Home > The Economics Profession > Economics and the arrow of time

Economics and the arrow of time

from Bruce Edmonds

The question of the importance of the “arrow of time” has come up in the “Unpicking the anti-neo-classical” thread here. It really deserves a seperate thread so I am “restarting” the discussion. It was raised as an argument as to why physics and economics are different, that the arrow of time was inherent in economic phenomena but not physical.

1. This is somewhat irrelevant as a difference, since except for possibly sub-atomic physics the arrow of time is essential and fundamental to most systems that physics studies. Indeed the second law of thermodynamics (where the arrow of time is essential) is often thought of as one of the most basic physical laws. All complex systems physics includes the arrow of time. Whether there is an arrow of time or not does not change how physicists go about their subject.

2. The astounding oddity is that economists seem to want to avoid temporal dynamics in their analysis. People have memory – that is a knowledge of events that extends only one direction in time. Many economic processes undergo “lock-in” where the particular and somewhat arbitrary history determines a fairly stable patterns of goods and institutions into the future (e.g. the QWERTY keyboard). Equilibria are not observed in our economic life except in the most limited and constrained circumstances (e.g. some behavioural experiments). Our economy is awash with devices, tools and ideas that clearly are undergoing some sort of evolutionary pattern (variants are usually of past items, forces of selection mean only some are successful) which do not have any equilibria at all.

3. Physicists have a whole range of analytical approaches to characterising the behaviour of the systems they study. I read quite a lot of physics since I collaborate with physicists every week – I can not remember seeing a paper that even bothered to prove an equilibrium in the last 10 years.

Thus the fundamental difference between physicists and neo-classical economists is, once again, that their models do not represent (indeed are not even concerned with) what is observed. At best this makes them an obscure and not very useful branch of applied mathematics (in which case they should not be awarded many grants and certainly not let loose advising people on real world problems), but more accurately (in my opinion) they are just bad scientists who do not change the modelling assumptions when they are wrong.

  1. Keith Wilde
    October 12, 2011 at 1:29 pm

    This lamentably retrograde development (neo-classical) is dramatized by observing an earlier stage in analysis that incorporated history. “The Theory of Dynamic Economics” by Simon Patten (1892) incorporated a discussion of how the contributions of Jevons and the Austrians were amenable to a concept of progress that respected the arrow of time.

  2. October 12, 2011 at 2:35 pm

    I have a somewhat different view—even to the extent of saying you are describing a caricature or setting up a straw man.

    There is a whole lot of physics. Any glance at current literature (eg 2010 and 2011) will reveal proving (or finding the) equilibrium of systems is quite common, depending on the system. This ranges from atomic and solid state physics to the universe (sometimes speculative).

    In statistical mechanics there are many approaches to equilibrium distributions (eg for the last 10 or more years things like Tsallis distributions). These are connected to equilibrium distributions for sotchastic or diffusive systems (which some may argue are math rather than physics though they occur in both areas).

    There is a huge literature on nonequilibrium systems — and here one can argue physicists are not concerned with equilibrium. However often people look for stationary states or quasiequilibria, and they often relate these to equilibrium states (the same way one might describe the actions of people in a moving car as being ‘at rest’ by moving to a different reference frame, even though obviously the people are not at equilibrium.

    Path dependence, evolutionary economics, and other ideas have been popular in econ for what—25 years? (eg brian arthur). So economists have not ignored time or nonequilibrium (though of course, if one only reads econometrica, maybe AER, JPE, etc. one might not be aware of it).

    I guess the problem I have with this comment might be along the lines of what struck me from a paper I saw by Krugman in JPE on ‘symmetry breaking’, about 10 years or more ago. Its like he took a heroically dissident stand by deciding one day to read the next journal on the shelf from AER or JPE, discovered an unknown (to him) economist discussing symmetry breaking in econ, and then like Columbus (except Krugman likely didnt have to do as much difficult exploration or be as explicitly brutual to fund his trip to the next journal) , reported this discovery in his own paper in JPE.

    This situation is more about fairly rigid, tribal thinking, which basically has to do with what some call the 99% in USA—a question of property and religion. Also, i think now there is a tendency for the ‘nonequilibrists’ to follow tghe path of the equilibrists—just deny there’s anything there and promote one’s own view as unique.

    In sum if you havent seen a paper proving equilibrium in physics in 10 years, you may want to glance at a physics journal rather than just hang with your crew. Its a big world.

