Saturday, February 13, 2016

As if: positive economics, evolution and effective theories



David Sloan Wilson's latest piece at Evonomics brings up a good frame for my trilogy on production possibilities from this past week:

  1. Production possibilities and the slope of the supply curve
  2. Production possibilities and Brownian motion
  3. Fitness, trade-offs and macrofoundations

...

Positive economics


The argument I make at the end of [3] connects to this post about effective degrees of freedom near equilibria [4]: that rational agents are an effective theory for small perturbations around a macroeconomic equilibrium. I realize that Milton Friedman's The Methodology of Positive Economics [pdf for 1966 version, here for 1953 version] is an attempt to say that rational agents are an effective theory:
The abstract methodological issues we have been discussing have a direct bearing on the perennial criticism of "orthodox" economic theory as "unrealistic" as well as on the attempts that have been made to reformulate theory to meet this charge. Economics is a "dismal" science because it assumes man to be selfish and money-grubbing, "a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact" ... 
It is frequently convenient to present such a hypothesis by stating that the phenomena it is desired to predict behave in the world of observation as if they occurred in a hypothetical and highly simplified world containing only the forces that the hypothesis asserts to be important.

Emphasis in the original. The humans function as if they were rational agents is analogous to saying the theory of quarks and gluons acts as if it was a theory of color-neutral bosons called pions.

There are two problems with this. The first is the "asserts" in the last quoted sentence. You need some empirical fact from which to draw your effective theory. These empirical facts can lead to limits (Newtonian gravity is a limit of general relativity for slow speeds and low field strengths) or symmetries (the approximate chiral symmetry of QCD leads to the pion description). For example in economics, I've taken the limit of low inflation to show that the AD-AS model has an effective description using the IS-LM model and taken an approximate long run neutrality as a symmetry principle to motivate information equilibrium.

The second problem is that there are always boundaries on your effective theory (defined by a scale), and the effective degrees of freedom represent perturbations from some equilibrium. The pion description of QCD is effective between roughly the masses of quarks (m ~ a few MeV) and the QCD scale (chiral condensate or RG scale Λ ~ hundreds of MeV). So you have energies E where m << E << Λ. For E ~ GeV, you need to resort to QCD. For E much less than m, you can really just use quantum mechanics.

In [4] above, I argue that rational agents are an effective description only near a macroeconomic equilibrium. The limit in the information equilibrium description would be e.g. I(AD) ~ I(AS) -- i.e. approximate information equilibrium between aggregate demand aggregate supply. Therefore rational agents would only really apply outside of recessions.

...

Positive biology


Sloan summarizes Friedman's analogies (n.b. these is in the 1953 version, not the 1966 version Sloan links to, which confused me at first):
Yet, [Friedman] claims that they are still predictive of human economic behavior by way of three analogies. First, trees distribute their leaves as if they are maximizing their exposure to sunlight, yet no one pretends that they are performing optimization equations. Likewise, an expert pool player acts as if he is performing complex calculations when making his shots, when in fact his behavior has been molded by countless hours of play. Finally, a firm acts as if it is maximizing its profits, when in fact its continuing survival is the result of a selection process in which the non-optimizing firms were eliminated.


Sloan further says these are evolutionary arguments [f1]:
The first is an example of genetic evolution, the second is an example of individual learning, and the third is an example of cultural evolution. In all cases, a process of selection results in entities that behave adaptively, as if they are solving complex optimization equations, when mechanistically they are doing nothing of the sort. ... 
So far, Friedman is standing on firm evolutionary ground with his “as if” argument [that agents are maximizing]. Evolutionists frequently reason about the properties of species “as if” they are maximizing their fitness, without worrying about the proximate mechanisms.

In a sense, maximizing fitness is an effective (an as if) theory of evolution. One way to achieve it (as I talk about in [3]) is to recognize that the maximizing state of that tree is actually just more likely than a non-maximizing state assuming there are a lot of traits that go into the exposure to sunlight (leaf size, shape, branching ratios, height, thickness of trunk and branches, etc ... ).


Sloan then provides some caveats via Gould [f2] and Lewontin; in particular the "as if" effective theory is only valid if you correctly identify the trait as the result of selection and identify the selection pressures. I don't agree with the latter piece (selection pressures aren't always necessary per [3] unless it is something e.g. controlled by a single gene), but the former is essentially the statement that the "as if" effective theory of maximized fitness is only valid in the neighborhood of an equilibrium (e.g. the sandy brown coloring of desert creatures). And that equilibrium requires "macrofoundations" [4] -- i.e. a stable ecosystem (the desert has been a desert for awhile).


...

Summary

From this discussion we can conclude that assuming maximizing rational agents in economics during a recession is like assuming maximized fitness for species subject to climate change. If the changes (or recessions) are small, you might be able to assume maximization, but in general this is not a valid assumption.

We can construct a list of requirements for simple effective ("as if") descriptions in complex systems:

  1. Macro-scale (i.e. system) equilibrium
  2. Empirical facts on which to base your effective degrees of freedom
  3. Scope conditions defining the neighborhood of validity for those effective degrees of freedom

Additionally, maximum entropy gives us some simplifications in cases where the number of dimensions is large.

...

Footnotes:

Since I used [n] to indicate the blog post references above, the footnotes have the form [fn].

[f1] A minor quibble at this point: I don't think Friedman is actually talking about how trees or billiard players achieved their maximizing state, so he is not making an evolutionary argument. He is talking about describing a maximizing state in terms of detailed rules and calculations required to determine the maximizing state versus just saying it is a maximizing state. The billiard players behave as if they are doing complex physics calculations, and you can describe that effectively with either the physics calculations or assuming maximization -- even though neither is actually happening. Trees behave as if they are doing a complex optimization, and you can describe that effectively with a complex optimization or assuming maximization -- even though neither are happening. Sloan's interpretation is that you can describe these states either as maximization or as the result of an evolutionary process -- even though only the latter is happening. But Sloan's interpretation is useful for my purposes here, hence I put this in a footnote.

[f2] Here's Paul Krugman mentions Gould in the course of this article.

98 comments:

  1. I have a sense that you've got more to say on the themes you've been covering in these posts. I hope that's the case.

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    1. Thanks, but I'm not sure what else I can say on this.

      I do plan on making the bowed-out PPF/max entropy argument in the previous post a bit more formally.

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  2. Minor footnote.

    As a sometime pool player, I know that players make not all that complicated calculations based upon geometry and physics. I suppose that the basic simplifications involve elastic collisions and frictionless tables. It is the deviations from the simple assumptions that require learning from experience. And every table is different, and maybe different from what it was last week. I remember playing billiards once with a friend who was a tournament player. He advised me to use English (spin) so that the cue ball would bank true off the rail, i.e., so that the angle of reflection would equal the angle of incidence. That was something I had never figured out for myself. ;) The difference matters for a three rail shot.

