With all of the talk about "buffers" and "buffer stocks" lately, I thought it might be helpful to sketch a quick rudimentary diagram of a basic information processing system that is a system that typically employs buffers in order to preserve critical external input/output information items.
This may help people to visualize a system that typically uses a buffer sub-system.
I think there perhaps is some cross over in the structure of a critical information processing system and a properly designed macro economic system under a Free Floating Non-Convertable currency.
Some observations:
1. The buffer is not included to "smooth things out", it is included to PRESERVE externally sourced input/output information that has ALREADY BEEN DETERMINED to be of high and critical value.
2. The buffer is employed when independent external inputs overwhelm the C-interface from I/O control to the central process. The data is moved through the B-interface up into the buffer and is usually retrieved from the buffer on a first in/first out basis when the the central process "catches up" with the rate of external information flow through the A-interface which can swamp the central processor.
3. The "invisible hand" acts as the I/O Controller in our economy, and it is not clear to me that anyone has in fact included an I/O buffer sub-system in our economy.
4. No a priori value is placed on the external inputs to our economic system by any system design authority.
5. Lack of inclusion of a properly designed buffer sub-system will result typically in a complete system failure, or even worse errors that can result in deaths in a critical safety-of-life system, if the independent external information flows overwhelm the input/output capability of the central process.
I have the diagram open as a Google Doc here for access.
great thinking
ReplyDeletethe i/o buffer is like a capacitor whether like transmission line theory, fluid piping, or whatever.
ReplyDeleteelastic currency theory will swell reserves if there is an impinging crisis such as a run on credit or banks.
that's why greenspan picked bernanke because greenspan got from plan b to c to F&%$ and realized it's time to bail.
there is a fluid model of the economy at the smithsonian or some other basement place ( treasury ? ) where water is routed on a table top fluid conduit mess that is analog to economy. don't know the name, but it has physical analogs of capacitors and i/o buffers all on display.
Yea I think the JG acts more like a capacitor than i/o buffer. I/O buffer is a storage of state information, whereas the Capacitor is a storage of energy(output).
ReplyDeleteAs the demand for output increases, then the energy in the Capacitor will diminish. This is when macro-policy is expected to reduce demand across the economy, so that energy levels in the capacitor can return to some defined level. If the amount of energy stored in the capacitor is too much then macro-policy is expected to increase demand for energy, or the nature of the capacitor stimulates the energy demand of other components proportional to the amount of energy in the capacitor.
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ReplyDeleteShaun careful here: "It's actually quite beautiful. Parts of the economy would fail,"
This is getting close to the false "creative destruction" dogma....
When you design systems, ideally you never want failure...
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I don't buy this. Creative-destruction is apart of nature. e.g. Evolution. However I would agree that the term is being mis-used to justify unemployment, perhaps this is what you mean?
However I'm steadfast that there is a optimal level of creative-destruction. The process of course needs to be managed to ensure that the right type of destruction occurs.
I see little difference between trial and error and creative-destruction.
Where is demographics and the characteristic aggregate demand? That is the problem now and back in the 70's. Just two sides of the same 'coin'.
ReplyDelete@ googleheim
ReplyDeleteThat's why they call it liquidity and cash flow in accounting. It's a fluid model. There are various buffers such as stocks of savings, working capital, and lines of credit. Of course, there are flows in and out of these stocks.
Creative destruction means allowing unsuccessful firms to fail. It is the essence of capitalism, which is based on risk-taking. That's why this is no longer a capitalistic system. TBTF control the economy and are privileged from failure.
ReplyDeleteCreative destruction results from insolvency due ultimately to poor management. It is NOT failure due to cash flow problems or otherwise successful firms in a credit crunch. This is just capital destruction. There is nothing creative about it. This is were some Austrians go wrong about "malinvestment."
Shaun,
ReplyDeleteWith the energy analogy, careful to not drift towards commoditization of human beings...
