Why Economic or environmental models don't work

[FarmerD]

During the debates on this forum about economics and the climate, I posted a couple times that I didn't think it is possible to model either since both are far have far too many variables involved to accurately model.  Warren Meyer at the Coyote blog recently posted the same idea below (although in a more articulate way than I have):

Here is the problem:  There exists a highly dynamic, multi- multi- variable system.  One input is changed.  How much, and in what ways, did that change affect the system?

Here are two examples:
•The government makes a trillion dollars in deficit spending to try to boost the economy.  Did it do so?  By how much? (This Reason article got me thinking about it)
•Man's actions increase the amount of CO2 in the atmosphere.  We are fairly confident that this has some warming effect, but how how much?  There are big policy differences between the response to a lot and a little.

The difficulty, of course, is that there is no way to do a controlled study, and while one's studied variable is changing, so are thousands, even millions of others.  These two examples have a number of things in common:
•We know feedbacks play a large role in the answer, but the system is so hard to pin down that we are not even sure of the sign, much less the magnitude, of the feedback.  Do positive feedbacks such as ice melting and cloud formation multiply CO2 warming many times, or is warming offset by negative feedback from things like cloud formation?  Similarly in the economy, does deficit spending get multiplied many times as the money gets respent over and over, or is it offset by declines in other categories of spending like business investment?
•In both examples, we have recent cases where the system has not behaved as expected (at least by some).  The economy remained at best flat after the recent stimulus.  We have not seen global temperatures increase for 15-20 years despite a lot of CO2 prodcution.  Are these evidence that the hypothesized relationship between cause and effect does not exist (or is small), or simply evidence that other effects independently drove the system in the opposite direction such that, for example, the economy would have been even worse without the stimulus or the world would have cooled without CO2 additions.
•In both examples, we use computer models not only to predict the future, but to explain the past.  When the government said that the stimulus had worked, they did so based on a computer model whose core assumptions were that stimulus works.  In both fields, we get this sort of circular proof, with the output of computer models that assume a causal relationship being used to prove the causal relationship

So, for those of you who may think that we are at the end of math (or science), here is a class of problem that is clearly, just from these two examples, enormously important.  And we cannot solve it -- we can't even come close, despite the hubris of Paul Krugman or Michael Mann who may argue differently.    We are explaining fire with Phlogiston.

I have no idea where the solution lies.  Perhaps all we can hope for is a Goedel to tell us the problem is impossible to solve so stop trying.  Perhaps the seeds of a solution exist but they are buried in another discipline (God knows the climate science field often lacks even the most basic connection to math and statistics knowledge).

Maybe I am missing something, but who is even working on this?  By "working on it" I do not mean trying to build incrementally "better" economics or climate models.  Plenty of folks doing that.  But who is working on new approaches to tease out relationships in complex multi-variable systems?

No "expert" will ever admit the limitation of their knowledge and in the case of either climate science or economics (or medical science, investing, etc), that limit seems to be pretty low.  One of the very few "experts" to fully admit their limitations was Harry Browne which is why I find him so interesting.

[Benko]

... I didn't think it is possible to model either since both are far have far too many variables involved to accurately model....

No "expert" will ever admit the limitation of their knowledge and in the case of either climate science or economics, that limit seems to be pretty low.

+1

[moda0306]

To say that models don't work, does that mean we should drop all intellectual analysis of economics all-together?  Usually, when I hear "models don't work," I tend to hear a veiled attach on one end of the political/economic opinion spectrum, while ignoring the fact that the reasons for our political/economic opinions all, at some point, really come down to a model (no matter how well or poorly thought out) that we think drives individual and group human behavior.

For instance, climate-change modeling may be flawed.  But the alternative is a model.  A model that says, "live and let live (within my preferred definition of property rights)," and things will probably turn out better because "1) Human behavior this, and 2) Economic misallocation that."

If your attitude is, "when in doubt, default to pure liberty," then that's ok, but this has to do with a model of how you think people as individuals and groups behave when they are left to be "free," (and what "freedom" actually is, especially when it comes to property and interaction within an organized civilization).

