I am studying for an exam on Control Theory (the mechatronics stuff) and it came to my mind that I could prove (showing the absurd) the impossibility of controlling economic cycles.
My first idea was to demonstrate that when central banks or economic ministers try to control the economy they are actually just trying to change some variables to control noise (i.e. uncertainty or normal fast variations) and not the actual signal. I always get that impression when I hear they say they want to lower the unemployment by 2% or pump the dollar up by a 10%, all in matter of months or even days.
Then I realized that counter-cycle politics (their favourite recipe) just increase noise and accelerates the sucession of business cycles, thus raising uncertainty. More than everything, because they know so little about the economy (very little can be measured and even less can be controlled) they can't create a valid model, so they are just throwing stabs in the dark.
Are there any books on the subject? I just don't want to reinvent powder.
Any book dealing with control theory in economics?
Pity the theory which sets itself up in opposition to the mind!
Carl Von Clausewitz
I'm not exactly versed in mechantronics, though I was certainly interested when I found out a subject such as biomechatronics existed. Probably very interesting to study either one of the two.
The only thing I was going to say is that the economic cycles themselves, as described by ABCT theory, are entirely caused by the monetary system of credit expansion. I have yet to see any serious reasons to believe that any cycles would exist without fractional reserve banking and artificial interest rates. Of course, events such as wars don't count because they're not cyclical, not would their idiosyncrasies be so similar every time these destructive events occured.
So when trying to prove the impossibility of controlling economic cycles, make sure you have in mind the ABCT, and that it is entirely plausible that they would be absent without the current monetary system. Basically, governments not only try to implement anti-cycle policies, they also create them.
The idea of noise is very interesting though.
gussosa:Are there any books on the subject? I just don't want to reinvent powder. Any book dealing with control theory in economics?
These arguments were made more than a half century ago, in different form, but with the same substance. Hayek's books about the monetary theory of the cycle are a good example.
ccathey:1) Physical systems do not make choices and can therefore be mathematically modeled with some degree of accuracy. People do make choices and as a result the math models break down after awhile. It is possible to look at people collectively and generate a better model, but even these break down. Gene Callahan (I think) has a pretty good discussion of forecasting models breaking down - being continually updated and monitored in financial markets. And I think Roger Garrison has another pretty good discussion of how these models tend to fall apart during crises - when they are need the most. But as an engineer - it boils down to the fact that for a particular voltage and current a motor will deliver a particular speed and torque, but a person placed in a particular store with a particular amount of cash won't repeatably do the same thing.
And these choices cannot be put in a model because humans are too complex to be modeled. But if you had all the data, it would be possible.
Kirznerian: And these choices cannot be put in a model because humans are too complex to be modeled. But if you had all the data, it would be possible.
Inquisitor:I wonder if the ABCT couldn't be understood under the wider notion of price controls, and perhaps even subsumed under the calculation argument.
Now that is an interesting idea. Since the market process is a discovery process, any coercive action that interferes in that process necessarily undermines economic calculation, distorts economic information, and creates economic "noise" or static.
Inquisitor:Well it seems intuitively plausible to me - I just wonder if it hasn't already been investigated.
Exactly my problem. I am looking for a subject that hasn't been investigated over and over.