Home > Uncategorized > Starting again, and relating the schools

Starting again, and relating the schools

from Geoff Davies

The need for a new start in economics arises regularly on this blog site, for example: Economics — enslaved by the wrong theory  And here is an edited extract addressing this issue from my book Economy, Society, Nature..  The point is not that ‘complexity’ gives rise to another ‘school’ of economics, but that it provides a general framework that accords with observations and is capable of accommodating many existing schools, but not all.
 

Many of the ideas presented here have been around for some time but the subject has been in some confusion, with a tendency still, among dissenting economists, to think of ‘schools’ of thought and to promote a ‘pluralist’ approach. Whereas it is laudable to consider a wide range of ideas, rather than the sterile monoculture of mainstream neoclassical economics, the result has still lacked coherence. For example, the recently issued book Rethinking Economics has chapters on Post-Keynesian, Marxist, Austrian, Institutional, Feminist, Behavioural, Complexity, Co-operative and Ecological Economics2 but little about how the various conceptions might relate to each other.

The present book argues for a natural relationship among these approaches that brings coherence to plurality. The new conception identifies complexity as the trunk of a tree, with many of those schools as main limbs – see Figure 1.1. However not all schools belong with this new species. 

Figure 1.1. A tree metaphor relating economic approaches. Complexity forms the trunk and the limbs are various schools that are compatible with the self-organising conception of modern economies. The labels are merely indicative, not definitive. The roots gather observations and are integral to the whole. The whole is nurtured by Mother Earth and energised by Grandfather Sun, as the Yuin people of my region refer to him.

The starting concept is of a self-organising system that is far from equilibrium. Such a system can give rise to complexity, a technical term that will be developed later. The behaviour of a self-organising system depends critically on the way in which information is passed among its components. Within an economic system there are two main signalling processes – social interaction and money. Thus both social interaction and money take a central place in this conception, whereas both have been largely excluded from neoclassical economics.

We can ask the fundamental questions also of money and people. What is the nature and the purpose of money? What is human nature? We know far more about people than was known when neoclassical economics was formulated. Money has been the subject of great confusion, but it can be understood by returning to simple situations and concepts: money is a social contract and a medium of exchange. From these core ideas a broad understanding of modern economies can be built up.

As important as its ability to subsume some existing schools of economics, the new conception is based in observations, and capable of accommodating many further observations. For example it acknowledges that economies of scale are pervasive and it can accommodate a market crash, which the mainstream neoclassical theory cannot.

The conception offered here is a sketch, an approach, not a fully worked out theory. Switching metaphors, the main landmarks and features of a new territory are described, but much remains to be explored. However it offers a far more productive starting point than neoclassical theory. 

A comprehensive economic ‘theory of everything’ will not emerge soon, if ever, but much useful understanding can be gained in the meantime. Physicists in the nineteenth century thought they had assembled a clockwork theory of everything, covering mechanics, gravity, electro-magnetics, heat and so on. However troubling, inconsistent observations caused them eventually to replace that vision with the radically different ideas of quantum mechanics and general relativity. To this day there is no comprehensive ‘theory of everything’ because no-one knows how to reconcile the very small (quantum mechanics) with the very large (relativity). This has not prevented enormous advances in useful understanding.

Economics commentator Martin Wolf, in his Foreword to Rethinking Economics, puts it in more homely terms: ‘The economics that humanity will need will surely display the vigour of the mongrel, not the neuroses of the pure-bred.’
  1. November 28, 2019 at 4:08 pm

    Ending the pluralism of provably false economic theories with the long-overdue Paradigm Shift
    Comment on Geoff Davies on ‘Starting again, and relating the schools’

    Geoff Davies summarizes: “The need for a new start in economics arises regularly on this blog site.” and “Many of the ideas presented here have been around for some time but the subject has been in some confusion, with a tendency still, among dissenting economists, to think of ‘schools’ of thought and to promote a ‘pluralist’ approach. Whereas it is laudable to consider a wide range of ideas, rather than the sterile monoculture of mainstream neoclassical economics, the result has still lacked coherence. For example, the recently issued book Rethinking Economics has chapters on Post-Keynesian, Marxist, Austrian, Institutional, Feminist, Behavioural, Complexity, Co-operative and Ecological Economics but little about how the various conceptions might relate to each other.”

    Indeed, economics is a heap of proto-scientific garbage. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. Economics is a failed science. It has not even gotten its foundational concepts profit/income/saving etcetera right and therefore stands where physics stood in the Middle-Ages before the foundational concept of energy was properly defined and clearly understood. What we actually have after 200+ years is the pluralism of provably false theories.

