Science of economics

Dear I just viewed your TED talk, you are super and have a real picture of economics transformation, I am a chemist,working in renewable energies climate change air pollution since 2011,I want to refine your concept of doughnut economics, this concept will change the world. I have my own story, now what I want that you practically implement your concept and viewed the results of your visinory thought. Right now I am feeling happy to look a person with so positive and real vision

Making Macroeconomics a Much More Exact Science

Today macroeconomics is treated as an inexact subject within the humanities, because at a first look it appears to be a very complex and easily confused matter. But this attitude does not give it fair justice–we should be trying to find a better way to approach and examine the topic, in a better way that avoids these problems of complexity and confusion. Suppose we ask ourselves the question: “how many different KINDS of financial transactions can occur within our society?” Then the simple and direct answer shows that that only a limited number of them are possible.

Although our social system comprises of many millions of participants, to answer this question properly we should be ready to consider the aggregates of all the various kinds of functions (no matter who performs them), and then to idealize these activities so that they fall into some more general terms, expressing the different types of social transactions into what becomes a relatively small number. Here, each activity is found to apply between a particular pair of agents or entities—with each entity having its individual properties. Then to cover the whole social system of a country, the author finds that it takes only 19 kinds of flows of money for the mutual activity in the transfer of goods, services, access rights, taxes, credit, investment, use of valuable legal documents, etc. Also these flows pass between only 6 different representative agents or entities.

The analysis that led to this initially unexpected result was prepared by the author and it may be found in his working paper (on the internet) as SSRN 2865571 “Einstein’s Criterion Applied to Logical Macroeconomics Modeling”. In this model these double flows of money verses goods, etc., are shown to pass between only 6 kinds of role-playing entities. Of course, there are a number of different configurations that are possible for this type of simplification, but if one tries to eliminate all the unnecessary complications and sticks to the more basic activities, then these particular quantities and flows provide the most concise result, and yet it is presentable in a fully comprehensive seamless manner that is suitable for further analysis.

Surprisingly, past representation of our social system by this kind of an interpretation model has not been properly examined nor even presented before. Previously, other partial versions have been modeled (using 4 entities, as by Professor Hudson), but they are inexact due to either their being over-simplified. Alternatively, in the case of econometrics, the representations are far too complicated and almost impossible to follow. These two reasons of over-simplification and over-complexity are why there is this non-scientific confusion by many economists and their failure to obtain a good understanding about how the whole system works.

The model being described here in this paper is unique, in being the first to include, along with some additional aspects, all the 3 factors of production, of Adam Smith’s “Wealth of Nations” book of 1776. These factors of production are Land, Labor and Capital and along with their returns of Ground-Rent, Wages and Interest/Dividends, respectively. All of them are all included in this presentation diagram.

(Economics’ historians will recall, as originally explained by Adam Smith and David Ricardo, the prescribed independent functions of landlords and capitalists. The former persons rent and speculate in land values whilst the latter are owners of the durable capital goods in industry, which may be hired out. Regrettably these different functions were deliberately combined for political reasons, by John Bates Clark and company about 1900, resulting in the neglect of their different influences on our social system.)

The diagram of this model is in my paper (noted above). A mention of the related teaching process is also provided in my short working SSRN 2600103 “A Mechanical Model for Teaching Macroeconomics”. With this model in its different forms, the various parts and activities of the Big Picture of our social system can be properly identified and defined. Subsequently by analysis, the way our social system works can then be properly calculated and illustrated.

This analysis is introduced by the mathematics and logic that was devised by Nobel Laureate Wassiley W. Leontief, when he invented the important “Input-Output” matrix methodology (that he applied it to the production sector only). This short-hand method of modeling the whole system replaces the above-mentioned block-and-flow diagram. It enables one to really get to grips with what is going-on within our social system. Subsequently it will be found that it is the topology of the matrix which actually provides the key to this. The logic and math is not hard and is suitable for high-school students, who have been shown the basic properties of square matrices.

By this technique it is comparatively easy to introduce a change to a pre-set social system that is theoretically in equilibrium (even though we know that this ideal is never actually attained–it being a convenient way to begin the study). This change will then create an imbalance and we need to regain equilibrium again. Thus, sudden changes or policy decisions may be simulated and the effects of them determined, which will point the way to what policy is best. In my book about it, (see below) 3 changes associated with taxation are investigated in hand-worked numerical examples. In fact when I first worked it out, the irrefutable logical results were a surprise, even to me!

Developments of these ideas about making our subject more truly scientific (thereby avoiding the past pseudo-science being taught at universities), may be found in my recent book: “Consequential Macroeconomics—Rationalizing About How Our Social System Works”. Please write to me at chesterdh@hotmail.com for a free e-copy of this 310 page book and for additional information.

Oh, great just read it, due to my other engagements, a little busy. Its great, social ideas result and improve visions. Can you please tell me a difference between the circular economy and the Doughnut economy? lets do an experiment considering a selected community as human Lab.
Three changes Associated with Taxation—is your idea, being a scientist I know the scientific working approach.thus do an experiment in steps
-First, prepare a webinar on TCAT-three changes associated with Tax
-Give practical suggestions to implement a few informational changes
-Set the target and then we will see the result in selected community.

Dear Irum,

The doughnut (macro)economy is a circular one only its not properly expressed. The circular economy implies that there can be many possible circuits. In the doughnut (macro)economy there is only one big circuit.

In the diagram which I claim is an improved way for representing our social system through the 6 agregated and idealized entities of the macro-economy, a count of all the different circuits through which money can pass (and get back to its starting-point) gives the result of 46. You will need to see Appendix F of my book to understand this, and compared to the diagram itself it is not very important.

I am not familiar with TCAT nor is there much chance of actual experimentation in our subject macroeconomics, for to do so we would need to control government policies.

Like Einstein we need to do thought-experiments, using the logic that is mandatory for scientific styled argument. By this means I have indeed reached some conclusion or “Macroeconomics Consequences”. This is the title of my 310 page free e-book, but I guess you would not have sufficient time to study it in depth. Or perhaps you could ask me for an e-copy and clear your mind of all those vague and complex ideas that are commonly supplied to students in what previously was a confusing subject.

My target is to turn our subject into a better understood one, through the kind of logical and engineering style of analysis. My book shows how to experiment by making policy changes, but except for the 3 simplified examples in taxation (in Chapter 11), the reader will need to do his/her own analysis.

Regards, David Chester

Hi Irum,

I’m also exploring the same areas of renewable energy and climate change. I am using both the ‘enbedded economy model’ and the ‘doughnut’ model. What areas did you want to change or refine?

Bruce

Dear David,
once again thanks for the reply.
TCAT- is nothing I just abbreviate it-Three changes associated with Taxation. I am not an economist, but I understand things well. as I described, working on climate change but don’t believe climate strikes, etc… I believe in practical actions and knowledge sharing.
The Doughnut(macro) economy is circular . Now I am clear about it. Secondly, the problem or you can say, proper explanation about this is, it’s in the process of evolution, thus not properly expressed.
Yes, you are correct I have no time to read a book.
So, I just want you to explain your 3 simplified examples in taxation. To the relevant audience-the people who are a policymaker , know economics or related to this field.
This will helps in the promotion of the concept. Then they will do their own analysis. And prepare implementation modules.
I think it is the starting of, new era of resilience economy.
Regards
IRUM TARIQ