Using PCT to model Economics

CSGnet Archive CSG2010
1

[Shannon Williams (2010-11-18 02:00 am CST)]

I am currently looking at waterflow modelings of glaciers, lakes, and
streams to find a methodology for modelling money flow. I think that
Rick's diagram needs a bit of improvement, but I am not finding any
existing diagram that is any better. I think I will return to trying
to model through song, but I did want to comment on Martin's concept
of the debit card without too much time passing by.

Below is an article that tries to describe the economic easing that
the government tried last year. You can clearly see in this
description that the govenment's actions were constrained by the
belief that the transfer of money must result in the transfer of some
'value'. From my view, it is kind of idiotic for the entity who can
print money to believe that the transfer of money is equated with
value because this entity knows that he just conjured money out of
thin air. So I suspect that the people who are near the printing
process do not have the
transfer-of-money=transfer-of-something-valuable reference (or at
least it is not as inviolate as it is in the general public). I
suspect that they would agree that Martin's card scheme would have
been a much more efficient mechanism of economic easing than the
purchase of various assets which put the money into the hands of just
a few people who may or may not spend it. But their choice of
mechanism was constrained by what the general public would tolerate.

Note: I submit the article below because it gives a clear picture of
the mechanisms that the government was trying use to stimulate the
economy. I don't agree with very many of Roubini's explanations on
any topic, much less economics. I believe that currently all of our
economic equations (namely V=PQ/M) are based on the supply-demand
dictum. Which makes all of our economic equations eqivalent to the
planetary equations that were based on the dictum: all heavenly motion
is circular.

Roubini: 'Inflation Is Not a Problem'

On Tuesday November 16, 2010, 10:28 am EST
Despite a huge program by the Federal Reserve intended to provide
monetary stimulus to the economy, Nouriel Roubini doesn't think we
need to worry about inflation.

In fact, he argues that people who take the position that the Fed
should curtail its easing policies do not really understand inflation.

In the first two parts of my interview with economist Nouriel Roubini
we discussed two issues: Why Professor Roubini believes a gold
standard is no longer a viable option for modern economies, and second
why monetary easing is a necessary evil.

So let's take a deeper look at Roubini's theory of inflation.
Let's begin with what seems to be the principal conclusion of
Roubini's argument. Simply put: "Inflation is not the problem."

Why does he believe that to be true?
The key to understanding Roubini's assertion may be best summed up in
his own words: "Increasing base money is not inflationary because M0
more than doubled in the last year and a half-since QE1-but velocity
has collapsed."

That sentence may seem densely packed with economic theory, but with a
little explanation it's fairly straightforward to grasp. It is
essentially made up of three interrelated concepts.

First, let's begin by exploring the concept of M0. As you probably
recall from your college economics classes, there are several measures
of the U.S. money supply. M0 is the most liquid measure of money in
the U.S. economy. It represents actual coins and currency notes
circulating in the economy, as well as the coins and currency notes
stored in bank vaults. M0 is actually quite easy to envision, because
it represents the sum of physical money you can actually touch with
your hands.

Second, Roubini refers to ' QE1'. This of course is the first round of
Quantitative Easing, which the Fed began last year. In March of 2009,
in the doldrums of recession, the US Federal Reserve began injecting
money into the US economy by purchasing assets other than short-term
treasury debt. The goal of these purchases was to expand the US money
supply-and thereby stimulate the economy-through 'unconventional
monetary policy.' What that means is this: With interest rates very
close to zero, the US Federal Reserve no longer had the ability to
stimulate economic activity by the traditional means of lowering
interest rate targets. Without that option available, the Fed engaged
in this 'unconventional policy'-creating new money for its own
account, and then buying assets to put that money into circulation.
(In a post to his New York Times blog last spring, economist Paul
Krugman did an excellent job of explaining the goals-and risks -of
quantitative easing.)

The third and final term that requires a bit of explanation is
'velocity'. What Roubini is referring to here is the velocity of money
in the U.S. economy. Velocity is perhaps best thought of as the rate
at which money changes hands in the economy, although the precise
definition is a little more complicated. (Wikipedia, for example,
defines the velocity of money as: "The average frequency with which a
unit of money is spent in a specific period of time.") But, for the
purposes of understanding the broad outlines of Roubini's argument,
our definition should suffice.

When you put those three components together, it would seem Dr.
Roubini's basic meaning is this: Despite the fact that the United
States Federal Reserve has injected well over $1 trillion (and rising)
into the U.S. economy-even with all that new money sloshing around-the
rate at which money is changing hands has actually dropped.

Without an increase in lending and spending, prices simply are not rising.
Roubini further ties his statement about why quantitative easing has
not yet been inflationary into the broader Quantity Theory of Money .

You may recall a related topic from your college economics class
called the Equation of Exchange . The simplified version of this
equation is the famous MV = PQ. As you may remember, the letters stand
for Money Times Velocity equals Price times Quantity.

If we apply what Roubini is saying to the Equation of Exchange, the
broad implications seem comprehensible: Despite the fact that there is
more money in circulation, that money isn't changing hands fast enough
to cause a rise in prices based on the total amount of goods and
services being produced.

No economist's academic work can ever be reduced to the summary
explanation that a brief and general treatment requires. But with some
effort we should be able to understand the broad outline of the ideas
they encapsulate.

In the case of the argument put forth by Roubini-namely, that
inflation is not currently a significant risk to the U.S. economy-the
structure is broadly understandable. We can get our heads around this
basic idea: If the Fed creates new money, but the money still isn't
moving through the U.S. economy, goods and services don't get
purchased, and therefore prices do not rise.

2

[From Fred Nickols (2010.11.18.0640 MST)]

Speaking of printing money, y'all might find this little video of interest.

http://www.youtube.com/watch?v=PTUY16CkS-k

Fred Nickols
fred@nickols.us

···

-----Original Message-----
From: Control Systems Group Network (CSGnet)
[mailto:CSGNET@LISTSERV.ILLINOIS.EDU] On Behalf Of Shannon Williams
Sent: Thursday, November 18, 2010 1:14 AM
To: CSGNET@LISTSERV.ILLINOIS.EDU
Subject: Using PCT to model Economics

[Shannon Williams (2010-11-18 02:00 am CST)]

I am currently looking at waterflow modelings of glaciers, lakes, and
streams to find a methodology for modelling money flow. I think that
Rick's diagram needs a bit of improvement, but I am not finding any
existing diagram that is any better. I think I will return to trying
to model through song, but I did want to comment on Martin's concept
of the debit card without too much time passing by.

Below is an article that tries to describe the economic easing that
the government tried last year. You can clearly see in this
description that the govenment's actions were constrained by the
belief that the transfer of money must result in the transfer of some
'value'. From my view, it is kind of idiotic for the entity who can
print money to believe that the transfer of money is equated with
value because this entity knows that he just conjured money out of
thin air. So I suspect that the people who are near the printing
process do not have the
transfer-of-money=transfer-of-something-valuable reference (or at
least it is not as inviolate as it is in the general public). I
suspect that they would agree that Martin's card scheme would have
been a much more efficient mechanism of economic easing than the
purchase of various assets which put the money into the hands of just
a few people who may or may not spend it. But their choice of
mechanism was constrained by what the general public would tolerate.

Note: I submit the article below because it gives a clear picture of
the mechanisms that the government was trying use to stimulate the
economy. I don't agree with very many of Roubini's explanations on
any topic, much less economics. I believe that currently all of our
economic equations (namely V=PQ/M) are based on the supply-demand
dictum. Which makes all of our economic equations eqivalent to the
planetary equations that were based on the dictum: all heavenly motion
is circular.

Roubini: 'Inflation Is Not a Problem'

On Tuesday November 16, 2010, 10:28 am EST
Despite a huge program by the Federal Reserve intended to provide
monetary stimulus to the economy, Nouriel Roubini doesn't think we
need to worry about inflation.

In fact, he argues that people who take the position that the Fed
should curtail its easing policies do not really understand inflation.

In the first two parts of my interview with economist Nouriel Roubini
we discussed two issues: Why Professor Roubini believes a gold
standard is no longer a viable option for modern economies, and second
why monetary easing is a necessary evil.

So let's take a deeper look at Roubini's theory of inflation.
Let's begin with what seems to be the principal conclusion of
Roubini's argument. Simply put: "Inflation is not the problem."

Why does he believe that to be true?
The key to understanding Roubini's assertion may be best summed up in
his own words: "Increasing base money is not inflationary because M0
more than doubled in the last year and a half-since QE1-but velocity
has collapsed."

That sentence may seem densely packed with economic theory, but with a
little explanation it's fairly straightforward to grasp. It is
essentially made up of three interrelated concepts.

First, let's begin by exploring the concept of M0. As you probably
recall from your college economics classes, there are several measures
of the U.S. money supply. M0 is the most liquid measure of money in
the U.S. economy. It represents actual coins and currency notes
circulating in the economy, as well as the coins and currency notes
stored in bank vaults. M0 is actually quite easy to envision, because
it represents the sum of physical money you can actually touch with
your hands.

Second, Roubini refers to ' QE1'. This of course is the first round of
Quantitative Easing, which the Fed began last year. In March of 2009,
in the doldrums of recession, the US Federal Reserve began injecting
money into the US economy by purchasing assets other than short-term
treasury debt. The goal of these purchases was to expand the US money
supply-and thereby stimulate the economy-through 'unconventional
monetary policy.' What that means is this: With interest rates very
close to zero, the US Federal Reserve no longer had the ability to
stimulate economic activity by the traditional means of lowering
interest rate targets. Without that option available, the Fed engaged
in this 'unconventional policy'-creating new money for its own
account, and then buying assets to put that money into circulation.
(In a post to his New York Times blog last spring, economist Paul
Krugman did an excellent job of explaining the goals-and risks -of
quantitative easing.)

The third and final term that requires a bit of explanation is
'velocity'. What Roubini is referring to here is the velocity of money
in the U.S. economy. Velocity is perhaps best thought of as the rate
at which money changes hands in the economy, although the precise
definition is a little more complicated. (Wikipedia, for example,
defines the velocity of money as: "The average frequency with which a
unit of money is spent in a specific period of time.") But, for the
purposes of understanding the broad outlines of Roubini's argument,
our definition should suffice.

When you put those three components together, it would seem Dr.
Roubini's basic meaning is this: Despite the fact that the United
States Federal Reserve has injected well over $1 trillion (and rising)
into the U.S. economy-even with all that new money sloshing around-the
rate at which money is changing hands has actually dropped.

Without an increase in lending and spending, prices simply are not rising.
Roubini further ties his statement about why quantitative easing has
not yet been inflationary into the broader Quantity Theory of Money .

You may recall a related topic from your college economics class
called the Equation of Exchange . The simplified version of this
equation is the famous MV = PQ. As you may remember, the letters stand
for Money Times Velocity equals Price times Quantity.

If we apply what Roubini is saying to the Equation of Exchange, the
broad implications seem comprehensible: Despite the fact that there is
more money in circulation, that money isn't changing hands fast enough
to cause a rise in prices based on the total amount of goods and
services being produced.

No economist's academic work can ever be reduced to the summary
explanation that a brief and general treatment requires. But with some
effort we should be able to understand the broad outline of the ideas
they encapsulate.

In the case of the argument put forth by Roubini-namely, that
inflation is not currently a significant risk to the U.S. economy-the
structure is broadly understandable. We can get our heads around this
basic idea: If the Fed creates new money, but the money still isn't
moving through the U.S. economy, goods and services don't get
purchased, and therefore prices do not rise.

3

[From Bill Powers (2010.11.18.0750 MDT)]

Fred Nickols (2010.11.18.0640 MST) --

[Curmudgeon mode engaged]

Not picking on you Fred; you're just a handy reply-to.

