Sunday, November 6, 2022

Random thoughts: Inflation politics and radical reductionism

Recent comments here led to some things of personal interest or general political interest. Two are discussed.


Thoughts about inflation
The Republicans are beating Democrats over the head about inflation, blaming the Dems for all of it. Is that true? No. But the lie is working. Multiple factors are at play. The war in Ukraine, supply chain disruptions are still present, the ongoing aftermath of COVID, decades of idiotic energy and climate policy and big Dem spending programs are all in the mix as factors. Also in the mix is price gouging by companies

Federal data published Thursday shows that nonfinancial corporate profits in the U.S. surged to an all-time record of $2 trillion in the second quarter of 2022 as companies continued jacking up prices, pushing inflation to a 40-year high to the detriment of workers and consumers.

According to figures released by the Commerce Department's Bureau of Economic Analysis (BEA), corporate profit margins over the past three months were the widest they've been since the 1950s as ongoing price hikes pad the bottom lines of large businesses—and eat into the paychecks of employees.

The Economic Policy Institute commented in September:
  • Even under a worst-case inflation scenario where every penny in extra pay that results from moving the federal minimum wage to $15 by 2027 is passed on in the form of higher prices, the result would be a five-year stretch of inflationary pressure equal to 0.1% per year (or about 1/100th of the increase we’ve seen since 2021), then the inflationary effect would return to zero.
  • Even this extremely mild inflation could be substantially blunted by other margins of adjustment to a higher minimum wage—including a retreat from today’s still sky-high profit margins. During normal times, profits account for about 13% of the price of goods and services, but since recovery from the COVID-19 recession began in the second quarter of 2020, rising profit margins have accounted for roughly 40% of the rise in prices. When these margins normalize, there will be ample room for noninflationary wage growth.
Common Dreams writes about a speech by Federal Reserve Vice Chair Lael Brainard:
While attributing high inflation to the ongoing Covid-19 pandemic and Russia's invasion of Ukraine, Brainard—who was addressing a meeting of the National Association for Business Economics in Chicago—asserted that "there is ample room for margin recompression to help reduce goods inflation" in the retail economy. 
"Retail margins have increased 20% since the onset of the pandemic, roughly double the 9% increase in average hourly earnings by employees in that sector," she noted. "In the auto sector, where the real inventory-to-sales ratio is 20% below its pre-pandemic level, the retail margin for motor vehicles sold at dealerships has increased by more than 180% since February 2020, 10 times the rise in average hourly earnings within that sector."
Ample room for margin recompression? That means that companies can reduce prices without becoming unprofitable.

This is a topic that Democrats are failing to pound on every day at every opportunity. That is a failure of messaging. From the looks of it, Dem spending programs are not the only thing causing inflation.


Reductionism cannot fully explain life 
or the human mind
This topic is wonky, probably not of interest to everyone. An article that Big Think published, “More is different”: why reductionism fails at higher levels of complexity, explains why standard science so far has been unable to explain aspects of life, consciousness or unconsciousness. BT writes:
We cannot deduce laws about a higher level of complexity by starting with a lower level of complexity. Here, reductionism meets a brick wall. Key takeaways:
  • Reductionism, the notion that complex systems can be studied by breaking them down into their smallest constituents, is an incredibly successful scientific tool.
  • But it is severely limited as we try to explain the organization of complex states of matter.
  • “More is different” means that as assemblies of matter grow larger, new laws come into play that are not derivable from the laws that describe lower levels of organization.
One of the greatest ideas of all time is reductionism, the notion that every system, no matter how complex, can be understood in terms of the behavior of its basic constituents. Reductionism has its roots in ancient Greece, when Leucippus and Democritus, in about 400 BC, proposed that everything is composed of “atoms,” which in Greek means “that which cannot be cut.” So, atoms came to signify the smallest constituents of matter, even though what we understand by “smallest” has drastically changed in time.

Radical reductionism

The more radical view of reductionism claims that all behaviors, from elementary particles to the human brain, spring from bits of matter with interactions described by a few fundamental physical laws. The corollary is that if we uncover these laws at the most basic level, we will be able to extrapolate to higher and higher levels of organizational complexity.

Of course, most reductionists know, or should know, that this kind of statement is more faith-based than scientific. In practice, this extrapolation is impossible: studying how quarks and electrons behave won’t help us understand how a uranium nucleus behaves, much less genetic reproduction or how the brain works. Hard-core reductionists would stake their position as a matter of principle, a statement of what they believe is the final goal of fundamental science — namely, the discovery of the symmetries and laws that dictate (I would say “describe” to the best of our ability) the behavior of matter at the subatomic level. But to believe that something is possible in principle is quite useless in the practice of science. The expression “fundamental science” is loaded and should be used with care.
Anyway, over the years I went from a radical reductionist to open-mindedness. An online course, Minds and Machines and a couple of commenters here beat radical reductionism out of me. I moved on to a “higher” mental state of uncertainty. 

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