Economics with System Dynamics

This week Steve and Mike will be giving tutorials on how to use system dynamics to study economics. Mike will use Stella, and Steve will use Minsky. This should be a great way to get a basic understanding of how to model using system dynamics.

[jbay]

Great presentation by Mike!
One of the reasons it's difficult to identify tipping points (or changes in feedback dominance) in real life is because real systems have noise; that is, random fluctuations. As Steve says, you want to look at acceleration -- essentially, when acceleration hits zero, your velocity is at a peak, and your system may be transiting a tipping point. The problem with detecting this is that acceleration is the second-derivative of system state, and every derivative of a signal you take amplifies high-frequency noise. So it gets very hard to be sure whether you're going through a transition like that. This is hard enough in natural systems like climate (look at how many times climate skeptics have claimed that global temperatures have peaked -- each time, this claim holds true for a period of 3-10 years, but actually that peak is just noise in the system creating an appearance of a peak when the underlying trend is uninterrupted growth, and before long we are setting new records again). It's even more difficult in financial systems where hedge funds try to identify any perceptible trend in the underlying system state and arbitrage against it, so there's almost no signal left except noise (which is amplified in the process).

[JimRoberts-txey]

I looks like Minsky is better for monetary modeling and the one Mike was using is better for social systems. I really liked this one, got into the nuts and bolts of math modeling.

[climatebind]

Nice presentation of system dynamics from Mike and Steve, there are free versions of Minsky, Stella and Vensim for anyone wanting to have a go and Ty Keynes has nice model builds on his channel that helps familiarise the functionality of Minsky.

[Skylark_Jones]

I'm not an economist nor have I ever studied economics, but the dynamic model Mike did with a pandemic is really cool!

[Phenn]

Thanks- very interesting presentations and demos

[BigHammerDude]

You guys are math geeks, but are cool about it.

[jbay]

Steve is right that finite-element models are how PDEs are solved in engineering. However, they get very very computationally expensive if you want to solve a time-space model with decent resolution. And challenging to set up correctly, especially in terms of defining boundary conditions. I don't expect a realistic PDE economic simulation would be any simpler than the kind of finite-element model used in a plasma fusion reactor, with mutually coupled equations for heat transfer and thermodynamics, fluid pressure and turbulence, electric current and magnetism, and so on -- the kind of simulation that someone will spend their whole PhD implementing.

[surrealistidealist]

Do you have any favorite textbooks on System Dynamics you could recommend?

[larryjsummers]

Great showing, these two guys were flexing their chops the whole time, maybe 8 should have taken up the post keynesian school instead.

[GhostOnTheHalfShell]

Stocks, flows… I think I want to go back to math terminology. Less hassle. More thinking.

[davecollins]

My favorite Economics quote “It is impossible to have exponential growth on a planet with finite resources”

[ms]

Has this guy been right about anything? Market is at all time again

[sunroad]

"Economics with System Dynamics" - "No matter how highly mechanised and fossil fuels self-powered, fossil fuels extraction requires a number of people - as if the process is executed by hands using buckets and ropes - by physics".
Today, this number is 8 billion people - working flat out 24/7 - strong.
What's called Economics, you and I are among those, too.
Living-animated from one single Energy vessel, trading finite fossil fuels by the doctrine of what's called 'supply and demand' - is no Economics, but rather the best of a system.
Karl Marx, Nikola Tesla, Einstein, Huxley, Orwell, Turing - should be forgiven for thinking their systems can last forever.
Finite fossil fuels are dangerously hypnotic to humans, their consciousness, reasoning and mental capacity.
Humans were not ready morally, ethically and intellectually to start the mass extraction of fossil fuels with the steam engine 300 years ago.
The Magna Carta requires now overhauling – adding to it the right for humans to understand what Energy really is - before any other commandment;
"In any system of energy, Control is what consumes energy the most.
No energy store holds enough energy to extract an amount of energy equal to the total energy it stores.
No system of energy can deliver sum useful energy in excess of the total energy put into constructing it.
This universal truth applies to all systems.
Energy, like time, flows from past to future"(2017).

[onetwo]

Very theoretical. People with no experience in the practical application of what they teach probably shouldn't be taken seriously.

[singingway]

"imagine a frictionless surface, which we don't have in real life" is the mindset of the Libertarians who "imagine a perfect self regulating market..." But then they push for the fantasy.

[stavroskarageorgis]

Adding no *net* value, Steve. There's no definition of "value" that Marx ever put forth whereby any input other than live labor net adds value.