I agree that models are difficult.  Models actually tend to be MOST important when the future is uncertain, not throw-away material.  For instance, as completely uncertain we are of what the PP overall will do, much less its individual pieces, we are faced with the MORE important task of limiting risk.  When putting gold in our portfolio, we don't know exactly how it'll perform in a dollar collapse, disastrous-depression, or alien invasion scenario, but we acknowledge that it's better to imagine these scenarios and build "models" that will most-likely limit our exposure to them rather than say "the future is unknowable so spend it all or invest in the stock market cuz it's always done better." 

[Benko]

To say that models don't work, does that mean we should drop all intellectual analysis of economics all-together? 

When you have a model which successfully predicts what goes on in the real world, wonderful.  That model can be useful (within whatever constraints it was designed to work). 

When you don't have models which accurately predict what goes on the world, it is best to remember the real word is what is important, not your model.  Try to improve the model so that is does better reflect reality.  Act like a scientist i.e. someone interested in the truth meaning suppressing data which does not agree with you model, or name calling is not helpful.

If your behavior resembles democrats over Obamacare, and not a scientist, than you are politician, not a scientist.

[Mountaineer]

My engineering training says models are fine when trying to determine effects as long as one stays inside the boundaries of the data, ... that is between the high and the low points, or at least very close to the data limits.  When extrapolating outside the boundaries, all bets are off.  A good example of this is Newtonian physics which works great within its limits.  When dealing with subatomic particles, Newtonian physics falls apart.  Same for the very large systems like the universe, Newtonian physics just does not able us to predict accurately.  That is why the article that FarmerD posted is so relevant.  The issue for me re. speculating on CO2 effects in an impossibly complex world becomes wasting valuable resources chasing unicorns that may or may not materialize.  Those resources could be put to much better use in the here and now addressing real, not imaginary, problems.  The current "real" issue that is being addressed, in my opinion, is political advantage or power, not so much helping the greater mankind.

... Mountaineer

[moda0306]

Benko,

I pretty much agree with everything you just said. Try to improve models if they fail to accurately predict outcomes.  However, in the absence of perfect models, improving them should be our default response (especially if there are dire consequences to throwing our hands up).

Further, sometimes, based on imperfect evidence, decisions have to be made.  Those decisions should be weighted, often, towards defaulting to risk-aversion, hence our imperfect but risk-averse preferences within our PP allocation.

[FarmerD]

To say that models don't work, does that mean we should drop all intellectual analysis of economics all-together?  Usually, when I hear "models don't work," I tend to hear a veiled attach on one end of the political/economic opinion spectrum, while ignoring the fact that the reasons for our political/economic opinions all, at some point, really come down to a model (no matter how well or poorly thought out) that we think drives individual and group human behavior.

Modeling clearly works when you're dealing with a small number of variables.  For example, microeconomic modeling is useful because we can handle systems with small numbers of inputs.  But the more macro you go, the greater the number of variables you introduce and the predictive ability of the model goes down.  Definitive answers to questions in fields like Medicine, economics, climate science, etc, normally can't be obtained through modeling or clinical study so all you're left with in most cases is dueling opinions between "experts."

[moda0306]

To say that models don't work, does that mean we should drop all intellectual analysis of economics all-together?  Usually, when I hear "models don't work," I tend to hear a veiled attach on one end of the political/economic opinion spectrum, while ignoring the fact that the reasons for our political/economic opinions all, at some point, really come down to a model (no matter how well or poorly thought out) that we think drives individual and group human behavior.

Modeling clearly works when you're dealing with a small number of variables.  For example, microeconomic modeling is useful because we can handle models with small numbers of inputs.  But the more macro you go, the greater the number of variables you introduce and the predictive ability of the model goes down.  Definitive answers to questions in fields like Medicine, economics, climate science, etc, normally can't be obtained through modeling or clinical study so all you're left with in most cases is dueling opinions between "experts."

http://en.wikipedia.org/wiki/Scientific ... _consensus

So what if it's 95 experts arguing with 5, and the impact of the 95 experts being right is potentially disastrous to our ecosystems?  Even if there were a 20% chance climate change were man-made due to green-house gas emissions, I think there might be room for argument that drastic action to capture those costs, as well as developing other ideas to curb emissions, might be well-worth the cost of the 80% pans out.