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    1. Yes, the rail absorbs some of the transverse kinetic energy of the cue ball, but adding english can allow some of that rotational energy (from along a different direction from the rolling) to be converted into transverse kinetic energy to make up the difference.

      But again, people are not solving those equations in their heads. Given a different table, they'll miss shots until they get a feel for the new absorption factors.

      Playing basketball uses this exact trained feel (instead of ballistic calculations) to make shots. If you think about it too much during a game, you'll miss. You train up and get a feel for it.

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    2. Thanks for the explanation, Jason. :)

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  3. O/T: Jason, do you suppose changing the highest denomination bank note in an economy might change the economy's entropy? Say the US got rid of the $100 bill.

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    1. Probably not because 10^2/10^12 is pretty small, so each is an infinitesimal.

      The rationale for leaving out the 500 Euro notes in the EU is that they don't really circulate, not because they were large. It would be like leaving the 2 dollar bills out the US currency supply.

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  4. Jason: “we can conclude that assuming maximizing rational agents in economics during a recession is like … in general this is not a valid assumption”

    Yes, I agree but I would go further. The main objective of macroeconomics is to understand the economy when it goes wrong. What are the causes? What are the cures? How can we prevent a recurrence or minimise the consequences of a recurrence?

    A comparison would be geology. Most people don’t care much about rocks. What they do care about is when “rocks go wrong” e.g. earthquakes, volcanic eruptions, rock slides, meteorites. Similarly, most people don’t care about the macro-economy. What they do care about is where “the economy goes wrong” e.g. recessions, market crashes, bank runs, hyperinflations.

    Another comparison would be medicine. Many economist are like doctors who can cure you as long as you don’t get ill.

    Keynes and others invented macroeconomics to study the Great Depression. Austrian economics started with the hyper-inflations in Germany and Austria.

    If the economy behaves like a gas most of the time, but as a solid when economic avalanches occur, then the important questions are about the transition from gas to solid, the consequences of the solid state, and possible ways to transition back to gas.

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    1. That is the question. But you can't ask about cures until you understand what disease is.

      I would say the current state is economists not knowing what disease is and applying leeches to address humours.

      But additionally the current state of the popular understanding of economics is with evil spirits, applying morality and reading from the sacred texts.

      Economics is not currently understood. No one in the past has ever understood it. It probably won't be understood for generations to come. Our desire for answers today should not lead us to believe we have answers today.

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    2. Recently Sumner said something about new economic theories needing to be consistent with well established economic theory. I razzed him about the that a bit, joking that there can't be much of that. He disagreed, disputing my impression that economics is in its infancy. And then in his very next post he stated that sticky wages are basically the only thing in macro on which there's consensus! So naturally I razzed him some more.

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    3. And I don't know how broad the agreement is on sticky wages. Certainly Ed Prescott, and perhaps Finn Kydland would disagree I think. But how about Lucas? Levine?Probably some others too... Not necessarily all RBC types either I'd wager.

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    4. Shoot, even you dispute the degree of stickiness regarding micro sticky wages, right?

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    5. OK, I had to look them up; here's his first quote:

      "...no one can consistently predict the macroeconomy. Nor should we focus on who has the most impressive mathematical model. Instead we should focus on who has a coherent explanation for what is occurring, an explanation that is consistent with well established theory, and that can be applied to a wide range of cases. I hope market monetarism is one of those coherent explanations."

      I razzed him about the "well established" bit. But he was having none of it:

      "Economics is not in its infancy, it’s like an old man. It’s just as advanced as the physics of earthquake prediction or the physics of coin toss prediction or the physics of weather prediction or a million other types of actual, useful real world physics. In other words, what looks like infancy is just the complexity of the systems being analyzed. I don’t know why people don’t get that, it’s such an obvious point."

      And here's the quote about sticky wages in his next post:

      "The empirical evidence in favor of sticky wages is simply overwhelming. It’s just about the only thing in macroeconomics that we can be certain is true."

      I do like his econlog post on sticky wages that he links to in that 2nd one.

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    6. The science of earthquakes didn't even understand the basics until the 1960s (with plate tectonics and decent seismic data). And that's even after the microfoundations (Newtonian physics) have been known for 300+ years.

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    7. I notice he's got a link to an imaginary dialog between a central banker and a market monetarist up now. It reminds me of your dialogs a bit.

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    8. Perhaps someone should add to that dialog, specifically a question from the central banker. Here's the current ending:

      Q. This is madness!

      A. Madness? THIS… IS… MARKET MONETARISM!


      How about we add:

      Q. In what sense is this 'Market Monetarism' you speak of falsifiable? What conceivable evidence would inform you that it's wrong?

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    9. That question does seem to get asked in the dialog. But the answer is basically to assert that MM always works. As near as I can tell. (I confess I skipped around a bit)

      I'd be fun to redo the whole dialog in terms of a Medieval 'physician' apprentice and his mentor.

      Q. But what if more leeches don't drain the bad humours?

      A. Then you need to apply MOAR leeches!

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    10. Thanks... I'd forgotten about that skit. It's been a while!

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  5. "Economics is not currently understood. No one in the past has ever understood it. It probably won't be understood for generations to come."

    Economics is not like astrophysics, a pure science. It's not a science at all despite what some people pretend. The problem is that values intrude and cloud perspectives. It will probably always be this way. And while your approach is interesting and intriguing (and I don't understand most of it), I don't think ecophysics or ecobiology is the answer.

    Henry


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    1. "It's not a science at all despite what some people pretend."

      I suppose you might call my view "scientism" but I don't see a good alternative to science for figuring out how nature works (if that's your goal), and I don't see a good reason to place human activity (such as economics) outside the category of "nature." And I don't see what values (other than curiosity, honestly and dedication to the truth) have to do with it -- although I agree that values can cloud your perspective. But science at least takes into account that perspectives get clouded by all sorts of tricks we play on ourselves, and tries to compensate for those.

      So, I don't see why, ultimately, some form of econo-science won't give us answers which are as reasonably good as can be expected. Of course I can see that it's possible that there ultimately are NO good answers, but I don't see the harm in trying. The alternative seems pretty pessimistic.

      Science at least insists on being clear about what evidence would constitute failure of an idea. If we're not asking "what would change our minds" then it seems to me we run the risk of closing ourselves off from informative feedback nature can provide us with (provided of course, we ask it the right questions in the right way).

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    2. Hi Henry,

      How do we know economics is not in a category with astrophysics ... i.e. not amenable to science?

      Let me re-write your paragraph:

      The study of the stars is not like physics, a pure science. It's not a science at all despite what some people pretend. The problem is that astrology and religion intrudes and cloud perspectives. It will probably always be this way. ... I don't think astrophysics ... is the answer.

      What would have happened had this view -- that people continued to think of the stars as astrological (not amenable to science) -- dominated?

      Assuming economics is ineffable and mystical isn't really a solution to anything.

