Voodoo Economy (was modeling economy)

(Gavin Ritz 2011.07.26.11.07NZT)

[Martin Lewitt 2011 July 25 1403 MDT]

[Shannon Williams
(2011.07.25.1130 CST)]

[Martin Lewitt 2011 July 25 0624 MDT]

What’s missing in
most of these discussions is the fact that economic units are made up of
millions of small and large units that are all required to meet financial
constraints and make surpluses. That is they are all financial units
interacting with each other. Everyone is complicit in the money making machine.
When I make a profit I make money, they only thing is I can’t print it.

An economy is the
aggregation of all financial units; it’s a massive non equilibrium system.

As far as I can tell,
almost every single time we run into problems
it’s always the financial unit (s) that runs into trouble first. Simply because
they ignore the financial rules.

So if we imagine that
every financial unit is a control system how would they all interact.

Regards

Gavin

···

On 7/25/2011 11:12 AM, Shannon Williams wrote:

[From Rick Marken (2011.07.25.1625)]

Gavin Ritz 2011.07.26.11.07NZT)

GR: What’s missing in
most of these discussions is the fact that economic units are made up of
millions of small and large units that are all required to meet financial
constraints and make surpluses.

Still with the surpluses, eh? Where are they?

RSM

···


Richard S. Marken PhD
rsmarken@gmail.com

www.mindreadings.com

(Gavin Ritz 2011.07.26.11.27NZT)

[From
Rick Marken (2011.07.25.1625)]

Gavin Ritz 2011.07.26.11.07NZT)

GR: What’s missing in most of these discussions is the fact
that economic units are made up of millions of small and large units that are
all required to meet financial constraints and make surpluses.

Still with the surpluses, eh? Where are they?

It’s a good question.

They are
historical financial records and quantified by a special obligation called
money in one instance.

At the
other end of the scale they are a measure of the units’ ability to be
viable.

In
another way they also show the units positive energetic balance.

The conversion
process-functions within the unit create a larger pressure (+) within than the
outside of this unit, that is it manages to maintain it’s integrity from
the external environment.

Here’s a question what if no
financial units made surpluses? That is continual losses?

That is all individuals never had enough
funds to cover their expenses and all business always made losses?

Regards

Gavin

[From Rick Marken (2011.07.25.1700)]

Gavin Ritz (2011.07.26.11.27NZT)

RM: Still with the surpluses, eh? Where are they?

GR: It’s a good question.

They are
historical financial records and quantified by a special obligation called
money in one instance.

At the
other end of the scale they are a measure of the units’ ability to be
viable.

In
another way they also show the units positive energetic balance.

The conversion
process-functions within the unit create a larger pressure (+) within than the
outside of this unit, that is it manages to maintain it’s integrity from
the external environment.

I still don’t understand this. What is the surplus a surplus of? Does a surplus differ from a profit?

Here is an example. I sell 100 widgets for $1000. It cost me $500 to make the widgets. Is there a surplus involved here?

RSM

···

Here’s a question what if no
financial units made surpluses? That is continual losses?

That is all individuals never had enough
funds to cover their expenses and all business always made losses?

Regards

Gavin


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

[From Adam Matic 2011.07.26 0300CET]

Bill Powers 2011.07.25.0015 MDT

Of course the changes I imagine would meet with a lot of objections, similar to the ones I heard when told I had to give grades to those in a student-sponsored seminar I ran at Northwestern University in the early 70s. I said “Everyone has a B to start with. If you do something extraordinary, you get an A. I haven’t got time for this grading crap.” That went over like a duck buzzing a skeet-shooting club. How can you tell who is better than who, I was asked. Are you going to give someone a B who did half as well as I did? I’m working hard to get high grades so I can get the best jobs (or, I thought, so only the worst jobs would be left for others). If we all get B’s why should we bother to learn anything?

BP:

This is a great example of how things that are not scarce do not need to be made scarce artificially. Grades are like that, or ideas.

But what if we’re talking about food? In some countries, it is a very scarce good.

It’s ironic that a system based on competition practically eliminated hunger and made food cheap and available to everyone, while a system based on “to everyone according to his need” made most people poor and hungry, if not starved or sacrificed for “the good of the society”.

Competition is not necessarily conflict, as I see it. Words like “choice” describe the flip side of the concept of competition. If a dozen producers compete in making the best something or the cheapest something on the market, then consumers have a choice in what they will buy. Producers don’t need to be in mutual conflict. I don’t see where exactly the loops that are in conflict would be in cases of competition.

