How do you disprove an Economic Theory?

[calabi]

So what if people were beholden to this Economic idea like a religion. So they went around the world and pushed this idea upon everyone through either force or guile. The cases where they have implemented this things havent went well for these people, but they believe it is a good idea just because the values and things they care about have gone up, but not because the theory is actually sound.

 

Economic theory doesnt appear to be under the same scrutiny as the rest of science, perhaps that is because it is so hard examine. You cant experiment with a real economy. People quite often dont always behave ideally.

 

But the manner, and way in which people are beholden to it and (economics in general)view things through it seems excessive and what if you value other things.

 

Of course I'm looking at things from a sense of bias, but then so are these people.

 

Could you not discount some theories because people do not behave like it at all. Surely it should involve more theory on human behaviour anyway.

 

Another thought is a computer program, or maths formulas that consistently result in certain outcomes that perhaps disprove certain theories.

 

For instance a program that simulates a free market economy that consistently results in a crash or bad things happening would that suffice? Of course it would have to be open source and open to scrutiny.

[Essay]

Economic theory doesnt appear to be under the same scrutiny as the rest of science, perhaps that is because it is so hard examine. You cant experiment with a real economy. People quite often dont always behave ideally.

 

 

I'm just now watching a show about economics --comparing "privatization" of water, electricity, railways, and healthcare-- in various countries. Someone on the show just shouted something about neoliberal economics not working. I'm familiar with "modern" economics, from Keynes to Marx, and Hayek to Friedman, and took micro and macro econ classes in college; but....

 

From a biochemist's ecological/systems point-o-view, WTF are these people talking about?

 

Let's get beyond all of these vague and wholly inadequate definitions and labels and ideologies, and start over again by looking at physical reality.

 

Could we agree to define the word "economy" and agree on what characterizes an "economic theory" first?

 

Technically "economy" translates as "resource management" and you can either have good or bad management it seems.

 

An "economic theory" would be the understanding about (and application of) resource management, it seems to me.

===

 

So, do we fully understand our resources; and do we understand the full consequences of managing our resources? With those questions answered, value (of system components) can be determined and a model of management can be constructed.

 

We are still operating from (and trying to fix or modify) theories developed in the 18th & 19th centuries, when our understanding of resources (and behaviour) was very limited and warped. Most models today assume the "market economy" exists as a basic fundamental on which to build a theory. Hello? Where did the market economy evolve from? Answering that question helps get back to the basic building blocks--the resources--the "eco" in economy.

===

 

But I'm just a physical science wonk, so maybe this makes no sense to anybody else. I still think it is important to ask what qualifies as an "economic theory" --and what standards must such a theory meet-- and what characteristics should it have to qualify as an economic theory.

And if theories are based on different philosophies of humanity and the human condition...

...how do we even recognize a valid economic theory in the first place?

 

Economic theorizing today seems based more upon political ideologies directed at promoting personal worldviews or short-term social control; but not upon long-term resource management.

 

But what was your question again?

Oh right, how to disprove....

Very good point!!!

 

We should look at the history of economic theroies not to fix them, but to learn what doesn't work, as we develop new economic theory based upon today's more complete understanding of resource systems and their dynamics. Understanding and management (logos & nomos)....

 

 

 

~imho

Edited January 8, 2012 by Essay

[calabi]

Thanks for the reply Essay.

 

I dont suppose you remember the name of that show I would be interested see it.

 

I guess what theories these people value depends on what outcomes they want. Its like confirmation bias. They only see the world from their angle so they only see the success of their theory. If GDP is the only quantifiable measure your interested in and its going up, all is well.

 

I'm thinking it might be very hard to disprove some of these theories because some peoples response to them borders more on religion than quantifiable criteria. After reading wikipedias page on Neoliberalism that definitely seems the case.

 

I'm not sure we can wait for cultural values to change, it might be too late before then.

 

Its getting annoying seeing the economy crash from seeming obvious preventable things. Even if we survive the current problems it seems likely we will end up with another one in ten, twenty years or so. I thought Economics was supposed to prevent that sort of thing. Surely one of its goals should be to help create a stable society.

[iNow]

I wrote this recently at another science forum. Thought it made sense to share it with you here:

 

In reality, economics IS a science. Hypotheses are formed and predictions are made, and we have real financial numbers and GDP and wages per person and debt ... etc... to see how those predictions fared when actually implemented. They're falsifiable.

 

The primary challenge I see with economics is that you're forced to deal with spherical cows. You must idealize certain actions since consumers (and humans, in general, really) do not engage the world as perfectly "rational actors" with access to all of the information needed to make the perfectly rational decisions.

 

When you approximate in this way, and approach the concepts with spherical cows instead of actual-shaped cows... Some errors will, of course, ensue... especially in an arena of billions of people making thousands of choices and decisions every hour (this, to me, is the central point... humans aren't always rational, so you cannot easily predict what decisions they will make, only look at trends and averaged responses).