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  6. "Assuming economics is ineffable and mystical isn't really a solution to anything."

    Jason,

    Where did I say that?

    If economics was a science as astrophysics is, why hasn't it advanced to the stage that astrophysics has. Here is astrophysics now confirming the existence of gravity waves of such a infinitesimally small energy level, it's mind numbing. In the same time that science has gone from gravity to gravitons, what has economics done? The "science" based methodology of the last 40 years is a joke.


    Henry

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    1. It's quite a leap to go from "economics hasn't advanced" to "economics probably will not advance". In general there is no fixed rate of advancement -- and even if every field did advance at the same rate, they don't start at the same time.

      I like to view it in terms of frameworks. Until the first framework is laid down, there is little real forward progress. Once a proper framework arises, progress starts.

      For example, the frameworks for different fields were laid out at different times

      1687 Physics (Newton)
      1859 Biology (Darwin)
      1860s Medicine (Pasteur, Snow)
      1869 Chemistry (Mendeleev)
      1871 Microeconomics (???) (Jevons)
      1920s Quantum physics (Heisenberg et al)
      1936 Macroeconomics (???) (Keynes)
      1940s Computer science (Turing)
      1940s Information theory (Shannon)
      1990s String theory (?) (Witten)

      What if the framework for economics hasn't actually been discovered? What if it is the information equilibrium approach? In that case we'd expect economics to be in a dark age, like biology before Darwin or physics before Newton.

      Maybe we should compare economics to medicine? We still don't really have a grasp on anything outside of physical injuries and infections with various germs (analogous to the success of basic supply and demand). And medical studies come out every year that say coffee is either good for you or bad for you (analogous to various macro policy questions). We know what the units are (cells, people), but we don't understand the system holistically (humans, macroeconomics).

      In any case, we shouldn't compare economics to physics which has potentially a 200-250 year head start.

      This is somewhat along the lines of Kuhn's paradigms.

      In the same time that science has gone from gravity to gravitons, what has economics done?

      Science hasn't gone from gravity to gravitons. Gravitons are quanta of gravity and there is no empirically valid theory of quantum gravity. In fact, no theoretical advance has been made in the understanding of gravity in 100 years. It's still general relativity as Einstein wrote it down. The big discoveries are the things that aren't predicted by theory: neutrino oscillations and an accelerating universe.

      Not to say the gravity wave discovery wasn't awesome. It was a prediction of a 100 year old theory and it might have been more interesting if we hadn't seen gravity waves! Sort of like it might have been more interesting if we had never seen the Higgs. It basically confirmed a 40 year old theory.

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    2. Also, regarding the ineffable and mystical, I gleaned it from this:

      The problem is that values intrude and cloud perspectives. It will probably always be this way.

      I assumed that "values" included religions and philosophies as the source of values and that you doubted these could be translated into definitive economic principles (words, or better the language of math) -- hence the ineffable.

      I like wikipedia on ineffable:

      Ineffability is concerned with ideas that cannot or should not be expressed in spoken words (or language in general), often being in the form of a taboo or incomprehensible term. This property is commonly associated with philosophy, aspects of existence, and similar concepts that are inherently "too great", complex, or abstract to be adequately communicated.

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    3. Jason,


      "In any case, we shouldn't compare economics to physics which has potentially a 200-250 year head start."

      So Adam Smith's treatise which is 250 years old doesn't count?

      I'm sorry to say that I believe what you said above is silly.


      "I assumed that "values" included religions and philosophies as the source of values..."

      No I mean social and political values - for instance neoliberalism.


      Henry.

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    4. 1.

      Adam Smith's relationship to economics is more analogous to Aristotle's relationship to physics. Aristotle gives us the idea that nature follows regular patterns and can be understood by humans. Smith gives us the idea that there is such a thing as an economy.

      However, both were substantially wrong about the details. Aristotle's separation of circular and linear motion held back physics for over a thousand years. Smith uses a erroneous labor theory of value and his concept of economic equilibrium was actually circular (as I write about here).

      That would mean Economics is 2400 years behind physics.

      But your argument that economics is a really mature field (operating with an appropriate framework for 250 years) in order to show that it is hopelessly backward is odd. You're saying economists have been on the right track for 250 years, but there must not be a theory because if there was they would have found it in 250 years??? You're setting up a definition of the correct economic framework that guarantees economics doesn't work!

      The more plausible answer is that they haven't been on the right track for 250 years. Especially given Adam Smith is considered wrong by modern economics (hence the so-called "marginal revolution").

      2.

      Political values are philosophies. Neoliberalism derives from the ethical philosophy of utilitarianism.

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    5. "But your argument that economics is a really mature field "


      Jason,

      You keep putting words into my mouth. Where did I say the above? I am saying economics is anything but settled.

      Henry

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    6. Saying Adam Smith was the start of a progressive research program means the field has been around for 250 years -- and is therefore "mature".

      If economics isn't settled then what is the problem with me saying the proper framework hasn't been discovered -- or has only recently been discovered relative to physics? If it isn't settled, then why insist the progressive research program has started?

      You keep trying to have it both ways:

      1. Economics as a progressive research program has been around for a long time (starts around the time of physics).
      2. Economics hasn't made very much progress (compared to physics).

      These two ideas are in tension. If Adam Smith is the beginning of a progressive research program, then yes we probably could expect economics to be in the same place as astrophysics. But since it isn't, we shouldn't think Adam Smith was the start of a progressive research program!

      The progressive research program for astrophysics starts with Newton.

      I have no idea who you think started the progressive research program for economics. Was it Adam Smith? His ideas were generally wrong. I think a case could be made for Keynes, but that puts the age of the progressive research program for economics at 80 years old relative to 300+ for physics.

      Where do you think the progressive research program for economics starts?

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    7. Jason,

      Please desist from loading up my comments with complexions which aren't there. You can't help yourself. Learn to read what people are actually saying not what you think they are saying. Sorry to be pedantic.

      You can create all the straw men you like. In the end you are having an argument with yourself.

      As in all fields of human endeavour and knowledge seeking there is piecemeal progress. Sometimes a step forward, sometimes a step backward.

      You say Adam Smith was wrong - that's in your opinion. I'm not saying he was right or wrong. All I'm saying is that his treatise is a reasonable place to start thinking about the development of economics.

      And even if one was to accept that Adam Smith was not a reasonable place to start and that a more recent development is appropriate, it still begs the question, why is it that economics has progressed to where it has when the natural sciences have made leaps and bounds in understanding and predictive competence? Why?

      You are actually arguing my point for me.


      Henry.

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    8. Henry,

      The issue is that you aren't making sense. When does the progressive research program start with economics?

      It can't have started a long time ago, not make progress and still be compared with other progressive research programs. Something has to give.

