The Economics Simulation Project – Part 2

In preceding posts, I complained about the various schools of economics basing their theories on different parts of clouds and complained that there was little empirical evidence to support their theories. All of which led to the Economics Simulation Project using Avian Computing and ConcX instead of using assumptions and math formulas that normally produce the results needed to support their initial assumptions.

Economic simulations based on formulas are generally unsuccessful because formulas are solved one math chunk at a time and the value(s) determined by each chunk is applied to other chunks of the formula, normally in the same order. Each part of the formula is the manifestation of the assumptions of the authors. And if the results don’t match the desired outcomes, the formula is “tweaked” until it produces the desired outcome. But in the course of tweaking to make the desired outcome, they lose their generality and can only answer one set of conditions and assumptions and produce less useful answers for other conditions and assumptions.

Because ConcX was designed to be multi-threaded and to respond asynchronously to inputs, it more naturally models the complex interactions of consumers and vendors encountered in the real world than formulas. Instead of trying to build a formula that describes consumer expenditures, each individual and consumer in the Avian Economic Simulation has a salary that they spend buying the stuff they need to live; food, shelter, clothing, etc. They have a hierarchy of needs so they buy the most important stuff first. They buy goods and services in typical amounts for the various categories that comprise the standard “market basket” identified by the Bureau of Labor Statistics (BLS). Things that they cannot buy are recorded as skipped so that the total amount of unfulfilled economic activity can be estimated.

Initially, only Consumers (Consumer Units) make expenditures. Consumers are representatives of the five income quintiles of American society and have salaries and make expenditures according to their salaries. The sum total of all Consumer purchases is the “C” in the following GDP equation:

Y = C + I + G + (X − M), where Y represents the sum (GDP) of C (consumer expenditures) + I (Investment) + G (Government spending) + Net Exports (Exports – Imports).

When the Consumers for 5 quintiles are configured correctly, the amount of their expenditures should be equal to the “C” amount in the GDP equation. We should be able to verify that this amount correlates to the actual amounts of consumer expenditures for that year in history.

But that isn’t really satisfactory because we know that people have unforseen events in their lives, events that aren’t captured by the quintile Consumers. Eventually, “Individual” consumers will also participate in the simulated economy, individuals who will suffer the ups and downs of living in an economic world. Each Individual may endure difficult life events, such as unemployment, health problems and bad business investments. Each Individual may also have blessings such as getting married and having babies,

Once Individuals are available, the Economic Simulation will be made available on the internet. People will be able to create an Individual who will be configured to make personal buying decisions (Name brand vs store brand, latest most popular vs last year’s model, stylish vs functional) and then see how that Individual performs in the simulated economy. Not only will it be interesting to see who gets rich and who becomes poor, it could also be a useful tool for high school students considering how their current choices could affect their futures.

More in the next blog

Leave a Reply

Your email address will not be published. Required fields are marked *