This is kind of risk-management 101.

Does someone have the "best source" online or elsewhere "debunking" man-made climate change?  Just want to cut to the chase and really start digging into this topic.

[Benko]

Further, sometimes, based on imperfect evidence, decisions have to be made.  Those decisions should be weighted, often, towards defaulting to risk-aversion, hence our imperfect but risk-averse preferences within our PP allocation.

"Further, sometimes, based on imperfect evidence, decisions have to be made."

Fair enough, but crying emergency (we have to act now!) as an excuse for taking action has been used as motivation for action perhaps twice in the current president's term.   

And given the actions of China/India, if the earth had warmed e.g. 5 degrees over the last decade and we were on our way to Al Gore's fantasy, what would any action the US takes accomplish?  It would harm the US e.g. economically, but not significantly help the planet.

Successfully harming the US is what many believe to the real and achievable goal of many of the "left". 

[Benko]

Does someone have the "best source" online or elsewhere "debunking" man-made climate change?  Just want to cut to the chase and really start digging into this topic.

Here is a good one:

http://www.drroyspencer.com/

Global warming 101
Global warming natural or manmade

[moda0306]

Further, sometimes, based on imperfect evidence, decisions have to be made.  Those decisions should be weighted, often, towards defaulting to risk-aversion, hence our imperfect but risk-averse preferences within our PP allocation.

"Further, sometimes, based on imperfect evidence, decisions have to be made."

Fair enough, but crying emergency (we have to act now!) as an excuse for taking action has been used as motivation for action perhaps twice in the current president's term.   

And given the actions of China/India, if the earth had warmed e.g. 5 degrees over the last decade and we were on our way to Al Gore's fantasy, what would any action the US takes accomplish?  It would harm the US e.g. economically, but not significantly help the planet.

Successfully harming the US is what many believe to the real and achievable goal of many of the "left".

Regarding crying emergency, yes, it's used a lot, not just in the current administration, mind you, but any politician... I seem to remember a war in Iraq that fit the bill pretty accurately to that description.

This isn't about Obama or governments, though.  This is an ecological/externality issue that markets can't solve, so one option is to pressure politicians who we may not usually like, to take time away from pandering to people's wants today and begin to look at a more unpleasant issue to address.

And obviously some sort of treaty has to be made.  Just like no one person in the U.S. can do anything, this isn't a local externality issue... it's global.  Further, we might have to realize that the externalities of the past century are already at work making the problem worse than it would be, so countries that contributed more to it in the past might have to take a bigger hit.  I don't find this unreasonable.  However, current polluters (of which we are near the top, let's not forget), still have to pay their due, if there is to be something done.

Thanks for that link, though.  I'll hope to check that out soon.


Desert,

When you say "much less evidence," are you disagreeing with the vast majority of climate scientists, or do you disagree with the premise that there's wide-spread agreement among climate scientists?

[Pointedstick]

To me, the problem of global warming is that even if it's 100% certain that we caused it, is there any evidence that any of our actions can actually stop or reverse it in time to avoid the kind of radical ecological changes I hear people worrying about? And of course, this is completely discounting the political realities of getting the nations of the world to cooperate on such a solution in a way that it's anything more than window dressing, which of course as we have seen has so far been impossible.

So when I hear about this stuff, I just don't know what I'm supposed to do about it. I feel like I'm arguing about somebody who's terribly worried about dying. I feel like I want to say the global warming equivalent of, Yikes, that sounds scary. How you gonna stop it? Oh… you don't have a plan that makes any sense? And nobody wants to implement your nonsensical, likely ineffective plan? Well, I guess I'll just go on living my life until I die, then.

[moda0306]

To me, the problem of global warming is that even if it's 100% certain that we caused it, is there any evidence that any of our actions can actually stop or reverse it in time to avoid the kind of radical ecological changes I hear people worrying about? And of course, this is completely discounting the political realities of getting the nations of the world to cooperate on such a solution in a way that it's anything more than window dressing, which of course as we have seen has so far been impossible.

