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Posts Tagged ‘economics’

Time equals money is a truism. It is true in the sense that both concepts are simply agreements between people in relation to something else. In the case of time it is an agreement between people about clocks or other cyclic mechanisms and usually in relation to synchronizing activities. In the case of money it is the agreement of credit and debts as representations of trustworthiness. The day, minute, hour, and second are merely efficient conventions we use to compress information about synchronizing our activities in relation to other things. Dollars, cents, bitcoins and notes are all conventions we use to liquidate and exchange trust.

In fact, there’s nothing in human existence that isn’t in this same class of concepts like time and money other than food, water, shelter, sleep and reproduction. All of our cultural conventions and social constructs are, at the root, based upon the need to survive. All of our social existence is derived from a value association network built up to help us obtain the basic necessities of our personal survival. This value association network can become quite complicated and certainly extends beyond our own individual lifespan and influence. We have traditions, works of literature and art, history, religion, politics and so on all due to an extremely complex evolution of learned associative and genetic strategies for survival of our individual genes.

The goal in this essay is not to reduce everything we experience to survival of genes and suggest anthropology, social sciences, psychology and so forth aren’t worth investigation. The various complex systems investigated in all these disciplines exist and emerge as stand alone things to study and figure out. Because politics and economies and social networks actually do exist we must study them and understand their effects and causes. Also we cannot effectively research all the way down from these emergent concepts to the fundamentals for a variety of reasons, not least of which is simply computational irreducibility.

Computation irreducibility, the principal (unproven), suggests the best we are going to be able to do to understand EVERYTHING is just to keep computing and observing. Everything is unfolding in front of us and it’s “ahead” of us in ways that aren’t compressible. This suggests, to me, that our best source of figuring things out is to CREATE. Let things evolve and because we created them we understand exactly what went into them and after we’re dead we will have machines we made that can also understand what went into them.

In a sense there’s only so much behavior (evolution of information) we can observe with the current resources available to us. We need to set forth new creations that evolve in our lifetimes (genetic and computational lifetimes). Let us see if cultures and social structures and politics and money evolve from our creations!

However, until that’s more feasible than it is now we have history and anthropology and sociology….. and yet! While new patterns emerge at various levels of reduction often these emergent patterns will share common abstract structures and behavior. For example, the Fibonacci sequences shows up in a variety of levels of abstract patterns. Another example is that of fractal behavior in economic markets, in the growth of trees and obviously within various computational systems. It is this remarkable phenomenon that leads to my forthcoming hypothesis.

The fundamental aspect of existence is information.

Bits. Bits interacting with bits to form, deform and reform patterns. These patterns able to interpret, reinterpret and replicate. These patterns can be interpreted as networks. Networks, described by bits, made of bits, able to understand streams of bits.

[for understandable examples of this in everyday life think of your computer you’re reading this on. It is made of atoms (bits) and materials like silicon (bits of bits) fashioned into chips and memory banks (a network of bits of bits that process and store bits) that understand programs (bits about other bits) and interact with humans (who type bits from their own networked being [fingers, brains, eyes…]).]

Information has no end and no beginning. It doesn’t need a physical substrate, as in a particular substrate. It becomes the substrate. It substantiates all substrates. Anything and everything that exists follows the structures of pure information and pure computation – our physical world is simply a subset of this pure abstraction.

These high level – or what we call high level – phenomenon like social networks and politics and economies all are phenomena of information and information processing. The theories of Claude Shannon, Kurt Godel, Church, Turing, Chatin, Mandelbrot, Wolfram and so on all show signs that at all levels of “how things work” there is a fundamental information-theoretic basis.

A strange thing is happening nowadays. Well, strange to many who grew up working the land and manipulating the world directly with their own hands… The majority of “advanced” societies are going digital. Digital refers to very clearly not the stuff taken directly from the ground on the earth ( I don’t mean digital in the sense of digital vs. analog… continuous vs. discrete). The economies are 90%+ digital, the majority of the most valuable companies don’t produce physical products, the politics are digital, the dominant mode of communication and social interaction is digital and so forth. It’s almost impossible at this point to think our existence will end up as anything but informatic. But it’s a bit misleading to think we’re moving away from one mode into another. The fact is it’s ALL INFORMATION and we’re just arguing about the representation in physical form of that information.

