Re: [OPE] The micro dimension of the Financial Crisis.

From: Alejandro Agafonow <>
Date: Sat Nov 08 2008 - 17:53:18 EST

Jerry, Michael W. and Paul C.   The equation-machine, our economy, would be fairly modelled by simultaneous equations and the calculus of variations, if the data that have to be fed into the equation-machine were static, i.e. not subjected to creative change and unpredicted evolution.   We can deal with the stochastic and tractable uncertainty involved, for example, in the traffic jam, predicting patterns of evolution of this kind of human phenomena. But it seems that we don’t have the mathematics able to tract the creative evolution of the data that feeds real economies, i.e. the conditions of demand and supply, and the technical conditions of production.   Just as Dickinson described the situation several decades ago:   “The most efficient statistical service in the world will not make it possible to predict, without a large margin of uncertainty, whether spots will be more popular than stripes next season. How a new film or musical play will go, what will be the reception of a novel, a gramophone record, or a mechanical ‘Mickey Mouse’.” (Dickinson, 1971: 96),M1   Might mathematic be useful if we accept the former argument? Yes, if we take care of continuously feeding our algorithms with the primary data of the market. Cottrell & Cockshott have a feasible model thanks to this basic step.   Regards,A. Agafonow ________________________________ De: Paul Cockshott <> Para: Outline on Political Economy mailing list <> Enviado: sábado, 8 de noviembre, 2008 15:59:14 Asunto: RE: [OPE] The micro dimension of the Financial Crisis. It says -------- These complex financial instruments were actually designed by mathematicians and physicists, who used algorithms and computer models to reconstitute the unreliable loans in a way that was supposed to eliminate most of the risk. "Obviously they turned out to be wrong," Partnoy says. Asked why, he says, "Because you can't model human behavior with math." ---------------- Question to the list: did the maths used on these instruments assume normal / negative exponential PDFs, or did they take into account power law distributions? Clearly the withdrawals from a bank can not really be a powerlaw, since the withdrawals must be bounded, but they could be approximately a power law over some range making calculations assuming a normal distribution faulty. Paul Cockshott Dept of Computing Science University of Glasgow +44 141 330 1629 -----Original Message----- From: on behalf of GERALD LEVY Sent: Sat 11/8/2008 12:39 PM To: Outline on Political Economy mailing list Subject: RE: [OPE] The micro dimension of the Financial Crisis. > Even more, it revels that behind the financial instruments called "derivatives", rests the minds of > mathematicians and physicists that built complex mathematical models that at the end reveled > incapable of modelling human conduct. Hi Alejandro: What the mathamatical models were incapable of revealing, rather, was *market behavior*. Without markets and capitalism (or 'market socialism'), the problem disappears.  The news story itself, I thought, was extremely shallow in its analysis.  It simply took the liberal economic perspective on the crisis: it was due to "greed", "incompetence", and the lack of regulation.  Hence, the crisis could have been easily avoided and is remedied by more "competent" state policy.  Yet, this presents Marxians with a challenge - to explain in simple language understandable to all that the causes of the crisis are deeper and that what is needed is an anti-capitalist solution  or else the resolution of the crisis will be paid for at the expense of the working class. In solidarity, Jerry

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