Posts tagged ‘economics’

August 1, 2012

The Chemistry of Economics

by Nathaniel Virgo

In order to understand economics, you must first understand chemistry.  That’s my story at least, and I’m sticking to it.  I’m neither an economist nor a chemist (not a real one anyway), but I’ve been thinking a lot about how to understand economics in chemical terms.

In a previous post I discussed autocatalysis, the mechanism by which a bunch of different molecules can react with each other in such a way that they end up producing more of themselves, at the cost of using something else up.  The ideas in that post don’t only apply to chemistry – you can use them to think about just about any kind of physical process.  In this post I’ll talk about how to think about the economy as a whole in autocatalytic terms. But let’s start with something on a smaller scale, the process of baking bread:

October 22, 2011

What is Hyperbolic Discounting?

by Nathaniel Virgo

I’ve just been reading this New Scientist article about something called “hyperbolic discounting“.  It’s an experimental observation about human behaviour that economists don’t like because they think it’s irrational. However, a quick back-of-the-envelope calculation shows that it is the economists who are being irrational in thinking this.

April 4, 2011

Don’t try and make things better

by James Thorniley

I think sometimes we’re too obsessed with optimisation. It’s a product of the industrial revolution, or something, everything can go faster, better and cheaper, we assume, except that we all know it can’t. You have to make compromises, obviously. In economics and engineering, the problem is referred to as Pareto optimality. Basically, if you can’t make something better in one respect without making it worse in another, it is Pareto optimal. A “Pareto improvement”, is a change that achieves what you want: making things better without making anything else worse, a change with no compromise. Policy makers know this (it is not an obscure theory) and are supposed to try and achieve Pareto improvements with the changes they make. The thing is, in a complex environment, getting a genuine Pareto improvement is, I suspect, almost certainly impossible.

April 2, 2011

Trying to see how the deficit is a different thing to the debt

by James Thorniley

I, like lots of people, have a morbid fixation with the state of the nation’s finances at the moment. You often hear arguments about whether it is the debt or the deficit that is the problem. The fact that one is a running total of the other doesn’t mean they are interchangeable. It’s basically the same thing as the difference between your speed and acceleration, over time, one is obviously related to the other, but you can always have one low while the other is high. For many I’m sure it’s not that complicated but some people do seem determine to mix them up.

February 27, 2011

A random foray into data visualisation

by Nathaniel Virgo

I was thinking today about the distribution of wealth in the UK.  It’s easier to understand small numbers than large ones, so it occurred to me that you could construct a fictional population of 100 people with the same wealth distribution as the UK, and then visualise that by drawing 100 circles with areas proportional to those people’s wealth.  I’d never seen that done before, so I thought I’d give it a go. It was something of a failed experiment.  This was my first attempt:

For this one I just calculated the figures (using data from HMRC, via Wikipedia) and then drew the circles in a vector art program.  Unfortunately it looks kind of ugly.

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