An enhanced brief for a more vivid, succinct oratorio conveyance of the ideas
Sciences derived from Scire in Latin, which merely means know.
To solve economic problems, we cannot derive merely from historical trends, but we must know the cause and effect, which may succinctly be termed as Forces of Nature and Nature of human .
Scientists and Engineers have abandoned the use of extrapolation for non-animate (particles or Brownian movement) and animate (Ants walk) entities.
We need to know the major forces, if not the root causes. Just like we need to know the very motivation of the journey of an ant, not how has the journey gone so far. While noting that motivation is not easily characterized, it is possible, necessary to identify.
Mathematics was developed through rigorous compliance with law of nature. The medieval and renaissance scientists had persevered, with rigor and fervent in order for their jewels of discoveries to pass down through brutal scrutiny and persecutions.
Social Scientists, in particular Economists have not learnt from these. Mathematics, for applications on Social Sciences, were not developed through equal rigor, rigor of study of interactions amongst the law of nature and nature of people. Many tools for modeling inanimate entities, were used, are being used for modeling of systems whose performance are heavily dependent on behaviors exists only in animate entities, such as extends of needs and ease of use for realms beyond physiological satisfactions.
By design, ignorance or arrogance, many capitalized on extravagance in mathematics to impress. Effects are correlated with manifestations of its historical equal. It is as irrelevant as predicting a car would drive right into a wall, just because it has been driving straight. How can, how can the course of a car be modeled merely by the route it took without considering the underlying forces that changes the velocity, even less so the purpose of that journey partake?
For any economic model to be acceptable to decision makers, a simple test would be to test the model on a much simpler, controllable small system, e.g. a match between two well recorded sports teams. Where parameters are lesser, well documented, the surrounding factors are easier to control and the outcome is simpler, easily quantified and more profitable for modeling experts.
If it cannot even satisfactorily model such simpler entities, then modeling of more complex systems, such as national and global economy can produce relevance? Some ways are initiated here in a primitive form. This is not because a refined form is not ready, but the purpose of this article is to provoke the rethinking of thinkers.
Do not use equations to model social-economical systems, if the understanding of the fundamental system dynamics and forces are not cognized. Even they are cognized, they need to take into deeper realm of cognition, to intangible parameters, such as motivation. Which i do not believe Economic systems can be modeled without.
Dec 2005
The development of human culture, society is very much measured by the strength of the economy. When the economy is healthy, generally the social order, the arts, the life styles are better. When the economy is in chaos, not only the social order, the arts, the life styles are impacted. Quality of the next generation, who experienced the chaos, would be impacted. The end results are not necessarily chaotic. An analogy, the generation who went through the epidemic of small pox, need not necessary is weaker. In fact, most become stronger, against small pox in particular, chaotic virus in general.
With the advancement of economic theory, the observation of the economy becomes easier. There are supplies and demands, there are employment indices, there are trade and current account balances, there are baskets of currencies, there are inflation indices, etc. With the advancement of computation modeling, operation research theory, the modeling of the economy, and the society are thought to be possible.
If we refer to Thomas Kaplan thesis on Management Accounting, “Lost of Relevance”, that laments the failure of financial-accounting-based management accounting, the real feel of the efficacy, if not even the efficiency, of the business operation is lost. The analysis no doubt can be precise, its relevance have lost.
The same trend happens in Economics. That the fundamental assumption of economic theories is fast overwhelmed by the evolution in society motivated by innovations and advancement in communication. The realities are no longer observed by economists, central bankers and investors. In place of these, the most effective tools for stimulation and suppression of economic dull drum and overheat, are assumed to be by fiscal and monetary policies. The tools that are often used are interest rate, taxation and budget balance. When cross border trading is concerned, the tariff barrier, the non-tariff barriers are deemed to be the only tools. The indicators are budget, trade and current accounts balances.
This is so powerful when the interest rate was at median and the growth was limited by cost of capitals. Alan Greenspan was coined as the most powerful man on planet earth, even eclipses that of the President. But in a recession, when the interest rate, corrected to inflation, is almost zero. There is no room for the further stimulation of the economy by lowering the cost of money supply, which is technically zero. Turning interest rate to negative is academically possible and psychologically worrisome. No known application of negative interest rate was practiced and known in the basic form. Would he then be coined the most powerless man? It is an unfair and unkind statement, however, it reflects the reality of our powerlessness in face of the real economy.
Modeling of all phenomenon, nature or social, are merely simplification from reality. With limited human wisdom, we could not totally comprehend the reality, if ever collection of all necessary and up to date data is possible. Therefore, the understanding of the economic reality must be often related to the real market, than the secondary indicator.
There is a good lesson that i learnt from observing many forecasting methods, for mechanical systems, for computation machines, for factory operations, for market demands, for business entities performance, for market movement, for society progression, and for world economic outlook. The forecasts are pretty much evolved from the yesteryears Operation Research tools developed during the Second World War. If the mechanical system is under strict constancy, the input and environment do not change drastically, then the outputs are predictable. That is the best lesson we can learn from history. However, when the environments change, change rapidly. The organizations and technology change, change dramatically. The markets change, change seemingly unpredictably. No forecasting tools is going to be valid, if all the input is a first order derivatives from the historical data. Even the data were collected very accurately through most sophisticated Resource Planning Systems to Point of Sales terminals. Some very short term forecast is effected by Resource Planning System. Even the most complex analyses which may includes heuristics and artificial reasoning, no system has yet able to forecast to a sufficient time horizon with satisfactory accuracy. The over confidence in modeling a simple man-made machines, derived the false confidence in the mathematical modeling of economic reality. This resemblance the Engineers efforts in predicting ants walks, atom movements coined “Brownean motions” when computation resource was abundance. This has wasted many decades of human intelligence. Do Economists learnt from such lessons?
