A billionaire explains the middle class

Understanding economy may not matter. Might be as simple as the aftermath of some terrorist act.

It's been said that, if you can make a fist, a gf is superfluous. If you can't make a fist, that's probably the least of the things you can't make and the gf is still superfluous. High five...other hand please. ;-)

I'm far too lazy to do that. Just which set of numbers should one use? I merely asked that the person presenting the numbers put them in context that HE used so we can look at a coherent set of assumptions and data.

Random sound bites that support your opinion are not very helpful out of context.

I'm gonna disagree. The math is simple. The hard part is deciding which crystal ball to use for the inputs.

Picking a metric and the five top things that affect that metric and taking action is far superior to arguing about how difficult it is and doing nothing. You can fix an error in your actions. You can't fix inaction.

Then you will never know, because you'll never be satisfied with someone else's numbers.

It depends on what you want to know. Be specific, and I'll try to help. My first articles on this subject were published almost 40 years ago, so I'm familiar with what's available.

Here's a recent one that will give you an idea of what we have to wrestle with:

There is never enough "context" to satisfy those who sit back and wait for others to present the data.

They are not random, and I present different ones every week or so. Stick around, and you'll see quite a spread of data.

But I have to repeat myself often because some people keep forgetting.

You're kidding yourself. Finding the things that "affect" the metric is part of how they build models. It involves a lot of statistical testing and regression analysis.

The relationships have limits and the relationships are usually calculus functions.

From there, the statistics often are complex.

When? When the event occurs? The event is 40 years in the future.

Go ahead and try it. See what you project for China's economy and the US economy 40 years from now. It's simple, right?

BTW, my son is just climbing down a ladder after re-roofing our kitchen extension. Now he has to spend the rest of the day running his latest predictive econometric model on his company's cloud-networked SPSS system. He has a master's degree in math and a degree in economics, and does econometric research and analysis for a top consulting firm. I should let him talk to you, but I ate up his spare time today by getting him to nail a square of shingles so I could repair the furnace, which kept blowing out its pilot light, and then watch TV.

Calculus functions are simple functions. People who know how to solve complex math are easy to find. The hard part is finding people who can decide what math is appropriate and what numbers to plug in... AND HAVE THE LEADERSHIP ABILITY OR CLOUT to take action based on the result.

Sure, they are...but the more inputs you consider, the more likely you'll encounter inaction. Start with the big factors and DO SOMETHING. Refine it as you go.

When the trajectory deviates from where you've decided it should go.

You can't just jump in your sailboat, tie down the tiller and have someone wake you up when you get there. You gotta have your hand on it at least some/most of the time. You gotta watch the weather. You gotta stay out of the way of the big ships. But, you can just get in your boat and start sailing if you've covered the big stuff in your plan. Work the rest out as conditions change. You can't predict everything. But you can sit on the dock fretting over the details and get nowhere.

The purpose of action is to CAUSE a result. China's economy is only a factor in ways that affect my objectives. I seek a high level of satisfaction with the US standard of living now and in the future. Ideally, that can be done in concert with success in China by whatever metric they value. If we can't to that, I'd be willing to sacrifice China. I'm selfish.

I'm not even a little bit interested in hearing why we're in this pickle or why it's a hard problem. It'd be far better to have him talk to someone who can actually make a difference. I'm rather pessimistic. There'll be riots in the streets before I'm seriously affected. I expect to be dead, or living in China, long before that happens. ;-)

But I do enjoy a spirited discussion.

but I ate up his spare

Old methodology called EvOp [Evolutionary Operations].

You do not have to understand the process. Change a variable, for example interest rates, and see what happens. If the output moves in the "right" direction make more of the change. If the output moves in the "wrong" direction reverse the change.

Accurate record keeping is critical.

It is criminal that we allow the "leadership" to sabotage the economy everytime things start to improve for the average citizen. Things are getting better? Time for a war or recession.

That'sw great! And on whom, or on what economy, do you conduct the experiments? And how do you make everything else stand still, so that you know what you're measuring?

In the kind of predictive modeling we've been talking about, without an extensive program of regression analysis, you can't separate one cause from another.

I doubt if any of them have much to do with it. In an economy like ours, there are too many variables, too few unequivocal cause-and-effect relationships, and too many confounding behaviors of masses of people. Oh, and here are too many ideology-driven theories, most of which assume that humans are uniform, rational robots. But each theory assumes that we robots have different goals and desires.

Where do you get these ideas?

How do you know how to make it go where you want it to go?

