Visitors Now:
Total Visits:
Total Stories:
Profile image
By Monetary Sovereignty blog
Contributor profile | More stories
Story Views

Now:
Last Hour:
Last 24 Hours:
Total:

Big data, uncertainty, prediction, and approximations

Tuesday, October 11, 2016 12:28
% of readers think this story is Fact. Add your two cents.

(Before It's News)

A few thoughts on uncertainty:

Nothing is certain. We live in a universe of approximations.

There is, in physics “the Heisenberg uncertainty principle,” which describes certain limits of what we can know.

We simultaneously cannot know both the position (in space) of a subatomic particle and its momentum (speed times mass). The more accurately we measure one, the less accurately we can know the other.

This counter-intuitive fact has nothing to do with the act of measurement (aka “the observer effect”) somehow changing the result. It has to do with what we absolutely never can know, despite out best, most careful efforts.

At any moment in time, each particle has both a position and a momentum. But we cannot know both.

Nature has decided some knowledge will be hidden from us, today, tomorrow and forever.

If you find this hard to believe, perhaps a slightly more familiar situation will be instructive: We simultaneously cannot know the diameter and the circumference of a circle.

We can measure the diameter of a circle. We can measure the circumference of a circle. But no matter how hard we try, we cannot measure both for the same circle.

We can measure the diameter as precisely as we wish. Let’s call it exactly “1” (1 inch, 1 foot, 1 mile, 1 light year).

No matter how precisely we create that circle, we never can know the diameter, which is based “1” multiplied by the infinite sequence known as π. Being an infinite sequence, π cannot be measured precisely.

In mathematics, there is a workaround, or rather a convenience, that says an infinite sequence can be expressed as the rounding of the last terms. For instance, 1.9999999 . . . can be treated as being the “same” as 2, because the difference would be infinitely small..

Pi is an infinitely long sequence. You can see a million digits of Pi here.

The first few digits are 3.14159 . . . , which sometimes are rounded to 3.14 or to 3.1416 if greater precision is desired.

True, the word “pi” represents a number, just as the word “one” and the numeral “1” each represent a number, but there is no way to measure both the circumference of a circle and the diameter, by the same number system.

If, for instance, one uses pi to measure a circle’s diameter, no fraction of pi will measure the same circle’s circumference.

Every circle has both a specific circumference and a specific diameter but you never can know both.

The uncertainty principle of physics and the uncertainty of pi in geometry are distant cousins. Physics at its core is mathematics, and mathematics at its core is geometry.

Because of the uncertainty found in geometry, mathematics, and physics, they all function only as approximations. Everything we know devolves to an approximation.

(In mathematics, even simple “1+1 = 2” is equivalent to the approximation:  .99999 . . . + .99999 . . . = 1.99999 . . .)

Economics, at its core, is psychology, and the measures in psychology are even less certain that are those of geometry.

Consider inflation (or as some call it, “price inflation”). It is defined as a general increase in prices. Though we can look back and declare with some confidence that there has been inflation, we cannot say how much.

Like subatomic position and momentum, or pi, inflation is unmeasurable.

Circulating through America’s and the world’s economies are billions, perhaps trillions, of different products and services, each changing through time. Today’s overall mix of products and services is different from yesterday’s. Tomorrow, just one day later will see a different mix.

How then does one compare the pricing of yesterday’s product/service mix “A” with the pricing of today’s product/service mix “A+1”?

If “A+1” has a higher price than does “A” does this represent inflation? Or does it merely represent the fact that two different product/service mixes have two different prices?

Consider a basic example: The price inflation of milk. We can’t even measure that . Too many alternatives. Skim, 2%, or regular; gallon, quart, or pint; Pasteurized, flavored, or raw;glass bottle, paper carton or plastic; grass-fed cow from Wisconsin, grain-fed cow from Illinois or a goat from Missouri.

Only fourteen such questions will yield nearly five million alternatives. What then is the better measure of price inflation in milk?

One sometimes hears that the federal government fudges the inflation statistics to make some point — to exaggerate or to minimize the measure of inflation. And this often may be true.

But since there can be no accurate measure of inflation, the best that can be attained is an approximation. The argument then becomes, “Whose approximation is ‘better’”?

“Better” for what? Is it “better” to know the position of a subatomic particle or its momentum? Or an approximation of both?

Is it “better” to know the diameter of a circle or the circumference or some approximation of each?

Is it better to know the price inflation of milk, or of some static and selected basket of products and services, or of some evolving and selected basket of products and services?