The mathematics and computations are the best clients of data, precise data. However, the economy of today, is no longer pushed by the foundations of yesteryears. The movement of economy is pulled by new technology that is on the verge of commercialization.
Everyone in the economic and political circles knows that America, and the world at large, experienced the longest sustained growth in the past decades. Some attributed to the prudent monetary and fiscal policy. Some attributed to the wise leadership of the Administration. Some attributed to the peace and few natural disasters. Very few of you, who so often traveled by planes, asked the passengers next to you, which industry they worked for, which country they came from. It is the best opportunity to assess the market movement in the grossest sense and yet be accurate enough to see the medium term of few years.
In 1980, you probably meet a lot of Japanese, Americans and some Taiwanese, few Europeans. The industry they were in very much likely to be portable consumer electronics, micro-computers and its storages. As years progress, the frequent travelers becomes more likely to be from industries that involved in notebook computers, software, data storage, printers, telecommunications, new infrastructure for computer and mobile network, and then portable telecommunications. This is a long list of progression for the last decade or two. This has sustained the growth, by first creating new market, new demand, then employment. Higher quality and numerous employments resulted in increased purchasing power. This in turn absorbs the produce in these newly formed market. So the market becomes a quasi equilibrium and yet growing. The market was growing. The investors were happy. The population was employed. The new technology is no longer so sophisticated. Therefore the deployment is easy and therefore the manufacturing base expanded off shore to Ireland, Latin America, South East Asia, and now to India, China. With the huge population in China, the economy is booming to beyond any event recorded in prior history. However, the competitiveness and high technical competency do cast a shadow on where the developed world could anchor their future in.
If we were able to extend classical economic theory to prepare us better for this challenge, we would have rode the curve better and landed softer. One possible extension, is probably within the appetite of classical economists, is the concept of basket of various key components. It used to be currency, commodities, household supplies, etc. Now, to predict the future, both technology and market are two key aspects. I have not sufficient wisdom to provide full solutions. But by looking at the rapidly evolving NASDEQ etc grouping of the stocks, we probably agreed that Telecommunications, Networking, Portable Intelligent Devices, Mobile Communications were the key to observe, say few years ago.
Are we too late? There is nothing to late if we gain some wisdom, each step we prowl forward. Even it was a failure. From this, we could see that the real sustainers of the last two decades were new market, significant market created. The markets were not mere old markets’ substitute. But new satisfaction generators that really fill new desires.
When you travel this time around, most likely your neighbor, if not yourself, are Intel, Nokia, Microsoft, CISCO or their competitors. However, if you looked into their eyes, except may be Microsoft and Intel, the zests are likely to be burning out. And there are no new savior applications on the scene. Palm and Bluetooth did not deliver. 3G are not concrete yet. Digital Cameras did help a few Japanese makers afloat by its greater volume. Unfortunately, these are mere replacement and not a new market, like what GSM and its operating costs, has created and provided a key booster for the last 5 years. Without looking out of the cabin windows, you know we are in a slide, sliding downward. Who are going to be hit, the operators of the flights you sit it, exactly at this moment. Technology is the first tell tales, Air transport is the latter measurement yard stick. If there is nothing in sight, who would commits his resources to work on the yet to be sold?
So do not believe that interest rate can generate sustainable growth, especially when it is zero-rated post-correction.
There are three potential scenarios, first a new promise is found that keeps every one busy, fed and forget about strife for a while. Second a bigger market than China is found to keep all the matured products shipping. Third, find an excuse and pump in money for an outrages defense budget. (Sorry, this is not meant to be so unkind, the writing was done before September 11th, 2001.)
Economic reality is a reality that affects every one. Many wars, man-made calamities were results of uprising of people who lost their possessions and hopes, or manipulation by leaders for riches, for power, for insatiable appetite.
With closely intertwined world economy, the forces to counter any singular tyrant, to assist pockets of poverty is closer to reality and they are favorable to world peace, progress and harmony.
No single central bank, no single currency, no single government budget, even the collective of all these among many countries could determine the markets. This is a more efficient market, beyond Oligolistic market place, while a totally free market do not exist even in dreams of mind sanity.
Democracy and freedom in market place of physical items is closer to reality which benefits everyone,
than
Democracy and freedom in ideological realm is getting farther away from realization as civilization progresses. Note On Freedom in 2-Cognized Truth
Do we predict where ants walk by where they last traveled?
or
Do we see if they are heading to the nest, or do we place a cube of candy ahead near to the route ants would take?
Which is a better, wiser choice?
Which is easier to do, more effective and profitable to ants and men?
Do we model the economy has reached the rock bottom, nicely coined structural unemployment, cannot get any worst, and the only way is up?
or
Do we strive to identify what is the best way to create meaningful employment, even giving up automation, high-tech. Would it not serve a more effective, efficient and yet achievable inducement? And avoid bloody civil commotions?
Which is a better, wiser choice?
Which is easier to do, more effective and profitable to commoners
and leaders?
Edited after Bloody Civil violence in Europe
Nov, Dec 2005
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