–Push button economics and the end of economists. Good riddance to us.

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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I predict that within 20 years, the science of economics, and the economists who ply that trade, will be gone, and the world will be much better for it.

Wikipedia and Websters New Collegiate Dictionary both define “economics” as: “The social science that analyzes the production, distribution, and consumption of goods and services.” The key word is “analyzes.”

How do economists “analyze” production, distribution and consumption? They begin by assembling information. They ask, “What and how many?” “Who?” “Where?” “When and how often?”

From these data, they come to conclusions (“Why?”), and from these conclusions, they make predictions and recommendations for actions. It is the conclusions and recommendations that give economics value. Without them, economics would be useless.

In a previous post, How IBM can change the world, I described how the IBM super computer named “Watson” played Jeopardy and beat the best, two, human Jeopardy players in history.

Those who know Jeopardy understand what an amazing accomplishment this was. The game is question and answer, with the twist that the answer is given, and the contestant must come up with the question. That twist essentially is meaningless; the contestant merely precedes his answer with the words “Who is” or “What is” and voila, an answer becomes the required question.

The difficulty lies in the nature of the questions. Not only do they ask for a broad knowledge of obscure trivia, but the wording of the questions can be ambiguous and non-specific, involving puns, analogies, metaphors and axioms.

Even a large group of programmers could not possibly input Watson with the infinite question and answer variations, so they used machine learning — a method by which a computer repeatedly answers questions, then is given the correct answers. Over time, the computer detects patterns that allow it to answer future questions more accurately.

The computers review data and the proven-wrong or proven-right answers, and doing this often enough, allows them to calculate degrees of “correctness” — the odds of various answers. Computers, of course, can handle massive data tirelessly. Humans cannot.

Every hypothesis and theory in economics evolves exactly the same way. An economist looks at data and determines its meaning. He does that by seeing repetitions and calculating correlations. At its essence, economics is mathematics.

As an economist who fancies himself somewhat creative, I believe there is no creativity or genius in economics. What passes for creativity and genius is just discovery. The economist compares two sets of data and discovers they seem to correlate — or not. So he adds more data, and soon he comes to the conclusion, or rather, discovers, that one factor seems to precede the other — most of the time.

Then he adds other data to see how they affect the results. Economics is a trial and error game.

Upon seeing what Watson can do, and understanding the nature of economics, I have come to this conclusion: There is not one thing human economists do that a computer cannot do faster, more accurately and without the hubris that affects human economists’ judgement.

Actually, what Watson did with Jeopardy is much more difficult than what a Watson clone could do with economics. Jeopardy involved interpretation of the nuances in the English language. Economics is much more straightforward — made for a computer.

Watson was primed with information, statistical and nonstatistical. An economics Watson, let’s call it “Econoputer,” would receive data from: Encyclopedias, the complete text of every book ever written, census tables, phone books, statistical abstracts, voting data, Macroeconomic and Regional Data, public finance, all federal laws, transportation, health, education, economic history, weather history, agricultural, astronomy, tax tables, physics, chemistry, crime and punishment — trillions of words and pieces of data that continuously are collected from existing sources.

Then our “Econoputer” would begin to correlate its information, trillions upon trillions of calculations, to establish probability tables, showing the likelihoods of cause and effect. No problem for Watson’s future “children.”

The President of the United states might ask a clerk in the Treasury Department, “What will happen to the economy, if I cut FICA to 5%?” Or he might go further: “What level of FICA will yield the greatest GDP and employment growth?

Econoputer would present its results: “Given all historical data, and the current situation, cutting FICA to 1.3% has a 92% probability of raising GDP 4.6% and a 94% probability of increasing employment 5.1%”

Or the President might go even broader: He might ask, “What can I do with all taxes for maximum economic growth?” Econoputer already has correlated all past tax rates and tax laws with all past tax collections, and correlated that with every other economic factor affecting GDP growth. It might tell the President to cut certain tax rates and increase others, while increasing the IRS staff by 7%.

This is what human economists attempt to do now, but no economist can do it. We are forced by human limitations, to use much less data, which is corrupted by personal biases. Can you imagine a human economist trying to answer the question: What will happen to farm income in Idaho, and total U.S. GDP, if we bring 25,000 soldiers back from Afghanistan?”

Wild-ass guess is what you’d get from a human economist. Econoputer would provide a far more precise calculation. It would include civilian clothing sales, new births and deaths, baby food sales, imports and exports, hospital visits, vacation travel — millions of changes no human could take into account.

