Thursday, January 12, 2017

A New View of Macroeconomics

1. Introduction

What would macroeconomics look like in the Resource-Patterns Model of Life (RPM)? My book outline does not address this question. But RPM can model some aspects of macroeconomics as I will picture here with tabletop critters. In many ways RPM clarifies our view of human macroeconomies. The most noteworthy clarification may be the way in which prosperity results from learning new modes of cooperation to exploit large but previously unappreciated resources.

For brevity, I will assume the reader of this post has already digested one of the earlier descriptions of the tabletop critters, such as here or here. In this post I will emphasize principally the differences from that simpler model, adding what can make a model of macroeconomy. Our modeling technique will be the thought experiment, as we have used throughout with the tabletop critters, although in Section 4 we will mention several subjects which arise and promise great opportunities for computerized agent-based modeling.

The major difference here from the earlier models concerns the resources which critters can employ. Previously our critters had to have two resources, both water and sugar, and they had no use for any other resources. Now, while our critters still require a few essential resources they can make use of an array of other resources and they will live better if they can advance to use of those other resources. We will draw a model with ten distinct resources.

Figure 1 introduces the reader to the three symbols used in our figures. Notice that any resource is indicated with a triangle and a particular resource distinguished with a letter, ‘A’ to ‘J’, in the triangle.

Figure 1: Three entities in our model.

On the right hand side in Figure 1 we see a resource with a dashed circle around it. This dashed circle indicates a very important characteristic of a resource, being who “knows” about the resource. We modelers know about the resource since we put it there with expectation that the critters will eventually organize exploitation of it. But the critters have not yet “learned” about the resource enough to organize exploitation. We call this an “unexploited resource”.

2. Critters’ View in the Initial Condition

Figure 2 shows our first view of the initial condition. At this scale and in this timeframe we notice one feature: a population of critters living thinly scattered on the tabletop. Each critter must occasionally replenish its internal storage with each of a few essential resources. A critter dies if this requirement is not met.

Figure 2: A thin and impoverished population of critters.

We intend this initial condition to evoke images of our human past as hunter-gatherers, so we make it possible for a skeletal population of critters to survive by stipulating that fate sprinkles morsels of the essential resources randomly upon the tabletop. Those morsels dropped by fate are too small to be visible in this view. But we modelers should remember that at least some of the critters can survive in this region as long they keep on moving about and feeling for the small, randomly located morsels.

3. Modelers’ View of the Initial Condition

In Figure 3 we see the stage set for growth of an advanced macroeconomy. We have added large unexploited deposits of ten different resources. Those ten we will say constitute all the resources which the critters may require to build and maintain a populous macroeconomy.

Figure 3:The same population with opportunities they do not yet "know about".

Now perhaps these ten substantial resource deposits were present in the critters’ world in Figure 2. But the resources were not shown in Figure 2 because we wanted to show the initial primitive existence; the usual picture of a primitive existence does not recognize the potential productivity which may be seen in that environment by a visitor from an advanced civilization. The critters living in Figure 3 have not advanced any yet from their condition in Figure 2. But the point of the difference between Figures 2 and 3 is to establish in our modelers’ minds the opportunity which lies before our critters.

A few of these large unexploited resource deposits will be of the essential resources which critters require in order to survive; we may name these “life-essential” resources. The remainder of the ten resources may become of value to the critters after the critters have lifted themselves above the threat of starvation; we may name these “prosperity-essential” resources.

We have said that the ten new resources in Figure 3 are unexploited by critters. But to be more complete we may say that the ignorance of the critters concerning these unexploited resources need not be absolute. In this view of the initial condition perhaps some critters in the neighborhood of each of the unexploited life-essential resources have learned the location and return to that location when they need more of that life-essential resource. But no networks of trade in any resource have as yet developed on the tabletop. This is our starting assumption.

4. Modeling Needed to Illuminate the Growth of Cooperation and Productive Habits

Given our initial condition in Figure 3, it should be possible for the critters to grow a wealthy and thriving economy as pictured in Figure 4. I will say more about that Figure 4 end result in the following section. In this section I will mention some of the challenges which our starting point shown in Figure 3 presents to us agent-based modelers who aspire to demonstrate more specifically how the critters can advance to a prospering macroeconomy.

Figure 4: A thriving macroeconomy with resources discovered and exploited.

Obviously the critters could achieve macroeconomic success in short time if we modelers, while working in thought-experiment mode, endow each critter with human-like powers of perception and communication. But that much critter-empowerment cripples our best opportunity to learn from this model. If we work with only minimally-empowered individual critters then we must learn more about what can be accomplished through modes of cooperation among groups of critters. So we should note carefully, when we are working in thought-experiment mode, each new power that we assume the critters can employ (for more about the danger of anthropomorphism see this post). Ideally I would like to accomplish the whole development of the thriving macroeconomy in a computerized agent-based model, because such computerization requires the successful modeler to gain command of a large number of unforeseen and unforgiving facts (See the Introduction in Generative Social Science: Studies in Agent-Based Computational Modeling, 2006, by Joshua Epstein).

