Democracy and sustainability

[iNow]

Except, we're not seeing hyperinflation... in fact, inflation is intensely low right now by historical standards... and a return to the gold standard would only work if we were an isolated nation instead of a global economy. In a global economy, such an event would equivalent to offering rocks as trade for computers. All a gold standard would do would be to make business cycles more extreme. We would no longer be able to soften the shocks of inflation and deflation. We would be unable to deal with unemployment, the negative trends of the business cycle would merely be reinforced, and I haven't even touched on the challenges with the tiny gold reserves in existence. Your approach would exacerbate the problems, not resolve them.

 

You are sharing ideas from a school of economics that has been REPEATEDLY and consistently shown to make false predictions... a school that has NOT altered their view DESPITE evidence showing that view to be wrong. Why do you continue to listen to that view? Is ideology perhaps more important to you than evidence and facts?

[TruthSleuth]

No, we're not in hyperinflation yet, because the Fed is pumping dollars into the system. This pumping may stave off the inevitable for five or maybe ten years. No one can predict that--not even the Keynesians. But exponentials go up very fast in a short period of time toward the end of their curve. Look at the CPI curve I referenced using the Fed's own data. And the debt is increasing as we speak. We're on the Titanic and Congress is arguing about the bar tab.

 

Your rebuttals are right out of the government/Keynesian doctrine. Those are the folks that created this situation.

 

Again, what magic allows the government to inflate the currency and deficit spend without going bankrupt while everyone else would go bankrupt? The Fed's monopoly of the fiat money system depends on growth to offset the interest paid to its affiliate banks. The fact is the US is already insoluble from an NPV standpoint. If you need more facts, look up USA, Inc. My link compiled by a bipartisan group.

 

As for reality, Bernanke said there wasn't a housing bubble, but there was. The Fed kept the interest rates artificially low and that increased the bubble by bringing more speculators and home owners into the bubble. Higher interest rates would have stopped the speculation, the misallocation of resources and encouraged people to save. In an October 4, 2010 speech, even Bernanke said the federal budget is on an unsustainable path. The Austrians got it right, not the monetarists/Keynesians.

 

But here's the bottom line. If a majority don't recognize that the US's current economic trajectory is unsustainable or expect the same doctrine that got us here to get us out, then things are going to get much worse than they would if correction were done sooner. Unfortunately, the majority will take the minority down with them. =(

[calabi]

How is that a valid argument? "I think economists haven't taken time to understand inflation, that they just assume stuff... so that's why I don't trust them!"

 

Seriously?

 

Have you looked at their evidence? How is that not a valid question? How can they even accurately record inflation? There whole theory is based on fallacious assumptions. If you assume too much then you end up looking like an idiot.

 

http://unlearningeconomics.wordpress.com/2011/12/01/milton-friedmans-methodology-a-critique/

[CaptainPanic]

Have you looked at their evidence? How is that not a valid question? How can they even accurately record inflation? There whole theory is based on fallacious assumptions. If you assume too much then you end up looking like an idiot.

 

http://unlearningeconomics.wordpress.com/2011/12/01/milton-friedmans-methodology-a-critique/

Well... I think that we have pretty much nailed down what inflation is. But we don't exactly know why it is. And certainly not where it's going to.

Inflation is the increase of the average price level of pretty much everything. And that's being measured as you would expect: By looking at price levels of a lot of things, and taking a weighted average of their relative changes.

 

But I do think you have some kind of a point (and I risk repeating myself). There are multiple theories on why inflation is... and in fact, there are probably multiple good answers as well as multiple wrong ones. And we cannot seem to agree on which one is correct.

But it gets only really vague if we try to predict what the inflation will do in a few months from now... we're better at predicting the weather in 10 days from now than the inflation or the stock market.

[CharonY]

However, not all economics is about predicting outcomes. If that was the case a lot of natural sciences would be considered useless, too. Try to predict complex cellular behavior with some level of accuracy, for instance.

Economics deals with relative fuzzy mechanisms and these often allow the existence of competing theoretical framework within which they are explained. One could draw a parallel, to say biochemistry. The micromechanisms (i.e. biochemical reactions/individual transactions) can be explained/described relatively accurately, e.g. in terms of reaction kinetics or economical constraints. However, the combination of all these mechanisms results in new and complex traits that are not easily explained and much less predicted.

It does not mean that trying to understand them is worthless, though. However, one could accuse economists, especially those own economic interests and ties with decision-makers that they may be pandering to certain theories despite inconsistencies with data. This is something that (should) happen with less frequency in natural sciences. Not necessarily because we are better people, but likely because that there are fewer ties with companies, partisan think-tanks, etc.

 

 

[calabi]

Well... I think that we have pretty much nailed down what inflation is. But we don't exactly know why it is. And certainly not where it's going to.

Inflation is the increase of the average price level of pretty much everything. And that's being measured as you would expect: By looking at price levels of a lot of things, and taking a weighted average of their relative changes.

