This link was sent to me by a doctor I know In Calgary. It is absolutely fantastic. I think we could discuss it for the remainder of the year. It could certainly be the basis of your undergrad degree. It reminds us why we are free-marketing, Judeo-Christian-Greco individualistic, personal liberty loving, scientific revolution Enlightenment embacing, economic growth trumps all other concern, Republicans
Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts
Friday, December 10, 2010
Monday, November 22, 2010
The Chinese Century and Biologic Laws
Economics is History masquerading as Physics.
I have introduced to you my belief that the 20th Century was best conceptualized by the Laws of Physics, driven by Energy (think of WW2 as the "war of oil") and communicated in the math of Calculus. I think that the 21st Century will be best understood through the Laws of Biology, driven by Information, and communicated throught the math of the Algorithm (computers). Two of the laws that I have become aware of, but barely understand, are evolutionary algorithms and cellular automata. The former teaches that information can be created without a directing intelligence, by setting up a system with choice and competition. To see this in action, view this brilliant example of the Blind Watchmaker on YouTube: (http://www.youtube.com/watch?v=mcAq9bmCeR0). Cellular automata teaches us that very complex systems can arise from simple rules. To see an example of this, see Wikipedia's entry on Conway's Game of Life: (http://en.wikipedia.org/wiki/Conway%27s_Game_of_Life).
These ideas are much better constructs for understanding people's behaviour than anything in physics. The reason for this is that the laws of physics teach constancy. For example, Charles' Gas Law teaches that if you keep heating a balloon, the gases will keep expanding until the balloon pops. This is as true now as when Charles first described it in the 1780's. The laws of biology, by comparison, teach change, due to increasing information. The balloon that Charles popped in 1780 didn't reproduce and so to survive and reproduce, balloons would have to find a means to relieve the pressure. There would be many possible adaptations and the best would be sorted out through selection. This means that if you tried to reproduce Charles' experiment in a biologic balloon world, you might get a different result than he did.
It is instructive to apply these ideas to economics, a biologic system based on information. Niall Ferguson has written an article on the rise of China (http://online.wsj.com/article/SB10001424052748704104104575622531909154228.html?KEYWORDS=niall+ferguson). In this article, he states that the 500 years of Western domination were based on six "killer applications":
" Competition: Europe was politically fragmented, and within each monarchy or republic there were multiple competing corporate entities.
• The Scientific Revolution: All the major 17th-century breakthroughs in mathematics, astronomy, physics, chemistry and biology happened in Western Europe.
• The rule of law and representative government: This optimal system of social and political order emerged in the English-speaking world, based on property rights and the representation of property owners in elected legislatures.
• Modern medicine: All the major 19th- and 20th-century advances in health care, including the control of tropical diseases, were made by Western Europeans and North Americans.
• The consumer society: The Industrial Revolution took place where there was both a supply of productivity-enhancing technologies and a demand for more, better and cheaper goods, beginning with cotton garments.
• The work ethic: Westerners were the first people in the world to combine more extensive and intensive labor with higher savings rates, permitting sustained capital accumulation."
This list could serve quite nicely as the "set up" rules of a cellular automata program. The first Ferguson parameter, competition, and parameter 5, consumer society (choice), sets up an evolutionary self-teaching information-adding program. By adopting 4 of the 6 rules, China is getting the predicable result of good economic growth. This has been rapidly accelerated by the fact that they can just copy our science and technology. It is interesting to speculate on the effects of not using two of the rules; representative government and a consumer society. Only a physics-minded economist would try to predict with any confidence.
I have introduced to you my belief that the 20th Century was best conceptualized by the Laws of Physics, driven by Energy (think of WW2 as the "war of oil") and communicated in the math of Calculus. I think that the 21st Century will be best understood through the Laws of Biology, driven by Information, and communicated throught the math of the Algorithm (computers). Two of the laws that I have become aware of, but barely understand, are evolutionary algorithms and cellular automata. The former teaches that information can be created without a directing intelligence, by setting up a system with choice and competition. To see this in action, view this brilliant example of the Blind Watchmaker on YouTube: (http://www.youtube.com/watch?v=mcAq9bmCeR0). Cellular automata teaches us that very complex systems can arise from simple rules. To see an example of this, see Wikipedia's entry on Conway's Game of Life: (http://en.wikipedia.org/wiki/Conway%27s_Game_of_Life).
These ideas are much better constructs for understanding people's behaviour than anything in physics. The reason for this is that the laws of physics teach constancy. For example, Charles' Gas Law teaches that if you keep heating a balloon, the gases will keep expanding until the balloon pops. This is as true now as when Charles first described it in the 1780's. The laws of biology, by comparison, teach change, due to increasing information. The balloon that Charles popped in 1780 didn't reproduce and so to survive and reproduce, balloons would have to find a means to relieve the pressure. There would be many possible adaptations and the best would be sorted out through selection. This means that if you tried to reproduce Charles' experiment in a biologic balloon world, you might get a different result than he did.