There is a very useful algorithm in producing that goes like this - make something that sells for more than it costs. If it does - people want it. Make more. Constantly improve.

There is another algorithm that is less useful - if there is someone who makes the things I make better or cheaper than me - go to government, ask for banning of their product, babble about damping, protecting American cars, protecting consumers from inferior goods, or caring about consumers’ health. No competition - no need for improvement.

Scarcity of goods is a fact and clash of needs inevitable, so competing over scarce goods is inevitable, no matter what the system is. The best we can hope for is that instead of competing ending in violence, it ends up as improvement, and thus making some goods less scarce and more widely available to people.

Best, Adam

[Martin Lewitt 2011 July 25 1929 MDT]

[From Rick Marken (2011.07.25.1625)]

Gavin Ritz
2011.07.26.11.07NZT)

                GR: What’s missing in

most of these discussions is the fact that economic
units are made up of
millions of small and large units that are all
required to meet financial
constraints and make surpluses.

      Still with the surpluses, eh?  Where are they? 
The surpluses comes from the subjective values of the producer or

ultimate consumer. When the product is valued more than the
materials, capital equipment depreciation and labor that went into
its production a surplus has been produced. If the producer did not
think that he or someone else would value what is produced more than
what he or the market valued what was put into it, he wouldn’t
engage in the activity. In a market it is the plans and values of
the many that produce the surplus.

-- Martin L
···

On 7/25/2011 5:26 PM, Richard Marken wrote:

      RSM
  --

  Richard S. Marken PhD

  rsmarken@gmail.com

  [www.mindreadings.com](http://www.mindreadings.com)

[From Bill Powers (2011.07.25.2010 MDT)]

Adam Matic 2011.07.26 0300CET]

AM: Competition is not necessarily conflict, as I see it. Words like "choice" describe the flip side of the concept of competition. If a dozen producers compete in making the best something or the cheapest something on the market, then consumers have a choice in what they will buy. Producers don't need to be in mutual conflict. I don't see where exactly the loops that are in conflict would be in cases of competition.

BP: When there is scarcity, the conflict is between consumers. If one consumer gets enough of a good, another one doesn't. There is also competition between producers. If one producer sells a person a good, another one also trying to sell a good to that person doesn't succeed, and the cost of trying to make the sale is entirely wasted.

AM: There is a very useful algorithm in producing that goes like this - make something that sells for more than it costs. If it does - people want it. Make more. Constantly improve.

BP: That will only work if you're the only one producing the good. As soon as someone else tries to get into the same market, one producer's gain is another one's loss, and that is conflict. Then the producers have to spend more trying to get a bigger market share, and if they all do that equally well, nobody actually gets a bigger market share: the expense was wasted.

AM: There is another algorithm that is less useful - if there is someone who makes the things I make better or cheaper than me - go to government, ask for banning of their product, babble about damping, protecting American cars, protecting consumers from inferior goods, or caring about consumers' health. No competition - no need for improvement.

BP: Right. I wouldn't recommend that approach, either. This is still an example of competition. The company that goes to the government is trying another strategy to get a larger market share. If it spends enough money on lobbyists and succeeds, someone else gets a smaller market share, and will no doubt try to improve it, nullifying some or all of the first company's efforts and wasting both companys' money.

AM: Scarcity of goods is a fact and clash of needs inevitable, so competing over scarce goods is inevitable, no matter what the system is.

BP: Why is it inevitable? Why not produce as much of each good as is needed to satisfy everyone's reference levels? Of course people who want extraordinary amounts of anything can cause shortages for others, and they will not be treated kindly, but when it comes to the basic essentials for a comfortable life, I see no technical reason why there should be shortages. If we all wanted shortages to disappear, they would disappear.

Of course there are a few people who take advantage of shortages to raise prices if they happen to be producers of the items in question, and it's in their interest to see to it that real shortages exist. I think that explains why there are any important shortages in a well-developed country.

AM: The best we can hope for is that instead of competing ending in violence, it ends up as improvement, and thus making some goods less scarce and more widely available to people.

BP: Competition is a sign that people are trying to control the same things in contradictory ways. That is an enormous waste of effort and resources. An organism that is struggling against itself does not prosper, and can't do what it needs to do to prosper. In a society, without the conflict all the effort can be expended usefully, which will make goods less scarce and more widely available. There is no excuse for food or other necessities being scarce for anyone in the United States or any other developed country. There are, however, reasons that this is the case. Someone profits from the shortages. Just think of OPEC, for an obvious example.

