[spam] Re: Economics

[Acree_Michael]

[From Mike Acree (2006.06.22.1148 PDT)]

Bill Powers (2006.06.22.1104 MDT)--

economists are extraordinarily reluctant to look at how things are,

relying almost

completely on abstractions and unproven (indeed,
untestable) theories and assumptions. When someone points out that

according to the

historical record, economic growth is unrelated to capital investment,

the outrage is

palpable, and in fact some economists use that finding to "prove" that

the available

data are unreliable. The same goes for the clear evidence that raising

the prime rate is >normally followed by an increase in inflation.

Present-day economics is more like a religion or a political system

than a science,

certain basic assumptions being so untouchable that they are used as

the basis for

deciding what evidence will be accepted. If the facts are at variance

with theory. the

facts are simply "reinterpreted" to make them come out right --

assuming there is any

reference to them at all.

No real argument from me here. But it's worth bearing in mind that, in
economics as in psychology, the data themselves are sharply contested.
In conventional psychological research, virtually all of the data
consist of averages of random aggregates. PCT rightly rejects these as
meaningless and useless, inasmuch as psychological (and biological)
processes operate in individuals rather than on averages of arbitrary
groups. The very good questions that were raised about the
meaningfulness of psychological measurement itself in the last century
(and 600 years earlier at Oxford and the Sorbonne)were also never really
answered, but just swept under the carpet by the invention of the Likert
scale and similar technologies. The data of economics are similarly
taken to be statistics based on arbitrary aggregates, like national
income, but there are economists who reject such statistics as
meaningless and useless. The observation about the African laborers, on
the other hand, strikes me as important and incontrovertible.

Mike

[Bill_Powers1]

[From Bill Powers (2006.06.22.1700 MDT)]

Mike Acree (2006.06.22.1148 PDT) --

No real argument from me here. But it's worth bearing in mind that, in
economics as in psychology, the data themselves are sharply contested.
In conventional psychological research, virtually all of the data
consist of averages of random aggregates. PCT rightly rejects these as
meaningless and useless, inasmuch as psychological (and biological)
processes operate in individuals rather than on averages of arbitrary
groups.

This is true, but economics is on the interface between individual psychology and mass psychology -- micro and macroeconomics. It offers a place to test the idea of making models of many individuals and then letting them interact, as we do in the "Crowd" program. In the crowd program one of the striking mass behaviors that showed up was the phenomenon of "arcs and rings" in which a bunch of people, each individually seeking proximity to some common person or thing, and each avoiding collisions with obstacles or other people, end up create recognizeable patterns. Nobody controlled those patterns; they simply emerged. It was seeing this that got Clark McPhail excited about using the Crowd demo.

In my economic model, I went about halfway to that method. I postulated that on the producer side, there were managers trying to keep inventory at some reference level, neither higher nor lower, by adjusting prices, and on the consumer side there were individuals with some average reference level for (a) savings and (b) consumption of goods and services. The environmental conditions simply specified that goods were produce by the consumers who were paid a wage, and that others (investors, owners) were paid capital income, and that this money, the part that was not saved, became the producer's income as goods/services were purchased. The model allowed changing worker productivity (goods produced per dollar of wages), hours worked, price per good, and reference levels for several controlled variables. Of course the gains of the control systems could be adjusted, too.

This model tapped only a few of the main variables of importance, but when set free to run, it reacted in what seemed reasonable ways to things like raising and lowering wages, productivity, and targets for inventory and cash reserves. The important thing is it started with concrete interactions of very simple kinds, not abstract ideas like supply and demand. and it had human controllers in it, interacting through the mechanisms of the existing economic system -- trading money for goods, and labor for money, for example. I was on the verge of introducing a system for creating new money by making loans (banks) and bringing in more complex systems with many producers, consumers, and kinds of goods and services. But as you know that whole project bogged down in paranoid acrimony and never got started again.

I guess I'm a bit nostalgic about the days when the model was starting to take shape and showing promising behavior. Maybe some day I or someone else will take up that job again.

Best.

Bill P.

[Richard_Marken2]

[From Rick Marken (2006.06.22.1645)]

Mike Acree (2006.06.22.1148 PDT)--

Bill Powers (2006.06.22.1104 MDT)--

economists are extraordinarily reluctant to look at how things are,
relying almost completely on abstractions and unproven (indeed,
untestable) theories and assumptions.

No real argument from me here. But it's worth bearing in mind that, in
economics as in psychology, the data themselves are sharply contested.