 

 

In the 18th century, a fellow named Adam Smith published a book called Wealth of Nations that really turned economics on its head, and finally put some structure around these ideas in finance. Before this, all ideas essentially went back to ancient Greece and were a part of philosophy. Smith's work was frequently associated with Newton's work on gravitation. He called his approach a "Newtonian method" to economics, and asserted that (with availability of enough information) it might be possible to identify "natural laws of finance" comparable to Newton's laws of physics.

 

Interesting tidbit... Newton himself had expressed a similar view in his years. In Opticks, he said, "If natural philosophy in all its parts, by pursuing this method, shall at length be perfected, the bounds of moral philosophy will also be enlarged." Ultimately human minds, decisions, and actions are all parts of nature, and what Newton would call the study of moral philosophy. He was apparently interested in economics, too, and even wrote a paper on the subject himself.

 

Both men (Newton and Smith) thought that with enough information we could predict markets like we predict the orbits of planets or falling apples, as have countless others who devote their lives to this field.

 

I personally think they're absolutely correct, it's just that we don't have enough information regarding human decisions... Nor frankly do most humans have enough information about their own decisions that they themselves are making.

 

Then, John Maynard Keynes came along and added to the foundation set in place by Smith, and his ideas have withstood the test of time quite well. Some areas have proven inaccurate, but those few components have been rejected, discarded, replaced and supplemented, and neo-Keynesianism is our best current model, and the most accurate tool available for viewing today's markets when used correctly.

 

When people disagree with his work, it's disagreement based on ideology and personal political beliefs, not evidence or empiricism.

[dimreepr]

I wrote this recently at another science forum. Thought it made sense to share it with you here:

 

In reality, economics IS a science. Hypotheses are formed and predictions are made, and we have real financial numbers and GDP and wages per person and debt ... etc... to see how those predictions fared when actually implemented. They're falsifiable.

 

The primary challenge I see with economics is that you're forced to deal with spherical cows. You must idealize certain actions since consumers (and humans, in general, really) do not engage the world as perfectly "rational actors" with access to all of the information needed to make the perfectly rational decisions.

 

When you approximate in this way, and approach the concepts with spherical cows instead of actual-shaped cows... Some errors will, of course, ensue... especially in an arena of billions of people making thousands of choices and decisions every hour (this, to me, is the central point... humans aren't always rational, so you cannot easily predict what decisions they will make, only look at trends and averaged responses).

 

 

In the 18th century, a fellow named Adam Smith published a book called Wealth of Nations that really turned economics on its head, and finally put some structure around these ideas in finance. Before this, all ideas essentially went back to ancient Greece and were a part of philosophy. Smith's work was frequently associated with Newton's work on gravitation. He called his approach a "Newtonian method" to economics, and asserted that (with availability of enough information) it might be possible to identify "natural laws of finance" comparable to Newton's laws of physics.

 

Interesting tidbit... Newton himself had expressed a similar view in his years. In Opticks, he said, "If natural philosophy in all its parts, by pursuing this method, shall at length be perfected, the bounds of moral philosophy will also be enlarged." Ultimately human minds, decisions, and actions are all parts of nature, and what Newton would call the study of moral philosophy. He was apparently interested in economics, too, and even wrote a paper on the subject himself.

 

Both men (Newton and Smith) thought that with enough information we could predict markets like we predict the orbits of planets or falling apples, as have countless others who devote their lives to this field.

 

I personally think they're absolutely correct, it's just that we don't have enough information regarding human decisions... Nor frankly do most humans have enough information about their own decisions that they themselves are making.

 

Then, John Maynard Keynes came along and added to the foundation set in place by Smith, and his ideas have withstood the test of time quite well. Some areas have proven inaccurate, but those few components have been rejected, discarded, replaced and supplemented, and neo-Keynesianism is our best current model, and the most accurate tool available for viewing today's markets when used correctly.

 

When people disagree with his work, it's disagreement based on ideology and personal political beliefs, not evidence or empiricism.

 

Isaac Asimov touched on this idea in his foundation series, psychohistory is an elaboration of this idea.

[jryan]

I don't agree that economics is a science as there is no single truth to be sought on the subject. Keynes is not some truth upon which economics builds any more than his contemporaries who held conflicting views. A discipline with an undefined number of correct answers to the original question does not appear to be a science as much as it is engineering.

Edited January 8, 2012 by jryan

[calabi]

Thats one thing I've thought is surely Economics should involve more of psychology, as people are its fundamental unit. People are unpredictable as individuals but are they so much when they are judged as a group? Only certain actions are available as a group. It shouldnt be hard to extrapolate behaviours that effect economies in certain ways. Like the US attempted certain controls in Iraq, which they thought would work but didnt, that could have been predicted. Perhaps that isnt such a good idea though, it may give those in power more of an ability to control.

 

Another thing why is GDP held up as this great value? It seems to be the only value these people pay attention to. It seems to be becoming this measure of how successful a few companies are. If the only value of a successful country is GDP where does that leave the possibility of a sustainable economy.