So when I hear about this stuff, I just don't know what I'm supposed to do about it. I feel like I'm arguing about somebody who's terribly worried about dying. I feel like I want to say the global warming equivalent of, Yikes, that sounds scary. How you gonna stop it? Oh… you don't have a plan that makes any sense? And nobody wants to implement your nonsensical, likely ineffective plan? Well, I guess I'll just go on living my life until I die, then.

From a personal standpoint, one thing I wonder is 1) where should I live, and 2) how should I invest?

I think lush, high-level land would probably be the best for places to live, but the effects are so random, who knows.  Oddly, the best position might be to not buy a place at all (unless you can afford a few), but rent and leave yourself in a position to move, though, it's sure to be expensive wherever you move to.

As far as investing goes, the PP seems as good as any plan, if not still quite obviously the best.

Mostly, being conservative, saving a lot, and keeping yourself in a flexible position is probably the most reasonable position to take.  I really think taking on a very non-diversified real-estate position in your portfolio could be one of the bigger mistakes good savers could make.

[FarmerD]

So what if it's 95 experts arguing with 5, and the impact of the 95 experts being right is potentially disastrous to our ecosystems?  .

I'd argue that the experts collective understanding of the established science of what drives climate is extremely low.  Therefore citing that "95% of experts" believe a certain way doesn't hold much credence with me.  Of course, if I had confidence they have highly accurate models or had conducted several repeatable experiments that proved certain assumptions, then I would probably feel otherwise. 

[FarmerD]

Does someone have the "best source" online or elsewhere "debunking" man-made climate change?  Just want to cut to the chase and really start digging into this topic.

The Coyote Blog Author, Warren Meyer, also has another website devoted to Climate Change you may find interesting.
http://www.climate-skeptic.com/

[AdamA]

IMO, to state that something has "too many variables to accurately model" misses the forest for the trees.  Everything has too many variables to accurately model.  However, many important questions can be answered with models that are not "correct".

I'm a chemical engineer, and my professional life has generally involved developing models of chemical processes.  Generally speaking, I'm using fundamental laws about physics and chemistry to provide information that will ultimately be used to guide decisions on whether or not to invest hundreds of millions of dollars in a new chemical plant.

That is very well put.

One of the things I wonder about with climate science, though, is how politics, and, more importantly, government funding, effect some of these studies and models.  There is a lot of money being used to fund this research, and, therefore a pretty big conflict of interest for the scientists involved. 

If their research says, "never mind, we're fine," they'll essentially study themselves right out of business.  Not saying they'd do it intentionally, but it's just human nature. 

I'm also not saying that I think everything is fine, just that the topic is complex and that adding this type of conflict of interest to the mix makes it even more so. 

[Pointedstick]

One of the things I wonder about with climate science, though, is how politics, and, more importantly, government funding, effect some of these studies and models.  There is a lot of money being used to fund this research, and, therefore a pretty big conflict of interest for the scientists involved. 

If their research says, "never mind, we're fine," they'll essentially study themselves right out of business.  Not saying they'd do it intentionally, but it's just human nature.

Or even, "Wow, this is a big problem, but it looks like there's no policy that could halt or reverse it with our current level of technology short of reversing the process of civilization."

I'm pretty much convinced that human actions are changing the climate, but I remain extremely skeptical that there's really anything we can do about it while preserving our standard of living which--let's be realistic--we're gunna do if it gets put to a vote.

[moda0306]

PS,

Under the premise that almost all government action, by definition, reduces our standard of living (a premise I reject, but let's go with it for a bit), why would a law with a carbon tax NOT reduce our lifestyle?  I mean, I totally understand the rhetoric is unpopular (increasing utility & petroleum costs is NOT going to be fun for people), but if we're talking about advocating government doing something, should we really be against it just because we think 51% of society will be?  In the world of public policy debate, letting lack of popularity get in the way of good ideas is just boring and lazy, is it not?

I mean, you're writing  whole book on a VERY unpopular anarchistic (or close-to, I presume) social model.