It's pretty clear to me that nobody has a working model of the economy, which means that nothing anyone says about the effect of X on Y has any relationship to reality. Printing money will cause inflation? It won't cause inflation? All you can do is print it and see what happens, after which the 50% who guessed wrong can start thinking up their excuses and the other half can say they knew it all the time. If we had a model of the economy, we wouldn't have this contest of egos, which is about who is right, not what the truth is. If we had a working model, we could just add modeled money to the model's money supply and watch what the model does, without hurting anyone. If everyone agrees that the model is correct, and it has been tested against past data to make sure it works right, nobody will have any grounds for disputing what the model does except for the usual "I don't care what the model says, I still think ..." cement-heads.

Of course there are people who argue that the economy is simply too complex to model, there are too many uncertainties, too many people, too many varied tastes and needs, and on and on. They don't seem to realize that they're trying to prove that nobody including them understands the economy. So why don't they just give up? Because they don't want to admit that, or do anything about it.

You can't understand a complex system until you understand all the feedback loops of either sign. Looking just at the effect of changing one variable is utterly inadequate. So the Fed increases the money supply; what is the effect of changing the money supply on the sales of goods and services? And what is the effect of that on the money supply? Until you can answer that, you don't understand the system. Just looking at immediate effects doesn't tell you much; you have to wait until the effect propagates all the way through the system and the system (including the variable you disturbed) comes to a new equilibrium, or back to the old one.

That's why we need a model. No human brain, unaided, can reason correctly about the effect of a change in one part of a complex system on all the other parts of the system including itself. Or even a simple system. Ktesibios build the first known negative feedback control system around 235 BC, but nobody began to understand this kind of system until the 1930s when the automation revolution started. After that,the people who actually understood were the engineers designing and building them, not the dilettants who leaped into the game to grab the new football and run with it whichever way took their fancy.

Until we have a tested and agreed-upon model of the economy that can actually predict what will happen after any action or change of policy, we will all remain dilettantes.

Best,

Bill P.

P.S. Has it occurred to anyone that the recent Republican triumph quite neatly explains why the companies who ended up with all that stimulus money in their pockets refused to use it to hire back the workforce so the workers would have money to buy the increase of goods and services they would produce? A success by Obama would have been a political disaster for Republicans. Fortunately for them, they had a way of preventing success.

4

[From Rick Marken (2010.11.18.1230)]

Bill Powers (2010.11.18.0750 MDT)--

[Curmudgeon mode engaged]

This is a mode of yours that I really like!

It's pretty clear to me that nobody has a working model of the economy,
which means that nothing anyone says about the effect of X on Y has any
relationship to reality.

On that note, the LA Times last Sunday had an Op Ed where they asked
about 10 different economics "experts" for their recommendations
regarding policies that would improve the economy. And you got 10
different recommendations. Of course, several said don't raise taxes
but one or two said raise them (let the Bush cuts expire). Some said
cut spending, others said spend more. I'm pretty sure one or two of
these experts were right, the problem is determining which two.
Clearly, economics is not a science.

Until we have a tested and agreed-upon model of the economy that can
actually predict what will happen after any action or change of policy, we
will all remain dilettantes.

Yes, but some of us dilettantes can at least base our predictions on
data. Economists (who don't even know that they are dilettantes)
typically base their predictions on ideology. For example, in
discussions with my right wing friend I've learned that there are
economists who truly believe that reducing the top marginal tax rate
_increases_ revenue. Their evidence for this is a couple of cases
where a decrease in tax rates was associated with an increase in
revenue. So it appears that their belief is based on data. But it's
not based on all the relevant data. When you take into account other
relevant variables, such as GNP growth and the proportion of GNP
controlled by those in that top tax bracket who pay the reduced tax
rate, it turns out that the reduction in tax rate had nothing to do
with the increase in revenue. It's all explained by GDP growth and an
increase in the proportion of GDP controlled by the top 1%. But the
idea that "reduced taxes increase revenue" fits their ideology so it
sticks.

P.S. Has it occurred to anyone that the recent Republican triumph quite
neatly explains why the companies who ended up with all that stimulus
money in their pockets refused to use it to hire back the workforce so
the workers would have money to buy the increase of goods and services
they would produce? A success by Obama would have been a political
disaster for Republicans. Fortunately for them, they had a way of
preventing success.

I actually find it hard to believe that companies colluded with each
other to not use stimulus money. I think what is happening is that
companies do have a lot of money on hand -- not stimulus money --
which they are not using to hire people because there is such weak
demand. I think there is weak demand because of the huge wealth
discrepancy we now have; the middle and lower class don't have any
money to buy any more than the necessities and the upper 1% have so
much money they can't spend it.

The wealth discrepancy has been getting worse since 1980 but I think
it's impact on the economy (in terms of loss of demand) was muted
because the middle class could borrow (against their house and/or
using credit cards). The availability of easy credit ended in 2008,
demand collapsed and we had a huge recession. But the top 1% (which
includes all those companies that won't hire) still had all their
money, but they could no longer use it to hire because there was no
work do to because there was no more demand for their products.

At least that's the way I see it through my dilettantes eyes. But I
think there is some good evidence for it. I think if we demand a
perfect model of the economy before we can make policy advice we might
not have an economy to model. I think the rich (I'm talking top .1%)
would rather see the US economy completely destroyed before they would
get behind any policies that would redistribute wealth to create
demand. I think these people are so tied up in greed they can control
for little else than protecting their wealth.

Anyway, in the hopes of removing the bad taste of this rant from your
minds I will leave you with a little psalm that my wife sent me this
morning that seem apropos:

Blessed are the man and the woman
who have grown beyond their greed
and have put an end to hatred
and no longer nourish illusions.
But they delight in the way things are
and keep their hearts open, day and night.

They are like trees planted near flowing rivers,
which bear fruit when they are ready.
Their leaves will not fall or wither.
Everything they do will succeed.

Psalm 1 (adapted from the Hebrew by Stephen Mitchell)

Best

Rick

···

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

5

Hi Bill,

Perhaps it's high time that we scrap the theories, models and belief systems that benefit special interests and create new ones in their place. The principle of the global public good is one such candidate: Global public good - Wikipedia.

But before we go there, I have a very important question to ask. What is the fundamental purpose of society?

If you ask me, the purpose ultimately is to accumulate more and more social capital, otherwise known as civic engagement, social cohesion, or personal investment in the community. Social capital is an inherently neutral concept, however, meaning that without sufficient controls in place it can go south very quickly resulting in the same entrapment practices and policies in existence today. Therefore, this concept needs to be coupled with a developmental model (more on that later) that encourages individuals to pursue higher levels of identity achievement through the strengthening of affinity relations within their communities of practice (i.e., social entrepreneurship).

Let's assume a community has already agreed on the primacy of social capital as its purpose. The next key question is: What input is absolutely essential in order to develop and sustain this capacity? In our current conceptual age, it's knowledge! Without a highly accessible knowledge commons, social entrepreneurship will falter because the availability of raw information is an essential input for knowledge creation processes. However, what we have today is far from the case. Instead, major corporations dominate the creative landscape as discriminating knowledge monopolists, charging high prices for knowledge access whenever and wherever they want to knowledge consumers, who then pass down these excessive costs to increasingly debt-ridden governments. The domination of these predatory practices is precisely why knowledge needs to be recognized as a global public good; otherwise, the pace of innovation and living standards in the U.S. and abroad will continue to deteriorate.

As for developmental models, I'd recommend an adaptation of Dabrowski's Theory of Positive Disintegration (TPD): Positive disintegration - Wikipedia. Using TPD you could operationalize social entrepreneurship into developmental stages in accordance with the five levels of TPD. For example, Level 5 (secondary integration) would be evidenced by strong individual creativity, deep appreciation of the arts, and a lifelong learning orientation. An exemplar of secondary integration capacity, to my mind, is Austin, TX, whose diversity and eccentricity are viewed not as societal weaknesses, but rather as strategic competitive advantages that foster continued economic growth.

In the meantime, and unless we act soon to close the current knowledge gap, I fear that we will regress to a Hesiodic Iron Age: Ages of Man - Wikipedia . Then again, are we there already?

Best,
Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Bill Powers <powers_w@FRONTIER.NET> 11/18/2010 10:51 AM >>>

[From Bill Powers (2010.11.18.0750 MDT)]

Fred Nickols (2010.11.18.0640 MST) --

[Curmudgeon mode engaged]

Not picking on you Fred; you're just a handy reply-to.

It's pretty clear to me that nobody has a working model of the
economy, which means that nothing anyone says about the effect of X
on Y has any relationship to reality. Printing money will cause
inflation? It won't cause inflation? All you can do is print it and
see what happens, after which the 50% who guessed wrong can start
thinking up their excuses and the other half can say they knew it all
the time. If we had a model of the economy, we wouldn't have this
contest of egos, which is about who is right, not what the truth is.
If we had a working model, we could just add modeled money to the
model's money supply and watch what the model does, without hurting
anyone. If everyone agrees that the model is correct, and it has been
tested against past data to make sure it works right, nobody will
have any grounds for disputing what the model does except for the
usual "I don't care what the model says, I still think ..." cement-heads.

Of course there are people who argue that the economy is simply too
complex to model, there are too many uncertainties, too many people,
too many varied tastes and needs, and on and on. They don't seem to
realize that they're trying to prove that nobody including them
understands the economy. So why don't they just give up? Because they
don't want to admit that, or do anything about it.

You can't understand a complex system until you understand all the
feedback loops of either sign. Looking just at the effect of changing
one variable is utterly inadequate. So the Fed increases the money
supply; what is the effect of changing the money supply on the sales
of goods and services? And what is the effect of that on the money
supply? Until you can answer that, you don't understand the
system. Just looking at immediate effects doesn't tell you much; you
have to wait until the effect propagates all the way through the
system and the system (including the variable you disturbed) comes to
a new equilibrium, or back to the old one.

That's why we need a model. No human brain, unaided, can reason
correctly about the effect of a change in one part of a complex
system on all the other parts of the system including itself. Or even
a simple system. Ktesibios build the first known negative feedback
control system around 235 BC, but nobody began to understand this
kind of system until the 1930s when the automation
revolution started. After that,the people who actually understood
were the engineers designing and building them, not the dilettants
who leaped into the game to grab the new football and run with it
whichever way took their fancy.

Until we have a tested and agreed-upon model of the economy that can
actually predict what will happen after any action or change of
policy, we will all remain dilettantes.

Best,

Bill P.

P.S. Has it occurred to anyone that the recent Republican triumph
quite neatly explains why the companies who ended up with all that
stimulus money in their pockets refused to use it to hire back the
workforce so the workers would have money to buy the increase of
goods and services they would produce? A success by Obama would have
been a political disaster for Republicans. Fortunately for them, they
had a way of preventing success.

6

[From Bill Powers (2010.11.18. 1850 MDT)]

Rick Marken (2010.11.18.1230) --

I actually find it hard to believe that companies colluded with each
other to not use stimulus money.

They don't have to collude with each other. All they have to do is realize that if they hire people, the economy will improve and that guy with the funny name in the white house will get more popular and the Republicans will not get to put their tax cuts into effect or remove the unreasonable restrictions on medical profits and all those perfectly reasonable effects of a free market. Just hang on to the cash and wait until our guys are in charge.

I think what is happening is that
companies do have a lot of money on hand -- not stimulus money --
which they are not using to hire people because there is such weak
demand. I think there is weak demand because of the huge wealth
discrepancy we now have; the middle and lower class don't have any
money to buy any more than the necessities and the upper 1% have so
much money they can't spend it.

