For some time, I have been curious as to anybody attempting to develop computer models to test different economic theories. In light of recent advances in computing, models have been developed to help predict, though not precisely, hurricane paths, and even how stars formed.
Sure, it would be extremely complicated in terms of its input variables, but perhaps for a given specific economic situation, the model may give a short term success score vs a long-term success score for a given economic theory.
What am I trying to get at with all this? Party choice. Objectively speaking from an economic standpoint and altogether avoiding other political issues, it would be a tool to determine which economic theory to apply for a given situation.
Taking the next leap would be to vote for the political party that is most sympathetic to that economic theory. For example, voting for a more-Keynessian Democrat vs a less-Keynessian Republican.
I am not an economist and personally, I have already made a party choice, but for those who are still undecided and needed some sort of "proof" that one economic theory is better than the other would help in convincing undecided voters. If there's no such computer model, what link would you send as "proof" for undecided voters who want to choose the party with the best economic plan?
Considering that the Federal government is in a position to "maximize employment, production, and purchasing power" according to the Employment Act of 1946 - How do they know that they are applying the best economic practices for the given economic situation? Do they have sufficient evidence from computer models?
Here's the link to a good article on this chap. He has an impressive track record of predictions.
If anyone can model human intrigue then just about anything can be modeled...
http://www.goodmagazine.com/section/Features/the_new_nostradamus
Coming from an engineering background, I thought of plasma physics. The billion-dollar 40 year history of failure to achieve fusion's plagued by the same difficulties as modeling economic systems.Just doing a few hours of research, with my economic knowledge limited to a couple basic Austrian theory books, I found the method I had in mind already in use:"Agent-Based Computational Economics" (ACE) http://en.wikipedia.org/wiki/Agent-Based_Computational_Economics
ACE is based on relations of programming agent-objects' methods and attributes, like the popular Cellular-Automata "Game of Life". I see there are simple examples of trader-agents which would need much more elaborate, personality and emotional detail to model reality. And since real people's do myriad unrelated events (selling a pet-food stock because a dog bite, etc). A predictive model would need immense trivial detail. And as in chaos, there's emergence of markedly new dynamics at increasing scales of social order (e.g. family, village, state, nation, world). In plasma-physics the particle-in-cell approach is assumed to practically realize an approximation.
Perhaps its possible to technically depict, if not predict, as others have noted here, specific events by selecting specific parameters at each scale of organization?At the risk of changing the subject, this model could depict the Austrian approach and the error of trusting central-planners to the public, as the Hake's simplistic Return-To-Serfdom cartoon once was, but now using the latest video-game 3D rendering (something like the "Nightmare Before Christmas", etc). It would give students a fun video-game model to play with as scenarios are re-enacted with changing parameters. It would be a game like the popular "Civilization", but with useful economic and historical realism.There's a website, Sourceforge, where such a project could be started (if its not going on already). I suspect the theoretic talent I certainly lack is here. There's a large community of video-game modders that could hopefully be tapped for the artistic talent to add the artwork to already-existing games. I suspect the technical time and effort required for fine-tuning the model would scare off any commercial, if not academic interests, however.
Suggestions?
Economies are way too fluid and complex to be reduced to computer models. Among other things, the computer model cannot be expected to account objectively for the greed or self-interest of its developer. Wall Street firms have paid millions of dollars to develop such models and they have failed repeatedly, the housing bust being the most recent example.
Here go some Ph.D's into this field: http://www.economicmodeling.com/and a more well established company: http://lfsoftware.com/and the "winners' in their class: http://www.ecowin.com/ (they sold Reuters, ooh!)Here's a nice article that might interest you: http://www.macroadvisers.com/electionand if you don't mind applying the theoretical yourself, apps like this one can handle the math that would otherwise stop you cold: http://econometrics.com/pro/?
But really, you don't believe that goverment propaganda? Do You? At this point it is pretty obvious the JP Morgan, and Goldman Sachs run this country, and your representatives are only pretending to listen to you.
How about a specific example. Reading Rothbard's article I came accross the following quote:
"So now we see, at last, that the business cycle is brought about, not by any mysterious failings of the free market economy, but quite the opposite: By systematic intervention by government in the market process. Government intervention brings about bank expansion and inflation, and, when the inflation comes to an end, the subsequent depression-adjustment comes into play."
How do you prove this statement to another economist, if not by computer models or mathematics? Is it fair to expect a Keynessian trained economist to concede to Rothbard's logic? I'd like to learn of one who has and what made him see the light. I admit that the "light" may very well be a moral stance, standing against the temptation of power. But assuming that the other economist is a moral relativist, how do you prove this model over another?
The biggest leap of all is from theory, to practice. You ask, "Why doesn,t somebody build a brick wall over there?". I point you to the bricks, the mortar and the trowel and you say "Well hasn't somebody proven that you can build that wall?"Yep, they have, and they have also proven that it won't stop a tank from flattening your house. But you can still build the wall, and hope for the best.
Respectfully Byzantine I disagree. We have capabilities to model, with a reasonable degree of accuracy entire hemispheric weather systems. As to the modeling of greed and self-interest, recent advances in Political Science incorporating complex mathametical models of Game Theory have proven to be consistently accurate with directional and predictive qualities. I know of one such Political Scientist operating in New York with such a methodology. I will post a link when I find it.
