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Is growth in the financial sector good for the economy?

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Re: Is growth in the financial sector good for the economy?

#21

Post by yummyfajitas »

TeMPOraL wrote: post #6
jevgeni wrote: post #5

Earlier quoted context omitted.

I don't think it ever was a question of tools, but rather who is allowed to use those tools.

I think it actually was. Central planning is a Bad Thing because Soviets did it and it went bad, so nowadays its inferiority is treated as an axiom. But back then optimization theory was just starting to develop and was never actually applied in practice, and we didn't have enough computing power, nor instant communication infrastructure. I think we should revisit the concept of central planning with algorithms doing…

The issue with central planning is that it isn't robust - if the planners mess up, everyone is screwed. If we could inject a method by which a failed plan would take down only the planners (and not consumers), it would help a lot. For example, we could allow large centrally planned organizations to exist, but if they fail to meet consumer needs they get dissolved and consumers can go to a different planning board.

Wait, we already have such central planning boards - Uber, Fedex, Walmart, etc. My mistake.

Re: Is growth in the financial sector good for the economy?

#22

Post by arethuza »

VLM wrote: post #16
arethuza wrote: post #8

Earlier quoted context omitted.

Large corporations typically implement a form of central planning - that's what applications such as Oracle Hyperion and IBM Cognos are for - managing complex multidimensional models that integrate actual historical values with multiple forecast scenarios.

Another valid analogy with large corporations is if central planning was the optimum strategy, then extreme micromanagement from the top would be the optimum business strategy. Surely it would take top level supercomputers and programmers to run an entire country, but any random MBA with an Excel spreadsheet could run a business more successfully than a business without TPS reports and content-free numbers. So observ…

Worth noting that Google seems to use Oracle Hyperion - you pretty much have to use tools like Hyperion for consolidated financial reporting once a company gets past a certain complexity level.

Re: Is growth in the financial sector good for the economy?

#23

Post by yummyfajitas »

It's a bit unclear to me how the authors establish the direction of causality. Isn't it an equally valid interpretation that low productivity industries with lots of collateral cause the financial sector to grow?

The one paper they cite which isn't paywalled uses a rather flawed methodology: http://www.bis.org/publ/work381.pdf

The same methodology also shows that too many doctors, telephones and or R&D technicians inhibits growth: http://www.iie.com/publications/pb/pb15-9.pdf

The reason is that if you try to fit a quadratic regression to an S-curve, you'll come up with a downward sloping parabola (if the data points live near the right side of the S, if they live near the left you'll get an upward sloping one). That's simply a limitation of quadratic regression. Oops.

Re: Is growth in the financial sector good for the economy?

#24

Post by TeMPOraL »

yummyfajitas wrote: post #21
TeMPOraL wrote: post #6

Earlier quoted context omitted.

I think it actually was. Central planning is a Bad Thing because Soviets did it and it went bad, so nowadays its inferiority is treated as an axiom. But back then optimization theory was just starting to develop and was never actually applied in practice, and we didn't have enough computing power, nor instant communication infrastructure. I think we should revisit the concept of central planning with algorithms doing…

The issue with central planning is that it isn't robust - if the planners mess up, everyone is screwed. If we could inject a method by which a failed plan would take down only the planners (and not consumers), it would help a lot. For example, we could allow large centrally planned organizations to exist, but if they fail to meet consumer needs they get dissolved and consumers can go to a different planning board. Wa…

On the other hand, such distributed planning is incredibly inefficient - how much resources are wasted by Uber competing with Lyft competing with Taxis, by FedEx competing with UPS competing with post office, etc.? The point is, it's a tradeoff - efficiency with single points of failure vs. resilience at a cost of huge waste.

Re: Is growth in the financial sector good for the economy?

#25

Post by witty_username »

TeMPOraL wrote: post #24
yummyfajitas wrote: post #21

Earlier quoted context omitted.

The issue with central planning is that it isn't robust - if the planners mess up, everyone is screwed. If we could inject a method by which a failed plan would take down only the planners (and not consumers), it would help a lot. For example, we could allow large centrally planned organizations to exist, but if they fail to meet consumer needs they get dissolved and consumers can go to a different planning board. Wa…

On the other hand, such distributed planning is incredibly inefficient - how much resources are wasted by Uber competing with Lyft competing with Taxis, by FedEx competing with UPS competing with post office, etc.? The point is, it's a tradeoff - efficiency with single points of failure vs. resilience at a cost of huge waste.