I think it was Krugman who pointed out that after the stimulus money was spent it ended up in the hands of the producers but just stayed there. The producers were supposed to hire people with that extra income so demand would remain high and even increase, but they didn't. What I don't understand is where all these people think the middle and lower classes get the money that they spend. Do they just sort of "have" it? That may seem true to a rich person, but it doesn't apply to the rest of us. As I understand macroeconomics, they get it by working for, and getting paid by, the people who want to sell them things, don't they? If you don't hire people and pay them money, they will not have any money with which to buy the things other people are making, and if every producer does this, the other people will not have the money to buy the things you are making. This seems like Dick and Jane stuff to me, which is what makes me suspicious that there are some motives here other than simple greed. Can supposedly intelligent people really not grasp this simple relationship?

The wealth discrepancy has been getting worse since 1980 but I think
it's impact on the economy (in terms of loss of demand) was muted
because the middle class could borrow (against their house and/or
using credit cards). The availability of easy credit ended in 2008,
demand collapsed and we had a huge recession. But the top 1% (which
includes all those companies that won't hire) still had all their
money, but they could no longer use it to hire because there was no
work do to because there was no more demand for their products.

That's a chicken-and-egg problem, because the lack of demand is due precisely to not spending the money that is available to hire people. I ask again, where do they think people get the money that they spend? I know that maldistribution of wealth removes money from the circular flow, so that's important, too, but even with the maldistribution, if those with the money spend it to hire people to make and buy more goods, they will get even more money out of the system.

At least that's the way I see it through my dilettantes eyes. But I
think there is some good evidence for it. I think if we demand a
perfect model of the economy before we can make policy advice we might
not have an economy to model.

I don't care about a perfect model, I just want to see a first hack at one instead of all this arguing about one little part of the system at a time. Taking the money away from the rich and Robin-Hooding it to the poor(er) will make the poor happy when they spend all that moolah, but when that money falls into the sticky fingers of the money-hoarders the same thing will happen all over again: nobody gets hired and the ones still working are driven to work far harder by the threat of losing their jobs, too, except that the demand has disappeared again and there isn't work to get.

I think the rich (I'm talking top .1%)
would rather see the US economy completely destroyed before they would
get behind any policies that would redistribute wealth to create
demand. I think these people are so tied up in greed they can control
for little else than protecting their wealth.

Do you really think they're dumb enough to cook up a plot like that? If they don't understand the circular flow, and think they would be better off if they had ALL THE MONEY, they are not greedy, they're stupid. Can they really be that stupid? I doubt it.

I'm getting a clearer idea of what economics is all about. It's not about buying and selling, or competition to raise the standards, or equity, or wealth, or price theory and supply and demand. It's about CONTROL. Who gets to run things his way, and who has to play along. Who has the means to make and enforce the rules, and who has no choice but to submit to them. Just read Ayn Rand for the ugliest side of human nature. If you have great amounts of money, as a person or a corporate "person", you can use it to force others to do your bidding. And that's fun, the most fun some people will ever have. Master of all I survey! Look on my works, ye mighty, and despair! It's so easy to imagine all that glory, and fail to forsee the lone and level sands stretching far away from this colossal wreck. I paraphrase Ozymandius.

Best,

Bill P.

7

[From Rick Marken (2010.11.18.2210)]

Bill Powers (2010.11.18. 1850 MDT)--

Wonderful post. I basically agree with you (and I think you were
agreeing with my basic points as well). But I will reply to a couple
of points where I disagree (though you can set me straight, as usual,
I'm sure).

Rick Marken (2010.11.18.1230) --

I think it was Krugman who pointed out that after the stimulus money was
spent it ended up in the hands of the producers but just stayed there. The
producers were supposed to hire people with that extra income so demand
would remain high and even increase, but they didn't.

I think the lack of spending of stimulus money had more to do with the
projects not being "shovel ready". If stimulus money was just given to
producers of various widgits in the hope that they would hire people
to produce more widgets, then that was rather foolish. If I was a
producer in that situation I would be reluctant to just hire a bunch
of people to make widgets with no demand for widgets. The stimulus
money might cover the first few payrolls but then how do I make
payroll when no one is buying widgets? I am creating some demand by
paying my workers but demand for my widgets depends on many other
industries simultaneously hiring workers; I can't depend on my workers
being the only market for my widgets; they have to buy other stuff
too.

What I don't
understand is where all these people think the middle and lower classes get
the money that they spend. Do they just sort of "have" it?

You are asking why all producers don't understand that paying workers
is what creates demand and I don't know why myself. They used to know.
Henry Ford certainly did. But nowadays producers -- the big one's
anyway -- are focused on profits for the sake of stick market
investors; and you control profits by getting as much productivity as
you can from as few workers as possible who are paid as little as
possible.

As I understand macroeconomics, they get it by working for, and getting
paid by, the people who want to sell them things, don't they? If you don't hire
people and pay them money, they will not have any money with which to buy
the things other people are making, and if every producer does this, the
other people will not have the money to buy the things you are making. This
seems like Dick and Jane stuff to me

Yes, it seems pretty obvious to me.

which is what makes me suspicious that
there are some motives here other than simple greed.

Why? If your only interest is in profit then contributing to the
creation of demand is not going to be particularly interesting to you.
If demand for my widgets goes down (because me and my cohorts are
paying out workers slave wages) I maintain profits by laying off
workers (or using cheaper overseas labor); or even reducing wages. A
new equilibrium will be reached where my production meets the new
lower demand and I'm still hauling in good profit.

Can supposedly intelligent people really not grasp this simple relationship?

I don't think they care about that relationship. They care only about
showing a profit for shareholders.

But the top 1% (which
includes all those companies that won't hire) still had all their
money, but they could no longer use it to hire because there was no
work do to because there was no more demand for their products.

That's a chicken-and-egg problem, because the lack of demand is due
precisely to not spending the money that is available to hire people.

Exactly. But I think that fixing this problem should start with the
"egg" of consumer demand rather than the "chicken" of hiring. For the
reasons I gave above it's unlikely that you can create demand by
giving money to employers for hiring because employers will be
reluctant to hire when there is no sign of demand for their product.
Maybe if you did this with lots of employers and required that they
hire then maybe it would work but that seems a bit coercive. So I
would say that the money should be given directly to all the
consumers, especially the ones who don't have much income already. I
would do this in the New Deal way; by having the government act as the
central employer and hire millions of people to work on various
projects deemed of communal value. I would also do it by giving very
generous unemployment benefits (which would be provided while people
are also training for improved skills). Once the increased demand
stared employers hiring again to meet demand I would pass a very
generous "living wage" law that would apply to all employers. I would
also pass laws that made it illegal to pay CEOs with stock options so
that profit alone would not be a motive for managing an industry.
These would be measures aimed at keeping the flow going one it was
started up again with the "stimulus" of money to the most needy
consumers.

I ask
again, where do they think people get the money that they spend? I know that
maldistribution of wealth removes money from the circular flow, so that's
important, too, but even with the maldistribution, if those with the money
spend it to hire people to make and buy more goods, they will get even more
money out of the system.

In the long run but not in the short run. And short term profits are
what it's about nowadays.

I don't care about a perfect model, I just want to see a first hack at one
instead of all this arguing about one little part of the system at a time.
Taking the money away from the rich and Robin-Hooding it to the poor(er)
will make the poor happy when they spend all that moolah, but when that
money falls into the sticky fingers of the money-hoarders the same thing
will happen all over again: nobody gets hired and the ones still working are
driven to work far harder by the threat of losing their jobs, too, except
that the demand has disappeared again and there isn't work to get.

Right. The circular flow has to be maintained by regulations that make
hoarding basically illegal. Having a generous minimum wage means that
employers would have to turn over to employees more of the money they
would otherwise hoard. Also, I would make it illegal to use overseas
labor for production of goods that are sold to consumers in the US.
That's another leak that should be plugged.

I think the rich (I'm talking top .1%)
would rather see the US economy completely destroyed before they would
get behind any policies that would redistribute wealth to create
demand. I think these people are so tied up in greed they can control
for little else than protecting their wealth.

Do you really think they're dumb enough to cook up a plot like that?

Absolutely! You've heard of blood simple. Well, I think some of these
very wealthy people are money simple (not all; I think people like
Gates, Buffet and Soros get it).

If they
don't understand the circular flow, and think they would be better off if
they had ALL THE MONEY, they are not greedy, they're stupid. Can they really
be that stupid? I doubt it.

I don't.

I'm getting a clearer idea of what economics is all about. It's not about
buying and selling, or competition to raise the standards, or equity, or
wealth, or price theory and supply and demand. It's about CONTROL. Who gets
to run things his way, and who has to play along. Who has the means to make
and enforce the rules, and who has no choice but to submit to them. Just
read Ayn Rand for the ugliest side of human nature. If you have great
amounts of money, as a person or a corporate "person", you can use it to
force others to do your bidding. And that's fun, the most fun some people
will ever have. Master of all I survey! Look on my works, ye mighty, and
despair! It's so easy to imagine all that glory, and fail to forsee the lone
and level sands stretching far away from this colossal wreck. I paraphrase
Ozymandius.

Ozymandius - Percy Bysshe Shelley

Beautiful. I agree. It's about power. I guess I find it hard to
believe because all I really want is money;-)

Best

Rick

···

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

8

[Martin Lewitt Nov 19, 2010 0640 MST]
Richard,

You end up micro-managing everything, pretty soon you will have centralized so much power that you will fear losing an election, and have either no elections or a one party system. I see at least you agree with me that the money needs to get to the consumers, but instead of New Deal makework, why not just give newly created money to them all equally. Instead of increasing unemployment benefits, decreasing the incentive to work, give the money whether they are unemployed or not.

If demand for my widgets goes down (because me and my cohorts are
paying out workers slave wages) I maintain profits by laying off
workers (or using cheaper overseas labor)

But that isn't why demand went down. Demand went down because several trillion dollars disappeared when the pyramid of credit collapsed. Why go protectionist when just 3 years ago we only had 5 percent unemployment? The jobs that disappeared didn't suddenly go overseas, they went out of existence due to the collapse in demand from the reduced money supply and the idle-ing of the housing industry when the housing bubble burst and the cascading effects from those. Most of the jobs that went out of existence were not minimum wage jobs.

What slave wages? Even Mexico's wages are 4 times higher than in much of the 3rd world, and these relatively privileged Mexicans find US wages even more attractive. With 5 percent unemployment within reach with a properly managed money supply there is no reason to forgo the benefits of trade from comparative advantage.

Martin L

···

On 11/18/2010 11:07 PM, Richard Marken wrote:

9

[Martin Lewitt Nov 19, 2010 0709 MST]

Hi Bill,

Perhaps it's high time that we scrap the theories, models and belief systems that benefit special interests and create new ones in their place. The principle of the global public good is one such candidate: Global public good - Wikipedia.

But before we go there, I have a very important question to ask. What is the fundamental purpose of society?

The fundamental purpose of society is to get your genes to the next generation, i.e., evolutionary fitness.

If you ask me, the purpose ultimately is to accumulate more and more social capital, otherwise known as civic engagement, social cohesion, or personal investment in the community. Social capital is an inherently neutral concept, however, meaning that without sufficient controls in place it can go south very quickly resulting in the same entrapment practices and policies in existence today. Therefore, this concept needs to be coupled with a developmental model (more on that later) that encourages individuals to pursue higher levels of identity achievement through the strengthening of affinity relations within their communities of practice (i.e., social entrepreneurship).

Probably not. Is that what you use society for?

Let's assume a community has already agreed on the primacy of social capital as its purpose. The next key question is: What input is absolutely essential in order to develop and sustain this capacity? In our current conceptual age, it's knowledge! Without a highly accessible knowledge commons, social entrepreneurship will falter because the availability of raw information is an essential input for knowledge creation processes. However, what we have today is far from the case. Instead, major corporations dominate the creative landscape as discriminating knowledge monopolists, charging high prices for knowledge access whenever and wherever they want to knowledge consumers, who then pass down these excessive costs to increasingly debt-ridden governments.