So what does any of the last set of paragraphs have to do with the opening? Well, everything. Time and money are simply exchanges of information. We will find traces of their basic ideas (synchronization and “trust”) in all sorts of complex information exchanges. Time and money are compressions of information that allow us finite, yet universal computers to do things mostly within our computational lifetime. Time and money are NOT fundamental objects in existence. They are emergent abstractions, that will emerge EVERYTIME sufficiently complex information structures start interacting and assuredly develop associative value networks.

Are they real? Sure.

Should we obsess over them? It all depends on what you, as an information packet, learn to value. If you basic means of survival as the information packet you are depends on the various associations they provide, then yes. If not, then no. Or perhaps very differently than you deal with them today.

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I jokingly made a site Can’t Blame Me!.  Sadly, TIME doesn’t get the joke and actually thinks they can identify people to blame.  Or maybe they did get the joke and thought a similar concept on their site would generate some traffic.

Let’s be clear: there’s no way to blame anyone.  It just is.  There’s no way to draw a casual chain that would allow you to blame GWB anymore than you can blame yourself.  If everyone is equally (or not equally but undecibly so) to blame, you can’t blame anyone.

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Reproduced with permission from a private e-mail from Mahesh Johari

Some quick commentary only today.  The stimulus bill that just passed the House contains a “Buy American” clause, which forces materials purchased using funds from the stimulus package to come from American manufacturers.

Intuitively, this sounds both logical and appealing.  If we’re spending our taxpayer dollars, obviously we want those dollars to be spread throughout our economy.  It makes no sense to pass an economic stimulus package that sends our money to China.  So why not mandate that?

Unfortunately it’s not that simple.  The “Buy American” clause has great political appeal but will do nothing but defer job losses and prolong the overall process of adjustment that we are experiencing.

Here’s why: Let’s imagine (for example) a steel manufacturer in the U.S.  The manufacturer is unable to compete globally because their cost structure is too high.  They are facing the prospect of downsizing, of shuttering excess capacity, of laying off workers.  But wait! Here comes the stimulus package to save the day!

Now this uncompetitive sloth of a firm has a new lifeline.  They can sell their overpriced product to the stimulus package.  They can delay downsizing, cost cuts, and layoffs.  So as long as the stimulus package is around, they can keep being inefficient.  Meanwhile their international competitors are becoming ever more efficient, adjusting themselves to true market conditions.  The competitors are getting better.

When the stimulus package expires, the firm will be right back where it began: uncompetitive and burdened with an unsustainable cost structure.  Then what?  Of course the layoffs will come, the downsizing, etc.  Everything that should have happened will happen, just a year or two later.  The part of the stimulus used to overpay for those American materials will essentially have been used for zero long term benefit.  The overall economic adjustment process will be prolonged.

This type of waste why we have to be very careful when it comes to government spending.  Government spending packages tend to waste a lot of money.  Resources that are wasted produce no long term economic benefit.

So what should we do?  We don’t want companies to willy-nilly send our stimulus dollars to China.  Well, at least not when they can get the same stuff in the United States.

As long as we are creating websites and transparency, let’s go all the way!    We could require any purchases of commodity materials from international vendors to be subject to a domestic competitive bid first.  For example, if Caterpillar feels their most economical source for steel is based in Australia, let’s require them to accept competitive bids from American firms BEFORE they are allowed to place the order to the Australian firm.  If we keep the process open and transparent, it will bring the best American firms out to compete at peak efficiency – a very desirable outcome.

We have to be very careful here.  Subsidizing inefficiency is not the path to prosperity.

Related Blog/News Posts (add by Russ not email author, just for further reading):

CNN on Limbaugh and Obama Package

Perfect Storm?

Retailers on the Ropes

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I suppose some might consider it a good thing that the Economics Oracles are starting to make far less definitive statements and/or predictions.

Consider the following:

Someone pointed out to me that I hold this view that economists might not know as much as they claim to because I don’t really know that much about economic theory.  That’s true.

However, it is highly unlikely that the current situation is understood by anyone, much less was it accurately predicted.  Worse, no one really has a defensible plan of action – economicly speaking.