    Scientific standards are well-defined for 2300+ years: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

    Both Orthodoxy and traditional Heterodoxy are out of science. Because of this, economics needs a Paradigm Shift. This is long known: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)

    Economists know quite well that they are out of science. However, they have no scruples to award themselves the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. Because there is no such thing as scientifically valid economics, the EconNobel is a fraud.

    Worse, because economists do not have the true theory but only a heap of proto-scientific garbage, economic policy guidance is on one level with the poultry entrails-reading of the ancient Roman haruspex.#1

    Economists are not smart enough to realize that, in science, pluralism is a sign of failure: “For if they [opinions] conflict, then at best only one of them can be true.” (Popper) Being stupid and corrupt for 200+ years, though, economists propagate more of the same: “Economics commentator Martin Wolf, in his Foreword to Rethinking Economics, puts it in more homely terms: ‘The economics that humanity will need will surely display the vigour of the mongrel, not the neuroses of the pure-bred.’”

    • Frank Salter
      November 28, 2019 at 6:07 pm

      I am in total agreement.

    • November 28, 2019 at 8:54 pm

      Egmont, why do you think “profit/income/saving etcetera” are the “foundational concepts” of economics? And what do you think is the “right” concept of profit? Isn’t ‘economics’ a more general concept than the capitalism we currently have?

    • Craig
      November 29, 2019 at 3:29 am

      Egmont,

      Heterodoxy is a good thing for theorizing and for organizing complexities and yet, if we want actual paradigm change it can become an impediment to paradigm perception. The paradigm level of analysis is always aligned with legitimate complexity and yet it is a simplicity/single concept that describes, integrates and changes the complexities of the entire pattern. Virtually everyone here is looking through a telescope when they should be utilizing both a telescope and a microscope.

      After Steve Keen de-bunked neo-classical economic theory he came up with the conclusion that they ignored money, debt and banks and embraced Minsky’s financial instability hypothesis. Michael Hudson has chronicled the deadly sins of finance and established that it is an exterior parasite to the actually productive part of the economy. In other words we have endogenous money, but it comes to us only from an exogenous and problematic source. David Graeber has chronicled the history of Debt. MMT has affirmed that money and its government distribution are a part of the solution. Ellen Brown has pushed for public banking (sort of, but not on the level of a publicly administered national banking system that is directly funded entirely by the government and hence her movement is only banking reform).

      So we have the economic problems of money, debt, banks and finance described and analyzed separately and endlessly….we just don’t have the single concept that will enable the integration of all of the analysis and the where, when and how of its implementation.

      If one analyzes the history of paradigm changes for their mutual signatures one of them is the discovery of a new deep insight and/or a new tool that resolves the long standing problems of the current paradigm and creates the new pattern. The discovery of the economic significance of retail sale and of a high percentage monetary discount/rebate policy at that point IS just such a deep problem resolving insight. In fact it fulfills every one of the historical signatures of genuine paradigm changes.

  2. EDWARD K ROSS
    November 28, 2019 at 9:17 pm

    While their is much in the above that I agree with, from people that I respect. What concerns me is “pluralism is a sign of failure”, Because the writers have not made it clear, whether they are logically rejecting a plurality of conclusions when there needs to be a singular truth established. Again my concern is does this include rejecting the concept of free democratic conversations to find a singular truth in order to build their power and prestige Fortunately it appears to me that most of the contributors to this site, have the ultimate goal of reforming economics to a more equitable system. The mongrel Ted

  3. November 28, 2019 at 11:26 pm

    My book includes a chapter on how science works and how a science of economies can be approached. In case anyone would like to actually read it. :-)

    • Meta Capitalism
      November 30, 2019 at 3:27 am

      The old ‘reductionist’ science of clockworks and rockets and orbiting planets has been brilliantly successful at understanding the physical world, but it has been much less successful at understanding living systems. It is now clear this is because living systems are self-organising systems with emergent properties. This means they must be studied in their wholeness. We can ‘reduce’ a clock to its parts and from those parts understand how the clock works. But we cannot reduce a mouse to its parts and understand from those how a mouse behaves, because a mouse reduced to its parts is dead. ‘Mouse-ness’ is an emergent property. This does not mean we cannot systematically pursue an understanding of mouse behaviour, but we have to do it holistically, and with the humility of knowing the mouse will never be strictly ‘predictable’. (Davies, Geoff. Economy, Society, Nature: An introduction to the new systems-based, life-friendly economics (World Economics Association Books Book 3) (Kindle Locations 2282-2289). World Economics Association. Kindle Edition.)

