Political Calculations — Maths on the Back of an Envelope

Fun on one hand but it finishes with an estimate of the effect of the coronavirus epidemic on the Chinese economy, so read to the end.

Political Calculations
Maths on the Back of an Envelope

Diane Coyle — Civilising money

I am going to have to read this book. Fortunately, it is modestly priced. You can "Look inside" at Amazon.

Publisher's blurb:

In the aftermath of recent financial crises, it's easy to see finance as a wrecking ball: something that destroys fortunes and jobs, and undermines governments and banks. In Money Changes Everything, leading financial historian William Goetzmann argues the exact opposite--that the development of finance has made the growth of civilizations possible. Goetzmann explains that finance is a time machine, a technology that allows us to move value forward and backward through time; and that this innovation has changed the very way we think about and plan for the future. He shows how finance was present at key moments in history: driving the invention of writing in ancient Mesopotamia, spurring the classical civilizations of Greece and Rome to become great empires, determining the rise and fall of dynasties in imperial China, and underwriting the trade expeditions that led Europeans to the New World. He also demonstrates how the apparatus we associate with a modern economy--stock markets, lines of credit, complex financial products, and international trade--were repeatedly developed, forgotten, and reinvented over the course of human history.

Exploring the critical role of finance over the millennia, and around the world, Goetzmann details how wondrous financial technologies and institutions--money, bonds, banks, corporations, and more--have helped urban centers to expand and cultures to flourish. And it's not done reshaping our lives, as Goetzmann considers the challenges we face in the future, such as how to use the power of finance to care for an aging and expanding population.

Money Changes Everything presents a fascinating look into the way that finance has steered the course of history.

Finance and economics are two side of the same coin, one coin among the many, albeit a very important coin, that figured in the development of civilization and life as we know it today. But even today, finance and economics remain separate disciplines, and very few understand their intimate connection through price ("money") as the basis of markets, and accounting as the common language of finance, business and economics. 

The Enlightened Economist
Civilising money
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Lars P. Syll — On the value of theoretical models in economics

Constructing simple macroeconomic models somehow seen as “successively approximating” macroeconomic reality, is a rather unimpressive attempt at legitimizing using fictitious idealizations for reasons more to do with model tractability than with a genuine interest of understanding and explaining features of real economies. Many of the model assumptions standardly made by neoclassical macroeconomics – simplicity being one of them – are restrictive rather than harmless and could a fortiori anyway not in any sensible meaning be considered approximations at all. 

If economists aren’t able to show that the mechanisms or causes that they isolate and handle in their “simple” models are stable in the sense that they do not change when exported to their “target systems”, they do only hold under ceteris paribus conditions and are a fortiori of limited value to our understanding, explanations or predictions of real economic systems. 

That Newton’s theory in most regards is simpler than Einstein’s is of no avail. Today Einstein has replaced Newton. The ultimate arbiter of the scientific value of models cannot be simplicity. 

As scientists we have to get our priorities right. Ontological under-labouring has to precede epistemology. 

Lars P. Syll’s Blog
On the value of theoretical models in economics
Lars P. Syll | Professor, Malmo University

Tim Johnson — Enlightenment Exchange: forecasting the future

Needham’s Question is why did the development technology in western European accelerate much faster than in China after 1600.

The issue that Needham wanted to tackle was that China had the physical and intellectual resources, mathematics, alchemy, astrology and magic, just as Renaissance Europe did, but it did not develop science as Europe did.
One key distinguishing feature between the science that emerged in western Europe in the seventeenth century and other scientific cultures was the use of mathematics. Aristotle, and his heirs, did not think that physics was reducible to mathematics, similarly the Chinese and Indians did not apply maths to solving scientific problems in the way Newton and Clerk Maxwell did.

One answer to why European science adopted mathematics lies in medieval European finance. Medieval Western Europe was unique in having to deal simultaneously with a heterogeneity of currency and prohibitions of usury. Muslims had the usury prohibitions but homogeneous currency, the Chinese were lax on usury and generally had homogeneous currencies..
In Western Europe, any local lord would mint their own coin, as soon as they had the power to do so, Italy had 28 currencies in the High Middle Ages while the single authority that ruled the Kingdom of France used three currencies. Meanwhile, merchants were prevented from charging for the use of money, usury, but they could ask for compensation for risk, interest. The skill came in treading a fine line between usury and interest under the scrutiny of the Catholic Church.

As a consequence medieval finance was not simple, on the contrary, having to deal with uncertainty and a complex regulatory system, it was highly sophisticated. The “modern” financial techniques, such as asset backed securities, collateralisation - “slicing and dicing” - and credit default swaps, were all developed by Europe’s merchants between Charlemagne’s reign and the discovery of North America.

Magic, maths and money
Enlightenment Exchange: forecasting the future
Tim Johnson

Cathy O'Neil — Mathematicians know how to admit they’re wrong

Most people never even say something that’s provably wrong in the first place. And that makes it harder to prove they’re wrong, of course, but it doesn’t mean they’re always right. Since they’ve not let themselves get pinned down on a provably wrong thing, they tend to stick with their wrong ideas for way too long.

I’m a huge fan of skepticism, and I think it’s generally undervalued. People who run companies, or universities, or government agencies, typically say they like healthy skepticism but actually want people to drink the kool aid. People who are skeptical are misinterpreted as being negative, but there’s a huge difference: negative means you’re not trying to solve the problem, skeptical means you care enough about the problem to want to solve it for real.

Read it at Mathbabe
Mathematicians know how to admit they’re wrong
by Cathy O'Neil, mathbabe

(h/t paul in the comments)