Why the economy is devilishly hard to predict: Chaos

An animation of a double-rod pendulum at an intermediate energy showing chaotic behavior. Starting the pendulum from a slightly different initial condition would result in a vastly different trajectory. The double-rod pendulum is one of the simplest dynamical systems with chaotic solutions.

Animation of a double-rod pendulum showing chaotic behavior. Starting the pendulum from a slightly different initial condition results in a vastly different trajectory.

Here is why the economy is devilishly hard to predict. Think first of the weather. We all agree it’s hard to predict, though it’s based on just a few simple facts:

  1. The sun is essentially a point source of our heat that heats the ground and water and, to a lesser degree, the air.
  2. Hot air rises; cool air falls; the earth’s uneven surface turns, and all that motion creates wind.
  3. Warm water evaporates, forms clouds, and comes down as windblown rain or snow when it cools.

Add in a few other things like cloud covers, volcanos, and the human creation of CO2, and that’s about it. The whole thing, though complex and chaotic, can be described mathematically.

You could predict the weather with sufficient data, the proper formulas, and the fastest supercomputers. It’s just numbers.

Now consider economics, the science of money. It’s a bifurcated science, part Monetary Sovereignty and part Gap Psychology. The Monetary Sovereignty part is similar to the weather in that it can be described mathematically.

  1. A monetarily sovereign entity creates laws from thin air, and these laws create money from thin air.
  2. Money is scarce to users but never scarce to issuers. Being able to create infinite laws, the monetarily sovereign entity can issue unlimited money. It never can run short, even without collecting taxes.
  3. All money is a form of debt; it’s the issuer’s debt in that the demand for any one form of money is based on the issuer’s full faith and credit. If the issuer has good credit: People want that money. Bad credit: No one wants that money.
  4. Because money is an infinitely available exchange medium, money’s value is generally based on the scarcity of the goods and services for which it is exchanged. Scarcity makes goods more valuable, thus requiring more money in exchange.

Like the weather, Monetary Sovereignty, though complex and chaotic, can be described mathematically. Given sufficient data, one could predict the flow and value of money.

Except . . .

Except for Gap Psychology, the human desire to widen the income/wealth/power Gap below and to narrow the Gap above. We want to distance ourselves from those below us and come closer to those above us.

Gap Psychology is based on human emotions about comparisons. Consider a middle-income, middle-wealth person today. He (she) has much more and much better “stuff” than even a wealthy person of yesteryear.

Today’s “middle” people have air-conditioned, heated homes and cars, televisions, cell phones, computers, and indoor flush toilets. They drink purified water, eat purified foods, and receive painless (relatively) dentistry. They have modern medical care paid for by insurance. Vaccination protects them from dozens of diseases, many fatal.

They fly or drive hundreds of miles in a few hours on paved roads. They ride escalators and elevators up tall buildings.

They are middle-income, middle-wealth, but by the standards of yesteryear, they are fabulously wealthy. Even John D. Rockefeller, possibly the richest person in history, didn’t have what the average Joe in America has now.

You would feel poor if you had smelly plumbing, mud streets, no air conditioning, and a horse-drawn buggy to get around.

Gap Psychology creates the appeal of lotteries and Las Vegas, expensive cars, natural diamonds rather than fake ones, and celebrities. Gap Psychology is the genuine desire to earn more money, own more wealth, and have more power, in short, to be more prosperous.

“Rich” is not absolute. It is a comparative.

There are two ways for you to become more prosperous, i.e., to widen the Gap below or narrow the Gap above. You either must acquire more income, wealth, and/or power for yourself, or others must lose income, wealth, and power.

And this is where economics becomes hard to predict. It is based on human psychology, which devolves into individual psychology and often into one person’s psychology.

Gap Psychology causes people to vote against poverty aid lest it narrows the Gap below. That narrowing would make you feel poorer. Gap Psychology encourages people to vote against their freedoms if that vote would restrict the poor even more, thus widening the Gap.

There is no mathematics to predict that an incompetent psychopathic President would receive enough votes to be elected. And there is no mathematics to measure what that incapable psychopath would do to the economy.

One such President added duties on Chinese goods (for which you paid and which raised prices). COVID came along, and its denial caused hundreds of thousands of Americans to die and raised prices further. Shortages and inflation were direct results.

There is no mathematics to reveal that millions would ignore their eyes, ears, and brains to continue believing the most recent election was stolen. A mob is chaotic.

