>>>>> "ben" == Benjamin J Tilly <" <ben_tilly@operamail.com>> writes: ben> Rich Bodo <rsb@ostel.com> wrote: >> Many robots and aircraft, like pencils on their tips, hold >> themselves in unstable positions during operation. They remain >> unstable, but their inherent instability is handled by fast >> feedback systems. ben> Note that the feedback systems convert the overall system to ben> one which satisfies the description of Le Chatelier's ben> Principle. Therefore it appears unstable, but is not. That assumes that the the feedback system is capable of handling extreme conditions. It typically is not, in fact, unlike the "natural" stable system, the controlled system typically responds catastrophically (in both the mathematical and vernacular senses) to conditions outside of its design range.[1] Note how your "unicycle" example works. There, the _goal_ is stability. It's not surprising that a rather stable control system results from finding a solution. However, economic stability of the kind that is found in "traditional societies" is clearly not an acceptable macroeconomic goal! Who needs macroeconomics in such a society? BTW: Nash equilibria are fixed points of mappings, not steady states of dynamical systems. The same is true of market equilibria, with one important difference in current models. Market equilibria can fairly naturally be embedded in dynamical systems for which the steady state condition is equivalent to the equilibrium condition for the market. This is not so for Nash equilibria. There are several generally accepted theories of stability for market equilibria, and they coincide for the "canonical" case of upward-sloping supply and downward-sloping demand (all equilibria of such markets are stable). There is as yet not even one generally accepted dynamical model embedding Nash equilibria. >> When he talks about feedback loops and the paradox of logical >> indeterminacy I interpret Soros as describing a sort of >> uncertainty principle that makes it difficult to view any >> economic system as stable. The analogy is reasonably apt. Fortunately, your (or Soros's) ability to imagine a stable economic system doesn't have anything to do with its possibility. With a few exceptions, markets are analogous to the realm of Newtonian, not quantum, mechanics. The exceptions are important, such as "tipping" in markets for products with significant network externalities. But the overall system is remarkably stable. Remember, a 5% drop in production is considered disastrous. Prices? Yes, prices are volatile. _But that's precisely because they are the dual variables to the "real" quantities in the system, which are stable._ Consider: the markets where we insist on controlling prices (labor, housing, agricultural products) are precisely with ones with rather unsatisfactory quantity outcomes. Thus, price volatility, in some sense, is exactly the "quantum judo" you refer to as "a wonderful thought." You just don't notice it because it's such an everyday miracle. And, of course, because in situations like the labor market neither price nor quantity volatility should be accepted without a fight. >> [...] When everyone recognizes this, markets become inherently >> unstable. This is, I suspect, confusing "instability" of static equilibrium with "volatility" (periodic or even chaotic) of a dynamic process. It is true that in a system with multiple steady states, volatility can drive the system from one basin of attraction to another (aka, "economic depression"). However, it is important to recognize that this is evidence _for_, _not_ against, stability of the system as a whole. And it is true that "socially optimal trajectories" are typically not steady states[2], and thus attempting to force social optimality turns the system into a controlled system fraught with catastrophic potential if the controls fail. And it is most definitely true that large fluctuations cause huge amounts of pain that would be completely unnecessary if the economy would only hew strictly to trend. But the equation of economic pain with instability is incorrect. >> He therefore argues for strong market authorities. He wants >> control systems in place. It's not a totally absurd theory. ben> I agree, and I have the same major qualm about ben> macroeconomics. There are fundamental questions about what ben> solutions are stable, and my feeling is that well-meant ben> attempts to induce stability can itself be the cause of ben> future problems. You've been reading Friedman and von Hayek again, I can tell. :-) (That's a joke, I realize you're coming from advanced diff eq. But their intuition maps quite precisely to the mathematical description you give.) ben> Therefore I wonder whether the government should deliberately ben> attempt to oscillate interest rates - to try to create ben> periodic mild amounts of risk so that businesses avoid things ben> like the dot bomb excess. I think maybe they should just let them alone, except for controlling inflation. Inflation does not affect the real economy to a first approximation. Therefore applying negative feedback to control inflation can probably be decoupled from nasty side effects in the real economy. Not so if you actually try to control interest rates. ben> Unfortunately the social sciences generally fail of the most ben> basic requirement for scientific progress. Which is the ben> availability of examinable systems where useful simplifying ben> approximations can be applied. Actually, there's a yet more basic requirement, which is separation of the observer from the observed. Even in economics, which mostly deals with quantities that can be measured in the most primitive way (one dollar, two dollars, three dollars, ...), it is all too easy to feel that (to take the example that kicked off this thread) the genuine pain felt by the unemployed is something that must be addressed by urgent action. Unfortunately, the actions taken are all too often inexcusably destabilizing, themselves. But they are justified on the grounds that they _might_ work as projected, and if they do, the immediate pain will be dramatically reduced and the economy will be able to "return to (putatively natural) trend". Then, when they blow up (years or even decades later), enormous effort (both by policy advisors and academic researchers) goes into adjusting the remedies, when really the whole line of attack should be scrapped. It's hard enough to "scrap a whole line of attack" when it's "just an operating system"; when you're talking about (eg) AFDC or the EU's CAP or rent control, and the transition is going to inevitably destroy people's current lifestyles, well, objectivity goes right out the window.[3] And if your measurements are of "variables" like "educational achievement" or "sexual harassment", well, it's just not within the realm of human ability to treat it with mathematical rigor. Footnotes: [1] Of course natural systems also respond catastrophically to extreme conditions. Eg, an avalanche. However, the usual goal of control systems is to push things toward optimal solutions, which are by definition extremes. [2] Note that by defining "growth rate" as the state variable, a steady state need not imply stasis. A steady state could include (eg) a constant rate or constant growth rate of technological "capital". [3] And maybe it should. I disagree, but that's more "religion" than "science." -- Institute of Policy and Planning Sciences http://turnbull.sk.tsukuba.ac.jp University of Tsukuba Tennodai 1-1-1 Tsukuba 305-8573 JAPAN Ask not how you can "do" free software business; ask what your business can "do for" free software.