Macroeconomic experiments

In an earlier post I provided a list of 10 economic statements from famous economists. For this post I attempted to create a list of macroeconomic events that can be used to analyze each statement. I'm aware there are many confounding variables impacting these events, but I believe this list is a good starting point for compiling potentially useful macroeconomic experiments.

1. John Maynard Keynes (1883-1946):
"The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps [with fiscal and monetary policy] and thus keeping us permanently in a quasi-boom." (The General Theory of Employment, Interest and Money, 1936)

Key variable: GDP growth

Fiscal policy

• United States' New Deal (1933-1938)
• United States in World War II (1939-1949)
• United States' American Recovery and Reinvestment Act (2009)
• Greece austerity (2010-now)

Monetary policy

• Federal Reserve quantitative easing (2008-2014)
• Bank of Japan quantitative easing (2001-now)

2. Adam Smith (1723-1790):

"By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." (The Wealth of Nations, 1776)

Key variable: GDP growth

• Union of Soviet Socialist Republics communism (1922-1991)
• United States free trade (1776-now)

3. Milton Friedman (1912-2006):

"I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible... because I believe the big problem is not taxes, the big problem is spending. I believe our government is too large and intrusive, that we do not get our money's worth..." (Quoted in Conservatives Betrayed, 2006)

Key variable: GDP growth

• United States tax policy (1932-1988)
• Sweden tax policy (1939-1988)

4. Joseph Schumpeter (1883-1950):
"The innovation is hazardous, impossible for most producers. But if someone establishes a business having regard to this source of supply, and everything goes well, then he can produce a unit of product more cheaply, while at first the existing prices substantially continue to exist." (The Theory of Economic Development, 1934)

Key variable: comparison of new versus replaced businesses

• Walmart (1962-now)
• Microsoft (1975-now)
• Amazon (1994-now)

5. David Ricardo (1772-1823):

"Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each." (Principles of Political Economy and Taxation, 1817)

Key variable: GDP growth

• World Trade Organization and China (2001-now)
• Smoot-Hawley Tariff Act (1930)
• North American Free Trade Agreement (1994-now)

6. Friedrich Hayek (1899-1992):
"The misconception that costs determined prices prevented economists for a long time from recognizing that it was prices which operated as the indispensable signals telling producers what costs it was worth expending on the production of the various commodities and services, and not the other way around." (Coping with Ignorance, 1978)

Key variable: price of goods and services

• It's hard to think of what specific event can help test this statement. Maybe a good example could be the event that the popularity of an artist takes off and the price of their paintings greatly exceeds the cost of production.

7. John Kenneth Galbraith (1908-2006):
"In recent times no problem has been more puzzling to thoughtful people than why, in a troubled world, we make such poor use of our affluence." (The Affluent Society, 1958)

• I can't really think of any experiments to use for this statement.

8. Robert Owen (1771-1858):
"The advantage of pure, and the disadvantage of impure air are experienced each time we breathe, and all who understand the causes of disease know that an impure Atmosphere is most unfavourable to the enjoyment of health, and an efficient cause to shorten human existence within the natural life of man. It is therefore most desirable that decisive measures should be devised and generally adopted to ensure to all a pure atmosphere, in which to live during their lives." (The Book of the New Moral World, 1836)

Key variable: quality of life indicators

• United States quality of life
• Sweden quality of life

9. Robert Thomas Malthus (1766-1834):
"The employment of the poor in roads and public works, and a tendency among landlords and persons of property to build, to improve and beautify their grounds, and to employ workmen and menial servants, are the means most within our power and most directly calculated to remedy the evils arising from that disturbance in the balance of produce and consumption." (An Essay on the Principle of Population 2nd Edition, 1836)

Key variable: unemployment

• Europe's Marshall Plan (1948-1951)
• United States' New Deal (1933-1938)

10. Karl Marx (1818-1883):

"The worker's existence is thus brought under the same condition as the existence of every other commodity. The worker has become a commodity, and it is a bit of luck for him if he can find a buyer... " (Paris Manuscripts , 1844)

Key variable: unemployment

• Industrialization (1800-1900)
• Computerization (1900-now)

Tjalling Koopmans: pioneer of optimization models

Photo source: Wikimedia Commons, Eric Koch, CC0 1.0

Tjalling Koopmans (1910-1985) was an influential economist best known for optimization models and applying linear programming to general equilibrium models. He was also director of the Cowles Commission (1948-1955) and is 1975 co-recipient of the Nobel Prize in Economics. The Concise Encyclopedia of Economics said,

"Koopmans showed the conditions required for economy-wide efficiency in allocating resources. He like Kantorovich, used his activity analysis techniques to derive efficient criteria for allocating between the present and the future."

Economist Thomas Sargent said,

"Koopmans complained that macroeconomic models weren't satisfactory because they didn't handle randomness." (Conversations with Economists by Arjo Klamer)

The rest of this post is some quotes from Koopmans.

