[ls612]

This is a well thought out macro-finance paper. The space of multiple equilibria models is understudied because it is hard to solve computationally (or rather, it is hard to say that you have actually found all of the equilibria computationally unless you get really creative with the model).

[mctaylor]

Right. "Multiple equilibria". Like the two branches of the "K" in the K-shaped economy: capital owners gaining, workers losing.

So we're trying to prove "mathematically" that the K-shaped economy is "rational", and trying to circumvent the fact that the mathematical rules of economics depend on the social, political, and behavioural substrate by which those rules derive their efficacy.

Which is fine if nobody has agency, politics is irrelevant, and we just accept everything we're told at face value if it's framed in sufficiently mathematical language.

[kirrent]

Yeah, that clarifies that you're missing the core idea here. Brett Deveraux is pretty popular here, so maybe you'd like the analogous discussion of high-equilibrium and low-equilibrium ancient economies? https://acoup.blog/2020/08/21/collections-bread-how-did-they...

As much as you may want to move from the low to high equilibrium, it would be pretty hard in an ancient society. In the modern world, with enough exuberance, it seems much easier.

[mctaylor]

How do you define "low" and "high" equilibrium? By estimated GDP or by actual production?

Because we definitely seem to be in a world where GDP inflation is getting more and more divorced from incentives to actually produce things.

With respect to AI and the paper being discussed specifically, all evidence I've seen is that AI's primary applications are within military and intelligence and that the escalating arms race in those domains is actively undermining things that people would generally like to see being produced (food and housing specifically are illustrative here).

[poisonfountain]

Housing is a solved problem, it's kept scarce on purpose by artificial barriers. Food also is, the world already produces more food than people need (proper distribution remains an issue, however).

[kirrent]

Ah, another example of multiple equilibria! Investment in intelligence and defence spending can lead to entrenched interests which demand continued spending. The famous military-industrial complex. The coordination needed to break out of this equilibrium can be made much harder by multiple states each needing to meet the defence spending of their peers. It's hard to cross from high defence to low defence spending (consider unilaterally disarming during the cold war. Borderline impossible. You need careful coordination through treaties) and also difficult to go from low defence spending to high absent some obvious threat (you could perhaps model appeasement as an example of this, though I think other factors dominate).

Notably, one of the reasons that the military industrial complex can be hard to unwind is that it works well for capital and workers. Consider all the programs you've heard of which boast about providing jobs in every single state. Whether these different equilibria are better or worse for labour (or fractions of labour giving you your diverging K-shape) is a separate question and potentially changes over time.

One historical event you could model as a change in equilibria was the industrial revolution. Instead of elites consuming economic surpluses, the economy change into a mode where those surpluses could be reinvested in productive capital, new technology, and manufacturing in a self-reinforcing cycle (of course these avenues didn't really exist before). Famously, within this new equilibria, labour did not do well at first; awful conditions in factories with terrible life expectancies. But those workers' grandchildren lived lives of relative prosperity as a result.

All of which is to say, the existence and description of multiple equilibria in economies is a different question from how labour and capital fare in those equilibria.

[applicative]

When Eisenhower made the expression famous, the military hardware industry was many times its current size, as % of gdp. It doesn’t exist anymore; what does exist is mechanized parrot like repetition of phrases from 70 years ago.

[ls612]

That is not at all what multiple equilibria means. This has nothing to do with any notions of a K shaped economy (which remember, after covid was describing low wage service workers getting huge real wage increases while white collar layoffs happened in 2022) but rather (to oversimplify) it is describing the idea that you can have multiple economic conditions that are rational to stay in while it is impossible to rationally move between them.

[mctaylor]

"In a K-shaped recovery, different parts of the economy move in opposite directions at the same time following a recession or downturn. One segment—the upper arm of the K—experiences an increase in wealth due to rising asset values or incomes. The lower arm faces increasing financial strain due to declining purchasing power along with stagnating or decreasing wages." (source: Britannica)

So you have it exactly backwards: the K-shaped economy refers to the continued rise of asset valuations as workers real wages decrease.

But I'm not going to keep arguing with you since you seem to be afflicted by "Math brain" (defined here by the belief in homo-economicus where humans can be accurately modelled as a selfish calculator - and please don't correct me on the calculator metaphor, I'm being hyperbolic).

Let's take what we do know from AI and cognitive science seriously: if we accept that humans are some sort of biological prediction machine, that doesn't give us a completely predictive model. There's a sort of "measurement problem" when it comes to self-prediction: while the goal of environmental prediction is clearly accuracy, the goal of self-prediction cannot be accuracy since self-prediction is inherently accurate by virtue of the actualisation of self-predictions. What then discriminates within the self-predictive model between multiple actualizable self-predictions?

If Math-brained believers in homo-economicus are to be believed, then human behaviour is completely determined by what basically amounts to greed. Certainly that's what generally selects for those who occupy positions of power and prestige in our society, and thus based on current political norms has turned into a somewhat self-fulfilling prophecy.

In this since Nietzsche was right: "God is dead." He was killed by enlightenment thinking and replaced with rational self-interested agents governed by predictable macro-economic models... which keep being wrong, because humans are not universally greedy and behaviour, politics, and psychology actually matter a great deal. (Nor is the new god of "rational" selfishly motivated acquisition, expansion, and power-seeking really that new of an invention - he is sometimes called "Moloch", and is in fact perhaps the oldest God, and humans keep discovering he's a pretty shitty God to worship; I have no doubt that he will prove equally destructive and unkind to us if we insist on continuing to and/or reverting to worshipping him dressed up in "rational" mathematical economic language).

[ls612]

If all that drives you is a desire for religion and freedom from empirical and mathematical thinking, then you are right there is no point arguing with you. I hope you find that which you seek.

And the K in K shaped economy came from turning the K 90 degrees so that the left arm (representing the low wage service sector) and the right arm (representing rising asset prices) were elevated while the middle was depressed. It got retconned to mean "increasing inequality" by those who couldn't bear to admit that something had gotten better for those lower on the wage scale (which objectively happened back then).

[mctaylor]

With respect to what you're saying the K-shaped economy is, can you link a source? Since we're so keen on empirical and mathematical thinking (apparently). And if you thought I was being religious you misinterpreted me. I'm just allergic to dogma (religious or "rational").