      A. If Adam Smith is the start of the progressive research program then economics has been around for 250 years -- about as long as physics -- and there certainly is the issue that you bring up that econ hasn't made as much progress as physics. But the obvious resolution is that Adam Smith doesn't represent the start of a progressive research program. Thus is makes no sense to compare the progress in economics to the progress in physics.

      B. But if the progressive research program starts with Jevons and/or Keynes, then physics has a 200+ year head start and we should expect a lack of progress in economics relative to physics.

      C. And if the progressive research program for economics hasn't started yet, then obviously it's going to be behind the natural sciences.

      Economics can't be a progressive research program that hasn't progressed!

      If it's not a progressive research program, then it doesn't make any sense to compare it to natural sciences!

      When does the progressive research program for economics start?

      It can't have started that long ago because as you say -- it hasn't progressed much. But physics did start its progressive research program a long time ago. Therefore it makes no sense to compare progress in economics to progress in physics. It's like saying physics is winning the race because it started earlier -- it's nonsense.

      This would be easily resolvable if you'd just give me a general date for when you think the progressive research program in economics started. Then look at either A, B, or C above for your answer.

      The obvious resolution to the reason economics hasn't progressed as much as natural sciences is that the progressive research program for economics didn't start at the same time as it did in the natural sciences.

      And it didn't, so its lack of progress relative to the natural sciences is expected.

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    9. Jason,

      "Progressive research programme" is your phrase, your straw man. I'll let you resolve it for yourself.


      "And it didn't, so its lack of progress relative to the natural sciences is expected."

      The begged question remains - why?

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    10. "Progressive research program" is a phrase from the philosophy of science from Lakatos. I did not make it up and it is not a straw man. Substitute "not falsified" in the above if that helps.

      You think economics is a progressive research program (is not falsified) if you want to compare its progress relative to science.

      You think economics isn't a progressive research program (is falsified) if you think it hasn't made progress.

      Those two things cannot simultaneously be true.

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    11. The notions mentioned in your last post are all of your own making.

      I would like to remind you where we began.

      This discussion began with my saying that economics does not have the features of a natural science and that economic considerations are, if not always, suffused with normative considerations.

      You want to slide the argument all over the place somewhere else. Go ahead. It's not my argument.

      You won't address my question, why have the natural sciences developed cogent, widely accepted theories when economics has not? The Enlightenment spawned the successful development of the natural sciences. Why not economics?

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    12. Here are three answers to your question of why economics hasn't progressed as much as natural sciences; take your pick in descending order of generality:

      1. You cannot compare progress in different progressive research programs
      2. You cannot compare current progress in progressive research programs that start at different times
      3. You cannot compare degenerative research programs to progressive research programs

      I did not make up the notion of progressive research program. It is here. If you want to discuss the philosophy of science, you should at least learn some of the terminology.

      When you say:

      This discussion began with my saying that economics does not have the features of a natural science and that economic considerations are, if not always, suffused with normative considerations.

      You are saying economics is not a progressive research program. That is fine. But then your answer is #3: it doesn't make sense to compare progress in a degenerative research program to progress in a progressive research program.

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    13. "I did not make up the notion of progressive research program"

      I didn't say you made it up. I merely said you introduced that notion into the discussion.


      "it doesn't make sense to compare progress in a degenerative research program to progress in a progressive research program."

      Accepting what you say, why? The point is, why is one progressive and the other not? You don't seem to want to go there.

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    14. Wait: is your question Why hasn't economics made as much progress as science?

      [Answer: not a meaningful and/or fair comparison as I detail above.]

      or

      Why doesn't economics make progress?

      [Answer: macro data is uninformative and lack of a framework -- points I make many, many times on this blog.]

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    15. Jason, is there a natural science who's research program has followed a similar timeline to that of economics? At least in terms of perceived lack of progress?

      I'm thinking perhaps cognitive science. Not that the challenges are similar, but perhaps a perceived lack of progress is. In the case of cognitive science, perhaps our ambitions about progress exceed what we can reasonable expect. Science fiction keeps promising us more interesting robots than are actually available. Meanwhile we're still sorting out exactly how the brain of a roundworm works (with it's full complement of 302 neurons).

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    16. Jason,

      However you frame the question, it is a valid question. I'm afraid I disagree with you.

      You say economics is uninformative and lacks a framework. I'm saying this still begs the question why?

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    17. Henry, he says the data is uninformative, not economics. He's not alone there. Noah Smith and Nick Rowe have said the same. Probably others.

      Why is it lacking a framework? Why didn't anybody think of the framework of natural selection until Darwin? Surely people had seen island creatures for millennia prior to Darwin. Just because a framework is missing doesn't mean it'll always be missing. But perhaps there is an explanation in econ: perhaps the temptation to see from a human-centric perspective leads us astray.

      Or perhaps it's just not possible to make any progress with economics. That's a pessimistic view!

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    18. What's your answer Henry? Why do you think there's been so little progress? You started out stating that science couldn't apply (if I read you right), which I think is equivalent to what I called the pessimistic answer.

      Re: why nobody before Darwin: perhaps human-centric creation myths led them astray.

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    19. "he says the data is uninformative, not economics"

      Yes, thanks for clearing that up - I missed it - and I accused Jason of not reading what I had written!

      Having quickly read some of the posts Jason linked, the argument goes that because a priori economic models are so parameter rich that economic data is insufficient to test the models. I think Jason then turns this into an argument for simple models, like his, conveniently.

      But how does Jason's model explain cyclicality? How does it explain catastrophic behaviour such as in 2008 or the Great Depression?

      How can a model founded in randomness explain these things?

      How can randomness explain that there are two groups of people, in particular in asset markets, viz. buyers and sellers?

      Isn't it like saying that in a gas filled container a group of gas particles at a significantly different temperature than the remaining particles constituting another group can be in equilibrium with those particles constituting the other group. Am I making a mistake in equating people and particles?

      I'm sure Jason has answered questions like this before.



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    20. "What's your answer Henry? Why do you think there's been so little progress?"

      Re science: an economic system is far too complicated and ephemeral to model, so I can't see how economics can ever become a science. I think it is an unhealthy and unnecessary fetish to believe that economics is like a natural science.


      Re values: the reason I believe that normative considerations have played a part is because they intrude in model and policy making. It's human beings that devise economic models. Human beings have differences in opinion about values. Hence it is unlikely a stabilized framework, as Jason calls it, will ever develop.

      Henry.

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    21. Henry, you asked some questions ...

      But how does Jason's model explain cyclicality? How does it explain catastrophic behaviour such as in 2008 or the Great Depression?

      Empirically there are no cycles in macro, so there is nothing to explain.

      What happens in those cases is no different than normal recessions; it is ineffective monetary policy that makes the difference. I have written about this extensively on my blog.

      How can a model founded in randomness explain these things?