 

But I do think you have some kind of a point (and I risk repeating myself). There are multiple theories on why inflation is... and in fact, there are probably multiple good answers as well as multiple wrong ones. And we cannot seem to agree on which one is correct.

But it gets only really vague if we try to predict what the inflation will do in a few months from now... we're better at predicting the weather in 10 days from now than the inflation or the stock market.

 

We havent got an accurate measure of inflation.

 

http://news.bbc.co.u...ess/6266733.stm

http://en.wikipedia....mer_price_index

 

They still arent certain about exactly what they should measure. I know there are lots of arguments about it. There shouldnt be any questions, if they are going to decide policies on it. Look where we are today, peoples wages are far behind inflation.

 

http://www.thisismon...anged-1900.html

 

They cant have been calculating it that well.

[iNow]

Jebus, man... You act like they're reading tea leaves or practicing astrology. You need to review what the prominent economists are actually sharing and doing and discussing when it comes to inflation.

 

http://krugman.blogs.nytimes.com/2011/04/26/core-notes/

http://macroblog.typepad.com/macroblog/2011/06/should-we-even-read-the-monthly-inflation-report-maybe-not-then-again.html

 

http://krugman.blogs.nytimes.com/2010/02/26/core-logic/

 

Here's my problem, in a nutshell. You're not arguing against what people are actually saying and doing. You're arguing against what you THINK they're saying and doing.

[calabi]

Jebus, man... You act like they're reading tea leaves or practicing astrology. You need to review what the prominent economists are actually sharing and doing and discussing when it comes to inflation.

 

http://krugman.blogs.../26/core-notes/

http://macroblog.typ...then-again.html

 

http://krugman.blogs.../26/core-logic/

 

Here's my problem, in a nutshell. You're not arguing against what people are actually saying and doing. You're arguing against what you THINK they're saying and doing.

 

I know exactly what I'm arguing about. In fact your posts support my argument that inflation isnt settled or clear.

[iNow]

I thought your argument was:

 

[if I] ask myself how hard most economists worked for their knowledge, I can't help thinking they haven't worked hard for it at all. I don't think they've worked hard to know what inflation is, or whether it can or should be targeted. I think they've just assumed it, and anyone can do that.

[CaptainPanic]

However, not all economics is about predicting outcomes. If that was the case a lot of natural sciences would be considered useless, too. Try to predict complex cellular behavior with some level of accuracy, for instance.

Economics deals with relative fuzzy mechanisms and these often allow the existence of competing theoretical framework within which they are explained. One could draw a parallel, to say biochemistry. The micromechanisms (i.e. biochemical reactions/individual transactions) can be explained/described relatively accurately, e.g. in terms of reaction kinetics or economical constraints. However, the combination of all these mechanisms results in new and complex traits that are not easily explained and much less predicted.

I disagree. We can build biochemical factories that produce reliably. We can predict the working of the microorganisms to such an extent that we can tell a customer to the day and hour when their order can be produced and delivered. So, we understand some micromechanisms, but we can also successfully blackbox the whole thing, and still get a reliable prediction. Even some complex ecosystem like a rainforest can be blackboxed and simplified so that we can make predictions... and getting more data will improve predictions.

 

Physics and chemistry will always stick to the same rules of nature. Biology slowly changes as ecosystems evolve... But economics tries to describe human financial behavior. That changes so fast that by the time a model is developed, the boundary conditions of that model will have stopped to exist.

 

So, yes, there is some point in studying economics... just like studying history can be useful. We can learn from history. But we cannot simply extrapolate our current society into the future solely based on historical facts. Unfortunately, economists who predict future trends do exactly that (if they aren't completely biased, and even ignore history altogether).

 

I agree that not all economics is about predicting outcomes... but the economists that have the power all predict the future. I am talking about economists that advise governments, or those in the national banks, those in Moody's and other rating agencies, those in a company's board of directors. None of them are really interested in the past. They all gamble about the future.

Edited February 9, 2012 by CaptainPanic

[calabi]

I thought your argument was:

 

 

 

That wasnt my argument thats a quote from someone else, but its true what they are saying, how do we know inflation is important, and they have the best way to measure it?

 

http://en.wikipedia....United_Kingdom)

 

Here it looks like they are calculating an average of the products. Thats not going to be clear or accurate, its being question and they are deciding policies on it. In my opinion using inaccurate or not fully understood information is worse than just going with your gut.

 

But what about business's making decisions on wages to do with inflation. One of those figures isnt actual inflation its the flow of inflation or whatever. When your deciding wages surely you need to be really clear about inflation, what exactly has went up and by how much, also you have to add all of them together. If inflation is 5percent across the board(which I know is highly unlikely, but just serves as an example). You cant just increase wages by 5 percent or a certain amount. You would have to increase wages by 15percent at least or some other higher number if all the things people buy has gone up by five percent. Otherwise your just asking for a gradual decline in living standards like we have now.

