From [Marc Abrams (2006.06.23.2215)]
[From Bill Powers (2006.06.23.1650 MDT)]
Marc Abrams (2006.06.23.1643)--
>>>.>which gives a plausible but entirely spurious picture of how the whole system works.
I think you must try and understand the basis for his thoughts. He
did not simply pull this stuff out of a hat. You say spurious. On >>what basis do you make this claim? What specific aspects did you disagree with?
>>Here are some examples:
>But more directly, it is absurd to claim that a tax is any better
>from the point of view of the consumer�taxpayer than a higher
>price. If the price of a product rises due to inflation, the consumer
>is worse off, but at least he still enjoys the services of the product.
>But if the government raises taxes in order to stave off that price
>rise, the consumer is getting nothing in return. He simply loses his
>money, and obtains no service for it except possibly being ordered
>around by government authorities he has been forced to subsidize.
?Other things being equal, a price rise is always preferable to a tax.
This comment is typical of the thinking of people who find taxes
excessively burdensome.
OK, are taxes not burdensome? He is making a very specific point here. He is saying that taxes are a sink and are less preferable than a rise in prices. There is no question that you might have other preferences but that does not negate his view. He is talking about the economic effects on the system, I think this is a good example of what Tracy was talking about yesterday in terms of value vs. economic fact.
Taxes will _always_ decrease economic activity on the whole. This is an economic fact of life. Of course if you feel like you are making to much money or someone you know is not making enough you are always capable of voluntarily giving any portion of the money you did earn to the government or anyone else you believe would spend it wiser than you. But that is a personal preference and everyone should not have to fall in line with your or my values. This is one reason I believe our Republic is such a good idea, at least theoretically. There should be a place for everyone. When you try and homgenize 250 million control systems you are bound to run into _big_ problems.
Taxes are a necessary evil and should be kept to a minimum. They are coercive and kill economic activity.
If we had a model of the economy, however, we would have to ask who
pays the taxes, and who gets them, so we could keep >proper track of where the buying power goes.
An excellent idea. Have you done this research? I know what your intuition has been telling you, but I'm asking for the data. I think it might surprise you in a number of different ways.
Clearly the government does not end up with the money from taxes (the
picture one could easily get from words like those above) -- >that money is immediately spent, and then more is borrowed and spent.
Yes, if the government does one thing well it is in spending other peoples money. I and others do not believe the job of government is to redistribute income. Especially mine. 
As I said before, if you voluntarily wish to give all your earned money to someone else that is certainly your business. For me, I prefer a small government infrastructure that keeps its nose out of my personal business. I don't need or want government telling me what to eat, who to make love to, or any number of other things my tax dollars are being wasted on.
Of course this is a value judgement on my part. I know others feel differently and that is ok, and expected.
As a control system the more freedom I have the more capable I am of dealing with the descrepancies I will have to face in lfe. Others prefer to minimize the possibilities of experiencing error and choose big government as a way of "protecting" themselves. Both are expected given the nature of control systems.
It is paid out to consumers, all the way from an aerospace
>contractor's employees to welfare payments. And those people turn >around and transfer that money to still other people as they pay
rent, buy food, and so on.
Yes, and I prefer to dictate where the money I earn goes rather than some sleazy politician looking to get elected by giving away money that is not his.
I believe the term for this is "circular flow."
Some call it theft.
Taxes merely provide more paths for money to pass from one >person to
another.
So does the crookand theif who robs your money or belongings. Indeed, according to your logic a thief is an ecomomic "good" guy by doing nothing more than keeping the "flow" circulating and we need thiefs lest people aquire and try to hold on to too much. Too much of course that is determined by whom? The thief of course. In this case the government.
Tax payments do not end up in "the government" -- just look at the
balance sheet of the U.S. Treasury.
Do I have too? It is not a pretty sight.
The >objections come mainly from the rich, because they pay more taxes
than the poor do and hate it more
First of all the "poor" do not pay taxes. They _get_ tax money. Second, who and how do you define "rich"? I would venture to say that two teachers working for the Board of Education in New York City would be considered middle class, wouldn't you? Wrong. According to NYC politico's that couple would be considered "wealthy" or "rich" and would have to pay more taxes if new tax guidelines went into effect.
Taxes are _killing_ the economy of this great city by driving busnesses out and into more business friendly areas. There is a reason why the deep blue states ae so blue and it has nothing to do with political affiliation. The Republicans have shown that they too are fiscally incompetent and economically ignorant. But than again Republicrats are indeed politicians and political solutions to economic problems rarely work out very well.
Somehow they end up with >most of the money anyway, but only a model
can show how that happens. Perhaps that is why there is >so little support for real models >of the economy -- if we could see how it really happens, maybe we would decide to put a stop to it
Bill, I would like to think that reason would prevail, but remeber you are dealing with control systems and as such we will always go for the quick political fix that reduces or eliminates error as quickly as possible than on a solution that might take a bit of time to take hold.
