Complexity and decline

[Narz]

Is this kind of detailed large scale computer simulation used in economics?

Economics is fortune telling. If you get your water wrong & the dam breaks you're held accountable. When economists get it wrong like they always do they keep right on making predictions. Water is actually a physical thing, money is just made up, most of it not even tethered to anything tangible anymore.

 

[ls612]

In economics a model generally consists of a set of optimization problems (usually constrained but sometimes unconstrained) for each agent plus a set of equilibrium conditions (ie prices clear the markets). To solve a model numerically the model needs to be of a specific type where we have good solving methods available, and you need good data on the setting you are modeling.

However, most economic models have a few basic assumptions underlying them (basically that decision makers make choices in a complete and transitive manner and that they like more money over less) and even if you can't solve the model numerically you can get qualitative results assuming only very basic aspects of behavior.

Economics is hard because you need a good model grounded in economic theory, a good way to solve that model, good data to calibrate parameters of the model, and to have chosen the correct set of things to include in your model to get significant results. Almost no paper can get all of these perfectly right but that doesn't mean all papers are worthless. "All models are wrong but some are useful"

 

[Samson]

Economics is hard because you need a good model grounded in economic theory, a good way to solve that model, good data to calibrate parameters of the model, and to have chosen the correct set of things to include in your model to get significant results. Almost no paper can get all of these perfectly right but that doesn't mean all papers are worthless. "All models are wrong but some are useful"

It is just how much worse it is that "real" science. In biology or physics you need to spend loads of money and do real science before you even get the data. Economists just need to read it off the computers, or account books back in the day. Whether these people work for the government and had access to tax records, work for the bank and had access to private finances, or in this day and age anyone with access to the internet and the computing resources needed to process the online add marketplace. I do not see why there is not more hard data plus good maths coming up with statements about the world of similar confidence to what we can say about deep space, the far past and the human body.

 

[Voidwalkin]

I do not see why there is not more hard data plus good maths coming up with statements about the world of similar confidence to what we can say about deep space, the far past and the human body

Human reactions and evaluations are fundamentally emotional, thus irrational and unpredictable, maybe?

How does a model anticipate how people evaluate risk, or weigh their prioritization of short term v long term interest should the two conflict?

 

[Samson]

Human reactions and evaluations are fundamentally emotional, thus irrational and unpredictable, maybe?

How does a model anticipate how people evaluate risk, or weigh their prioritization of short term v long term interest should the two conflict?

You measure it. You, preferably multiple you's, make predictions, and then you see how close they are. You can then see who's model is best and how much predictive power it has. You keep doing this and as your estimates get better you can revise your predictive power estimates.

 

[Voidwalkin]

You measure it. You, preferably multiple you's, make predictions, and then you see how close they are. You can then see who's model is best and how much predictive power it has. You keep doing this and as your estimates get better you can revise your predictive power estimates.

I respect trying to bring empiricism to the subject, and think it would be beneficial, but intuitively, I can't help by feel it will face limitations here. I know in my bones I disagree before my mind can process exactly why, which, upon reflection, is sorta representative of the limitations.

Spending can drop at any time due to a lack of political confidence, or even a change in values. People can answer to political incentives before they answer to economic ones(this is more relevant as you ascend the decision making chain). How does an economic model anticipate and represent that? Centrally planned economies ran into that often, and it ruined their models.

Capitalist economies face similar challenges. Two different shareholders controlling 22% sell. Market reaction will not be equivalent if there is a gap in reputation of the two. How ya quantify reputation?

Somewhat similarly, if the market is expecting the Fed chairman to make move X, it's going to react in a manner entirely inconsistent with past observed behavior. There are simply so many potential curveballs, and the only pattern I can see is extremely variable human emotional decision making never being really equivalent in any two instances.

 

[ls612]

It is just how much worse it is that "real" science. In biology or physics you need to spend loads of money and do real science before you even get the data. Economists just need to read it off the computers, or account books back in the day. Whether these people work for the government and had access to tax records, work for the bank and had access to private finances, or in this day and age anyone with access to the internet and the computing resources needed to process the online add marketplace. I do not see why there is not more hard data plus good maths coming up with statements about the world of similar confidence to what we can say about deep space, the far past and the human body.

We can only perform experiments in a partial equilibrium setting. IE, we can do an experiment where we give someone some problem and see how they behave, but in doing that we throw away any sort of feedback that would happen if it was real and not an experiment. If you give $500 to a few participants in a UBI trial it will make them better off. If you scaled it up to a full on UBI program you will just cause inflation.

 

[Gorbles]

If you give $500 to a few participants in a UBI trial it will make them better off. If you scaled it up to a full on UBI program you will just cause inflation.

The bolded seems like a value judgement, and not at all evidence-based.

 

[ls612]

The bolded seems like a value judgement, and not at all evidence-based.

OK you won't just cause inflation (there will be knock on effects in equilibrium) but you will certainly cause inflation which will eat up any benefits.

 

[Gorbles]

OK you won't just cause inflation (there will be knock on effects in equilibrium) but you will certainly cause inflation which will eat up any benefits.

I appreciate this might be a tangent, so I apologise in advance, but: why? Are you assuming the money comes from nowhere, instead of being properly-costed / factored into whatever hypothetical budget is funding the UBI program?

 

[Zardnaar]

The bolded seems like a value judgement, and not at all evidence-based.

Something similar has happened here.

Students got more money rent went up. Subsidies on welfare rent went up.

Cash payouts to families with children rent went up.

In effect billions of government spending is a Subsidy.

No surprises the market reforms of the 80s around social housing failed.

Vs supplying cheap housing to begin with.

It's why I'm opposed to a UBI. May as well spend the money on a massive state housing building program instead. Welfare payments are enough with cheap rent. Same with minimum wage.

