Positive Feedback & Economic Regulation (was Re: Popular Cover/Feature Article)

[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

[From Bill Powers (2011.06.26.1605 MDT)]

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.

RM: 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.

BP: Perhaps it would be good to pause and clarify what you mean by
positive feedback. In engineering, positive feedback doesn’t mean
feedback that acts in a direction that increases something, and it
doesn’t mean feedback that is beneficial or helpful or admiring. It just
means feedback effects produced by an error signal that end up making
positive errors more positive and negative errors more negative. Negative
feedback acts in the opposite directions. Other usages of positive and
negative are simply talking about something else.

I have to disagree with Rick about this:

RM: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.

BP: No, we don’t. You say you know and you’re convinced you
know, but you don’t know until you can prove it. You’re associating
improvements in the economy with some policies and worsenings with other
policies on the basis of nothing more than your own memories, opinions,
reading, and prejudices, which is how everybody does it when they reject
the discipline of scientific investigation. So there is no more reason to
believe what you say than to believe what anyone else says who is
reasoning on similar grounds. Arguments not based on scientific
investigation can be settled only with muscles and guns.

There is only one way to say things about the economy that don’t depend
merely on your private preferences. That way begins with putting aside
your personal preferences and prior beliefs and looking for a way to find
the truth. If you don’t want to know the truth more than you want to be
right, you will argue yourself blue or red in the face and have no effect
at all on anything except other people’s tempers.

Best,

Bill P.

[From Rick Marken (2011.06.26.1150)]

Adam Matic--
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.

AM:
Well, yes, that is the fundamental difference in our views. I think
that there were no free market policies implemented. Policies that the
republicans implemented were as against free market as the democrat's
policies. A free market move would be to remove a regulation or an
agency and it has been nothing but increasing regulation. There is
really no difference between republicans and democrats in supporting
the free market - none of them did it.

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.

AM: That does not fit the facts. :slight_smile:
What makes you say that there have been more free market policies?
from what I gather, the number of government agencies, the number of
laws, rules and regulations did nothing but increase.

That, to me, looks like the definition of insanity.

I guess we've learned economic history from different sources.

AM:
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.

AM:
The variables that need to be controlled, but aren't perceived are the
economic growth variables that are currently approximated by GDP, CPI
and similar measures. I agree with the goals you mention, but
obviously, I disagree with how to achieve them.

AM:
A government agency should take care of economic interests of
everyone.

RM: 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.

AM:
That's probably a part of the problem, that there are specialized
agencies that just take care of their own concerns and fail to see how
their moves influence other variables. There might be (there are) a
lot of unseed consequences of any given policy. Every government
agency should know how their move will influence the whole of the
economy before implementing it; or at least be concered about how it
did influence the economy as a whole after implementing.

AM: They don't have good measures for what is good.

RM: 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.

AM:
Good point. For starters, bad measures should be discarded simply
because they are flawed. Variables should be measured to show the
effect of policies (such as a removal of government regulation). They
should be measured to give voters a reason to vote for or against the
government on the next election.

AM: If each
policy could be evaluated on what it does for everyone that would be
better.

RM: 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.

AM:
The main point is that _all_ effects of a policy (doesn't matter if
it's a removal of a rule or a new rule) should be evaluated. Like the
effect of an increase or decrease in tariffs on exports, on
employment, prices and so on, not just on imports. Or the removal of
tariffs.
I actually think it's close to impossible to do that because there are
just too many variables changing at the same time. That's why a good
theory is needed.

RM: It'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.

AM:
If we count things like protecting every ones private property as a
regulation, that it's a regulation that a government should do. If
someone steals, kills or does something to hurt someone else, the
government settles the matter giving no privileges to anyone.

In a way, yes, it's just like you say - remove regulations and hope
for the best. Because that did work for the best in other countries.
The mechanism is described by the Austrian economic school and it
makes sense to me. A few Austrian theorists, for example, have
predicted the current crisis:
http://www.youtube.com/watch?v=2I0QN-FYkpw (Peter Schiff) and
http://www.youtube.com/watch?v=mnuoHx9BINc (Ron Paul)

RM: 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.

AM:
I disagree with this. All the data I've seen fits the predictions and
explanations made by free market theorists. The problem most free
market theorists have with some data is that (they believe) it is
flawed - like the GDP. They are very much interested in other data,
like the prices of various goods and services.

AM: Instead, only short-term effects on a small group of people
are evaluated.

RM: 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.

AM: Well, yes, but there are two problems - the measures are not
reliable; and there are too many things that influence them.

RM: 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.

AM:
The positive feedback is in the global economic growth - with more
tariffs, there is less growth. But since there are more votes for
similar things, simply more and more tariffs get approved. That
hinders growth a little more.
I hope the models will show that, just as real life examples show -
isolationist country's economies don't grow as much as free trade
economies do. Together with employment. And there is a good reason for
that.

