Machine to explain the economy (1949)
Thanks to Don Lloyd for this link to an interesting story about a British machine that modeled the workings of the British economy:
A sensation when it was unveiled at the London School of Economics in 1949, the Phillips machine used hydraulics to model the workings of the British economy but now looks, at first glance, like the brainchild of a nutty professor. Where the Bank's team of in-house economists are equipped with state-of- the-art digital computers, the profession's first stab at modelling was very much a do-it-yourself affair with a whiff of the Heath Robinson about it.
The prototype was an odd assortment of tanks, pipes, sluices and valves, with water pumped around the machine by a motor cannibalised from the windscreen wiper of a Lancaster bomber. Bits of filed-down Perspex and fishing line were used to channel the coloured dyes that mimicked the flow of income round the economy into consumer spending, taxes, investment and exports. Phillips and Walter Newlyn, who helped piece the machine together at the end of the 1940s, experimented with treacle and methylated spirits before deciding that coloured water was the best way of displaying the way money circulates around the economy.
But whoops:
By today's standards, the Phillips machine was limited. It made no provision for inflation and, with capital controls in force, had no need to take account of the curse of the modern UK economy - the wild swings in the credit cycle. Professor Brian Henry, a visiting fellow at the National Institute for Economic and Social Research, said: "It was a child of its time. It looked at how the economy could be stabilised when people were worried about the stabilisation of aggregate demand. That is the way things were in the 1950s.
"Things are different now. There is a different financial system and a completely different global economy. But Phillips was a brilliant guy. He came up with interesting ways of providing practical advice on policy."
Even so, Henry says the machine is far more than a museum piece. Today the Bank of England's models are supposed to show how shocks affect the economy and the time it takes for a change in policy to have an effect, precisely the sort of problems that the Phillips machine helped identify. Even with the most up-to-date computers, the Bank is still finding it hard to come up with the right answers.
Indeed, one early demonstration of the machine displayed the difficulties that can arise when monetary and fiscal policy are not synchronised. Phillips asked one of his students to be chancellor of the exchequer and control taxes and spending; the other to be governor of the Bank and control interest rates. Predictably, the policies were uncoordinated and the upshot was that water overflowed on to the floor.
Comments (9)
Erik
My favorite line is:
"Economics is run by people who didn't understand it."
Published: May 9, 2008 1:46 PM
David Johnson
Phillips machine was on the right track. Using water to model the various forces in the economy was brilliant idea. But instead of bladders and pipes and valves, the model should have been a continuous spray of droplets, with the controller attempting to adjust employment levels with a teacup.
Published: May 9, 2008 2:09 PM
Koen Deconinck
Yes, we are talking about A.W. "Phillips Curve" Phillips here...
Published: May 9, 2008 2:15 PM
Bill
I invented the same kind of machine for the political process. I keep it out in the barn.
You feed anything you want into one end (food, money, slop, garbage, tax codes, legislation), wait a few hours and eventually a politician comes out the other end.
I named it "Porky."
Published: May 9, 2008 4:09 PM
Bruce Koerber
The link embedded in the article takes you to a written description that is reminiscent of the search for the missing link. In this case the missing link is this mechanical contraption that models the economy!
My suggestion is that we apply empiricism to another mechanical contraption that uses the power of water. As the water swirls towards the center it will take the empirical 'economic' literature to its appropriate place, nestled in with human manure!
This contraption is also in the museum, just down the hall, and it is in nearly every place that has modern plumbing. It is simple to operate. So deposit the empirical economics literature and push down on the handle!
Published: May 10, 2008 6:15 PM
IMHO
It appears that someone was channeling Rube Goldberg (for those of you who are Brits, I'd provide a link to Wikipedia, but I believe that links are no longer allowed).
I think that people who make things out to be more complicated and convoluted than they are do so because it helps them to maintain control.
Imagine what would happen if taxpayers were to learn about something as simple as the "broken window fallacy". Politicians would find themselves answering an awful lot of questions. ;-)
Published: May 11, 2008 1:17 PM
fusgerm
No doubt in 60 years' time people will be laughing even louder at the naivity of the economic models which run on today's computers.
The ingenuity of their design is matched only by the ineptitude of their forecasts.
Published: May 12, 2008 7:00 PM
Massimo GIANNINI - M.G. in Progress
I believe that given the crass Keynesianism around we have to go back to this simpler economics for Joe the Plumber. There is no point in talking about fiscal stimulus and bailouts when we have Ponzi schemes around. It's just a matter of flow of money and allocation of resources...
Published: December 15, 2008 2:57 AM
avodartus
dutasteride study
Published: December 25, 2008 1:23 PM