Actually, corporations compete based upon price for any knowledge they provide to governments, and with government funding of basic and medical research, much of the knowledge flow is actually in the opposite direction. You seem to forget that governments are also composed of people and they may hoard knowledge despite the government's intent. Witness the purposeful obstruction of freedom of information requests in the climategate scandal, and the poor preservation of climate data, that made replication of results impossible, even by the original researchers. Corporations at least recognize the value of information, will probably care for it and are willing to sell it.

  The domination of these predatory practices is precisely why knowledge needs to be recognized as a global public good; otherwise, the pace of innovation and living standards in the U.S. and abroad will continue to deteriorate.

Really, and I thought the internet, and open source and society trends were actually outpacing corporate power to control information.

As for developmental models, I'd recommend an adaptation of Dabrowski's Theory of Positive Disintegration (TPD): Positive disintegration - Wikipedia. Using TPD you could operationalize social entrepreneurship into developmental stages in accordance with the five levels of TPD. For example, Level 5 (secondary integration) would be evidenced by strong individual creativity, deep appreciation of the arts, and a lifelong learning orientation. An exemplar of secondary integration capacity, to my mind, is Austin, TX, whose diversity and eccentricity are viewed not as societal weaknesses, but rather as strategic competitive advantages that foster continued economic growth.

Haven't you heard Milton Friedman's parable of the pencil? No one knows how to build a pencil, the manufacturer just assembles a few pieces. He didn't have to know how to harvest rubber from malaysia, mine lead from Russia or cut down wood from Canada. They didn't even have to speak the same language or have the same religion, and might not even have liked each other if they had met. The market is the greatest coordinator of cooperation, diversity and creativity that has ever existed.

In the meantime, and unless we act soon to close the current knowledge gap, I fear that we will regress to a Hesiodic Iron Age: Ages of Man - Wikipedia . Then again, are we there already?

What "gap" is that? Whatever gap exists is surely closing faster than ever with the internet and globalization. Perhaps you can be more specific, because your abstractions and generalities sound nice but communicate little.

regards,
    Martin L

···

On 11/18/2010 6:00 PM, Chad Green wrote:

Best,
Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Bill Powers<powers_w@FRONTIER.NET> 11/18/2010 10:51 AM>>>

[From Bill Powers (2010.11.18.0750 MDT)]

Fred Nickols (2010.11.18.0640 MST) --

[Curmudgeon mode engaged]

Not picking on you Fred; you're just a handy reply-to.

It's pretty clear to me that nobody has a working model of the
economy, which means that nothing anyone says about the effect of X
on Y has any relationship to reality. Printing money will cause
inflation? It won't cause inflation? All you can do is print it and
see what happens, after which the 50% who guessed wrong can start
thinking up their excuses and the other half can say they knew it all
the time. If we had a model of the economy, we wouldn't have this
contest of egos, which is about who is right, not what the truth is.
If we had a working model, we could just add modeled money to the
model's money supply and watch what the model does, without hurting
anyone. If everyone agrees that the model is correct, and it has been
tested against past data to make sure it works right, nobody will
have any grounds for disputing what the model does except for the
usual "I don't care what the model says, I still think ..." cement-heads.

Of course there are people who argue that the economy is simply too
complex to model, there are too many uncertainties, too many people,
too many varied tastes and needs, and on and on. They don't seem to
realize that they're trying to prove that nobody including them
understands the economy. So why don't they just give up? Because they
don't want to admit that, or do anything about it.

You can't understand a complex system until you understand all the
feedback loops of either sign. Looking just at the effect of changing
one variable is utterly inadequate. So the Fed increases the money
supply; what is the effect of changing the money supply on the sales
of goods and services? And what is the effect of that on the money
supply? Until you can answer that, you don't understand the
system. Just looking at immediate effects doesn't tell you much; you
have to wait until the effect propagates all the way through the
system and the system (including the variable you disturbed) comes to
a new equilibrium, or back to the old one.

That's why we need a model. No human brain, unaided, can reason
correctly about the effect of a change in one part of a complex
system on all the other parts of the system including itself. Or even
a simple system. Ktesibios build the first known negative feedback
control system around 235 BC, but nobody began to understand this
kind of system until the 1930s when the automation
revolution started. After that,the people who actually understood
were the engineers designing and building them, not the dilettants
who leaped into the game to grab the new football and run with it
whichever way took their fancy.

Until we have a tested and agreed-upon model of the economy that can
actually predict what will happen after any action or change of
policy, we will all remain dilettantes.

Best,

Bill P.

P.S. Has it occurred to anyone that the recent Republican triumph
quite neatly explains why the companies who ended up with all that
stimulus money in their pockets refused to use it to hire back the
workforce so the workers would have money to buy the increase of
goods and services they would produce? A success by Obama would have
been a political disaster for Republicans. Fortunately for them, they
had a way of preventing success.

10

[Martin Lewitt Nov 19, 2010 0745 MST]

[Shannon Williams (2010-11-18 02:00 am CST)]

I am currently looking at waterflow modelings of glaciers, lakes, and
streams to find a methodology for modelling money flow. I think that
Rick's diagram needs a bit of improvement, but I am not finding any
existing diagram that is any better. I think I will return to trying
to model through song, but I did want to comment on Martin's concept
of the debit card without too much time passing by.

I've been intending to consider what constructal theory might contribute to the understanding of the brain and PCT, but since its most intuitive application is to the flow of water, you might find it useful earlier.

http://www.constructal.org/en/art/Phil.%20Trans.%20R.%20Soc.%20B%20(2010)%20365,%201335�1347.pdf

It's adherents consider it another thermodynamics law.

regards,
       Martin L

···

On 11/18/2010 1:13 AM, Shannon Williams wrote:

Below is an article that tries to describe the economic easing that
the government tried last year. You can clearly see in this
description that the govenment's actions were constrained by the
belief that the transfer of money must result in the transfer of some
'value'. From my view, it is kind of idiotic for the entity who can
print money to believe that the transfer of money is equated with
value because this entity knows that he just conjured money out of
thin air. So I suspect that the people who are near the printing
process do not have the
transfer-of-money=transfer-of-something-valuable reference (or at
least it is not as inviolate as it is in the general public). I
suspect that they would agree that Martin's card scheme would have
been a much more efficient mechanism of economic easing than the
purchase of various assets which put the money into the hands of just
a few people who may or may not spend it. But their choice of
mechanism was constrained by what the general public would tolerate.

Note: I submit the article below because it gives a clear picture of
the mechanisms that the government was trying use to stimulate the
economy. I don't agree with very many of Roubini's explanations on
any topic, much less economics. I believe that currently all of our
economic equations (namely V=PQ/M) are based on the supply-demand
dictum. Which makes all of our economic equations eqivalent to the
planetary equations that were based on the dictum: all heavenly motion
is circular.

Roubini: 'Inflation Is Not a Problem'

On Tuesday November 16, 2010, 10:28 am EST
Despite a huge program by the Federal Reserve intended to provide
monetary stimulus to the economy, Nouriel Roubini doesn't think we
need to worry about inflation.

In fact, he argues that people who take the position that the Fed
should curtail its easing policies do not really understand inflation.

In the first two parts of my interview with economist Nouriel Roubini
we discussed two issues: Why Professor Roubini believes a gold
standard is no longer a viable option for modern economies, and second
why monetary easing is a necessary evil.

So let's take a deeper look at Roubini's theory of inflation.
Let's begin with what seems to be the principal conclusion of
Roubini's argument. Simply put: "Inflation is not the problem."

Why does he believe that to be true?
The key to understanding Roubini's assertion may be best summed up in
his own words: "Increasing base money is not inflationary because M0
more than doubled in the last year and a half-since QE1-but velocity
has collapsed."

That sentence may seem densely packed with economic theory, but with a
little explanation it's fairly straightforward to grasp. It is
essentially made up of three interrelated concepts.

First, let's begin by exploring the concept of M0. As you probably
recall from your college economics classes, there are several measures
of the U.S. money supply. M0 is the most liquid measure of money in
the U.S. economy. It represents actual coins and currency notes
circulating in the economy, as well as the coins and currency notes
stored in bank vaults. M0 is actually quite easy to envision, because
it represents the sum of physical money you can actually touch with
your hands.

Second, Roubini refers to ' QE1'. This of course is the first round of
Quantitative Easing, which the Fed began last year. In March of 2009,
in the doldrums of recession, the US Federal Reserve began injecting
money into the US economy by purchasing assets other than short-term
treasury debt. The goal of these purchases was to expand the US money
supply-and thereby stimulate the economy-through 'unconventional
monetary policy.' What that means is this: With interest rates very
close to zero, the US Federal Reserve no longer had the ability to
stimulate economic activity by the traditional means of lowering
interest rate targets. Without that option available, the Fed engaged
in this 'unconventional policy'-creating new money for its own
account, and then buying assets to put that money into circulation.
(In a post to his New York Times blog last spring, economist Paul
Krugman did an excellent job of explaining the goals-and risks -of
quantitative easing.)

The third and final term that requires a bit of explanation is
'velocity'. What Roubini is referring to here is the velocity of money
in the U.S. economy. Velocity is perhaps best thought of as the rate
at which money changes hands in the economy, although the precise
definition is a little more complicated. (Wikipedia, for example,
defines the velocity of money as: "The average frequency with which a
unit of money is spent in a specific period of time.") But, for the
purposes of understanding the broad outlines of Roubini's argument,
our definition should suffice.

When you put those three components together, it would seem Dr.
Roubini's basic meaning is this: Despite the fact that the United
States Federal Reserve has injected well over $1 trillion (and rising)
into the U.S. economy-even with all that new money sloshing around-the
rate at which money is changing hands has actually dropped.

Without an increase in lending and spending, prices simply are not rising.
Roubini further ties his statement about why quantitative easing has
not yet been inflationary into the broader Quantity Theory of Money .

You may recall a related topic from your college economics class
called the Equation of Exchange . The simplified version of this
equation is the famous MV = PQ. As you may remember, the letters stand
for Money Times Velocity equals Price times Quantity.

If we apply what Roubini is saying to the Equation of Exchange, the
broad implications seem comprehensible: Despite the fact that there is
more money in circulation, that money isn't changing hands fast enough
to cause a rise in prices based on the total amount of goods and
services being produced.

No economist's academic work can ever be reduced to the summary
explanation that a brief and general treatment requires. But with some
effort we should be able to understand the broad outline of the ideas
they encapsulate.

In the case of the argument put forth by Roubini-namely, that
inflation is not currently a significant risk to the U.S. economy-the
structure is broadly understandable. We can get our heads around this
basic idea: If the Fed creates new money, but the money still isn't
moving through the U.S. economy, goods and services don't get
purchased, and therefore prices do not rise.

11

Hi Martin,

Do these first and last comments of yours reflect how you frame your thinking in general?

A. "The fundamental purpose of society is to get your genes to the next generation, i.e., evolutionary fitness."
B. "Perhaps you can be more specific, because your abstractions and generalities sound nice but communicate little."

Let's pretend for a moment that you and I are the leaders of two powerful nations who frame their thinking along similar lines. We are powerful in the sense that we both have a significant military presence in the world and our economies make up a large percentage of world trade. In addition, we both are facing unprecedented challenges domestically due to entrapment practices brought about by the machinations of global corporations that play both nations against each other.

Now here's my question for you: Who is the master and who is the slave in this situation within the context of Hegel's philosophical system?