      .
      Once I complete More Heat than Light (Mirowski 1989) I will devote my full attention to your book Geoff. Indeed, greedy reductionism is a dead end. Enjoying snippets right now ;-)

  4. November 29, 2019 at 10:36 am

    Craig, Ted, Geoff:

    Most of what Craig says above is unusually well said, but when he focuses on discounts at retail sale, I don’t experience any deep insight or see what problems it resolves.

    Ted, I myself have tried to make clear that for me the “singular conclusion” is that economics is a system with a plurality both of modes of operation and ways in which it can be interpreted. I’ve called the system view ‘fundamental science’ and study of its different modes of operation ‘applied science’. Wishful thinking, perhaps: believing economics ought to be scientific but rarely is.

    Geoff, I have read your book, said so, and was disappointed you did not follow up my invitation to discuss it. We are totally agreed on economics being an evolving and therefore open-ended system, and on the significance of gestalts (“seeing the young lady in the old lady’s face”). We totally disagree on what we understand by logic (my authority being my own work with its different active and static forms, i.e. active analogue and digital as well as the formal and mathematical). I have previously explained how I have come to see the significance of backwards reasoning (Peirce’s retroduction, abduction, abstraction) as well as forward reasoning (deduction), with reduction (J S Mill’s type of progressive elimination of possibilities) being more normal than gestalt in hypothesis formation and statistical induction
    amounting to normal quality control procedures when accepting experimental results. That leaves retroduction for the sort of revolutionary gestalt experienced by Newton, although more typically one does not see the young lady without studying the old one for a long time.

    Geoff still: one of the few points I baulked at were your dismissal (p.146) of ‘epistemology’ and ‘ontology’ without any indication you understood what they mean. The one is about sources and the other about outcomes: if you like, provenance (justifying evidence) and purpose (what an entity is, i.e. does). The questions you haven’t answered about your evolving system are how does it evolve and towards becoming what is it evolving? I have answered them: the one in terms of creation of capabilities by control of freedom, and the other into a PID control system, where reaching the D extends control to a new level – like reaching 10 when counting starts a new digit in an arabic (algorithmic) number form. If you can understand that, you may understand the ecology generating our economy, that generating our symbolic monetary control system, and zombie profiteers (or more recently automation of monetary and share price marketing) transforming control of economic business into imaginary “money making”.

    Geoff, finally: though we have our disagreements, I found your book well worth reading, and valuable as a source book. Where you have more first hand experience than I do, it did get me “thinking outside my own box”.

  5. Ken Zimmerman
    November 29, 2019 at 1:37 pm

    Anthropologists create only two broad generalizations, with which I believe even historians would agree. The two are: 1) human culture is the result of human interactions with humans and nonhumans. 2) these interactions require humans to perform – no one gets out of taking part in in the construction of culture and society. Within these generalizations there are lots of contingent, unique, and culturally specific actions and meanings that still need to be examined and described. My overall conclusion is that the study of human culture and collective life involves both, and of necessity must. This includes what you call “vested interests.” All study of human culture and society begins with “areas of concern.” Areas resulting from interests and prior history. Which, of course requires broad involvement of all humans in these areas, not just the “experts.”

    Economics, as any historian or anthropologist can tell you instantly, is hopelessly intertwined with politics and culture. Perhaps the lesson is obvious, but many had to learn it the hard way. Everything is interlocked, and no piece of the puzzle can be considered in isolation from the others. Thus, the basic question we need to ask and work to answer is: how does society work? In this work it became quickly clear that instead of looking for the simplest pieces possible, as social scientists do now, we needed to look at how those pieces go together into complex wholes. Complexity enters our work. Signifying human societies and cultures are emergent or self-organizing, the terminology preference largely dependent on which author one reads. Both terms refer to systems in which ‘the action of the whole is more than the sum of the actions of the parts.’ Other terms associated with complex systems are non-linearity and chaotic. Complexity is everywhere. It is that new paradigm that Craig writes about. In situation after situation complexity is completely reshaping sciences.

    Conventional economics, the kind taught in school, is about as far from this vision of complexity as you could imagine. Theoretical economists endlessly talk about the stability of the marketplace, and the balance of supply and demand. They transcribe the concept into mathematical equations and prove theorems about it. They accept the gospel according to Adam Smith as the foundation for a kind of state religion. But when it came to instability and change in the economy—well, they seemed to find the very idea disturbing, something they’d just as soon not talk about.