Well, this sort of arguing is fairly futile, isn't it? You haven't convinced me of anything and I haven't convinced you of anything. We're stating positions, not investigating to see what the truth is. We're not really even talking to each other -- it's the onlookers who we hope might be recruited to our respective sides. Without a model that works and that we both accept, nothing will come of this but more arguing. Just another conflict and more wasted effort. What a bore.

Best,

Bill P.

[Martin Lewitt 2011 July 25 2129 MDT]

[From Bill Powers (2011.07.25.2010 MDT)]

Adam Matic 2011.07.26 0300CET]

AM: Competition is not necessarily conflict, as I see it. Words like "choice" describe the flip side of the concept of competition. If a dozen producers compete in making the best something or the cheapest something on the market, then consumers have a choice in what they will buy. Producers don't need to be in mutual conflict. I don't see where exactly the loops that are in conflict would be in cases of competition.

BP: When there is scarcity, the conflict is between consumers. If one consumer gets enough of a good, another one doesn't. There is also competition between producers. If one producer sells a person a good, another one also trying to sell a good to that person doesn't succeed, and the cost of trying to make the sale is entirely wasted.

AM: There is a very useful algorithm in producing that goes like this - make something that sells for more than it costs. If it does - people want it. Make more. Constantly improve.

BP: That will only work if you're the only one producing the good. As soon as someone else tries to get into the same market, one producer's gain is another one's loss, and that is conflict. Then the producers have to spend more trying to get a bigger market share, and if they all do that equally well, nobody actually gets a bigger market share: the expense was wasted.

AM: There is another algorithm that is less useful - if there is someone who makes the things I make better or cheaper than me - go to government, ask for banning of their product, babble about damping, protecting American cars, protecting consumers from inferior goods, or caring about consumers' health. No competition - no need for improvement.

BP: Right. I wouldn't recommend that approach, either. This is still an example of competition. The company that goes to the government is trying another strategy to get a larger market share. If it spends enough money on lobbyists and succeeds, someone else gets a smaller market share, and will no doubt try to improve it, nullifying some or all of the first company's efforts and wasting both companys' money.

AM: Scarcity of goods is a fact and clash of needs inevitable, so competing over scarce goods is inevitable, no matter what the system is.

BP: Why is it inevitable? Why not produce as much of each good as is needed to satisfy everyone's reference levels? Of course people who want extraordinary amounts of anything can cause shortages for others, and they will not be treated kindly, but when it comes to the basic essentials for a comfortable life, I see no technical reason why there should be shortages. If we all wanted shortages to disappear, they would disappear.

Good grief Bill! Evidently, you have so much hubris that you assume pre-existing work in economics has nothing to offer. Why haven't you educated yourself some. If a good is not scarce, then it is not a problem for economics. I've looked around and have found a good discussion of scarcity and am pasting it here:

Scarcity is simply the concept that human wants (not human needs) exceed the resources available that are necessary to produce the goods used to satisfy those wants.

Thus, scarcity is fundamentally the most important concept in economics, upon which all of the rest of the discipline rests. For without scarcity, no need for choice, either individual or collective, exists. One need not make a choice between buying a nice lunch at a restaurant and buying a new sweater because one will always have enough resources to purchase both goods. Since economics is the study of how people make choices, without scarcity there would exist no choice and, hence, no economics.

Thus, scarcity is one of the fundamental premises of economics. However, scarcity is not necessarily universally true, especially for all times, all places, and all goods. Thus, a given good at a specific place or time might not be scarce. Thus, we must define what we mean, not only by scarcity in general, but by scarcity for specific goods.

A good is considered scarce if the amount people demand of the good (quantity demanded) exceeds the amount that is supplied (quantity supplied), when the price of the good equals zero.

A good is considered free if the quantity demanded either equals or is less than the quantity supplied, when the price of the good equals zero.

In other words, a good is not scarce if enough of the good is freely available at a zero price. The definitions of scarce and free goods depend upon the price of the good, which must equal zero to determine whether the good is scarce or free. However, this does not mean that the price must equal zero before one can determine whether or not a good is scarce.

