This letter in the Telegraph over the weekend struck a nerve with me, since I too have a low regard for the skill set of the politicians in creating and managing(!) the Euro -

Sir - Your report (Business, April 2) that Germany's finance minister proposes to appoint a panel of scientists to control fiscal policy in EU member states. Scientists are not the answer. What is needed is a group of control systems engineers. An economy is a complex system of feedback loops – bread and butter to a control systems engineer. I wonder whether economists have any training in this area, and I am certain that politicians don't.

Although not a specialist in this field, as an electronics engineer I have often dealt with feedback systems, and my gut feeling is that if you want to destabilise a system, one of the most effective ways of doing it would be to fix an important state variable at an arbitrary value, or in economic terms, fix the exchange rate. In 1990, the pound was tied to the deutschmark, the result: disaster. Later, the Argentine currency was fixed to the dollar. The result: disaster.

Now we have 17 currencies tied to the euro, and the disaster is still in progress. I also believe that current problems are exacerbated by the Chinese currency being pegged to the dollar. Have fixed exchange rates ever worked?

Dr Allan South CEng MIET
Malvern, Worcs

Scientists are not the answer. What is needed is a group of control systems engineers
At last recognition!
What they paying?
YFB
Principal Instrument and Control Engineer CEng

"I wonder whether economists have any training in this area, and I am certain that politicians don't."

I don't think economists do have any training in this area. Leastways I have posted a number of times that the BOE appears to favour an open loop model for forecasting where a closed loop model could be more beneficial.

http://boards.fool.co.uk/im-not-a-big-fan-of-danny-the-dove-...

Control systems theory and feedback loops. I also like the highlighted letter to the Telegraph, this is one way to look on market behaviour, not sure if it has helped me to profit over the years however, too many step changes all happening at one time to make sense.

It’s perhaps one way to explain the constant overshoot and undershoot of the stock markets around the world. However these parasitic oscillations make for more exciting times and opportunities, that’s what we are getting these days, not sure I want it fixed, opportunities abound when the oscillations happen. :)

From an ex control systems engineer.

It’s perhaps one way to explain the constant overshoot and undershoot of the stock markets around the world. However these parasitic oscillations make for more exciting times and opportunities, that’s what we are getting these days, not sure I want it fixed, opportunities abound when the oscillations happen. :)

From an ex control systems engineer.

I have been studing Keynes books recently, in particular "The General Theory of Employment, Interest and Money". I am not a trained economist but I am a control systems engineer.

One of the most interesting aspects is that Keynes clearly saw the economy as a dynamical system where current investment and employment was driven by estimated future consumption. This dynamic model appears to fit reality much better than the static model of classical or laisez faire economics which sees demand equal to investment at a static equilibrium point.

However, like Keynes, I would be wary of trying to give such complex economic system models precise mathematical form such as we do engineering systems. They are simply too complex for that. Nonetheless, Keynes also to my mind identified what could loosely be defined as feedback mechanisms.

P103

However, like Keynes, I would be wary of trying to give such complex economic system models precise mathematical form such as we do engineering systems.

Indeed. Taking just the very broad idea of Keynesian vs Monetarist economics; you've effectively got two relatively logical well followed strands that completely contradict each other in many respects.

The science in it isn't much past the stage where you don't know if gravity makes things go up or down.

Suggesting that the engineers could solve all the problems with some simple application of logical thinking is a bit "man with a hammer" syndrome.

wysi

However, like Keynes, I would be wary of trying to give such complex economic system models precise mathematical form such as we do engineering systems. They are simply too complex for that. Nonetheless, Keynes also to my mind identified what could loosely be defined as feedback mechanisms.



Physiology and particularly the study of brain functioning is a complex system of feedback loops – but definitely not simple bread and butter to a physiologist or a neuroscientist, as they would be only too well aware of the fact that their models are simply not adequate at present!

If our politicians, economists and bankers had actually been educated about models they might actually have understood the major limitations of such models, which are precisely what the say they are ~ simply models, our best approximations to understanding which are probably wrong!

Given such understanding we might well not have had both the banking crisis and the euro crisis.

But then you never get anywhere in politics, economics or most jobs these days by noting the limits of your knowledge.

A retired neuroscientist.


I read with some amusement recently this material from the New York Times.

http://www.nytimes.com/roomfordebate/2012/04/01/how-to-teach...

What I did not learn in Economics 101

An economist must be a "mathematician, historian, statesman, philosopher, in some degree." So, promisingly, begins the sixth edition of "Macroeconomics" by Greg Mankiw, a key reading for my introductory economics class at the University of Edinburgh (and still a key reading six years on). Unfortunately, the book, like the course that prescribed it, delivered on only one of those claims: to be a mathematician.
What began as eloquent and logical graphs and formulas quickly spiraled out of control and I soon found myself reading that “economics is not only a social science, it is a genuine science. Like the physical sciences” and that financial crises can be predicted by using formulae.??