Philosophy of economics

"One is led to conclude that economics as a scientific discipline is still somewhat hanging in the air." (Three Essays, 1957)

"We looked upon economic theory as a sequence of conceptual models that seek to express in simplified form different aspects of an always more complicated reality." (Three Essays, 1957)

Pierre-Simon Laplace and probability theory

Photo source: Wikimedia Commons, Sophie Feytaud

Pierre-Simon Laplace (1749-1827) was an influential mathematician and scientist best known for his contributions to probability theory and celestial mechanics. Mathematician Morris Kline said,

"Laplace created a number of new mathematical methods that were subsequently expanded into branches of mathematics, but he never cared for mathematics except as it helped him to study nature." (Mathematical Through from Ancient to Modern Times, 1972)

Journalist Kathryn Schulz said,

"Pierre Simon Laplace refined the distribution of errors, illustrated by the now-familiar bell curve... Laplace used the bell curve to determine the precise orbit of the planets... By using the normal distribution to graph... individually imperfect data points, Laplace was able to generate a far more precise picture of the galaxy... aggregate enough flawed data, and you get a glimpse of the truth." (Being Wrong: Adventures in the Margin of Error, 2011)

The rest of this post is some quotes from Laplace.

Probability

"The theory of chance consists in reducing all the events of the same kind to a certain number of cases equally possible..." (Philosophical Essay on Probabilities, 1812)

"The most important questions of life... are indeed for the most part only problems of probability." (Philosophical Essay on Probabilities, 1812)

Expansion of knowledge

"All these efforts in the search for truth tend to lead it [the human mind] back continually to the vast intelligence... but from which it will always remain infinitely removed." (Philosophical Essay on Probabilities, 1812)

"Imaginary causes have gradually receded with the widening bounds of knowledge and disappear entirely before sound philosophy, which sees in them only the expression of our ignorance of the true causes." (Philosophical Essay on Probabilities, 1812)

Marie Curie and scientific discovery

Photo source: Wikimedia Commons

Marie Curie (1867-1934) was a Polish chemist best known for her pioneering work in radioactivity. Physicist Ernest Rutherford said,

"Marie Curie made a detailed examination by the electrical method of the great majority of known substances, including the very rare elements, to see if they possessed any activity." (Radio-activity, 1904)

The rest of this post is some quotes from Curie.

Scientific discovery

"If I see anything vital around me, it is precisely that spirit of adventure, which seems indestructible and is akin to curiosity." (Quoted in Madame Curie: A Biography by Eve Curie Labouisse)

"Life is not easy for any of us. But what of that? We must have perseverance and above all confidence in ourselves. We must believe that we are gifted for something, and that this thing, at whatever cost, must be attained." (Quoted in Madame Curie: A Biography by Eve Curie Labouisse)

"All my life through, the new sights of Nature made me rejoice like a child." (Pierre Curie, 1923)

"...humanity also needs dreamers, for whom the disinterested development of an enterprise is so captivating that it becomes impossible for them to devote their care to their own material profit. Without doubt, these dreamers do not deserve wealth, because they do not desire it. Even so, a well-organized society should assure to such workers the efficient means of accomplishing their task, in a life freed from material care and freely consecrated to research." (Wikiquote)

John von Neumann and mathematical science

John von Neumann (1903-1957) was an influential mathematician best known his contributions to game theory and working on the Manhattan Project during World War II. Von Neumann also made contributions to statistics and quantum mechanics. His daughter Marina von Neumann Whitman said,

"...throughout much of his career, he led a double life: as an intellectual leader in the ivory tower of pure mathematics and as a man of action, in constant demand as an advisor, consultant and decision-maker to what is sometimes called the military-industrial complex of the United States... He had the scientist's passion for learning and discovery for its own sake and the genius's ego-driven concern for the significance and durability of his own contributions." (quoted in Introduction to John von Neumann by Miklos Redei)

The rest of this post is some quotes form Neumann.

Philosophy of mathematics

"A large part of mathematics which becomes useful developed with absolutely no desire to be useful, and in a situation where nobody could possibly know in what area it would become useful; and there were no general indications that it ever would be so." (The Role of Mathematics in the Sciences and in Society, 1954)

"When we talk mathematics, we may be discussing a secondary language built on the primary language of the nervous system." (Quoted in John von Neumann, 1903-1957 by Oxtoby and Pettis)

"Young man, in mathematics you don't understand things. You just get used to them." (Quoted in The Dancing Wu Li Masters)

"The calculus was the first achievement of modern mathematics and it is difficult to overestimate its importance. I think it defines more unequivocally than anything else the inception of modern mathematics; and the system of mathematical analysis, which is its logical development, still constitutes the greatest technical advance in exact thinking." (Quoted in Bigeometric Calculus by James Stewart)