I posit that there is no way to predict the economy in a far reaching/come up with a national plan kinda way.  Like much of what we study, we can understand isolated systems and behaviors.  With that useful knowledge we can proceed adjusting our courses in a million ways as we go along.  In the end, we just need to make something happen.  We need to CREATE and SHAPE what happens next, not predict it.

In that way, it seems very freeing to not be under the constant pressure of the Down Jones average or the Fed rate cuts.  The world has always been more complex than that and we’re swimming in that complexity.

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Now here’s a MEATY discussion on Edge.org about the role scientists should play in helping improve the economic conditions.  Chew on this awhile.

Here’s one of my favorite chunks of the discussion lifted from George Dyson’s comments:

Brown, Kauffman, Palmrose, and Smolin have hit the nail on the head. But is it the right nail? When the patient needs first aid, do you ask “is there a modeler in the house?”

Financial systems exhibit the Gödelian incompleteness characteristic of all (sufficiently powerful) formal systems: within the given system it is possible to construct statements (or financial instruments) whose value appears to be sound, but cannot be proved within the system itself. The same limitations apply to models of financial systems.

There is good news and bad news in this. No financial system (or model of such a system) can ever be completely secure and closed. On the other hand, there is no limit to the level of concepts that an economy (or a model of that economy) is able to comprehend.

So, what should we do? Assigning an international team of experts to formulate a global economic model is a worthy undertaking, but can the rest of us afford to hold our breath and wait? We also need Plan B, just in case. Plan B is to nurture new, grassroots economic systems that directly (and honestly) couple the flow of currencies to the flow of goods, services, and information—down to the last bit, and the last dollar, from the bottom up.

“Ten years ago I started a company based on the assumption that people are basically good,” argued E-Bay founder Pierre Omidyar (at the Santa Fe Institute) in 2004. “And now I have the data to prove it.” Instead of putting a dozen scientists in a room to come up with a better model of the existing global financial system, we should put a dozen Pierre Omidyars, Elon Musks, Salar Kamangars, and Jeff Bezoses in a room (with Danny Hillis) and let them actually build one (a new financial system, not another model).

Why is this my favorite?  He seems to be saying, get on with it.  Rather than endlessy try to model things you can’t model, start creating.  I’m not a huge fan of the Omidyar quote, as it’s not an accurate nor useful statement.  However, the idea that we can generate all sorts of new ways to buy, sell, create and generate things/services people want is right. We do it all the time and we need to do even more of it.  It’s about the do.

There’s also a fallacy brought up many times by the various contributors that science and modeling can somehow FIX this.  It can’t.  It helps us explain and make sense of things, but that doesn’t imply control.

Also worth noting is seeing how scientists attack a “real life” problem.  Are they shrinking back from the tough stuff or being realistic in what science and scientific approaches can contribute?

Eric Weinstein answers that question:

To be clear, the world’s markets are going to be analyzed, modeled, and regulated by panels of “experts”. That is not at issue. What is at issue is whether the scientific community has the moral luxury, as some commenters here heartily recommend, to sit this one out and complain from the sidelines when most of the skills needed to debunk seemingly sophisticated failed market theory are scientific in origin. But to believe in one’s own ability to improve a theory and make contributions across disciplines require taking serious risk and I well understand that some may find such risk frightening. I would be happy enough for those who feel sure they have nothing to contribute to avoid such an undertaking.

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http://www.nytimes.com/2008/10/28/opinion/28brooks.html?_r=1&scp=2&sq=&st=nyt&oref=sloginfree registration to read if not registered…

Go with the as postulated in this NYT.com article, there are four steps to every decision…

  1. you perceive a situation
  2. you think of possible courses of action
  3. you calculate which course is in your best interest
  4. you take the action

&^+%$!!)*?<#!

If only it were that simple.

Over the past few centuries, public policy pundits, talking heads and some academicians have presumed that step three was the most important. Social science disciplines are premised on that presumption as well; despite the ink used to propagate altruistism at every opportunity, people calculate and behave in their own self-interest.

Greenspan’s quoted in the above article made that clear for his reign and for the country. His comments aside, none of the steps above are worth a lot without the others.