      Randomness is a proxy for complexity and lack of knowledge of how the micro agents operate. We don't know everyone's financial histories, so we don't know how anyone will react to a shock. Agents aren't random; they are effectively random. How does a random arrangement of water ice crystals decide when to have an avalanche? Through a process that is so complicated that you simply take it as a probability per unit time.

      How can randomness explain that there are two groups of people, in particular in asset markets, viz. buyers and sellers?

      You probably not heard of detailed balance. There is a more detailed explanation here.

      Am I making a mistake in equating people and particles?

      Actually your analogy makes a nonsense assertion about temperature. The only thing analogous to temperature in the IT macro model is given by the size of the monetary base minus reserves. In that case, temperature is the same for the entire macro system.

      ... an economic system is far too complicated and ephemeral to model

      You proved this?

      Do you have evidence of this? Just because you can't think of a way to do it doesn't mean it can't be done. Your lack of imagination is not a limit on all humans.

      "Henry can't think how to deal with complexity, therefore economic systems must be too complex to model" doesn't sound like a very scientific principle.

      If you had evidence, maybe you could assert that ... For example, we can show explicitly that the three-body problem in Newtonian dynamics is chaotic. We know that it would be impossible to model all the atoms in a human brain on any existing computer ... another definition of too complex.

      But your opinion that economics is too complex to model doesn't mean it is too complex to model.

      Human beings have differences in opinion about values. Hence it is unlikely a stabilized framework, as Jason calls it, will ever develop.

      And you have evidence for this? Can I see your evidence?

      It seems unlikely to me that the macroeconomy has 100,000,000 variables needed to describe its state. It seems like a list of about 20 variables pretty much categorize a macro state.

      I have a model with two parameters that describes NGDP and the price level. Does it really need 99,999,998 more? What are they?

      In general the whole idea that the details of humans matter and economics is complex is just pulled out of thin air. "These things are true because I say so!"

      That's garbage.

      Show me a complex model that describes something accurately where human actions matter. That would be evidence for your declarations by fiat that economics is unexplainable.

      It's kind of a pet peeve of mine. Asserting complexity does not make it correct. I write more about it here:

      http://informationtransfereconomics.blogspot.com/2015/07/assuming-complexity.html

      Delete
    22. "Empirically there are no cycles in macro, so there is nothing to explain."

      Are you kidding?


      "Randomness is a proxy for complexity "

      So is it randomness or complexity?

      If it's complexity how is it you can speak of entropy?

      "Actually your analogy makes a nonsense assertion about temperature. "

      I know.

      However, I thought you model was entropy based?


      "But your opinion that economics is too complex to model doesn't mean it is too complex to model."

      Yes it is my opinion - and I'm talking about a priori models, not structural models of the Cowles type.

      And of course you will point me to your model about which I have said I have no understanding of.


      "Human beings have differences in opinion about values. Hence it is unlikely a stabilized framework, as Jason calls it, will ever develop.

      And you have evidence for this? Can I see your evidence?"

      250 years of fitful and troubled development of economic theory which even you say has been ineffectual.


      "Show me a complex model that describes something accurately where human actions matter. That would be evidence for your declarations by fiat that economics is unexplainable."

      I didn't say economics was unexplainable. I said an economic system is too difficult to represent with a priori models. Keynes did not present a formal model in his GT however he could explain the functioning of an economic system.


      "How can randomness explain that there are two groups of people, in particular in asset markets, viz. buyers and sellers?

      You probably not heard of detailed balance. There is a more detailed explanation here."

      Why don't you explain it in simple terms so a dunce like me can understand?

      "How does a random arrangement of water ice crystals decide when to have an avalanche? Through a process that is so complicated that you simply take it as a probability per unit time."

      And so how would you calculate the probability that in 2008 all hell was going to break out?







      Delete
    23. RE: cycles. See Noah Smith. I am not kidding and thinking of the business cycle as a cycle is seriously wrong. There is zero evidence for it.

      RE: complexity. Any sufficiently complex system can effectively look like randomness. You should read up on complexity theory.

      RE: 250 years. Just because economics hasn't come up with an explanation does not mean it doesn't exist. That isn't evidence. We didn't have a correct theory of gravity for almost 2000 years after the development of sufficient mathematics to handle the actual explanation.

      RE: detailed balance. I gave you two links above.

      RE: 2008. Had I developed the model in 2008, I probably would have said we were at risk of a major recession. I started saying a minor recession is possible here:

      http://informationtransfereconomics.blogspot.com/2015/11/are-we-no-longer-safe-from-recession.html

      RE: Keynes. The consistent component of his model was described as the IS-LM model which is mathematics ... in fact, I reproduce much of Keynesian economics with the IT model.

      Delete
    24. Jason,

      I can see we are going to have to disagree on a number of issues and pursuing them here will be pointless.

      I guess assuming away cycles and shocks lets your model off the hook.

      I am more than little disappointed that you cannot offer a simple explanation for a couple issues requested above. You want people to respect the model you've proposed - you won't get too far unless it is accessible.

      As far as I understand, Keynes more or less sanctioned the IS-LM model, however, if you study the GT you will see that there is a good deal more.

      Delete
    25. Henry, you wrote:

      "If it's complexity how is it you can speak of entropy?"

      It's possible entropy and complexity can both increase at the same time.

      I first saw physicist Sean Carroll present this image, but I found it on another professor's website (Scott Aaronson (of MIT?)). In either case it offers a simple explanation of why.

      Starting here and going a minute or so is Sean's presentation of the concept, and the image (not the whole video! Just that bit I fast forwarded to).

      Delete
    26. I am not "assuming away cycles and shocks". You were talking about cycles and then slipped shocks in. I never mentioned anything about shocks above (except to say we don't know how individuals will react to them) and write about shocks extensively on this blog e.g. here:

      http://informationtransfereconomics.blogspot.com/2016/01/nominal-shocks-in-presence-of-growth.html

      Cycles do not exist. The shocks are not periodic. They have a Poisson-like distribution ... or Weibull or Gamma:

      http://informationtransfereconomics.blogspot.com/2016/02/recoveries-do-grow-old-they-just-have.html

      I am more than little disappointed that you cannot offer a simple explanation for a couple issues requested above.

      I've given you several links with extensive discussion of the issues you asked about. I specifically gave you one about "cycles", but you apparently didn't read it.

      I have studied Keynes General Theory. Aside from the insights later captured in the IS-LM model and the liquidity trap picture, Keynes made several mistakes or just made things up. "Animal spirits" isn't an explanation, just a name. His ideas about what brings savings and investment into equilibrium were confused (he was so anti-Fisher that he tried desperately to come up with a new mechanism).

      I've come to realize that you don't click the links I put in these comments, but at least for others following this thread here's David Glasner on Keynes and S = I:

      https://uneasymoney.com/2015/10/20/keynes-and-accounting-identities/

      There is a name for this internet tradition. It is called sealioning.

      http://simplikation.com/why-sealioning-is-bad/

      You are not asking your questions in "good faith", you haven't done any research, and you keep asking the same questions -- that I've answered over and over again.

