Zero Sum Economics

CSGnet Archive CSG2004
1

[From Rick Marken (2004.03.04.1630)]

Peter Small (2004.03.04)

It is only extreme, left wing circles that sees business activity in
terms of zero sum games - where it is common to think that an
employer's profit must be at the expense of the employees.

I can't see how employer's profit can't be at the expense of wages, and vice
versa. The total amount of money available for profit and wages is of
finite size at any instant, even if it is growing. That amount of money is
approximately equal to GDP. So if employers take k* GDP (where k is a
proportion between 0 and 1) as profit there is only (1-k)* GDP available for
wages. If k (the proportion of GDP taken as profit) increases, 1-k (the
proportion that can be taken as wages) decreases. Of course, the opposite is
true also. If the proportion of taken as wages increases the proportion that
can be taken as profit decreases. Even if GDP is growing, increases in the
proportion of this growing GDP that is taken for profits (or wages)
decreases the proportion taken for wages (or profits).

Of course, if GDP is growing at a sufficient clip, the _absolute_ amount of
GDP taken as wages at time t+1 can still be greater than the absolute amount
taken as wages at time t, even if the proportion of GDP taken as wages
actually _decreases_. For example, assume that GDP grows from $1000b at time
t to $1100b at time t+1, a 10% increase in GDP. Assume also that k = .4 at
time t. So the absolute amount of GDP that goes for profit at time t is
$400b and the absolute amount that goes for wages is $600b.

Now suppose that k at time t+1 goes from .4 to .45, a 12.5% increase in the
proportion of GDP taken for profit. The result is that the absolute amount
of GDP that goes for profit at time t increases from $400b to $495b and the
absolute amount that goes for wages _also increases_ from $600b to $605b. So
although the proportion of GDP that went to wages _decreased_ by 8% (from .6
to .55) the absolute size of the wages increased. This would even be an
increase in the average wage per capita if the size of the labor population
is constant from time t to t+1.

So although the proportion of GDP taken for profit (capital gains) will
decrease the proportion taken as wages, the absolute size of the wages can
increase if real economic growth is large enough. I imagine that this is why
Republicans are so interested in economic growth. If growth is fast enough,
the wealthy can take larger and larger proportions of the economic pie and
still get the working class to vote for them.

Best regards

Rick

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

2

[From Rick Marken (2004.03.04.1630)]

Peter Small (2004.03.04)

> It is only extreme, left wing circles that sees business activity in
> terms of zero sum games - where it is common to think that an
> employer's profit must be at the expense of the employees.

I can't see how employer's profit can't be at the expense of wages, and

vice

versa.

Rick's argument expresses his continuingly flagrant equvocation. When Rick
said earlier today that, " Profit is what I described earlier: the
difference between
income (I) and expenses (E), P = I - E. " (Ricks world non-standard
notation)
He defined a world in which monetary profits are zero. Income is one side
of a
transaction, cost is the other. So, what Rick ought to have arggued is
that profit,
in the sense that Rick has defined it, can not be at the expense of
workers. So,
Peter's argument ought to fail, given Rick's definition of profit, on
grounds that
neither Rick nor Peter anticipated.

Rick goes on to make some surprizing assertions, such as his inserting what
is
presented as a fact some sort of significance that the

amount of money is approximately equal to GDP.

Rick apparently doesn't remember his physics and chemistry. He is not in
the
habit of attaching units to his variables. Money is an amount. Gross
Domestic
Product is a time rate-- that is it carries a time unit. So, the fact that
money might
equal GNP per year is only an accidental equation.

Rick goes on to say,

So if employers take k* GDP (where k is a proportion between 0 and 1) as

profit

However, in terms of Ricks definition of profit as " Profit is what I
described earlier:
the difference between income (I) and expenses (E), P = I - E. " Then
something
is clearly wrong with the idea that employers can take some proportion "k" a
s a
profit. Rick's translation of terms, he doesn't understand into symbols and
formula is a classic illustration of sceintism-- the use of props and math
which look
like sciences, but are actually a fraud.

Rick goes on in this mode for some time using numerical examples. Rick is
clearly is getting into his role as the Chief Assistant Designer Head
Designer.
It is the same mode that Rick was in at Boston several years ago. It is the
mode
that he was in when he wrote his H. Economicus paper -- which as I hope
everyone
recalls Bill Powers some years later described as a "Giant leap in the wrong
direction." Powers, applauded, Rick's paper at Boston-- so did everyone
else
who was present with two exceptions. Both held Ph.D.'s in economics. One of
them described the _Leakages_ and associated foolishness as "crackpot" and
the other agree with this assessment. Three years later the foolishness is
still
going on.

But, Rick isn't finished. In the following passage, Rick commits yet
another an
new, at least in my experience, for Rick equvocation. I'll leave it to the
reader
as a "students exercise" to identify the new equvocation.