Source: Lord–bondsman dialectic - Wikipedia

Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Martin Lewitt <mlewitt@COMCAST.NET> 11/19/2010 9:25 AM >>>

[Martin Lewitt Nov 19, 2010 0709 MST]

Hi Bill,

Perhaps it's high time that we scrap the theories, models and belief systems that benefit special interests and create new ones in their place. The principle of the global public good is one such candidate: Global public good - Wikipedia.

But before we go there, I have a very important question to ask. What is the fundamental purpose of society?

The fundamental purpose of society is to get your genes to the next
generation, i.e., evolutionary fitness.

If you ask me, the purpose ultimately is to accumulate more and more social capital, otherwise known as civic engagement, social cohesion, or personal investment in the community. Social capital is an inherently neutral concept, however, meaning that without sufficient controls in place it can go south very quickly resulting in the same entrapment practices and policies in existence today. Therefore, this concept needs to be coupled with a developmental model (more on that later) that encourages individuals to pursue higher levels of identity achievement through the strengthening of affinity relations within their communities of practice (i.e., social entrepreneurship).

Probably not. Is that what you use society for?

Let's assume a community has already agreed on the primacy of social capital as its purpose. The next key question is: What input is absolutely essential in order to develop and sustain this capacity? In our current conceptual age, it's knowledge! Without a highly accessible knowledge commons, social entrepreneurship will falter because the availability of raw information is an essential input for knowledge creation processes. However, what we have today is far from the case. Instead, major corporations dominate the creative landscape as discriminating knowledge monopolists, charging high prices for knowledge access whenever and wherever they want to knowledge consumers, who then pass down these excessive costs to increasingly debt-ridden governments.

Actually, corporations compete based upon price for any knowledge they
provide to governments, and with government funding of basic and medical
research, much of the knowledge flow is actually in the opposite
direction. You seem to forget that governments are also composed of
people and they may hoard knowledge despite the government's intent.
Witness the purposeful obstruction of freedom of information requests in
the climategate scandal, and the poor preservation of climate data, that
made replication of results impossible, even by the original
researchers. Corporations at least recognize the value of information,
will probably care for it and are willing to sell it.

  The domination of these predatory practices is precisely why knowledge needs to be recognized as a global public good; otherwise, the pace of innovation and living standards in the U.S. and abroad will continue to deteriorate.

Really, and I thought the internet, and open source and society trends
were actually outpacing corporate power to control information.

As for developmental models, I'd recommend an adaptation of Dabrowski's Theory of Positive Disintegration (TPD): Positive disintegration - Wikipedia. Using TPD you could operationalize social entrepreneurship into developmental stages in accordance with the five levels of TPD. For example, Level 5 (secondary integration) would be evidenced by strong individual creativity, deep appreciation of the arts, and a lifelong learning orientation. An exemplar of secondary integration capacity, to my mind, is Austin, TX, whose diversity and eccentricity are viewed not as societal weaknesses, but rather as strategic competitive advantages that foster continued economic growth.

Haven't you heard Milton Friedman's parable of the pencil? No one
knows how to build a pencil, the manufacturer just assembles a few
pieces. He didn't have to know how to harvest rubber from malaysia,
mine lead from Russia or cut down wood from Canada. They didn't even
have to speak the same language or have the same religion, and might not
even have liked each other if they had met. The market is the greatest
coordinator of cooperation, diversity and creativity that has ever existed.

In the meantime, and unless we act soon to close the current knowledge gap, I fear that we will regress to a Hesiodic Iron Age: Ages of Man - Wikipedia . Then again, are we there already?

What "gap" is that? Whatever gap exists is surely closing faster than
ever with the internet and globalization. Perhaps you can be more
specific, because your abstractions and generalities sound nice but
communicate little.

regards,
    Martin L

···

On 11/18/2010 6:00 PM, Chad Green wrote:

Best,
Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Bill Powers<powers_w@FRONTIER.NET> 11/18/2010 10:51 AM>>>

[From Bill Powers (2010.11.18.0750 MDT)]

Fred Nickols (2010.11.18.0640 MST) --

[Curmudgeon mode engaged]

Not picking on you Fred; you're just a handy reply-to.

It's pretty clear to me that nobody has a working model of the
economy, which means that nothing anyone says about the effect of X
on Y has any relationship to reality. Printing money will cause
inflation? It won't cause inflation? All you can do is print it and
see what happens, after which the 50% who guessed wrong can start
thinking up their excuses and the other half can say they knew it all
the time. If we had a model of the economy, we wouldn't have this
contest of egos, which is about who is right, not what the truth is.
If we had a working model, we could just add modeled money to the
model's money supply and watch what the model does, without hurting
anyone. If everyone agrees that the model is correct, and it has been
tested against past data to make sure it works right, nobody will
have any grounds for disputing what the model does except for the
usual "I don't care what the model says, I still think ..." cement-heads.

Of course there are people who argue that the economy is simply too
complex to model, there are too many uncertainties, too many people,
too many varied tastes and needs, and on and on. They don't seem to
realize that they're trying to prove that nobody including them
understands the economy. So why don't they just give up? Because they
don't want to admit that, or do anything about it.

You can't understand a complex system until you understand all the
feedback loops of either sign. Looking just at the effect of changing
one variable is utterly inadequate. So the Fed increases the money
supply; what is the effect of changing the money supply on the sales
of goods and services? And what is the effect of that on the money
supply? Until you can answer that, you don't understand the
system. Just looking at immediate effects doesn't tell you much; you
have to wait until the effect propagates all the way through the
system and the system (including the variable you disturbed) comes to
a new equilibrium, or back to the old one.

That's why we need a model. No human brain, unaided, can reason
correctly about the effect of a change in one part of a complex
system on all the other parts of the system including itself. Or even
a simple system. Ktesibios build the first known negative feedback
control system around 235 BC, but nobody began to understand this
kind of system until the 1930s when the automation
revolution started. After that,the people who actually understood
were the engineers designing and building them, not the dilettants
who leaped into the game to grab the new football and run with it
whichever way took their fancy.

Until we have a tested and agreed-upon model of the economy that can
actually predict what will happen after any action or change of
policy, we will all remain dilettantes.

Best,

Bill P.

P.S. Has it occurred to anyone that the recent Republican triumph
quite neatly explains why the companies who ended up with all that
stimulus money in their pockets refused to use it to hire back the
workforce so the workers would have money to buy the increase of
goods and services they would produce? A success by Obama would have
been a political disaster for Republicans. Fortunately for them, they
had a way of preventing success.

12

[Martin Lewitt Nov 19, 2010 0821 MST]

Hi Martin,

Do these first and last comments of yours reflect how you frame your thinking in general?

A. "The fundamental purpose of society is to get your genes to the next generation, i.e., evolutionary fitness."

Yes, I often think of my origins, and the purpose of society. Humans are social animals because that conferred certain survival advantages. I have other uses for society, but I don't see much general agreement on those, either with myself or among others.

B. "Perhaps you can be more specific, because your abstractions and generalities sound nice but communicate little."

Yes, I am especially suspicious of any social "science", because the abstractions are usually just so stories and the generalities are not usually rigorously defensible. The hope seems to be that the seeming goodness of the idea will carry it. When rigorous apologias are attempted the required assumptions are usually questionable.

Let's pretend for a moment that you and I are the leaders of two powerful nations who frame their thinking along similar lines. We are powerful in the sense that we both have a significant military presence in the world and our economies make up a large percentage of world trade. In addition, we both are facing unprecedented challenges domestically due to entrapment practices brought about by the machinations of global corporations that play both nations against each other.

Now here's my question for you: Who is the master and who is the slave in this situation within the context of Hegel's philosophical system?

The government is always the master, because artificial legal fictions can only act if recognized by the government. Philosophies descended from the Hegelian branch often set up false dichotomies and insinuate coercion, victimization, and exploitation where none necessarily exist and the relationship only involved voluntary options that increased the degrees of freedom.

If instead you were speaking of two weak rather than powerful nations, the governments would still have the power to have the artificial legal entity be non-existent within its borders, but the relative economic opportunity represented by the corporation might be difficult to resist.

regards,
    Martin L

···

On 11/19/2010 7:58 AM, Chad Green wrote:

Source: Lord–bondsman dialectic - Wikipedia

Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Martin Lewitt<mlewitt@COMCAST.NET> 11/19/2010 9:25 AM>>>

[Martin Lewitt Nov 19, 2010 0709 MST]

On 11/18/2010 6:00 PM, Chad Green wrote:

Hi Bill,

Perhaps it's high time that we scrap the theories, models and belief systems that benefit special interests and create new ones in their place. The principle of the global public good is one such candidate: Global public good - Wikipedia.

But before we go there, I have a very important question to ask. What is the fundamental purpose of society?

The fundamental purpose of society is to get your genes to the next
generation, i.e., evolutionary fitness.

If you ask me, the purpose ultimately is to accumulate more and more social capital, otherwise known as civic engagement, social cohesion, or personal investment in the community. Social capital is an inherently neutral concept, however, meaning that without sufficient controls in place it can go south very quickly resulting in the same entrapment practices and policies in existence today. Therefore, this concept needs to be coupled with a developmental model (more on that later) that encourages individuals to pursue higher levels of identity achievement through the strengthening of affinity relations within their communities of practice (i.e., social entrepreneurship).

Probably not. Is that what you use society for?

Let's assume a community has already agreed on the primacy of social capital as its purpose. The next key question is: What input is absolutely essential in order to develop and sustain this capacity? In our current conceptual age, it's knowledge! Without a highly accessible knowledge commons, social entrepreneurship will falter because the availability of raw information is an essential input for knowledge creation processes. However, what we have today is far from the case. Instead, major corporations dominate the creative landscape as discriminating knowledge monopolists, charging high prices for knowledge access whenever and wherever they want to knowledge consumers, who then pass down these excessive costs to increasingly debt-ridden governments.

Actually, corporations compete based upon price for any knowledge they
provide to governments, and with government funding of basic and medical
research, much of the knowledge flow is actually in the opposite
direction. You seem to forget that governments are also composed of
people and they may hoard knowledge despite the government's intent.
Witness the purposeful obstruction of freedom of information requests in
the climategate scandal, and the poor preservation of climate data, that
made replication of results impossible, even by the original
researchers. Corporations at least recognize the value of information,
will probably care for it and are willing to sell it.

   The domination of these predatory practices is precisely why knowledge needs to be recognized as a global public good; otherwise, the pace of innovation and living standards in the U.S. and abroad will continue to deteriorate.

Really, and I thought the internet, and open source and society trends
were actually outpacing corporate power to control information.

As for developmental models, I'd recommend an adaptation of Dabrowski's Theory of Positive Disintegration (TPD): Positive disintegration - Wikipedia. Using TPD you could operationalize social entrepreneurship into developmental stages in accordance with the five levels of TPD. For example, Level 5 (secondary integration) would be evidenced by strong individual creativity, deep appreciation of the arts, and a lifelong learning orientation. An exemplar of secondary integration capacity, to my mind, is Austin, TX, whose diversity and eccentricity are viewed not as societal weaknesses, but rather as strategic competitive advantages that foster continued economic growth.

Haven't you heard Milton Friedman's parable of the pencil? No one
knows how to build a pencil, the manufacturer just assembles a few
pieces. He didn't have to know how to harvest rubber from malaysia,
mine lead from Russia or cut down wood from Canada. They didn't even
have to speak the same language or have the same religion, and might not
even have liked each other if they had met. The market is the greatest
coordinator of cooperation, diversity and creativity that has ever existed.

In the meantime, and unless we act soon to close the current knowledge gap, I fear that we will regress to a Hesiodic Iron Age: Ages of Man - Wikipedia . Then again, are we there already?