SD folks have been heavily involved in economic modeling for a long time (macro) and it has been a waste of time because as I have been saying, their basic understanding of human behavior is based on outmoded ideas about rationality and a weak understanding of human behavior.
Rick likes to go on about the GNP, but what does that really tell us about what is going on? Very, very little unfortunatetly. As Rick pointed out himself and although trying to be sarcastic recessioins and depressions do not affect everyonre equally. The Great Depression of 1929 was not the first depression, but it was the first that experienced heavy government intervention and it took a World War to bring us out of it.
>Here's another example a couple of pages further on.
Another problem is that one wonders why the overriding goal
of fiscal policy should be to maximize government revenue. A far
sounder objective would be to minimize the revenue and the
resources siphoned off to the public sector.
Again he simply ignores the question of where this "revenue" goes.
NO, he does not ignore it. It doesn't matter where it goes. When the government takes your money, _you_ can't decide where to spend it, the politico's do and who benefits are the special interest groups who happen to support that politico. This is not good for the economy because the consumer gets the shaft, and government decides what gets to be produced and not consumers and for me that is a very bad idea.
Again, according to this logic a thief should be given a medal for keeping things "in circulation" and rolling. Robin Hood lives on.
This country was built on the notion of personal property and our rights to have it, utilize it, and dispose of it as we see fit.
The idea that resources are "siphoned off to the public sector" is
almost a deliberate attempt to divert attention away from the fact >that the money goes right back into the economy -- only not into the pockets of those who complain the loudest.
Sorry Bill, you are very much mistaken here. In the OLD USSR they had "full employement". That meant warehouses full of goods no one wanted but deemed necessary by some central economic planner and long lines, shortages, and non availabilty of goods and services for items people did in fact want but could not get or have because government and not the consumer decided on what needed to be produced.
Having money circulating in the economy is simply _one_ issue but not the only one.
Look, I don't like greedy folks any more than you do but the question again is as Tracy has pointed out "what are the alternatives?" Or, stated a bit differently; Better or worse relative to...?
That is probably why they complain. You don't hear NASA contractors
complaining about the tax money they get (though they >probably complain about the fraction of that income they pay back as taxes).
That's exactly right. Indeed you won't hear any complaints from anyone being subsidized by the government and _that_ is the problem. Where does it all end?
>Passing on to other subjects:
The proportion of consumption to saving
or investment is determined by people’s time preferences�the
degree to which they prefer present to future satisfactions. The less
they prefer them in the present, the lower will their time preference
rate be, and the lower therefore will be the pure interest rate, which
is determined by the time preferences of the individuals in society.
A lower time-preference rate will be reflected in greater proportions
of investment to consumption, a lengthening of the structure
of production, and a building-up of capital. Higher time preferences,
on the other hand, will be reflected in higher pure interest
rates and a lower proportion of investment to consumption.
>This is one of many examples of what I mean by looking only at one small part of the system at a time. Rothbard has decided that the >proportion of consumption to saving is determined by something he calls a time preference. But there are reasons for such time >preferences -- they are not fundamentals, but merely byproducts of processes in other parts of the system. It is not only interest rates >that influence time preferences (and are simultaneously influenced by them, a fact he skips past and wouldn't know how to handle) -- >for example, he does not (as Bill Williams did) consider the need to stay alive. If you are starving, your time preference is skewed to the >point where you save nothing at all, and that is not because of interest rates.
Yes, a great example of why folks need to understand about the nature of control. Time preferences are very much tied into our tolerance levels for error and our ability to control. This needs to be researched and understood and can only be done from the perspective of controil rather than "rationality".
But this simply points to the near impossible task of making a good working model of an economy until we better understand such important fundamental relationships, and macro economic models will not help us here at all.
There is a balance between income and expenditure which is determined
by many factors, including personal preferences (I insist on >driving Ferrarris, and to hell with savings). If income is high enough so that all one's optional wants and nonnegotiable needs are met >before the money runs out, that money can go into investments or savings (some of which can finance loans through the reserve >multiplier). However, if one saves too much and spends too little, and if lots of people do that, inventories build up and manufacturers >have to lower prices,
Not necessarily. You are completely ignoring innovation and new product development. Most companies do not simply lower prices to reduce inventory, although that is certainly one way to do it, you make it seem like it is the only way it is done.
Indeed, much time and effort has been spent in recent years to keep inventory down by using any number of devices and again you must be _very_ careful by how you define what "inventory" is. Various accounting systems treat Inventory differently and all is not as it might appear to be on the surface. Some accounting systems carry finished goods inventory as assests, others don't.
but if too many people already are consuming essentially all they want
to consume, lowering prices will not cause more consumption,
People "consume" what they "need" to in order to control what they need to control. "Consumption" is no different than any other behavior or action so when we buy something it is to either to attain or maintain a perceptual state we desire, no?
This very elementry fact is lost on most economists and apparently you as well. There are reasons, control issues, that determine why a person buys "x' instead of 'y', and you will only be able to understand this by understanding how people satisfy their control needs
You are starting to sound like the satisficing folks.
but only loss of income to the producer, which of course means the
employees of the producer will earn less (or there will be fewer of >them, or both) and there will therefore be fewer customers even at the lower prices, and they will be saving less and investing less...
