Dr. Vladimir A. Masch President, Risk Evaluation and Management, Inc.
Thank you for visiting my newly updated homepage. Please click on 'Articles' at the top of the page to view my most recent additions and to see my 2010 Blog entries at Huffington Post. (Bio substantially updated in March 2016.)
In Section "Articles" see my new 2015 paper "Shifting 'The Dodo Paradigm': To be or Not to be." The paper outlines the proposed "mankind self-preservation paradigm" - a scientific revolution that refutes the very foundations of several disciplines, related to decision-making, including Economics, Operations Research, and Decision Analysis, and re-connects them with the real world.
Vladimir Masch (for brevity, VM) has spent more than half of his life in the USSR and the rest - in the United States. Consequently, his personal experiences allow him to take both the inside and the outside view on any economic and political system. Additionally, unlike most Westerners, he saw the political extremism and sadistic cruelty of the Stalin's regime. Saw it first hand, in 1937, when his close relative became a fatality victim. Later, as a scientist, he also saw futility of the attempts to prosper within the socialist economy. However, for the past 42 years he also has been observing the futile attempts of capitalism to create a properly working, balanced global economy.
As a result, VM has twofold concerns about the global geopolitical and economic system. The USA is its major component. Moreover, the USA is the only remaining bulwark against the growing forces of totalitarians and religious fanatics. VM views audacious extremism in this country, both from the left and the right, as very threatening. Although he is highly worried about economics, his main concern remains that any extremism may lead to a totalitarian regime.
VM sees the 21st century as an era of "black swans." At stake will be both the very survival of mankind and the sustainability of the current free world. He humbly tries to help in avoiding or mitigating these dangers.
In the 1960s, to protect the country from the dangers of command central planning, VM developed a macro model of the USSR economy (see below).
Now, to protect the USA from the manifold pending dangers of the 21st century, VM sees the crucial need to develop a similar society-wide model. The model should be constructed in accordance with the philosophy and techniques of a new discipline currently coming into being - Socio-Economics of Survival (also explained below).
Only a radical Kuhn's "paradigm shift" from the present reductionist economics may - or may not - be of help.
* * *
VM turned to science after 10 years of work in industry (economic analysis, planning). Since 1960 in science, he has worked in mathematical economics and adjacent fields (Operations Research, Decision Science, strategic risk management, scenario planning, policy making under radical uncertainty). He has degrees of Doctor of Science in Economics (1972, CEMI, see below) and Ph.D. in Economics (1964, Moscow University), as well as an Academic Rank of Senior Research Fellow in the specialty “Mathematical Methods in Economic Research” (1969, Academy of Science of the USSR).
In 1963, VM was one of 12 founders (called “twelve apostles”) of a major Moscow think tank -- the Central Economic Mathematical Institute of the Academy of Sciences of the USSR, or CEMI, set up to wean away the USSR from the practices of command economy. At CEMI, he headed one of its most important laboratories. Main line of work was modeling of long-range planning both of the Soviet economy as a whole and of individual sectors of industry. He remained there until 1972, when he applied for emigration.
In 1970, he was a leading member of the team of scientists, nominated for the State Prize in economics (the second-highest annual USSR prize for achievements in science and technology). The team became one of two finalists, but got the second place.
His most important work in the USSR included the development of a macro model for planning the Soviet economy by industries and regions (1964 – 1965). It was not an abstract model, but a model intended for real planning of the Soviet economy. For several years, the model was a banner project of CEMI. By a government decree, 400 planning and research organizations provided the information for the model. Two articles, of 1965 and 1968, outline the model in Russian and in English, respectively (they are presented in the Articles section of this homepage). Item 9 of the 1968 paper contains the concept of limiting the trade balance of the country, currently used in CFT – further explained below.
In 1967, VM discussed the model for two days with Professor Jan Tinbergen of the Netherlands, the first (1969) Nobel winner in economics and the author of the first macro models of the Netherlands, the USA, and the UK. Tinbergen did not propose a single change in the VM's model. (In 1968, Tinbergen tried helping VM leave the USSR with his family. He got VM a job offer from the UNESCO Institute, but the Russians did not let VM out.)
VM has developed not only the model, but also the algorithm for solving the enormous non-linear programming problem arising from that model. The algorithm was a complex "ensemble" of five methods. It was implemented in a computer program written by a mathematician Dr. Klim Kim (his decomposition method of linear programming and a set of "supply chain" models of VM were two components of this ensemble.)
The problem had millions constraints and scores of millions of variables. It was successfully solved by 1972 on computers able to handle much simpler linear programming models with only up to 400 constraints.
VM founded the Russian school of modeling “multistage production and transportation systems,” later called in the USA “the supply chain”. He mentored toward their Ph.D. degrees several young scientists that joined that school.
VM formulated the models and solved the problems of the long-range growth, development and plant location for a number of sectors of the USSR economy. The most important problem, both by its scope and the results achieved and implemented, was the coke coal industry (the second largest in the world) problem; the solution of the problem resulted in substantial additional investment in the industry, its expansion, and improvement of its activities. (See the 1972 article, in Russian, in the Articles section.)