I was not persuaded. The over-reliance n mathematical modeling and its subsequent abstraction, together with a near-disdainful attitude toward other social sciences, left me feeling entirely disillusioned with economics in the U.K. So much so that I decided to leave the university and study abroad at Sciences Po in Paris, which took a broader approach to the field of economics.

But British economic teaching is important because the U.K. is a magnet for prospective students from all over the world. According to the U.K. Higher Education Statistics Agency, the number of students from Britain, European Union member states and non-E.U. countries studying economics in Britain rose to 30 percent in 2011 from 18 percent in 2008. This correlation is unsurprising given that the financial crisis is perceived as a complex issue affecting many countries and, therefore, worthy of study. Also, in a frighteningly weak job market, prospective students are drawn to subjects that are considered more vocational, like economics.
Professor Alan S. Blinder of Princeton University — one of the debaters in this forum — has noticed this change in his undergraduate economics students — “rapt attention and no sleepers!” He says the financial crisis has resulted in a generation of students who "want, expect and deserve explanations." But in most syllabi and textbooks, the changes are tweaks at most — an altered preface in the latest edition, some additional further reading. Little has changed. One enduring feature, also noticeable among economic policymakers, is the use of abstract language that defies logic. "Negative growth" and "growsterity" are, therefore, considered serious terms despite their internal contradictions.

The financial crisis offered a golden opportunity for university economists to question the utility of supposedly scientific models that failed to predict an economic earthquake. For most professors, however, a fervent attachment to their discipline and the mathematical models within it mean that the financial crisis is still perceived as just another inconvenient anomaly. Clearly, the financial crisis cannot be easily contained and neither can its study be confined within the walls of economics departments. Negative contagion in the financial markets could turn into positive academic contagion. Issues cannot be quarantined today, if ever they could be.


Clearly little has changed!

Indeed. Taking just the very broad idea of Keynesian vs Monetarist economics; you've effectively got two relatively logical well followed strands that completely contradict each other in many respects.
I think Steve Keen covers some of this in his book "Debunking Economics". The big point he makes is that economics is regarded as a science, and yet, it makes assumptions that scientists clearly would not regard as valid.

There is no debate about Newtonian mechanics. Everyone knows at the extremes (black holes or speeds close to the speed of light) it isn't quite right but is useful for everyday scenarios. There aren't separate schools of thought on this. Just as well, we would have planes crashing and everyone would be arguing about why it happened and that everyone else didn't know what they were doing. (Yes planes still crash, but not because of design or debate about fundamental principles)

But economics, it appears, has division and debate in every direction.

Maybe economics doesn't fit into that technical category, but then we should take what economists say with a pinch of salt until it does.

sgc

Indeed. Taking just the very broad idea of Keynesian vs Monetarist economics; you've effectively got two relatively logical well followed strands that completely contradict each other in many respects.

Keynes shows in his "general Theory ..." book that his theory subsumes the classical economic theory. His theory reduces to the classical theory under the condition of full employment, a condition obsreved by Keynes never to exist in practice.

P103

Its an interesting debate.

People are making some assumptions that I dont necessarily agree with
1) People actually listen to economists or have some power
2) Economic system is something that can be modelled and controlled
3) Boom/Bust economic cycle is bad and should be smoothed
4) Growth is a good thing
5) Engineers make good Managers

bob342- EE engineer

One of the oft repeated 'Keynesisms' is that we should be spending during a recession and saving during growth periods.

If you look at what Gordon Brown did when he first got the chance to be a real chancellor, instead of a pretend one, he demonstrated 'prudence' and even managed to reduce debt for a short while.

Then there was a crisis - can't remmber if it was foot and mouth, BSE, floods, Iraq war, 9/11 or whichever one that struck first, but he had to spend his way out of it. And then the next one hit, and so on. The basic truth is that there there is never a good period to save, and hence the whole premise of saving during the boom to spend during the bust is flawed, IMO.

... and while I'm on my soapbox, I had this idea for a new form of government the other day.

Firstly different experts develop and sell a 5 year plan to the public. The plan must be realistic and measurable, with key performance indicators.

The public vote to select the chosen 5 year plan. Then there is an election to select the party that are most convincing about how they will implement the plan.

Hence a political party is accountable to the public for delivering what they promised.

Non deliverance of KPI's is a vote of no-confidence, and a new election can take place to oust the failed team.

Tricky part is what to do if the plan is flawed or events have changed too much, but the Chinese seem to be able to master this problem without too many issues.

Optionally each week there is a TV show to select a person from the department that failed to deliver and have them fired.

Optionally each week there is a TV show to select a person from the department that failed to deliver and have them fired.