      Delete
    27. "You are not asking your questions in "good faith", you haven't done any research, and you keep asking the same questions -- that I've answered over and over again."


      Jason,

      I did read Noah's piece. In my opinion, I think it's bullshit.

      I checked the Wiki on "detailed balance" and found it heavily mathematical. It would take many hours work for me to get thru it and understand it. If you can't give me a simple explanation of the concepts without the mathematics, I will leave it at that.

      I checked your link on the same subject and it's more of the same about your information equilibrium, which as I have said, I don't understand.

      Your link re the 2008 recession comment is not explicit about a recession. So given what's discussed in this piece, are you calling a recession for the US in 2016?


      "Keynes made several mistakes or just made things up."

      So you assert.


      Henry.

      Delete
    28. "It's possible entropy and complexity can both increase at the same time."


      Tom,

      Actually, going by the links, there is not a linear relationship between complexity and entropy.

      Carroll himself says complexity is a completely different thing than entropy (c. 22.25)

      Thanks for the link to the video. I'll sit thru all of it when I have time.

      H.

      Delete
    29. Henry, you write:

      "You want people to respect the model you've proposed - you won't get too far unless it is accessible."

      I've spent some reading Jason's blog. It took some time for me to digest what's going on, and I'm not really there yet. However, the basic ideas are fairly clear to me now.

      Let me see if I can maybe help by presenting a brief overview of the basic concept.

      Q. How do we know when it's possible to apply the information equilibrium (IE) concept?

      A. (1) There are two "process variables." I'm not 100% on what that means, but basically I think it's two changing variables. (2) Each variable arises from "microstates." Again, I'm not 100% on that, but I think it means that each process variable is an aggregation of a lot of other things going on, and that for any one value of the variable, there are many many corresponding microstates. Think that for a gas at a particular temperature, there are many corresponding arrangements of the gas molecules. (3) There's a plausible communication channel between the variables. Again, gas is a good example: there's a plausible connection between its volume and its temperature.

      Q. How do we know if the information equilibrium model DOES apply in a particular circumstance?

      A. If the three conditions apply above, it's easy to make a model. Then you can the data to see if it fits the model. If it doesn't then I.E. doesn't apply. If it does fit, then I.E. might apply.

      Q. How can I easily make a model from a problem meeting those three conditions?

      A. Call one process variable X and the other Y. Jason writes like this:

      X <-> Y

      With IE this is the same as (meaning it's the same model as):

      Y <-> X

      We can speak of an information source and an information destination, but that doesn't matter too much when we assume IE.

      He actually uses a symbol with an arrow going one way above an arrow going the other but I'm lazy. A third value comes into play here, which Jason often calls an "abstract price" and which Fielitz & Borchardt call a "detector." It's not necessary to create a model, but adding it (call it Z) looks like this:

      Z : X <-> Y

      All it means is the following:

      Z is defined as (I'll write that :=)

      Z := dX/dY

      And from X <-> Y we have:

      dX/dY = k*X/Y

      for some constant k. That's it!

      To review we have two process variables meeting our requirements (call them X and Y) and we can postulate a model

      dX/dY = k*X/Y

      In some cases we can add a detector, and get:

      Z := dX/dY = k*X/Y

      Q. What's an example of a "detector?"

      A. Pressure in an isoentropic box of gas. Take W (energy or work, which is proportional to temperature) as one process variable, and V (volume) another. Then check it out:

      W = force * distance (like the work required to compress the gas)

      V = distance^3

      P = force / distance^2

      Delete
    30. So in this case the dimensions can give us a clue as to how P is a detector. Force per unit area. Think of changing the volume an incremental amount and measuring how much work was required to do that. Now you can calculate a pressure:

      P = dW/dV

      Q. What can we do with this model?

      A. For one, we can solve the differential equation:

      (X/Xref) = (Y/Yref)^k

      Adding Z

      Z = (k*Xref/Yref)*(Y/Yref)^(k-1)

      You'll see that over and over again on this blog. Jason calls that the "general equilibrium" (GE) solution. Fielitz & Borchardt (F&B) call it the "floating source" solution.

      There are also "partial equilibrium" (PE) solutions, which F&B refer to as "fixes source."

      It's worth learning about the PE solutions. They aren't any more complicated mathematically, but I don't want to go there now.

      Q. So what's the take away message here?

      A. If you have a problem meeting the three conditions, you can create a simple model and solve it. It will involve two process variables and possible a 3rd detector variable. The answer will be power laws.

      Q. What is the power?

      A. That's k or (k-1) (see above).

      Q. How do we find k's value?

      A. Look at the data and fit k to it.

      Q. What if it's not a good fit?

      A. Then IE doesn't apply, or perhaps you've chosen the wrong variables.

      Delete
    31. Henry:

      "It's possible entropy and complexity can both increase at the same time."

      Does not in any way mean there is a linear relationship.

      In physics, complex structures (e.g. life) live off of entropy gradients (consuming free energy, which is a technical term).

      Delete
    32. "There is a name for this internet tradition. It is called sealioning."


      Jason,

      Is there a term for the practice of directing your correspondents off to links when the going gets a bit difficult?

      Perhaps "porpoising" fits the bill.

      Flashy aerial acrobatics followed quickly by escape beneath the waves. :-)

      Delete
    33. "Does not in any way mean there is a linear relationship"

      Jason,

      You know precisely what I mean. As Carroll explains, complexity at first increases with entropy then declines as entropy increases. They are not synonymous as you make out. To the contrary - as Carroll says himself.

      H.

      Delete
    34. So Jason, are you calling a recession for the US in 2016? Yes or no?

      H.

      Delete
    35. Final thought: Jason has some good links in his right hand column. Search for this:

      "How money transfers information"

      It's one of those links, and personally one I found very helpful. He also has a link over there that takes you to Fielitz and Borchardt's papers: four versions. I actually found the 1st version quite helpful, but they're all pretty good. I have not studied every page of every version.

      In the 1st version they go through the gas law example in pretty good detail.

      Then look at Jason's paper. The 1st 8 pages or so do not go much beyond what I wrote above (in terms of the math anyway). They do fill in some concepts that I glossed over.

      Summary: power laws (GE) and exponential laws (PE) might arise from IE. If you don't have a good explanation, then IE might be what you're looking for. You can arrive at the gas law by other means, but it's a great simple intuitive example (in my view).

      Delete
    36. Tom,

      Thanks for going to the trouble of putting down your understanding of Jason's model.

      I will have a close look at it when I have time.

      H.

      Delete
    37. And entropy is not synonymous with randomness. So saying randomness is a proxy for complexity (something that has meaning in algorithmic complexity theory) doesn't mean anything about entropy.

      What "complexity as as proxy for randomness" is that the algorithm used to produce complex outputs seems no different than an algorithm that produces random outputs.