 

Even if all these countries are successful now, it doesnt mean they will be so into the future. Surely it shouldnt be too hard to predict some of these economic crash's. I believe some people did predict them beforehand but were not listened to and ignored.

[Essay]

I dont suppose you remember the name of that show I would be interested see it.

 

I guess what theories these people value depends on what outcomes they want.

I'm not sure we can wait for cultural values to change, it might be too late before then.

...to help create a stable society.

Which is why "adding" psychology might make things worse, istm. Focusing on physical resources should be the basis of economics; then capital and human resources can be added to the mix--as the icing on a more sustainable cake--individualizing economies to account for local customs and culture.

~?

 

 

I searched some terms and found the broadcasted program:

http://www.schemamag...ig_sellout.html

 

The Big Sellout

Review by Cameron Maitland.

 

The simple choice for Florian Opitz when making The Big Sellout—a film scrutinizing privatization all over the world—would have been to follow his multiple subjects and show the massive problems privatization has caused.

 

The Big Sellout

GERMANY, 2006, 94 min., German, English, Tagalog, Spanish

Director: Florian Opitz

Producer: Felix Blum, Arne Ludwig

Cinematography: Andy Lehmann

Editing: Niko Remus

 

Bavaria Film International

Bavariafilmplatz 8

82031 Geiselgasteig

Germany

Tel.: +49 (89) 6499-3506

Fax: +49 (89) 6499-3720

e-mail: gisela.wiltschek@bavaria-film.de

www.bavaria-film-international.de

http://www.chicagodo...g%20sellout.htm

 

The Big Sellout

 

In The Big Sellout seemingly independent lives from around the globe converge to showcase the vast and overwhelming effects of privatization on an everyday scale. Nobel Prize winning economist Joseph Stiglitz, acts as our guide and breaks down the idea of privatization for viewers and indiscriminately discusses who profits from it, and what societies lose when following it blindly. As refined former director of the World Bank, he comes from the world of financial institutions, but today he is fighting for the losers of the privatization process. The film tells tragic, tragicomic but also encouraging stories of average people dealing with the devastation of privatization politics – their salaries, health care, water supply and transportation dictated by anonymous international financial institutions in Washington D.C. and Geneva, such as the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO). From a renegade South African activist who helps poor families in Soweto that cannot afford to pay the high electricity bills anymore to a humorous British train driver and union activist and from a Philippine mother struggling to find money to pay for her son's dialysis to Bolivian citizens of Cochabamba who fought against an US corporation that tried to take over the municipal water supply, this compelling doc tackles a complex and timely topic by giving it a human face.

 

Although it was relevant, the slide I posted above was mistaken for this slide about ecology and economy:

 

-sorry about that

edit

The Rhizosphere: An Ecological Perspective. 232 pages, Elsevier Science, Academic Press, $75.00 - 95.00, Library-o-Congress Call Number: QK644 .R445 2007

"The Rhizosphere" [meaning the extended root zone--especially in land use].

“Thus small changes in the equilibrium between inputs and decomposition could have significant impact on atmospheric CO2 concentrations....” --p.31

2nd edit... A 2003 book highlights this paradigm shift regarding humus and soil carbon:

Ecology of Humic Substances in Freshwaters: Determinants from Geochemistry to Ecological Niches by Christian E. W. Steinberg (Hardcover) Publisher: Springer; Date: July 2003; Page Count: 445; ISBN-13: 9783540439226; ISBN-10: 3540439226; Online Price: $229.90: LC Call# = QH541.5 .F7S725 2003

 

 

 

 

But....

Another question about "econ theories" is whether they apply globally or locally. Local economies may cooperate well and beneficially with each other, but be poorly situated to compete with a larger economy from farther away. ...if you get my drift....

 

Recently I've been wondering about the wisdom of having 50 states competing with each other to attract old, pre-existing businesses that cater to ageing, over-developed, dwindling markets; while the rest of the world is moving forward more cooperatively to build new businesses focused on developing markets.

 

~ ?

Edited January 9, 2012 by Essay

[calabi]

Thanks for info on that film.

 

The thing with those privatisations as well is that the companies would never have never been created in the first place if they werent public companies.

 

These corporations pay peanuts, get all benefits, and no penalties. They are basically avoiding economic consequences.

 

But....Another question about "econ theories" is whether they apply globally or locally. Local economies may cooperate well and beneficially with each other, but be poorly situated to compete with a larger economy from farther away. ...if you get my drift...

 

I think what your talking is specialization theory of economics, I cant remember the exact term. But its about how its more efficient to have one country sell all cheese and the other sell all peanuts as examples. Focusing on a single export, brings benefits to everyone or something like that.

 

Like cheap workers in china benefits everyone because we get cheap products, except it doesnt benefit the chinese workers.

[Essay]

Thanks for info on that film.

 

The thing with those privatisations as well is that the companies would never have never been created in the first place if they werent public companies.

 

These corporations pay peanuts, get all benefits, and no penalties. They are basically avoiding economic consequences.

[--Especially long-term consequences!!!

...I'd add....]

