Open Ended [A note to myself]
from Peter Radford
One of the major reasons, perhaps the major reason, economics is oftentimes irrelevant to our understanding of economies is that it fails to notice a rather salient fact: economies have no end. They have no beginning either. Or, rather, the choice of an ending or a beginning are merely arbitrary selections by an analyst needing to close up the system for analytical purposes. But this act of closure destroys the validity of any results from the subsequent analysis.
Precisely because economies have no end. They have no end as in purpose. They have no end as in time. They just are. They emerge from the myriad interactions of however many people exist at any point in time, they are channeled along a path highly dependent upon whatever happened recently, they are in constant turmoil and evolution, and they are driven by the availability of information and energy sufficient to do work and create local order. That’s it.
They don’t inevitably move towards equilibrium because it is impossible ever to reach such a point. Let me put that differently: even were the economy miraculously to arrive at some sort of equilibrium no one would know because the task of calculating whether or not it was is impossibly complex. So an equilibrium is unrecognizable. Besides, given the inexorable change, any possible equilibrium is so ephemeral as to be irrelevant. Instead of moving an economy towards equilibrium the twin pressures of supply and demand simply contrive to move it into tomorrow. Whatever that is. The economy is a process or a perpetual unfolding without end. It is in a constant state of becoming, but never actually of being.
Which, of course, makes it devilishly difficult to compress into the kind of shapes amenable to late 19th century analysis which are those that dominated the beginnings of modern economics. A real economy constantly slips between our fingers and defies our descriptions.
As I said: an economy just is what it is.
And this is annoying because we all live in economies. We really want them to work for us. We love the riches they produce: and let’s be honest modern economies are very good at producing riches. We all revel in the multitude of goodies that economic evolution has supplied us with. Yet sometimes we want them to be different. We want adjustments. We wonder whether they are ‘fair’ or ‘equal’ and we criticize attributes such as the concentrations of wealth.
Those kinds of questions, issues, and requirements cannot be settled within economies. They are better solved or argued about in a broader arena. That’s what we have politics for. Which upsets economists who think they have understood economies. For they judge any interference in an economy to be a diminution of the economy in question. Wealth is being foregone, so they say. We ought, instead, let the economy be.
The evolutionist in me has sympathy for such a position: but not for the reason economists give. They argue that interference inevitably produces inefficiency and moves the economy from its optimizing path. The new equilibrium, they tell us, will be one that produces less overall wealth, so someone, somewhere is losing something they might have had.
I disagree. Since no one can articulate what a maximum or an optimum might be, no one can argue that we might miss it. We have no idea. Economists certainly don’t. They’re still wandering around in a fog looking for an equilibrium that doesn’t exist. How can we possibly make something immeasurable measurably less so?
Fog, I think, is a useful metaphor.
We have worked out what a fog is, what conditions give rise to it, where it is likely to be, and so on. But that doesn’t mean we can describe an actual fog. Especially when we are in it. Instead we rely on our experience to deal with the consequences of fog. We mitigate fogginess.
So it is with economies. We know what they are made up of: myriads of transactions; we can identify them and distinguish characteristics of them: agricultural, industrial, or post-industrial. We even know a few of their more detailed features: distributions of income, growth rates, and many other interesting things we measure. And, importantly, we know how to deal with them. Not by having great understanding of the system and its details, but by mitigating the nasty bits when we come across them. Yes, we mitigate economies. We try to bash them into socially acceptable shapes.
We ought, by now, to realize that this effort on our part is futile as a method of directing the economy: it directs itself. All we can do is to mitigate its effects and make them more socially and politically palatable.
Those economists who argue that we ought to keep our meddling hands off the great wealth producing machine of free markets – allowing that all markets are somehow less than free in the textbook sense – make as little sense as those who think they can barge in and run economies efficiently from some central office. Both sides are wrong. Economies can be nudged. Their sordid parts, capitalism springs to mind, can be cleaned up. In this case by democracy. But economies cannot be planned. They exist and they evolve. They have no beginning. They have no end. They have no purpose. They just are.
In that setting notions of equilibrium, maximization, efficiency, and rational choice are totally irrelevant. They are inventions designed to study something other than reality. Fun though that may be, it isn’t the study of actual economies.
That is if you think economies evolve.