One point I'm trying to make here, is that there are certain, foundational value judgements that are routinely made when embarking on a system design.
For instance if we consider a recent college graduate, who is trying to gain access to their means of subsistence by somehow engaging in the economy, (who is not able to get unemployment compensation btw so there is certainly no "buffer" for them to be shoved in) what we effectively do today is just tell them that they are not valued. They are not worth anything.
This is deranged.
So just like in an information system, we have to start with first principles that all of our people are valuable and we should seek to protect and preserve this value.
Info systems use a buffer to hold and maintain what has previously been determined to be valuable.
Now if we have people out there who think so little of our fellow human beings that "unemployment is good for them", well I dont know what to say to that without resulting to vulgarities.
Whether you want to focus on a "buffer" or not, it's not the most important thing, it is a detail, somewhat technocratic detail.
If you dont get the value judgements correct at step one, your system will not do anything to really help you.
Resp,
So just like in an information system, we have to start with first principles that all of our people are valuable and we should seek to protect and preserve this value.
ReplyDeleteSure I agree that people are valuable, but this is not a first principle. We are trying to describe an environmental system and any first principles must be based natural laws. Once the system is described based on natural laws, then it can be tweaked to fit the purpose.
You start with the principle that people are valuable, but there is nothing natural about this, this is opinion. Nature does not care about people, nature is indifferent.
The employment buffer will smooth things out, and that is what its purpose is. It just happens that it means that everyone gets a job, and it is a better method of buffering than the current unemployment system. The energy stored in unemployed peoples is of poor quality compared to the energy stored in JG workers.
If this means analyzing people from a 'Commodity' point of view then so be it! This is about understanding why this is a good idea, and moving beyond ideological bias. Once the system is understood, then people can use that understanding to achieve whatever ideological goals they want.
The JG doesn't store external observations, it stores human labor power.
Money is just an entitlement to energy-forms and energy-converters.
We are trying to describe an environmental system and any first principles must be based natural laws.
ReplyDelete"we hold these truths to be self-evident...."
Perhaps I should be saying 'Empirical Law' rather than 'Natural Law'.
ReplyDeleteMatt: With the energy analogy, careful to not drift towards commoditization of human beings...
ReplyDeleteWhat about using the floor wages as a price anchor in a JG?
gold
fx
wheat
wage
whatever
???
Shaun,
ReplyDelete"You start with the principle that people are valuable, but there is nothing natural about this, "
Take a look:
http://mikenormaneconomics.blogspot.com/2011/10/video-buffalo-exhibit-more.html
Want a mulligan?
Resp,
Perhaps I should be saying 'Empirical Law' rather than 'Natural Law'.
ReplyDeletesemantics. the song remains the same.
It's fascinating to be arguing over the validity of FE. Indeed I suppose I am rather Machiavellian in my efforts towards FE..."the ends justify the means." And in this case with an ELR "the means" aren't really all THAT bad. The loudest objection I've heard is a weak argument stating that entry-level jobs at small businesses will be dis-enfranchises/marginalized by the JG, that productivity will go down (!?!), and that inflation will arise. Rather interesting objections wouldn't you say? I must admit that I can't seem to recall having similar discussions with gold bugs and Austrians regarding QE and the US dollar. Oh well....
Well I think we are starting to get into syntactic arguments here.
ReplyDeleteI would ask what 'empirical laws' encourage this type of behavior, I would ask something more fundamental than viewing an empirical example. For some people this is enough, and in some instances I would agree. Why use the additional energy to attempt to find common factors to produce consequential generalizations so that a more fundamental framework can be created.
Despite your example, it still doesn't make it an empirical law. There are instances of the opposite behavior in nature, so IMO it is not an empirical law. Therefore the empirical law would read something like: sometimes the group values the individual, sometimes it doesn't. Rather I would ask what common interest does the herd share that motivates such behavior.