Huh? This could certainly happen, but I don't think it does, and if so, that it is all that significant. Again, it is new product innovation that creates the expansion of our economy and creates wealth, not lowering prices or government spending.
>The reverberations of any influence on the system go on and on and around and around, spreading far outside whatever little part of >the system one is paying attention to. Rothbard is glib about analyzing supposed causal relationships, but his focus is always too narrow; >he does not ask "how" and he does not ask "why"; he does not ask "where did that effect come from?" and "what else is altered in >turn by that effect?".
He does, but not in this piece. Remeber this is a opiece explaining why the Great depression took place. This is not a piece on explaining economic principles. He assumes you already have a full working knowledge of the things he is talking about.
BTW, I must tell you that I have some major disagreements with some of his ideas. But that does not take way from what he does in fact know. He predates simulations and indeed was very much against the use of statistics in trying to understand the underlying dynamic behavior involved in economic systems.
This whole discussion started as a discussion on why FDR deepened and widened the depression and now we are talking about the efficacy of modeling an economy based on a single issue.
If you are interested in modeling economic data I would strongly suggest you take a hard look at some of the work already done in SD.
I would not recommend the building of macro models until we have built some successful micro ones. Of course that is just my preference
The causal chain sort of fades away into nothingness outside the
circle of his attention. I defy anyone to predict where these >interlocking loops of causation will end up, without the aid of a model. Rothbard is trying to do just that. He can't, though he runs a >very convincing bluff. Anyone who tried to model what he is proposing would immediately discover all the loose ends he leaves >dangling.
Bill, I don't disagree with you. You make perfect sense and I do not believe you can model Rothbard's ideas. WE have too little understanding of how things work at the micro level.
>Nevertheless, models can handle this sort of complexity, which sounds hopelessly jumbled but in fact is not. My own attempt was >simple enough, but I was still surprised by what the model did, and could not have predicted it just by using my brain. As a model is >developed and expanded, it includes more and more details and handles more and more different cases. I see no reason why we can't >develop a working model of the economy that will let us predict the effects of different policies. But someone has to want to do it.
Why not help out with a micro version first? I think at least it might provide a light and path for you to travel. It would also provide you with the time to get up to speed on economic thought. Besides, we can use a control modeler of your caliber and insights.
>This is why I hope your group of modelers will take on this job.
In a sense we are, but first we need to clear up and clean up the thinking that goes into micro and is responsible for the macro. I am not satified with SD models in general and that includes of course the ones devoted to economics.
Bill, can we discuss perceptual control and its consequences without worrying about the details of the actual mechanism's involved? At least for the time being. There uis so much important work that needs to be done before we need to worry about specific causes.
I know that is your aim and I believe we can help you get there but in order to do so we must get others involved and they will only get involved if they feel this new info will better help them control their perceptions. Of course they would not put it that way but that is what it comes down to.
There's no point in going around and around with verbal arguments
>when we know of a technique for handling most of the >questions about the economy. Maybe the "agent-based" models that a few >economists are developing will do the job.
I'm afraid not. ABM's utilize "rules" What kind of rules? Well, right now the rukes address the rationality we all supposedly have. Now, ABM's in conjunction with SD provide some interesting possibilities, but we are a ways away from that.
I'm extremely lucky in that one fellow in the group is a world class modeler and can , and does model with a number of different methods including ABM. You might be interested in knowing that George Richardson is a member of our Chapter as is John Sterman. But I will not be able to get to first base until we produce our first viable control model.in SD. But not just any SD model, but a meaningful model that shows them why perceptual control is vital for their understanding of human behavior. This I believe lies in shaking up their world by throwing rationality into the dipsy dumpster and replacing it with perceptual control. At least that is the currentgame paln.
Things could change. If that doesmn't work, I'll come up with something that eventually does. If nothing else I am persistant.
But they have the disadvantage of believing in economic theories,
which they will have to >unlearn to get the model working. Better >that real modelers do it, without any prejudices.
Bill, I think you are making a very large and costly mistake here. I'm not sure how you determine how something works without having a theory about it. What is different about the economic theories you might hold and Rothbard? I would say experience and education. That is, not better or worse, just different.
You can only model what you have in your head and as John Sterman has been often quoted; "All models are wrng". "Wrong" in the sense that they can never, ever be a complete and certain picture. This does not make modeling useless. We just need to always keep in mind that the map is not the territory, and alternative views are necessary in order to get as complete a picture as possible.
I will keep you informed as to our progress and as to what is happening and you are always welcome to join the fun. Indeed I would hope thatif something struck your fancy you might jump right in.
Regards,
Marc
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As I said before, if you voluntarily wish to give all your earned money to someone else that is certainly your business. For me, I prefer a small government infrastructure that keeps its nose out of my personal business. I don't need or want government telling me what to eat, who to make love to, or any number of other things my tax dollars are being wasted on.