Consider, for example, a good that is free. We already know that this good has quantity demanded less than or equal to quantity supplied when the price of the good equals zero. What happens to the relationship between quantity demanded and quantity supplied, for this free good, as the price of the good rises from zero? After reflection on their behavior, most people will recognize that they will buy less of the good as the price rises, all else equal. Likewise, as the price rises, suppliers of a good will tend to be willing to supply more of the good, all else equal. However, at a zero price there was already more than enough of the good available for those who wanted to consume the good. Therefore, as the price rises this excess supply of the good available will only increase. However, in a free market (one with no government interference in the market) no one will be willing to pay a more than a zero price for this good because they can get all they want when the price is zero. It is only when the good is scarce at the zero price that people will be willing to pay a higher price. In this case, there will not be enough of the good to go around and the people who are not lucky enough to obtain it will try to get it by offering a higher price for the good.

Here is where I got it from:

http://courses.missouristate.edu/reedolsen/courses/eco165/notes/scarce.htm

-- Martin L

···

On 7/25/2011 8:58 PM, Bill Powers wrote:

Of course there are a few people who take advantage of shortages to raise prices if they happen to be producers of the items in question, and it's in their interest to see to it that real shortages exist. I think that explains why there are any important shortages in a well-developed country.

AM: The best we can hope for is that instead of competing ending in violence, it ends up as improvement, and thus making some goods less scarce and more widely available to people.

BP: Competition is a sign that people are trying to control the same things in contradictory ways. That is an enormous waste of effort and resources. An organism that is struggling against itself does not prosper, and can't do what it needs to do to prosper. In a society, without the conflict all the effort can be expended usefully, which will make goods less scarce and more widely available. There is no excuse for food or other necessities being scarce for anyone in the United States or any other developed country. There are, however, reasons that this is the case. Someone profits from the shortages. Just think of OPEC, for an obvious example.

Well, this sort of arguing is fairly futile, isn't it? You haven't convinced me of anything and I haven't convinced you of anything. We're stating positions, not investigating to see what the truth is. We're not really even talking to each other -- it's the onlookers who we hope might be recruited to our respective sides. Without a model that works and that we both accept, nothing will come of this but more arguing. Just another conflict and more wasted effort. What a bore.

Best,

Bill P.

[From Rick Marken (2011.07.25.2110)]

Martin Lewitt (2011 July 25 1929 MDT)–

The surpluses comes from the subjective values of the producer or

ultimate consumer. When the product is valued more than the
materials, capital equipment depreciation and labor that went into
its production a surplus has been produced.

So surplus is just a subjective concept?

If the producer did not

think that he or someone else would value what is produced more than
what he or the market valued what was put into it, he wouldn’t
engage in the activity. In a market it is the plans and values of
the many that produce the surplus.

OK, so I produce a product for $500 (materials, labor, etc). But I feel like it is worth $1,000. So I have a surplus of $500, in my mind. Is that it? Does anyone keep track of the aggregate mental surplus level of our economy? If so, what is that variable called? Is it the “trickle” that is supposed to shower down on us lesser folk? Is it like the quality of mercy; does it droppeth like the gentle rain?

RSM

···


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

[From Rick Marken (2011.07.25.0930)]

Martin Lewitt (2011 July 25 2129 MDT)–

ML: Good grief Bill! Evidently, you have so much hubris that you assume pre-existing work in economics has nothing to offer.

Hey, me too!!

ML: Why haven’t you educated yourself some. If a good is not scarce, then it is not a problem for economics. I’ve looked around and have found a good discussion of scarcity and am pasting it here:

Scarcity is simply the concept that human wants (not human needs) exceed the resources available that are necessary to produce the goods used to satisfy those wants.

Thus, scarcity is fundamentally the most important concept in economics, upon which all of the rest of the discipline rests. For without scarcity, no need for choice, either individual or collective, exists. One need not make a choice between buying a nice lunch at a restaurant and buying a new sweater because one will always have enough resources to purchase both goods. Since economics is the study of how people make choices, without scarcity there would exist no choice and, hence, no economics.

Thus, scarcity is one of the fundamental premises of economics.

This is ridiculously circular reasoning: scarcity is important because without it there would be no need for choice and since economics is about choice there must be scarcity. Besides the fact that this is sophistry of the first magnitude, it has nothing to do with my concept of economics, which is about control, not choice. The central assumption in my approach to economics is that people are controllers; they act as best as they can to produce for themselves what they want and need. They do this in the face of disturbances such as variations in scarcity, skill, knowledge, etc. Economics is the study of how groups of people combine their efforts (cooperatively, competitively, etc) to implement this control. People who seem to be (or feel themselves to be) making choices or decisions are failing to control because they are in a conflict, which is also a control phenomenon – a situation where two or more control systems are trying to bring the same variable to mutually exclusive goal states.

