Home > Uncategorized > Open Ended [A note to myself]

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.

Why?

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.

  1. jlegge
    August 23, 2016 at 1:45 pm

    Pretty, and I agree with most of what you wrote, but:

    Planning works when there is an over-riding social objective. A war economy is still an economy. Soviet socialism was quite good at organising a war economy; it just couldn’t do anything else well.

    and:

    The fog analogy is used by Stuart Kauffman in his “Origins of Order.” It enabled him to distinguish the adaptive climb from the evolutionary leap. An adaptive climb involves a sequence of unrelated, small changes which are tried, adopted if they work (i.e., increase “fitness”), and discarded otherwise. they do converge towards on something resembling an equilibrium. An adaptive leap requires multiple simultaneous changes, which even if it increases fitness is unlikely to the point of near impossibility to be anywhere near a new local maximum, allowing a new sequence of adaptive climbs to occur.

    If all one ever studied was a pin workshop, evolving from a single craftsman to a small team of specialists one would remain unaware of adaptive leaps, even though Boulton and Watt were developing the condensing steam engine as Adam Smith was writing. (Wealth of Nations and the Watt patent both date to 1776).

  2. August 23, 2016 at 3:46 pm

    You can replace “economy” with “physical universe” in this article and it would read well except we do know an enormous amount about the laws of the physical universe which has no obvious end or beginning. Economics is filled with postulates and theorems. It is time to look for “Laws” in the way physical science defines them. For example, we know an economy without a widely accepted medium of exchange (money) will be a faltering economy and we know that an economy with excessive amounts money will also be a disastrous economy. A physical scientist would immediately conclude from this observation that there must exist an optimum amount of money for a given economy. Everyone understands what that optimum amount is and that deviation from that optimum amount will degrade the economy. Granted that many murky actions and actors as noted in the article are at work to alter an economy but this one factor, an optimum amount of money would seem to be immutable.

    Commenting on first reply above, an established law of nature is that entropy always increases, ie nature naturally takes us towards ever increasing disorder. Only man, by deliberate actions, can reduce entropy such as by stacking up bricks to build a house or bringing together the materials needed for a highways. Hence, if we believe the natural free market economy is a natural process then the only way to bring order, create stability and reduce chaos is by deliberate actions by man, that the economy must be regulated and controlled deliberately to enable stability.

    • August 23, 2016 at 7:58 pm

      I am having a hard time imagining a physical scientist observing a field of flowers and saying, “this field could use a few more flowers over there and it would be at an optimum.” Or, “this babbling brook just needs a couple more rocks right here to make it optimum.”

      • August 23, 2016 at 9:44 pm

        You are quite correct! Why? Because it isn’t needed nor necessary. That is very different form an economy with historical booms and bursts.

  3. C-R D
    August 23, 2016 at 4:50 pm

    Charles3000 think you for your comments. Please take a look at http://mpra.ub-muenchen.de/id/eprint70725. You might enjoy it.

    • August 23, 2016 at 9:51 pm

      The site is for sale. Would it be a good investment?

  4. August 23, 2016 at 8:50 pm

    A nice post, except there are discernable general times and places where the economy begins and ends. It begins with the individual with spendable money in his/her hands and it ends with them actually exchanging that money for goods and services at retail sale. Knowing these two points enlightens us as to where and when to implement macro-economic policy with its greatest effectiveness, and is also why a universal dividend and a discount at the point of retail sale are the best solutions to our modern economy’s most chronic problems, namely a scarcity of individual incomes and price inflation. This unvarnished insight about starting, changing and stopping is actually one of the oldest observations by Man and is referred to as the cycle of action of the physical universe mentioned in the Vedas many thousands of years ago. The economy IS complex, but it still has known places where policy can best be implemented.