Of course, if GDP is growing at a sufficient clip, the _absolute_ amount

of

GDP taken as wages at time t+1 can still be greater than the absolute

amount

taken as wages at time t, even if the proportion of GDP taken as wages
actually _decreases_. For example, assume that GDP grows from $1000b at

time

t to $1100b at time t+1, a 10% increase in GDP. Assume also that k = .4

at

time t. So the absolute amount of GDP that goes for profit at time t is
$400b and the absolute amount that goes for wages is $600b.

Now suppose that k at time t+1 goes from .4 to .45, a 12.5% increase in

the

proportion of GDP taken for profit. The result is that the absolute amount
of GDP that goes for profit at time t increases from $400b to $495b and

the

absolute amount that goes for wages _also increases_ from $600b to $605b.

So

although the proportion of GDP that went to wages _decreased_ by 8% (from

.6

to .55) the absolute size of the wages increased. This would even be an
increase in the average wage per capita if the size of the labor

population

is constant from time t to t+1.

So although the proportion of GDP taken for profit (capital gains) will
decrease the proportion taken as wages, the absolute size of the wages can
increase if real economic growth is large enough. I imagine that this is

why

Republicans are so interested in economic growth. If growth is fast

enough,

the wealthy can take larger and larger proportions of the economic pie and
still get the working class to vote for them.

Ordinarily conventional economists get along with the use of two definitions
for
a single symbol. Rick, today define profit three different ways. Add,
Peter's
definition and we have four ways to define profit being used in a
discussion.
I hope that I've managed to stick to one definition.

May I add that Rick committed his foul after Martin Taylor blew the whistle?

Bill Williams

···

----- Original Message -----
From: "Richard Marken" <marken@MINDREADINGS.COM>
To: <CSGNET@listserv.uiuc.edu>
Sent: Thursday, March 04, 2004 6:29 PM
Subject: Zero Sum Economics

3

[From Bill Powers (2004.03.05.1213 MST)]

Rick Marken (2004.03.04.1630) --

I can't see how employer's profit can't be at the expense of wages, and vice
versa.

You can't consider just part of the loop and get right answers. If an
employer arbitrarily sets aside a larger fraction of income to serve as
profit, less money is available to the workers. If less money is available
to the workers, they will have less income to spend on the various products
they need and want. If they buy less, the inventories of output of the type
they buy will rise, and to limit the rise, the producers must lower prices
(or let the unused output rot), or else lower production, meaning they must
lay off workers or lower their wages. In the long run, the only viable
answer is to reduce the amount set aside for profits, because at the
present level it is wrecking the system.

I'm not even sure of that analysis, because there are several other loops
I'm omitting. My point is that you can't look just at part of the loop and
expect to predict what will happen. It's perfectly possible, for example,
that if the composite producer takes more of his total income as profit,
the result will be renegotiation of wages that effectively nullifies the
decision. It's quite possible that the limit on profits is set ultimately
by productivity. Of course it is also set by the tolerance of workers for
radical reductions in their standard of living, and by the sense of
entitlement to profits on the part of entrepreneurs who want to be rewarded
for taking risks (normally with other people's money, of course -- smart
entrepreurs put little at risk but their pride).

Best,

Bill P.

4

From[Bill Williams 5 March 2004 3:22 PM CST]

My references to Bill Powers' characterization of Rick's efforts have often
used Bill's description of Rick's contribution as a "Giant leap in the wrong
direction." Bill is sometimes an accute critic, and in the following mesage
I think he presents an astute analysis of way what Rick asserts with such
impluasible assurance ought to subjected to a through inspection before it
is swallowed. When Bill Powers made the "Giant leap" critique one of the
things that he said was that, if Rick didn't make an effort to identify
where he had gone wrong in his H Economicus model, then he could be
expected to continue to make similar mistakes in the future. And, Rick is
making similar mistakes-- such as presenting claims which are not based upon
an adaquate foundation.

I will however note that Bill Powers continues the equvocation using the
term "profit" in one of the three different ways that the terms has been
used, without identifying, except in context how the term is being used.

[From Bill Powers (2004.03.05.1213 MST)]

Rick Marken (2004.03.04.1630) --

>I can't see how employer's profit can't be at the expense of wages, and

vice

>versa.

You can't consider just part of the loop and get right answers. If an
employer arbitrarily sets aside a larger fraction of income to serve as
profit, less money is available to the workers. If less money is available
to the workers, they will have less income to spend on the various

products

they need and want. If they buy less, the inventories of output of the

type

they buy will rise, and to limit the rise, the producers must lower prices
(or let the unused output rot), or else lower production, meaning they

must

lay off workers or lower their wages. In the long run, the only viable
answer is to reduce the amount set aside for profits, because at the
present level it is wrecking the system.