Since the fact of control is not a part of conventional economics, conventional economics is not worth much (but much the data can be the basis for testing control models of the economy).

RSM

···

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

(Gavin Ritz 2011.07.26.17.34NZT)

[From
Rick Marken (2011.07.25.2110)]

Martin Lewitt
(2011 July 25 1929 MDT)–

OK, so I produce a product for $500 (materials, labor, etc). But I feel like it
is worth $1,000. So I have a surplus of $500, in my mind.

So you have a surplus concept in you mind,
but not a surplus.

Is that it?

Nope

Does anyone keep track of
the aggregate mental surplus level of our economy?

Good question, that’s where PCT comes
in. Where you are going to lead the charge. I hope not like the light brigade.

If so, what is that
variable called?

I don’t know which variable you are
talking about. In PCT or in finance or in economics.

Is it the
“trickle” that is supposed to shower down on us lesser folk?

Who are the lesser folk’s?

Is it like the quality of
mercy; does it droppeth like the gentle rain?

What do you mean by the quality of mercy?

···

[Martin Lewitt 2011 July 25 2247 MDT]

[From Rick Marken (2011.07.25.2110)]

        Martin Lewitt (2011

July 25 1929 MDT)–

        The surpluses comes from the subjective values of the

producer or ultimate consumer. When the product is valued
more than the materials, capital equipment depreciation and
labor that went into its production a surplus has been
produced.

      So surplus is just a subjective concept?
If it isn't valued it isn't a surplus.
        If the producer did not

think that he or someone else would value what is produced
more than what he or the market valued what was put into it,
he wouldn’t engage in the activity. In a market it is the
plans and values of the many that produce the surplus.

      OK, so I produce a product for $500 (materials, labor, etc).

But I feel like it is worth $1,000. So I have a surplus of
$500, in my mind. Is that it? Does anyone keep track of the
aggregate mental surplus level of our economy? If so, what is
that variable called? Is it the “trickle” that is supposed to
shower down on us lesser folk? Is it like the quality of
mercy; does it droppeth like the gentle rain?

A lot of people try to keep track of it for individual products.  On

the supply/demand curves it is the area under the demand curve but
above the price. One of the things studied in introductory
macro-economics are different pricing strategies to try to capture
more of that surplus.

Business enterprises in mass markets, since they usually aren't

valuing the products for their own use, and use price signals for
materials, capital, labor and finished goods to figure out if they
can create a surplus or profit.

I don't know of any attempt to track the extra subjective surplus at

the macro-economic level, generally they are constrained to just
look at profits. The federal reserve does make rather subjective
“hedonic adjustments” when calculating inflation.

The producer, producing for his own usage would have to assess how

much to value the surplus he produced, perhaps he is disappointed
and the result and doesn’t consider himself to have a surplus, or he
might consider how much he could sell the product for if he did sell
it. Even if that market price would give him a surplus, if he
doesn’t want to sell at that price, presumably his surplus is even
greater than that.

  -- Martin L
···

On 7/25/2011 10:06 PM, Richard Marken wrote:

      RSM

  Richard S. Marken PhD

  rsmarken@gmail.com

  [www.mindreadings.com](http://www.mindreadings.com)

[From Rick Marken (2011.07.26.1000)]

Gavin Ritz (2011.07.26.17.34NZT)--

RM: OK, so I produce a product for $500 (materials, labor, etc). But I feel like
it is worth $1,000. So I have a surplus of $500, in my mind.

GR: So you have a surplus concept in you mind, but not a surplus.

RM: Is that it?

GR: Nope

So, nu, what's a surplus?

RSM

···

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

[From Rick Marken (2011.07.26.1020)]

Martin Lewitt (2011 July 25 2247 MDT)--

RM: So surplus is just a subjective concept?

ML: If it isn't valued it isn't a surplus.

So what's a surplus?

RM: OK, so I produce a product for $500 (materials, labor, etc). But I feel like
it is worth $1,000. So I have a surplus of $500, in my mind. Is that it?

MT: A lot of people try to keep track of it for individual products.� On the
supply/demand curves it is the area under the demand curve but above the
price.