It's not really the data per se that is contested; it's what the data means that is contested. The difference between psychologists and economists, in terms of data. is that psychologists (even conventional one) try to find theories that explain the data while economists (of the macro persuasion, anyway) try to find data that supports their theories. If the data don't support what the theory predicts, psychologists (and other scientists) look for a new theory; economists, on the other hand, either ignore the data or they look for new data that confirms what they thought in the first place. In most sciences it's phenomena first; in economics it's theory first (and, in many case, only). I believe this was Bill's point.

In conventional psychological research, virtually all of the data
consist of averages of random aggregates. PCT rightly rejects these as
meaningless and useless, inasmuch as psychological (and biological)
processes operate in individuals rather than on averages of arbitrary
groups ... The data of economics are similarly taken to be statistics
based on arbitrary aggregates, like national income, but there are
economists who reject such statistics as meaningless and useless.

I think aggregate data is fine when you are studying aggregates, as is the case in sociology (which is the study of groups of individuals) and macroeconomics (which is also the study of groups of individuals). While it's true that the behavior of aggregate variables, like GNI, may eventually be explained by modeling the individuals that make up the aggregate, I think it's possible to have a science of the aggregates themselves (a science like electronics, which tells us a lot about the aggregate behavior of electrons using aggregate-level models, like Kirchoff's laws).

The fact is that macroeconomics is unique as a science because it treats theory as fact and fact (data) as either confirmatory or wrong. This is why there are so many economic "facts" that are completely contradicted by the data. Bill mentioned three such "facts": the idea that capital investment drives growth, that increases in the prime rate reduce inflation and that incentives cause work. I can add one more: the idea that taxation slows growth. In fact, the data show the opposite.

One has to wonder where these macroeconomic "scientists" came up with all their "facts" in the first place. If their ideas are based on data then macroeconomists are being pretty tight lipped about where that data is.

Best

Rick

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[Richard_Marken2]

[From Rick Marken (2006.06.22.1740)]

Mike Acree (2006.06.22.1701 PDT)--

Rick Marken (2006.06.22.1645)--

I think you understood Bill's point about theory vs. data, but not mine
about data. You take the subject matter of psychology to be individuals
and the subject matter of economics to be aggregates. My point was only
that both of those premises are contested. Conventional (research)
psychologists take their subject matter to be aggregates--all their
statistical models are modeling averages of hypothetical populations;

I think conventional research psychologists take their subject matter to be individuals; most study individuals using aggregates under the assumption that all individuals are basically the same but act differently on different occasions because of the random variability of behavior. Research psychologists are trying to average out the randomness by studying aggregates. I think this "aggregation to cancel error" approach to studying individuals is a mistake, but not nearly as big a mistake as IV-DV methodology itself.

and some economists insist on the methodological individualism of PCT.

That's fine. But then these economists make statements about the aggregate behavior that results from individuals doing things like paying taxes and getting incentives for working. So even if they insist on methodological individualism, they are making claims about the aggregate phenomena that result from their "knowledge" of individual behavior. It would be nice if they would check what they say about the aggregate with the actual aggregate data.

They would accord macroeconomics the same status that PCTers accord
statistical research in psychology. So it's not a trivial matter to be
"guided by the data," when what counts as data is itself heavily
theory-dependent.

I don't see what the presumed "theory dependence" of data has to do with this. Do economists who insist on methodological individualism ignore aggregate data? Would such an economist not count variables like GNP, dGNP/dt, aggregate aggregate capital investment and the relationships between them as data? If not, would such an economist also eschew making statements about aggregate phenomena, like the relationship between dGNP/dt and aggregate capital investment, for example?

Best

Rick

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[Bozo_the_Clown]

From [Marc Abrams (2006.06.22.0034)]

[From Rick Marken (2006.06.22.2130)]

>> Marc Abrams (2006.06.22.2148)--
>
>>> Rick Marken (2006.06.22.1802)--

>> So what is such an economist good for? They can't consult on

policy. >> And unless they're using the TCV and control modeling >>>they >haven't >> learned much about individual human nature. So what so they do?

  >> Keynes was a big believer in government intervention and became the

most important economist for FDR.

>
  >> Unfortunately his policies of tariff's and trade restrictions just > deepened and widened the depression which did not really end until

he > end of the Second World War and our econmoy took off after all

the > regulations were abandoned and the four years of >>pent up buying. let > loose.

>On what basis do you come to this conclusion.

If you are asking how I came to the above conclusion it comes from the historical record. Books have been written on the subject. What I am saying is not at all controversial.

You must be basing it on something other than macroeconomic measures

like GNP, which are, as you say below, "meaningless".

