Month: September 2008

System Meltdown – Newer ways to understand System Fiscal Behaviors

Article by – Srinidhi Boray

The Adam Smith’s  Theory needs Sledge Hammer treatment

Econophysics – Interdisciplinary Approach to Study Behavioral Economics

All system display behavior those are dynamic in nature. The study of the system dynamics finds many of the classical models inadequate. In the world of physics, Newtonian classical models progressed into Einstein relativity and then into quantum dynamics. While the subject progressed, the inadequacies in the discipline surfaced and newer and newer mechanisms were sought to represent and study the subject more accurately. Many challenges remain in studying the system as a whole by reconciling macroscopic aspects that with the microscopic behaviors. To further the cause in the realm of physics, ‘Unified Theory’ is being attempted that brings together the different aspects of the macro and the micro. One of the stark features of any system is that it is deterministic in a probabilistic way, but remains in-deterministic when processes around individual events are followed. Also, the physical nature at the macrocosm completely alters when studied at the microscopic level. At one level it is a particle and in another it is quanta (or a wave). The probabilistic studies are attempted by applying Monte Carlo computational approach, which iteratively incorporates various coefficients in its attempts to discover the probable behavior. The random occurrences are studied applying stochastic methods.

Lot of similarities are being discovered between the systems dynamic studies that applied in Physics and Economics. Especially when the equilibrium studies are conducted in a system characterized by heterogeneous agents. It is argued by many that the neoclassical economics relies on principles that worked well in a system based on the Adam Smith’s simple axioms in which the heterogeneous agent complexities do not exist. Adam Smith’s principle sates that the individual greed plays a vital part on the overall economics for the better good of the whole society and then invisible hand works to correct the course when in-equilibrium occurs. This notion is now being contested to be an incorrect assumption. For, in modern economics era, the unpredictability of the market is in the lack of understanding the complex agent behaviors, that exists more like a flux, which is difficult to be discerned. This adds to the conundrum when predicting the random events in a market that is inherently unstable. Furthermore, the flux state defies the Cartesian system, based on which the present computations are derived. Almost all the applied agent behavior incorporates coefficients that encapsulate the supply demand behavior triggered by the one or more variables as observed within the Cartesian coordinate system.

One among many other behaviors observed in the neoclassical economics model is that the wealth creation has displayed exponential distribution. These distributions are considered harmful as it allows for the wealth localization. For, reasons such as these, econophysics is sought to accurately understand and study the complex economic system dynamics.

In the recent times, few universities have begun to conduct formal research in the econophysics area. One of the goals is to rewrite the economics theory by reconsidering the dynamics that relies on the realities of the unstable behavior.

Reference:

http://www.phys.uh.edu/research/econophysics/

http://en.wikipedia.org/wiki/Econophysics

http://www.unifr.ch/econophysics/articoli/papers/Economic_System_Dyn-joco.pdf

http://www.unifr.ch/econophysics/comments/nov_99/9911291.pdf

http://www2.physics.umd.edu/~yakovenk/papers/PhysicaA-299-213-2001.pdf

http://www.pbs.org/wgbh/commandingheights/

Recent Article on Economic Disparities owing to Gaussian Distribution

Concentration of wealth in hands of rich greatest on record

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BY DANIEL TENCER

Published: August 15, 2009
Updated 1 day ago

The wealthiest 10 percent of Americans now have a larger share of total income than they ever have in records going back nearly a century — an even larger amount than during the Roaring Twenties, the last time the US saw such similar disparities in wealth.

In recent years, the fact that differences between rich and poor are the greatest they’ve been since the Great Depression has become a popular talking point among liberal-leaning economists.

But an updated study (PDF) from University of California-Berkeley economist Emanuel Saez shows that, in 2007, the wealth disparity grew to its highest number on record, based on US tax data going back to 1917.

According to Saez’s study, which Nobel prize-winning economist Paul Krugman drew attention to at his New York Times blog, the top 10 percent of earners in America now receive nearly 50 percent of all the income earned in the United States, a higher percentage than they did during the 1920s.

“After decades of stability in the post-war period, the top decile share has increased dramatically over the last twenty-five years and has now regained its pre-war level,” Saez writes. “Indeed, the top decile share in 2007 is equal to 49.7 percent, a level higher than any other year since [records began in] 1917 and even surpasses 1928, the peak of stock market bubble in the ‘roaring’ 1920s.”

By comparison, during most of the 1970s the top 10 percent earned around 33 percent of all the income earned in the United States.

The contrast is even starker for the super-rich. The top 0.01 percent of earners in the US are now taking home six percent of all the income, higher than the 1920s peak of five percent, and a whopping six-fold increase since the start of the Reagan administration, when the top 0.01 percent earned one percent of all the income.

There is no consensus among economists on whether large disparities in income lead to economic disruption, but it is hard to ignore the correlation between rising income inequality and the onset of economic crisis. The last time the US saw similar differences in income was in 1928 and 1929, just before the start of the Great Depression.

Saez also broke the numbers down by administration, and found that while the wealthiest few saw their incomes rise as quickly during the Bush years as they did during the Clinton years, the same was not true for the rest of the population.

Saez suggests that the economic growth seen on paper during the Bush years was little more than an illusion for the vast majority of Americans, who saw their income grow much more slowly in the 2002-2007 period than they did during the Clinton years.