RM: I agree. They could just see what has worked before, what works in other
countries and what is not working now.

AM: Well, then, the core of disagreement is economic history?
Free market economies are, for example, early US (big growth) or
"Asian tigers" (big growth) and all socialist economies failed - no
exception.
A free market such as the computer industry flourishes, while a
regulated market such as education and healthcare keep increasing in
cost and decreasing in quality.

RM: 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.

AM:
I agree with much of what you said, except it's in reverse. No free
market policies have been implemented, just more regulation presented
as "free market" and then blamed for the failure.
Like the health care - it's a heavily regulated market. Lots of
agencies, laws and regulation. Lots of government funding - there is
no government funding of corporations in a free market. Basically no
competition because of granted monopolies. Or the banking system -
also heavily regulated.
Do we agree that monopolies aren't very good for the economy?

Also, there are differences between Keynesian theories and Austrian
theories. Both republicans and democrats used Keynesian economies. It
is taught in universities. That's why I say a solid science of
economics is needed.

Since it's history we disagree about, perhaps you might be interested
in and alternative explanation of the New Deal:
http://mises.org/daily/3234
There are downloadable books that go to the topic in more detail.

Adam

[From Adam Matic 2011.06.26.0050 GMT+1]

[From Bill Powers (2011.06.26.1605 MDT)]
BP: Perhaps it would be good to pause and clarify what you mean by positive
feedback. In engineering, positive feedback doesn't mean feedback that acts
in a direction that increases something, and it doesn't mean feedback that
is beneficial or helpful or admiring. It just means feedback effects
produced by an error signal that end up making positive errors more positive
and negative errors more negative. Negative feedback acts in the opposite
directions. Other usages of positive and negative are simply talking about
something else.

AM:
Does this qualify as a positive feedback loop:
"decreased growth (error) calls for more regulation; which decreases
growth even more, which calls for even more regulation"?
(given that more regulation really does decrease growth).

Adam

[From Adam Matic]

To Rick Marken:
What I'm most confused about is that, according to B:CP, "you can't
control other people". If you try to, there is conflict.

How is it that you think the government should try to do that if we
know that it can't?

Adam

[From Bill Powers (2011.06.26.1900 MDT)
]

Adam Matic 2011.06.26.0050 GMT+1 --

AM:
Does this qualify as a positive feedback loop:
"decreased growth (error) calls for more regulation; which decreases
growth even more, which calls for even more regulation"?
(given that more regulation really does decrease growth).

Given that, yes. Caqn you show that it does? Or just that it ought to ...

Another question. Is growth always a good thing? Ask an oncologist.

Best,

Bill P.

[From Bill Powers (2011.06.26.1905 MDT)]

Adam Matic]

To Rick Marken:
What I'm most confused about is that, according to B:CP, "you can't
control other people". If you try to, there is conflict.

BP: You can control other people's behavior even against their will if you have enough strength and resources at your disposal. What B:CP was trying to do was show the probable results if you do it, or try to. I wish that the fact that doing something has bad results were enough to keep people from doing it.

AM: How is it that you think the government should try to do that if we
know that it can't?

BP: Aren't there any conditions under which it's a good idea for people serving in a government to control someone's behavior, regardless of what it takes to do that?

Best,

Bill P.

[From Rick Marken (2011.06.26.2120)]

Bill Powers (2011.06.26.1605 MDT)–

I have to disagree with Rick about this:

RM: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.
BP: No, we don’t. You say you know and you’re convinced you
know, but you don’t know until you can prove it. You’re associating
improvements in the economy with some policies and worsenings with other
policies on the basis of nothing more than your own memories, opinions,
reading, and prejudices, which is how everybody does it when they reject
the discipline of scientific investigation. So there is no more reason to
believe what you say than to believe what anyone else says who is
reasoning on similar grounds. Arguments not based on scientific
investigation can be settled only with muscles and guns.

There is only one way to say things about the economy that don’t depend
merely on your private preferences. That way begins with putting aside
your personal preferences and prior beliefs and looking for a way to find
the truth. If you don’t want to know the truth more than you want to be
right, you will argue yourself blue or red in the face and have no effect
at all on anything except other people’s tempers.

Well, I have to disagree with you on that. If you really believe that then there is really no reason to care at all about what policies are implemented until you have your basic science of economics worked out. Until then you can go in your room and ignore what policies are implemented because it doesn’t matter.