  3. Jorge Buzaglo
    October 12, 2011 at 2:40 pm

    It is weird to talk about equilibrium just in a time in which “all that is solid melts into air.” Extraterrestrial economics?

  4. Dave Taylor
    October 12, 2011 at 3:19 pm

    “It was raised as an argument as to why physics and economics are different, that the arrow of time was inherent in economic phenomena but not physical.”

    Bruce, I am not sure how you got to this. Let’s recap.

    Guilherme da Fonseca-Statter wrote: “I am thinking here in a reflection by Wallerstein when considering that, in the social sciences – and «economics» or «political economy» is a historical and social science – the difficulty in the scientific debate will be to determine whether you can actually and truly overcome or establish a relationship between, on the one hand, the false debate between the particular and the universal and, on the other hand, the debate between the ideographic and the nomothetic, by using a methodology that might effectively describe diachronic systems which, by definition, happen to have an “arrow of time. … In this context [of Marx being effectively an NCE], to me the really crucial difference between NCE and other approaches, namely Keynesianism and the German Historical school or the American institutionalists, is the ARROW OF TIME….”.

    A methodology able to describe diachronic systems has long existed: it is called the Structured Systems Analysis and Design Method (SSADM). It is very much ideographic (producing a group of visual models which – like an architect’s plans and elevations, stand for the reality), rather than nomothetic ([mathematically] law-like).

    Dave Taylor first quoted you: “@ #32. There is a wide-spread view that homo economicus is not wrong but is only insufficient. I fundamentally disagree, but this needs to be the subject of a new thread I think! [Bruce Edmonds]”, then came back with: “Yes, Bruce, that’s what’s in the supposedly “black-box” brain of Homo Economicus!”

    My position on the Arrow of Time was that it was a representation of a reality, i.e. that light’s having a finite speed has consequences. That’s not an argument as to why physics and economics are different (both are inherently dynamic), and indeed I would argue that representations (e.g. money) have physicality AS WELL AS meaningful pattern. In these terms, for me, where economics and physics are different lies in the one forming itself by the interaction of forces and the other by human interpretations of representations which can exist and be varied independently of the pattern of physical reality, and may or may not be true (the problem being to ensure they stay true enough). In short, that economics and social science generally should be conceived as information rather than physical sciences, opening their fields to analysis by SSADM. [Incidentally, I prefer the term ‘information’ to ‘communication’, as information has static as well as dynamic forms].
    It is one thing, of course, to see how the system hangs together, quite another learning to know how best to play its possibilities. (Cf. Kuhn’s revolutionary and normal science).

    How do you want to play this, Bruce? Do you want to elaborate on why you think the concept of ‘homo economicus’ is wrong rather than merely inadequate?

  5. Dave Taylor
    October 12, 2011 at 4:08 pm

    In light of #2, significant differences between physical interaction and information is that the one is local in space-time whereas the other is typically broadcast, remembered and acted on asynchronously,
    not always harmoniously.

    Brian Arthur is right about positive feedback, but in pre-war radio engineering the side effects, on the signal, of increasing signal strength amplification by “reaction” (Brian’s positive feedback), were so bad that a more complex alternative (the superheterodyne receiver) was quickly developed. Shouldn’t economists have learned from that?

    The interesting thing is that in an information-controlled system equilibrium doesn’t just happen but can be attained and maintained by negative feedback. Indeed, equilibrium in the state of a message (i.e. error-free transmission), achieving by the invention of negative feedback logic, was the basic reason for Shannon’s founding paper in information science.

  6. Peter Radford
    October 12, 2011 at 6:00 pm

    OK I’m game. In no particular order, and off the top of my head:

    First: there is no such thing as “time”. It’s all in our imaginations. We connect the dots as our environment moves from one configuration to the next. In order to make sense of these changes we create time as an ordering concept.

    Second: The key process we are considering – although we have yet to articulate it as thus – is the tension between creativity and entropy. The latter always wins. The former can eke out local and temporary victories, but requires constant replenishment to keep up the struggle.

    Third: In this context, an economy is a method for discovering, concentrating, and then dispersing information. Each step along the way requires a computation. Each computation represents a new economy. Or conversely a change in a continuously existing economy. So the essential economic problem is how to account for the changes we observe as each computation unfolds.