Most of the processing takes place without literal awareness. We behave and when pressed for why, we generate a story that fits that situation and puts us in a virtuous light. We don’t really perceive all that well. Thus, the step that seems most simple is the most complex. Looking at and perceiving the world is an active process of symbol meaning-making that shapes and biases the rest of the decision-making chain.

Psychologists have been exploring our biases for four decades with the work of Amos Tversky and Daniel Kahneman, and also with work by people like Richard Thaler, Robert Shiller, John Bargh and Dan Ariely. Now Brooks would have it that it is time for the economists to contribute. Gasp!

The desperation of the day may mean a new wave of behavioral economists and others who are next to bring pop psychology to the realm of public policy. These are the same pundits that used their antiquated assumptions to provide plausible explanations for why so many others are wrong about risk behaviors and globalization implications.

Nassim Nicholas Taleb for instance. In his books “Fooled by Randomness” and “The Black Swan” he explains it all in equally simplistic manner as the four rules above. As an astute colleague pointed out bluntly, we are asking the guy who coined the perception of “black swans” to predict black swans.” The irony is laughable. What gives a black swan example its value is that it is not obvious [read predictable]. While Taleb may have seen it coming, as stated in the above article, that precludes it from being an example of a “black swan” phenomenon. Irony for sure.

When Taleb gets on the philosophical diving board to spring into evolutionary causation decreeing that humanoids brains evolved to fit a less complex world I found myself gagging instead of gasping. His examples of the perceptual biases that distort our thinking are themselves century old prejudices.

1. Our tendency to see data that confirm our prejudices more vividly than data that contradict them

a. We recognize information due to its relation with exiting cues we have in our repertoire. We don’t see what we haven’t been reinforced to see; it is not self-deception any more than it is self enlightenment when we see what turns out to be correct. In that set of circumstances the correctness is not based on enlightenment but on relationships that were there all along but not focused on, recognized or reinforced by the environment.

b. That environment is the same one where superstition, myth, magic, mind and phenomenalism is considered valuable to be our “humanity” and, knock on wood, we sometimes guess right despite the reasons behind the guess.

2. Our tendency to overvalue recent events when anticipating future possibilities

a. the last 6 months is more like the next six months than the last 1000 years are like the next 6 months

3. Our tendency to spin concurring facts into a single causal narrative

a. if for no other reason, this site is the mainstay of the defeat of monocausality which haunts our culture, bolsters our superstitions and keeps us surprised at regular intervals

4. Our tendency to applaud our own supposed skill in circumstances when we’ve actually benefited from dumb luck.

a. We benefit from historical uniqueness and education that is more than smattered with scientific skepticism as opposed to boorish cynicism that ignores our strengths and panders to the voodoo in the caves.

b. See 1.-b above.

Errors of perception are everywhere when experimental analysis is NOT involved. Clearly, getting to our moon and beyond was due to experimental analysis and NOT interpretation of perceptions of pundits.

Without experimental analysis we’ll continually fail to perceive “what’s going on out there.” The relationships between a zillion things and another zillion things are to complex. While a four point decision tree helps us walk across the street in a small town, it is not the way to figure out how to navigate rules of this years tax code or interpret the Patriot Act I or II on any given Sunday. Who knew and who still knows which small events are linked to big disasters? Who knew that the mechanical Newtonian links were there as well as selected consequences of a billion factors coming together world [pick one] (cause – contribute – accompany) a social-political-economic unraveling? Experimental analysis was not involved. Interpretation of biases was.

Faulty perceptions are not the only reason or application for an experimental analysis. Relationships are complex, not caused by single small or an enormous events as you have been trained to think. We don’t have much training to recognize or understand what our own self-interests are in anything but localized strings of spatial-temporal events. Brooks’ towing with trusting government to become engaged in the process is folly. Just how much “help” can a country endure? What’s worse, it is lazy. Separating government and business is impossible but collusion is asking for our own demise handed to as a coupon toward irrelevance. While we regularly make poor decisions, the government is insensitive to making the correct one or those needing to be made in a timely fashion.