  5. August 24, 2016 at 4:45 am

    On the original post just a couple of comments. First, I agree with your overall premise that economies are the result of many interactions and have no essential plan behind them. But it’s not just humans that interact to make an economy but a never ending array of other actors as well. From the obvious physical things involved in economies to theories of the economy to “the spirit of God.” So they’re complex more than you can conceive. Also, economies are not always just spinning along blindly. They can have directionality. From human actors, from physical factors (e.g., mountains that divide a land mass, seaports, diseases, etc.), and from failures related to past events and actions, economic and otherwise. For example, I suggest that the economy that exists today is in part the result of some very heavy work by certain economists, philosophers, and “money guys” combined with the failures of the “welfare” economies created after World War II in the US and most European nations. And this brings me to the comments. First, a word missing from both the original post and the comments is “failure.” Speaking in terms of evolution failure is important. Changes in biological structures or functions either help or hurt the biological entity survive and thus improve or diminish chances that those changes will be passed along to future generations. In the interactions that make an economy (accidental and planned) can this same process occur? I think it can. The difference here is that failure in these interactions is not just unclear and complex but actually is often the result of deliberate efforts to construct certain results as failures and others as successes. In other words, the interactions create not just the economy but the meaning of that economy (including the theories of social scientists) and the criteria by which an economy’s actions and effects are to be judged. And the whole interconnected process evolves together.

  6. robert locke
    August 24, 2016 at 11:15 am

    Of course, for each individual and generation, economies have an end. If you were living in a specific time frame, says 1914, economies were specific to that time, only the predictability of what was going to happen to them was completely unclear. Nobody in 1914, surveying the economic scene, could have predicted the outbreak of WWI and its devastating human and economic consequences, or the Great Inflations of post1918, or the Great Depression. This was the economic situation each individual and generation experienced, in its specificity. The problem with the science of economics is not open-endedness, but its inability to provide solutions to the specific problems that each individual and generation faces.

    • August 24, 2016 at 11:46 am

      Robert, I’m with you right up the last sentence. I agree that economists in general have not provided “… solutions to the specific problems that each individual and generation faces.” But what science or other “scholarly” activity has? Physicists solved the problem of Japan’s refusal to end its involvement in World War II, sort of. Although it was not a “solution” that most people preferred. And physicists played a smaller role than the military, politicians, and their constituents in that solution. Biologists and geneticists create GMOs to help provide more food for the world’s growing population. But the GMOs then help create a whole new series of problems, not yet solved. Atmospheric scientists describe climate change in detail but offer solutions that lead to political divisions. And everyone is frightened of the climate change mitigation solutions proposed by geoengineering. The humanities and history do no better. Generally speaking, problems are addressed incrementally. With a little from one bucket added to some from another bucket which together are mixed with the contents of another bucket. Problem solutions usually involve more than one science, several elements of the “humanities,” “social sciences,” and “history” along with folk wisdom and rules of thumb from everyday life. Economists should not be expected to accomplish what other sciences and humanities cannot. At the same time, however, economists should not deliberately impede the incremental solution of problems. Especially, just to enhance the standing of their own discipline.

      • robert locke
        August 24, 2016 at 3:32 pm

        What you say is true, including your last sentence, Ken. I think the biggest problem we face has to do not with the generation of wealth, which was previously the main problem of a Malthusian world, but a fair distribution of wealth created, to individuals, families, communities, within nations, and among regions. Economics as science not only ignores the subject but has, to my frustration, become an impediment to solving the distribution problem.

  7. August 24, 2016 at 6:52 pm

    Bob, I don’t think much about “wealth” when I consider questions called economic. I think about meeting the needs of living human beings and the planet on which they all reside. One of the ways monarchs and other rulers controlled the people over whom they “ruled” was the control of the resources to satisfy these needs. That’s still the case today. Only the names “ruling” have changed. Economists as far as I can see are like the privy councils of nobles or the Lord Chamberlain. They do a lot of the dirty work of justifying the control of resources by the monarchs and putting down rebellions when they happen. And like the nobles and Chamberlain economists are well rewarded for their work.

  8. August 25, 2016 at 8:23 am

    Peter, having been incensed by what you have said, the quality of other responses to this has me writing a note reminding myself that seeing an “authority” saying the precise opposite of the truth is sometimes the best (and as I’d just been saying of photographic negatives in the Trump and Truth debate) sometimes necessary way of getting truth put into action. I say “remind” because half a century ago I was the authority trying to stop my little girl from stepping dangerously close to what were to her fascinating floods. Only when I told her to “jump in, then”, did she actually step back!

    So let me briefly contradict your posits. Your first paragraph is about time, and is true so far as it goes, except that you are mistaking the image for the reality: not seeing that time is not a thing but a measure; that hours – like lifetimes – have a beginning and an end, and the end of one hour marks the beginning of new ones.