    Fourth: In order to defy entropy as long as possible, an economy is in constant motion. It is continually re-computing and thus hopping from one configuration to the next. All the notions of complexity, path dependence, etc apply as the economy continues to compute. Within this, systems in equilibrium are the least interesting: they are not learning [or forgetting] anything, by definition. Also: our economic constructs are all structures to allow the imposition of order, and the movement of information etc, within a larger environment riddled through with uncertainty …

    Fifth: Key to our ability to fend off entropy is our acquisition and use of knowledge. As long as we learn we can maintain our creativity. As long as we create we can consume. As long as we consume we acquire the resources to create …

    Sixth: So any serious economic theory has to include a learning process … Capital, labor, land are all secondary components subject to our ability to use them. i.e. the abundance of useful knowledge is critical; and productivity is either a measure of how much we have learned in order to squeeze more work from a constant resource, or a measure of our ability to extract work from once useless resources, or both.

    Seventh: An example: products are a combination of physical substrate and embodied knowledge. That substrate is conserved during use, but the embodied knowledge is dispersed. Depreciation; pollution; consumption are all examples of dispersal: the substrate is transformed and is “used” by which we mean it can no longer do the “work” we needed when we enhanced it by adding knowledge. If we accept [??] that embodied knowledge is a form of information, then consumption is the loss of information or the increase in disorder; whereas production is the addition of information or the establishment of order.

    Lastly [phew]: none of this is novel; but it ought, in my mind, form the basis of economics.

    This is fun. I agree with Dave and ishi: those physics books and journals are really useful. Economics books, not so much because they talk about the consequences of information processing rather than the processing itself.

    Bruce is trying to get us to the heart of the matter. That’s progress.

  7. October 12, 2011 at 6:16 pm

    Hmmm… Intriguing, but seems reviewing first principles and basic assumptions may be very helpful for all concerned. I suggest starting with the current economic theories of Yap Island and Iriyan Jaya (see Natl.Geo., Vol. 13, No.1, Jan 1993, pgs. 94 & 95). Adam Curtis let his comprehensive (BBC) video documentary “The Trap: What happened to our dream of freedom?” get posted on Youtube, and I can think of no better crash course for upgrading to modern reality, with special emphasis on how Nashian paranoid schizophrenia came to dominate post-Cold War social control theory & praxis. However, my Bible on the insanity, causes, ways, means, and effects of group-think and The Cure, is Schon’s masterpiece, “Beyond the Stable State”. Too bad academe has fallen all but irrevocably into the black hole of terminal pareto optimum group-think, which if left uncured, may well doom all disciplines of all arts & sciences (along with all of us).

    For example, since my suggestios for a new hybrid, transistional credit system seem to rouse little or no interest, I find it very hard to think of a cure for this:

    “The rolling 60-day correlation between the currency on another continent and the S&P 500 is 0.72, according to the BBH Global Currency Strategy Team, the highest since they began keeping data in 1992.”

    “Guess I have to be nicer to them,” said Stephen Weiss of Short Hills Capital of his European peers. “And my guess is that if China had a free floating currency, we would have a one-to-one correlation with their news flow too. Such is the curse of a global market and quantitative trading.” – excerpt from Behind The Money’s “Blame Bratislava” by John Melloy, Executive Producer, Fast Money; from today’s CNBC Fast Money Half-Time Wrapup

    Any suggestions, clues, glimmers, a prescription, or protocol…?

    Yap Islanders can manage very nicely with money so large and heavy that, despite large transactions (and change of owners’ accounts), they simply leave it sitting in the same place. In Irian Jaya the Young Turks drive hard bargains for the acquisition of the hottest babes (daughters of chiefs) and, presumably, none of the pigs are branded yet.

    Perhaps, instead of discussing assertions about time and questions of theory, there will be more substantial or transformative results from a thorough investigation of the fundamental realities and relations of money, ethics, and sanity/insanity?

    Otherwise, it seems that we (the species) are doomed to terminal blame & shame games. Today it’s Bratislava, Slovakia calling the shots & spoiling the fun. Who’s next?