This makes no sense to me. First of all, the demand curve is a theory,
not a fact. Second, the area under the curve looks to me like all the
goods that _would be consumed_ over the possible range of supply and
price values represented by the demand curve. But presumably there is,
at any point in time, just one supply/price combination in effect
which represents the what is actually consumed (in theory). So where
is the surplus? The total supply is consumed at the price indicated on
the demand curve. I see no surplus here.

RSM

···

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

[From Bill Powers (2011.07.26.1030 MDT)]

Martin Lewitt 2011 July 25 2129 MDT --

ML: Good grief Bill! Evidently, you have so much hubris that you assume pre-existing work in economics has nothing to offer. Why haven't you educated yourself some. If a good is not scarce, then it is not a problem for economics. I've looked around and have found a good discussion of scarcity and am pasting it here:

Scarcity is simply the concept that human wants (not human needs) exceed the resources available that are necessary to produce the goods used to satisfy those wants.

Thus, scarcity is fundamentally the most important concept in economics, upon which all of the rest of the discipline rests. For without scarcity, no need for choice, either individual or collective, exists. One need not make a choice between buying a nice lunch at a restaurant and buying a new sweater because one will always have enough resources to purchase both goods. Since economics is the study of how people make choices, without scarcity there would exist no choice and, hence, no economics.

Thus, scarcity is one of the fundamental premises of economics. ...

BP: Splendid. It's my turn to say Good Grief. If that's really the basis of economics, I think we can understand why economics was unable to predict what just happened and is helpless when it comes to doing anything about it. It also explains why, in all my attempts to educate myself about economics, I have found practically no ideas I ended up believing (where you, apparently, believe everything economists publish, and wish me to believe it, too -- if that's what you mean by saying I should get an education).

You seem to be saying that unless there is conflict, economics has nothing to say about the way we provide goods and services for ourselves (that way being how I would define economics, but read on). It looks as if economics has been tailored to justify a society in which the wealthy and powerful take what they want by any means available, make and enforce laws (through purchase of lawmakers) that keep the rest from overthrowing the system that makes this possible, and requiring the non-wealthy and non-powerful to work to support the system and remain as close as feasible to the subsistence level of existence (got to have those scarcities). In other words, the status quo. No wonder we have revolutions -- that's the only remaining way for the underdog majority to get a life.

Unfortunately, when the underdogs arise and win, they are no better at running an economy than those they displaced. They don't have any workable theory of economics, either. Without a workable theory, we seem to be doomed to endless reorganization in random directions. Well, that will work eventually, but not soon enough to do me any good.

My picture of an economic system is a lot of people working individually and together to find or invent or produce or do things that are useful to themselves and each other, and where possible to bring life closer to what each person wants it to be. There's nothing in that definition about property and owners and managers and distributors and customers and dependents and the poor or young or old or disabled. Or about money and stocks and bonds and credit and sub-prime mortgages. All but the young, old and disabled are artifacts of a particular way of managing an economic system, invented on the fly as we make mistakes and try to correct them. There is nothing necessary, fundamental, or essential about any of them. They are the entities and rules of a game of Dungeons and Dragons we are inventing as we play the game, with no idea of what the consequences will be until they happen.

It's interesting that people can bring some kind of order into that sort of game, but of course nobody goes home after playing Dungeons and Dragons believing that that world, with its levels and passageways and doors and rules and magical appearances and disappearances, really exists. It seems real enough while you're playing it to involve hopes and disappointments and other strong emotions, but when it's over, the illusions dissolve and we go back to real life.

Except in economics, where the illusions persist even as we try to live real life.

To construct a usable model of economics, we have to start from ground level and build from there. Nothing gets into the model unless we can support it with observations, or unless we label it as an hypothesis to be tested. Before we use the model, everyone has to sign off on its organization, so we're all talking about the same thing. Before we believe it, every hypothesis has to pass the tests we apply, or be changed until it does. Tough requirements, dependable model. You can't have the second without the first.

If anyone has an opening suggestion for starting the construction of a model of an economic system, I will be very attentive. Here's a small building block.

When a person buys a quantity of goods or services, the producer's inventories of the goods or time available for services get depleted and the person's store of goods or benefits from services increases by the same amount. The person's store of money or credit shrinks by an amount equal to the number units of the good or service obtained times the price per unit. At the same time, the seller's store of money or credit is increased by the same amount.