Our approximations tell us there has been some inflation in the past 20 years, though how much, we cannot know, nor do we know how much is “best.”

We can try to impute inflation by determining the changing value of money itself.  The formula is: Value = Demand/Supply.

Sadly, we have no measure for those terms, either.

Gross Domestic Product (GDP), another often-used measure, suffers the same problem. Without knowing inflation, a gross measure like GDP is all-but-meaningless. In fact, all the measures in economics are based on approximations, and when approximations are compounded by other approximations, results can vary wildly.

But it gets worse, for economics is massively complex, with all factors being related. Employment is related to GDP, which is related to education, which is related to income inequality, and on and on — trillions upon trillions of inter-relationships of approximations.

Much of science, including economics, has as its goal, prediction. Unless one can say, “If ‘A’ happens, ‘B’ will result,” of what value is economics?

And that is exactly the problem facing economics: It lacks predictability.

When someone predicts kicking a ball will send the ball into the air, that is not an impressive forecast. And when someone predicts that a triangle will resist deformation better than a square, that is expected.

But, when someone predicts a recession or inflation or a stock price increase, and that recession, inflation or stock price increase happens near the predicted time, the person is acclaimed, so rare is even somewhat accurate, prediction in economics.

Given that geometry is far more predictive than psychology (despite the effects of infinity), one might think economics would attempt to incorporate geometry into its calculations.

And indeed, it has, in the form of graphs and charts. Look in any economics text or read any economics blog, and you will frequent use of graphs and charts.

Unfortunately, the graphs and charts are constructed from the same uncertain data that makes economics prediction so difficult. Extending trend lines usually fails.

Finally, psychology is based on the brain, and the brain is an approximation device. We do not actually see an object. We translate a two-dimensional sensing of the light coming from the object, into a three-dimensional approximation, which is why illusions can be so convincing.

Approximations can make for good science, so long as we understand their limitations. Consider the Ten Steps To Prosperity (below), the plan for narrowing the income/wealth/power Gap between the rich and the rest.

Step #1 is “Eliminate FICA.” That tax is highly regressive, being imposed only on salaries (not on all income and not on wealth). Its primary effect is on the low- and middle-income workers.

We believe:

  1. The Gap is too wide and has been widening, though we don’t know how wide it is or how wide it should be.
  2. One measure of the Gap is via the GINI ratio, but this ratio is based on many variables, the measure and weighting of which can be debated.
  3. Eliminating FICA would narrow the Gap, but there is no way to determine how great the narrowing would be.
  4. Because the federal government is Monetarily Sovereign, and never can run short of its own sovereign currency, it neither needs nor uses FICA tax dollars.
  5. The only negative to eliminating FICA might be inflation, though we don’t know whether that negative is real, nor how much inflation might occur, nor whether, for certain,  inflation could be contained.

We see many beliefs, unknowns, and uncertainties indicated in those points. We cannot quantify them, nor prove them.

So why do we believe them?

The human belief system is based on translating insufficient information into certainty.

Everything is approximate. Looking out the window, I am certain I see a tree. But my brain has made an approximation. It has interpreted certain light quanta, falling on my retina to approximate a tree and a window, though upon closer inspection, the whole approximation might be a shadowbox or a photo or just a play of light.

Physics, geometry, and economics can grow only as we reduce the human element, i. e. the human interpretation and intuition as solutions to uncertainty.

The purpose of human intuition is quickly to interpret a massive amount of information that otherwise cannot be factored. But machines are good with massive amounts of data. A machine could find relationships in the huge data described in the milk illustration.

Think of Google’s web crawler, then think of more advanced computers crawling the web for every mention of every product and service.

At some future point, the computers will “know” the relationships between all past sales, uses and prices of everything, and from these past relationships, be able to estimate the future.

Big data will be the solution to big uncertainty, as we creep ever closer to knowing the position and mass, the diameter and circumference, the future of the Gap and of inflation.

Closer is as good as it ever will be.

Rodger Malcolm Mitchell
Monetary Sovereignty

===================================================================================

The single most important problems in economics involve the excessive income/wealth/power Gaps between the rich and the rest.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich afford better health care than the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE AN ANNUAL ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA, AND/OR EVERY STATE, A PER CAPITA ECONOMIC BONUS (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONEFive reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefiting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE CORPORATE TAXES
Corporations themselves exist only as legalities. They don’t pay taxes or pay for anything else. They are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the government (the later having no use for those dollars).
Any tax on corporations reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all corporate taxes come around and reappear as deductions from your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and corporate taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

Report abuse

Comments

Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories

Register

Newsletter

Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.