  8. ezra abrams
    October 12, 2011 at 11:51 pm

    the diff between physics and economics is that physicsts can pick what they choose to study
    for instance,black holes – is there any conceivable use for black holes ? no
    yet this is solid science.
    But physicists avoid simple real world things they can’t handle; as Feynman remarked, next time a physicist is boasting, ask him what happens when you push water through a pipe – he can’t tell you (I think this has something to do with non laminair flow and the intractibility of navier stokes)

    economists on the other hand, have a much harder job – they have to spend at least some time working on problems that are really hard, like jobs, which is hard cause people are involved, which makes science a lot more difficult (you can’t do experiments with people very easily, eg you can’t breed 1,000 pairs of identical twins, and then see what the effect of education on lietime earning is)

    also, economists have another problem; since people care about economics (like jobs) and don’t really have deep visceral passions about quarks or black holes, you don’t get enormous numbers of illeterate a**holes popping up all the itme, or at least they don’t get a lot of funding from right wing wack jobs.

    Other then that, I find this stuff about arrow of time tedious beyond belief, but as a molecular biologist, who has the luxury of being able to do experiments that are constrained only by lab supply budgets and my brain (I mean, PETA doesn’t protest when I torture DNA molecules) maybe I shouldn’t talk

  9. October 13, 2011 at 12:07 am

    As a (geo)physicist, I would endorse Bruce’s statements, except he has slightly overstated the absence of equilibrium models from physics. As Ishi #2 notes, equilibrium is still used if it is useful, though it is used less these days because computers allow us to go beyond it more easily than when we were more constrained to look for analytic solutions.

    The key point is that physicists long-since learned that you have to go beyond equilibrium if you want to study more than a tiny subset of physical phenomena. Neoclassical economists haven’t learned that to be relevant they have to go beyond equilibrium, for reasons like those in Bruce’s point 2. Nor have they realised that by not going beyond equilibrium they have stopped doing science, and are engaged in an obscure branch of mathematics, as Bruce rightly observes.

    They are worse than bad scientists, they are doing pseudo science – dressing up their activities (with mathematical machismo) to look like science, but failing to understand that the essence of science is to create useful models of the world, mathematical or not.

    Regarding Peter #6, I don’t think it’s useful to go into philosophising about whether time exists. It’s a concept we use in ordinary life and in physics, and it is very useful, i.e. it gives us extremely useful guides as to how the world works. I argue that is the point of doing science, though it’s not in many of the traditional “philosophies” of science.

  10. Dave Taylor
    October 13, 2011 at 11:22 am

    Wonderful! It’s not often I get much reaction.

    On Peter’s first, Geoff’s last, time exists not as a thing but as a relationship between linear and cyclical motion: clock cycles in a computer, the rotation of the earth etc. It is a moot point whether it is more appropriate to say motion exists or it happens. That’s where the issue of usefulness comes in, Geoff.

    But first, let me go deeper. In a Big Bang of pure energy forming subatomic particulate spray as it encounters the boundary with nothing, the motion has three degrees of freedom, i.e. it can go in any direction; measured, we say it is three-dimensional. Changing from cartesian to polar coordinates, the surface (Hubble’s Bubble?) is two-dimensional, the third dimension at any point being that of the motion itself. Applied to flat maps of the earth, we have lost the dimension of motion. From north to south, linear measure still applies, but east to west, all we have is angular measure, with gross distortion of distances top and bottom. However, though we cannot read off distances from our map, angular measure is two-dimensional, so if one plots a course on it the DIRECTION remains true, i.e. an adequate representation of the facts for the purpose, in this case, of making a journey. For a one-dimensional railway such as London Underground, a topological map can abstract distance and direction altogether, simply indicating the order in which stations will appear.

    The point is, we have traditionally applied static Aristotelian logic to time as well as space, but rather than complicate our models by abstracting time from motion, then adding it back, for most purposes (including understanding the economy) we can simplify them by taking the actual motion and established paths for granted and focussing on the ordering of events, as happens in Shannon’s computing logic. Equilibrium then becomes not a static state but achieving a constant velocity along unchanging tramlines.

    In Peter’s second point the significant key word is ‘replenishment’ , which a more poetic prayer describes as “renewing the face of the earth”. Insofar as we don’t use the wasting power of the sun to regenerate what we use, entropy wins.

    At his third I disagree, but like his seventh. An economy is a system for replenishing the needs of humans, and only in a MODEL of an economy can one abstract the physical things physically or symbolically carrying the information. Only in static logic does each transaction create a new economy; the same old active “me” is here continuing to type new letters. A dynamic model doesn’t have to account for every state, only every TYPE of state. Most of the detail is in Shannon’s terms “redundant”.