I'm not even sure of that analysis, because there are several other loops
I'm omitting. My point is that you can't look just at part of the loop and
expect to predict what will happen. It's perfectly possible, for example,
that if the composite producer takes more of his total income as profit,
the result will be renegotiation of wages that effectively nullifies the
decision. It's quite possible that the limit on profits is set ultimately
by productivity. Of course it is also set by the tolerance of workers for
radical reductions in their standard of living, and by the sense of
entitlement to profits on the part of entrepreneurs who want to be

rewarded

···

for taking risks (normally with other people's money, of course -- smart
entrepreurs put little at risk but their pride).

Best,

Bill P.

5

[From Rick Marken (2004.03.05.1930)]

Bill Powers (2004.03.05.1213 MST)--

Rick Marken (2004.03.04.1630) --

I can't see how employer's profit can't be at the expense of wages,
and vice
versa.

You can't consider just part of the loop and get right answers.

I don't understand how this would affect my point about the more going
to profit the less being available for wages. Even if GDP is a variable
in a closed loop -- input, output, controlled, or disturbance, it's
true that if you take k * GDP from GDP it leaves only (1-k) * GDP,
right? I know that the closed loop nature of the economy could impose
limits on the relative proportion of GDP that can be taken as profit or
wages, but that doesn't affect that fact that, at any instant, there a
finite amount of GDP available. I was just describing a mathematical
fact that exists when dealing with real numbers: k*x+ (1-k)*x = x. I
don't understand why this answer would be wrong if I am dealing with
just part of the loop. Maybe I just don't understand your point. I'd
really appreciate it if you would explain it to me again. How does
considering only one part of the loop affect my conclusion that an
increase in the portion of GDP taken as profit would necessarily lead
to a decrease in the proportion taken as wages, and vice versa.

Best

Rick

···

---
Richard S. Marken
marken@mindreadings.com
Home 310 474-0313
Cell 310 729-1400

6

[From Bill Powers (2004.03.05.2115 MST)]

Rick Marken (2004.03.05.1930)--

You can't consider just part of the loop and get right answers.

I don't understand how this would affect my point about the more going
to profit the less being available for wages.

Your point is true at the moment the profit is increased. But the effect of
reducing the amount available for wages will be (I am guessing) some other
effects that will tend strongly to bring wages back up or profits back
down. The system as a whole imposes definite limits on what can be done (in
the aggregate) to change the balances among variables.

Even if GDP is a variable
in a closed loop -- input, output, controlled, or disturbance, it's
true that if you take k * GDP from GDP it leaves only (1-k) * GDP,
right? I know that the closed loop nature of the economy could impose
limits on the relative proportion of GDP that can be taken as profit or
wages, but that doesn't affect that fact that, at any instant, there a
finite amount of GDP available.

This is true, as long as we have no banks in the model to create money. But
closed-loop models have a way of surprising us. Suppose we arbitrarily
double the amplification factor in the output function of a proportional
control system. During the iteration in which this doubling takes place,
the output will clearly double, so we can say that increasing the
amplication of the output function increases the output. However, as you
know the immediate effect in the next few iterations will be a sharp
decrease in the error signal, with the result that the error signal will
soon become about half of its former value, while the output will return
very nearly to its former value.

Remember that k, the proportion of total producer income devoted to capital
distributions, is adjustable in Econ004. If it can be increased, it can be
decreased. In Econ004 it is adjusted by a manager who is trying to maintain
the plant's cash reserves at some particular value. When income is low (due
to high inventories and lowering of prices), the cash reserve tends to
fall, and the manager reduces k accordingly. This leaves more money to keep
paying workers to produce some plant output and buy it, while reducing the
extra expenses of capital distributions -- skipping dividends, etc..When
the cash reserves rise to the desired level, the manager increases k again.

It's very hard to do justice to all these relationships using words.

Increasing profit will leave less to pay to workers, with a finite amount
of money available. That is quite correct. But lowering the pay of workers
will reduce their ability to satisfy their needs by buying goods and
services, which will reduce the income of the producer and increase errors
in both consumer and manager control systems. If the profits were adjusted
by changing the fraction of total income devoted to profit distributions,
the reduction of producer income will reduce the profits during the
following iterations of the simulation. It will also cause further
reductions in the wage payments. What the ultimate effect will be is not,
to say the least, self-evident.

It is also possible for money to stop flowing by entering bank accounts
where it is held; this can happen in both the producer and the consumer
parts of the model. The producer may accumulate more money than can be spent..

  I was just describing a mathematical
fact that exists when dealing with real numbers: k*x+ (1-k)*x = x. I
don't understand why this answer would be wrong if I am dealing with
just part of the loop.

Because you're assuming that you, the observer of the system, can
arbitrarily alter k. In a simulation, you must attribute any change in k to
some causal variables in the model -- in Econ004, it is managers in charge
of cash reserves (or boards of directors) who alter it. Then they
experience the consequences of doing so, which may lead them to reverse
their decision if they want the system to survive. The model has to do all
these things by itself once you've set it going. At best, you could put in
an arbitrary change of k during one iteration, but then you would have to
let the model take over again -- otherwise you wouldn't have a working model.