If you doubt that, don’t look in the rear view mirror as some would suggest. Follow the consequences of a potential decision and determine for yourself if you or an agent of an ideology is better suited to care for what is in your best interests. Government information feedback mechanisms are limited, broadly myopic, and mechanical; not timely. The very thing that got them away from the citizenry to be politicians has had ideology numb them contributing to an end to pragmatism. This bias, to be sure, is no better or worse than any other bias. They all can be replaced with an experimental analysis from science rather than the pop pap solutions we are offered.

As we’ve seen from recent crashes before the latest one this set of economic biases just keeps on giving. It keep on giving us the problems that government is content to continue to administer to; mindfulness, equality of everything not equal, brinkmanship over leadership and above, all, saying what works to get re-elected. As stated, this meltdown is a cultural event reminding us that we are perceptive beings, seeing things that aren’t there and not perceiving things that are there. (See previous blogs]


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Things are complicated out there. You may or may not be aware that your nervous system filters out the massive amount of data that your senses are exposed to. As a matter of conservation of energy (real and metaphorical) you are attending to very little of your environment based on your history and the current value you have for some segment of it.

Let me frame this for your consideration…

Due to our complexity as humans, when things are not there, we sometimes see things. (No, it is not the 60’s.) What’s more, when things are there in front of us and available for our experience, we don’t see them.

Two Experiments to consider…

1. In a recent paper in Science, Whitson and Galinsky (2008) found when individuals are unable to gain a sense of control objectively they will gain it perceptually through illusory pattern perception meaning they will identify “stuff” among a stimuli in their environment that don’t really exist. They are not hallucinating in the usual sense of the word. They are generating information to provide continuity linking what they can just as is sensory data is generated in sensory deprivation experiments.

Whitson, et.al, empirically found that people generate pattern perceptions to make sense of the events in their environment when they experience lack of control of the environmental events they are experiencing.

Now, consider what that means…

  • It means we don’t see the flaws in people we are connected to or that we see the flaws where none exist
  • it means that we see a conspiracy from a new boss when we don’t yet exist to the new boss
  • it means we identify objects in random noise images where there are none
  • it means we see mechanistic cause and effect relationships where no links exist
  • it means we see correlations in economic markets in companies we like
  • it means we don’t see how our behavior is like the behavior of someone we don’t like
  • it means we can’t tell why people like us or dislike us when they do
  • it means that we can’t see the flaws in our children as they lie dead with a needle in their arm
  • it means that we can be more than one kind of person every day of our lives
  • it means that people not like us are suspicious and people like us are allies

Staggering, isn’t it!

Examples of superstitious behavior in the modern world are countless – sports super heroes involved in astrology, learned rituals so complex that someone once referred to a baseball player as “his own seventh inning stretch” due to the time he took to address each pitch. Religion, prayer, sacrificial rituals, appeasements, holidays, traditions, incantations, etc. all come from making relationships where none exist.   Gasuntheit!

When you are uncertain about your environment and don’t perceive you have control, know what is going on, etc., it is disconcerting. In terms of how we learn, not perceiving you have control is an aversive stimulus equal to shock, rejection, pain, or other punishers. Faced with uncertainty, lack of control, people look for patterns [ah, the value of search] in their environments to re-establish control. When it is not there empirically, we try to establish it perceptually with vision playing the lead role.

With the dearth of information and conflicting data sets it is a constant challenge to understand what is related and what isn’t. In an election year the conspiracies exist for those that most not understanding why their candidate is losing since they see the relationships between them and the agenda as a citizen. The media, the polls, the moderators, the economy, the Jews, the youth, the women…etc. are all plotting to undo the trailing candidate.

2. The following video  is based on research by Simons and Chabris from Indiana University. It is very interesting for several reasons, all of which you’ll see if you FOLLOW THE DIRECTIONS OF THE PRESENTER EXACTLY.

After you see it spend some time thinking how that affects what your life is like, how research is done and how the world works. After all that, come back write or respond with what you think the implications are of the research.

~~~~~~~

The lesson here isn’t simple. If we were to want a society free from magical thoughts, then we need expand the tolerance for people to live in ambiguity in some areas, educate people on how feelings and emotions are the exhaust of perceived contingencies and how the environment comes to control behavior via consequences.



J. A. Whitson, A. D. Galinsky (2008). Lacking Control Increases Illusory Pattern Perception Science, 322 (5898), 115-117 DOI: 10.1126/science.1159845

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