I think it does matter and I think the evidence suggests that it does. E. coli doesn’t know why a particular tumble makes things better and another makes things worse. But it knows when things are getting better or worse and if things are betting better it keeps moving in the same direction and if things getting worse it tumbles. I can tell when things are getting better in the economy and when things are getting worse (at the aggregate level). And things have been getting worse at the aggregate level for at least the last 10 years while we have been traveling in a particular direction: the direction of lower and less progressive taxation, less regulation, weakened unions, etc. So I think it’s time to tumble into a new direction.

Unlike E. coli I don’t have to select a new direction at random because I know a lot about the direction in which we’re going and I remember the direction we were going when things were going well. So I think it would be wise to tumble to a new direction that is close to the direction we were going in when things were going well. That new direction might not work, and if not we will have to try another one. But the direction we’ve been going in is clearly the wrong one (that is, if you want to have low unemployment with everyone making at least a living wage).

We (like E. coli) might not know why (or whether) a particular policy works, but we know when things are going poorly and when they are we know that, to correct the error, we don’t steam ahead faster in the same direction but, rather, we tumble.

I am certainly not against developing a good, scientific understanding of the economy. But while I am a participant in that economy – an economy that affects the quality of life of my loved ones – I’ll apply what I know of the E. coli method of control (as well as some reasonably well informed guesses about the best new direction in which to go) and fight (verbally) as best as I can those who would keep us moving, at even higher speed, in what is clearly the wrong direction.

Scientific understanding is great but you don’t need a meteorologist to know which way the wind blows.

Best

Rick

···


Richard S. Marken PhD
rsmarken@gmail.com

www.mindreadings.com

[From Rick Marken (2011.06.26.2150)]

Well, yes, that is the fundamental difference in our views. I think

that there were no free market policies implemented. Policies that the

republicans implemented were as against free market as the democrat’s

policies.

Maybe you could give me an example of a free market policy.

A free market move would be to remove a regulation or an

agency and it has been nothing but increasing regulation.

Do you know what the Glass-Stegall Act was? Do you know it was repealed in 1999 (the repeal was passed by a Rethuglican Congress but signed by a Democrat). Does that count as an increase in regulation?

AM: That does not fit the facts. :slight_smile:

What makes you say that there have been more free market policies?

Repeal of Glass-Stegall is one. Reduction of taxes is another. Free trade agreements are another.

What do you think are free market policies? What country has them so I can see an example of how well they work?

In a way, yes, it’s just like you say - remove regulations and hope

for the best. Because that did work for the best in other countries.

Example please.

AM:

I disagree with this. All the data I’ve seen fits the predictions and

explanations made by free market theorists.

Really? Do free market theorists predict a positive correlation between top marginal tax rate and growth and a negative correlation between top marginal tax rate and unemployment? That’s what the data shows.

The problem most free

market theorists have with some data is that (they believe) it is

flawed - like the GDP. They are very much interested in other data,

like the prices of various goods and services.

Yes, I think it’s always wise to pick just the data that fits your theory;-)

AM: Well, yes, but there are two problems - the measures are not

reliable; and there are too many things that influence them.

OK, so you can’t tell anything from the data. So how do you know your theory is right?

AM:

The positive feedback is in the global economic growth - with more

tariffs, there is less growth.

Data please.

RM: I agree. They could just see what has worked before, what works in other
countries and what is not working now.

AM: Well, then, the core of disagreement is economic history?

Free market economies are, for example, early US (big growth) or

“Asian tigers” (big growth) and all socialist economies failed - no

exception.

Really? No exceptions? Not Norway? Sweden? Denmark?

Since it’s history we disagree about, perhaps you might be interested

in and alternative explanation of the New Deal:

http://mises.org/daily/3234

There are downloadable books that go to the topic in more detail

No, it’s data we disagree about. Actually, it’s what counts as data that we disagree about. And I doubt that there is anything we can do about it.

Best

Rick

···

On Sun, Jun 26, 2011 at 3:46 PM, Adam Matić adam.matic@gmail.com wrote:


Richard S. Marken PhD
rsmarken@gmail.com
www.mindreadings.com

[From Bill Powers (2011.06.27.0310 MDT)]

Rick Marken (2011.06.26.2120) --

RM: Well, I have to disagree with you on that. If you really believe that then there is really no reason to care at all about what policies are implemented until you have your basic science of economics worked out. Until then you can go in your room and ignore what policies are implemented because it doesn't matter.

BP: Of course it matters, but you don't know what it is about the policy that matters and you don't know why it matters. All you know is that things are worse AND a certain policy that you don't like is being carried out. You're convinced that the policy is what is making things worse, but you can't demonstrate that it is doing that or show a model that makes it clear how it does that. So you don't have any useful idea about how to change anything.

...

RM: Unlike E. coli I don't have to select a new direction at random because I know a lot about the direction in which we're going and I remember the direction we were going when things were going well.