If you allow yourself to reach into the model and arbitrarily alter
constants or variables that are inside closed loops (rather than being
independent variables), then you become part of the model and the
properties of the model become different. You may change k -- but unless
you keep changing it on every iteration, it won't stay changed (not in a
proper model).

Best,

Bill P.

7

From[Bill Williams 5 March 2004 10:50 PM CST]

[From Rick Marken (2004.03.05.1930)]

> Bill Powers (2004.03.05.1213 MST)--
>
> Rick Marken (2004.03.04.1630) --
>
>> I can't see how employer's profit can't be at the expense of wages,
>> and vice
>> versa.
>
> You can't consider just part of the loop and get right answers.

I don't understand how this would affect my point about the more going
to profit the less being available for wages.

If Rick is actually reading these posts, he might consider that he is being
a bit simplistic in considering the economic problem as being one of
dividing a fixed piece of pie. The way the pie is being divided has a role
in deciding how big the pie is going to be.

Consider an extreme example, if it is decided somehow that labor isn't going
to have any share of the pie then there is going to be no pie. So, it
doesn't make sense for management to attempt to grab the whole pie. If they
are maximizes they will grab as much as the pie as they can upto the point
at which attempting to take more results in their getting less.

Either Albert or Isaac could have figured this out. So, now we know which
one of the famous three you take after.

Bill Williams

8

From[Bill Williams 5 March 2004 11:30 PM CST]

Bill Powers in a posting to day to Rick Marken attempted to explain to
Rick, why the problem of income division is not as simple as it seems to
Rick.

Rick doesn't seem to recognize that the economic pie that is being divided
will vary depending upon how it is divided. That is the system reacts to
"attempts" to control it in ways that may be counter intuitive. In the
Keynesian
system an "attempt" on the part of consumers to increase their savings can
have a perverse effect in which their actual savings will instead decrease.
And, conversely a relaxation by consumers in their attempts to save can have
an unanticipated result that their actual savings increase. These effects
have
be recognized and even taught for more than two thirds of a century-- since
1936 in fact. But, Rick doesn't seem to recognize that economic variables
are part of a complex dynamic control process. And, Rick has been Bill
principle supporter in the Test Bed project. Rick's inability to understand
even the modestly complex economic relationships has been evident for a
number of years. The Boston Fiasco-- which Powers described as "a giant
leap in the wrong direction..." was only the first. But, I am not, here at
any rate, going to repeat or extent my attack upon Rick's preparedness to
serve as the Chief Assistant Head Designer-- with, or without Princess Lady
Diana Sunglasses.

There is however a wider problem involved here, if Rick doesn't understand
what the problem is, it ought to be recognized that there are going to be a
lot of people who aren't going to understand. And, Rick three or more years
after Boston still doesn't understand an elementary feature of modeling an
economic process. And, I think this absence of understanding identifies
a serious difficulty. When Bill Powers introduced his idea of an economic
test bed I asked who wanted such a thing. Rick said he did. But, Rick
doesn't understand basic matters in regard to economic modeling.

Powers, in his explanation to Rick says,

The system as a whole imposes definite limits on what can be done (in
the aggregate) to change the balances among variables.

Well, duh. If Rick needs this explained, there just isn't any hope at all
he is
ever going to understand this stuff.

But, then Bill Powers comes out with an entirely novel concept.

The producer may accumulate more money than can be spent..

Has Bill Powers ever heard of Jackie Onassis?

Or, for that matter, how about that trip to Mars that wasn't going to
cost anything?

At one point Bill Powers says to Rick he can't just change things
around at random in an economic model, or else

you wouldn't have a working model.

Come to think of it, has Rick ever created a "working" economic model?

So, now my question is, if Bill Powers can not successfully explain basic
issues regarding economic modeling to Rick, who is he going to explain
his model to?

Bill Williams

9

[From Rick Marken (2004.03.05.2340)]

Bill Powers (2004.03.05.2115 MST)--

Rick Marken (2004.03.05.1930)--

You can't consider just part of the loop and get right answers.

I don't understand how this would affect my point about the more going
to profit the less being available for wages.

Your point is true at the moment the profit is increased. But the
effect of
reducing the amount available for wages will be (I am guessing) some
other
effects that will tend strongly to bring wages back up or profits back
down. The system as a whole imposes definite limits on what can be
done (in
the aggregate) to change the balances among variables.

Of course. That's all I was saying: profit+wages will always equal
total income (GDP). When profits got up, wages go down. When wages up,
profits go down. Of course the system imposes limits on what can be
done to change the balance of profit and wages. But, at any instant,
it will always be true that profit+wages = GDP.

Even if GDP is a variable
in a closed loop -- input, output, controlled, or disturbance, it's
true that if you take k * GDP from GDP it leaves only (1-k) * GDP,
right?

This is true, as long as we have no banks in the model to create money.

OK. Banks can increase the amount of money in the system (and, thus,
increase GDP, over time). But I still think it's true that
profit(t)+wages(t) = GDP(t).

