06 December 2015

On The Fish and The Bicycle

If you're old enough, or read history, you'll recognize, "A woman needs a man like a fish needs a bicycle". Woman's Lib from the 70s. There are other mythic cycles out there. Lots of them. I collided with this one and was chastized for my rhetoric. Oh well.

As I've mentioned numerous times, there're more hierarchies in software than there are in the real world. The real world is relational, much of which is mangled into hierarchical datastores. And all the mess that ensues. Equally, there are more math-y models (cycles, of course) of human processes than there are such actual processes.

The comment in the global warming post which sought to equate physical phenomena, which we pretty much understand, to human processes highlights the problem with quant away from hard science. The notion that there have been observed cycles of economic activity in the past means nothing with regard to predicting future conditions.
Sismondi and his contemporary Robert Owen, who expressed similar but less systematic thoughts in 1817 Report to the Committee of the Association for the Relief of the Manufacturing Poor, both identified the cause of economic cycles as overproduction and underconsumption, caused in particular by wealth inequality. They advocated government intervention and socialism, respectively, as the solution.
(And you all thought this Gini index stuff was just the recent maunderings of the soft-hearted?)

One can observe physical science data, fit some function to said data, and go about predicting the future of such a system. Even then, one is not supposed to estimate off the end (either end) of the data. Time series folks do so regularly, of course. Doesn't mean they should. While the arithmetic may be correct, what may not be correct is that the underlying structure has reached stasis and thus continues to exist within the range of the independent variable(s). And so it is for economic data.

We, like it or not, are at the top of that S curve of knowledge. Much of what passes for economics, and more or less the rest of social science, is grounded in previous eras of small population and abundant natural resource. Some retain the notion that "human ingenuity" will solve any difficulties we face, or will face in the future just because the 20th century was more "progressed" than earlier. This Pollyanna view results from looking at the past, the 19th century is a favorite, and applying that course of events to today and our near future. But the 19th century, and even the first 50 or 60 years of the 20th, was a time of filling in many, many gaps in our understanding of the physical world. The periodic table in particular. Most of post-Newtonian physics. Thermodynamics, arguably the most important field in physics affecting our day to day lives, became real in the 19th century. I often wonder what percent of the population realize that semiconductors were understood in the 19th century? We won't have such a frontier again. Organic chemistry is the only field which is more or less infinite, due to the nature of carbon, hydrogen, and oxygen bonding with the rest of the periodic table; one can synthesize to one's hearts content. The speed of light means we're stuck on this blue marble, even if we manage to build rockets with something with more oomph than chemical rockets. Transport powered by Mr. Fusion engines would be nice.

Attempting to analogize human systems, whether economic or socialogical or ..., is foolish. We are not automatons (yet; Blade Runners not in demand) obeying Newton's laws or thermodynamics or ... We, some of us, make up the laws (generally to disproportionately advantage the law makers) which govern our behavior. At times, such as the DotBomb and Great Recession, when moolah is in supply greater than needed by the CxO class for physical investment (M&A don't count as physical investment, either), said moolah flows into fiduciary instruments. Said instruments are constructed out of whole cloth by some of us, to their benefit. They exist, to the extent that they are at all real, based on contract law. Some regulatory oversight exists, SEC and the like, but as both DotBomb and Great Recession demonstrated, clever lawyers will skirt both law and good (beyond short term) sense to make an extra nickel.

In sum, the laws are made, and re-made, for one purpose: socialize cost and privatize profit. Were classical economics, or any of the hard science analogizing, true; such could not happen. All costs, current and future, would appear in prices and there would never be either oligopoly or monopoly (or the demand side -sonies). Chinese cities, London and Los Angeles before them, would not be engulfed in toxic fumes; the true cost of pollution would be explicit in the cost of transport and electricity, etc. Pretending otherwise is just delusional.

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