom is attributed the economic maxim that Supply creates its own Demand (aka Say’s Law). If so,
there can be no oversupply and so no unemployed labor unless the unemployment was voluntary on the part of the potential worker.
Keynes was trying to explain the opposite condition, the Great Depression where there seemed to be no naturally occurring equilibration mechanism to bring labor
supply into balance with a labor demand that was too low to absorb all the willing workers. Though he didn’t say this, his principle of effective demand might be restated as Demand creates its own Supply. In a situation where private businesses are unwilling
to invest in increasing productive capacity (why should they when there is so much capacity that is unused?) or hire workers (again, why should the when incomes are stagnant and prices are flat), Keynes posited that an increase in demand from Government would
cause production increases, reducing excess capacity and increasing hiring, which in turn would increase incomes and provide the private demand needed to buy what the increased production.
I found your explanation of how every individual could act one way yet produce markets that acted another very enlightening and an excellent example of why
we should beware the fallacy of composition.
···
Frank
From: Control Systems Group Network (CSGnet) [mailto:CSGNET@LISTSERV.ILLINOIS.EDU]
On Behalf Of Bill Powers
Sent: Sunday, April 03, 2011 12:37 PM
To: CSGNET@LISTSERV.ILLINOIS.EDU
Subject: Re: [CSGNET] PCT and free market
[From Bill Powers (2011.04.03.0940 MDT)]
At 05:09 PM 4/3/2011 +0200, Adam Matić wrote:
AM: Right, he doesn’t explain behavior, and doesn’t know about control theory. But, I am quite historically curious. I mean, I like reading and analysing what people got right or wrong and think about their ideas. There aren’t always reliable
data to compare ideas to, but there is a reliable theory - PCT. And it’s not just Powers - there are contributions from Runkel, Ford, Marken, Forrsell, McLelland, Carrey and many others.
Stick to your guns, Adam. Fortunately, you don’t need to persuade Rick that you are right in order to pursue things your own way.
I agree with what you’re saying. I think the crucial part is what exactly benefits the society. More people would gladly pay taxes if they felt the benefit or saw it around them.
You don’t have to make claims like that. Put them in the form of questions, and then try to think of how to use experiments and models to find the answers. If you start out thinking you know the answers already, you will overlook ways to advance the theory.
Will people gladly pay taxes if they feel or see the benefit? I think we can anticipate the result we would get if we actually tried to answer that question empirically rather than just asserting an answer. As with most generalizations about what “people”
will do, the most probable answer is “Some will and some won’t.” That won’t tell you anything of theoretical interest, because while your theory is supported by what some of the people do, it is contradicted by what the rest of them do so it can’t be correct.
I realize that this is a novel way of portraying statistical results, but it’s the way I see it.
A better question to ask is “What will happen, theoretically, if some people pay taxes gladly on seeing what they are used for, and the rest do not?” That clearly calls for a model in which there are tax payers and tax resisters and some kind of economic structure
in which all this takes place. The model can be refined until it produces some sort of behavior that we can recognize in the real system. Then by looking at the model’s organization we can come to understand some of the dynamics of the real economy with different
kinds of people in it.
Martin Lewitt (2011 Apr 02 0032 MDT) asks “Has PCT even reached the level of generating supply and demand curves yet?” The answer is yes, but perhaps Martin missed (or dismissed) the posts in which I discussed this. I’ll review the idea briefly, perhaps saying
it better this time.
Consider a population in which each person has a collection of quantitative reference settings for obtaining an array of different goods, reference levels for some of them, like money, being set high and for others, like toxic industrial waste, set low. Lots
of money, zero toxic industrial waste.
Of course there will be some with different reference levels for the same things. Some people will see acquiring lots of industrial waste as an opportunity to do good, or a chance to make money by extracting valuable elements. Some will see money as disgusting
and harmful, and try to get along with as little of it as possible. Some will hate working so much that they would prefer to do without some goods and services in order to need less money. Examples of these different points of view abound.
For any good, therefore, we will find that there is a distribution of reference levels in the population. For any one person, as the amount of a given good obtained increases toward the reference level, the error signal will decrease and the amount of effort
put forth to obtain more of the good will decrease, going to zero when the amount obtained matches the reference level. In a number of cases, acquiring more of the good than the reference amount also generates an error, like ordering a bunch of bananas and
receiving a notice that a freight-car-load of bananas belonging to you, ripe, is ready for delivery and where in your driveway do you want them dumped? This is not an unknown situation for players of the futures market.
For most goods including money, the measure of effort is the amount that must be paid for the good, because for almost everyone the amount paid for the good per day, week, or month must be replaced by hours of work (a direct relationship in the case of money).
Putting all these factors together in a PCT model is now a fairly obvious process, with some forseeable results, some unexpected ones.
For example, you will notice that as the amount of a good increases toward a reference level, the effort expended to obtain it decreases. This contradicts the Keynesian myth that supply drives demand. However, it does provide one element in the law of supply
and demand. As the price of something decreases, the current amount of effort expended to obtain it decreases, because if the same expenditure were maintained, the error would decrease too much to maintain the same level of effort. Of course that is contrary
to the usual law of supply and demand, but we’re talking about individuals, not the population. Over the population, the opposite relationship will be observed.
I wrote about this in Wayne Hershberger’s book, “Volitional action: conation and control.” I showed a plot of 4000 simulated control systems with a randomly distributed range of reference levels for a good. In the subpopulation of people with the same reference
level for the good, the amount of effort put out showed a steep decrease as the amount of good obtained approached the reference level – normal control-system behavior. However, over the population, subpopulations with a higher reference level for the good
put out more effort at a given price-level than people with a lower reference level. The result is that the whole population showed an
increase in effort as the price was lowered, the opposite of what happened with every individual in the population. According to PCT, therefore, the law of supply and demand is strictly a population characteristic and does not necessarily describe the behavior of any individual. PCT does let us generate the right law of supply and demand – but at the same time, it shows
that it does not mean what is commonly assumed, that an individual will buy more and more, indefinitely, as the price of a good is lowered more and more. The PCT model suggests that no individual works that way; people buy as much as they want or need and
will make no effort to get more than that (except in pathological cases such as hoarding). And the properties of the individuals are not simply smaller versions of the properties of the population, contrary to an incorrect assumption that has been maintained
since statistics was invented.
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I think we all understand now that Rick hates Republicans so much that he is willing to say any degrading or hurtful thing he pleases about them, as if he is human and they aren’t. That doesn’t tell us much about Republicans, but OK, message received and understood.
Best,
Bill P.