Increasing profit will leave less to pay to workers, with a finite
amount
of money available. That is quite correct. But lowering the pay of
workers
will reduce their ability to satisfy their needs by buying goods and
services, which will reduce the income of the producer and increase
errors
in both consumer and manager control systems. If the profits were
adjusted
by changing the fraction of total income devoted to profit
distributions,
the reduction of producer income will reduce the profits during the
following iterations of the simulation. It will also cause further
reductions in the wage payments. What the ultimate effect will be is
not,
to say the least, self-evident.

I agree. But at each time slice of the simulation it will be true that
profit(t)+wages(t) = GDP(t). If profit (t) = k*GDP(t) and wages(t)=
(1-k) GDP(t) then, at any instant, an increase in k results in an
increase in the proportion of GDP that goes to profit and a decrease in
the proportion of GDP that goes to wages, and vice versa. No?

  I was just describing a mathematical
fact that exists when dealing with real numbers: k*x+ (1-k)*x = x. I
don't understand why this answer would be wrong if I am dealing with
just part of the loop.

Because you're assuming that you, the observer of the system, can
arbitrarily alter k.

Actually, I was just assuming secular changes in k. If k changes, even
with a constantly changing GDP (both k and GDP changing for whatever
reasons), 1- k changes as well, doesn't it?. So the relative proportion
of GDP that goes to wages and profits changes over time accordingly.

If you allow yourself to reach into the model and arbitrarily alter
constants or variables that are inside closed loops

I would never even suggest doing such a thing. I let my models do
whatever they want to do. It's people I want to control;-)

You may change k -- but unless
you keep changing it on every iteration, it won't stay changed (not in
a
proper model).

What I propose is to let the model do its thing and continuously
measure k (the proportion of GDP that goes to profit) at each tic of
the model. What I believe I will observe is that the proportion of GDP
that is profit at time t (k) will be continuously equal to 1 - the
proportion of GDP that is wages at time t (1-k). Isn't this what
happens with Econ004 ?

Best

Rick

···

---
Richard S. Marken
marken@mindreadings.com
Home 310 474-0313
Cell 310 729-1400

10

[From Bill Powers (2004.03.06.0625 MST)]

Rick Marken (2004.03.05.2340)

I think the discussion is coming down to bookkeeping. However the total
income of the composite producer is disposed of, the sum of all the
expenditures and savings and repayments and investments and losses down the
storm sewer must come out equal to the income, That's just arithmetic.

As Martin pointed out, and our guest theorist also noted, denial of "zero
sum economics" is being used metaphorically to indicate that even if the
monetary bookkeeping balances out to zero, "value" can still increase --
that is, all parties to a transaction may consider they have come out
better than before. Of course that gets us into the psychology of
perception and models of the agents in the system, rather than of the
physical transactions that take place. It is perfectly possible for people
to perceive that they are better off when in fact they are far worse off
(consider the improvements brought about in Germany by the Third Reich).
Control of perception and all that.

Values have to do with reference levels and perceptions, and of course
exist in each individual who judges value. It makes no sense to speak of an
overall increase in value in terms like these, since this kind of value has
no objective, same-for-all, existence. How would you add it up? Add my
satisfaction with my little telescope to your satisfaction with your job,
and subtract Ralph Nader's dissatisfaction with the EPA? Talk about adding
apples and aardvarks!

Best,

Bill P.

···

Bill Powers (2004.03.05.2115 MST)--

Rick Marken (2004.03.05.1930)--

You can't consider just part of the loop and get right answers.

I don't understand how this would affect my point about the more going
to profit the less being available for wages.

Your point is true at the moment the profit is increased. But the
effect of
reducing the amount available for wages will be (I am guessing) some
other
effects that will tend strongly to bring wages back up or profits back
down. The system as a whole imposes definite limits on what can be
done (in
the aggregate) to change the balances among variables.

Of course. That's all I was saying: profit+wages will always equal
total income (GDP). When profits got up, wages go down. When wages up,
profits go down. Of course the system imposes limits on what can be
done to change the balance of profit and wages. But, at any instant,
it will always be true that profit+wages = GDP.

Even if GDP is a variable
in a closed loop -- input, output, controlled, or disturbance, it's
true that if you take k * GDP from GDP it leaves only (1-k) * GDP,
right?

This is true, as long as we have no banks in the model to create money.

OK. Banks can increase the amount of money in the system (and, thus,
increase GDP, over time). But I still think it's true that
profit(t)+wages(t) = GDP(t).

Increasing profit will leave less to pay to workers, with a finite
amount
of money available. That is quite correct. But lowering the pay of
workers
will reduce their ability to satisfy their needs by buying goods and
services, which will reduce the income of the producer and increase
errors
in both consumer and manager control systems. If the profits were
adjusted
by changing the fraction of total income devoted to profit
distributions,
the reduction of producer income will reduce the profits during the
following iterations of the simulation. It will also cause further
reductions in the wage payments. What the ultimate effect will be is
not,
to say the least, self-evident.