I would need to use a philosophical argument. I would argue that such behavior is a manifestation of the common self interest. That there is some sub-component of each individual that forces this behavior. The individual is a system of such sub-components. These sub-components are in constant flux trying to control the whole. If all individuals share a common sub-component, for example DNA, or Nationalism, etc, then if the same sub-component across all individuals simultaneously reacts to an external stimuli, then this is the type of behavior will occur.
Why would a sub-component cause such?? Because it wants to exist and/or is needed by another component for existence, that is it! This is a sub-component born out of a random arrangement of atoms(or other smaller pieces if you like), and to maintain that arrangement it will react to certain environmental stimuli. :)
I'm more interested in understanding the circumstances when the group is more likely to look after the individual. Then understanding the environmental consequences. And finally armed with this knowledge pushing society towards this state.
@Mario
Then, 'We' as in subjects of nature?
Yea there shouldn't be a debate about the merits of the J.G. Only about the best way to describe and analyze it :p.
Tom,
ReplyDeleteI think I agree, if the wage is high enough?
Can you expand on this point?
Resp,
You start with the principle that people are valuable, but there is nothing natural about this, this is opinion. Nature does not care about people, nature is indifferent.
ReplyDeleteYes, it's all opinion. Society, government, values and priorities are arrangements made between people. Laws of man, not nature.
We can choose to value people as a first principle and build on that. Or not. Either way we own the choice and the consequences.
Gee,
ReplyDeleteVerily!
Economics is not an arrangement between just people, it is also an arrangement between nature. Therefore using any principle that is restricted to understanding or defining the interactions between people will most likely fail when applied in the same way with nature.
ReplyDeleteThe only thing nature governs is existing real resources and the technological limits of their productivity.
ReplyDeleteEverything else is up to us.
For arrangements between humans nature offers many models and analogies but it's not revelation.
https://lowerleftlimit.wordpress.com/2012/01/04/the-jg-is-like-the-ultimate-capacitor/
ReplyDeleteIf anyone is bored...
Matt, as a philosopher, I am opposed to putting human beings (and animals) on the level of things, or treating humans as means. It's stepping onto the slippery slope. So I don't like the concept of a buffer stock of either unemployed or employed, nor do I like the notion of unfree people being forced to sell their labor to survive. That is form of slavery, whatever it may be called.
ReplyDeleteThe other issue I have is one that Shaun observes in the post he cited. The present system of "capitalism" is exploitive due to privilege and economic rent — land rent, monopoly rent, and financial rest. There is no "free market" in the sense of a perfect markets and perfect competition. Under such conditions, a buffer stock of unemployed or employed is simply a tool. It is a fundmental principle of ethics that human beings never be treated as means, since they are ends.
This is the issue I have with MMT as a tool for perpetuating the status quo, which I regard as fundamentally immoral and unjustifiable. MMT as it exists simply improves a bad situation.
No reason that MMT cannot be used as tool along with others in fashioning an economic system that non-exploitive and doesn't required a human buffer stock.
I believe that Shaun is on the right track in saying that the optimal buffer is energy, in that energy is fundamental.
Money is a form of "potential energy," and it is itself a kind of buffer stock in this regard.
Humanity is still working its way out of the age of slavery and it has evolved higher forms of slavery like serfdom on the way. We need to be moving beyond this rather primitive stage that dishonors human nature.
Money is a form of "potential energy," and it is itself a kind of buffer stock in this regard.
ReplyDeleteI don't view money as energy. My thinkings seem to say that Money represents the right to energy-forms and energy-transformers. More generally, it is not money, but social-credits or social-obligations, and seems to form the bridge between social-groups and the environment.
And this perspective would be consistent with the functioning of interest rates, as a contraction in the money supply is really a contraction in the amount of energy-forms that can be consumed.
This 'perspective' has some interesting implications, namely what would happen if the money supply was reduced but there still existed sufficient energy-forms? Does this imply that money-velocity increases? Perhaps this will mean additional forms of social-credits will spawn into existence?