It took losing a war, but the German people finally understood what Hitler had done to them, and belatedly they rejected white supremacy and fascist hatred. The Italians hung Mussolini by his heels.

Recently, Italy elected a pro-Russia, anti-gay conservative to be Speaker of their lower house of Parliament.

One day earlier, an ultra-conservative lawmaker, who collects fascist memorabilia, became their Senate Speaker; a month earlier, a neo-fascist conservative became Prime Minister.

Mussolini must be laughing (upside down) in his grave. Who could have predicted post World War II Italy’s (and America’s) failure to learn where extreme conservatism leads?

IN SUMMARY
Chaos theory describes the difficulty of predicting some events because of the “butterfly effect.” Some small events can multiply upon themselves until a butterfly flapping its wings in Brazil eventually results in a hurricane over Florida — or an extreme conservative being re-elected.

Edward Lorenz  described chaos this way: “When the present determines the future, but the approximate present does not approximately determine the future.”

American economics is a blend of Monetary Sovereignty and Gap Psychology.

The former is a factual and mathematical description of money. It could allow us to predict our economic future if we were logical machines having sufficient data.

The latter results from human psychology, individual and herd, which is chaotic. Here, logic disappears, as witness the likes of Donald Trump, Herschel Walker, Lauren Boebert, Marjorie Greene, Ted Cruz, Matt Gaetz, Jim Jordan, et all, intentionally being chosen by many voters.

Think about it. These politicians, and others of their ilk with economic and political power, actually received votes from sentient human beings. It boggles.

For the same reasons why Psychology is not a science, Economics, which relies on psychology, is not a science. They are beauty contests with results in the eyes of the beholders.

And as with beauty contests, where no strict criteria are possible, everyone is absolutely, positively, unequivocally sure about the correctness of their opinions.

Now, try to predict who the next U.S. President will be and what effects she will have on the economy.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY

I could not help writing this article, and you cannot help reading it.

Here is an article that I may or may not have decided to write, but it will affect you in ways over which you have no control.

The “butterfly effect” is an allusion to the idea that a butterfly flapping its wings in one country can cause or influence a tornado in another country.

The idea, by Edward Lorenz, refers to a feature of chaos theory, in which a small change in initial conditions can create a large change in later results.

It began this way. Lorenz had been running a computerized weather prediction system:

“At one point I decided to repeat some of the computations. I stopped the computer, typed in a line of numbers that it had printed out a while earlier, and set it running again.

“After the computer had simulated about two months of weather, the numbers being printed were nothing like the old ones.

“The new values at first repeated the old ones, but soon afterward differed by one and then several units in the last decimal place, and then began to differ in the next to the last place and then in the place before that.

“In fact, the differences doubled every four days or so, until all resemblance with the original output disappeared somewhere in the second month.

“What had happened: the numbers that I had typed in were not the exact original numbers, but were the rounded-off values that had appeared in the original printout.

“The initial round-off errors were the culprits; they were steadily amplifying until they dominated the solution.”

Though chaos theory describes small perturbations resulting in large, often unpredictable, changes, the butterfly effect can have an even deeper inference: Philosopher Johann Fichte said:

In every moment of her duration Nature is one connected whole; in every moment each individual part must be what it is, because all the others are what they are; and you could not remove a single grain of sand from its place, without thereby, although perhaps imperceptibly to you, altering something throughout all parts of the immeasurable whole.”

Think of the implications: You are much bigger than a butterfly, so you create greater disruptions to your environment than does a butterfly’s wing or a grain of sand. Everywhere you go and everything you do causes a ripple effect that spreads.

Other philosophies assert that, like a stone dropped into a large pond, the spreading ripples continuously damp down, until they disappear, so that the butterfly doesn’t affect the tornado.

The four laws of thermodynamics would seem to side with Fichte, in that nature is one connected whole and nothing disappears.Image result for boulder at a tipping point

The “butterfly’s wings” analogy might seem to be a violation in that the small energy of the flapping wing would have to affect the massive energy of the tornado — unless the tornado had arrived at a tipping point, in which case a minuscule application of energy changed its dynamics.

Anything you touch will react to that touch, and that reaction will touch off another reaction, and the whole effect will spread.

While, like the dampening ripples, the effect may moderate by being repeatedly divided, still it will cause a widening, non-zero effect that never can end.

If, as currently suspected, the “big bang” creation of the universe began with something approximating a singularity, then at that time everything indeed did directly affect everything, and the effect of that “touching” still may be felt.