BP: I don't believe you know a lot about the direction in which we're going and I don't believe that the direction you remember we were going had anything to do with why things were going well. Also, I don't really believe that repeating the same behavior will produce the same result as before. So now what do you do? This is where you end up without science. You yell at Rethuglicans and they yell at Democrazies, and everyone feels very clever and right, and nothing useful happens.

RM: So I think it would be wise to tumble to a new direction that is close to the direction we were going in when things were going well. That new direction might not work, and if not we will have to try another one.

Yes, exactly. And another one and another one until finally we find things improving slowly and stop making random changes for a while. When you don't understand how anything works, that's about the best you can do. Sometimes it actually succeeds for a while, but then things change and start falling apart again and you have no idea why, so you have to start the trial-and-error bit again. Of course you're making up explanations all the time to show why you were proven right because things got a little better, but they're just a sort of musical accompaniment to the tumbles. They have nothing to do with what's really going on.

That brings us up to about the 16th century, before Galileo when this was basically how everyone did everything.

RM: I am certainly not against developing a good, scientific understanding of the economy.

BP: For those who insist on such frills? Of course the real thinkers don't need such crutches -- they can see perfectly clearly what the truth is without going through all that rigamarole. All you have to do is look at those global-warming kooks to see how little science adds to our understanding. If you just open your eyes you will see why a whiff of unemployment helps to keep the economy from running amok, and why goody-goody regulations about silly things like guards over saw blades just throttle down growth. Wait a minute. I seem to have lost track of which side you're on.

RM: Scientific understanding is great but you don't need a meteorologist to know which way the wind blows.

BP: OK, I 've got it right now. That's the spirit. Proxmire would be proud of you. Who needs all that elitist gobbledegook? Heck, those scientists can't even come right out and say they're sure of anything, a bunch of wimps and doubletalkers. Think they're better than everybody else just because their daddies sent them to some fancy school. Who needs them?

Best,

Bill P.

[From Rick Marken (2011.06.26.2150)]
Maybe you could give me an example of a free market policy.

AM:
Sure. Removing the Department of Education or the Department of
Agriculture or the FED or, well, any other from this list:
http://www.usa.gov/Agencies/Federal/All_Agencies/index.shtml
That would be a free market policy.

RM: Do you know what the Glass-Stegall Act was? Do you know it was repealed in
1999 (the repeal was passed by a Rethuglican Congress but signed by a
Democrat). Does that count as an increase in regulation?

Right, that's a decrease in regulation. That's what I'm talking about,
but it certainly isn't enough to make a difference.
You certainly know that those agencies in that list didn't exist
always and when they formed, they started using money from the budget.
So, not only the number of regulations increased, but also the money
they collectively needed to function - the tax burden on the people
increased.

RM: What do you think are free market policies?� What country has them so I can
see an example of how well they work?

AM: In a way, yes, it's just like you say - remove regulations and hope
for the best. Because that did work for the best in other countries.

RM: Example please.

Well, perhaps the best examples of how free market is better than a
controlled market are states similar in starting conditions but one
takes socialism or similar forms of non-free markets, and the other a
relatively free market. Take South vs North Korea, West vs East
Germany, UAE vs Iraq or Iran. Slovenia, Poland, Slovakia vs Croatia,
Serbia, Bosnia. Examples of a free market are also Hong Kong, Taiwan,
Singapore.. China was socialist and in 1979 they made free market
reforms which started generating growth. India did it in 1991, growing
fast.
Counter examples of socialist countries going bankrupt are Cuba,
Yugoslavia, Lybia, Egypt, Zimbabwe...

As I said there are no exceptions, since Scandinavian countries don't
have socialism to a large extent. Scandinavian countries are probably
less socialistic than the US. Even China is less socialistic than the
US in some areas. By "socialistic" I mean the extent of public
ownership and control vs private ownership and control.
Here is list of articles about the myth of Scandinavian socialist
success: http://mises.org/Community/forums/p/5616/76363.aspx

AM:
I disagree with this. All the data I've seen fits the predictions and
explanations made by free market theorists.

RM: Really? Do free market theorists predict a positive correlation between top
marginal tax rate and growth and a negative correlation between top marginal
tax rate and unemployment? That's what the data shows.

AM:
As a matter of fact - no - free market theorists do not predict
correlations in the real world. :smiley:
I know that sounds silly, but I'm only half-joking. To have a
correlation between any two variables in an economy _mean_ anything,
all the other variables should be kept equal and that is impossible in
reality. It's possible in imagination, but then the imagination must
be based on a solid model and logic. It is also possible, as I plan to
show, to do that in a computer simulation.

Basically, saying that lower taxes cause growth (like some republicans
say), is like saying that eliminating bread from your diet will cause
you to lose weight. Sure, if you don't replace the bread with
potatoes, if the calories go down, and if you don't stop jogging,
you'll loose weight.

