Using PCT to model Economics

[Martin_Lewitt]

[Martin Lewitt Nov 20, 2010 0303 MST]

[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'?

It goes to the bottom line, i.e., profits. Most likely it is either reinvested in the business, since distributing it as dividends which come from after tax profits, would incur a second tax as income to the shareholders. This double tax means that even poor returns from opportunities the business has internally, are likely to be better than investing the cash where higher returns indicate it is needed most. Bush only lowered the double tax to 15%, and class warfare Democrats want to put it back to full marginal rates. These retained earnings if not reinvested internal to the business, are part of the internal cash hoards currently sitting on the side lines. They may eventually be used for mergers and acquisitions, or if they can't think of anything better, buybacks of their own stock. You can tell Democrats prefer large conglomerates and heavily indebted corporations (debt capital is only single taxed), and malinvestment, because they set up the system to incent exactly that. You can judge people by what they say, or to truly know them, judge them by what they do.

The internal investment, M&A and the stock buybacks, do get the money back in circulation, chiefly to investors, financial companies and owners of mutual funds and tax advantaged retirement accounts. The cash hoards are not completely out of circulation, they will be invested in some sort of interest bearing account, currently getting very low returns. They are symptoms of the high risk and poor economic prospects seen in the current economic climate.

regards,
     Martin L

···

On 11/19/2010 11:52 PM, Shannon Williams wrote:

Sincerely,
Shannon

[rsmarken]

[From Rick Marken (2010.11.20.0900)]

Martin Lewitt (Nov 19, 2010 2029 MST)--

Rick Marken (2010.11.19.1350)

RM: 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.

ML: That is revisionist history

I have learned from painful personal experience that people rarely
abandon cherished ideas just because they are refuted by data (as with
causal models of behavior) or because they lead to catastrophic
results (as with the "free market" economics of the Republicans),
although Greenspan did finally admit that his Ayn Rand based fantasies
about the economy were wrong (for which I admire him). So while I did
think, back in 2001, that the catastrophe that would (and did) result
from Republican policies would convince everyone to never vote for a
Republican again, by 2003 I realized that this was not going to
happen.

RM: PCT shows that there's no such thing as "incentives" or
"disincentives" any more than there are such things as "positive or
negative reinforcements".

ML: 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.

So you agree that there is no such thing as an incentive but that it's
still worthwhile to adjust them. Interesting.

RM: The credit collapse simply made it possible [I should meant to say
"impossible" - RM] for the middle class to continue to make up for their
lowered wage-based demand with borrowed money.

ML: You are assuming a zero sum game

Of course it's zero sum. The sum is GDP. Even though GDP is typically
increasing, at any point in time if 80% of GDP goes to the top 10% of
the population then 20% of GDP is left for the bottom 90% of the
population. 100 - (80+20) = 0. If the proportion of GDP going to the
top 10% of the population increases, to 90%, then then only 10% of GDP
is left for the bottom 90% of the population: 100 - (90+10) = 0.

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.

Capital investment has been virtually constant for the last 100 years
at about 20% of GDP. GDP itself can be considered all income since it
is the amount paid to the aggregate consumer by the aggregate producer
to produce all those goods and services. So GDP is equivalent to GDI
(gross domestic income), the income available to the aggregate
consumer to purchase what it has produced as the aggregate producer.
If the proportion of GDI going to the top 10% of the population
increases, then the proportion going to the bottom 80% decreases. And
this is what has happened, rather precipitously, since 1980, as shown
in the attached graph. The proportion of GDI going to the top .01% of
the population went from 1% in 1980 to about 6% now -- a six fold
increase -- after being nearly constant at 1% from 1943 - 1980 (a
period during which most Republicans were still reasonably sane).

Actual production decreased by large enough amounts to explain most of the
lost jobs without resort to an offshoring explanation.

True. Most of the job loss is probably due to stagnant or declining
domestic wages due to the weakening of unions, so that demand (created
by paying workers; remember the circular flow) was reduced and the
need for jobs declined.

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.

You bet!

Hopefully you have considered the long term implications as well.

Sure have. And I have seen the long term implications of more
equitable income distribution; a long period of sustained prosperity
in the US (1943-1980), with a balanced budget and an economy that was
the envy of the world. Not so much now.

Government makework may increase demand but it doesn't increase wealth.

How about the government "makework" that developed internet
technologies like packet switching (DARPA). We've leveraged that into
a pretty good bit of 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.

I agree. And the real economy has to start distributing the fruits of
productivity more equitably to the producers (who are also the
consumers). It's good and good for you.