 

In my opinion there are simpler ways instead of tracking all the products, just track individual peoples incomes and outcomes. Get a distribution of people and find out the median values of the amounts they spend on bills food and essentials and how much disposable income, and track how much they change over time.

Edited February 9, 2012 by calabi

[CharonY]

We can predict the working of the microorganisms to such an extent that we can tell a customer to the day and hour when their order can be produced and delivered. So, we understand some micromechanisms, but we can also successfully blackbox the whole thing, and still get a reliable prediction.

 

I disagree with that. The blackboxing is based on empirical data and very rough statistical inference, i.e. we know that they grow at roughly that particular rate and then expect them to be ready in roughly the same time frame. The key here is that normal biological noise is being suppressed (i.e. using chemostats or standardized batch-techniques, for instance) so that fairly rough models that use little if any biological information and mechanism can give out (simple) parameters with a certain degree of accuracy.

 

The equivalent in economics would look at the same resource distributions and roughly predict flow under the very same conditions and predict the outcome, which is somewhat feasible. But as with biological behavior under realistic conditions the data is usually much, much noisier.

 

Now I challenge you to predict the growth rate of a cell population with a new sugar source with any degree of accuracy. Now with several parameters changed. Now add a stress and try to predict metabolic changes. Now with several varying parameters and a given mutation. Now let us add gradients and microenvironments and complex populations. And how about predicting behavior of single cells?

 

We are not able to predict e.g. the proteome or metabolome changes in an organism upon environmental changes, nor are we able to use that data to accurately predict the current state of a given cell. Predictive biological models are really very very unreliable.

Edited February 9, 2012 by CharonY

[iNow]

Econ 101?

 

Which one from this list is "Econ 101"?

I thought I'd share this article I read this morning which touches on this theme a bit:

 

 

http://mainlymacro.blogspot.com/2012/02/more-on-schools-of-thought.html

 

The microfoundation of macroeconomics does logically imply that mainstream macro should be as free from alternative schools as microeconomics. This would require freshwater macroeconomists to recognise that New Keynesian models are essentially RBC models plus sticky prices, and that the addition of price rigidity was not that offensive. All would recognise that the conditions in which fiscal policy was a major stabilisation tool were either rather unusual (the zero bound), or geographically remote (monetary union), and so not something to get so worked up about. Freshwater economists would come to realise that demand denial just did not make academic sense.

I fear a more realistic conclusion is that the Keynesian/Anti-Keynesian division is always going to be with us, because it reflects an ideological divide about state intervention. (For some supporting evidence, see here.) That divide occurs all the time in microeconomics, but because it involves arguing about many different externalities or imperfections it does not lend itself to fragmentation into schools. In macro, however, there is one critical externality to do with price rigidity, and so disagreements about policy can easily be mapped into differences about theory. Demand denial is attractive because it gives a non-ideological justification for what is essentially an ideological position about economic policy.

 

 

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In my opinion there are simpler ways instead of tracking all the products, just track individual peoples incomes and outcomes. Get a distribution of people and find out the median values of the amounts they spend on bills food and essentials and how much disposable income, and track how much they change over time.

The challenge with this is you're likely to over react to temporary headline inflation... short term shocks to things like oil prices or corn prices... while the background core inflation is rather steady or even declining. I understand that simple one-dimensional answers are attractive, but they're very often rather limited and need to be understood as such.

 

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However, not all economics is about predicting outcomes. If that was the case a lot of natural sciences would be considered useless, too. Try to predict complex cellular behavior with some level of accuracy, for instance.

Economics deals with relative fuzzy mechanisms and these often allow the existence of competing theoretical framework within which they are explained. One could draw a parallel, to say biochemistry.

Indeed.

 

 

http://noahpinionblog.blogspot.com/2012/02/why-rational-expectations-models-can-be.html

 

Conditional predictions are different than unconditional predictions. If your modeling goal is to say with confidence that "A financial crisis will occur at 9:01 A.M. on February 17, 2012," then Levine is right; you are probably not going to succeed. However, if your modeling goal is to say: "Unless X policy is taken first, a financial crisis will occur at 9:01 A.M. on February 17, 2012," then you have a chance of succeeding. Why? Because unless investors can predict whether policy X will be taken, then knowing that the model is correct doesn't allow them to make riskless profits. And of course, conditional predictions are the kind policymakers usually care about. So Levine is wrong in cases where policy is decisive.

 

As a side note, even in cases where Levine is right, this does not make modeling crises a useless exercise. It may be that increasing our understanding of the causes of crises leads to a decrease in the amount of crises rather than an increase in our ability to predict the timing of the crises that do occur. But that's fine! It means that the benefit of better crisis modeling accrued to society instead of to the modelers. That just means that research into the causes of crises generates a positive externality, and should therefore be subsidized by the government and/or some other collective public-goods provision mechanism.

 

And it means that critics of the econ profession who say "You economists didn't pay enough attention to models of financial crises" can still be right, even if Levine is right!

Edited February 9, 2012 by iNow