      Delete
    38. " Fielitz and Borchardt's papers"

      Tom,

      I had an attempt at this paper and got quickly bogged. I just don't see the connections to economics.

      Some time ago, I thought I would start at the beginning with Hartley's paper, which I have read.


      H.

      Delete
    39. "What "complexity as as proxy for randomness" is that the algorithm used to produce complex outputs seems no different than an algorithm that produces random outputs."

      How can that be given their relative behaviour as explained by Carroll?

      Delete
    40. The idea is that the price mechanism represents a channel of information:

      http://informationtransfereconomics.blogspot.com/2015/03/the-price-system-as-communication.html

      That post has little math and is mostly pictures.

      Delete
    41. Thanks Jason - I'll read and consider it when I have more time.

      How we going with that 2016 US recession prediction?

      Yes or No?

      Delete
    42. "That post has little math and is mostly pictures."


      And just so you know, Shannon's paper is next on the list - printed sometime ago and ready to read, just haven't got there.

      Also, I have purchased Hidalgo's book to add context and background. Yet to be read.

      No sealioning here.

      Delete
    43. As I said above and at the link, there is a possibility of a (small) recession because short interest rates are above the trend path (assuming the model is correct).

      As an analogy, there hasn't been any snow on the mountains and now there is a little bit, and so there is a chance of an avalanche.

      It is not a yes or no thing and it is rather ridiculous to expect a yes or no answer.

      RE: Carroll, the algorithmic complexity is low for either end (the system is described by 2 separate uniform states or 1 uniform state). The center picture has more dynamics, but e.g. the locations of the individual eddies and currents in the mixing can be treated as random.

      Delete
    44. " (assuming the model is correct)."

      You don't seem to have a great deal of confidence in your model. I thought it was the framework to replace all frameworks?


      "It is not a yes or no thing and it is rather ridiculous to expect a yes or no answer."

      Oh yes it is, given the claims you make.

      And the interesting thing is that you use what you call your "speculative indicator of recessions" which is the interest data with the trend removed and showing only the cycles around the trend. Interesting because you assert that cycles don't exist.


      "The center picture has more dynamics"

      That's right, pick that one that fits your argument. What did Tom call that kind of fooling yourself? That's right, confirmation bias.

      Delete
    45. "with the trend removed and showing only the cycles around the trend. Interesting because you assert that cycles don't exist."

      Those are not cycles, they are random fluctuations around the trend.

      I think you are fooling yourself into thinking you understand much more than you do. You try to talk about the philosophy of science, but don't know the terms. You don't know the difference between what complexity measures and what entropy measures. You don't understand the difference between cycles and regression to the mean. You make claims about what the information equilibrium model says, but by your own admission don't understand it.

      You don't seem to understand what science is or how it works. I am pretty sure that even though you claim to have read Keynes' General Theory, you probably don't understand it.

      Delete
    46. "Those are not cycles, they are random fluctuations around the trend."

      Because they do not precisely fit a regular sine wave function does not mean they are random.


      "You try to talk about the philosophy of science, but don't know the terms."

      Correct.


      "You don't know the difference between what complexity measures and what entropy measures."

      Correct, however going by what Carroll says in his video, complexity has nothing to do with entropy. So where does that leave you?


      " You don't understand the difference between cycles and regression to the mean."

      I think I do. I think it is mathematicians looking for simple explanations and models who don't understand cyclical behaviour.


      "You make claims about what the information equilibrium model says,...."

      Where have I made such claims?


      " I am pretty sure that even though you claim to have read Keynes' General Theory, you probably don't understand it."

      I would mostly agree with that - it is a work in progress.


      Delete
    47. "Because they do not precisely fit a regular sine wave function does not mean they are random. ... I think I do [understand cyclical behaviour]. I think it is mathematicians looking for simple explanations and models who don't understand cyclical behaviour."

      See, you don't understand what you are talking about. The correct logical inference is that because they don't fit a general periodic function, they aren't cyclic. You are calling them cyclic when you actually mean its a stochastic process without a unit root (when the trend is subtracted). Such processes will move away from the trend and return to it, but not with a precise period. It is regression to the mean, not cyclical behavior.

      You also don't understand what either Carroll or I said about complexity.

      What I said: An algorithm that produces a complex output can't necessarily be distinguished from an algorithm that produces a random output. This statement has nothing to do with entropy.

      What Carroll says: Entropy and complexity are independent of each other. This has nothing to do with randomness.

      Delete

    48. " It is regression to the mean, not cyclical behavior."

      It's the mathematicians take on it. Mathematicians don't know how to model complex cyclical behaviour - even though their mathematical machines have the look of rigor, they are ineffectual. You can invent and invoke all the high sounding terms and concepts you like, the plain simple fact is that mathematicians don't understand cyclical behaviour.



      "What Carroll says: Entropy and complexity are independent of each other. This has nothing to do with randomness."

      So how do you square that with your statement:

      "Randomness is a proxy for complexity.."

      Who understands what here?


      Delete
    49. RE: randomness ...

      Here is a sequence:

      1.23, 0.42, 1.07, 1.38, 1.22, 1.69, 1.13, 1.76, 1.76, 0.45

      I generated it with a random number generator. Random, right?

      Actually, no, it's complex, but completely deterministic given the seed. It's a Marsaglia-Zaman algorithm.


      "Mathematicians don't know how to model complex cyclical behaviour - even though their mathematical machines have the look of rigor, they are ineffectual."

      This really clears up a lot for me.

      Delete
    50. " It's a Marsaglia-Zaman algorithm."

      Of course it is. I knew it as soon as I slapped my eyes on it.


      And you haven't dealt with these two conflicting statements (well, to a dimwit like me, they seem conflicting) :


      "What Carroll says: Entropy and complexity are independent of each other. This has nothing to do with randomness."

      "Randomness is a proxy for complexity.."

      Delete
    51. The fact that entropy and complexity are independent of each other is based on the fact that entropy (S) and complexity (C) measure different things. Let's say we're given a system X. Then S(X) and C(X) are independent functions.

      Randomness as a proxy for complexity is based on the fact that an apparently random sequence could be deterministic but complex. So given that system X, X could be:

      X = X(a, b, c, d, ...)
      X = random variable X

      And we can't tell the difference if we don't know X(a, b, c , d, ...). But this has nothing to do with C(X) or S(X), but rather with X itself.

      Delete
    52. "Randomness as a proxy for complexity is based on the fact that an apparently random sequence "

      So are we talking about random phenomena or phenomena that appear random? Which is it? Can't be both.


      "But this has nothing to do with C(X) or S(X), but rather with X itself."

      Now you're talking gobbledigook.


      Delete
    53. A random phenomenon both appears random and is random; so there exist things that are both.

      As I've said many times, we don't know if it is random or deterministic. We may yet discover its random nature or deterministic nature.

