Is the Economy a Controllable Process?

All Processes, Including the Economy, Are Controllable, but That Does Not Mean They Will Be Controlled

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"Ask the Experts" is moderated by Béla Lipták, editor of the three-volume Instrument Engineer's Handbook (IEH). While the publication of the 5th edition is years away, I am recruiting co-authors who will bring fresh blood and increase the global nature of the handbook. I welcome contribution offers from qualified colleagues. Submit questions to

Q: In 2005, Béla Lipták wrote an article describing how one might design a control system for the global economy as if it were an industrial process. ("Can an Automation Engineer Control the Economy?" Lessons Learned, Sept./Nov. 2005, and Has he done any more work in this area in the past five years?

Dr. David Scott III

A: Yes, all processes, including the economy, are controllable, but that does not mean they will be controlled. The prediction of my 2005 article unfortunately turned out to be fairly accurate, as the housing bubble did burst, showing that the laws of process control apply to all processes. Now, five years later, I believe that if the "control loop" is not corrected, in a couple of decades the whole global economy can become an uncontrollable runaway process. But, I also believe that this unstable process can be stabilized, if the recommendations of artificial neural network (ANN) algorithms are followed.

ANN can control processes we do not fully understand, if the behavior of the process is rational and predictable by "self-tuning." ANN is capable of learning the "personality" of any predictable process on the basis of its past performance, and determining its dynamics by observing its "dead time," "gain," "period of oscillation," etc. The key word here is "predictable," meaning that the future behavior of the process is predictable on the basis of its past behavior.

In case of the economy, this predictability itself is changing. For example, in the past, the period of its oscillation equaled about five dead times, but due to faster communications, its dead time is getting shorter. And, because of the general nervousness, its gain (sensitivity) is also increasing.  
It is possible that the next cycle of oscillation of the unstable and runaway global economy might create an even worse upset than did the "housing bubble." This upset is likely to occur because our controller (the government) did not obey and implement the control algorithm shown in Figure 1. Why? Because the strategy of keeping the controlled variables (GDP, LEI, unemployment and debt) "on setpoint" by manipulating the flow of money into the economic process (by throttling taxation, expenditures, trade barriers, interest and exchange rates) was not implemented.

In a few decades, the ANN algorithm of Figure 1 will no longer be applicable because major new disturbance variables are evolving. These disturbances have both long dead times and large inertia, which tend to make control very difficult. Using process control language, these new disturbances are reset windup, loop interactions and limit control.

Reset wind-up occurs when the integral mode of the loop keeps integrating the area under the error curve while the controller output is prevented from correcting the error. This occurs when the loop is in manual, or when the control valve is already fully open. In case of the economy, this occurs when the "controller" increases the flow of money into the economy "in the manual mode" (without balancing it). This causes reset windup (the accumulation of error = debt). Under this manual control, interest rates are kept artificially low, and expenditures can be increased without increasing taxes. Eventually reset wind-up causes the loss of control. In the case of the economic process, the loss of control can result in the burst of the "debt bubble" and a major depression.

Interactions between control loops occur when the control actions of one loop upset another. This is how national economies operate today because they are not "cascaded" to (are not controlled by) a common master controller. This interaction is already occurring as the mostly open-loop, feed-forward totalitarian economies, such as China, interact with the mostly free-market based economies of the United States or the European Union that are under closed-loop (free-market based) feedback control.

The third, and probably the most important, new development is that the process itself is changing because the global economy is beginning to exceed its limits on resource availability because  the rate of growth in consumption has already exceeded the rate of new resource discoveries. This changes the continuous control algorithm of the past, when pumping more money into the economy fueled economic expansion (assumed in Figure 1) into a constraint-limited process. As a result, the introduction of more money can no longer increase resource availability. If we continue to increase the use of exhaustible resources, the process will change into a batch process in the sense that once the supply is gone, it has to stop. The process of the economy can also be compared to an industrial process where the cooling water control valve has reached full opening. Once that occurs, cooling can't be increased, control is lost, and an explosion can be the result. 

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