I agree. But at each time slice of the simulation it will be true that
profit(t)+wages(t) = GDP(t). If profit (t) = k*GDP(t) and wages(t)=
(1-k) GDP(t) then, at any instant, an increase in k results in an
increase in the proportion of GDP that goes to profit and a decrease in
the proportion of GDP that goes to wages, and vice versa. No?

  I was just describing a mathematical
fact that exists when dealing with real numbers: k*x+ (1-k)*x = x. I
don't understand why this answer would be wrong if I am dealing with
just part of the loop.

Because you're assuming that you, the observer of the system, can
arbitrarily alter k.

Actually, I was just assuming secular changes in k. If k changes, even
with a constantly changing GDP (both k and GDP changing for whatever
reasons), 1- k changes as well, doesn't it?. So the relative proportion
of GDP that goes to wages and profits changes over time accordingly.

If you allow yourself to reach into the model and arbitrarily alter
constants or variables that are inside closed loops

I would never even suggest doing such a thing. I let my models do
whatever they want to do. It's people I want to control;-)

You may change k -- but unless
you keep changing it on every iteration, it won't stay changed (not in
a
proper model).

What I propose is to let the model do its thing and continuously
measure k (the proportion of GDP that goes to profit) at each tic of
the model. What I believe I will observe is that the proportion of GDP
that is profit at time t (k) will be continuously equal to 1 - the
proportion of GDP that is wages at time t (1-k). Isn't this what
happens with Econ004 ?

Best

Rick
---
Richard S. Marken
marken@mindreadings.com
Home 310 474-0313
Cell 310 729-1400

11

From[Bill Williams 6 March 2004 8:20 AM CST]

[From Bill Powers (2004.03.06.0625 MST)]

Rick Marken (2004.03.05.2340)

I think the discussion is coming down to bookkeeping. However the total
income of the composite producer is disposed of, the sum of all the
expenditures and savings and repayments and investments and losses down

the

storm sewer must come out equal to the income, That's just arithmetic.

Lets not minimize the importance of sticking to _just arithmetic_. It
wasn't a good sign when Bill Powers decided to add 2 + 2 and get 5 when he
wanted to justify going to Mars.

As Martin pointed out, and our guest theorist also noted, denial of "zero
sum economics" is being used metaphorically to indicate that even if the
monetary bookkeeping balances out to zero, "value" can still increase --
that is, all parties to a transaction may consider they have come out
better than before. Of course that gets us into the psychology of
perception and models of the agents in the system, rather than of the
physical transactions that take place.

Economics has never been and never will be a study of physical transactions.
Economic transactions are about values and symbols.

It is perfectly possible for people

to perceive that they are better off when in fact they are far worse off
(consider the improvements brought about in Germany by the Third Reich).
Control of perception and all that.

In fact even in Germany as the Third Reich took power the German people were
controlling their perceptions. But, this gets us back to the unresolved, I
see you have chosen issues. And, certainly _somebody _ was making some
choices.

Values have to do with reference levels and perceptions, and of course
exist in each individual who judges value. It makes no sense to speak of

an

overall increase in value in terms like these, since this kind of value

has

no objective, same-for-all, existence.

Of course it has no "objective" metric, but this isn't at all the same thing
as saying it "makes no sense."

How would you add it up? Add my

satisfaction with my little telescope to your satisfaction with your job,

The question of how to add it up might be less problematic if Bill Powers
would adopt a somewhat more sophisticated conception of value than the
hedonistic one of "satisfaction." But, this would involve Bill Powers is a
complex set of issues, a more difficult set of issues than the Keynesian
income theory. The Keynesian issues have in some practical sense been
solved-- these issues which have to be solved in order to construct index
numbers-- have not been solved. That this issue is coming up seems to me to
indicate that Bill Powers is actuallly reading Bruun's dissertation.

Bill goes on, ranting a bit, continuing on this line saying,

subtract Ralph Nader's dissatisfaction with the EPA? Talk about adding
apples and aardvarks!

I can spoof Kant's declaration-- the one about the two things that filled
him with wonder, saying,

"There are two questions that fill an economists heart, (now there's a novel
idea for you!) with fear and wonder, one is the appendix to Keynes' chapter
on User Costs, and the other one is the theory of index numbers.

Bill, could we hear one more time, it would so encourage the troops, or is
it troop, how, if the economistss hadn't gone out of their way to make it
difficult, economics would be really quite simple and straightforward?

Or, maybe I could go to the CSGnet archives and do a search using "easy?"

Over time the Chief Head Designer seems to be finding running naked in the
forest is becoming more and more problematic. And, the Chief Assistant Head
Designer keeps making the same mistake, over and over, and over. Recently
he forgot his password and when he wants to masterbate with the data
B***** doesn't open his files anymore. At this rate the damn refirgerators
are never going to be transformed into terrifying weapons of descriminating
destruction.