Best

Rick

···

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

Content-Type: image/jpeg; name="WealthDiscrepancy.jpg"
Content-Disposition: attachment; filename="WealthDiscrepancy.jpg"
X-Attachment-Id: f_ggqqzhry0

[Martin_Lewitt]

[Martin Lewitt Nov 21, 2010 0450 MST]

[From Rick Marken (2010.11.20.0900)]

Martin Lewitt (Nov 19, 2010 2029 MST)--

Rick Marken (2010.11.19.1350)
RM: 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.

ML: That is revisionist history

I have learned from painful personal experience that people rarely
abandon cherished ideas just because they are refuted by data (as with
causal models of behavior) or because they lead to catastrophic
results (as with the "free market" economics of the Republicans),
although Greenspan did finally admit that his Ayn Rand based fantasies
about the economy were wrong (for which I admire him). So while I did
think, back in 2001, that the catastrophe that would (and did) result
from Republican policies would convince everyone to never vote for a
Republican again, by 2003 I realized that this was not going to
happen.

No, as totalitiarian regimes have realized, you will need to cancel all elections or just have a one party system for that.

  RM: PCT shows that there's no such thing as "incentives" or
"disincentives" any more than there are such things as "positive or
negative reinforcements".

ML: 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.

So you agree that there is no such thing as an incentive but that it's
still worthwhile to adjust them. Interesting.

Of course there ARE incentives and disincentives, they just don't work as behaviorists would have us believe. Instead they are just another environmental factor that may be considered. The disincentives to miss the April 15 tax filing deadline or to avoid the double tax on equity capital or the incentive to achieve a sale goal, or a profit, do impact aggregate behavior statistics. They are data considered when controlling for reference values.

Martin L

···

On 11/20/2010 10:05 AM, Richard Marken wrote:

RM: The credit collapse simply made it possible [I should meant to say
  "impossible" - RM] for the middle class to continue to make up for their
lowered wage-based demand with borrowed money.

ML: You are assuming a zero sum game

Of course it's zero sum. The sum is GDP. Even though GDP is typically
increasing, at any point in time if 80% of GDP goes to the top 10% of
the population then 20% of GDP is left for the bottom 90% of the
population. 100 - (80+20) = 0. If the proportion of GDP going to the
top 10% of the population increases, to 90%, then then only 10% of GDP
is left for the bottom 90% of the population: 100 - (90+10) = 0.

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.

Capital investment has been virtually constant for the last 100 years
at about 20% of GDP. GDP itself can be considered all income since it
is the amount paid to the aggregate consumer by the aggregate producer
to produce all those goods and services. So GDP is equivalent to GDI
(gross domestic income), the income available to the aggregate
consumer to purchase what it has produced as the aggregate producer.
If the proportion of GDI going to the top 10% of the population
increases, then the proportion going to the bottom 80% decreases. And
this is what has happened, rather precipitously, since 1980, as shown
in the attached graph. The proportion of GDI going to the top .01% of
the population went from 1% in 1980 to about 6% now -- a six fold
increase -- after being nearly constant at 1% from 1943 - 1980 (a
period during which most Republicans were still reasonably sane).

Actual production decreased by large enough amounts to explain most of the
lost jobs without resort to an offshoring explanation.

True. Most of the job loss is probably due to stagnant or declining
domestic wages due to the weakening of unions, so that demand (created
by paying workers; remember the circular flow) was reduced and the
need for jobs declined.

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.

You bet!

Hopefully you have considered the long term implications as well.

Sure have. And I have seen the long term implications of more
equitable income distribution; a long period of sustained prosperity
in the US (1943-1980), with a balanced budget and an economy that was
the envy of the world. Not so much now.

Government makework may increase demand but it doesn't increase wealth.

How about the government "makework" that developed internet
technologies like packet switching (DARPA). We've leveraged that into
a pretty good bit of 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.

I agree. And the real economy has to start distributing the fruits of
productivity more equitably to the producers (who are also the
consumers). It's good and good for you.

Best

Rick

[rsmarken]

[From Rick Marken (2010.11.21.1030)]

Martin Lewitt (Nov 21, 2010 0450 MST)--

Rick Marken (2010.11.20.0900)--

So while I did think, back in 2001, that the catastrophe that would
(and did) result from Republican policies would convince everyone
to never vote for a Republican again, by 2003 I realized that this was
not going to happen.

No, as totalitiarian regimes have realized, you will need to cancel all
elections or just have a one party system for that.