      RE: gobbledygook

      Good luck with Keynes GT Chapter 3.

      Delete
    54. "A random phenomenon both appears random and is random; so there exist things that are both.

      "A random phenomenon both appears random and is random; so there exist things that are both."

      More goobledigook.


      Remember I mentioned “dither” to you the other day. This is your verbal version of dither designed to smudge your feeble attempt to explain away your conflicting statements.

      Re: Chap 3 of the GT - there would times I would be inclined to agree with you - I'm sure it's defeated many a poor economist/mathematician.



      "As I've said many times, we don't know if it is random or deterministic.

      Delete
    55. Ooops! My apologies. A seemingly random piece of text appeared at the end of my post. Perhaps we can test it with your Marsaglia-Zaman algorithm?

      Delete
    56. "As I've said many times, we don't know if it is random or deterministic. We may yet discover its random nature or deterministic nature."

      So what has this do with our discussion.

      You made a categoric statement, many posts ago, designed to refute a point I was making, many posts ago.

      It is clear that you're not clear what you are talking about.


      Delete
    57. Jason, I wrote above:

      "It's possible entropy and complexity can both increase at the same time."

      However, there's an implication in what Carrol said that makes me wonder if I couldn't have made a stronger statement. Something like:

      "It's necessary (but not sufficient) that entropy increase for complexity to increase."

      And I mean "necessary" in a statistical sense (much as the 2nd law states that statistically entropy never decreases).

      Or is that an incorrect implication to draw, and we're really left with my original weaker "possible" statement?

      Delete
    58. "Is this a Voigt-Kampff test?"

      Now you're talkin' my kind language.

      Delete
    59. You're in a desert, walking along in the sand when all of a sudden you look down and see a tortoise.

      It's crawling toward you...

      You reach down and flip the tortoise over on its back, Henry.

      The tortoise lays on its back, its belly baking in the hot sun, beating its legs trying to turn itself over.

      But it can't. Not with out your help. But you're not helping.

      Why is that, Henry?

      Delete
    60. Why should I help? Laying on your back in the hot sun is character building.

      Delete
    61. Jason, I overlooked this statement from you:

      "complex structures (e.g. life) live off of entropy gradients (consuming free energy, which is a technical term)"

      Which makes me think the stronger "necessary" statement is acceptable (probably with certain qualifiers, like "in a closed system").

      Delete
    62. And while we're exchanging pleasantries, just one more thing.

      "Animal spirits" isn't an explanation, just a name.”

      You say I don’t understand the GT. I wonder what you understand about the GT? “Animal spirits” is a central theme in the GT. The problem for mathematicians is that they don’t know how to model such notions as animal spirits – so it’s dismissed and discarded as just a “name”. Best mathematicians keep away from economics and stick with the world of abstraction.

      Delete
    63. ... Sean says, the stronger is OK "in a hand-waving way" because there's a deficiency of technical proofs. He recommended a couple of his books for more info. :D

      Delete
  7. "So, I don't see why, ultimately, some form of econo-science won't give us answers which are as reasonably good as can be expected."

    Tom,

    I'm not saying science based analogies in economics won't teach us anything at all. I just can't see them sitting at the foundation of a new economic science.

    Henry

    ReplyDelete
    Replies
    1. Well if it turns out that economics is not very analogous to any existing sciences, I'm fine with that, so long as we manage to keep from fooling ourselves and each other somehow.

      Delete
    2. Henry, also I think you have to admit that it's hard to find other econ blogs out there that delve into issues of science, the practice of science and the philosophy of science as it relates to economics quite as much as you find here. If you know of some others, please let me know. My experience is that when you bring up science and falsifiability on other econ blogs, you may get some sympathy, you may get some lip service, but you likely will get at least a little eye-rolling: "Oh boy, another 'science' freak here to tell economists about science really is!" :D

      Delete
    3. "so long as we manage to keep from fooling ourselves and each other somehow."

      Fooling each other about what?


      " My experience is that when you bring up science and falsifiability on other econ blogs, you may get some sympathy, you may get some lip service, but you likely will get at least a little eye-rolling:"

      Then it's up to Jason to prosecute his case until he gets traction.

      Delete
    4. Fooling ourselves: circular reasoning, confirmation bias, the usual ways we fool ourselves and others. All the stuff that science in its most general form is supposed to try to prevent. What all disciplines of science have in common.

      Other blogs: that statement has nothing to do with Jason. I mean in general. E.g. Avon brings science up a lot... perhaps sometimes going overboard. But that's totally independent from Jason. I'm not saying the eye rolling isn't sometimes justified!

      Prosecute his case: framework + empirical success will help with that. If the empirical success doesn't ultimately materialize, then he's lost his case.

      Delete
    5. Other ways we fool ourselves and others: cherry picking data. Unfalsifiable hypotheses. Over fitting models.

      Delete
  8. "RE: 2008. Had I developed the model in 2008, I probably would have said we were at risk of a major recession. I started saying a minor recession is possible here:"

    Many commentators are predicting a recession for the US this year.

    What does you model predict?

    H.

    ReplyDelete
    Replies
    1. Click the link I gave you that came after the colon.

      Delete
  9. Henry, in response to another commenter on Jason's latest post, I tried my hand at considerably shortening a brief summary in comparison to my mock Q&A tutorial "dialog" to you above. Jason then responded with some links to the commenter which are no doubt more valuable.

    And of course I'm leaving a lot of things unexplained there (and above):

    Why does an IE relation have that form?

    Are there restrictions on k? (e.g. can we rule out k <= 0?)

    Is k ever time varying, and if so, can we sometimes determine a functional form for it? Or can we ever calculate it's numerical value w/o fitting it to data?

    What is this partial equilibrium (PE) solution I refer to, and when does it apply, and does it have a known functional form also?

    How do you know which is the information source and which is the information destination, and does it matter? (spoiler alert, in the case of IE it doesn't matter... but for non-ideal information transfer (IT) it does).

    etc.

    Of course there's a lot more to all of this than the little bit I tried to shine a light on in that comment, but I'm always wondering what is the best way to communicate a flavor for what's going on here in a reasonably short comment. Usually not a comment here, because Jason already has tons of material, and I'm probably not adding much by jumping in with an answer of my own... but on another blog say, should someone ask. Or should I try to explain it in person to someone. I can always give them a link, but sometimes it's nice to be able to tell a brief little story right there: hopefully presenting a good balance between clarity and brevity.

    So anyway, perhaps what I wrote there will be helpful. I trimmed down the length considerably from the mock Q&A above (it's maybe 1/4 as long or less), but I think I cover the same ground w/o any extra fat.

    ReplyDelete
    Replies
    1. Thanks Tom.

      It's a pity Jason doesn't take a leaf out of your book and get off his high horse and do the same. He is a very clever and well educated fellow but grandstanding will put more people off than gather them in.

      Delete

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Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.