By Matt Johnson
Over the past couple of blogs, we have illustrated the power of the (3) systems’ axioms (we will review the axioms very shortly) and we have introduced the idea systems’ boundaries. But in our quest to understand what a system is and how we can use system’s knowledge to find real-world applications, we must endeavor to keep testing the validity of our ideas while we add new notions to them.
In today’s blog, we will test the idea of an economic system against our (3) axioms with respect to Minneapolis. We will do this by introducing the notion of systems’ behavior via data and graphical representation. And in doing so, we will ask three questions to facilitate this discovery. First, does Minneapolis satisfy the (3) systems’ axioms? Second, does an economic system satisfy the (3) systems’ axioms? And third, what is systems’ behavior?
In our previous blog, we illustrated that Chicago satisfied the (3) systems’ axioms:
- A system consists of a set of elements.
- Elements in a system interact.
- A system has a function, or purpose.
That is, Chicago consists of a set of elements in the form of approximately 2.7 million residents. Chicago’s residents also interact with each other in various ways on a daily, hourly, minute, and second basis. And one of Chicago’s functions is the ability to increase utility and stability while decreasing crime and instability.
Thus, homicides are concentrated in specific neighborhoods and so it follows that the economic, political, and social systems will behave much differently in the Austin neighborhood, which has experienced 43 homicides this year, than they do in the Edison Park neighborhood, which experienced no homicides this year, for example.
Using the template that we used for Chicago, we can illustrate that Minneapolis will also satisfy the (3) systems’ axioms. This is because we know from U.S. Census data that Minneapolis had 413,651 residents as of July 1, 2016, which is our set of elements.
We also know that residents interact with each other in various ways. And finally, we can think of a half-dozen possible functions that Minneapolis might have. For example, we can think of three economic variables that will tell us if utility is increasing or decreasing in Minneapolis: labor force, wages, and unemployment. We know that these three variables can be systems’ functions. Thus, our (3) systems’ axioms are satisfied once again.
Now we can show if an economy is an economic system in a few different ways, but in this case we will use a similar approach to that of our city examples.
Indeed, not all of the 413,651 residents participate in the marketplace. In reality it is those residents who are 16 years of age and older. And frankly, that’s all that is needed – a set of market participants. It could be 50 percent of the population. Those 50 percent, or 200,000 and some, are a set of elements.
In addition, these participants interact with each other various ways. Some of the participants are employees; some participants are even unemployed; and some participants are business owners. No matter the capacity of these participants, they are still interacting in the marketplace in one form or another. The point here is that they are interacting.
And finally, does the economic system have a function? If Adam Smith and his books The Theory of Moral Sentiments and The Wealth of Nations are to be a guide, than economic utility (stability and vitality) is to be the main function of an economic system.
Indeed, this notion of economic system is more abstract, but the (3) systems’ axioms are still satisfied.
Now if economic utility is our function and we want to illustrate that function for everyone to see, how do we do it? Simple. We’ll do it graphically via data.
As we stated before, the functions of the Minneapolis system are labor force, wages, and unemployment. We also stated the function of the economic system is utility. Adding in the title of this blog How is the city’s economic system performing? we can now address the systems’ functions and question in one sitting through the notion of systems’ behavior.
Systems’ behavior – how a system’s performance changes over time – will tell us how a system is performing. In other words, if the economic system of Minneapolis is performing well, then we ought to expect to see an increase in the labor force, an increase in wages, and a decrease in unemployment over time.
However, if the economic system of Minneapolis is not performing well, then we ought to expect to see a decrease in the labor force, a decrease in wages, and an increase unemployment over time. For sure there are other economic variables we could consider, but for now, and for brevity, we will concentrate on these three variables.
If we take a look at Graph 1, it will tell us how the labor force of Minneapolis has been behaving over the past decade. So what are we observing? What is the graphical data telling us about the labor force in the economic system of Minneapolis?
Well, we are seeing a steady, albeit stochastic (probabilistic), increase over time, correct? Aren’t we observing an increase of about 20,000 participants in the labor force since January of 2007? If our observations are correct, we are seeing an economic system that is performing well in regards to the labor force over time.
What do we see when we observe the wages of Minneapolis in Graph 2? Doesn’t it appear that the average weekly wages for Minneapolis have increased by about $300.00 since the 1st Quarter of 2007? If so, then we are observing an economic system that is performing well in regards to wages over time.
And finally, what do we see when we observe the unemployment rate of Minneapolis in Graph 3? We see the unemployment rate decreasing from more than 8 percent in early 2009 to a little more than 3 percent in late 2016. Again, and just like the first two variables, we are observing an economic system that is performing well in regards to unemployment over time.
So with respect to the systems’ functions of the Minneapolis system, the systems’ behaviors via our graphical representations of the labor force, wages, and unemployment are telling us that the economic system in Minneapolis has been increasing in utility for the residents of the city, in general, for some time now.
Thus, we have shown that Minneapolis is a system, the city has an economic system, and that the economic system is performing well based off our established parameters.
Let us now, as we have done before, attempt to disprove our notions (systems axioms, boundaries, and behaviors) and work in the tradition of natural philosophy until the next blog.
Matt Johnson is a blogger/writer for The Systems Scientist and the Urban Dynamics blog. He has also contributed to the Iowa State Daily and Our Black News. Matt has a Bachelor of Science in Systems Science, with focuses in applied mathematics and economic systems, from Iowa State University.
You can connect with him directly in the comments section, and follow him on Facebook.
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