It is instructive to apply these ideas to economics, a biologic system based on information. Niall Ferguson has written an article on the rise of China (http://online.wsj.com/article/SB10001424052748704104104575622531909154228.html?KEYWORDS=niall+ferguson). In this article, he states that the 500 years of Western domination were based on six "killer applications":
" Competition: Europe was politically fragmented, and within each monarchy or republic there were multiple competing corporate entities.
• The Scientific Revolution: All the major 17th-century breakthroughs in mathematics, astronomy, physics, chemistry and biology happened in Western Europe.
• The rule of law and representative government: This optimal system of social and political order emerged in the English-speaking world, based on property rights and the representation of property owners in elected legislatures.
• Modern medicine: All the major 19th- and 20th-century advances in health care, including the control of tropical diseases, were made by Western Europeans and North Americans.
• The consumer society: The Industrial Revolution took place where there was both a supply of productivity-enhancing technologies and a demand for more, better and cheaper goods, beginning with cotton garments.
• The work ethic: Westerners were the first people in the world to combine more extensive and intensive labor with higher savings rates, permitting sustained capital accumulation."
This list could serve quite nicely as the "set up" rules of a cellular automata program. The first Ferguson parameter, competition, and parameter 5, consumer society (choice), sets up an evolutionary self-teaching information-adding program. By adopting 4 of the 6 rules, China is getting the predicable result of good economic growth. This has been rapidly accelerated by the fact that they can just copy our science and technology. It is interesting to speculate on the effects of not using two of the rules; representative government and a consumer society. Only a physics-minded economist would try to predict with any confidence.
Saturday, November 6, 2010
the New Deal and today's recession
Jason Zwieg is an economics reporter I've long respected. In the WSJ today (http://online.wsj.com/article/SB10001424052748704405704575596382345085258.html?KEYWORDS=zweig), he discusses an economist from the FDR era, Melchior Palyi who had insights into the New Deal that are as true today as then:
1. Banking Act of 1933, which said that banks could not hold securities that weren't rated "investment grade" by two ratings firms. Noting that in the 1920's these bonds often went under, even in the same year they were rated, he predicted that a bank following the new rules could have 1/3 of its bond portfoloio go bankrupt. Rating agencies are so unreliable, he wrote, that it would be "more responsible to stop the publications of ratings altogether". He felt that the banks had replaced liquidity as a way to handle this risk, with "shiftability" to others that would some day "be magnified into catastrophic dimensions".
2. government push for universal home ownership (1938) would "make the population fixed to the ground" by 'overburdening them with housing costs". Limited mobility of workers in this housing collapse is thought to be a major factor in our current persistently high unemployment rate.
3. "quantitative easing" by the Federal Reserve is "a sort of Santa Claus to the economic system" that can lead to "runaway inflation" and too muchpower in too few hands.
La plus ca change...
1. Banking Act of 1933, which said that banks could not hold securities that weren't rated "investment grade" by two ratings firms. Noting that in the 1920's these bonds often went under, even in the same year they were rated, he predicted that a bank following the new rules could have 1/3 of its bond portfoloio go bankrupt. Rating agencies are so unreliable, he wrote, that it would be "more responsible to stop the publications of ratings altogether". He felt that the banks had replaced liquidity as a way to handle this risk, with "shiftability" to others that would some day "be magnified into catastrophic dimensions".
2. government push for universal home ownership (1938) would "make the population fixed to the ground" by 'overburdening them with housing costs". Limited mobility of workers in this housing collapse is thought to be a major factor in our current persistently high unemployment rate.
3. "quantitative easing" by the Federal Reserve is "a sort of Santa Claus to the economic system" that can lead to "runaway inflation" and too muchpower in too few hands.
La plus ca change...
Saturday, October 16, 2010
Cotton and Hayek
"Cotton prices touched their highest level since Reconstruction on Friday, as a string of bad harvests and demand from China spark worries of a global shortfall..."
http://online.wsj.com/article/SB10001424052748704300604575554210569885910.html?KEYWORDS=cotton+prices
This is the first sentence in a fun article discussing the modern history of cotton prices. My eye was caught by the use of the word "shortfall". Consider this word in the context of James's re-posting the quote from Hayek on "price" as the essential piece of information in balancing supply and demand. It makes us see the word "shortfall" as poorly chosen in an economic sense. Rather, the authors should have used "decrease in supply", because we are not going to "run out" of cotton this year, that would require government intervention. Rather with a decrease in supply, we are going to see an increase in price, until demand decreases to match the supply. Now the article makes sense.
http://online.wsj.com/article/SB10001424052748704300604575554210569885910.html?KEYWORDS=cotton+prices
This is the first sentence in a fun article discussing the modern history of cotton prices. My eye was caught by the use of the word "shortfall". Consider this word in the context of James's re-posting the quote from Hayek on "price" as the essential piece of information in balancing supply and demand. It makes us see the word "shortfall" as poorly chosen in an economic sense. Rather, the authors should have used "decrease in supply", because we are not going to "run out" of cotton this year, that would require government intervention. Rather with a decrease in supply, we are going to see an increase in price, until demand decreases to match the supply. Now the article makes sense.
Subscribe to:
Posts (Atom)