What "gap" is that? Whatever gap exists is surely closing faster than
ever with the internet and globalization. Perhaps you can be more
specific, because your abstractions and generalities sound nice but
communicate little.

regards,
     Martin L

Best,
Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Bill Powers<powers_w@FRONTIER.NET> 11/18/2010 10:51 AM>>>

[From Bill Powers (2010.11.18.0750 MDT)]

Fred Nickols (2010.11.18.0640 MST) --

[Curmudgeon mode engaged]

Not picking on you Fred; you're just a handy reply-to.

It's pretty clear to me that nobody has a working model of the
economy, which means that nothing anyone says about the effect of X
on Y has any relationship to reality. Printing money will cause
inflation? It won't cause inflation? All you can do is print it and
see what happens, after which the 50% who guessed wrong can start
thinking up their excuses and the other half can say they knew it all
the time. If we had a model of the economy, we wouldn't have this
contest of egos, which is about who is right, not what the truth is.
If we had a working model, we could just add modeled money to the
model's money supply and watch what the model does, without hurting
anyone. If everyone agrees that the model is correct, and it has been
tested against past data to make sure it works right, nobody will
have any grounds for disputing what the model does except for the
usual "I don't care what the model says, I still think ..." cement-heads.

Of course there are people who argue that the economy is simply too
complex to model, there are too many uncertainties, too many people,
too many varied tastes and needs, and on and on. They don't seem to
realize that they're trying to prove that nobody including them
understands the economy. So why don't they just give up? Because they
don't want to admit that, or do anything about it.

You can't understand a complex system until you understand all the
feedback loops of either sign. Looking just at the effect of changing
one variable is utterly inadequate. So the Fed increases the money
supply; what is the effect of changing the money supply on the sales
of goods and services? And what is the effect of that on the money
supply? Until you can answer that, you don't understand the
system. Just looking at immediate effects doesn't tell you much; you
have to wait until the effect propagates all the way through the
system and the system (including the variable you disturbed) comes to
a new equilibrium, or back to the old one.

That's why we need a model. No human brain, unaided, can reason
correctly about the effect of a change in one part of a complex
system on all the other parts of the system including itself. Or even
a simple system. Ktesibios build the first known negative feedback
control system around 235 BC, but nobody began to understand this
kind of system until the 1930s when the automation
revolution started. After that,the people who actually understood
were the engineers designing and building them, not the dilettants
who leaped into the game to grab the new football and run with it
whichever way took their fancy.

Until we have a tested and agreed-upon model of the economy that can
actually predict what will happen after any action or change of
policy, we will all remain dilettantes.

Best,

Bill P.

P.S. Has it occurred to anyone that the recent Republican triumph
quite neatly explains why the companies who ended up with all that
stimulus money in their pockets refused to use it to hire back the
workforce so the workers would have money to buy the increase of
goods and services they would produce? A success by Obama would have
been a political disaster for Republicans. Fortunately for them, they
had a way of preventing success.

13

[From Bill Powers (2010.11.19.0920 MDT)]

Perhaps it's high time that we scrap the theories, models and belief systems that benefit special interests and create new ones in their place. The principle of the global public good is one such candidate: Global public good - Wikipedia.

But before we go there, I have a very important question to ask. What is the fundamental purpose of society?

I'm much more interest in finding out how the economy works. That's what a model is for. You start by just accounting for all the obvious things, flows of money, flows of goods/services, use and depreciation of same, income of various kinds, work of various kinds -- just doing all the bookkeeping needed to keep track of a lot of interacting subsystems. All the basic stuff that reflects what is going on. Very dull for people who just want a theory of the stock market so they can become millionaires.

Then you begin to ask what people want and how they go about getting it. "Society" isn't the kind of thing that can have purposes; it's an idea in people's heads. It's the people who have purposes of all sorts, including conflicting ones. People have to eat, stay warm, and all sorts of other things, some optional and some not. This is where PCT comes in. But the model is needed so we can understand all the relationships that exist in the system, or at least the more important ones, purely psychological or purely mechanical.

I haven't detected much interest in doing this, so unless I find an elixir of youth or clone myself I guess it's not going to get done very soon.

Best,

Bill P.

···

At 08:00 PM 11/18/2010 -0500, Chad Green wrote:

14

Martin,

I found this paragraph of yours most salient:

"The government is always the master, because artificial legal fictions
can only act if recognized by the government. Philosophies descended
from the Hegelian branch often set up false dichotomies and insinuate
coercion, victimization, and exploitation where none necessarily exist
and the relationship only involved voluntary options that increased the
degrees of freedom."

Precisely, we the people should be master of our own destiny, but instead it is artificial intelligence (i.e., itself a slave to the profit motive) that rules the day. We the people have assumed the role of the slave not by choice, but unwittingly out of fear for our own survival, and whoever thinks they can take away our freedom to be alone and afraid has got another thing coming! It is our right to be in a constant state of fear, even if slavery is the price we must pay for our own survival.

But then there are people like you and me, Martin. We do not believe in these false dichotomies or dualities, do we? There is no such thing as slaves or masters or any other naming conventions that may be used against us in a kangaroo court of law, because we recognize them as products of the frail mind.

Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Martin Lewitt <mlewitt@COMCAST.NET> 11/19/2010 10:37 AM >>>

[Martin Lewitt Nov 19, 2010 0821 MST]

Hi Martin,

Do these first and last comments of yours reflect how you frame your thinking in general?

A. "The fundamental purpose of society is to get your genes to the next generation, i.e., evolutionary fitness."

Yes, I often think of my origins, and the purpose of society. Humans
are social animals because that conferred certain survival advantages.
I have other uses for society, but I don't see much general agreement
on those, either with myself or among others.

B. "Perhaps you can be more specific, because your abstractions and generalities sound nice but communicate little."

Yes, I am especially suspicious of any social "science", because the
abstractions are usually just so stories and the generalities are not
usually rigorously defensible. The hope seems to be that the seeming
goodness of the idea will carry it. When rigorous apologias are
attempted the required assumptions are usually questionable.

Let's pretend for a moment that you and I are the leaders of two powerful nations who frame their thinking along similar lines. We are powerful in the sense that we both have a significant military presence in the world and our economies make up a large percentage of world trade. In addition, we both are facing unprecedented challenges domestically due to entrapment practices brought about by the machinations of global corporations that play both nations against each other.

Now here's my question for you: Who is the master and who is the slave in this situation within the context of Hegel's philosophical system?

The government is always the master, because artificial legal fictions
can only act if recognized by the government. Philosophies descended
from the Hegelian branch often set up false dichotomies and insinuate
coercion, victimization, and exploitation where none necessarily exist
and the relationship only involved voluntary options that increased the
degrees of freedom.

If instead you were speaking of two weak rather than powerful nations,
the governments would still have the power to have the artificial legal
entity be non-existent within its borders, but the relative economic
opportunity represented by the corporation might be difficult to resist.

regards,
    Martin L

···

On 11/19/2010 7:58 AM, Chad Green wrote:

Source: Lord–bondsman dialectic - Wikipedia

Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Martin Lewitt<mlewitt@COMCAST.NET> 11/19/2010 9:25 AM>>>

[Martin Lewitt Nov 19, 2010 0709 MST]

On 11/18/2010 6:00 PM, Chad Green wrote:

Hi Bill,

Perhaps it's high time that we scrap the theories, models and belief systems that benefit special interests and create new ones in their place. The principle of the global public good is one such candidate: Global public good - Wikipedia.

But before we go there, I have a very important question to ask. What is the fundamental purpose of society?

The fundamental purpose of society is to get your genes to the next
generation, i.e., evolutionary fitness.

If you ask me, the purpose ultimately is to accumulate more and more social capital, otherwise known as civic engagement, social cohesion, or personal investment in the community. Social capital is an inherently neutral concept, however, meaning that without sufficient controls in place it can go south very quickly resulting in the same entrapment practices and policies in existence today. Therefore, this concept needs to be coupled with a developmental model (more on that later) that encourages individuals to pursue higher levels of identity achievement through the strengthening of affinity relations within their communities of practice (i.e., social entrepreneurship).

Probably not. Is that what you use society for?

Let's assume a community has already agreed on the primacy of social capital as its purpose. The next key question is: What input is absolutely essential in order to develop and sustain this capacity? In our current conceptual age, it's knowledge! Without a highly accessible knowledge commons, social entrepreneurship will falter because the availability of raw information is an essential input for knowledge creation processes. However, what we have today is far from the case. Instead, major corporations dominate the creative landscape as discriminating knowledge monopolists, charging high prices for knowledge access whenever and wherever they want to knowledge consumers, who then pass down these excessive costs to increasingly debt-ridden governments.

Actually, corporations compete based upon price for any knowledge they
provide to governments, and with government funding of basic and medical
research, much of the knowledge flow is actually in the opposite
direction. You seem to forget that governments are also composed of
people and they may hoard knowledge despite the government's intent.
Witness the purposeful obstruction of freedom of information requests in
the climategate scandal, and the poor preservation of climate data, that
made replication of results impossible, even by the original
researchers. Corporations at least recognize the value of information,
will probably care for it and are willing to sell it.

   The domination of these predatory practices is precisely why knowledge needs to be recognized as a global public good; otherwise, the pace of innovation and living standards in the U.S. and abroad will continue to deteriorate.

Really, and I thought the internet, and open source and society trends
were actually outpacing corporate power to control information.

As for developmental models, I'd recommend an adaptation of Dabrowski's Theory of Positive Disintegration (TPD): Positive disintegration - Wikipedia. Using TPD you could operationalize social entrepreneurship into developmental stages in accordance with the five levels of TPD. For example, Level 5 (secondary integration) would be evidenced by strong individual creativity, deep appreciation of the arts, and a lifelong learning orientation. An exemplar of secondary integration capacity, to my mind, is Austin, TX, whose diversity and eccentricity are viewed not as societal weaknesses, but rather as strategic competitive advantages that foster continued economic growth.

Haven't you heard Milton Friedman's parable of the pencil? No one
knows how to build a pencil, the manufacturer just assembles a few
pieces. He didn't have to know how to harvest rubber from malaysia,
mine lead from Russia or cut down wood from Canada. They didn't even
have to speak the same language or have the same religion, and might not
even have liked each other if they had met. The market is the greatest
coordinator of cooperation, diversity and creativity that has ever existed.

In the meantime, and unless we act soon to close the current knowledge gap, I fear that we will regress to a Hesiodic Iron Age: Ages of Man - Wikipedia . Then again, are we there already?

What "gap" is that? Whatever gap exists is surely closing faster than
ever with the internet and globalization. Perhaps you can be more
specific, because your abstractions and generalities sound nice but
communicate little.

regards,
     Martin L

Best,
Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Bill Powers<powers_w@FRONTIER.NET> 11/18/2010 10:51 AM>>>

[From Bill Powers (2010.11.18.0750 MDT)]

Fred Nickols (2010.11.18.0640 MST) --

[Curmudgeon mode engaged]

Not picking on you Fred; you're just a handy reply-to.

It's pretty clear to me that nobody has a working model of the
economy, which means that nothing anyone says about the effect of X
on Y has any relationship to reality. Printing money will cause
inflation? It won't cause inflation? All you can do is print it and
see what happens, after which the 50% who guessed wrong can start
thinking up their excuses and the other half can say they knew it all
the time. If we had a model of the economy, we wouldn't have this
contest of egos, which is about who is right, not what the truth is.
If we had a working model, we could just add modeled money to the
model's money supply and watch what the model does, without hurting
anyone. If everyone agrees that the model is correct, and it has been
tested against past data to make sure it works right, nobody will
have any grounds for disputing what the model does except for the
usual "I don't care what the model says, I still think ..." cement-heads.