I think popularity should be the last hurdle of good ideas, not the first.

[Pointedstick]

PS,

Under the premise that almost all government action, by definition, reduces our standard of living (a premise I reject, but let's go with it for a bit), why would a law with a carbon tax NOT reduce our lifestyle?  I mean, I totally understand the rhetoric is unpopular (increasing utility & petroleum costs is NOT going to be fun for people), but if we're talking about advocating government doing something, should we really be against it just because we think 51% of society will be?  In the world of public policy debate, letting lack of popularity get in the way of good ideas is just boring and lazy, is it not?

I'm not entirely sure what you're saying here, but it sounds an awful lot like you're coming perilously close to rejecting representative government on some very persuasive grounds. The inability of a 50.1% majority to understand and accept policies that would actually have great benefit is IMHO a major and unsolvable problem of this form of government.

The other point I was making is that most of the policies we can think of such as a carbon tax won't actually help. It won't help because it'll be a drop in the bucket domestically, and it won't be implemented abroad. If such a tax isn't universal and worldwide, it's just pissing in the wind. And it won't be universal and worldwide due to the realpolitik of the issue.

I mean, you're writing  whole book on a VERY unpopular anarchistic (or close-to, I presume) social model.

I think popularity should be the last hurdle of good ideas, not the first.

I wear many hats. When I want to talk realistically about the world we actually inhabit, I think popularity is an important consideration, because it's the entire basis for our political system. If you ignore that part, you'll just be continuously frustrated when your preferred policies never get enacted. But when I talk about bold ideas, I don't consider popularity so much because my primary goal is to spread the idea. That said, I'm deliberately straying from the typical libertarian/anarcho-capitalism abrasiveness that most people find so offputting. I recognize that it's a radical and unpopular set of ideas, so I'm working very hard to present them in as gentle and palatable a was as I can and address common criticisms. Which is exactly what I think climate-change-worriers should do rather than adopting borderline apocalyptic rhetoric while advocating radical and unpopular policies. I mean, does that work for Kshartle? Same reason why we don't have a carbon tax yet.

[moda0306]

PS,

Under the premise that almost all government action, by definition, reduces our standard of living (a premise I reject, but let's go with it for a bit), why would a law with a carbon tax NOT reduce our lifestyle?  I mean, I totally understand the rhetoric is unpopular (increasing utility & petroleum costs is NOT going to be fun for people), but if we're talking about advocating government doing something, should we really be against it just because we think 51% of society will be?  In the world of public policy debate, letting lack of popularity get in the way of good ideas is just boring and lazy, is it not?

I'm not entirely sure what you're saying here, but it sounds an awful lot like you're coming perilously close to rejecting representative government on some very persuasive grounds. The inability of a 50.1% majority to understand and accept policies that would actually have great benefit is IMHO a major and unsolvable problem of this form of government.

The other point I was making is that most of the policies we can think of such as a carbon tax won't actually help. It won't help because it'll be a drop in the bucket domestically, and it won't be implemented abroad. If such a tax isn't universal and worldwide, it's just pissing in the wind. And it won't be universal and worldwide due to the realpolitik of the issue.

I mean, you're writing  whole book on a VERY unpopular anarchistic (or close-to, I presume) social model.

I think popularity should be the last hurdle of good ideas, not the first.

I wear many hats. When I want to talk realistically about the world we actually inhabit, I think popularity is an important consideration, because it's the entire basis for our political system. If you ignore that part, you'll just be continuously frustrated when your preferred policies never get enacted. But when I talk about bold ideas, I don't consider popularity so much because my primary goal is to spread the idea. That said, I'm deliberately straying from the typical libertarian/anarcho-capitalism abrasiveness that most people find so offputting. I recognize that it's a radical and unpopular set of ideas, so I'm working very hard to present them in as gentle and palatable a was as I can and address common criticisms. Which is exactly what I think climate-change-worriers should do rather than adopting borderline apocalyptic rhetoric while advocating radical and unpopular policies. I mean, does that work for Kshartle? Same reason why we don't have a carbon tax yet.