Philosophy of science

"Truth... is much too complicated to allow anything but approximations." (Quoted in The Works of the Mind by R. B. Heywood)

"It is exceptional that one should be able to acquire the understanding of a process without having previously acquired a deep familiarity with running it, with using it, before one has assimilated it in an instinctive and empirical way… Thus any discussion of the nature of intellectual effort in any field is difficult, unless it presupposes an easy, routine familiarity with that field. In mathematics this limitation becomes very severe." (Quoted in The World of Mathematics by James Roy Newman)

"The sciences do not try to explain, they hardly even try to interpret, they mainly make models. By a model is meant a mathematical construct which, with the addition of certain verbal interpretations, describes observed phenomena." (Method in the Physical Sciences, 1955)

"If people do not believe that mathematics is simple, it is only because they do not realize how complicated life is." (Quoted in Archaeology of computers)

Isaac Asimov and science fiction

Photo source: Wikimedia Commons, Phillip Leonian

Isaac Asimov (1920-1994) was an influential writer and biochemist best known for writing science fiction books. Computer scientist Simson Garfinkle said,

"...the true value of Asimov's insight is his reflections on his life - and, in his mind, Asimov was first a genius, second a prolific writer, and only thirdly a sci-fi writer." (Asimov the Explainer Explains Himself, 1994)

The rest of this post is some quotes from Asimov.

Epistemology

"Science doesn't purvey absolute truth. Science is a mechanism. It's a way of trying to improve your knowledge of nature. It's a system for testing your thoughts against the universe and seeing whether they match. And this works, not just for the ordinary aspects of science, but for all of life." (Interview on Bill Moyers, 1988)

"I believe that every human being with a physically normal brain can learn a great deal and can be surprisingly intellectual. I believe that what we badly need is social approval of learning and social rewards for learning." (Quoted in Newsweek, 1980)

The future

"Science fiction writers foresee the inevitable, and although problems and catastrophes may be inevitable, solutions are not." (How Easy to See the Future, 1975)

"The machine is only a tool after all, which can help humanity progress faster by taking some of the burdens of calculations and interpretations off its back. The task of the human brain remains what it has always been; that of discovering new data to be analyzed, and of devising new concepts to be tested." (I, Robot, 1950)

"Well, I hope [the shuttle program] does get off the ground. And I hope they expand it, because the shuttle program is the gateway to everything else. By means of the shuttle, we will be able to build space stations and power stations, laboratory facilities and habitations, and everything else in space." (Quoted in Southwest Airlines magazine, 1979)

"All we need is the political go-ahead and the economic willingness to spend the money that is necessary [referring to space travel]. It is a little frustrating to think that if people concentrate on how much it is going to cost they will realize the great amount of profit they will get for their investment." (Quoted in Southwest Airlines magazine, 1979)

Philosophy of art

"The true artist is quite rational as well as imaginative and knows what he is doing; if he does not, his art suffers. The true scientist is quite imaginative as well as rational, and sometimes leaps to solutions where reason can follow only slowly; if he does not, his science suffers." (The Roving Mind , 1983)

"Books... hold within them the gathered wisdom of humanity, the collected knowledge of the world's thinkers, the amusement and excitement built up by the imaginations of brilliant people. Books contain humor, beauty, wit, emotion, thought, and, indeed, all of life. Life without books is empty." (Puzzles of the Black Widowers, 1990)

Jimmy Wales and Wikipedia

Photo source: Wikimedia Commons, Lane Hartwell

Photo license: CC BY-SA 3.0

Jimmy Wales (1966-now) is an internet entrepreneur and co-founder of the website Wikipedia. Tim Adams said in an article for the Guardian,

"The more time I spent on the site the more I came to think of Wales as some kind of Queen Ant, letting the vast colony go about its work, at the centre of a system where the knowledge of the community is infinitely larger than the sum of experience of all its individuals." (For your Information, 2007)

The rest of this post is some quotes form Wales.

What is Wikipedia?

"It turns out a lot of people don’t get it. Wikipedia is like rock’n’roll; it’s a cultural shift." (Quoted in Computerworld, 2006)

"Imagine a world in which every single person on the planet is given free access to the sum of all human knowledge. That's what we're doing." (Quoted in Wikimedia Founder Jimmy Wales Responds by Robin Miller 2004)

"Wikipedia is first and foremost an effort to create and distribute a free encyclopedia of the highest possible quality to every single person on the planet in their own language." (Wikipedia-l mailing list, 2005)

"Wikipedia is a non-profit. It was either the dumbest thing I ever did or the smartest thing I ever did."  (Keynote Speech, SXSW 2006)

"We are growing from a cheerful small town where everyone waves off their front porch to the subway of New York City where everyone rushes by. How do you preserve the culture that has worked so well?" (Quoted in ExpressIndia, 2005)