Bill Williams

12

From[Bill Williams 6 March 2004 9:10 AM CST]

[From Rick Marken (2004.03.05.2340)]

I have noticed a peculiar way that Rick conducts his dialog with the
the Chief Head Designer. He begins a disagreement by saying
that he agrees. Then he says "But..." and after his argument he
uses what I take it is a Spanglish expression "No?" The imps
would express this more directly, by shouting "No, No, you are the
idiot." But, then the imps are not as shy and deferential as Rick.

>
I agree. But at each time slice of the simulation it will be true that
profit(t)+wages(t) = GDP(t). If profit (t) = k*GDP(t) and wages(t)=
(1-k) GDP(t) then, at any instant, an increase in k results in an
increase in the proportion of GDP that goes to profit and a decrease in
the proportion of GDP that goes to wages, and vice versa. No?

What Powers is attempting to explain to Rick is that a control system
is a system in and through time. And, what Bill Powers is interested
in is what the system does after the initial disturbance introduced by
a change in k has worked its way through the system. Bill Powers,
however seems to be assuming that the system is stable-- and for a
capitalist system this is probably contra-factual. But, Rick doesn't
seem to be interested in what the system does, so he insists that
what is important is what happens at the "instant" at which k is
changed. In effect Rick is intent upon the effect of k when he assumes
that the "pie" is fixed. While Bill Powers wants to see what the effect
of chaning k is upon the size of the "pie" and then what will be the
relative shares of labor and capital.

So solve their disagreement I think what Rick and Bill Powers need
to do is in colboration write a simple program. Then using this simple
program they could work out their differences. When Rick has three
defintions of what a profit is, 1) p = income - expenses, 2) profit
equals the income of capitalists, 3) profit equals speculative capital
gains it doesn't help Basically the problem remains that Rick hasn't
learned the lesson that he should have learned from the Boston fiasco.
And, Bill Powers hasn't figured out how to explain to Rick what a control
system model of an economy is supposed to do. Obvious just to cut
up a fixed sized "pie" you don't need an underlying control system
model of the economy.

Rick says that he is a control system's thinker. However, his thought
process recently doesn't provide any evidence of this. Rather, in reaction
to Powers' attempt to explain what a control system analysis involves,
Rick resists the explanation and insists upon treating the relationship
between the size of the GNP "pie" and the relative shares (k) in non-
control theory terms.

It really is turning out to be a "Zero Sum Economics." Rick just isn't
learning.

Bill Williams

13

[From Rick Marken (2004.03.06.0830)]

Bill Powers (2004.03.06.0625 MST)--

Rick Marken (2004.03.05.2340)

I think the discussion is coming down to bookkeeping.

Actually, that was all it was ever about: bookkeeping. It started with
Peter Small's (2004.03.04) claim that it was a mistake to think that "
an employer's profit must be at the expense of the employees". I just
pointed out that if total income is x then, by simple bookkeeping , if
k of x goes for profit then only (1-k) of x can go for wages. So
increases in profit (increases in k) occur at the expense of wages
(decrease in 1-k). Peter has now agreed that this is the case but said
that this is not what he meant by "at the expense of wages" . What he
meant was that profits don't really "belong" to the worker so they
don't come at the expense of wages. As you say, Peter was really
talking about "values" rather than "arithmetic". I'm not interested in
discussing this because, as you say,

It makes no sense to speak of an overall increase in value in value has
terms like these, since this kind of no objective, same-for-all,
existence.

An interesting note: I'm currently reading _Anna Karenina_ with Linda
and we just read a passage where Levin (a wealthy landowner who is
clearly Tolstoy's alter ego in the book) is discussing the question of
the inequitable distribution of wealth with his friends while on a
hunting trip. Levin, like me, is troubled by the apparent unfairness of
inequitable distribution of wealth (although he is a beneficiary of
it) but he has no solution to the problem. His wealthy friends are not
troubled by it at all and feel completely entitled to their (inherited)
wealth. What makes the discussion particularly ironic is that Levin is
actually a hard working guy (doing physical farm labor) who seems far
more "entitled" to his wealth than his lazy, carousing friends. It was
interesting to see that things really haven't changed much in 150 years
or so. It was also interesting to see this discussion occurring in a
country (Russia) that would soon be hijacked by a bunch of control
freaks who would impose the worst possible solution to the inequitable
distribution of wealth problem: dictatorship.

Anyway, I do think it will be possible to make a "value free" argument
for policies that produce more equitable distribution of wealth based
on a control model of the economy. As you said in your prior posts, if
employers increase the proportion of income they take as profit
(capital distributions) it will decrease the amount available for
purchase of what is being produced (assuming that excess profit cannot
be used for consumption; you can only buy so many private planes and
Hummers). The result will be lowered production, resulting in a large
portion of the population not able to consume the goods and services it
needs although the economy was capable of producing these goods and
services.

It sounds like Econ004 is coming right along. I'd like to see it
(source and object version, of possible) when you're ready to show it.