More to the point of this article, however, is the fact that in human psychology, which is a large part of economics, chaos is everywhere. A mere thought, at the atomic level, can cause a nation to go to war.

Economics, being based on human psychology as well as on all manner of natural occurrences,  may be more subject to chaos — more subject to the “butterfly’s wing” than other sciences.

Not only is economic prediction often difficult-to-impossible, but working backward from effect to determine cause, may equally be difficult-to-impossible.

This brings us to an article in the May 26, edition of ScienceNews magazine:

In China, coffee shop habits show cultural differences tied to farming
Even among longtime city folk, legacy of rice versus wheat agriculture affects behavior
BY BRUCE BOWER 

How close people sit and whether they dodge or move chairs blocking aisles reveals whether their cultural roots go back to rice farming in southern China or wheat farming in northern China, researchers report.

As many as 9,000 years of neighboring families working together to cultivate rice paddies in southern China has encouraged a lasting focus on others over self, even among that region’s city folk today, say psychologist Thomas Talhelm and colleagues.   

That dynamic plays out in coffee shops. Middle-class city dwellers in southern China who have never farmed rice often sit with others and show deference by walking around chairs blocking aisles, Talhelm’s group says.

In northern cities, people more often sit alone and move offending chairs out of the way. A long history of more individualistic wheat and millet farming in the north has promoted a focus on self over others, the scientists propose.

People in a self-oriented culture often try to change a situation to their advantage, whereas people in an others-oriented culture typically change themselves to fit the situation, other research suggests.

Consistent with that pattern, only about 6 percent of Chinese people in southern rice regions moved Starbucks chairs out of the way rather than squeezing through them, versus about 16 percent of the caffeine crowd in northern wheat regions.

Economics is not just the science of money flow. More importantly, economics is a psychology science of attitudes and what people do about money, labor, saving, charity, power,  obligations, etc.

A psychologist could create an endless list of attitudes and actions, all related to economics.

If you had asked me to list the specific factors affecting people’s actions and attitudes about squeezing between chairs vs. moving them aside, growing rice vs. growing wheat would not have made the top ten thousand. 

Even after reading the article, I have doubts, but there is a more important point to be made. Rice growing is as distant from chair moving as butterflies are from tornadoes. Yet, there can be a logical connection.

And if there truly is a connection between rice growing and chair moving, who is to say there also isn’t a connection between any action and any effect?

The hypothesis of the “big bang” holds that at the very beginning, everything was connected to everything in one infinitesimal, which then exploded and separated into the universe we experience.

If that hypothesis is true, what is there to say that the connections disappeared rather than merely being stretched? Quantum mechanics uses the word “entanglement” to describe two particles connected in a way that an operation on one affects the other, no matter how far apart they are.

Your body is composed of star stuff, material created in numerous supernovas, so there surely could be atoms in you, in your brain, entangled with atoms millions of light years distant.

So, if you have a thought, which changes a property of an atom in your brain, that thought also could change a property of an entangled atom in a star, tipping the star into supernova status.

That would be the ultimate “butterfly/tornado” scenario, in which your mere thought precipitated the destruction of an entire solar system.

If everything is connected, then nothing is unimportant, and everything you do, even everything you think, has consequences. You shake the universe just by existing.

And that, in turn, would mean everything you think is caused by other connections, going all the way back to the big bang.

Drop two bottles, side by side, into the ocean, and they will drift apart, landing at distant shores. Their movements are chaotic but not random. The bottles do not go where they wish to go, but rather drift where the swirling wind and the thrashing water molecules take them.

Your entire body, including your brain, is composed of molecules, down to atoms, down to electrons and quarks, all obeying quantum laws. Your every thought is an arrangement of those molecules, atoms, electrons, and quarks.

Is there a point at which you control those arrangements?

That is, do you have free will, or is the future foreordained? Are you just a grain of sand in a shaking sandbox, being tossed about, or do you think you create your decisions from nothing?

Is it possible to create something from nothing? Or more intuitively, does everything have a precedent, and must that precedent have a precedent?Image result for falling dominoes

In summary, if the universe began in the big bang,  every motion by every molecule, atom, and quark began. Nothing changes without a changer.

Your thoughts control your actions. But, I can think of no way in which you intentionally, starting from zero, can control the molecules, atoms, and quarks that constitute your thoughts.

Today, you and everything else in the universe is the result of an unbroken chain of events and information that originated with the big bang.

I wrote this, and you are reading it, not because you and I have control, but rather because something happened 13 billion years ago, and the sandbox continues to shake us grains of sand.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell