From: Eliezer Yudkowsky (sentience@pobox.com)
Date: Fri Jan 03 1997 - 09:30:57 MST
> > because the government, in the name of "stabilizing" (= slowing down)
> > the economy, raises interest rates that should be set by private bankers,
> > thus causing bonds to be more attractive than stocks.
>
> The same thing would happen if rates were set by private bankers.
Why on Earth would private bankers deliberately slow down the economy?
If capital is cheap, interest rates go down... it's called supply and
demand.
> > "The Incredible Bread Machine" is a fine reference on how the entire
> > boom-and-bust cycle is intrinsic to government, not capitalism.
>
> When you're ready to read books for grown-ups, you will find that
> business cycle theory is a large subject, in which simplistic answers
> don't get you very far. You might want to read *Differential Equations,
> Dynamical Systems, and Linear Algebra* by Hirsch and Smale,
> to get an overview of instability and oscillations in dynamical systems.
> Another useful reference is *Perspectives of Nonlinear Dynamics*
> by E. Atlee Jackson.
Gosh. And I suppose that as a mature, grown-up sort of person, you
actually read "The Incredible Bread Machine" before claiming that I
needed to study chaos theory? The only time when the "simplistic
answers" argument is valid is when somebody's found a scapegoat. At all
other times, simplistic answers are *more* valid than elaborate, complex
answers. It's called Occam's Razor - you'll learn about it in high
school. The only reason simplistic answers are suspect is because some
of them are supplied by our emotional natures instead of reason.
Admittedly this would appear the case here: Blaming the government for
everything wrong with the economy would, indeed, seem to be a clear case
of finding a scapegoat. (And I have no evidence that the authors of
"Bread Machine" acted from reason rather than, ahem, other
considerations.)
Their basic argument, though, is highly plausible, and centers around
the artificial clamping of interest rates. If interest rates are low,
this encourages long-term investments; if high, short-term investments.
If the government holds interest rates at artificial lows during a
depression, this encourages long-term investment when nobody will be
saving up to buy it, thus prolonging the depression. If the government
holds interest rates at artificial highs during a boom "to reduce
inflation" (as if giving money a high built-in growth factor would
*reduce* inflation - this is just plain weird), fewer long-term
investments will be made, resulting in an eventual bust when the economy
runs out of resources.
Interest rates act as a signpost for investment; if low, capital is
cheap, people are saving up, and one should invest in long-term,
expensive goods. If high, capital is scarce, people are living in debt,
and expensive goods will have no market. If the government screws this
signpost completely around, this will destabilize the market.
They also point out that the inflation-vs.-unemployment curve is a
simple fallacy; the *only* thing that causes inflation is the government
printing money. The boom-and-bust cycle is the inflationary curve; the
benefits of inflation always ride a few moments ahead of the price,
which can always be temporarily held off by even more inflation.
As for the calculus and chaos theory you invoke above - for I see no
actual equations, leading me to believe that this is a more haughty
version of the "scientists support aromatherapy" you see in
advertisements - I've played around with the Game of Life. One thing I
have learned is that twiddling with the rules, even in an apparently
inconsequential way, will result in complete chaos. If you want to
stabilize a complex dynamical system, the first rule is to get the
government the heck *out* of it.
Capitalism is an inherently stable, symmetrical, self-organizing
system. Nobody needs to build checks and balances into capitalism by
coercive force; the checks and balances are there already. The law of
Supply and Demand (unless the government clamps prices) is the classic
example. Investments with the highest payoff/risk ratio will be
invested in (unless Greenspan decides otherwise), maximizing total
output, the amount of "stuff" available per capita, and our standard of
living.
Capitalism is the single greatest self-organizing principle humanity has
ever, ever, discovered - from the "hedonistic neuron" theory of brain
organization to the supply-and-demand Daisyworld of ecology, almost
every time nature does something self-organizing, the individual units
are trying to maximize some quantity. Nobody with even the vaguest
familiarity with trying to engineer self-organizing systems would dream
of suggesting otherwise.
If you have any actual "differential equations" - no. Pseudosciences
often spew out masses of statistics and fundamentally unnecessary
"equations" to disguise themselves as science. I most sincerely doubt
that *economics* (rather than respectable sciences such as engineering
or chaos theory) has advanced to the point where differential equations
are more than ballast or fancy ways of saying "A causes B". Right now
economists still can't agree on what factors to measure or models to
use. If you have any even vaguely realistic (i.e., not "simplistic" or
ad hoc) models to support the random use of coercive force as a
"stabilizing factor", let's see them.
--
sentience@pobox.com Eliezer S. Yudkowsky
http://tezcat.com/~eliezer/singularity.html
http://tezcat.com/~eliezer/algernon.html
Disclaimer: Unless otherwise specified, I'm not telling you
everything I think I know.
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