When the government is hungry, they don't have to take taxes. They can
print their own money or they can borrow money from other countries.
They can even decrease taxes and increase spending. It's perverted.
Correlations don't really mean much in such conditions. We need to
know the mechanism to make data have any meaning.

AM: The problem most free
market theorists have with some data is that (they believe) it is
flawed - like the GDP. They are very much interested in other data,
like the prices of various goods and services.

RM: Yes, I think it's always wise to pick just the data that fits your theory;-)

AM: Well, it's also wise to pick a measure of growth ambiguously
linked to inflation, then cause inflation and say - wow, look at us,
we're growing. I actually don't think that was planned, but simply
happened that way and seemed to make sense, but it's still wrong. In
US, the GDP has been constantly growing, even in the last 10 years.
That makes no sense.

I don't think data is being cherry picked. Discarding some econometric
data is like discarding research results from psychology - the way
they are measured just makes them irrelevant.

AM: Well, yes, but there are two problems - the measures are not
reliable; and there are too many things that influence them.

OK, so you can't tell anything from the data. So how do you know your theory
is right?

AM:
Can't say much from GDP, but there is certainly other data that can be
used. Like wages, prices of goods, employment.. I can't say I _know_
the theory is right, but the basics make sense to me and I see
examples of free markets doing good and controlled markets doing bad.

RM: No, it's data we disagree about.� Actually, it's what counts as data that we
disagree about.� And I doubt that there is anything we can do about it.

AM:
In this book you can find sound data that shows clearly that free
markets are superior than controlled markets in a number of ways.
http://mises.org/books/capitalism_kelly.pdf

You'll probably cringe when you see the title :smiley: Still, it's not
republican propaganda. I hope you'll see that. There is as much
against republicans as against democrats.

Best, Adam

[From Adam Matic 2011.07 1400 gmt+1]

Bill Powers (2011.06.26.1900 MDT)

AM:
Does this qualify as a positive feedback loop:
"decreased growth (error) calls for more regulation; which decreases
growth even more, which calls for even more regulation"?
(given that more regulation really does decrease growth).

BP: Given that, yes. Caqn you show that it does? Or just that it ought to ...

AM:
I'm really not sure. What would qualify as a proof that regulation
decreases growth?

BP: Another question. Is growth always a good thing? Ask an oncologist.

AM:
Right.. I'd vote for the growth of government to be a bad thing :slight_smile:
Growth of the military sector is, in my opinion, especially dangerous.
Growth of a minority of people at the cost of the majority is also a
bad thing in my book, but so is growth of majority at the cost of
minority (such as taxing the rich more than taxing the poor, in
relative terms). Growth is good when people can satisfy their needs
with less work. It's good when there are less poor people. When
education gets cheaper and better, when healthcare gets cheaper and
better. That's what I would vote for.

Best, Adam

[From Bill Powers (2011.06.27.1010 MDT)]

AM: What would qualify as a proof that regulation decreases growth?

The most direct way would be to look at the historical record and see how often the addition of a new regulation was followed by a decrease in the rate of change of GNP. If there is a negative correlation, you have shown that in fact regulations decrease growth rate.

Another way is to construct a working model and see if the model behaves like that. If it does, that will tell you that if the model is right, increased regulations should cause a decrease in growth rate. Then, of course, you have to go to the previous method and show that the model predicts correctly.

> BP: Another question. Is growth always a good thing? Ask an oncologist.

AM:
Right.. I'd vote for the growth of government to be a bad thing :slight_smile:
Growth of the military sector is, in my opinion, especially dangerous.
Growth of a minority of people at the cost of the majority is also a
bad thing in my book, but so is growth of majority at the cost of
minority (such as taxing the rich more than taxing the poor, in
relative terms). Growth is good when people can satisfy their needs
with less work. It's good when there are less poor people. When
education gets cheaper and better, when healthcare gets cheaper and
better. That's what I would vote for.

Fine. The next step is to find out whether these statements are supported by observations. How do you determine whether any of these statements is true? How do you measure whether the result is good or bad?

Suppose consumption is growing. It is always good for consumption (per capita) to increase?

Best,

Bill P.

[From Rick Marken (2011.06.27.0920)]

Bill Powers (2011.06.27.0310 MDT)–

Rick Marken (2011.06.26.2120) –

RM: Well, I have to disagree with you on that. If you really believe that then there is really no reason to care at all about what policies are implemented until you have your basic science of economics worked out. Until then you can go in your room and ignore what policies are implemented because it doesn’t matter.

BP: Of course it matters, but you don’t know what it is about the policy that matters and you don’t know why it matters.

I didn’t say I did know why it matters. In fact, I specifically said I didn’t.

All you know is that things are worse AND a certain policy that you don’t like is being carried out.

