Tuesday, January 13, 2009

Connect the Dots: The New Board Game





I have been looking at the economy issues from a macroeconomics perspective and I often have difficulty with the assumptions. They all suffer from what I call the "If elephants had wings..." phenomenon. That is they all make assumptions based on models which are solvable but not reliable or on data that is looking backward and fails to provide a true basis for why it is what it is. Thus I threw down some elements and suggest a Board Game, call it The Economy. Now here is the game:

Here, above, is the Board you get to play with. This is a dynamic and random process and here are a few of the things you get to do:

1. Connect the blocks so that GDP is the output

2. Introduce the time sequencing and relationships into the sets of blocks so that this becomes a dynamic economy say from Quarter to Quarter

3. Add what is missing, whatever you think it is and then connect and time sequence the new things you added.

4. Add the random effects. These can be nice Gaussian/Wiener noise type processes or you can add outlier processes to keep the guru of the Black Swan world happy!

5. Perform an optimization so that you maximize the GDP growth rate subject to constraints on Taxes, employment or whatever you like.

5. Solve and send to 1600 Pennsylvania Ave! asap!!!