 

I think what your talking is specialization theory of economics, I cant remember the exact term. But its about how its more efficient to have one country sell all cheese and the other sell all peanuts as examples. Focusing on a single export, brings benefits to everyone or something like that.

 

Like cheap workers in china benefits everyone because we get cheap products, except it doesnt benefit the chinese workers.

 

 

 

Yes, the benefits of competitive advantage may be....

 

Just today I heard that old "A rising tide lifts all boats" refrain in a talk by Catherine Crier.

Except, y'know... most poor people don't have boats. And in fact, most poor people can't even swim!

 

I appreciate the goal of development for the underdeveloped world--but on what terms (short and long term) and for what benefit (short and long term)?

 

 

This is copied from a previous post, but seems relevant:

In a culture where one's honor is framed in terms of family history--perhaps back to the time of a prophet--and where honor may equally be an expression of one's fidelity to a religious ethic and worldview, I'd expect disrupting a culture's long continuity is bound to break some honor codes. Many cultures value a secured honor above material security. Just think of the farmers in India where they are "encouraged" to take out loans for planting Monsanto's Roundup Ready crops (which require large pesticide applications). So when the weather doesn't work out and the yields are too low to pay back the loan, some farmers are attempting suicide by drinking the pesticides. Many who are not killed (...I recently heard up to 3/day, countrywide*), are left paralyzed or with other severe neurological impairments as well as subsequent birth defects and cancers.

 

*

http://www.thelancet...IIS0140-6736(11)60639-9/fulltext

"During the past 24 months, 500 farmers committed suicide either by consuming easily available pesticides or by hanging in Maharashtra state alone, often owing to heavy debt as a result of repeated droughts. Because of this, farmers cannot afford to educate their children and make them work on the farm, neglecting their rights to education and childhood."

...as well as....

http://www.pbs.org/f..._of_suicid.html

http://en.wikipedia.org/wiki/Farmers'_suicides_in_India

 

When your family's heritage--the land--is lost, and the future is nothing but increasing debt, then the options quickly narrow.

"Child spraying pesticide over soya crop without mask"

...Lancet also says: "Mahatma Gandhi advised that one could only solve villagers' problems by residing in these villages and not by planning from big cities with air-conditioned offices.

Reading the Series on Indian health, we felt that Gandhi's words had gone unheeded.

We declare that we have no conflicts of interest."

 

http://www.thecoast....ogizes-to-haiti

Halifax; Tue, Mar 30, 2010

...former US President Bill Clinton has apologized for flooding Haiti with cheap American rice beginning in the mid 1990s. During testimony before a US Senate committee three weeks ago, Clinton admitted that requiring Haiti to lower its tariffs on rice imports made it impossible for Haitian farmers to compete. The trade policy forced farmers off the land and undercut Haiti's ability to feed itself.

"It may have been good for some of my farmers in Arkansas, but it has not worked. It was a mistake," Clinton — now a UN special envoy to Haiti — told the US Senate Foreign Relations Committee on March 10. "I had to live everyday with the consequences of the loss of capacity to produce a rice crop in Haiti to feed those people because of what I did; nobody else."

Thank you Bill, for sharing and working to move beyond this....

 

AND this is a Global Problem!"

...my added emphasis

...world leaders are reconsidering trade and aid policies that make poor countries dependent on rich ones. It quotes UN aid official John Holmes as saying that poor countries, like Haiti, need to become more self-sufficient by rebuilding their own food production.

 

"A combination of food aid, but also cheap imports have...resulted in a lack of investment in Haitian farming, and that has to be reversed," Holmes told AP. "That's a global phenomenon, but Haiti's a prime example. I think this is where we should start."

 

... wonder would the following drive some people to the end of their ropes?

...with author's emphasis

The Clinton administration forced Jean Bertrand Aristide to agree to cut rice tariffs drastically when the US restored the Haitian president to power in October 1994. Aristide, Haiti's first democratically elected president, had been overthrown by a US-backed military coup in 1991. In return for $770 million in international loans and aid, Aristide was required to agree to a business-friendly, "structural adjustment" program that aside from cutting food tariffs, also included freezing the minimum wage, cutting the size of the civil service and privatizing public utilities. (Aristide annoyed the US by being slow to implement such policies making Bill Clinton's apology this month all the more surprising.)

 

Janet Eaton, trade and environment campaigner for Sierra Club Canada, says members of the global democracy movement have long known about the failures of the globalized food system and Clinton's apology to Haitians only reinforces what many activists have talked and written about for years.

 

"When high-profile leaders admit that economic globalization isn't working, then it's time for governments to get on board and look at alternatives." Eaton adds. "It is time to admit that these failures exist and put an end to the aggressive free trade frenzy that is now occurring in Canada, the US and Europe as they vie for foreign markets, raw materials and unfettered free trade."

===

 

~

 

p.s. We need to re-evaluate the fundamentals, the basics, the physical commodities... and their dynamics... imho.

 

Hope you caught my last edit, one minute before you posted, in my previous rant....