I don’t necessarily dislike any particular policy, even if I think it’s wrong.

You’re convinced that the policy is what is making things worse, but you can’t demonstrate that it is doing that or show a model that makes it clear how it does that.

I don’t know if any particular policy is for sure making things worse or
not. All I know is that things are not going well and that a policy change is needed. But I think there is plenty of evidence that certain policies produce (what I consider) better results than others.

So you don’t have any useful idea about how to change anything.

I think this is beyond ridiculous. There is plenty of evidence that certain policies produce better results than others. For example, there is overwhelming evidence that a change to some form of universal, public heath insurance system will reduce the cost and improve the outcomes of medical treatment. We may not know why it works (though we have a pretty good idea), but we know it works. People have had a lot of useful ideas about how to change things before they knew the scientific (theoretical) basis for why the change was effective. Lister, for example, promoted sterile surgery before he know why sterilization was effective against infection.

BP: I don’t believe you know a lot about the direction in which we’re going and I don’t believe that the direction you remember we were going had anything to do with why things were going well. Also, I don’t really believe that repeating the same behavior will produce the same result as before. So now what do you do? This is where you end up without science. You yell at Rethuglicans and they yell at Democrazies, and everyone feels very clever and right, and nothing useful happens.

Well, I don’t see it that way. I still believe that progressive policy change has manifestly improved the societies where it has occurred. There were always those who have opposed these changes for various reasons. It’s been a two step forward, one back process; if we had a better scientific understanding of things it could be just two steps forward all the way. But until we get that understanding I’m going to work as best as I can to prevent that one step back (two steps back in the case of the US today;-)

RM: So I think it would be wise to tumble to a new direction that is close to the direction we were going in when things were going well. That new direction might not work, and if not we will have to try another one.

Yes, exactly. And another one and another one until finally we find things improving slowly and stop making random changes for a while. When you don’t understand how anything works, that’s about the best you can do.

And that’s what I want to do; the best I can.

RM: I am certainly not against developing a good, scientific understanding of the economy.

BP: For those who insist on such frills? Of course the real thinkers don’t need such crutches – they can see perfectly clearly what the truth is without going through all that rigamarole.

This is extremely rude. Are you saying that I believe that I don’t need such frills as a good scientific understanding of the economy. What kind of shit is that?

RM: Scientific understanding is great but you don’t need a meteorologist to know which way the wind blows.

BP: OK, I 've got it right now. That’s the spirit. Proxmire would be proud of you.

Oh, come on! What I meant was that, even without a correct model of the economy, we can act (using an intelligent version of the E. coli technique) to control economic variables that we can perceive without the aid of scientific theory (a meteorologist). I think our disagreement isn’t about the value of science; it’s about what you do while the science is still in its infancy. You seem to be saying that we should just go out and build models (but you never say how these models will be tested). I say we should look at how things are going (perceive the relevant economic variables), look at the data to see how policies might affect these variables and then chose new policy directions (if that seems necessary) that make sense based on the data.

Who needs all that elitist gobbledegook? Heck, those scientists can’t even come right out and say they’re sure of anything, a bunch of wimps and doubletalkers. Think they’re better than everybody else just because their daddies sent them to some fancy school. Who needs them?

Well, since I’ve been producing that elitist gobbledegook for years, I like to think that someone needs me;-)

Best

Rick

···


Richard S. Marken PhD
rsmarken@gmail.com

www.mindreadings.com

[From Bill Powers (2011.05.27.1032 MDT)]

From Rick Marken (2011.06.27.0920) –

BP: Who needs all that elitist gobbledegook? Heck, those scientists
can’t even come right out and say they’re sure of anything, a bunch of
wimps and doubletalkers. Think they’re better than everybody else just
because their daddies sent them to some fancy school. Who needs
them?

RM: Well, since I’ve been producing that elitist gobbledegook for years,
I like to think that someone needs me;-)

What I was trying to point out in my heavy-handed way was that your
arguments sound just like the arguments offered by the people whose
policies you oppose. The words are different, of course, but the
methodology is the same. Just keep pushing to get everyone to do what is
obviously right and what obviously works and everything will get better.
The only minor disagreements are about what is obviously right and what
obviously works. See Martin Taylor’s excellent post today
(2011.06.26.19.48).

Science is the only possible arbiter of such disagreements. Of course to
use science that way, people have to agree to subordinate their private
beliefs to the results of scientific investigation done under agreed-upon
rules and interpreted with shared reasoning. If people on both sides of
an argument about the economy refuse to do that, no humane resolution of
the conflict is possible. Each side will work vigorously to have its
obviously right and effective strategy followed and to knock down the
other side. If one side becomes impatient, the conflict will escalate as
the other side rises to the increased challenge. Only two outcomes are
possible: prolonged trench warfare or total defeat of one side, with
provisions to prevent resurgence. Resolution of the conflict can be
achieved that way only through genocide.