VM also headed one of the earlier applications of scenario planning in economics (with 15 scenarios) -– a major project of locating in the USSR the automobile plant to be built by FIAT (1967). The government accepted the project recommendations; the plant was built in Togliatti.
All in all, recommendations made by VM from 1966 to 1971 led to four highest-level decisions made by the Soviet Government, the GOSPLAN of the USSR, and the Presidium of the Academy of Sciences of the USSR.
VM applied for emigration in 1972 and was allowed to emigrate in 1973, thanks to invaluable help from the US. He was one of the beneficiaries of the “quiet diplomacy” of Dr. Henry Kissinger. (A copy of a 1973 letter of Dr. Kissinger to Mr. Bud Yorkin, a prominent Hollywood producer, is in this section, as well as Dr. Kissinger's letter of 2013, at the 40th anniversary of his help to VM.)
After arriving to the US in 1974, VM worked initially at Bell Laboratories, and then as an independent scholar and consultant.
Currently VM is developing the theory of Socio-Economics of Survival, or the discipline of making economic decisions beneficial for sustainable survival of the society in a democratic regime.
In his 1962 book The Structure of Scientific Revolutions, Thomas Kuhn has shown that our capability to understand the real world and to deal with it develops in a series of discontinuities. In a crisis, the existing theory crashes and a new “incommensurable” paradigm is born – possibly to crash in the next similar crisis.
Economics and adjacent disciplines of decision-making are full of dangerous absurdities.The present states of the planet, of the human society, and of the global economy are just the first victims of following the prescribed approaches. The present time is full of both instant and long-term perils and of unprecedented uncertainty. It is the Kuhn’s moment of a crucial crisis, when needs of survival desperately demand changing the paradigm.
Most important, the new paradigm should follow the principle “Comprehensive Safety First." Socio-Economics of Survival attempts to develop this paradigm and incorporate it both in economic theory and in methodology of decision-making.
Accordingly, as parts of that theory, VM has originated two unique concepts of Risk-Constrained Optimization(TM) (RCO) and “Compensated Free Trade” (TM) (CFT).
RCO is an approach for solving complex socio-economic problems under radical uncertainty, which in this century will be inherent in any serious problem. VM has been working on RCO since the 1960s. (An US patent was granted for an earlier version of RCO in 1999.) RCO changes the paradigm of decision-making – from an artificial, complicated, and risky “maximization of something” to a simple, natural, evolutionary, and cautious “catastrophe avoidance.” It is devised to attain, as much as possible, the full purpose of planning – not only to achieve its intended goals, but also to avoid undesirable unintended consequences. (See the 2015 paper and the 2013 Abstract in Articles.)
Due to its simplicity, realism, and focusing on survival, the "catastrophe avoidance" paradigm has been used for zillions of years by everything and everybody, from amoeba to Obama.
Under radical uncertainty, RCO rejects the very concepts of “the best solution” and of “the best method” to find that non-existent solution. The most we can do is to protect the decision-makers, as much as possible, from underestimating the long-term risks.
For that purpose, RCO embeds mathematical optimization models in a powerful ensemble of mostly novel mutually-supporting techniques, pertaining to seven disciplines; these techniques neutralize potentially dangerous miscalculations. The seven disciplines are: Economics, Operations Research/Management Science, Scenario Planning, Decision Science, Risk Management, Utility Theory, and Portfolio Management Theory, with a brief digression into the eighth discipline Psychology. (For any major breakthrough, crucial importance of such an ensemble of component technologies, derived from diverse fields of science or technology, was emphasized by Peter Senge in his 1990 book “The Fifth Discipline.”)
RCO has two stages of “strong screening” and “weak screening.” At the first stage, the most important techniques are “enhanced stochastic multiscenario multicriterial”(ESMMS) optimization models. They include “risk-limiting constraints” and develop in parallel both the overall strategy and, for each scenario, a contingency plan. Such plans are the best under specific conditions of individual scenarios, taken however into account together with the whole range of scenarios under consideration and their “guesstimate” probabilities. The ESMMS models are “self-filtering” and become very efficient “optimizing filters.”
At the second stage (replacing the former, much inferior Decision Analysis), RCO meticulously winnows remaining candidate strategies by six "synthetic" criteria (four of them new), employed within a fundamentally new methodology of "strategic frontiers."(TM)
In RCO, scenarios are completely different from the currently-used scenarios, which are a few of the “most likely” aggregated sets of future conditions. Instead they are formed to reveal hidden potential dangers, and their number must therefore be very large. In this approach, absence of knowledge about the future does not prevent formation of scenarios: each scenario knows the future perfectly well – it is that scenario. Of course, probability of a scenario may be infinitely small or even equal to zero, but then we always can delete it from consideration.
