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From the Comments: The Economy is an engineering problem

June 21, 2011

From the Comments, by the excellent Neil Wilson:

“Theories are all very well, but the economy is an engineering problem. That means we need to know what the requirements are so we can design a system (based on the best available theories and evidence) to address those requirements. And it means there can be many system designs we can try not the ‘one true religion’ as preached by the IMF.

We also need to understand what the unknowables are (for example whether the economy will actually quantity expand when stimulated) and have a back out plan in case it doesn’t work as expected (impose a tax to neutralise inflationary pressure if the economy decides to price adjust instead).

We need to be doing engineering not religion.”

I agree.

This is real economic thinking, about the way the world really works.  Economics is a practical philosophy, thinking applied to the workings and interactions of humans.  We need to be able to make decisions – even wrong decisions based on incomplete information – within a framework where progress can be made.

The current framework used – that the government is spending constrained  – cannot ever result in progress. Because if we make an error, we’ll never know it. Just as we’ll never know if we did something correct.

The Government Spending Constraint is based on an assumption that is unknowable.

By assuming something we can never know, it makes any statement based on that assumption possibly true. It moves the debate onto holy ground, where religion thinking is allowed and even encouraged.

People can make claims about government spending being too high, and well, maybe it’s true!  Or someone can say Government spending is too low, and that might be true too!

Everything is potentially true when you have an assumption that you cannot know if it is true or false.  An unknowable assumption makes any statement based on it meaningless.   So, the Government Budget Constraint is meaningless.   “It’s not even wrong“, as Peter D. likes to say.

When we can’t tell if a statement is true or not, people can make outrageous claims of any variety. We have no tool, no method to judge between the claims.

The framework of observables is the only way to move forward, and assuming an unobservable makes moving forward impossible.

We need engineering, and engineering does not use assumptions we cannot verify.  It’s based on what we can observe happening with a some degree of certainty.

“Call me radical, again I ask you for evidence.”


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  1. beowulf
    June 21, 2011 at 11:01 am

    Of course, there’s engineering and there’s overengineering :o)
    JM Keynes (“tried to devise the minimum government controls that would allow free enterprise to work.”) vs. Stafford Beers (“Project Cybersyn was a Chilean attempt at real-time computer-controlled planned economy in the years 1970–1973 “).

    However, it is fun to imagine a President (Kucinich?) replacing the chairs and table in the Cabinet Room with those (old school Star Trek) Cybersyn command chairs. :o)

    • TC
      June 21, 2011 at 2:41 pm

      lol. I’ve always loved that photo. It inspires relaxation. I’d personally wear a brown turtleneck whist lounging in the sitting area.

  2. PG
    June 22, 2011 at 5:00 pm

    By present day standards, Cybersyn was vastly under-engineered. 🙂 A current mobile phone has more (much more) computing and sensing power than Cybersyn central computer.

    Besides, it must be noted that the days engineers designed centrally controlled / planned systems (by shortage of technical resources) are gone a long time ago. Data acquisition and control systems are distributed with some (functionally needed) degree of centralisation.

    Computer (automatic) control of economy does not seem a good idea. But getting data is another matter. Getting real-time estimates of GDP or accounting of money fluxes could be made within present day technology without difficulty.

    The critical issue for managing the economy in an engineer principled way is cutting unnecessary complication and complexity. Life is on the Edge of Chaos. Not too simple, not too complex. Much of engineering work is making things simple.

  3. beowulf
    June 23, 2011 at 4:46 am

    “The critical issue for managing the economy in an engineer principled way is cutting unnecessary complication and complexity.”

    That reminds me, when I write my best-selling business book, “Success, the War Criminal Way”, I’ll have to include a chapter on Albert Speer. He was Hitler’s personal architect who, much like Mike Brady, had absolutely no qualification for high office. Yet after the sudden death of Fritz Todt in 1942, his patron named him war production czar. To everyone’s surprise, Speer turned out to be an industrial genius, a regular Henry Ford. As his post-war American interrogator (John Kenneth Galbraith, naturally) noted, “Under Speer’s management, German war production increased threefold”.

    This theory, labeled by [Speer] as “organized improvisation”, represents an attempt to debureaucratize the armaments industry in order to make it “results” oriented rather than authority oriented. The theory, which is discussed in detail in Chapter 15 of his memoirs, consists essentially of four major components: collegial decision making, fluidity of organizational structures, temporary organizational structures, and industrial self-responsibility.

    • TC
      June 23, 2011 at 6:22 am

      Thats a remarkable story.

  4. JJP
    June 27, 2011 at 8:09 pm

    “in order to make it “results” oriented rather than authority oriented. ” … yes.. that, and a constant aerial bombardment by the US Army Air Force during the day with massive losses in machinery and manpower on both side, and a feeble night time bombing campaign at night by the Brits with a much much smaller air force (comparable in proportion to the UK deployment in Iraq and Afghanistan).

    As an engineer (just a principal engineer, with 24 years of experience.. what do I know?), I can say that the statement “Much of engineering work is making things simple.” is semi true. Much of engineering is making things inexpensive, cheaply, cost effect, now-a-days. it didn’t always used to be that way. When I got out of college 2 dozen years ago, it was about making robust, high quality, durable goods, at a reasonable cost. Now, it’s much more about making things as inexpensive as possible. Robust solutions that cost more are “non starters” far too often in modern engineering departments, who are afraid of being out-sourced, and who are usually micro-managed by MBAs who don’t have enough technical clues to change their own oil or dryer fan belt.

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