Saturday, March 3, 2018

Robots: Leibniz' dream is coming true in economics

Gottfried Leibniz, one of the legends in the history of mathematics, envisioned that human reasoning would one day be automated, thereby resolving a great many disputes among experts. He wrote (translated from German at WikiQuote from his 1688 "The characteristics of the art in order to make science fair"):

[...] if controversies were to arise, there would be be no more need of disputation between two philosophers than between two calculators. For it would suffice for them to take their pencils in their hands and to sit down at the abacus, and say to each other (and if they so wish also to a friend called to help): Let us calculate.
image credit: Public domain.

More recently, Obama administration economists Furman and Summers claimed that only a fraction of the revenue loss from a corporate-income tax cut benefits labor. But the standard supply and demand model says the opposite.

Summers, as well as Nobel Laureate Paul Krugman, rejected this result, asserting that it depends on "what share of the capital stock is even affected by the corporate tax rate."

The supply and demand model readily accommodates the fact that the statutory corporate rate does not apply to much of the nation's capital. Now a machine has proven the supply-demand result, without assuming any functional form for the aggregate production function, and without restricting the share of capital that is subject to the tax (except that the share cannot be zero or negative).

You can view the proof in pdf here, or as an executable Mathematica notebook here.

For another economics dispute between Krugman and I that was resolved by machine, see here.

(They also incorrectly claim that "monopoly" overturns the result too. See here, and here. For some machine analysis of the issue, see the pdf here and the executable Mathematica notebook here.)

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