Cheers
B
As Stephen Wolfram's model for science shows, computer simulations are just easier ways to demonstrate computations, which are simply abstract ideas. Austrian economics is already computational. Perhaps you can make a computer simulation of a market that shows price equilibrium being achieved among multiple actors, or a computer simulation of an evenly-rotating economy. It won't predict anything (Wolfram has shown that it can't), but it will make it obvious how the process unfolds.
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michael144: For some time, I have been curious as to anybody attempting to develop computer models to test different economic theories.
For some time, I have been curious as to anybody attempting to develop computer models to test different economic theories.
There is already a whole branch of economics that tries to do this: econometrics. Most school even have an econometrics class at the undergraduate level if you want to try it out. I use Stata to do all of my stats work, but there are free alternatives out there too.
"I cannot prove, but am prepared to affirm, that if you take care of clarity in reasoning, most good causes will take care of themselves, while some bad ones are taken care of as a matter of course." -Anthony de Jasay
As Stranger notes, you can feed a computer data and set the formula based on economic axioms--everyone of them right as rain--and it can generate a model of an evenly rotating economy. The problem is we do not have an evenly rotating economy because the data is constantly changing. Even if you account for a certain rate of change, there is still a large speculative element that cannot be eliminated from your model.
This is why computer models failed to account for Latin American countries being unable to raise enough revenue to service their credit lines, Russia telling its creditors to pound sand, housing prices to decline precipitiously, and on and on. And again, the prediction of the rate of change is colored by the developer's self interest. In retrospect, it makes no sense that housing prices will just rise and rise and rise. But that's what the econometrists who designed the models for Wall Street predicted.
baoinvestor, I'm looking forward to your link about the recent advances in Political Science that attempt to model systems using game theory. It would be an interesting exercise to plug-in an Austrian model for a given econonmic situation. The simulation can be studied and used to convince other economists.
Have there been any Keynessian trained economists who are now convinced of the superiority of the Austrian model? I wonder if such a model would provide sufficient evidence of the merits of the Austrian model. The Keynessians stand with mathematics behind them, the Austrians, as far as I can tell, have a moral argument behind them. What do you think?
No, the Austrians stand with an axiomatic-deductive system behind them, the Keynesians stand with a system parsed in mathematics, yet horribly plagued by inconsistencies. Hoppe, Mises and Roderick Long, as well as Martin Hollis, have pretty much thrashed the epistemological bases of positivist economics, so I'd suggest you look into their works. And yes, many of the Austrian economist are/were Keynesians, or at least trained in the system.
-Jon
To darkness I condemn you...
michael144: baoinvestor, I'm looking forward to your link about the recent advances in Political Science that attempt to model systems using game theory. It would be an interesting exercise to plug-in an Austrian model for a given econonmic situation. The simulation can be studied and used to convince other economists. Have there been any Keynessian trained economists who are now convinced of the superiority of the Austrian model? I wonder if such a model would provide sufficient evidence of the merits of the Austrian model. The Keynessians stand with mathematics behind them, the Austrians, as far as I can tell, have a moral argument behind them. What do you think?
What is it with the whole "Keynsian=The Devil" meme on these forums. Seriously, when is the last time you actually met a Keynsian? In my entire university experience up to this point, I have only met one. Why continue to beat a dead horse? When will you people realize that the mainstream left Keynsianism back in the 1980s?
Solid_Choke: What is it with the whole "Keynsian=The Devil" meme on these forums. Seriously, when is the last time you actually met a Keynsian? In my entire university experience up to this point, I have only met one. Why continue to beat a dead horse? When will you people realize that the mainstream left Keynsianism back in the 1980s?
This appears to be veering the thread off-topic, but I just felt that I need you to clarify what term you would use to describe the currently popular economic theory, which by the way, the mainstream media appears to treat as fact and infallible. When I hear the main stream media refer to deficit spending as a good means to help the economy, I cannot help but think of Keynes and his efforts to convince FDR toward the New Deal. This Time article praises Keynes in 1999 as a top 100 influential person:
http://www.time.com/time/time100/scientist/profile/keynes.html
In light of the recent government bailout, have you noticed the lack of mainstream media exposure to alternative economic theories? Have you noticed the lack of Austrian experts in the main-stream or in government councils? For example, why does it appear that the government and the main stream media when getting together a group of experts to discuss solutions to the bailout problem, hardly anyone seems to disagree with popular economic thinking? The only story I heard was of Jeffrey Miron and over 100 economists who opposed the bailout:
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview
It's easy to think that the government and its politicians are not open to invite alternative solutions or theories that go against the accepted modern economic theory of interventionism = "Keynessian" = devilish details. A typical citizen likely thinks that economic interventionism is the best, if not only answer, to all of our economic problems by listening to the main stream media. So, this thread attempts to counter that popular thought, that there are ways prove the merits of Austrian thinking to this problem, by developing a complete computer model to study the impact of the Austrian solution to the current economic situation.
They'll not accept it if it provides the "wrong" answer. It might be a worthwhile endeavour to convert more mathematically minded economists, though. Perhaps in time they'd begin focussing on correct theory again.
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