Does this mean that as long as there is sufficient energy, then a form of money will always exist? What does this say about using changes in the money supply as a tool to control energy consumption? What characteristics of a money-supply-controller are needed in order for such to be an effective controller of energy consumption?
Anyways, this perspective suggests one major question about the J.G as an effective energy buffer, how big does it have to be? If a crisis of Capitalism is big enough, then there may not be enough energy stored to absorb the associated damage.
Questions, questions....
For the record I do not see in any way a "buffer" as a tool to "smooth things out" or facilitate "price stability" or store something or anything else.
ReplyDeleteLook at the diagram, there is NO WAY that it can be otherwise. If you want to store something, there are components in the diagram I have included that do that and they are not in the buffer.
Buffers are used to avoid the loss of, preserve and maintain, items that have previously been determined (by human beings for crying out loud!) to have great value when the system experiences external shocks or surges if you will. That is why you have a "buffer".
Here's the etymology:
http://www.etymonline.com/index.php?term=buffer
'Something that absorbs a blow'. Hello!
If we think that we can just put a technocratic "buffer" in and then everything is going to be fine we are deluding ourselves.
We have psychopaths running everything.
Resp,
What I mean is that money represents a claim on resources at the going price. It can be transformed into any resource affordable at any time it is offered. That is the real power of money. Of course, this applies to credit also. So savings and credit lines are buffers that can be transformed into real real sources. The economy on paper is the accounting record of these transformations of form through stocks held by different parties and the flows that add to them and subtract from them.
ReplyDeleteMatt, technically speaking buffers prevent system overload, but the word is used analogously in other ways, too.
ReplyDeleteBut where the JG doesn't fit the concept of buffer very well, even analogically, is in the the buffer stock is put to use in the system. That is generally not the case with other buffers, as I understand it, even when the term is being used analogously.
For example, financial managers speak of liquidity buffers, but those funds are sequestered and not used for other ops, although they may be put out at interest, e.g., in T-bills.
"financial managers speak of liquidity buffers,"
ReplyDeleteTom,
It is time that we all stop listening to so-called 'financial managers'; they know nothing.
Take Gross today for example; would you ever write something like that? Incomprehensible.
Or Roche this week; 'unemployment is good for you!".
Heard Byron Wein today; "foreigners are going to stop loaning us money"
And on and on...
They know nothing.
OK, a "buffer" can help soften the blow, thats what they were invented for, and having one now would be better than not perhaps, but they are not a solution to poor system design.
Resp,
It is time that we all stop listening to so-called 'financial managers'; they know nothing.
ReplyDeleteAbsolutely! Off with their heads! Stop listening to the propaganda people!!!! Question your belief in the almighty Economy-God, question the high priests who continually ask you to lay sacrifice for the Economy-God!!
OK, a "buffer" can help soften the blow, thats what they were invented for, and having one now would be better than not perhaps, but they are not a solution to poor system design.
What do you mean by this? Which system, Capitalism?
Look at the diagram, there is NO WAY that it can be otherwise.
Diagram is wrong :p. I/O buffer is more analogous to a library than J.G. As you say the word buffer implies storing something important. But I think your misunderstanding why people are being deemed important in the first place. It's not because we think that their important, but because they increase the survival of the group as a whole. That's why they are important.
Buffers are used to avoid the loss of, preserve and maintain, items that have previously been determined (by human beings for crying out loud!) to have great value when the system experiences external shocks or surges if you will. That is why you have a "buffer".
In the context of the J.G IMO the value of humans is derived from the fact that they are energy-converters being stored. This is a better solution than storing people as unemployed energy-converters. J.G energy-converters are better quality energy-converters per unit, thus less people are needed to be in the J.G pool to achieve the price-stability effect.