What resources are wasted? Perhaps some innovative ideas are being duplicated at worst?

Re: Is growth in the financial sector good for the economy?

#26

Post by jevgeni »

TeMPOraL wrote: post #6
jevgeni wrote: post #5

Earlier quoted context omitted.

I don't think it ever was a question of tools, but rather who is allowed to use those tools.

I think it actually was. Central planning is a Bad Thing because Soviets did it and it went bad, so nowadays its inferiority is treated as an axiom. But back then optimization theory was just starting to develop and was never actually applied in practice, and we didn't have enough computing power, nor instant communication infrastructure. I think we should revisit the concept of central planning with algorithms doing…

Say you're the engineer responsible for maintaining the Central Planning And Optimization Algorithm. What motivates you not to calibrate the algorithm in such a way that your family and your buddies benefit the most?

Re: Is growth in the financial sector good for the economy?

#27

Post by gjm11 »

CmonDev wrote: post #2

Since it's no longer a Free Market, might as well go with a planned economy - now that supercomputers allow for actual real-time planning.

Do they really?

See e.g. this http://crookedtimber.org/2012/05/30/in-soviet-union-optimiza... which is a discussion of the difficulties of computerized central planning and argues that -- even allowing for approximate solutions being good enough, and even allowing for computers to get much faster -- we don't have algorithms that would allow for real-time central planning of a real economy, and even if we did there would be substantial further problems in actually doing it.

(It's in the context of Francis Spufford's book "Red Plenty" -- which is actually pretty much about computerized central planning, I believe -- and it's by Cosma Shalizi who is a very smart guy, knows a lot about economics, and is sufficiently leftist to be more than averagely sympathetic to the idea of a planned economy.)

Re: Is growth in the financial sector good for the economy?

#28

Post by navait »

rwmj wrote: post #20
danieltillett wrote: post #10

Earlier quoted context omitted.

This is actually an interesting hypothesis - has computing advanced enough to make central planning possible. I am not sure how you would test it though.

The reason central planning fails (in societies or in companies) is because the people doing the work at the "bottom" have a lot more knowledge about how things really work than the people making the decisions at the top. A lot of that knowledge isn't even easy to capture - it's tied up in skills, techniques, oral history and obscure trade secrets. In other words: the problem isn't likely to be speed/power of the pla…

> I think this could also explain why managers who worked their way up from the bottom tend to do well, whereas professional executives who are helicoptered in to companies fail.

While intuitive, I have doubts about the truth of this statement. Citation needed.

Re: Is growth in the financial sector good for the economy?

#29

Post by aetherson »

danieltillett wrote: post #10
CmonDev wrote: post #2

Since it's no longer a Free Market, might as well go with a planned economy - now that supercomputers allow for actual real-time planning.

This is actually an interesting hypothesis - has computing advanced enough to make central planning possible. I am not sure how you would test it though.

I don't think it's principally processor bound. I think that the "intelligence" of a market is more in aggregating information than in running a complex algorithm. We probably have the computation resources to replace a market economy, but we have no way that I can see to get all the information needed into the computer.

Re: Is growth in the financial sector good for the economy?

#30

Post by TeMPOraL »

jevgeni wrote: post #26
TeMPOraL wrote: post #6

Earlier quoted context omitted.

I think it actually was. Central planning is a Bad Thing because Soviets did it and it went bad, so nowadays its inferiority is treated as an axiom. But back then optimization theory was just starting to develop and was never actually applied in practice, and we didn't have enough computing power, nor instant communication infrastructure. I think we should revisit the concept of central planning with algorithms doing…

Say you're the engineer responsible for maintaining the Central Planning And Optimization Algorithm. What motivates you not to calibrate the algorithm in such a way that your family and your buddies benefit the most?

Nothing. Of course I'll be tempted to set things up so that those that matter to me have their problems solved. That's unfortunately human nature, that's what happens now (people can game distributed systems too), and I have no idea how to design a system that would be gaming-proof and perfectly egalitarian.

But even assuming that some people will abuse the system (as they do today and we still live with it), it seems plausible to me that the economy would still run better if everything was driven by global optimization algorithm fed with real-time data.

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