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Complex Simplicity

from Peter Radford

Simplification, in the context of an economy, is the eradication of all things of interest. This does not mean that studying an economy is thus doomed to be a pointless recitation of history as it unfolds. It is, rather, the recognition that as an economy moves through time it is never, to paraphrase Heraclitus, possible to see the same thing twice. Each economy is different. Each instance of the same economy is different. Any attempt to generalize eradicates those differences and thus eliminates the very substance we wish to explain. It is the existence of differences that are of interest in economics. Indeed, it is the existence of difference that allows an economy to exist in the first place.

Difference as in the spatial scarcity of resources.

Difference as in the complexity of human agency, motivation, and desire.

Difference as in the application of and resistance to power.

Difference as in variations in access to opportunity.

Difference in the chance bestowed by birth.

Difference as in variable interpretations of information.

And so on …

It is impossible to collapse all these differences into a model and then hope that such a model can capture even a modicum of reality. It couldn’t hope to. No amount of mathematical elegance and rigor can contain all the information needed to describe let alone predict an economy. Such a task is a computational impossibility. Uncertainty condemns a model’s relevance to degrade rapidly through time, if not from the very beginning. 

The only true explanation of an economy is its history. Beyond that everything is educated guess wrapped around opinion.

The simple so-called laws of economics may or may not hold, but they are inevitably swamped within a context so riddled through with idiosyncrasy that they become very weak and only partial explanations of events. To strengthen those laws in the face of this turmoil past economists have dedicated themselves to extracting bits and pieces from the economy for isolated analysis, as if by such reduction they could learn some truth that would still hold once the isolated part was re-introduced into the complex whole. This method has produced a brilliant array of components disassociated from their context none of which have much value when the components are all re-assembled. So modern economics is not a solid body of thought so much as an amalgam of “neat tricks” that are handy for illuminating this or that, but which are insufficient for explaining the whole. Even then they fall short.

Many of the great success stories in economic theory are actually failures. Many of them can be reduced to a “stuff happens” narrative and not much more. And much of the “stuff” that happens lies beyond the power of economics to explain: growth theory is a good example. Even after decades of tweaks we are left with an obscure object called “total factor productivity” that acts a clever sounding but vague veil for our ignorance. In contrast, the majestic work resulting in theories of general equilibrium are a direct contradiction of the very phenomenon it sets out to prove.

We must resist mocking the achievement hitherto: except, of course where we need to illustrate the arrogance of economics in its current form. The intellectual effort has been incredible. It has simply been misguided. Economists have produced an object of great beauty and of no relevance. It is a work of art not of science. Perhaps it could be hung on a wall somewhere as a caution against future efforts being similarly misguided.

You cannot reduce that which resists reduction.

Economies are such a thing.

  1. Paul Davidson
    April 30, 2017 at 6:45 pm

    Peter: You are merely describing a nonergodic system where the future cannot b reliably predicted by statistically analyzing past relationship between things.

  2. C-R D
    April 30, 2017 at 6:46 pm

    Huum!! So many differences, I guess that is why we have probability distributions. We must also bear in mind that History does not have new Shannon’s information.

  3. Craig
    April 30, 2017 at 7:44 pm

    Complex Simplicity. That’s very close. Perceiving the simplicity in complexity ought to complete the circle.

  4. April 30, 2017 at 8:10 pm

    What is rational from a micro-economic perspective (e.g. competition) can be irrational from a macro-economic perspective (e.g. countries are upended into mass unemployment when every country tries to be super-competitive). Tomorrow I’ll be uploading my translation of Heinz-J. Bontrup’s “Competition Ideology and Market Power” on Portland.indymedia.org. Concentration and centralization reveal competition to be an ideology. The lesson is that competition cannot be an end-in-itself but is only a means for a social market economy.

  5. EDISON BITTENCOURT
    May 1, 2017 at 12:10 am

    Eliminate diferences as introduced by birth or chance , in the future, and you eliminate the essence of Economy

    • May 1, 2017 at 3:13 pm

      No. Doing that eliminates only one element. And, since there is no single essence to economic activities, there is no essence of the economy outside of politics..

  6. May 1, 2017 at 1:47 am

    I have commented a number of times on this site on how to make progress developing a more useful economics, e.g. https://rwer.wordpress.com/2014/03/10/a-science-of-economies/

    My reaction to this post is that it is another throwing up of hands – it’s all to complicated, we’ll never get any useful insights. The confusion is partly from being brainwashed into the idea that science or economics must have complicated and precise mathematical descriptions. Also that it must predict next week’s and next year’s events.

    My broadest description of science is that it is about perceiving regularities in the world and describing them with sufficient fidelity to give useful insights. There may be complicated maths, simple maths or even no maths in the description.

    Every tree is different, but we can still see a tree and recognise its kind – we can perceive its similarities to some other trees and its differences from the rest. We don’t need perfect fidelity in our perception or our description to get a useful insight.

    So yes human affairs are messy, but there are some perceptible regularities, even though no moment ever reproduces another. Otherwise all would be chaos and we could not even live moment to moment.

    So my suggestion on this web site is stop agonising and philosophising and go and learn about some of the good things being done. See my very simple example in the link above. See how Steve Keen perceives key observations and models regularities. Read Eric Beinhocker’s The Origin of Wealth to see how complexity modellers are making progress (and that’s ten years old now). There are probably many others once you get started.

    Sorry to be blunt Peter, but you and Lars spend a lot of time lamenting all the things that are wrong with mainstream economics, but that’s an endless and pointless task. You could spend your life doing that and never contribute anything useful.

  7. May 1, 2017 at 1:13 pm

    There’s a problem with the basic assumption here: That the purpose of economics is to represent an economy by macroscopic equations. Mainstream economists accept that, and so do their critics who claim they don’t do that job well.

    But what if we drop the macro assumption? An economy is, on direct observation, a graph. Real value flows from one node to another through some edges, and money flows roughly but not exactly in the opposite direction through different edges. If we study economies as graphs we’ll get useful insights about their structure and function. Sometimes we might be able to tell something about macroscopic aggregates, but often not. Often we’ll make structural observations, about firms or households or unemployment. Other times we’ll be able to analyse the flow of value and of money and that’ll enable us to make informed moral statements about fairness of outcomes. We might examine the role of money and markets not as aggregates being optimised but as tools for discovering and making edges between transacting parties. All these observations about structure or mutability or flow are useful scientific insights. Economics is not only, or even mainly, about calculating GDP and inflation.

    Economies are graphs, study them as graphs.

  8. May 1, 2017 at 3:30 pm

    I don’t know how you get to the idea that economies are graphs. Economies are forms of organization of economic activities and often also forms of power relationships between those involved in economic activities.

    Economic theory — at least mainstream theory but not limited to it — has developed around the odd notion that the power to produce or to consume depends upon the ‘ability to pay’, with money being a permission slip to do either. Indeed, those without direct or indirect permission slips to do one, the other, or both have no ‘welfare’ as such given how this theory has developed. Indeed, they don’t exist in modern orthodox economic theory.

    Or, perhaps I misunderstand you?

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