I thought you said we could predict where different economies would be

What do you think analysts who work for big consulting firms do? On his last job, his time was billed out at over $125,000/month ($500,000/month for a four-person team). Do you think that nothing is being done with the results?

Math, yes, but I don't think it's *simple* math.

Yeah, and *that* is simple math.

But such an admission is at least confronting the truth.

Which, lacking totalitarian authority over more or less everything, is probably the best you can do.

The non-simple math is that of the complexity catastrophe. There are N variables in the equation, N a *very* large number. A change in any one variable at time t influences the value of P other variables at time t+1, 0 situation and adjust the vector. You must anticipate your

Good model, prior to complexity. Not so much now.

Right. And "initial conditions" is now, time t. See above re. time t+1.

Just so, but no complexity. A first approximation assuming simple ballistics is pretty good. All components of the wreck are moving a

Not proven, especially when the complexity catastrophe is relevant. In some models, random choices appear to be as good, statistically, as any calculatedly "optimal" one.

Yes, I like that. It's a third magical alternative to the essentially religious or magical dogmata of the capitalists and Marxists.

Dang. I wish I were still limber enough to do that safely.

Ask him what relevance, if any, Stuart Kauffman's Origins of Order might have to to his research and analyses. And report back here with his answer.

His reaction: "Stuart who?"

He doesn't know about Kauffman.

I'm not sure that is a logical statement. After all why does one "manufacture" if not to sell it? Whether it is wholesale or retail is really immaterial. Certainly cost of materials is a significant item in most project calculations.

Chrysler's problem was that they weren't selling cars but were still making them :-)

Of course they care. It is another sales product. One doesn't want to overlook any opportunity.

I'm not sure that is of importance at the moment. The Lewis Turning Point simply explains that at some point in a country/society's development the numbers of available labor will determine the cost of labor.

At the moment the legal minimum labor cost in Shanghai is 17 Rbm an hour, or US$ 2.75. The U.S. federally mandated minimum seems to be

So... If wages in China double they will, in U.S. terms be $5.50 an hour and it is doubtful that wages will be doubled in China in one fell swoop. They rose by an average of 12.6% from 2008 - 2012.

During the same period it is likely that short of a financial disaster the U.S. wage will increase - I see that the President advocates a 34% increase.

So, we have an instance of a country that has a very low cost of living and an equally low wage competing with a country that has a very high cost of living and wage.

Given the globalization of manufacturing and trade logic would indicate that jobs will immigrate to the lower cost countries and unless the U.S. takes some extremely drastic action it is almost a foregone conclusion that either jobs will decrease or possibly higher paid jobs in industry will decrease while lower paid jobs in the service sector will increase - Macdonald's always needs floor sweepers.

From

Yup. From 1988 China's exports grew from just over 100 billion to a

But not wasted. A younger brother of my wife's butchers something like

Dang. Well, no shame in that. Kauffman isn't an economist. :-)

Just ask him if complexity catastrophe or complexity theory or anything along those lines enters into his econometric models.

I'm no math wizard but it strikes me much of the apparently baffling impenetrability of economics and finance derives from the fact (alleged, by me :-) that we've reached a level of complexity that defeats statistics or model that don't account for it. And part of the problem is that "models" probably *can't* account for it.

It seems someone has plonked me!

I wonder what made me plonkable. It's hard to say, since liberals think I'm too conservative and conservatives think I'm too liberal.

Which tells me I must be doing something right, since I'm neither conservative nor liberal.

OTOH, I do lots of metalworking, so at least I'm not like JohnBoy.

David

At the end of WWII, the US was the only major industrial country in the Northern hemisphere that hadn't had its industrial infrastructure devastated. Europe and and Japan had to rebuild from scratch, with all new stuff which we helped pay for.

OTOH, the US infrastructure was mostly pre-WWII but only prospered because we had no real competition.

For a while...

David

How can the models account for the actions of financiers who are smarter than the model makers?

Interesting point. Model makers attempt to quantify the effects of things like supply and demand. Financiers are more concerned with manipulating the system for personal gain. Manipulation may not follow statistical models. It may, in fact, exploit vulnerable points in the model to systematically game the system. My computer being five milliseconds faster than yours and repeatedly beating you to the punch is probably not in the model.

But that may not have a direct effect on jobs going overseas.

I've repeatedly heard that it won't be economically practical to manufacture the widget I've just prototyped in the US, because the pain of wringing adequate quality from China is less than the pain of US regulations and unions. Sometimes that's based on direct experience with the previous model, built here with some imported parts.