By "meaningless" I mean the macro indexes do not show what they

purport to show and are false indicators. From "poverty" levels to "income distribution".

I believe that aggregate data is a problem only if you are trying to

study individuals.

OK, so we agree on this.

So the use of aggregate data is a "problem" for psychologists who are

trying to understand individuals. But I don't see it as a problem >for sociologists, economists and other social scientists who are trying to understand groups rather than individuals. Seems like a good >way to study aggregates is by looking at aggregate data.

An interesting take from someone who supposedly believes in the notion of control from _within_ an individual. If you can't tell what an individual is doing by observing their behavior what makes you think you can understand what a mass of people are doing by observing their behavior? Or are the rules different for groups rather than individuals? I think you might be having a difficult time seeing the forest from the trees.

It is statements like this that lead me to believe that you really do not understand the consequences of control for the organism.

> and when you start taking a hard look at things like the GNP you >

realize how utterly maningless these indexes are.

OK, GNP is meaningless. Then on what basis do you conclude that FDR's

policies did not move us out of a depression?

Are the two related? I attached a short excerpt from _America's Great Depression_, Murray Rothbard It is quite a read. If you are interested I'd be more than happy to send you the PDF of the book, but I know historically you are not much of a reader.

"We now see, thanks to Rothbard’s insights, that the Hoover�

Roosevelt period was really a continuum, that most of the “innovations�?
of the New Deal were in fact expansions or intensifications
of Hoover solutions, or pseudo-solutions, and that Franklin
Delano Roosevelt’s administration differed from Herbert Hoover’s
in only two important respects�it was infinitely more successful

in managing its public relations, and it spent rather more taxpayers’
money. And, in Rothbard’s argument, the net effect of the
Hoover�Roosevelt continuum of policy was to make the slump

more severe and to prolong it virtually to the end of the 1930s.
The Great Depression was a failure not of capitalism but of the
hyperactive state."

Indeed, how do >you know that there even was a recession? After all,

at an individual level, some people were doing just fine in >1929-33. There was no depression for them.

Yes, you are correct, not everyone suffered because of the depression . However you want to view it is fine with me.

Regards,

Marc

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[Richard_Marken2]

[From Rick Marken (2006.06.23.1015)]

Marc Abrams (2006.06.22.0034)

Marc Abrams (2006.06.22.2148)

Unfortunately his [FDR's] policies of tariff's and trade restrictions just deepened and widened the depression ...

Rick Marken (2006.06.22.1802)--

On what basis do you come to this conclusion.

If you are asking how I came to the above conclusion it comes from the historical record.

What is it in the historical record that is the basis of your conclusion? If it is just what other people have said, then what is the basis of what they said? In other words, what _data_ did they use as the basis for the conclusion that 1) there was a depression that started in 1929 and 2) that FDRs policies deepened and widened it.

The data I have (which is a record of yearly GNP in constant dollars) from 1926 to the present shows that the depression (a decline in GNP) started in 1929, continued to 1933 at which point there is an inflection in the GNP curve, where GNP starts increasing and continues increasing steadily (with a brief, mild recession in 1937) through 1941, the year of the US entry into the war. FDR took the oath of office in March, 1933 and GNP started increasing shortly after that point. It looks like FRDs policies started an almost immediate sustained recovery. I would be interested in seeing the data that shows that FDR's policies deepened and widened the depression. Those policies might have deepened and widened it for some individuals (especially the very rich ones) but it looks like they lessened and contracted it for the US in general.

So the use of aggregate data is a "problem" for psychologists who are
trying to understand individuals. But I don't see it as a problem for sociologists, economists and other social scientists who are trying to understand groups rather than individuals. Seems like a good >way to study aggregates is by looking at aggregate data.

An interesting take from someone who supposedly believes in the notion of control from _within_ an individual. If you can't tell what an individual is doing by observing their behavior what makes you think you can understand what a mass of people are doing by observing their behavior?

But I _can_ tell what an individual is doing by observing their behavior _properly_ (using the test for the controlled variable). I believe the same would apply to a group, which can be viewed as controlling virtual variables relative to virtual references. I think Kent McClelland has done a nice job of describing how to study and model control at the group level. See his "Perceptual Control and Social Power" at http://www.perceptualcontroltheory.org/articles/1993_McClelland_PerceptualControlAndSocialPower/index.html

OK, GNP is meaningless. Then on what basis do you conclude that FDR's
policies did not move us out of a depression?

Are the two related?