That is a description of the environment in which the environmental feedback functions of the participating control systems exist. This model can be elaborated if we take things into account like interest and depreciation and use of consumables and so forth, but this is a starting point for considering the main elements of a transaction. This much of the model can be tested by positing specific transactions, so we can see what happens.

I have never seen a conventional economic model that has anything like these elements in it.

Best,

Bill P.

[From Adam Matic 2011.07.26. ]

Bill Powers (2011.07.26.1030 MDT)

To construct a usable model of economics, we have to start from ground level and build from there. Nothing gets into the model unless we can support it with observations, or unless we label it as an hypothesis to be tested. Before we use the model, everyone has to sign off on its organization, so we’re all talking about the same thing. Before we believe it, every hypothesis has to pass the tests we apply, or be changed until it does. Tough requirements, dependable model. You can’t have the second without the first.

If anyone has an opening suggestion for starting the construction of a model of an economic system, I will be very attentive. Here’s a small building block.

When a person buys a quantity of goods or services, the producer’s inventories of the goods or time available for services get depleted and the person’s store of goods or benefits from services increases by the same amount. The person’s store of money or credit shrinks by an amount equal to the number units of the good or service obtained times the price per unit. At the same time, the seller’s store of money or credit is increased by the same amount.

AM:

You’re right. We need models. I feel foolish for continuing arguments that I’ve seen lead nowhere, and I remember deciding not to (just) argue anymore. My apologies.

You mention an inventory of goods that changes states during a transaction. That seems self evident and as such - a good place to start a model. I’ll try adding another small building block, or at least start a discussion about what the building block should be:

Prior to a transaction, an agreement would be made about the price. We should look at both control systems individually to establish what means “agreement about the price”. From the perspective of each control system, an exact amount of something is given and an exact amount of something else is received. In order to have agreement, both controls systems must “feel” that the amount of thing received is more valuable than the amount of thing given, that is - some error in the system is reduced in the exchange. It’s more important to have the thing received than the thing given (in exact amounts agreed upon).

A hypothetical example - person A has 3 units of money (inventory) more than needed (ref) and a high level of hunger. Person B lacks 4 units of money to ref. level and has 6 units of some food F in inventory more than ref level for that food. Person A offers 3 units of money for 5 units of food because that would decrease the error in both money and hunger systems (could this be checked using. an imagination switch?). Person B offers 5 units of food for 4 units of money. Eventually, they agree on 5 units of food for 3.5 units of money or something similar.

Any good?

Best, Adam

(gavin Ritz 2011.07.27.10.46NZT)

[From Rick Marken
(2011.07.26.1000)]

Gavin Ritz (2011.07.26.17.34NZT)–

RM: OK, so I produce a product for $500
(materials, labor, etc). But I feel like

it is worth $1,000. So I have a surplus of $500,
in my mind.

GR: So you have a surplus concept in you mind, but
not a surplus.

RM: Is that it?

GR: Nope

So, nu, what’s a surplus?

I just gave about 5 different
explanations earlier.

···

(Gavin Ritz 2011.07.27.10.49NZT)

[From Bill Powers
(2011.07.26.1030 MDT)]

Martin Lewitt 2011 July 25 2129 MDT –

Here’s a small building block.

When a person buys a quantity of goods or
services, the producer’s

inventories of the goods or time available
for services get depleted

and the person’s store of goods or benefits
from services increases

by the same amount. The person’s store of
money or credit shrinks by

an amount equal to the number units of the
good or service obtained

times the price per unit. At the same time,
the seller’s store of

money or credit is increased by the same
amount.

That is a description of the environment in
which the environmental

feedback functions of the participating
control systems exist. This

model can be elaborated if we take things
into account like interest

and depreciation and use of consumables and
so forth, but this is a

starting point for considering the main
elements of a transaction.

This much of the model can be tested by
positing specific

transactions, so we can see what happens.

I have never seen a conventional economic
model that has anything

like these elements in it.

Yip a mix of finance and
PCT. After all the economy is really only an aggregation of these elements. Albeit
a complex one.

There are a few non equilibrium
economic models using agent based & complexity type thinking proposed by Brian
Arthur and co. I don’t like them.

See: http://en…wikipedia.org/wiki/Non-equilibrium_economics

http://en.wikipedia.org/wiki/Complexity_economics

http://en.wikipedia.org/wiki/Agent-based_computational_economics

This is why I sent you
all the PCT drawings with two control systems interacting (and you responded
with your drawings), so I could understand the environmental relationships between
controlled variables, output variables etc.