If we had our minimum wage with 1990 housing prices you would be fine.

 

[ls612]

I appreciate this might be a tangent, so I apologise in advance, but: why? Are you assuming the money comes from nowhere, instead of being properly-costed / factored into whatever hypothetical budget is funding the UBI program?

Even if you paid for it through taxation 100% you are on net transferring money from people with low MPC to people with high MPC while at the same time reducing investment incentives (assuming the tax increase is also on capital income). That would lead in most models to a higher amount of demand for consumption goods and a gradually lowering ability to produce goods; Inflation restores the condition that the consumption goods market must clear by raising consumption good prices. And on top of that people overall consume less than they did before implementing this program.

Note that pretty much the only assumptions required for this to hold are that people have a diminishing desire to consume more goods (so that low income people have higher MPC) and that there is a similar concavity in capital investment returns (more capital scales worse than linearly all else being equal).

 

[Gorbles]

Students got more money rent went up.

That doesn't seem at all relevant to what I was talking about. That seems like an issue with uncontrolled rent.

Even if you paid for it through taxation 100% you are on net transferring money from people with low MPC to people with high MPC while at the same time reducing investment incentives (assuming the tax increase is also on capital income). That would lead in most models to a higher amount of demand for consumption goods and a gradually lowering ability to produce goods; Inflation restores the condition that the consumption goods market must clear by raising consumption good prices. And on top of that people overall consume less than they did before implementing this program.

Note that pretty much the only assumptions required for this to hold are that people have a diminishing desire to consume more goods (so that low income people have higher MPC) and that there is a similar concavity in capital investment returns (more capital scales worse than linearly all else being equal).

So you're not saying that a UBI program causes inflation. You're saying that through some assumptions made r.e. transfer of money and investment incentives that the market-correcting approach is therefore related to inflation? I'm not trying to put words in your mouth, I'm trying to make sure I'm reading you right.

 

[Zardnaar]

That doesn't seem at all relevant to what I was talking about. That seems like an issue with uncontrolled rent.


So you're not saying that a UBI program causes inflation. You're saying that through some assumptions made r.e. transfer of money and investment incentives that the market-correcting approach is therefore related to inflation? I'm not trying to put words in your mouth, I'm trying to make sure I'm reading you right.

Basic idea is the same. UBI is a Subsidy. And stupidly expensive. The UBI is either so small as to be useless or you have to restructure your economy around it and it would be inflationary.

It's populist magic money beans.

What's better about UBI vs universal welfare+ robust social housing (NZ pre 1984, Finland 1960s and 70s, UK post WW2 etc).

Unlike UBI which is theoretical I have direct experience in the matter. Rent was peanuts in the 80s (50 usd week 3 bedroom house).

Money was tight but we had small luxuries, rare holidays and eating and roof over head weren't major concerns.

 

[Gorbles]

Basic idea is the same. UBI is a Subsidy. And stupidly expensive. The UBI is either so small as to be useless or you have to restructure your economy around it and it would be inflationary.

That has nothing to do with rent going up because students got more money. That's landlords making an intentional choice that they were in no way forced to do. It's really quite that simple.

 

[Zardnaar]

That has nothing to do with rent going up because students got more money. That's landlords making an intentional choice that they were in no way forced to do. It's really quite that simple.

Same thing woukd happen with UBI is what we're saying. That's inflation.

Government via welfare and working for families is actually paying more now via subsidies than just building more houses.

UBI is basically populist magic money beans thought up by technocrats. People hear "free money" and think is great. It's not free though.

 

[Gorbles]

Same thing woukd happen with UBI is what we're saying.

If I charged you more money because my costs went up, that's different to me charging you more money because I knew you had more disposable available. If you think that the end result being similar makes these things the same, I'm guessing it's because of whatever bias you have against the "UBI" that leads you to call it "populist magic money beans thought up by technocrats". Buzzword-a-palooza.

 

[Samson]

Even if you paid for it through taxation 100% you are on net transferring money from people with low MPC to people with high MPC while at the same time reducing investment incentives (assuming the tax increase is also on capital income). That would lead in most models to a higher amount of demand for consumption goods and a gradually lowering ability to produce goods; Inflation restores the condition that the consumption goods market must clear by raising consumption good prices. And on top of that people overall consume less than they did before implementing this program.

Note that pretty much the only assumptions required for this to hold are that people have a diminishing desire to consume more goods (so that low income people have higher MPC) and that there is a similar concavity in capital investment returns (more capital scales worse than linearly all else being equal).

This really demonstrates what I mean by the lack of rigor. The fact that you can state that you can predict such a high level economic indicator with only two assumptions demonstrates that you have a standard of proof that is more like an economist than a scientist.

In the UK a large part of the cost of living for many poor people is accommodation. The tories have demonstrated that it is politically feasible to conscript the young for state labour. The government could by fiat turn almost unlimited farmland into poor peoples accommodation. Thi si similar to what we did after the war when the council house system was set up by Labour with no involvement of capital. This would cover ~70% of UBI. This reduces inflation.

While this is unlikely, it is not mathematically impossible. That your model did not include the adoption of a progressive approach to housing as part of the progressive approach to power shows how limited it is.

 

[Gori the Grey]

Keep in mind, Samson, economics is one of the social sciences. Those can never be nearly as exact as the physical sciences because of what Voidwalkin said: people are irrational. At least they don't move as predictably as water does.

 

[Gorbles]

I believe Samson's point r.e. rigour doesn't rely on strict equivalence between social and physical science.

Or at the very least, if we accept this wiggle room, then tying cause and effect in concrete terms is, at best, subject to the same wiggle room and therefore the correlation (r.e. UBI and inflation) is probably not as absolute as it was phrased.