Pierre Simon Laplace said:

We may regard the present state of the universe as the effect of its past and the cause of its future. An intellect which at a certain moment would know all forces that set nature in motion, and all positions of all items of which nature is composed, if this intellect were also vast enough to submit these data to analysis, it would embrace in a single formula the movements of the greatest bodies of the universe and those of the tiniest atom; for such an intellect nothing would be uncertain and the future just like the past would be present before its eyes.

The quantum mechanics’ Heisenberg Uncertainty Principle proved Laplace wrong at the atomic level, but on a macroeconomic level, the more you know about the past and present, the more you can know about the future.

Because of Watson and its future progeny, economics will be reduced to information collection, and economists will be clerks. I’m an economist, but I hardly can wait for this to happen. It will mark the end of uninformed argument and decision-making, and humans will benefit from a better world.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports

#MONETARY SOVEREIGNTY

–The Zelig of American politics meets the clowns of American finance. A plot of humor and horror.

In 1983, Woody Allen directed and starred in a truly hilarious movie titled “Zelig.” It was a fake documentary about a man (Zelig) who adopts the appearance, mannerisms, indeed the entire persona, of whomever he is near — a human chameleon. The movie incorporated actual newsreel footage of such celebrities as Babe Ruth, President Wilson — even Hitler! Woody Allen as Zelig played each role.

Quoting from a review by a writer named Salon Kitty, “Allen plays a man so devoid of identity, so eager to assimilate, that he literally takes on the appearance or, at least, the attributes of anyone he comes in contact with.”

Sound familiar? It’s the perfect description of Mitt Romney, and with each passing day, he becomes more and more hilarious — a veritable Woody Allen/Zelig of American politics.

In that vein, you might find a few excerpts from an article in THIS WEEK amusing.

Team Romney claims Mitt saved GM: ‘The height of hypocrisy’?
The Romney camp boasts that GM survived bankruptcy only because President Obama followed the GOP candidate’s advice. Really?
POSTED ON MAY 1, 2012

Mitt Romney’s campaign has news for you: It was Romney, not President Obama, who saved the U.S. auto industry. This week, Romney’s campaign manager, Eric Fehrnstrom, said the reason General Motors and Chrysler survived the recession is because Obama followed Romney’s prescription to put the automakers through a “managed bankruptcy process.” That means “the only economic success that President Obama has had,” Fehrnstrom said, “is because he followed Mitt Romney’s advice.”

Fehrnstrom is referring to a New York Times editorial that Romney penned in 2008, in which he called for a “managed bankruptcy” of the two auto giants. Critics were quick to deride Fehrnstrom’s claim as “mindboggling” and “the height of hypocrisy.” Did Obama really follow Romney’s lead on GM?

Romney opposed the hefty bailouts that the government extended to GM and Chrysler, which were crucial in saving the companies from bankruptcy. In late 2008 and early 2009, credit markets were in a deep freeze, and private companies were in no position to finance Detroit’s restructuring.

Romney is just shape-shifting again: “Mitt Romney, who was for the auto bailout before he was against it, is back to being for it,” says Jonathan Cohn at The New Republic. Once the GOP primaries got underway, he attacked Obama for risking taxpayer dollars, a popular position with conservatives.

But during the February primary in car-loving Michigan, he backtracked, saying he “would never have let the companies go bankrupt.” Now that the general election is nearing, he’s “backtracking all the way,” but only because Obama is enjoying the political fruit of saving the two companies.

I’m waiting for someone to write a book — not an article, but a complete book — describing all the Romney flip-flops in the past two years. No, not just one book; a complete multi-volume “Romney Flip-Flops” set will be needed.

Then, of course:

Obama hasn’t been honest about the bailouts either: “The Obama camp can’t stop clucking about how he saved GM and the car industry,” but the bailout was hardly a ringing success, says Investor’s Business Daily in an editorial. The government still owns a huge chunk of GM, and the company still owes the Treasury billions of dollars. “Taxpayers have not been paid back and are still on the hook as GM continues to require government help.”

If that is how Obama defines success, it “speaks volumes about his policies.”

Actually, it speaks volumes about the economics ignorance of Investor’s Business Daily. Taxpayers did not pay for the loans to GM. No taxpayer pays for federal spending. And no taxpayer will collect one cent from GM’s payback. In fact, taxpayers will lose.

And, for the federal government to lend, instead of giving, money to industry also speaks volumes about the economics ignorance of federal planners. If anyone can explain why a Monetarily Sovereign government should be paid its own sovereign currency — a currency that government has the unlimited ability to create merely by pushing a computer button — I’d love to hear it.