~

[calabi]

I think thats one thing with GDP as well these countries like China, India etc, growths are dependant on the west. The wests growth is dependant on its population and the growths of these other countries. Crash's, unforseen circumstances, speculative bidding, high inflation, effect the peoples ability in the west to afford those things.

 

Differing companies extract more wealth from the bottom. Thats basically what happened with the banks, they tried extracting more wealth than was there at the time. Companies that get larger remove more jobs than they create. These companies will keep attempting to extract more wealth than is there.

 

I think there is a definite limit of GDP. In way its may be good because we wont reach resource limits before there is some kind of collapse.

[CharonY]

Economics has the same issues as other complex sciences. The large numbers of known and unknown variables make it very hard to created decent predictive models. Based on that, the effects of corrective measures are equally hard to predict.

 

This is not much different in natural sciences, when one reaches certain levels of complexities. For example, even something seemingly trivial as metabolic flow within a single cell is incredibly hard to predict with any kind of accuracy.

 

One should note that while psychology plays a role in economics, it is not absolutely necessary to take that into account if you can generalize certain behaviors. One interesting aspect of economics as opposed to, say, ecology, is that in many cases price can be used as normalized metrics of resource flow. This makes it actually easier to study than very complex interconnected compound flows and interactions in nature, for example.

[Athena]

I'm just now watching a show about economics --comparing "privatization" of water, electricity, railways, and healthcare-- in various countries. Someone on the show just shouted something about neoliberal economics not working. I'm familiar with "modern" economics, from Keynes to Marx, and Hayek to Friedman, and took micro and macro econ classes in college; but....

 

From a biochemist's ecological/systems point-o-view, WTF are these people talking about?

 

Let's get beyond all of these vague and wholly inadequate definitions and labels and ideologies, and start over again by looking at physical reality.

 

Could we agree to define the word "economy" and agree on what characterizes an "economic theory" first?

 

Technically "economy" translates as "resource management" and you can either have good or bad management it seems.

 

An "economic theory" would be the understanding about (and application of) resource management, it seems to me.

===

 

So, do we fully understand our resources; and do we understand the full consequences of managing our resources? With those questions answered, value (of system components) can be determined and a model of management can be constructed.

 

We are still operating from (and trying to fix or modify) theories developed in the 18th & 19th centuries, when our understanding of resources (and behaviour) was very limited and warped. Most models today assume the "market economy" exists as a basic fundamental on which to build a theory. Hello? Where did the market economy evolve from? Answering that question helps get back to the basic building blocks--the resources--the "eco" in economy.

===

 

But I'm just a physical science wonk, so maybe this makes no sense to anybody else. I still think it is important to ask what qualifies as an "economic theory" --and what standards must such a theory meet-- and what characteristics should it have to qualify as an economic theory.

And if theories are based on different philosophies of humanity and the human condition...

...how do we even recognize a valid economic theory in the first place?

 

Economic theorizing today seems based more upon political ideologies directed at promoting personal worldviews or short-term social control; but not upon long-term resource management.

 

But what was your question again?

Oh right, how to disprove....

Very good point!!!

 

We should look at the history of economic theroies not to fix them, but to learn what doesn't work, as we develop new economic theory based upon today's more complete understanding of resource systems and their dynamics. Understanding and management (logos & nomos)....

 

 

 

~imho

 

I am quoting you, because I really like what you said.

 

I don't think everyone can get my favorite books, written by a geologist, but I wish economics were based on reality, instead of abstract theory. The value of the dollar is tied to oil and few people seem aware of this, and what that has to do with everything else. As we exhaust our supplies of gold, silver, nickle and copper it cost more to mint coins than the coins are worth, and search for cheaper metals continues.

 

What is really important to our lives is tied to resources, and where those resources are in the world. This is what Hitler's New World Order was about, and is what the US Military Industrial Complex is about. We are seriously unaware of how our lives have been changed, and will continue to change as we exhaust resources and continue to shift from being an exporter to being an importer, and increasingly rely on our military to protect our economic interest around the world.

 

I really like Youngquist's books "Mineral Resources and the Destiny of Nations" and "GeoDestinies".

 

I don't agree that economics is a science as there is no single truth to be sought on the subject. Keynes is not some truth upon which economics builds any more than his contemporaries who held conflicting views. A discipline with an undefined number of correct answers to the original question does not appear to be a science as much as it is engineering.

 

For sure, religion manifest its own reality, and so does economic theory, and everything goes well, until reality can no longer be ignored.

Edited January 11, 2012 by Athena

[Vent]

The value of the dollar is tied to oil...

 

Just as a side note, the value of the US dollar is not tied to oil. The "value" of the dollar is dependent on it's use-value, and the use-value is dependent on the quantity.

 

Economics is a social science, and one of the problems of a social science, with regard to accurate data and forecasting, is the difficulty of doing it due to the amount of variables and contingencies that require accommodation; which is the idea behind the "fudge factors" in the new equations and the argument behind throwing out neo-classical assumptions.

[calabi]

Talking about predictions and reality views. What worth is Economics if the IMF keeps doing this?