Of course there are people who argue that the economy is simply too
complex to model, there are too many uncertainties, too many people,
too many varied tastes and needs, and on and on. They don't seem to
realize that they're trying to prove that nobody including them
understands the economy. So why don't they just give up? Because they
don't want to admit that, or do anything about it.

You can't understand a complex system until you understand all the
feedback loops of either sign. Looking just at the effect of changing
one variable is utterly inadequate. So the Fed increases the money
supply; what is the effect of changing the money supply on the sales
of goods and services? And what is the effect of that on the money
supply? Until you can answer that, you don't understand the
system. Just looking at immediate effects doesn't tell you much; you
have to wait until the effect propagates all the way through the
system and the system (including the variable you disturbed) comes to
a new equilibrium, or back to the old one.

That's why we need a model. No human brain, unaided, can reason
correctly about the effect of a change in one part of a complex
system on all the other parts of the system including itself. Or even
a simple system. Ktesibios build the first known negative feedback
control system around 235 BC, but nobody began to understand this
kind of system until the 1930s when the automation
revolution started. After that,the people who actually understood
were the engineers designing and building them, not the dilettants
who leaped into the game to grab the new football and run with it
whichever way took their fancy.

Until we have a tested and agreed-upon model of the economy that can
actually predict what will happen after any action or change of
policy, we will all remain dilettantes.

Best,

Bill P.

P.S. Has it occurred to anyone that the recent Republican triumph
quite neatly explains why the companies who ended up with all that
stimulus money in their pockets refused to use it to hire back the
workforce so the workers would have money to buy the increase of
goods and services they would produce? A success by Obama would have
been a political disaster for Republicans. Fortunately for them, they
had a way of preventing success.

15

[Martin Lewitt Nov 19, 2010 1141 MST]

Martin,

I found this paragraph of yours most salient:

"The government is always the master, because artificial legal fictions
can only act if recognized by the government. Philosophies descended
from the Hegelian branch often set up false dichotomies and insinuate
coercion, victimization, and exploitation where none necessarily exist
and the relationship only involved voluntary options that increased the
degrees of freedom."

Precisely, we the people should be master of our own destiny, but instead it is artificial intelligence (i.e., itself a slave to the profit motive) that rules the day. We the people have assumed the role of the slave not by choice, but unwittingly out of fear for our own survival, and whoever thinks they can take away our freedom to be alone and afraid has got another thing coming!

Yes it is a matter of survival. Just as we must take at least as many Calories as we expend, productive enterprises must make a profit over the long run, if they are also to be sustainable. Even a centrally planned economy could not deliver big screen TVs for 50 cents for long without subsidizing the price. Prices that are below sustainable levels lead to local decision making that results negative global effects. Globally, the central planner may prefer to use cast cement for walkways rather than big screen TVs, but prices that do not reflect the costs my lead to more consumption of resources than needed for that task. So saying we are slaves to profit is little more than saying we are slaves to reality. Setting prices at sustainable levels may also provide information to central planners. A central planner may have learned that all his consumers want escalators in their homes rather than stairs. If the central planner sets the prices for escalators and stairs at levels that are sustainable given the resources each requires, the lack of sales for the escalators lets him know that the consumers don't want their society to expend the extra resources to produce the escalators, relative to other uses for those resources. The emergent market phenomenon distributes cost and relative subjective value information well summarized as prices with a few well documented exceptions. Price information allows local decision makers and producers to estimate whether their plans are sustainable (profitable) without having to know all the resources and values that went into determining the prices.

  It is our right to be in a constant state of fear, even if slavery is the price we must pay for our own survival.

But then there are people like you and me, Martin. We do not believe in these false dichotomies or dualities, do we? There is no such thing as slaves or masters or any other naming conventions that may be used against us in a kangaroo court of law, because we recognize them as products of the frail mind.

One can take the analogy physical, engineering and economic realities to slavery too far. By their traditional meanings, slavery still exists in parts of the world and even occasionally outside the law in the US, as has occurred in some Haitian immigrant households or in the sex trade.

-- Martin L

···

On 11/19/2010 10:01 AM, Chad Green wrote:

Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Martin Lewitt<mlewitt@COMCAST.NET> 11/19/2010 10:37 AM>>>

[Martin Lewitt Nov 19, 2010 0821 MST]

On 11/19/2010 7:58 AM, Chad Green wrote:

Hi Martin,

Do these first and last comments of yours reflect how you frame your thinking in general?

A. "The fundamental purpose of society is to get your genes to the next generation, i.e., evolutionary fitness."

Yes, I often think of my origins, and the purpose of society. Humans
are social animals because that conferred certain survival advantages.
I have other uses for society, but I don't see much general agreement
on those, either with myself or among others.

B. "Perhaps you can be more specific, because your abstractions and generalities sound nice but communicate little."

Yes, I am especially suspicious of any social "science", because the
abstractions are usually just so stories and the generalities are not
usually rigorously defensible. The hope seems to be that the seeming
goodness of the idea will carry it. When rigorous apologias are
attempted the required assumptions are usually questionable.

Let's pretend for a moment that you and I are the leaders of two powerful nations who frame their thinking along similar lines. We are powerful in the sense that we both have a significant military presence in the world and our economies make up a large percentage of world trade. In addition, we both are facing unprecedented challenges domestically due to entrapment practices brought about by the machinations of global corporations that play both nations against each other.

Now here's my question for you: Who is the master and who is the slave in this situation within the context of Hegel's philosophical system?

The government is always the master, because artificial legal fictions
can only act if recognized by the government. Philosophies descended
from the Hegelian branch often set up false dichotomies and insinuate
coercion, victimization, and exploitation where none necessarily exist
and the relationship only involved voluntary options that increased the
degrees of freedom.

If instead you were speaking of two weak rather than powerful nations,
the governments would still have the power to have the artificial legal
entity be non-existent within its borders, but the relative economic
opportunity represented by the corporation might be difficult to resist.

regards,
     Martin L

Source: Lord–bondsman dialectic - Wikipedia

Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Martin Lewitt<mlewitt@COMCAST.NET> 11/19/2010 9:25 AM>>>

[Martin Lewitt Nov 19, 2010 0709 MST]

On 11/18/2010 6:00 PM, Chad Green wrote:

Hi Bill,

Perhaps it's high time that we scrap the theories, models and belief systems that benefit special interests and create new ones in their place. The principle of the global public good is one such candidate: Global public good - Wikipedia.

But before we go there, I have a very important question to ask. What is the fundamental purpose of society?

The fundamental purpose of society is to get your genes to the next
generation, i.e., evolutionary fitness.

If you ask me, the purpose ultimately is to accumulate more and more social capital, otherwise known as civic engagement, social cohesion, or personal investment in the community. Social capital is an inherently neutral concept, however, meaning that without sufficient controls in place it can go south very quickly resulting in the same entrapment practices and policies in existence today. Therefore, this concept needs to be coupled with a developmental model (more on that later) that encourages individuals to pursue higher levels of identity achievement through the strengthening of affinity relations within their communities of practice (i.e., social entrepreneurship).

Probably not. Is that what you use society for?

Let's assume a community has already agreed on the primacy of social capital as its purpose. The next key question is: What input is absolutely essential in order to develop and sustain this capacity? In our current conceptual age, it's knowledge! Without a highly accessible knowledge commons, social entrepreneurship will falter because the availability of raw information is an essential input for knowledge creation processes. However, what we have today is far from the case. Instead, major corporations dominate the creative landscape as discriminating knowledge monopolists, charging high prices for knowledge access whenever and wherever they want to knowledge consumers, who then pass down these excessive costs to increasingly debt-ridden governments.

Actually, corporations compete based upon price for any knowledge they
provide to governments, and with government funding of basic and medical
research, much of the knowledge flow is actually in the opposite
direction. You seem to forget that governments are also composed of
people and they may hoard knowledge despite the government's intent.
Witness the purposeful obstruction of freedom of information requests in
the climategate scandal, and the poor preservation of climate data, that
made replication of results impossible, even by the original
researchers. Corporations at least recognize the value of information,
will probably care for it and are willing to sell it.

    The domination of these predatory practices is precisely why knowledge needs to be recognized as a global public good; otherwise, the pace of innovation and living standards in the U.S. and abroad will continue to deteriorate.

Really, and I thought the internet, and open source and society trends
were actually outpacing corporate power to control information.

As for developmental models, I'd recommend an adaptation of Dabrowski's Theory of Positive Disintegration (TPD): Positive disintegration - Wikipedia. Using TPD you could operationalize social entrepreneurship into developmental stages in accordance with the five levels of TPD. For example, Level 5 (secondary integration) would be evidenced by strong individual creativity, deep appreciation of the arts, and a lifelong learning orientation. An exemplar of secondary integration capacity, to my mind, is Austin, TX, whose diversity and eccentricity are viewed not as societal weaknesses, but rather as strategic competitive advantages that foster continued economic growth.

Haven't you heard Milton Friedman's parable of the pencil? No one
knows how to build a pencil, the manufacturer just assembles a few
pieces. He didn't have to know how to harvest rubber from malaysia,
mine lead from Russia or cut down wood from Canada. They didn't even
have to speak the same language or have the same religion, and might not
even have liked each other if they had met. The market is the greatest
coordinator of cooperation, diversity and creativity that has ever existed.

In the meantime, and unless we act soon to close the current knowledge gap, I fear that we will regress to a Hesiodic Iron Age: Ages of Man - Wikipedia . Then again, are we there already?

What "gap" is that? Whatever gap exists is surely closing faster than
ever with the internet and globalization. Perhaps you can be more
specific, because your abstractions and generalities sound nice but
communicate little.

regards,
      Martin L

Best,
Chad

Chad Green, PMP
Program Analyst
Loudoun County Public Schools
21000 Education Court
Ashburn, VA 20148
Voice: 571-252-1486
Fax: 571-252-1633

Bill Powers<powers_w@FRONTIER.NET> 11/18/2010 10:51 AM>>>

[From Bill Powers (2010.11.18.0750 MDT)]

Fred Nickols (2010.11.18.0640 MST) --

[Curmudgeon mode engaged]

Not picking on you Fred; you're just a handy reply-to.

It's pretty clear to me that nobody has a working model of the
economy, which means that nothing anyone says about the effect of X
on Y has any relationship to reality. Printing money will cause
inflation? It won't cause inflation? All you can do is print it and
see what happens, after which the 50% who guessed wrong can start
thinking up their excuses and the other half can say they knew it all
the time. If we had a model of the economy, we wouldn't have this
contest of egos, which is about who is right, not what the truth is.
If we had a working model, we could just add modeled money to the
model's money supply and watch what the model does, without hurting
anyone. If everyone agrees that the model is correct, and it has been
tested against past data to make sure it works right, nobody will
have any grounds for disputing what the model does except for the
usual "I don't care what the model says, I still think ..." cement-heads.

Of course there are people who argue that the economy is simply too
complex to model, there are too many uncertainties, too many people,
too many varied tastes and needs, and on and on. They don't seem to
realize that they're trying to prove that nobody including them
understands the economy. So why don't they just give up? Because they
don't want to admit that, or do anything about it.

You can't understand a complex system until you understand all the
feedback loops of either sign. Looking just at the effect of changing
one variable is utterly inadequate. So the Fed increases the money
supply; what is the effect of changing the money supply on the sales
of goods and services? And what is the effect of that on the money
supply? Until you can answer that, you don't understand the
system. Just looking at immediate effects doesn't tell you much; you
have to wait until the effect propagates all the way through the
system and the system (including the variable you disturbed) comes to
a new equilibrium, or back to the old one.

That's why we need a model. No human brain, unaided, can reason
correctly about the effect of a change in one part of a complex
system on all the other parts of the system including itself. Or even
a simple system. Ktesibios build the first known negative feedback
control system around 235 BC, but nobody began to understand this
kind of system until the 1930s when the automation
revolution started. After that,the people who actually understood
were the engineers designing and building them, not the dilettants
who leaped into the game to grab the new football and run with it
whichever way took their fancy.