There is, I maintain, no more effective way to use your time and effort
to cure the economy than to design and carry out a scientific
investigation of it. If you don’t do that, you will still be arguing and
fighting long after the scientific approach, slow though it may be, would
have succeeded.

Best,

Bill P.

[From Rick Marken (2011.06.27.1245)]

Bill Powers (2011.05.27.1032 MDT)–

What I was trying to point out in my heavy-handed way was that your
arguments sound just like the arguments offered by the people whose
policies you oppose.

I don’t think so (of course;-). My arguments are based on actual data. When I say that raising top marginal tax rates is likely to not only reduce the deficit but reduce unemployment and increase growth, I am saying this based on actual observed relationships between the variables involved. The people I oppose say that raising taxes will decrease growth and revenue but they present no data, because the data shows the opposite; all they have are theoretical arguments about what should happen.

Apparently you endorse my empirical approach because (to my surprise) I just saw you post this:

Bill Powers (2011.06.27.1010 MDT)–

AM: What would qualify as a proof that regulation decreases growth?

BP: The most direct way would be to look at the historical record and see how often the addition of a new regulation was followed by a decrease in
the rate of change of GNP. If there is a negative correlation, you have
shown that in fact regulations decrease growth rate.

This is exactly what I’ve done with taxes, rate of change in GNP, unemployment rate, etc. The arguments offered by the people whose policies I oppose are simply lies. Paul Krugman, who also looks at data and, therefore, opposes the same policies I oppose, has noticed the same thing. So while my arguments may sound like those of the people whose policies I oppose, they are actually quite different. They are based on facts, not fantasy.

Best

Rick

···

The words are different, of course, but the
methodology is the same. Just keep pushing to get everyone to do what is
obviously right and what obviously works and everything will get better.
The only minor disagreements are about what is obviously right and what
obviously works. See Martin Taylor’s excellent post today
(2011.06.26.19.48).

Science is the only possible arbiter of such disagreements. Of course to
use science that way, people have to agree to subordinate their private
beliefs to the results of scientific investigation done under agreed-upon
rules and interpreted with shared reasoning. If people on both sides of
an argument about the economy refuse to do that, no humane resolution of
the conflict is possible. Each side will work vigorously to have its
obviously right and effective strategy followed and to knock down the
other side. If one side becomes impatient, the conflict will escalate as
the other side rises to the increased challenge. Only two outcomes are
possible: prolonged trench warfare or total defeat of one side, with
provisions to prevent resurgence. Resolution of the conflict can be
achieved that way only through genocide.

There is, I maintain, no more effective way to use your time and effort
to cure the economy than to design and carry out a scientific
investigation of it. If you don’t do that, you will still be arguing and
fighting long after the scientific approach, slow though it may be, would
have succeeded.

Best,

Bill P.


Richard S. Marken PhD
rsmarken@gmail.com
www.mindreadings.com

[From Adam Matic 2011.6.27 2205gmt+1]

Bill Powers (2011.06.27.1010 MDT)

AM: What would qualify as a proof that regulation decreases growth?

BP: The most direct way would be to look at the historical record and see how
often the addition of a new regulation was followed by a decrease in the
rate of change of GNP. If there is a negative correlation, you have shown
that in fact regulations decrease growth rate.

AM:
That would be easy if there were no things like inflation to care
about. Or things like the end of war. Or things like other regulations
that confound correlations.

BP: Another way is to construct a working model and see if the model behaves
like that. If it does, that will tell you that if the model is right,
increased regulations should cause a decrease in growth rate. Then, of
course, you have to go to the previous method and show that the model
predicts correctly.

AM:
Oh, I'll get to that eventualy.

> BP: Another question. Is growth always a good thing? Ask an oncologist.

AM:
Right.. I'd vote for the growth of government to be a bad thing :slight_smile:
Growth of the military sector is, in my opinion, especially dangerous.
Growth of a minority of people at the cost of the majority is also a
bad thing in my book, but so is growth of majority at the cost of
minority (such as taxing the rich more than taxing the poor, in
relative terms). Growth is good when people can satisfy their needs
with less work. It's good when there are less poor people. When
education gets cheaper and better, when healthcare gets cheaper and
better. That's what I would vote for.

Fine. The next step is to find out whether these statements are supported by
observations. How do you determine whether any of these statements is true?
How do you measure whether the result is good or bad?

Suppose consumption is growing. It is always good for consumption (per
capita) to increase?

AM:
I'm not concened with consumption, I don't see why that would be a
relevant measure. What is relevant are prices and wages. In a free
market, it certanly is observed, prices fall, quality rises. Wages
rise to. I've mentioned the computer industry - since it began, there
was growth. So, measuring how good is something could be only done if
"good" is defined up front.

