[From Rick Marken (2011.06.26.1150)]
Adam Matic–
AM:
It looks like positive feedback to me too.
Although I do have a different view on why it’s positive.
Boy is it! Basically you are saying that the “free market” policies that (I believe) are clearly ruining the US economy – the policies that are creating the positive feedback regime – are the one’s that would stop the positive feedback. Indeed, your view is a perfect example of why I believe we are in a positive feedback situation. For 30+ years the US has been adopting more and more “free market” policies like the ones you advocate (lower taxes on corporations and the wealthy, reduced regulation of financial institutions, free trade agreements, etc) – basically dismantling the “New Deal” policies that gave us 40 years of economic stability – and during this time growth has been sluggish, wages stagnant, the national debt growing exponentially, all culminating in a second great depression. And the recommended response to this economic situation by “free market” types has been to make these free market policies even freer: lower top marginal tax rates even further, continue to redistribute income to the top and reduce trade restrictions even further. Isn’t this the definition of insanity; doing the same thing over and over and expecting a better result each time.
First, people who regulate the economy, or try to, can’t perceive the
variables they need to control.
What variables are those? The variables I would like to see controlled are readily perceivable to me, in the unemployment rate (which I would like to see close to 0), the minimum wage rate (which I would like to see at “living”), the ratio of CEO to worker pay (which I would like to see closer to 2.0 that 500). These are all variables that can be easily be perceived by going to the appropriate economic databases.
A government agency should take care of economic interests of
everyone.
I think government agencies have specialized concerns (like heathcare or research). But I agree that the government as a whole (which is just a bunch of people) should take care to make sure that everyone’s economic interests are taken care of.
They don’t have good measures for what is good.
Maybe not. But why should we have measures of the economy at all if the goal is to not regulate the economy? I think your “no regulation” approach to economics requires that governments either not exist at all or, if they do, keep no records of aggregate economic variables. It’s just a waste of money to measure economic variables that you are not going to regulate as a matter of principle.
If each
policy could be evaluated on what it does for everyone that would be
better.
Wait, I thought we weren’t supposed to regulate. Now you’re saying it’s OK if we regulate variables that affect everyone. But that’s what governments – nominally democratic ones, anyway – do already.
t’s very hard for me to understand the “free market” position. Apparently we are supposed to get good results if we don’t regulate. But the fact that you want “good results” suggests that you are regulating (controlling for these “good results”), and your means of control is to reduce economic regulations. But since we’re not supposed to regulate we can’t increase economic regulations if the result of the decease is “not good”. So basically we are supposed to remove economic regulations and hope for the best; if the best doesn’t happen then that’s tough; it should have happened.
Actually, this helps me understand why free market types are uninterested in data. Data is a perception and people who don’t want to regulate don’t need to perceive. All they need is belief! This also helps me understand why religious types are so often attracted to free market ideas; they don’t care much for data either.
Instead, only short-term effects on a small group of people
are evaluated.
I think measures of macroeconomic variables, like GDP and unemployment, that vary over time are taken in order to evaluate long term effects on large groups of people.
For example, if trying to protect US producers of cars, the agency in
charge raises tariffs on all import cars; then it is obvious that US
car producers will sell more cars in the US in the short run. Also,
foreign producers will sell less cars to US consumers. What is not
obvious is that the foreign producers will then have less dollars to
spend in the US. Whatever they have bought before with the money that
cars earned, they can no longer buy. That way the tariffs actually
don’t help the economy in the whole, they slowly destroy exporting;
but do help the car producers for a while.
My guess is that the reduction in foreign demand is more than compensated for by the increase in domestic demand created by employing more American workers. But this is beside the point. Tariffs are varied to regulate demand for products produced in the country imposing the tariffs. If the goal of the tariff is to increase demand for cars produced in the US (bring it to a higher reference level) then there is positive feedback only if increasing the tariff leads to a decrease in demand for US cars. I don’t think that’s what happens.
What makes it a positive loop is that tariffs buy votes, in this case
from car-factory workers and their families.
I see no positive feedback here. If increased tariffs increase demand for domestic products then domestic demand can be brought to a higher reference value by increasing tariffs; there is negative feedback control.
It’s presented as a good thing and sure looks like that.
It does look like a good thing. What is actually happening in the US is quite the opposite; low tariffs are increasing demand for products produced overseas and imported it back in. This works out great for the domestic owners who produce overseas; they make big profits that way; but it works out terribly for domestic workers, who are no longer needed. And since they are no longer employed they can’t afford the re-imported stuff. But that doesn’t matter to the owners since they can make up for the lost domestic demand by selling overseas.
The regulators and policy makers and
don’t need to know the causal relationships between what they do and
what happens in the economy.
I agree. They could just see what has worked before, what works in other countries and what is not working now.
They just need to control for staying in
power, going for votes instead controlling the variables they should
control. A lot of them are professional politicians, democrats and
republicans alike; their interest is to stay in power and that is not
necessarily connected with controlling the state of the economy.
I agree. They stay in power by lying about the effectiveness of their policies, mainly by saying how the policies should work in theory rather than pointing to how they seem to be working out in practice. The Rethuglicans have been far more effective at this than the Democrats, probably because they have an easier message to sell. The Republican message is simple: reducing taxes will spur growth. They justify this lie with Ayn Rand-type myths about super hero entrepreneurs who create businesses and jobs when they are not impeded by all those government taxes and regulations. This is a very appealing myth to many Americans who love the idea of rugged individualism. Indeed, I believe this is the reason that the US is in such a bad positive feedback loop and will ultimately end up as a third world country. Americans have been convinced by a very effective Republican propaganda machine that doubling down on the free market policies that are destroying the economy will actually save it.
There are many other examples of positive feedback where going for
votes hinders economic prosperity, but keeps people in their places. I
believe the cure for returning the economy on it’s feet is educating
people about economy; but that can’t be done until there is a solid
science of economy.
Well, that could take a bit of time, right. I really don’t think we need a solid science of economics before we can fix the economy. The US economy was fixed rather well by progressive , New Deal policies. We know what works and we know what doesn’t. The US Economy worked great from 1940-1975. There was a balanced budget, great infrastructure, great education, low unemployment, good wages, etc. This economy would fixed in a New York minute if 1) top marginal income tax rates went back up to Eisenhower levels (70%) 2) financial regulations were returned to pre-1999 levels 3) there was a huge government investment in upgrading infrastructure, education and research 4) Medicare was made available to everyone 5) tariffs on products produced overseas by US corporations were increased to make such production unprofitable. Oh, and require public funding of elections and reinstate the Fairness policy for people using public airwaves (get rid of Faux News, the Pravda of the Rethuglican party). That should do it!
Best
Rick
···
–
Richard S. Marken PhD
rsmarken@gmail.com
www.mindreadings.com