    The second paragraph is what incensed me. You say economics is often irrelevent “precisely because economies have no end. They have no end as in purpose. They have no end as in time. They just are”. So mankind had no beginning? Life? Matter? Energy? That there is no invisible energy (i.e. spirit of a creator directed at producing something) is precisely the assumption on which Hume intentionally built the doctrines of laissez-faire, anything goes morality and government by agreement of those in power, thereby paradoxically destroying the freedom of [mature] individuals it purports to protect.

    Of course economics has “an end, as in purpose”. Humanity is a form of life, and life needs a livelihood if its generation is to be succeeded by another, and lessons learned by creating and adapting to new challenges are to be not lost but passed down the generations in new forms of life or living. The purpose of economics remains what it always was, “household management”: organising, maintaining and hopefully improving human livelihoods, broadcasting the seeds of improvement without destroying the ecology – the living food chain of lower lifeforms – on which human economies depend. Not only human dads and mums have learned to look after their young.

    • robert locke
      August 25, 2016 at 9:42 am

      Charlie Chaplin, in reply to a lament that life has no meaning, said that life is not about meaning but feeling, and he added that all life is local. A good credo to remember in all this discussion about the meaning of economics.

      • August 25, 2016 at 10:43 am

        I prefer Poe. “All that we see or seem is but a dream within a dream.”

      • David Chester
        August 26, 2016 at 10:46 am

        Life is all about helping others. In the case of economics it is about helping them to see what it is REALLY all about, so that they can see the situation properly and realistically. Unfortunately the ones who want to help in this way are so strongly self-opinionated that their remarks go unheeded. What we need a a prophet who does not need to shout.

      • August 26, 2016 at 10:25 pm

        Amen, David Chester. That was an excellent point. I often tell folks that if you do not like helping others and accepting help from them in turn then you must be a hermit.

  9. Peter Shaw
    August 25, 2016 at 8:46 pm

    “…if you think economies evolve”: There’s a view that puts this beyond opinion.

    The economy is a “created capability”, so a technology; and all technologies evolve, to be better at what they do. It is never at its best, as any change is a threat to the perfectly-adapted, but an opportunity to the rest.

    Those who disagree with your “no end…” discuss “purpose”. These are anthropomorphisms, perhaps permissible in addressing a human construct; but there is a better term. Essentially, the economy has been evolved by the general population for its own benefit. This is its persistent function.

    Every technology contains within it lesser technologies, of limited duration. IOW it always serves its function, but how it does that may change radically. Those upthread who see discontinuous change are viewing the economy at this level, not the most general one you address. Losing focus on the level under discussion is a rich source of muddle everywhere.

    Because the economy is a group thing, it will contain diffuse (but deterministic) drivers, leaving the microeconomist groping in your metaphorical fog (fog is at once impalpable and a few tons of water ;)).

    Please don’t discard the steady-state; not as an ideal to be approximated (which as you imply it isn’t); but because it provides a robust benchmark against which to measure trends, and is more easily solved.

    • August 26, 2016 at 6:07 am

      Several concerns with your statements.

      “Essentially, the economy has been evolved by the general population for its own benefit. This is its persistent function.”
      1. How does a “general population” link certain changes in the economy with certain results, e.g., benefits. Economists can’t do this. Why should the “person in the street” be able to do it? Plus, there are risks involved in changing the economy. The changes might make the situation worse rather than better. And then there’s the issue of separating out what is “better” in changing the economy for one group vs. others. The struggle over the form and functions of the economy I agree is persistent. How this struggle takes place and when it takes place, involving which actors is historically contingent.
      “Every technology contains within it lesser technologies, of limited duration. IOW it always serves its function, but how it does that may change radically.”
      2. Technologies buried within the economy don’t always help the economy, recognizing that help is an historically contingent activity. Economies have been destroyed by the technologies and technologists “trusted” by the actors in the economy.
      “Because the economy is a group thing, it will contain diffuse (but deterministic) drivers, leaving the microeconomist groping in your metaphorical fog (fog is at once impalpable and a few tons of water ;)).”
      3. The economy is a relational thing, so in that sense it is a “group thing.” Relations, not drivers, deterministic or otherwise (and generally otherwise) move the economy. And the results of relational activities can never be fully forecasted or explained. So the metaphor of the fog is appropriate.
      “Please don’t discard the steady-state; not as an ideal to be approximated (which as you imply it isn’t); but because it provides a robust benchmark against which to measure trends, and is more easily solved.”
      4. Why favor the “stead-state” over any other. If the laws of thermodynamics are a guide the natural world (again historically contingent) favors the state of ultimate chaos. A more appropriate benchmark for assessing economics relationships might be which actors and actions benefit from the economy and which do not. And why? By benefit I mean in terms of resource access and distribution. Including the general, abstract resource money.