    At his fourth too. ‘Complex’ means ‘with parts’, as in complex number. What Santa Fe envisaged as complexity had already been defines as ‘information capacity’, and what we have in economics is more appropriately described as complication or Bruce’s “hairball”.

    The remainder (indeed all) are well put, so I’ll briefly move on to Ezra and Geoff. I’m interested in Feynman’s water pipe, my relevant experience having been trying to get my head round electrons travelling through electric fields in semiconductors and insulators. Some sort of explanation is to be found in the outer electron orbits of the surface molecules of water interacting with those of the surface of the pipe.

    I don’t agree economists have a much harder job. They have been making it hard for themselves by continuing to use static logic and ignoring differences of type, as between money and people, consumables, equipment, physical labour and information processing. That means they don’t have the framework of understanding necessary to cope with what life is throwing at them. Economics is, like engineering or biochemistry, an applied science, its research properly at the logical interface between how things are and how they need to be, and only when all hell is let loose does it take much interest in its basics.
    On illiterates perforce being involved and having feelings, I agree: this creates the perennial problem of not being able to see the wood for the trees.

    Geoff, I agree with you that science is basically about creating useful guides to how the world works. I would, though, add a couple of other functions for scientists. They need to lead the next generation of scientists through the achievements of the past, so that old discoveries and mistakes are not forgotten. They also need to look after their tools, and be ever on the lookout for better ones.

  11. October 13, 2011 at 12:40 pm

    Just the other day, of all people, Mr. String Guy, Michio Kaku, posted a refreshing report on subatomic particles from CERN’s big machine breaking the luminal speed limit. Not by much, but enough to throw the whole business into a tizzy if the apparent phenomena are real instead of artifacts of bad machines or operator errors.

    This immediately reminded me of one of my favorite anecdotes about Dr. Feynman, his incredible shrinking universe hypothesis which, as far as I know, he never formally published for peer review (though it may have inspired the tiny galaxy in the little glass ball in Men in Black (the film). It remains one of his better quasi-jests (imho). I was also reminded of a video I watched where a couple of very competent experimenters repeatedly tested a solid state simulations of nonresonant circuits and a resonant Tesla coil circuit with clearly functional instruments. The resultant longitudinal wave “signal” clocked almost 33% faster than “c” (300KM/sec.), repeatedly. Now, we could all go on and on with all kinds of more & less interesting arguments, but the most iteresting results would be results that lead to new insights into physics, nature & its workings, i.e., reality. That is the goal of real science, unless I am mistaken (and I realize that is a credibly falsifiable notion).

    So, one would hope that, in so far as the best economics can be considered a branch of or a symbiotic appendage of mathematics (and if maths is fundamentally a science or study of the workings of nature, or reality, in principle), we can now count on serious economists getting around to agreeing on the wonderful new insights that will produce the next generation of economical phenomena we might all love to enjoy.

    Yet, both current physics and economics are becoming somewhat suspect among the ignorant, noninitiates who would just like to have a nice, relatively affluent, healthy way of life with some modest improvements every so often, without excessively severe stress. Naturally, many would also like to recover the potential future they envisioned for their retirement (lost either because of their foolish trust in the bubble plutonomy on the way up or the gratuitous fleecing on the way down), and some would like to revive their broken dreams for their children, and so on. So, at the risk of seeming like a boorish spoil-sport, for their sake and the sake of the credibility of science, since RWE is already very advanced, what is the ETA for 1) new metrics, 2) protocols, 3) solutions, 4) implementation, etc.?

    Or is all that work underway in another location or already completed? If the latter is true, then can somebody please tell me where to find it?

    Thanks – M

  12. Dave Taylor
    October 13, 2011 at 3:56 pm

    All this talk of speeds faster than light upsetting the physics doesn’t bother me. Looking back fifty five years to when I was learning about waveguides, it was already known that something like a phase front could advance faster than light. Where physicists seem to have been so busy measuring and correlated that they have missed the obvious lies in their not answering the question as to how energy can be localised if not by chasing its own tail; and by thinking of quarks as separate entities rather than the beginning, middle and end of a cycle of functional variation of rotating energy. I think that follows logically; as Feynman showed with his diagrams you don’t need to work out all the static logic equations to understand what’s going on.

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