GM has the dollars. To pay those dollars to the federal government is identical with a tax on GM. Will that help or hurt GM? Will that help or hurt the economy? Will that increase or decrease unemployment?

For those just learning Monetary Sovereignty, know this: Repaying the debt will hurt GM, hurt the economy and increase unemployment.

It’s difficult to say who is the funnier and who the more horrifying, Zelig Romney or the Democrats who devised that loan plan. I award them each clown symbols, not as loans, but as gifts. Don’t worry, I can make more, for I am sovereign clown symbols.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

#MONETARY SOVEREIGNTY
y”

–How IBM can change the world

Economics has more data than the human mind can comprehend. So economists (including this one) tend to focus on small clumps of data we can visualize, and from them, we draw conclusions: For instance, consider these data:

1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

I conclude, from these data, federal surpluses cause depressions. I even offer a rationalle: Surpluses remove dollars from the economy, and a growing economy requires a growing supply of money, while a shrinking supply of money causes economic shrinkage (a depression). I see ample proof of this in many places, and currently the euro nations are on track to provide even more proof.

But wait a minute. The 1819 depression began after just two years of surplus, while the 1929 depression waited for nine years of surplus. Why?

And then there was the Clinton surplus of 1998 -2000, that only caused a recession in 2001. So was there something else that triggered, or outright caused, these depressions?

I discuss this at: What triggers recessions and depressions?? But that discussion barely brushed the surface of the question.

Why didn’t I go deeper? Too many variables of indeterminate weights.

Read any paper, book or blog post on economics, and you will see conclusions, possibly supported by data, but you’ll not see all the related data along with historically proven weights. You might even see formulas on the order of X = 1a + 2b + 3c . . . N, but how predictive are those formulas? Commodity and stock chartists provide seemingly infinite graphs, and how predictive are they?

While I feel confident that federal surpluses, and even reductions in deficit growth, hurt the economy, and I offer data to support this conclusion, I do not offer proof. No economist ever has proved much of anything, though we all argue mightily for our positions. If this reminds you of religion, where nothing is proved and everyone is absolutely certain, you’re right. Economics is closer to religion than to science, and the reason is complexity.

It doesn’t have to be this way. The human brain is limited in the number of related factors it consciously can organize. Show me a formula based on a dozen variables, and I will not be able to visualize it.

But ask me to catch a fly ball, in which my brain subconsciously must analyze such variables as the speed and trajectory of the ball, wind speed, wind direction, ground (running) conditions, ball weight and size, plus all the past experiences I’ve had in running and catching a ball, and my brain can predict exactly where my glove has to be, and when — usually.

I’ll run at exactly the right pace, neither too slowly nor too fast, so that the trajectory of my glove intersects the trajectory of the ball, right on time — an amazing feat made even more amazing by the thousands of decisions and predictions my brain must make when signalling each my muscles to contract the right amounts at the right moments, just so I can take one step, let alone intercept a fly ball.

Why can I make all those predictions, involving thousands of weighted variables , but am unable to visualize a handful of variables simultaneously? I believe the answer is: Feedback.

Last year, the IBM computer named “Watson,” defeated the two greatest human players in Jeopardy history. Those who know the game, understand that this achievement was orders of magnitude beyond winning at chess. Jeopardy questions are filled with linguistic misdirections puns, rhymes, puzzles and verbal tricks.

English by itself is a complex language. Consider the real headline, “English Left Waffles on Falklands.” What does it mean? Did the English cook up a stack of waffles and leave them on some islands? Or did it mean the English left (i.e. liberals) were undecided about what to do with the Falklands?

Add that misdirection to the need to understand facts, slogans and ideas we all take for granted, and you can visualize of the kind of complexity Watson conquered. How did it do it?

Well, I can tell you what didn’t happen. There weren’t an infinite number of programmers inputting an infinite number of possible questions, in the hopes that one would match the latest Jeopardy question.

No, instead they used machine learning. Here’s an example: One of the questions named two people and asked what they had in common. The answer was supposed to be what state (Iowa, Ohio, etc.) they came from. Watson missed the first question, because it found something else the two had even more in common. The human contestants answered correctly.

Then Watson was told the correct answer, but not the reasoning behind it. The same thing happened with the second question. Watson gave the wrong answer. Humans gave the right answer. Watson was told the right answer.

But, on the third question, Watson answered correctly. It had “learned,” from the first two answers, that a state name was wanted. Thereafter, Watson answered all similar questions correctly. Given all possible answers, Watson offered the answer having the highest probability.

There would have been no way for programmers to anticipate that question, then program Watson with the answer. Machine learning accomplished in seconds, what ordinary programming never could.