Well even I am not in favor of a democracy where 50.1% decide everything for everyone else.  I think healthy legal firewalls and checks/balances are important.  I think discussions of less representative forms of government are very interesting ones.  I usually prefer when they occur among an intellectually curious crowd... not one where people have already made up there mind, though.

When I mentioned a carbon tax, I meant one as part of a worldwide treaty (or at least enough of the world) on climate change taxes (and possibly even using those taxes to subsidize natural ecosystems in countries that produce oxygen (think the amazon... positive externalities from there).  Further, if we get enough countries on board, the use of tarriffs on non-participating countries could help induce their participation.

But what countries can't do, especially ones that usually act as leaders in the world, is sit on the side-lines waiting for everyone else to get involved.

I, too, wear different hats, depending on the discussion.  Usually, on the subject of climate change, talking about popularity, at first, is going to shoot any solution down before it starts.  So, like I said, advertising should be the last concern... not the first.

[Pointedstick]

Moda, why don't you start a new thread about a worldwide carbon tax? I think that would be an interesting discussion all on its own.

[moda0306]

One of the things I wonder about with climate science, though, is how politics, and, more importantly, government funding, effect some of these studies and models.  There is a lot of money being used to fund this research, and, therefore a pretty big conflict of interest for the scientists involved. 

If their research says, "never mind, we're fine," they'll essentially study themselves right out of business.  Not saying they'd do it intentionally, but it's just human nature. 

I'm also not saying that I think everything is fine, just that the topic is complex and that adding this type of conflict of interest to the mix makes it even more so.

Sure, the topic is complicated by the funding issues, but no more so than for any other organized human endeavor.

I notice that when people have a motivation to solve a problem, it can usually get solved.  Motivations do wonder to alter our reasoning/logic.  I wish a lot of people (not all, by any means) would just admit that they don't want to talk about climate change because they like their pickup truck, cabin, and boat, and their 4,000 sf house 50 miles from their place of employment.

But then I'd have to say the same thing to people who believe in climate change because they are climate scientists whose job would disappear if they didn't think it was a threat.

[moda0306]

Moda, why don't you start a new thread about a worldwide carbon tax? I think that would be an interesting discussion all on its own.

Probably because I don't think I know much/enough about how it would actually work.  All I have is hair-brained ideas about what might work, but I really have no idea how to track/capture/tax carbon usage on a world-wide basis.

I am almost a bigger fan of my idea (I'm quite sure I thought of it myself, even though I'm sure I'm not the first) to subsidize ecologies that create positive externalities. I think the "world community" should probably be paying Brazil billions upon billions of dollars per year for their rain forest's un-captured contribution to world oxygen production.

I really haven't dug into this stuff enough to LEAD a thread on the topic... though around here all you have to do is hint at something, and 5 thread hijacks occur simultaneously .

[Pointedstick]

Moda, why don't you start a new thread about a worldwide carbon tax? I think that would be an interesting discussion all on its own.

Probably because I don't think I know much/enough about how it would actually work.  All I have is hair-brained ideas about what might work, but I really have no idea how to track/capture/tax carbon usage on a world-wide basis.

I hope you can understand how I and others might be hesitant to support an idea whose proponent admits he has no idea how it might work and hasn't really thought about any of the details. The devil's in them, as they say.

Regarding popularity, I think there's something to be said for good enough ideas not needing advertising campaigns. Not always, but if something is well-known but nonetheless still isn't catching on, that may be a sign it's simply not a very good idea. Maybe the seed is there and needs to be re-worked, but if you really think about it, popularity is the "capital" of the political world the way profit runs the world of business. In the same way that a profit-starved business goes under, an unpopular idea fails to gain much traction in the world's legislative bodies.

[Mountaineer]

Moda, why don't you start a new thread about a worldwide carbon tax? I think that would be an interesting discussion all on its own.

We already have a HUGE carbon tax.  Personally, I am one of my more favored carbon based lifeforms and I pay a bunch of taxes.    Of course, that brings in the topic of "people are a virus on the earth and we should tax them out of existence" that some environmentalists seem to think.  Here we go again ............

... Mountaineer