It could be like The Apprentice. Each week Alan Sugar could get the Cabinet around the table and see what they've been up to. Who has stabbed who in the back, who's been slacking, who's done a good job. Then he can fire one of them. Maybe a phone vote to make it democratic.

Maybe a phone vote to make it democratic.

At £1.50 a phone vote you might be onto something there!

However, like Keynes, I would be wary of trying to give such complex economic system models precise mathematical form such as we do in engineering systems. They are simply too complex for that.

I don’t think control models necessarily have to be Keynsian, nor need a lack of complexity be an issue. I am in favour of simple principles applied in simple robust models.

So, should you have a model, which simply makes forecasts, or should the model be adaptive so that it can take some account of past forecasting errors? (Perhaps incorporating an element of Kalman filtering?)

People are making some assumptions that I don’t necessarily agree with
…
5) Engineers make good Managers

I don’t see that people were necessarily assuming that engineers need to be good managers, but it is worth pointing out that Bill Gates and Steve Jobs started out as engineers.

... it is worth pointing out that Bill Gates and Steve Jobs started out as engineers.

They are great entrepreneurs, technologists and CEOs but dropped out of university so they aren't engineers in my book.

OTOH nearly everyone is an "engineer" these days. When our office toilets are broken there is a sign that says "Out of Order - Engineer Called". Pet Peeve.

One of the oft repeated 'Keynesisms' is that we should be spending during a recession and saving during growth periods.

If you look at what Gordon Brown did when he first got the chance to be a real chancellor, instead of a pretend one, he demonstrated 'prudence' and even managed to reduce debt for a short while.

Then there was a crisis - can't remmber if it was foot and mouth, BSE, floods, Iraq war, 9/11 or whichever one that struck first, but he had to spend his way out of it. And then the next one hit, and so on. The basic truth is that there there is never a good period to save, and hence the whole premise of saving during the boom to spend during the bust is flawed

The issue with designing economic models is that it assumes that they can be implemented by a small group of people in control of the system. In a democracy this is rarely the case. If a party persists with policies that are unpopular, support quickly shifts to a party with popular policies. The economic cycles are typically longer than political cycles. In reality political policy is often determined by the wishes of the masses, whose knowledge and understanding of economic models is weak at best. Any economic model needs to be defined around this political reality. Whilst knowledge of process control and feedback loops is undoubtedly important in closed systems, in the real world I suspect knowledge of psychology and human behavior is more critical.

http://todayinsci.com/QuotationsCategories/E_Cat/Economics-Q...

Professor [Max] Planck, of Berlin, the famous originator of the Quantum Theory, once remarked to me that in early life he had thought of studying economics, but had found it too difficult! Professor Planck could easily master the whole corpus of mathematical economics in a few days. He did not mean that! But the amalgam of logic and intuition and the wide knowledge of facts, most of which are not precise, which is required for economic interpretation in its highest form is, quite truly, overwhelmingly difficult for those whose gift mainly consists in the power to imagine and pursue to their furthest points the implications and prior conditions of comparatively simple facts which are known with a high degree of precision.

John Maynard Keynes
'Alfred Marshall: 1842-1924' (1924). In Geoffrey Keynes (ed.), Essays in Biography

http://www.25iq.com/charlie-munger-quotations/

Economics

“Gigantic macroeconomic predictions are something I’ve never made any money on, and neither has Warren ” http://www.tilsonfunds.com/wscmtg04notes.doc

“Economics is in many respects the queen of the soft sciences. It’s expected to be better than the rest. It’s my view that economics is better at the multi-disciplinary stuff than the rest of the soft science. And it’s also my view that it’s still lousy.” http://www.tilsonfunds.com/MungerUCSBspeech.pdf

“…Max Planck the great Nobel laureate who found Planck’s Constant, tried once to do economics. He gave it up. Now why did Max Planck, one of the smartest people who ever lived, give up economics? The answer is, he said, “It’s too hard. The best solution you can get is messy and uncertain. “http://www.tilsonfunds.com/MungerUCSBspeech.pdf

“economics should emulate physics’ basic ethos, but its search for precision in physics–like formulas is almost always wrong in economics.” http://www.smalla.net/tidbits/quotations/index.shtml

“Economists get very uncomfortable when you talk about virtue and vice. It doesn’t lend itself to a lot of columns with numbers. But I would argue that there are big virtue effects in economics. I would say that the spreading of double-entry bookkeeping by the Monk, Fra Luce de Pacioli, was a big virtue effect in economics. It made business more controllable, and it made it more honest. http://www.originaldissent.com/forums/archive/index.php/t-14...

I don’t see that people were necessarily assuming that engineers need to be good managers, but it is worth pointing out that Bill Gates and Steve Jobs started out as engineers.

Wozniak was the engineer at Apple not Jobs and Allen did a bit more than Gates of the engineering at Microsoft.