Similarly, though I have caught thousands of balls in every weather, on every kind of field — balls of different sizes and shapes (beachballs, footballs, marbles) –balls going at different speeds, different distances — the next time I catch a ball, the situation will be unique. But I will receive feedback — continuous feedback. And the odds are, I either will catch the ball or quickly will realize I can’t.

With every step I take, my brain will recognize thousand of things familiar enough to analyze, and based on that familiarity, will make appropriate adjustments, perhaps millions of adjustments per second. And this feedback will allow me to predict exactly where my glove needs to be and how my muscles need to move.

Bottom line: Economics never will be a complete science so long as economists rely solely on conclusions drawn from limited data. The solution is to use a super computer, of Watson capacity or greater, that is given every conceivable piece of data prior to every important result — a super computer that is told to correlate all that data with each result (i.e. “correct answer”), and to learn from each result (feedback), the most likely next result.

IBM spent millions on Watson. They achieved some measure of publicity, but they now can achieve so much more. If IBM would create an “economics Watson,” pumped full of data and engaged in machine learning, IBM could predict, and thereby change, the world.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

#MONETARY SOVEREIGNTY

–“Two views of the #Occupy movement,” or “These guys are a riot.”

While I empathize with the basic desires of the “Occupy” movement (i.e. lift the poor), I repeatedly have criticized their lack of direction. Marching, chanting, camping in the park and bating police is not an economic proposal.

In this vein, here are excerpts from an article in COMMENTARY

The Class War Goes Hot
Abe Greenwald| @abegreenwald
05.03.2012

There are two wellsprings of class warfare in America. There is Barack Obama, whose reelection strategy is to taunt Americans about their rich neighbors. And there are the indignant loiterers of the Occupy movement, who married aimlessness to anarchism and produced a half-witted crime spree that boomer liberals then declared “meaningful.”

The few existing articulate defenders of the Occupy movement note the peace-and-love vibe that abounds at protests. “I go down there every day, and I see sweet, compassionate, politically astute people,” said hippie businessman Russell Simmons about Occupy Wall Street. “I participate in their meditation daily. I see people who have high aspirations for America, who are idealistic. I see the most inclusive group that America has to offer.”

There is only one entry requirement for the Occupy movement: a consuming resentment of the guy who has more than you. It is a grudge cult, a movement created to ennoble mankind’s worst impulse, and it must inevitably lead to violence. The class war must go hot.

. . . it is the same corrosive idea behind the White House webpage urging Americans to “Just enter a few pieces of information about your taxes, and see how many millionaires pay a lower effective tax rate than you.”

The Obama campaign has the class-warfare brains, the credentialed thinkers (and the enlightened billionaire) who’ve drawn up a plan to make someone else pay for the fundamental unfairness of your life. If you think it’s a stretch to compare them to the class-warfare thugs of the Occupy movement just look at Europe, where the brains and thugs re-couple in strong political parties every time a bad-economy election is held.

In Greece, where the evil 1 percent du jour are immigrants, the fascist Golden Dawn party may enter parliament in a few days. In the current French elections, extremists on the right and left have ratcheted up nativist rhetoric. Hungary’s Nazi-nostalgic Jobbik party recently held an EU flag burning rally to protest their longtime scapegoats, the Gypsies.

Yes, it’s true, we’re not Europe. But that’s the point. We’re America, so why are we flirting with this garbage?

I agree, phony class warfare is obnoxious, except when there is a real class war. There is, and the poor are losing. As the gap between the rich and poor grows, are we to believe this merely is a result of hard work by the 1% and sloth by the 99%, or is it a bit more insidious than that?

Sadly, the author is mostly right about the “#Occupy” movement, not because they are evil, but because they don’t understand economics, don’t want to understand economics, and have no plan, other than “we’re angry, so do something about it.”

If they had read and understood Monetary Sovereignty, they would have proposed specific solutions to the growing gap — solutions such as: Eliminate FICA, provide Medicare to everyone, increase Social Security payments, annually increase the standard income tax deduction, etc. And they would be able to answer the typical, debt-hawk “inflation” concerns about social spending.

But no. #Occupy prefers protest-and-party to learn-and-propose. So “#Occupy” will fail the legitimacy test, the gap will grow, and Mr. Greenwald will continue to blame the class warfare on the victims.

If you happen to know any of the #Occupy leaders (are there any?), you might remind them that even the dopey Tea Party offered a specific agenda, wrongheaded as it was, and they didn’t need to break store windows to accomplish their goals.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

#MONETARY SOVEREIGNTY

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