Only if you think that GNP is a meaningful aggregate measure of the performance of the economy. Economists use time changes in GNP to determine whether an economy is in recession or depression. I think a recession is something like one or two quarters of negative growth (decrease in GNP over time) while a depression is something like 3 or more quarters of negative growth. But you don't think GNP (or, I assume, any other aggregate measure of the economy) is meaningful so I would like to know how you know that there even in a depression when FDR came into office.

I attached a short excerpt from _America's Great Depression_, Murray Rothbard It is quite a read. If you are interested I'd be more than happy to send you the PDF of the book, but I know historically you are not much of a reader.

"We now see, thanks to Rothbard�s insights,

So you take insights as data?

that the Hoover�
Roosevelt period was really a continuum, that most of the �innovations�
of the New Deal were in fact expansions or intensifications
of Hoover solutions, or pseudo-solutions, and that Franklin
Delano Roosevelt�s administration differed from Herbert Hoover�s
in only two important respects�it was infinitely more successful
in managing its public relations, and it spent rather more taxpayers�
money. And, in Rothbard�s argument, the net effect of the
Hoover�Roosevelt continuum of policy was to make the slump
more severe and to prolong it virtually to the end of the 1930s.
The Great Depression was a failure not of capitalism but of the
hyperactive state."

The data contradict Rothbard's "insights".

Richard S. Marken Consulting
marken@mindreadings.com
Home 310 474-0313
Cell 310 729-1400

[Bozo_the_Clown]

From [Marc Abrams (2006.06.23.1443)]

[From Rick Marken (2006.06.23.1015)]

  > What is it in the historical record that is the basis of your
conclusion? If it is just what other people have said, then what is the
basis of >what they said? In other words, what _data_ did they use as
the basis for the conclusion that 1) there was a depression that
started i>in 1929 and 2) that FDRs policies deepened and widened it.

The record is a long one and started a good deal before 1929. I have
attached a very short PDF giving an overview of one person's opinion
and I sent you privately _America's Great Depression_. A 409 page
treastie on it. I did not want to use that bandwidth for those a who
are not interested in it.

The data I have (which is a record of yearly GNP in constant dollars)

from 1926 to the present shows that the depression (a decline in >GNP)
started in 1929, continued to 1933 at which point there is an
inflection in the GNP curve, where GNP starts increasing and >continues
increasing steadily (with a brief, mild recession in 1937) through
1941, the year of the US entry into the war. FDR took the >oath of
office in March, 1933 and GNP started increasing shortly after that
point. It looks like FRDs policies started an almost immediate
>sustained recovery. I would be interested in seeing the data that
shows that FDR's policies deepened and widened the depression. >Those
policies might have deepened and widened it for some individuals
(especially the very rich ones) but it looks like they lessened >and
contracted it for the US in general.

Come back to me after you have read the book and we can discuss the
various factors involved. The GNP does not tell the full story. Nor can
you use it to _explain_ why things happened the way they did. You need
to understand the monetary policies, trade polocies, and other
government interventions both before and after that magical year of
1929 in order to understand why what happened, happened.

People blamed capitalism for the depression when in fact it was
government intervention that provided most of the energy and steam
behind it. Beginning with a 70% increase in our money supply during the
roaring 1920's.

But I _can_ tell what an individual is doing by observing their

behavior _properly_ (using the test for the controlled variable).

Theoretically plausible but practically impossible. Sort of like saying
you can stand a pencil on its point.

Only if you think that GNP is a meaningful aggregate measure of the

performance of the economy.

NO, it is not the full story any more than an IQ score is indicative of
an individuals "intelligence". AS an index it gives you an idea as to
whether the economy is expanding or shrinking but it is only a very
crude approximation. And as you pointed out, in a recession or
depression not everyone is affected. Some industries remain strong
others collapse.

Economists use time changes in GNP to determine whether an economy is

in recession or depression.

Some do, others have other criteria as well.

I think a recession is something >like one or two quarters of negative

growth (decrease in GNP over time) while a depression is >something
like 3 or more quarters of negative growth. But you don't think GNP
(or, I assume, any other aggregate measure of the >economy) is
meaningful so I would like to know how you know that there even in a
depression when FDR came into office.

I never said what my definition was. I just said that most macro
economic indicators are worthless and I'll stand by that statement.

So you take insights as data?

You bet, but not the type and kind of data you are looking for. Did I
say that was data? I don't recall I did. Why don't you tell me

> The data contradict Rothbard's "insights".

Whatever you say.

Regards,

Marc

The New Deal Debunked.pdf (24.1 KB)

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