Indeed, the best predictive models are based upon committees of people with various experiences in a given class of endeavour. They guess what possible outcomes are possible. Oh, they may have past data and are aware of the structural parameters that limit their scope of conception, but they really just guess how much of something they can produce in order to sell next year, for example. Of course, these people know that they are completely unable to predict the future, so they instead make plans based upon a range of options with a view to limiting possibe unsatisfactory outcomes whilst attempting to perpetuate desirable outcomes. Indeed, it was Rumsfeld who tried to articulate the Pentagon’s latest theories on prediction; although he made a ham fisted attempt when mumbling about unknown unknowns and so on. Basically, after of billions spend over the years, the Pentagon realised more than anything else that it needed to be technologically superior, have more resources than possible foes, and needed to be prepared for as many eventualities as possible; all the while knowing that, as Marine like to say, shit happens.

Anyway, isn’t the arrived at momentary price between buyer and seller supposed to be the ultimate in a feed back loop? The only feed back loop item that allows one to jot up one’s profit or losses?

What perplexes me a wee bit, beyond the pleasure one gets from writing out one’s thoughts and hopefully arguing the toss in a pleasant manner, is the idea of bringing a system diametrically opposed to basic Socialist thought and somehow thinking that we’ll square the circle, so to speak. The foundational parameters of the currently dominant system are not conducive, in the end, to agreeing or compromising on the political economy. What is currently taken for normative dialogue predetermined by the current ideology isn’t bridgeable at some point.

It’s a bit like two designers – one designing an aeroplane, the other a submarine. They can indeed discuss basic science parameters and production processes. At some point their ulitmate goals and mediums in which they operate necessitate a parting of the ways. The same words they use mean different things due to the fact of the mediums in which they operate and the goals they hope to achieve. The general underlying notions or conceptions are similar but the specifics, and especially how they’ll communicate their ideas to others to achieve the goals, diverge due to their different objectives.

There is no squaring of the circle because the two projects (Socialism v Capitalism) are very fundamentally different projects with very different goals. Personally, I’m not that excercised by feed back loops, Black-Sholes models, CAPM and so on. They do not inform on any level that serves my understanding of the project I pursue. About the only concept I’ve taken from my finance background is that to do with risk and reward, but even this concept has to be seen in a different light given my inclinations and the analyses that follows from it.

Of course economists, whatever their economic orientation, will produce models and futilely, imo, try to predict the future. If they’re anything like the Irish government, when times are good, they are the masters of the universe. When times ain’t so good, it’s some one else’s fault. About the closest I’ve come to hearing a main stream economist approach the actuality of present circumstances is an LSE economist who claims we’ll just have to live with the business cycle – whatever the business cycle is or is defined as.

Your conclusion being that we should give up modelling and start guessing?

Paul: your analysis focuses on perception. I was suggesting that the feedback loop is composed of real driving forces. (Though I will admit a role for Keynesian animal spirits I think these graft onto fundamental drivers – only by changing the drivers can you change the spirits)

‘It’s part of the political calculus’. Well yes, I think we agree there,and it’s honest of you as a liberal to ackonwledge it rather than hide behind a conception of ‘reality’/'it has to be done this way’. The only reason it’s done this way is power inequality, and recognising that is to recongnise the need for class struggle.

Yes, interesting from Chris Huhne – ta for pointer. I was only aware of his background after you told me another time. The idea of public disclosure of payments from bond issuers is interesting as a proposed reform, within its limits. Might it become Lib Dem policy? If so, I’d advocate Labour nicking it in advance of more radical ‘tell the agencies to stick their ratings where the sun don’t shine’ international measures of the type Brown is really, really good at securing.

Stephanie Flanders has been doing credit rating and sovereign debt on BBC website too – worth a look if you’ve not seen. Quite balanced – I prefer her to Robert Peston.

Indeed, everyone’s doing credit rating agencies and sovereign debt now. At least us two can stand proud and say we were ahead of the game, looking at the issues months ahead of them being on th tip of every commentators’ tongue.

Is that odd? Surely that is how we should think. It’s just part of the political calculus. Look , the UK has £8trn in wealth, and wage income of £900bn or so each year, plus capital income. Can we pay the £60bn of annual interest? Yes. Of course. Can we be made to? Well, its a political question.

By the way, Chris Huhne wrote an interesting column about ratings agencies in the Times. he founded Fitch, as you may know

However, the difference of interpretation doesn’t get in the way of the fact that Moodys support fiscal retrenchment which they acknowledge may lead to significant social unrest.

Barney @2: I agree that Burke’s analysis in itself is not conclusive proof. Ineed, as tgmac @3 suggests, I’m not convinced there is a single model of the relationship between fiscal action and yields which can be proven.

My point – and one I did envisage coming out early in the comments – was to argue out that Burke’s interpetation of the data may be as valid or more valid as more mainstream interpretation, especially in circumstances of worldwide pressures on sovereign debt which many in the ‘investment community’ have never experienced before. There is certainly logic in investors adopting a posiition on sovereign debt in favour of actions which DO NOT bring the risk of social unrest (and potential default).

The notion you raised usefully in a previous comment was that of the ‘feedback loop’. This feedback loop currently operates in favour of fiscal retrenchment, with Moody’s and the press (re)inforcing a supposed investment position which then becomes the real innvestment position which then r(re)inforces the press and Moody’s analysis of what are sound investments. It is, however, perfectly possible to envisage a feedback loop, in different political circumstances, in which continued fiscal support for long term growth is reinforced in a like maner through the institutional framework set out.

The real issue then, for a leftwing analysis, is not of which ‘mode’ reflects what has gone before, but one of power. Fiscal retrenchment has gained popular credence as the ‘sensible’ way to deal with current cicumstances because, as Moody’s makes quite clear, there is a belief that when it comes to it the ‘social unrest’ can be faced down/controlled by the state-in-support-of-capital, with varying degrees of violence. That in the end is what brings the ‘theoretical and empircal models’ the legitimacy you suggest they have. Conversely, the clearest way to combat this asymmetric power is for the workers to take the kind of action that is often supported on this blog.

tgmac @3: I agree. See my comments to Barney above.