I meant it figuratively. I know that there always will (and should) be
some billionaires and religious fundamentalists who will vote
Republican. What I don't get is why the middle class votes for them in
droves. I think part of it is the boiling frog phenomenon. Like the
frog that won't try to escape from a pot of water if the temperature
is brought to boiling very slowly, the middle class is being destroyed
so slowly that they don't know that it's the Republicans who are
turning up the heat.

So you agree that there is no such thing as an incentive but that it's
still worthwhile to adjust them. Interesting.

Of course there ARE incentives and disincentives, they just don't work as
behaviorists would have us believe.

How do you think they work?

Best

Rick

···

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

[rsmarken]

[From Rick Marken (2010.11.21.1920)]

�Martin Lewitt (Nov 21, 2010 0450 MST)--

RM: So you agree that there is no such thing as an incentive but that it's
still worthwhile to adjust them. Interesting.

ML: Of course there ARE incentives and disincentives, they just don't work as
behaviorists would have us believe.

RM: How do you think they work?

Martin, before you continue to subject our gentle readers, many of
whom actually understand PCT, to more of your Ayn Rand fantasies,
could you please explain what you think incentives are? This is
important to me because I think there is no way to reconcile the
notion of "incentives" with the idea that people are perceptual
control systems. If you really believe there ARE incentives then that
would go a long way to helping me understand why you have such a
conventional view of economics.

Best

Rick

···

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

[Martin_Lewitt]

[Martin Lewitt Nov 23, 2010 0805 MST]

[From Rick Marken (2010.11.21.1920)]

  Martin Lewitt (Nov 21, 2010 0450 MST)--

RM: So you agree that there is no such thing as an incentive but that it's
still worthwhile to adjust them. Interesting.

ML: Of course there ARE incentives and disincentives, they just don't work as
behaviorists would have us believe.

RM: How do you think they work?

Martin, before you continue to subject our gentle readers, many of
whom actually understand PCT, to more of your Ayn Rand fantasies,
could you please explain what you think incentives are? This is
important to me because I think there is no way to reconcile the
notion of "incentives" with the idea that people are perceptual
control systems. If you really believe there ARE incentives then that
would go a long way to helping me understand why you have such a
conventional view of economics.

For PCT's sake, I hope there is a way to reconcile with the notion of incentives. Incentives and disincentives change the relative valuation of different possible courses of action (or inaction). For example, my spouse and I chose energy star rated roof shingles despite a dislike for their white color and despite the fact we have R31 insulation and no refrigerated air, because the incentive of a 30% tax credit meant this choice satisfied our overall reference values better. The tax deductability of interest made a relatively more expensive house a possible option. A cop beside the highway is a disincentive to speeding making that option score less as a means of satisfying the reference values of many people. Similarly, a double tax on equity capital while the interest on debt capital is only single taxed makes increases the relative value of the debt option for satisfying the reference values of many businessmen.

Hopefully PCT isn't so reductionist that it can't encompass real world effects on decision making such as this. That wouldn't be the death knell of PCT, in another century or two perhaps the gap could be bridged, just as it is being bridged between chemistry and physics.

I doubt PCT has many implications for economics. At the macro-economic level, I'd be surprised if PCT based models would be distinguishable from subjective value based models, without an enormous expense in gathering information about individual reference values. Even then a parameterization of the distribution of subjective values based upon that data could probably approximate the same results at less computational expense.

If you really believe there AREN"T incentives perhaps that explains why simplistic command and coercion solutions appeal to you. Conventional economics admits a little more complexity and potential for voluntary cooperation.

-- Martin L

···

On 11/22/2010 8:21 PM, Richard Marken wrote:

Best

Rick

[rsmarken]

[From Rick Marken (2010.11.23.0950)]

Martin Lewitt (Nov 23, 2010 0805 MST)_-

For PCT's sake, I hope there is a way to reconcile with the notion of
incentives.

See my reply to Fred [Rick Marken (2010.11.23.0910)]

�Incentives and disincentives change the relative valuation of
different possible courses of action (or inaction).

I thought you said your view of incentives/disincentives is different
than the behaviorist approach. This is precisely the behaviorist
approach: incentives and disincentives cause (change) behavior to take
different courses.

because the incentive of a 30% tax credit meant this choice satisfied
our overall reference values better.

Now your talking PCT. The 30% credit was an incentive because you had
a reference for paying as little as possible. I just bought a dryer
for which we got a large tax credit (for energy efficiency) but that
tax credit did not "incentivize" me at all because the dryer was the
only one that fit in the space available. If there had been no "tax
incentive" I would have bought it anyway. An incentive only exists if
there is a controlled variable that is affected by it.