The reason why J.G energy-converters are better is because they can be brought online and offline quicker than unemployed energy-converters. By keeping J.G energy-converters in paid work they stay in the routine of employment and they do not feel alienated from the system. Therefore when it comes time for the J.G energy-converters to convert more energy in private-sector employment, then this switch happens very quickly.
In contrast with unemployed energy-converters it is obvious that it's better to make sure people remain active participants of society. This better for society as whole and also prevents people from living a life of ongoing destitution.
However the existence of the J.G will be determined by its ability to serve society as a whole. If an external shock is great enough then undoubtedly the J.G maybe one of the first things to go, plunging the weakest of society into suffering. This is the problem I have with the J.G( well with economics in general), and this limit needs to be analyzed. All promises, including the ones associated with the J.G have a cost. If these costs are too great then the promises will be broken, regardless of the pretenses the promises were formed under.
It is simply not enough to form and justify the existence J.G around virtues. Virtues come in once you have options, for example the choice between maintaining a buffer-stock of unemployed or J.G workers. Virtues don't come into play when asking why a generic buffer-stock is needed in the first place.
wow
ReplyDeletegreat post Tom
look at the discussion
i forgot to mention water hammer.
ReplyDeletewhen you shut of the valve of liquidity, then a pressure knocking wave propagates throughout the system and bangs around the ... world so to speak.
just like 2008 ? ! .
Shaun,
ReplyDeleteSystem design starts with the Top Level Requirements. (TLR)
If you dont get these right, you end up with a system that does not help you, no matter what you call the system.
If we have a TLR that says "our citizens shall not in any way be separated from their means of subsistence" then there are probably many ways that can be done.
Call the system whatever you want.
Resp,
Matt:If we have a TLR that says "our citizens shall not in any way be separated from their means of subsistence" then there are probably many ways that can be done.
ReplyDeleteThis is is arguably Marx's bottom line. In a laissez-faire capitalistic system, it is ruled out as "socialism." The idea is that all entities can fail, not only firms, and failure entails ceasing to exist. Pure capitalism is liquidationist.
The idea of capitalistic ideologues is that any compromise away from pure capitalism starts the system sliding down the slippery slope of socialism and into communism.
You guys might appreciate this post (and primary twitter source). Tom and Matt...I suggest you guys post this up so others can enjoy it too and follow along for the ride if they wish.
ReplyDeleteHere's the write-up:
An anonymous career banker inside Goldman Sachs opened a twitter account (@GSElevator) with the intention of revealing the hilarious banter that takes place in the privacy of the GS elevators. Since then, the account has evolved to include things overheard on trading floors, bullpens, lobbies and bars. Some of the conversations involve more than one person, and the participants are distinguishable by their number (#1, #2, #3). Here are some of my favorites from the past several months…
Here's the link the article:
http://totalfratmove.com/769302
And here are some excerpts for you...fiction would be too boring!!! Is this capitalism at it's best???? True colors???? Is this the type of "worldview and theory" that a JG for example needs to combat against in order to gain validity? Seriously how ridiculous and tragic (for such people that think and feel and live like this and for everyone else too). We need to STOP debating over issues based on the dogma and economic paradigms such people "create" for us in our society. Without such paradigms, a JG is just common sense and a no-brainer. Ironically and funnily enough don't you hear RP and hard-libertarian views in some of this...particularly the homeless comments???? Shocking isn't it
[classic] #1: Miami this weekend. #2: Where you staying? #1: Haven't booked yet. Planning's for the poor.
[classic] #1: My garbage disposal eats better than 98% of the world.
#1: I never give money to homeless people. I can't reward failure in good conscience. (THINK MMT AND A JG!!!! OMG!!!!)
#1: Two weeks of family time. I’m ready for a FBT to let some bad out.
#2: FBT?
#1: Fake Business Trip.
#1: Fact. Nearly 50% of all American workers have less than $10k saved for retirement. #2: Fuck. That wouldn't cover a ski weekend.