Another way in which we will need to limit the power of our individual critters will be in mobility. We do not want our critters to be so mobile within this landscape that an individual could satisfy its wants for all ten resources by traveling to each in succession. If critters were that mobile then they may have little to gain from trade. In the first critters thought-experiment I created this limitation in mobility by asserting simply that the distance between the two essential resources was farther than a critter could travel in its entire lifetime. But in a computerized agent-based model such a limitation would need more detailed specification.

Here is a list of topics that may arise as agent-based modelers strive to empower the critters in just such minimal ways as will enable them, through passage of ample time in the model, to advance from a condition suggested by Figure 3 to the prospering condition suggested by Figure 4.
  • language. What primitive signaling system might enable the simplest mode of trade?
  • money. Might one of the resources have properties that enable its use as a medium of exchange?
  • markets. Will particular locations become habituated meeting spots for traders?
  • investment in educating offspring. Will this give a comparative advantage to a subpopulation?
  • critter-on-critter raiding (cannibalism, theft).
  • moral restraint and law. In response to cannibalism and theft, will we see growth of protective alliances, that is in-groups and out-groups?
  • capital. My thought experiments with tabletop critters have not as yet produced analogs to capital in mainstream economics. Capital is certainly important, but I have only a few ideas on how to start modeling capital in an extension to the tabletop critters model. I welcome suggestions.
For an extended thought experiment on how critters can develop a network of trade between two essential resources, see the draft chapter on The Learning of Rules.

5. Result, a Thriving Macroeconomy

Figure 4 pictures the end result of our present thought experiment. We have a thriving macroeconomy with these features:
  1. The population of critters is much larger than in Figure 3.
  2. The members of this population enjoy a much higher standard of living than before, as evidenced by:
    • Almost no critter dies for want of essential resources. But malnutrition was the dominate cause of death earlier in Figure 2.
    • Individuals are able to get the essential resources they need for mere physical survival with only a small fraction of their available time-cycles.
    • Individuals can spend most of their time seeking fulfillments higher in Maslow’s hierarchy.
  3. The economy draws upon a wide range of resources (all ten in our picture) and not on only the few resources essential for bare survival.
In order to arrive at this favorable end we modelers employ our human powers of imagination and generalization to skip ahead over many difficulties (learning opportunities) such as those listed previously in Section 4. But I hope you might agree that it is reasonable for us to imagine such an end because we can assert that humans have made such an advance in our own history on Earth. We humans have advanced to our present prosperity in a large population from an earlier primitive and poor existence in a small population.

6. Constraints on this Thriving Macroeconomy

We have asserted that the critters’ advance into a thriving macroeconomy must be somehow possible. But we can also reason that the resulting macroeconomy must have certain limitations, which necessarily follow from the initial conditions that we assumed in setting up the Figure 3 starting point.

The prosperity we see in Figure 4 requires the resource deposits of Figure 3. Of course the critters also employed other gifts we modelers have given to them, such as their powers of calculation, perception, and action. But we note the necessity of resources to counter the tendency for some members of some populations to congratulate themselves too much. Some members may believe that their prosperity resulted entirely from their wise action. We modelers know however that both resources and focused behavior were necessary to reach the prosperous outcome.

The practices which enable the critters to achieve prosperity are dictated, for the most part, by the location of resources and the capabilities of the critters. These practices, or rules of social conduct, can not be made up by the critters themselves to satisfy some goal other than prosperity without, it seems, sacrificing some prosperity.

Every resource deposit is finite and may eventually be consumed. So our experiments within this tabletop critters model may in future show depletion of the large deposits (as depicted with triangles). But for the time being there seems to be enough challenge just to model discovery of the means of cooperation to enable critters’ first exploitation of these large deposits.

As a companion to that future aim of modeling resource depletion we may look ahead to modeling discovery of yet more resource deposits. That is, the step which we took from Figure 2 to Figure 3 may be repeated: Once again there may be larger and “deeper” resources awaiting discovery. These may come into “sight” of an adequately advanced set of critters. Our human history suggests such ongoing discovery of resources, the potential uses of which were unrecognized until our technology advanced to a certain level.

7. Concluding Notes

We have looked at a model of one macroeconomy. But our human world contains many macroeconomies, as many it may seem as there are nation states. This suggests a future direction for this research program. Interaction of many macroeconomies may raise the subjects of international trade, trade warfare, and real warfare.

In a related project I have proposed that most of our human wealth exists in the form of institutions, that is in persistent habits and expectations within the human population. That earlier proposal may seem to be challenged by the conclusion now asserted above, that prosperity requires resources. But the more complete view gives credit to both institutions and resources; institutions represent the habits and biases which enable people to exploit resources which are too difficult for individuals acting alone to exploit.

Our human history on Earth tells that we have made tremendous strides in achieving health and wealth for ourselves — while greatly increasing our numbers. Many theories attempt to explain this advance. But I believe there is little consensus favoring any one of these theories, so the door is open for new and improved theories. As such a theory, I offer the RPM and more particularly the model of tabletop critters sketched above. This model gives a framework for new sub-theories to explain particular aspects of human advance. Moreover the overall theory gives agent-based modelers a way to test such sub-theories.