 

http://bilbo.economi...et/blog/?p=5366

 

I dont think the problem is economics, there are plenty of other people that are getting the right predictions. I dont know if its wilful stupidity or just stupidity, corruptness or whatever. But its beyond belief and it shouldnt be allowed to keep happening in this seeming time of science.

[Athena]

Just as a side note, the value of the US dollar is not tied to oil. The "value" of the dollar is dependent on it's use-value, and the use-value is dependent on the quantity.

 

Economics is a social science, and one of the problems of a social science, with regard to accurate data and forecasting, is the difficulty of doing it due to the amount of variables and contingencies that require accommodation; which is the idea behind the "fudge factors" in the new equations and the argument behind throwing out neo-classical assumptions.

 

"Given our known supply of oil and rate of consumption, we are headed for economic disaster and possibly war." This came from a 1920's newspaper, along with funny cartoons of skyrocketing gas prices. The economies of all industrial countries depends on oil, and not long after this warning, all industrial economies collapsed the world went to war.

 

Technically it might be said that the value of the dollar is tied to the gross national product, but the gross national product is tied to oil, and when the price of oil goes up too much, the country has a recession. Google offers several explanations of the tie between oil and the value of the dollar, and here is a simple one.

 

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

 

It should be said because we now support the Military Industrial Complex of which Eisenhower spoke, war is a very part of our economy, with the war industry being the most important industry in many towns.

Our employment increases if we do not stay engaged in war, and maintaining the Military Industrial Complex is very much a part of our national debt, which also threatens our economy.

 

Before the first world war, a Prussian D. Friedrich Naumann said, "The war of the future is a problem of economic organization of the most difficult nature and highest technological achievement....

 

When we discuss economics, I really think the discussions are too abstract and omit very important information, such how the Military Industrial Complex economics and culture are different from Adam Smith's experience of economics and culture. For goodness sake, how much industry was power by electricity in the day of Adam Smith? The need for human labor is nothing as it was in his day, and we are still relying on his insight? If we didn't have oil and electricity, there is no way we could maintain our gross national product. The whole world is scrambling for affordable oil, and yes, our economies rely on it, and Military Industrial Complex makes sure we can protect our economy, and the economies of our trade partners.

[Vent]

The value of an economy is not the same as the value of the commodity used to trade within that economy.

 

 

Talking about predictions and reality views. What worth is Economics if the IMF keeps doing this?

 

One of the problems is the time lag between economic seminars and papers and the policy implemented by the policy makers. For the most part, policy makers don't use the most current economic understandiing, this is something we were taught many years ago, not least of which was by Keynes in his general theory.

[calabi]

The value of an economy is not the same as the value of the commodity used to trade within that economy.

 

 

 

 

One of the problems is the time lag between economic seminars and papers and the policy implemented by the policy makers. For the most part, policy makers don't use the most current economic understandiing, this is something we were taught many years ago, not least of which was by Keynes in his general theory.

 

I dont think it has anything to do with latest studies not being applied or anything. I'm pretty sure, there all just using the basic fundamentals to calculate these things, the flaw is the human element.

[Essay]

....

 

Could you not discount some theories because people do not behave like it at all. Surely it should involve more theory on human behaviour anyway.

 

Another thought is a computer program, or maths formulas that consistently result in certain outcomes that perhaps disprove certain theories.

 

For instance a program that simulates a free market economy that consistently results in a crash or bad things happening would that suffice? Of course it would have to be open source and open to scrutiny.

 

 

In this thread: http://www.sciencefo...mits-to-growth/

 

...a model covering those parameters is discussed. It is based on biophysical dimensions (food, fuel, other resources) and biosocial dimensions (population, standard-o-living, etc.) to predict growth, sustainability, and limits.

http://www.newscient...f-collapse.html

 

 

 

...talking about old economic theories....

 

New Scientist, 7 January 2012

"These notions, however, were based on little more than speculation and ideology. The young scientists tried to take a more rigorous approach: using a computer model to explore possible futures. What was shocking was that their simulations, far from showing growth continuing forever, or even levelling out, suggested that it was most likely that boom would be followed by bust: a sharp decline in industrial output, food production and population. In other words, the collapse of global civilisation."

 

 

That model might be a good basis for an economic theory based on modern-day reality. Such a theory should be more gobally relevant, and "disproving" faulty aspects would occur quickly as they should be noticeable across a wide range of conditions.

 

It may be a fools errand to try reworking "economic theory" using only the "basics" that were defined generations ago-- when nation-states were newly evolving, vast and new frontiers were continually opened before old ones filled, and regional developments affected local populations rather than global biodiversity & global biochemistry --when "competitive advantage" made sense as a foundational principle.

 

Competitive advantage works great on a local and regional level, where feedbacks are rapid and local controls are organized. So it is an important part of a global economic theory, but it shouldn't be the philosophical basis for any theory... imho.

===

 

Mixing psychology and economics is what caused many of our current problems; just google: Dichter advert....

