[From Bill Williams 21 January 2OO4
Those who neglect to learn their history never-the-less
learn their history, but they do so by repeating it.
Bill Powers [(2004.01.21.0616 MST)] ends a comment on
Bruce Gregory's posting on the economics thread with a
statement recommending that the economics thread proceed by,
"simply discussing the issues and relationships [involved]
themselves." Attempting to benefit from past efforts to
comprehend the economic process is Powers argues futile
because it would be based upon persons "who are far worse
modelers than I am." This is somewhat of a departure for
CSGnet which in the past has, and to a very large degree
continues to be dominated by discussion of a book written
by a man so deeply into old age senility that he couldn't
remember from one day to the next what he had written the
previous day. Rather than actually proceeding by "simply
discussing the issues and relationships themselves." the
effect of Powers' recommendation is obviously intended to
exclude consideration of opinions other than those held
by Powers himself. What can be the expected effect of
such a policy? Extrapolation may not be the preferred
mode of scientific analysis-- but I don't pretend that
what follows amounts to science. It is, however, I hope
based upon an informed view of how economic theory has
either developed, or not, in the past few centuries.
And, it is also based upon discussion with Bill Powers
over a couple of decades.
The discussion with Powers have consistently followed a
sequence in which first my help has been requested in
building a comprehensive economic model. Second,
difficulties have arisen when I've pointed out to
Powers ways in which his very preliminary efforts, if
continued may experience difficulties. Third, the
discussion has terminated with Powers questioning by
intelligence, sanity, or in this last sequence my
intellectual integrity. I like Bill, but it is best to
recognize that he is a man with limited social skills.
And, unfortunately as he grows older his character is
coming to resemble that of his father ever more
closely. The question here, however, is not primarily
a matter of disposition or the agreeability of his
conduct, but rather how to proceed in attempting to
reconstruct theoretical economics in terms of the new
understandings provided by control theory. Powers on
his own, to my knowledge, has never generated a single
new insight regarding economic phenomena on his own.
This past experience does not, of course, in anyway
rule out the possibility that he might in the future
might generate an original insight, but this hasn't
happened yet. After only two or three decades, it
might be premature to ask why, given Powers' interest
in economic issues, he has been unable to generate a
new economic insight on his own, but the sooner this
question is answered, the sooner Powers would be able
to modify his approach, it seems necessary, so
as to be more likely to reach success.
Consider a recent sequence of postings.
[From Bill Powers (2004.01.21.0616 MST)]
Bruce Gregory (2004.01.20.1257) --
"Gross Domestic Product (GDP) may be thought of in two ways. First,
it is a measure of the total income of all individuals in the economy.
Second, it is a measure of the total value of expenditures on goods
and services in the economy. These two measures must be equal. Why?
The distinction between the two has to do with whether one measures
output from the perspective of supply (the first definition) or
demand (the second definition."
It is interesting what this leaves out: savings.
Powers like his dad, has been too impatient to familiarize himself
with the national income accounts. The result for TCP was that he
confused capital costs associated with production with capital
purchases or investment. The result was that TCP imitated an
Under consumptionist model, long after the Under-consumptionists
departed the stage. The result for Powers has been that he
neglected to learn the nomenclature of economics and the
consequence has been that he has been talking nonsense for
decades. For Power to claim that the GNP leaves out savings
displays a very nearly complete absence of understanding of
the system of income/expenditure accounting of which the
measure is a part. I asked, several economics grad-students
to read the statement, some laughed, other were puzzled.
Powers goes on to say,
Since [Keynes] made no provision in his equations for actual
cash reserves or savings,
However, the Keynesian equations Y = C + I, and Y = C + S, obviously
do, contrary to Powers, do include (as the presence of "S" indicates)
a provision for savings. I don't understand how Powers could say
this, when it obviously isn't true.
[Keynes] had to conclude that savings and investment were the same
thing. They are not, of course.
Bill is wrong on both counts. Keynes in an earlier work on money _had_
treated savings and investment as if they could have different
magnitudes. So, the first assertion is evidently mistaken. As to the
second, assertion Bill is attempting to argue from authority. The
"of course" inserted here is completely meaningless.
Powers goes on to say,
Even I, a crank and an ignoramus, can tell the difference between
money I put in savings and money I withdraw from savings in order
to buy stocks or bonds. I obviously can't BOTH save my excess
income AND invest it in stocks and bonds.
Bill's argument here is based on such a complete misunderstanding of
Keynes' position that it took me a moment or two to understand what
Bill was getting at. Depending upon how one chooses to think about
the problem Bill is experiencing the mistake is either comic or
tragic.
Bill says,
Just to prevent conclusion-jumping,
I am afraid that, "the giant leap in the wrong direction" has already
taken place. This time the leap has been made by Bill Powers rather
than Rick Marken.
Bill says,
Note that Keynes' model is stimulus-response: consumption is
driven by income, rather than by reference levels for goods
and services which then require income to satisfy in a market
economy.
Perhaps Bill can supply a page reference for this claim? In the
absence of a reference, I suggest readers disregard the claim.
If Bill can supply a reference, then it might be considered.
Bill says,
My father.. correctly understand the concept of composite
entities in a macroeconomic theory. Composite entities are
not just scaled-up versions of individuals or families.
In the distant past, the CSGweb sight "best of the list"
section included a passage in which Keynes was described as
having misunderstood the economy to be just an individual
scaled up. When I began to raise questions about this,
some how it got removed from the list. If TCP, who made
this absurd claim, actually understood the character of
macro economic constructs, Bill Powers didn't learn it
from his dad. Or, if he did, he's forgotten what he
learned-- as will be demonstrated below.
Bill says,
I no longer expect any help from the economists in our group.
I am perfectly willing to help, if my help is appreciated.
But, the help I will supply will be of the nature of criticism.
If Powers can't make use of criticism, then I can't be of any
help. But, that is up to Powers. He has to be a willing
audience.
Bill Says,
Something has to keep the theoretician honest, so he can't
just say, "Oh, yeah, investment," and write a few lines to add
investment periodically to his system -- from some unmentioned
source off the books. Working models are not supposed to leave
loose ends, or allow the modeler to reach in and tweak things
that aren't coming out right.'
I asked a couple of people here, how in the world could Powers
make such a statement. Their answer was that Powers didn't
understand what he read. I assure readers, that my income/
expenditure model does not correspond to Powers' description.
Powers goes on to say,
Economists are not supposed to cook the books any more than
auditors are.
If what Bill Powers meant to say is that I "cooked the books,"
then he is a liar. If not, then he's just careless with the truth.
Bill Williams