I have the financial background,
what I was looking for was how to put this all together with PCT. Sorry to say
I have not yet managed to get my head around the PCT part and connect that to financial
variables. I actually don’t know where to start.

The problem for me is PCT
is so unique in its structure that I just battle to put it together with
finance. It sort of feels like this, I’m looking into mirrors trying to
do a task. All I have are the mirrors to work with.

Regards

Gavin

···

(Gavin Ritz 2011.07.27.11.54NZT)

[From Bill Powers
(2011.07.26.1030 MDT)

I guess it’s very difficult
to build a model of the economy because some fundamental concepts have not been
agreed not here or anywhere as far as I can tell.

This is how I see the
building blocks of an economic model.

  1.   Energetic
    

gradient of Agent (in this case a Control system)- Losses and gains (or
surpluses)

  1.   Imperative
    

Logical Operator

  1.   Control
    

System (internal signals and external signals), individuals and organisations.

  1.   Networks
    

(interacting of Control systems)

  1.   Time
    

???

  1.   Creativity
    

???

Regards

Gavin

···

[From Bill Powers (2011.07.26.1732 MDT)]

Adam Matic 2011.07.26.

AM: You're right. We need models. I feel foolish for continuing arguments that I've seen lead nowhere, and I remember deciding not to (just) argue anymore. My apologies.

BP: Me, too. Such arguments are addictive but get nowhere.

AM: You mention an inventory of goods that changes states during a transaction. That seems self evident and as such - a good place to start a model. I'll try adding another small building block, or at least start a discussion about what the building block should be:

Prior to a transaction, an agreement would be made about the price. We should look at both control systems individually to establish what means "agreement about the price". From the perspective of each control system, an exact amount of something is given and an exact amount of something else is received. In order to have agreement, both controls systems must "feel" that the amount of thing received is more valuable than the amount of thing given, that is - some error in the system is reduced in the exchange. It's more important to have the thing received than the thing given (in exact amounts agreed upon).

BP: We can approach that agreement in a simpler way: the producer knows the price is OK with the purchaser when the purchaser buys the product. If the asking price is too high, the product will simply accumulate; inventory will increase, or not decrease. So the producer can start with a high price and start lowering it until inventory stops increasing or begins to decrease. Starting low would work, too: start low and keep raising the price until sales start falling off and inventory starts to build up. I don't know which would be the best strategy, so we could try them both.

This way of doing it doesn't require the producer and purchaser to interact face to face (or read each other's minds), so we can bypass a lot of psychologizing. In fact, we can just say that the producer controls for a constant or decreasing inventory -- constant but small would probably be best -- and does so by adjusting the price. The purchaser also controls for keeping an inventory of the good at some reference level, and also keeping the household money reserves at some level. If the good is something like food, it gets used up at some rate and the amount on hand falls below the reference level; that results in making more purchases, but if the money gets too low there can be a conflict...

A hypothetical example - person A has 3 units of money (inventory) more than needed (ref) and a high level of hunger. Person B lacks 4 units of money to ref. level and has 6 units of some food F in inventory more than ref level for that food. Person A offers 3 units of money for 5 units of food because that would decrease the error in both money and hunger systems (could this be checked using. an imagination switch?). Person B offers 5 units of food for 4 units of money. Eventually, they agree on 5 units of food for 3.5 units of money or something similar.

Any good?

Yes, bargaining also happens, and this is probably a good way to start modeling it if you want to include that. I wrote a Turbo Pascal program a long time ago which simulates bargaining; you might want to look at it. The first version was done in 1995, the second, BARGAIN2, shows a probably spurious date of 2005. Here are two links to my dropbox which should download the files to wherever your email downloads go:

http://dl.dropbox.com/u/35647848/BARGAIN2.EXE

http://dl.dropbox.com/u/35647848/BARGAIN2.PAS

The instructions and explanation are in the .Pas file, which you can read with Notepad. The program is a DOS program, which may or may not run on a PC. If it doesn't run, get "DosBox" (free) and use it.

http://www.dosbox.com/information.php

DosBox has versions for several different platforms, including Windows, MacOS X, and Linux.

I don't know how much like real bidding this model's behavior is. I intended to try real bidders to calibrate it, but never got around to it. Anybody is welcome to fiddle with it.

Best,

Bill P.

···

Best, Adam