Best

Rick

···

---
Richard S. Marken
marken@mindreadings.com
Home 310 474-0313
Cell 310 729-1400

14

From[Bill Williams 6 March 2004 11:20 AM CST]

[From Rick Marken (2004.03.06.0830)]

> Bill Powers (2004.03.06.0625 MST)--
>
> Rick Marken (2004.03.05.2340)
>
> I think the discussion is coming down to bookkeeping.

Actually, that was all it was ever about: bookkeeping. It started with
Peter Small's (2004.03.04) claim that it was a mistake to think that "
an employer's profit must be at the expense of the employees". I just
pointed out that if total income is x then, by simple bookkeeping , if
k of x goes for profit then only (1-k) of x can go for wages. So
increases in profit (increases in k) occur at the expense of wages
(decrease in 1-k). Peter has now agreed that this is the case

But, perhaps signficantly Bill Powers hasn't at all agreed.

but said

that this is not what he meant by "at the expense of wages" . What he
meant was that profits don't really "belong" to the worker so they
don't come at the expense of wages. As you say, Peter was really
talking about "values" rather than "arithmetic". I'm not interested in
discussing this because, as you say,

> It makes no sense to speak of an overall increase in value in value has
> terms like these, since this kind of no objective, same-for-all,
> existence.

This is typical of one way that Rick and Bill converse, it doesn't agree
with their position it makes "no sense." This is behind a goo part of their
difficulty with attempting to read Keynes.

An interesting note:

No, actually it isn't so interesting after all. What it comes down to a
morality tale justifying, who else, but Rick.

I'm currently reading _Anna Karenina_ with Linda

and we just read a passage where Levin (a wealthy landowner who is
clearly Tolstoy's alter ego in the book) is discussing the question of
the inequitable distribution of wealth with his friends while on a
hunting trip. Levin, like me, is troubled by the apparent unfairness of
inequitable distribution of wealth (although he is a beneficiary of
it) but he has no solution to the problem. His wealthy friends are not
troubled by it at all and feel completely entitled to their (inherited)
wealth. What makes the discussion particularly ironic is that Levin is
actually a hard working guy (doing physical farm labor) who seems far
more "entitled" to his wealth than his lazy, carousing friends. It was
interesting to see that things really haven't changed much in 150 years
or so.

I am sure that Rick must work very hard indeed.

It was also interesting to see this discussion occurring in a

country (Russia) that would soon be hijacked by a bunch of control
freaks who would impose the worst possible solution to the inequitable
distribution of wealth problem: dictatorship.

In the following Rick continues his extended exercise in equovocation,
saying

Anyway, I do think it will be possible to make a "value free" argument
for policies that produce more equitable distribution of wealth based
on a control model of the economy.

This is nonsense. Nonsense in the sense that an argument for a policy is
neccesarily an arguement that the outcomes of the policy are more valuable
than the alternatives. So, of course policy justification is always a
matter of compartive values-- judgments are never "value free." Judgement
consists of a process of making an "evaluation" according to some criteria.
Brings to mind Bill Powers' phrase "shocking stupidity."

As you said in your prior posts, if

employers increase the proportion of income they take as profit
(capital distributions) it will decrease the amount available for
purchase of what is being produced (assuming that excess profit cannot
be used for consumption;

We have to assume that Rick was never acquainted with Jackie Onasis.

you can only buy so many private planes and

Hummers).

But, if like Paul Allen you set your sights on space l it isn't impossible
to add 2 + 2 and get five and consequently decide that it makes sense to
spend trillions and trillions going to Mars. Because, according to PCT
economics it won't cost a damn thing.

The result will be lowered production, resulting in a large

portion of the population not able to consume the goods and services it
needs although the economy was capable of producing these goods and
services.

I think Bill Powers has it right, when he says, first get a running model,
then use the model to generate conclusions. Rick obviously is getting his
conclusions-- from somewhere-- long before he has a control theory model.

Rick says,

you can only buy so many private planes an [d]
Hummers

However, as Bill Gates has demonstrated you can buy houses by the acre.

What Rick is doing is disguising a "value judgement" as an empirical
matter-of-fact. Maybe no one would "want" to buy an unlimited number of
planes and cars, but this is a very different matter from the question of
whether one could. But, Rick's statements about economics are just blither
anyway.

Rick says,

It sounds like Econ004 is coming right along.

Based upon what Bill P{owers has said on the CSGnet I don't see why Rick
would come to this conclusion. It might be that Bill Powers is a bit
further along in reading Bruun's dissertation, than Rick. When you get to
page 87 and the culmination of the argument that in the Keynesian system
savings and investment constitute an identity, then Bill Powers and Ricks
denial of this identity here on the CSGnet in the recent past becomes more
problematic. But this is just the edge of the region in which the Keynesian
system can be entertaining. For those like Rick amd Bill Powers adjusting to
the Keynesian relationships at first seems as if time and causation are
running backwards.

Bill Williams