 

But psychology (the little that we currently know) may be helpful.

The psychology involved should probably be directed at helping various populations and generations get beyond their personal ideologies and focusing more upon physical realities--getting beyond short-term considerations and focusing more on long-term viability--to help promote a reality-based economic theory.

===

 

The model highlighted in New Scientist article talks about the long-term prospect for civilization:

The crucial point is that overshoot and collapse usually happened sooner or later in World3 even if very optimistic assumptions were made about, say, oil reserves. "The general behaviour of overshoot and collapse persists, even when large changes to numerous parameters are made," says Graham Turner of the CSIRO Ecosystem Sciences lab in Crace, Australia.

"Only when the growth of population and industry were constrained, and all the technological fixes applied, did it stabilise in relative prosperity."

 

From what I know of biophysics and ecology, this sounds like a robust model--at least it is based on physics rather than ideology.

...and it's been around long enough to retrospectively double check....

 

~

Edited January 12, 2012 by Essay

[JustinW]

From what I know of biophysics and ecology, this sounds like a robust model--at least it is based on physics rather than ideology.

...and it's been around long enough to retrospectively double check....

 

How long before ideologies creep in? That is the problem with testing an economic theory. It takes time, and during that time there is no way to keep out ideologies that affect that economic model in a way that does support the models intent. Just like the free market model that the US uses currently. If you look at the greek model for free market economics that the US economy was built upon, it wasn't meant to support subsidies and intitlements that are ever inflated and vertually unsustainable.

[calabi]

How long before ideologies creep in? That is the problem with testing an economic theory. It takes time, and during that time there is no way to keep out ideologies that affect that economic model in a way that does support the models intent. Just like the free market model that the US uses currently. If you look at the greek model for free market economics that the US economy was built upon, it wasn't meant to support subsidies and intitlements that are ever inflated and vertually unsustainable.

 

I've just been reading this guys website and have started reading this book:

 

http://bilbo.economicoutlook.net/blog/

 

http://debunkingeconomics.com/

 

 

From what I can tell so far it looks like the whole basis of economics is flawed. The whole supply demand assumptions(there assumptions what do you expect) are false and they have to finick it to get it to work.

 

They model the behaviour of an individual and that persons buying habits and apply that behaviour to the whole of the economy, thats the basis of most of economics. They've never tested whether that really does apply to an aggregate of people. It seems it doesnt.

 

Even when I read I the Dummy's Economics book I thought things didnt seem right, they have this idea that supply and demand have to meet at this point, when really that has no baring on reality. They have lots of graphs which look great an ordered but have no baring on reality. Its like an incestuous affair, they only look at this theory and dont look at the world.

 

All the Neoclassical models do not have any ability to calculate recessions within them. Another thing we have the past to compare a theory to, if the theory matches up with what happened in the past and explains it then it should be a good contender for being correct. Neoclassical does not at all match up with the past.

 

Neoclassical basic tenent is that, the economy will balance itself, it will move towards a state of balance automatically there doesnt appear to be an explanation of why and how this happens. That games against the whole of nature, I dont think we know of any system that does that?

 

The whole neoclassical economics is an ideology, there's no oversight, no analyis no peer review. Its not a science at all.

[JustinW]

Neoclassical basic tenent is that, the economy will balance itself, it will move towards a state of balance automatically there doesnt appear to be an explanation of why and how this happens. That games against the whole of nature, I dont think we know of any system that does that?

 

I don't know if the balance you're talking about is the balance that I imagine applies. The way I've thought about it is that it's not a model that remains stable and balanced but rather a model that institutes the most freedom. That being based on the assumption that no one institutes ideologies that work to counter the process or establish control measures to manipulate the market. The generic model of the free market economy has its ups and downs, bubbles and recessions, but without manipulation remains the free-est model. It is when the market is manipulated that we have our worst reprecussions.

[calabi]

I don't know if the balance you're talking about is the balance that I imagine applies. The way I've thought about it is that it's not a model that remains stable and balanced but rather a model that institutes the most freedom. That being based on the assumption that no one institutes ideologies that work to counter the process or establish control measures to manipulate the market. The generic model of the free market economy has its ups and downs, bubbles and recessions, but without manipulation remains the free-est model. It is when the market is manipulated that we have our worst reprecussions.

 

 

Thats the point some of theses sidelined economists appear to be making, the whole make up of our economy has been a series of bubbles and collapses. We've had temporary stability because we've inflated these bubbles to huge proportions.

 

The free market model that these economists has no basis in reality. They use utils, how do equate them to reality? The whole basis of their calculations, relies on a single individual, when you add a trifling matter like another individual the whole thing breaks down. You have to have a society of clones or something, for the price to go down when the market demand goes up, for it to not effect incomes.

 

http://www.btinterne..._news/Keen1.htm

 

Their whole basis of supply and demand is flawed.

 

http://www.youtube.c...d&v=E6Gb4tk-z_s

 

If that is flawed then their whole theory of the free market is flawed.