      • Peter Shaw
        August 27, 2016 at 3:56 pm

        Ken Zimmerman –
        This is over-long, but I need to present a view option unfamiliar in these circles.

        I need to explain myself a little. I was quoting from something called process analysis – in which I’m not expert -, which offers useful vantage-points for understanding complex interactive systems (I think we agree the economy is one ;)). This post is a rather rare instance of someone adopting this view, which encouraged me to comment. If microeconomics approaches macro “bottom-up”, this method is “top-down”. It essentially asks whether there are features of the system identifiable without any knowledge of detail – and commonly, there are.

        “1. How does a “general population” link certain changes in the economy with certain results [?]”
        Evolution is the remembering of selected variation, at the group level. An individual “on balance, it works” experience, replicated with variations through a population, is likely to become a norm – even (or especially?) without much conscious thought. No individual will have an adequate explanation for the change, or its driver. I think this is why economists dislike subsidies, as they can tilt that balance.
        “…historically contingent” – indeed, but group-historically. Please don’t mistake “contingent” for “random”; humans don’t do “random” well.

        “2. Technologies buried within the economy don’t always help…”
        For clarity: “Embedded” is in the sense that your biological description is of organism, comprising systems, comprising organs, etc. Organs indeed can malfunction. If (as I suggest) we “made it up as we went”, there will have been errors. Instances of unsustainable practices abound – and sustainability is implicit in this post.
        “Economies have been destroyed by the technologies and technologists “trusted” by the actors in the economy”
        Yes, if we restrict ourselves to the formal economy; but there will be an informal one (perhaps using beercans or cigarettes as money) that persists.
        I think the driver here is “we know better than the general population”. The fact that all too often they don’t leaves open whether the latter know “something” in common.

        3. Agreed.

        “4. Why favor the stead-state…”
        > It’s often soluble even in complex systems;
        > It offers qualitative insights – such as: QE is a non-solution as it’s metaphorical string-pushing, and modern austerity is self-harm of the “window-breaking” sort;
        > It provides a reference-point for estimating the real-word changes. “If you cannot measure it, you have no control”.

      • August 28, 2016 at 9:55 am

        Peter,

        Thanks for the comments and clarifications. Just a few notes. First, since macro and micro are invented categories, how were they invented. I have no issue with using these as useful notation tools but they are not “natural” in any sense. So before using them I only ask you consider the processes of their invention. Second, evolution can and does end in failure and well as success, in both society and biology. Just because a certain way of life or belief is widely accepted (a norm as you call it) does not translate always to that norm improving the chances of its own survival and thus continuation. The consequences of a norm can often destroy that norm. For example, racial discrimination as a norm has led to its own destruction. As for explanations, humans always attach them to events and actions. To paraphrase William James, the universe is filled with explanations that can be and are attached. Third, my own experiences with economists and subsidies is that they are favored by some economists and opposed by others. For a variety of reasons, including conflicts with theories, conflicts with important clients, and fear of those who are not subsidized. Fourth, I agree historically contingent is not just another name for randomness. But some events are indeed random. Fifth, informal economies can be destroyed by their technologies. Take the “Numbers Games” in NYC before World War II. Using colored paper for the numbers slips allowed them to be easily counterfeited, thus undermining the revenue from the bets for the gangs involved. Sixth, the “general population” knows the economy (formal or informal) better than economists. After all these folks live and invent the economy. Economists only study what the others create and live. But I need to note here that economists get pulled into the economies, even if their desire is to stay out. Seventh, I agree speaking mathematically the steady state is solvable. And that’s the reason we should never place our faith in this complex of factors. Like the optimal equations that engineers solve while knowing these solutions can never be applied, steady state based solutions are mostly worthless in actual situations of need. The solutions aren’t even a good benchmark, for to serve that purpose we would have to be able to estimate how far actual solutions are on kind of scale from the steady state whose solution we know.

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