A cop beside the
highway is a disincentive to speeding making that option score less as a
means of satisfying the reference values of many people.

Yes. And, as you imply, there are some people for whom it is not a
"disincentive" because they are not controlling for getting a ticket.
The cop is a "disincentive" only for people who are controlling for
not getting tickets. The idea that events in the world, like cops,
have incentive value is an illusion

I doubt PCT has many implications for economics.

I think it would be wise for you to learn PCT before coming to such conclusions.

If you really believe there AREN"T incentives perhaps that explains why
simplistic command and coercion solutions appeal to you. �Conventional
economics admits a little more complexity and potential for voluntary
cooperation.

Actually, I see it exactly the opposite way. If you believe in
incentives then you must believe that people only do what they do
because they are caused to do it be external incentives. Since the
main incentive you believe in is money, you would tend to believe that
people only do things when there is a monetary reward at the end for
doing it. And the stronger the incentive the stronger the behavior

So I would guess that you would tend to believe people work only for
money and the more money the more work. I suspect you would also
believe that people who make tons of money have worked very hard and
those who make very little have worked very little. Since people won't
work unless monetary incentives are provided I would imagine that you
would believe that the only way to get people to contribute to society
is to coerce work by offering money in proportion to how hard they
work. Monetary rewards (incentives) are what control economic behavior
and the bigger the incentive the bigger the work. So I would guess
that you would favor allowing the possibility of huge incentives
(monetary incentives) for work or we would never get people like
Huntington to build railroads. I would imagine that you would say that
providing nearly equal "incentives" in the form of money to everyone
would be a lousy idea because then nothing great would get done;
everyone would just do mediocre work.

So it's actually your view of society, which sees people working
(producing) only in proportion to the size of incentives, that is
truly coercive. Coercion is done through differential monetary
incentives, which is the only way to cause people to do anything at
all, let alone anything great.

I agree that my view is also somewhat coercive. But the coercion would
mainly be aimed at keeping people who believe what you believe out of
my face;-)

Best

Rick

···

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

[Martin_Lewitt]

[Martin Lewitt Nov 23, 2010 1058 MST]

[From Rick Marken (2010.11.23.0950)]

Martin Lewitt (Nov 23, 2010 0805 MST)_-
For PCT's sake, I hope there is a way to reconcile with the notion of
incentives.

See my reply to Fred [Rick Marken (2010.11.23.0910)]

Yes, I generally agree with what you were saying there.

  Incentives and disincentives change the relative valuation of
different possible courses of action (or inaction).

I thought you said your view of incentives/disincentives is different
than the behaviorist approach. This is precisely the behaviorist
approach: incentives and disincentives cause (change) behavior to take
different courses.

Only if it changes the valuation for the individual.

because the incentive of a 30% tax credit meant this choice satisfied
our overall reference values better.

Now your talking PCT. The 30% credit was an incentive because you had
a reference for paying as little as possible. I just bought a dryer
for which we got a large tax credit (for energy efficiency) but that
tax credit did not "incentivize" me at all because the dryer was the
only one that fit in the space available. If there had been no "tax
incentive" I would have bought it anyway. An incentive only exists if
there is a controlled variable that is affected by it.

A cop beside the
highway is a disincentive to speeding making that option score less as a
means of satisfying the reference values of many people.

Yes. And, as you imply, there are some people for whom it is not a
"disincentive" because they are not controlling for getting a ticket.
The cop is a "disincentive" only for people who are controlling for
not getting tickets. The idea that events in the world, like cops,
have incentive value is an illusion.

Nothing has intrinsic value of course.

I doubt PCT has many implications for economics.

I think it would be wise for you to learn PCT before coming to such conclusions.

If you really believe there AREN"T incentives perhaps that explains why
simplistic command and coercion solutions appeal to you. Conventional
economics admits a little more complexity and potential for voluntary
cooperation.

Actually, I see it exactly the opposite way. If you believe in
incentives then you must believe that people only do what they do
because they are caused to do it be external incentives. Since the
main incentive you believe in is money, you would tend to believe that
people only do things when there is a monetary reward at the end for
doing it. And the stronger the incentive the stronger the behavior

I thought money made for easier to analyze examples than sexual favors or social recognition, or internal incentives such as feelings of competence or control.