 

If you leave the market to itself you will basically never have a free market. I cant see how anyone can say that we have a free market now. In the real world with completely rational behaviour, you can have an increase in supply and an increase in the price, which shouldnt happen in a free market. The supply and demand wont always be equal, the whole thing breaks down.

 

I'm probably not very good at explaining because I'm basically learning it myself. But even if you look at a basic economics book, they say stuff without any basic proof. If you really think about some of it.

 

It says that in a free market, "If there is perfect competition, you dont have to worry about firms exploiting anyone because they just barely make enough money to stay in business". Does that bare out in reality.

 

For companies to keep lowering their margins, till they have close to no profits doesnt seem rational to me at all, but Economists would have you believe its true. This is just my opinion, but the prices where products reach are arbitrary for the most part. We dont have tons of exactly identical products which the free market requires. There are market pressures to lower the prices, but not as much as you would think, they never reach close to the bottom of where they should be according to these economists theories. How do these companies keep on making really good profits? You just have to look at the margins of profits they are making. The best strategy is for the price to stabilise at a one which these companies are happy to sell at not one which the market dictates.

 

If two competitors are fighting for a market they lower the prices till one lowers it beyond the others willingness to go any lower. The lower priced one will not suddenly get all the customers, they cannot suddenly meet the demand. They've lost profits for no reason, they might as well price up to the competitor. I dont see how lowering the price till either has almost no profits is a good strategy or see any proof of that in the real world, they will collude, even if they dont do it overtly.

 

I know companies, like Tesco's will push their milk suppliers, so they have almost no profit margin, but thats not a free market thats the complete opposite.

Edited January 13, 2012 by calabi

[JustinW]

If you leave the market to itself you will basically never have a free market.

I believe the exact opposite. If the government would leave it alone instead of trying to control it to pick the winners and losers, I think it would be more stable. There would still be winners and losers, but the consumers themselves would cause that effect. The winners and losers should be based on the product they make or service they provide in corrulation with the need or popularity of those products and services. But what is happening is the government is bailing companies out, putting programs and policies in place that are monetarily unsustainable, and inflaiting the market on a whim. It's like the US postal service. You have to ask yourself why it is failing while private companies prosper. And in the real world GM would have failed and another company would have taken it's place. Inflating the housing market. There is a multitude of other examples that can be named of manipulating the market in a way that doesn't jive with the idea of a free market. I say leave it alone and let it ride. The government has to be involved to a certain extent and that is understandable. But the level of involvement doesn't have to be as substantial as it has been.

[iNow]

I don't agree that economics is a science as there is no single truth to be sought on the subject. Keynes is not some truth upon which economics builds any more than his contemporaries who held conflicting views.

Science is not about finding single truths, so I find your comment a bit irrelevant. Science is more about using a specific methodology to form hypotheses, put them to test, discard flawed ideas, and continually refine our models of the universe around us. Science is a method to continuously improve our models of how the world behaves, and economics falls neatly into that category, even if there is "no single truth to be sought."

---

Another thing why is GDP held up as this great value? It seems to be the only value these people pay attention to. It seems to be becoming this measure of how successful a few companies are.

That's hardly the only value or measure that is taken into account. I think you should double-check the validity of this assumption you've made.

---

I believe the exact opposite. If the government would leave it alone instead of trying to control it to pick the winners and losers, I think it would be more stable. There would still be winners and losers, but the consumers themselves would cause that effect. The winners and losers should be based on the product they make or service they provide in corrulation with the need or popularity of those products and services. But what is happening is the government is bailing companies out, putting programs and policies in place that are monetarily unsustainable, and inflaiting the market on a whim.

There are an abundance of examples throughout history that show that neither pure capitalism nor pure socialism are sustainable models that don't ultimately hurt the populace. You really MUST have a hybrid model that incorporates elements of both to ensure a properly functioning society.

 

The question then becomes one of scale... Which elements should be free market and which socialized, and by how much... That's where the break down occurs... but one thing is for certain, free markets alone are unsustainable and detrimental to the well-being of society, as is socialism alone. The combination of them is necessary, and the subjective opinion on how to strike that balance is where the problems and arguments appear.

 

 

And in the real world GM would have failed and another company would have taken it's place.

Another company would not have taken it's place in the US, however. Letting them fail in the way you suggest may seem reasonable, but it seems to ignore the monstrous impact such a failure of leadership would have caused in other markets. That cowardly refusal to act would have cascaded the failure much deeper throughout the country than needed. You'd have turned the great recession into a great depression. Right away, without that stop-gap measure more than another million people would be out of work... and that would have a multiplicative impact on the services they purchased, and the vendors of products with whom they engaged in commerce, and then they too would cascade the negative impact... You really cannot look at situations like this in a vacuum. The system is broad, and the impact of such things hardly as simple as "let it ride." These decisions impact real people in real ways, and that's why evidence of effectiveness matters.

 

Looking back today, we can see the industry doing very well as a direct result of the intervention, and a rather significant amount of pain and suffering in the populace has been minimized.

 

 

Edited January 13, 2012 by iNow