During both expansions, the incomes of the top 1 percent grew extremely quickly at an annual rate over 10.3 and 10.1 percent respectively. However, while the bottom 99 percent of incomes grew at a solid pace of 2.7 percent per year from 1993–2000, these incomes grew only 1.3 percent per year from 2002–2007. As a result, in the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth.
Those results may help explain the disconnect between the economic experiences of the public and the solid macroeconomic growth posted by the US economy since 2002. Those results may also help explain why the dramatic growth in top incomes during the Clinton administration did not generate much public outcry while there has been an extraordinary level of attention to top incomes in the press and in the public debate over the last two years.
Saez, who this spring won the prestigious John Bates Clark Medal for economists under 40, links this disparity to the Bush tax cuts, noting that “top income tax rates went up in 1993 during the Clinton administration (and hence a larger share of the gains made by top incomes was redistributed) while top income tax rates went down in 2001 during the Bush administration.”

TWO MORE RECESSIONS?

The economic crisis that has taken hold over the past year isn’t over, and the world could in fact see two more recessions before the crisis is finally over, says the chief economist of Germany’s influential Deutsche Bank.

Norbert Walter told CNBC that investors are worried about the health of the US dollar, and many countries are facing difficult financial problems because of overspending by governments on bailouts and stimulus. Those things combined could push the world economy downwards not once but two more times in the near future, he said.

“I believe that the rescue packages brought on have been so costly for so many governments that the exit from this fiscal policy will be very painful, very painful indeed,” he said. “Some of us are already talking about a W-shaped recovery. I’d probably talk about a triple-U-shaped recovery because there are so many stumbling blocks here to get out of this.”

“The world is in trouble,” Walter told CNBC.


Published on Friday, August 21, 2009 by Facing South

Depression-Era Inequality, Only Worse

by Zach Carter

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DC Meltdown & Role of EA in establishing ‘Accountability’ in Federal IT Spending

By Srinidhi Boray

As the Wall Street melts down, so does the DC. One quick survey and it will yield how lacking many big institutions are. Catering to the IT market are bandied many large IT vendors. It is a cartel, that systematically eats out the tax payers money. The federal spending on IT system runs into Billions and Billions of Dollars. Check out http://www.usaspending.gov/.  It is a systemic parasitic process. Large institutions like FDIC, etc have intentionally avoided any systematic process that would render the IT related spending into accountable and transparent scheme of works. Instead, they relied on process that would create obfuscation with the hope that their actions would go buried deep in the morass that complexities inherently would introduce.

In the federal sector, The Clinger Cohen Act was established to bring in greater accountability in addition to several other things.  Importantly Enterprise Architecture is the medium to be used for creating transparent plans. At FDIC at least in spirit if not in letter, policy was established to follow Federal Enterprise Architecture as the basis for IT Planning. But in order to allow unfounded agendas to progress unhindered by the accountability requiring process, internal circular was issued allowing them to cast aside the Federal Enterprise Architecture based mechanism that would bring the IT expenditure under the purview of OMB. The contentiojn was that they are not a federal agency but a quasi-federal enterprise, that functions like a private corporate. Similar such ham-handed approaches were taken at Fannie and Freddie.  Hundreds and Millions of Dollars have been spent on IT touting modernization and transformative efforts. And, what do we see in the end? 


Link to Campbell Brown’s article on CNN

“”What’s amazing to me is that the administration seems a little surprised that Congress and the American people are not marching in lockstep with them on this and not fully appreciating the urgency.

Well here’s why, in one word: accountability.””””

http://www.cnn.com/2008/POLITICS/09/25/campbell.brown.financialcrisis/index.html

Going forward, that now Fannie and Freddie have directly come under Federal administration, hopefully accountability creating systematic process will be established based on the Federal Enterprise Architecture guidance, should they survive as behemoths.

Cross Reference of Ideas – Implicate Order

http://news.yahoo.com/s/time/20080923/hl_time/whathappenswhenwedie

Transcript complied from article above

“Why do you think there is such resistance to studies like yours?


Because we’re pushing through the boundaries of science, working against assumptions and perceptions that have been fixed. A lot of people hold this idea that, well, when you die, you die; that’s it. Death is a moment – you know you’re either dead or alive. All these things are not scientifically valid, but they’re social perceptions. If you look back at the end of the 19th century, physicists at that time had been working with Newtonian laws of motion, and they really felt they had all the answers to everything that was out there in the universe. When we look at the world around us, Newtonian physics is perfectly sufficient. It explains most things that we deal with. But then it was discovered that actually when you look at motion at really small levels – beyond the level of the atoms – Newton’s laws no longer apply. A new physics was needed, hence, we eventually ended up with quantum physics. It caused a lot of controversy – even Einstein himself didn’t believe in it.


Now, if you look at the mind, consciousness, and the brain, the assumption that the mind and brain are the same thing is fine for most circumstances, because in 99% of circumstances we can’t separate the mind and brain; they work at the exactly the same time. But then there are certain extreme examples, like when the brain shuts down, that we see that this assumption may no longer seem to hold true. So a new science is needed in the same way that we had to have a new quantum physics. The CERN particle accelerator may take us back to our roots. It may take us back to the first moments after the Big Bang, the very beginning. With our study, for the first time, we have the technology and the means to be able to investigate this. To see what happens at the end for us. Does something continue? “