Owing to its multiscenario nature, RCO is not an equivalent to a panicky “precautionary principle,” which states that new policies or technologies should be heavily regulated or even prohibited whenever there is a possible risk to the environment or human health. Quite the reverse, the RCO models include both bad and good scenarios and thus allow to determine the overall effect under various combinations of their probabilities.
To sum up, RCO develops a number of reasonably good and reasonably safe candidate strategies and presents them to the decision-makers for final subjective selection, which they make according to their preferences and their attitude to various kinds of risk.
For the first time since the inception of computing, RCO legitimizes the high-level analytical use of a “computer plus optimization model” combination.
No system on this planet is presently even remotely similar to RCO.
In 2011, RCO has been further generalized. Decisions are made in a complex world, in a “garbage can collection” of interlinked situations, events, problems, technologies, resources, and decision-makers. A novel Decision Network approach (by Han and Lai) combines analysis of all these items into a single structure. With participation of Professors Han and Lai, VM embedded that approach into RCO for conditions of radical uncertainty. He also developed the first application model of the resulting RCO/DN methodology, intended for urban planning. (See the 2012 Abstract in Articles.)
Of course, RCO/DN is applicable universally, in any kind of organization. It importantly complements RCO in preventing the overextension of the portfolio of projects of that organization in respect to its resources -- physical, technological, financial, or human.
As for CFT, described in several items of the Articles section, VM originated the concept in 2004. It introduces a new type of capitalism – a “balanced” or“stabilized” capitalism that would prevent enormous trade disbalances in global economy, one of the main causes of the recent financial crisis.
In CFT (simplified outline), the USA (currently the sap of last resort) sets a limit on annual trade deficit with each trading counterpart. If the counterpart wants to have a larger surplus, it must pay to the USA, government-to-government, the excess amount. If unpaid, all further imports from that country are directed to pass through a single customs agent in a single entrance city, designated for that counterpart.
CFT stems from VM's generalization of Keynes -- The market activities at a lower level of the economy should be controlled and constrained by a higher-level non-market entity, which deals with resulting externalities. (In a private communication, Professor Lord Robert Skidelsky, most prominent researcher and biographer of Keynes, agrees.)
CFT also makes realistically unilateral the wishful, utopian suggestion of Keynes about internationally agreed system of taxing the surplus countries in order to help the deficit countries.
In a basic doctrine of economics, any “externality” on a common good, such as the trade balance of a country, should be “internalized”: a negative impact of an “externality” has to be countervailed by a constraint or a payment (the so-called "Pigovian tax"). Absence of such measures in the trade policy of the USA leads to a textbook "tragedy of commons" - their destruction because nobody exercises control. It comes from either stupidity or (more likely) willful negligence. It sacrifices the well-being of the USA in order to squeeze the real world into simplistic conditions of an abstract “unfettered free trade” model, which has no more than rhetorical value.
CFT uses our only remaining weapon, which is, however, overwhelmingly powerful -- the size of our market. If implemented, CFT would be the only system that, while controlling trade deficits, prevents both trade wars and inflation. It has dozens of other advantages, too – a David that kills a platoon of Goliaths by a single stone. It would be a superb tool of both short-term and long-term risk management.
Most important, CFT also could be a tool of both diplomatic persuasion and geopolitical containment, a la Kennan, of potential rivals and adversaries. (In the present situation, financial containment is much better than territorial.) Trade surpluses in the USA-China trade are the principal financing source of a dangerous arms race started by China. CFT will end reckless pumping money from our defense to China’s offense – rain or shine, no less than half-a-billion dollars a day. (See “Ode to CFT,” as well as other CFT papers, in the Articles section.)
The CFT approach is a compromise between free trade and protectionism and thus the novel third type of international trade. It has been implicitly approved by Professor Paul Samuelson: its uniqueness was confirmed by Professor Peter Morici (private communications both).
In 2011, VM was invited to give a lecture on “New Economics of Survival” to the NJ chapter of the Mensa Society.
In addition to work in these two directions, VM is currently implementing RCO for long-term risk management in fiinance. He has already programmed the core software. After a 40-year separation, he is again joining forces with Dr. Klim Kim, who will provide novel, absolutely unparalleled interactive dialog software to match this unique system. (It has been expected to be completed in 2015, but work is temporarily interrupted because of illness of Dr. Kim.)
VM is writing a book on “Shifting the Economic Paradigm,” which covers both his criticism of economics and his theory of using the market mechanism, while pushing the market in a direction, beneficial for sustainable survival of the society in an acceptable state and in a democratic regime.
Under conditions of the 21st century, unfettered globalization is incompatible with the very concept of a nation-state, especially with its democratic version. We must choose. For stability, society needs a balance of "countervailing powers" (Galbraith) of capital, labor, and government. Globalization destroys that balance and unavoidably will lead to a 1984-like regime, from either left or right. To fetter the beast, a combination of policies is required – but CFT seems one of those that are an absolute must.
VM is the President of Risk Evaluation and Management, Inc., located in Warren, NJ. He also is an Associate Member of RUTCOR, Rutgers Center of Operations Research.
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