So I would guess that you would tend to believe people work only for
money and the more money the more work. I suspect you would also
believe that people who make tons of money have worked very hard and
those who make very little have worked very little. Since people won't
work unless monetary incentives are provided I would imagine that you
would believe that the only way to get people to contribute to society
is to coerce work by offering money in proportion to how hard they
work. Monetary rewards (incentives) are what control economic behavior
and the bigger the incentive the bigger the work. So I would guess
that you would favor allowing the possibility of huge incentives
(monetary incentives) for work or we would never get people like
Huntington to build railroads. I would imagine that you would say that
providing nearly equal "incentives" in the form of money to everyone
would be a lousy idea because then nothing great would get done;
everyone would just do mediocre work.

I actually explicitly disagreed with this greed oversimplification, when I suggested that many of the wealthy were actually enjoying a skill and feeling of competence or game playing.

So it's actually your view of society, which sees people working
(producing) only in proportion to the size of incentives, that is
truly coercive. Coercion is done through differential monetary
incentives, which is the only way to cause people to do anything at
all, let alone anything great.

Your leap to coercion doesn't quite work, unless you are referring to government disincentives, which restrict or impose severe punishments in the market place. The double tax on dividend and capital gains is coercive. The tax credit is only coercive when one looks at where the money was obtained.

I agree that my view is also somewhat coercive. But the coercion would
mainly be aimed at keeping people who believe what you believe out of
my face;-)

And that is much easier done, than even with people who believe what you believe in but might have slightly different plans for your life. After all, if you don't see money as an incentive, how are you coerced at all?

-- regards, Martin L

···

On 11/23/2010 10:50 AM, Richard Marken wrote:

Best

Rick

[Bill_Powers1]

[From Bill Powers (2010.11.23.1115 MDT)]

Rick Marken (2010.11.23.0950) --

RM: So it's actually your view of society, which sees people working
(producing) only in proportion to the size of incentives, that is
truly coercive. Coercion is done through differential monetary
incentives, which is the only way to cause people to do anything at
all, let alone anything great.

I agree that my view is also somewhat coercive. But the coercion would
mainly be aimed at keeping people who believe what you believe out of
my face;-)

BP: You really must learn that just being 100% right is not an excuse for being hostile to that -- uh -- mistaken person.

Notice that if you give an incentive to a person who has already got almost as much as he wants, the result will be for that person to reduce his own previous effort to get it and use your offered means instead -- if it's easier. If it's harder, your kind offer will result in derisive laughter or something ruder.

Bill

[FredNickols]

[From Fred Nickols (2010.11.23.1128 MST)]

I'm going to mix in part of this one, too.

[From Rick Marken (2010.11.23.0950)]

Martin Lewitt (Nov 23, 2010 0805 MST)_-

ML: > For PCT's sake, I hope there is a way to reconcile with the notion of

incentives.

RM: See my reply to Fred [Rick Marken (2010.11.23.0910)]

ML: > �Incentives and disincentives change the relative valuation of

different possible courses of action (or inaction).

RM: I thought you said your view of incentives/disincentives is different
than the behaviorist approach. This is precisely the behaviorist
approach: incentives and disincentives cause (change) behavior to take
different courses.

FN: I know many dyed-in-the-wool behaviorists, Rick, and I don't think one
of them would say what you say is their approach; namely, that "incentives
and disincentives cause (change) behavior to take place." They're more
likely to say something along the lines of "Can I find something I can use
to obtain a certain performance from a particular individual? Yeah, I can
do that."

FN: Were I to ask one of my behaviorist friends if money is an incentive,
they would probably either say "It can be" or they would give me a look and
say something like, "C'mon, Fred, you know better than that." Ditto for
reinforcers.

FN: In short, so far as I know, nothing is or isn't an
incentive/disincentive without taking into consideration the value placed
upon it by the prospective recipient. The value placed upon it by the
person bestowing it does not determine its status as an
incentive/disincentive.

Regards,

Fred Nickols
Managing Partner
Distance Consulting LLC
1558 Coshcoton Avenue - Suite 303
Mount Vernon, OH 43050-5416
www.nickols.us | fred@nickols.us

"Assistance at a Distance"

···

-----Original Message-----

[rsmarken]

[From Rick Marken (2010.11.23.1150)]

Bill Powers (2010.11.23.1115 MDT)--

BP: You really must learn that just being 100% right is not an excuse for
being hostile to that -- uh -- mistaken person.

I'm not hostile because I think I'm 100% right. I'm hostile because I
just can't stand the ideas of the "mistaken person".

Notice that if you give an incentive to a person who has already got almost
as much as he wants, the result will be for that person to reduce his own
previous effort to get it and use your offered means instead -- if it's
easier. If it's harder, your kind offer will result in derisive laughter or
something ruder.

I'm, sorry. I have no idea what you're talking about here.

Best

Rick

···

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