Until we have a tested and agreed-upon model of the economy that can
actually predict what will happen after any action or change of
policy, we will all remain dilettantes.

Best,

Bill P.

P.S. Has it occurred to anyone that the recent Republican triumph
quite neatly explains why the companies who ended up with all that
stimulus money in their pockets refused to use it to hire back the
workforce so the workers would have money to buy the increase of
goods and services they would produce? A success by Obama would have
been a political disaster for Republicans. Fortunately for them, they
had a way of preventing success.

16

[From Rick Marken (2010.11.19.1350)

�Martin Lewitt (Nov 19, 2010 0640 MST)--

You end up micro-managing everything, pretty soon you will have centralized
so much power that you will fear losing an election, and have either no
elections or a one party system.

What you call micro-managing is what I call economic policy. Failure
to "micro-manage" the mortgage and derivative market (which soared
because the declining middle class needed the money that was all going
to the top 1%) is what caused the financial crisis of 2008. I wish
those of you who believe in this "free market" idea could learn from
experience. I really thought that the horrible Bush II experiment
would be the end of it. But noooooo.

I see at least you agree with me that the
money needs to get to the consumers, but instead of New Deal makework, why
not just give newly created money to them all equally.

Well, I'm liberal ... too a degree.

Instead of increasing unemployment benefits, decreasing the incentive to
work, give the money whether they are unemployed or not.

PCT shows that there's no such thing as "incentives" or
"disincentives" any more than there are such things as "positive or
negative reinforcements". The appearance that money, for example, is
an incentive is an illusion, the behavioral illusion. That's one
reason most of economics is pretty much worthless; economic models
(such as they are) are based on an incorrect model of human nature.

RM: If demand for my widgets goes down (because me and my cohorts are
paying out workers slave wages) I maintain profits by laying off
workers (or using cheaper overseas labor)

But that isn't why demand went down. �Demand went down because several
trillion dollars disappeared when the pyramid of credit collapsed.

I'm talking about the chronic reduction in demand that occurs when
wealth is transferred from the huge demand pool of the middle class to
the top 1%, where only a fraction of that potential demand is actually
used. The credit collapse simply made it possible for the middle class
to continue to make up for their lowered wage-based demand with
borrowed money.

�Why go
protectionist when just 3 years ago we only had 5 percent unemployment?

Because that level of employment was achieved by maintaining middle
class demand with credit; middle class demand was reduced because it
was being moved into the profits of the top 1% by lowering (or
stagnating) wages or moving jobs overseas. In order to stabilize the
economy we need policies that maintain middle class demand and
eliminate leakage of demand from the circular flow of money;and
leakage is pretty clearly created by the transfer of wealth (via
obscene profits) from the middle to the upper 1%. And one way this
transfer occurs is by paying cheap labor overseas.

The jobs that disappeared didn't suddenly go overseas, they went out of
existence due to the collapse in demand from the reduced money supply

Right, jobs disappeared due to the reduced money supply that was in
the hands of consumers. And the money supply to consumers, which had
been made up by the now no longer existent credit market, was being
reduced by, among other things, producers paying the cost of
production to overseas labor that was not returning that money to the
producers as demand. The money paid for overseas labor is money that
leaks out of the circular flow, which normally goes from producers to
consumers and from consumers back to producers.

With 5 percent unemployment within reach with a properly
managed money supply there is no reason to forgo the benefits of trade from
comparative advantage.

It's not the supply of money per se that matters; it's who has the
money that matters. And the way to manage who has the money is through
regulations, like minimum wage laws, CEO compensation rules, etc, that
prevent too much of gross national income (wages and profits, which is
what I think of as the money supply) concentrating at the top end,
where it disappears from demand.

Best

Rick

···

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

17

[Martin Lewitt Nov 19, 2010 2029 MST]

[From Rick Marken (2010.11.19.1350)

  Martin Lewitt (Nov 19, 2010 0640 MST)--
You end up micro-managing everything, pretty soon you will have centralized
so much power that you will fear losing an election, and have either no
elections or a one party system.

What you call micro-managing is what I call economic policy. Failure
to "micro-manage" the mortgage and derivative market (which soared
because the declining middle class needed the money that was all going
to the top 1%) is what caused the financial crisis of 2008. I wish
those of you who believe in this "free market" idea could learn from
experience. I really thought that the horrible Bush II experiment
would be the end of it. But noooooo.

That is revisionist history, even Barney Frank has admitted he was wrong. FANNIE and FREDDIE were encouraged to lower lending standards and used for social engineering, and of course,their very status as quasi-governmental agencies was requested to be reformed by the Bush administration.

I see at least you agree with me that the
money needs to get to the consumers, but instead of New Deal makework, why
not just give newly created money to them all equally.

Well, I'm liberal ... too a degree.

Instead of increasing unemployment benefits, decreasing the incentive to
work, give the money whether they are unemployed or not.

PCT shows that there's no such thing as "incentives" or
"disincentives" any more than there are such things as "positive or
negative reinforcements". The appearance that money, for example, is
an incentive is an illusion, the behavioral illusion. That's one
reason most of economics is pretty much worthless; economic models
(such as they are) are based on an incorrect model of human nature.

Yes, there is really something different going on underneath when people respond to incentives and disincentives. The models don't capture all this complexity, but the total complexity is such that forecasting skill would likely be pretty poor even if it was represented, but that doesn't mean that economics and adjusting incentives are worthless. Prices do provide better than random information about whether certain behaviors will be profitable, changes in tax policy do result in changes in behavior, people do consider incentives and disincentives when making decisions.

RM: If demand for my widgets goes down (because me and my cohorts are
paying out workers slave wages) I maintain profits by laying off
workers (or using cheaper overseas labor)

But that isn't why demand went down. Demand went down because several
trillion dollars disappeared when the pyramid of credit collapsed.

I'm talking about the chronic reduction in demand that occurs when
wealth is transferred from the huge demand pool of the middle class to
the top 1%, where only a fraction of that potential demand is actually
used. The credit collapse simply made it possible for the middle class
to continue to make up for their lowered wage-based demand with
borrowed money.

You are assuming a zero sum game, the increased disparity in the US was due to new wealth from increased productivity going to capital rather than to labor, so there wasn't a "transfer from" the middle class. Unfortunately, the federal reserve played a role in this allocation of the returns from productivity increases, by responding to increased wages as if they were inflationary. Of course, parts of the middle class faced increased competition from labor in other countries, and the increases in return to that labor arguably means that the international income disparity has decreased.

  Why go
protectionist when just 3 years ago we only had 5 percent unemployment?

Because that level of employment was achieved by maintaining middle
class demand with credit; middle class demand was reduced because it
was being moved into the profits of the top 1% by lowering (or
stagnating) wages or moving jobs overseas. In order to stabilize the
economy we need policies that maintain middle class demand and
eliminate leakage of demand from the circular flow of money;and
leakage is pretty clearly created by the transfer of wealth (via
obscene profits) from the middle to the upper 1%. And one way this
transfer occurs is by paying cheap labor overseas.

Reform of the federal reserve is needed. Artificially low interest rates did incent increased borrowing and reduced savings in the middle class. If the prospect of returns from saving had been greater, then there might have been greater returns to the middle class from the increased productivity, by participating as owners and not just consumers.

The jobs that disappeared didn't suddenly go overseas, they went out of
existence due to the collapse in demand from the reduced money supply

Right, jobs disappeared due to the reduced money supply that was in
the hands of consumers. And the money supply to consumers, which had
been made up by the now no longer existent credit market, was being
reduced by, among other things, producers paying the cost of
production to overseas labor that was not returning that money to the
producers as demand. The money paid for overseas labor is money that
leaks out of the circular flow, which normally goes from producers to
consumers and from consumers back to producers.

Actual production decreased by large enough amounts to explain most of the lost jobs without resort to an offshoring explanation. The money paid for overseas labor was reduced also during the recession, so leakage was lower. Real demand was going to be lower with the unemployment from the housing sector and the financial collapse from deflation in the housing sector. The fed actually belatedly increased increase rates because of concerns about the bubble, which precipitated the peak of the bubble and its bursting, as people rushed to get the last of the low rates before they increased further and the markets recognized that the pipeline of demand for housing had been emptied.

With 5 percent unemployment within reach with a properly
managed money supply there is no reason to forgo the benefits of trade from
comparative advantage.

It's not the supply of money per se that matters; it's who has the
money that matters. And the way to manage who has the money is through
regulations, like minimum wage laws, CEO compensation rules, etc, that
prevent too much of gross national income (wages and profits, which is
what I think of as the money supply) concentrating at the top end,
where it disappears from demand.

Evidently in your model of the economy increased minimum wage laws, increases aggregate demand from the increased wages more than it decreases the employment and demand contribution of marginal workers. Hopefully you have considered the long term implications as well. CEO compensation is a very small part of the economy, that has been overhyped by the media. The crisis may have been spread by its nonlinear effects on them money supply, but it is wrong to focus just on money. There is less wealth to go around because fewer people are doing productive work. Government makework may increase demand but it doesn't increase wealth. It will be better to get the the workers producing real goods and services that are valued by others in the economy. The real economy matters.

Martin L

···

On 11/19/2010 2:50 PM, Richard Marken wrote:

Best

Rick

18

[Shannon Williams (2010.11.20.04 CST)]

�[Martin Lewitt Nov 19, 2010 0745 MST]

I've been intending to consider what constructal theory might contribute to
the understanding of the brain and PCT, but since �its most intuitive
application is to the flow of water, you might find it useful earlier.

http://www.constructal.org/en/art/Phil.%20Trans.%20R.%20Soc.%20B%20(2010)%20365,%201335�1347.pdf

Adrian Bejan - Wikipedia

I had given up on waterflow models and started looking at traffic flow
models. But I will check out your links. Thank you!

19

[Shannon Williams (2010.11.20.40 CST)]

[From Rick Marken (2010.11.19.1350)

It's not the supply of money per se that matters; it's who has the
money that matters. And the way to manage who has the money is through
regulations, like minimum wage laws, CEO compensation rules, etc, that
prevent too much of gross national income (wages and profits, which is
what I think of as the money supply) concentrating at the top end,
where it disappears from demand.

Hey Rick! I like this whole post of yours. For the most part, you
are giving clear images of money flow (or pooling). Maybe this is
good enough to start a flow chart. I am on vacation Monday and
Tuesday yet sending my toddler to daycare. I hope to spend some time

···

on it then. In this last paragraph though, I would like to lobby for the concept of 'inhibit savings'. As your first sentence in the paragraph says:
it's who has the money that matters. I agree absolutely. If no one
could 'have' the money then the money would not stagnate in hugh pools
owned by 1% of the population. In other words, if the top 1% were
made to spend the stagnated money then they would not have it.
Problem solved. (Roubini would think that you need to grandfather the
existing pools somehow to prevent inflation, but I don't think so. We
need a model) You don't need to do so much of the micro-managing that
Martin abhors. Also, you could make the tea partiers happy because by
enforcing the spending concept, you could raise all of your government
money via sales tax. You would not need income tax. (You replace
the income tax with a savings tax.)

Sincerely,
Shannon

20

[Shannon Williams (2010.11.20.50 CST)]

�[Martin Lewitt Nov 19, 2010 2029 MST]

the increased disparity in the US was due
to new wealth from increased productivity going to capital rather than to
labor, so there wasn't a "transfer from" the middle class.

If the money went to capital then can you say where it went after
that? I know where the labor money went- it went to WalMart (just an
example). Can you describe what happens to money that goes to
'capital'?

Sincerely,
Shannon