Best
Adam

[From Adam Matic 2011.07.27 2220 gmt +1]

[From Rick Marken (2011.06.27.1245)]

I don't think so (of course;-). My arguments are based on actual data. When
I say that raising top marginal tax rates is likely to not only reduce the
deficit but reduce unemployment and increase growth, I am saying this based
on actual observed relationships between the variables involved. The people
I oppose say that raising taxes will decrease growth and revenue but they
present no data, because the data shows the opposite; all they have are
theoretical arguments about what _should_ happen.

AM:

So you count correlation as causation? Is that what you're saying? So
what if Krugman does it?

I think it's more important to understand the mechanism than to rely
on correlations to explain everything. How exactly do taxes influence
the economy?

Best
Adam

[From Rick Marken (2011.06.27.1350)]

Adam Matic (2011.07.27 2220 gmt +1)

Rick Marken (2011.06.27.1245)–

I don’t think so (of course;-). My arguments are based on actual data. When

I say that raising top marginal tax rates is likely to not only reduce the

deficit but reduce unemployment and increase growth, I am saying this based

on actual observed relationships between the variables involved. The people

I oppose say that raising taxes will decrease growth and revenue but they

present no data, because the data shows the opposite; all they have are

theoretical arguments about what should happen.

AM:

So you count correlation as causation? Is that what you’re saying?

No, I count it as a measure of the degree (and sign) of linear relationship between two variables. Determining causation is a whole different ballgame, which depends on having a model that explains the observed correlations (or lack thereof), as discussed in my recently published paper:

Marken, R. S. and Horth, B. (2011) When Causality
Does Not Imply Correlation: More Spadework at the Foundations of Scientific
Psychology, Psychological Reports,
108, 1-12

Order your copy today! :wink:

I think it’s more important to understand the mechanism than to rely

on correlations to explain everything.

Correlations are not an explanation; they are a description of an observed relationship. You have to start with observation before you can start explaining. The explanation would be a model of the economy that produces that observed relationship.

How exactly do taxes influence the economy?

Answering that requires a model. But whatever model you come up with, it would have to behave like what is observed. And what is observed is that that there is a positive correlation between top marginal tax rate and growth and a negative correlation between top marginal tax rate and unemployment. C’est la vie.

Best

Rick

···


Richard S. Marken PhD
rsmarken@gmail.com
www.mindreadings.com

[From Rick Marken (2011.06.27.1350)]

Adam Matic (2011.07.27 2220 gmt +1)

> Rick Marken (2011.06.27.1245)--
>
> I don't think so (of course;-). My arguments are based on actual data.
> When
> I say that raising top marginal tax rates is likely to not only reduce
> the
> deficit but reduce unemployment and increase growth, I am saying this
> based
> on actual observed relationships between the variables involved. The
> people
> I oppose say that raising taxes will decrease growth and revenue but
> they
> present no data, because the data shows the opposite; all they have are
> theoretical arguments about what _should_ happen.

AM:

So you count correlation as causation? Is that what you're saying?

No, I count it as a measure of the degree (and sign) of linear relationship
between two variables. Determining causation is a whole different ballgame,
which depends on having a model that explains the observed correlations (or
lack thereof), as discussed in my recently published paper:

AM:
Well, than I'm confused. You said "When I say that raising top
marginal tax rates is likely to not only reduce the deficit but reduce
unemployment and increase growth, I am saying this based on actual
observed relationships between the variables involved."
If you don't imply causation, then there is nothing to base your
proposition on. Relationships could have come for different reasons.

RM: Correlations are not an explanation; they are a description of an observed
relationship. You have to start with observation before you can start
explaining. The explanation would be a model of the economy that produces
that observed relationship.

AM:
Sure, you can start with observations, but things like correlations
can easily lead astray especialy without a guiding model or worse,
with an excepted wrong model. If you don't have a model, then the
correlation says nothing.

How exactly do taxes influence the economy?

RM Answering that requires a model.� But whatever model you come up with, it
would have to behave like what is observed. And what is observed is that
that there is a positive correlation between top marginal tax rate and
growth and a negative correlation between top marginal tax rate and
unemployment.� C'est la vie.

AM: That's easy. I can think of several ways to explain that. None of
them have to be right. After raising taxes, the government spends the
money on employing more public service workers - unemployment goes
down. After raising taxes, the government gives subsidies to some
companies to employ more workers. Unemployment goes down. Together
with raising taxes, the government lowers the minimum wage laws and
more teenagers and immigrants get employed. Or Whatever.

What's your model?

Best, Adam

···

On Mon, Jun 27, 2011 at 10:46 PM, Richard Marken <rsmarken@gmail.com> wrote: