Under the Hood: How to reach Agreement in Tax Policy and other Important Presidential Matters

by quantellia 30. October 2012 15:59
Instead of "he said, she said" or failing to convince the opposing side based upon an appeal to history or other countries, we can now have an intelligent conversation about the"engine" of the economy: what makes it tick, and the best way to fix it.

A few weeks back, my sister, visiting from Michigan, was driving my car here in Denver.  It's an old  blue Ford Contour, with mileage well into the six figures.  The car began to hesitate.  "Something's wrong for sure", I said.  No, my sister reassured me, "everything's OK".

 

The Contour sputtered to a halt on the side of Route 6, and we were left arguing.  "I think there's something very wrong here, probably the fuel pump," I said, "I've felt this before".  "No, I think it's the spark plugs." said my sister.

 

We're smart enough that we didn't debate much further, and left it to the experts at my local shop to open the hood and diagnose the problem.

 

As we waited for the tow, Faith and I chatted about the economy.  That first argument about the spark plug and fuel pump felt like some political debates we've heard lately: lots of discussion about what's under the hood, without actually taking the time to understand the engine.  Because of that, we end up going around in circles.

 

Under the Hood

 

What do I mean by the "engine" when we're talking about political disagreement?  Well, the discussion is often about the economy, tax policy, unemployment, the deficit, and the like.  Usually, we assume this is too complex to understand, and we leave the details to the experts: economists and others.  Not so, with modern tools, which go beyond mind mapping to full simulations on the desktop.  We can be more informed, we can understand the underlying mechanism.   

 

To begin, we can start by agreeing with our opponents on some basic parts of the systems that drive our world: how do businesses affect governments?  How do governments impact spending?  Where is the fan belt?  How's the starter motor doing?  How is it all connected?

 

 

I think that we can use the World Modeler software and the Decision Engineering approach to mapping complex systems to take these arguments to the next level.  Instead of "he said, she said" or failing to convince the opposing side based upon an appeal to history or other countries, we can now have an intelligent conversation about the "engine" of the economy: what makes it tick, and the best way to fix it.

 

For an easy introduction, watch the video below:

 

Useful Arguments

 

So here's the process:

 

  1. Build a simulation model.  Formerly a world restricted to economists, this is now much easier and faster using modern tools.   Sign up to get a free trial copy of the tool to use to do this at: http://www.worldmodeler.com .
  2. Include your favorite policy in your model. Show how it works.
  3. Send it to your friends and adversaries.  If they disagree, ask them to change the model and the data to show how they see things working instead. And, by the way, this is where "big data", analytics, and machine learning can make their greatest contribution: in helping us to understand the mechanisms inside complex systems like the US economy.  Without understanding the system, focusing on data alone is like diagnosing a car by watching the pattern of leaking fluid on the pavement.
  4. Repeat step (3) until you reach agreement, or at least until the disagreement has been clarified to an assumption that can be tested (for example, my model might assume a certain level of spending amongst wealthy people: something we can measure). 

 

 As for the model itself, the video shows three basic parts of an economy:

  1. Businesses
  2. The government
  3. Consumers

Connecting the Pieces

At the simplest level, these are connected in the following ways:

  1. The government receives revenues through taxes, and loses money through spending.  Taxes come from businesses and consumers.  Spending is money that goes to businesses (as the government buys things) and consumers (some of whom it hires).
  2. Consumers earn money through investments, government sources (like Medicaid), and wages.  They spend money on goods and services provided by business.
  3. Businesses lose money through taxes, through buying parts from other businesses, and through wages.  They earn money by selling to consumers and the government.

Using a simulator, we can experiment, for instance, with the impact of various tax policies.  These play out over time and impact important factors like unemployment and GDP. 

 

This is just a starting point.  I invite you to join an important new discussion. Sign up for more information at http://www.worldmodeler.com.

 

Tags:

Economics | General | Politics

Disclaimer
The opinions expressed herein are my own personal opinions and do not represent my employer's view in anyway.

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