    If we want to understand economics, our approach needs to be the opposite. We need to embrace instability. Like it or not, the marketplace isn’t stable. The world isn’t stable. It’s full of evolution, upheaval, and surprise. Economics must take that ferment into account.

    Economists like Brian Arthur believed they had found the way to do that, using a principle known as “increasing returns”—or in the King James translation, “To them that hath shall be given.” Why had high-tech companies scrambled to locate in the Silicon Valley area around Stanford instead of in Ann Arbor or Berkeley? Because a lot of older high-tech companies were already there. Them that has gets. Why did the VHS video system run away with the market, even though Beta was technically a little bit better? Because a few more people happened to buy VHS systems early on, which led to more VHS movies in the video stores, which led to still more people buying VHS players, and so on. Them that has gets.

    The examples could be multiplied endlessly. Arthur was convinced that increasing returns pointed the way to the future for economics, a future in which he and his colleagues would work alongside the physicists and the biologists to understand the messiness, the upheaval, and the spontaneous self-organization of the world. He was convinced that increasing returns could be the foundation for a new and very different kind of economic science.

    Unfortunately, however, he had little luck convincing anybody else. Outside of his immediate circle at Stanford, most economists thought his ideas were—strange. Journal editors were telling him that this increasing-returns stuff “wasn’t economics.” In seminars, a good fraction of the audience reacted with outrage: how dare he suggest that the economy was not in equilibrium! Arthur found the vehemence baffling. But clearly, he needed allies, people who could open their minds and hear what he was trying to tell them. And that, as much as any desire for a homecoming, was the reason he returned to UC Berkeley. So, there they had all been, sitting down to sandwiches at the faculty club. Tom Rothenberg, one of his former professors, had asked the inevitable question: “So, Brian, what are you working on these days?” Arthur had given him the two-word answer just to get started: “Increasing returns.” And the economics department chairman, Al Fishlow, had stared at him with a kind of deadpan look. “But—we know increasing returns don’t exist.” “Besides,” jumped in Rothenberg with a grin, “if they did, we’d have to outlaw them!” And then they’d laughed. Not unkindly. It was just an insider’s joke. Arthur knew it was a joke. It was trivial. Yet that one sound had somehow shattered his whole bubble of anticipation. He’d sat there, struck speechless. Here were two of the economists he respected most, and they just—couldn’t listen. Suddenly Arthur had felt naive. Stupid. Like someone who didn’t know enough not to believe in increasing returns. Somehow, it had been the last straw.

    Arthur’s most virulent critics had almost always been Americans. And being at Stanford brought him face to face with that fact. “I could talk about these ideas in Caracas, no sweat whatever. I could talk about them in Vienna, no sweat. But whenever I talked about these ideas in the United States, there was hell to pay. People got angry at the very notion that anything like this could happen.” Arthur found the Americans’ hostility both mystifying and disturbing. Some of it he put down to their well-known fondness for mathematics. After all, if you spend your career proving theorems about the existence of market equilibrium, and the uniqueness of market equilibrium, and the efficiency of market equilibrium, you aren’t likely to be happy when someone comes along and tells you that there’s something fishy about market equilibrium. As the economist John R. Hicks had written in 1939, when he looked aghast at the implications of increasing returns, “The threatened wreckage is that of the greater part of economic theory.” But Arthur also sensed that the hostility went deeper than that. American economists are famous for being far more passionately devoted to free-market principles than almost anyone else in the world. At the time, in fact, the Reagan administration was busily cutting taxes, junking federal regulations, “privatizing” federal services, and generally treating free-market capitalism as a kind of state religion. And the reason for that passion, as Arthur slowly came to realize, was that the free-market ideal had become bound up with American ideals of individual rights and individual liberty: both are grounded in the notion that society works best when people are left alone to do what they want. “Every democratic society has to solve a certain problem,” says Arthur: “If you let people do their own thing, how do you assure the common good? In Germany, that problem is solved by everybody watching everybody else out the windows. People will come right up to you and say, ‘Put a cap on that baby!’ ” In England, they have this notion of a body of wise people at the top looking after things. “Oh, yes, we’ve had this Royal Commission, chaired by Lord So-and-So. We’ve taken all your interests into account, and there’ll be a nuclear reactor in your backyard tomorrow.” But in the United States, the ideal is maximum individual freedom—or, as Arthur puts it, “letting everybody be their own John Wayne and run around with guns.” However much that ideal is compromised in practice, it still holds mythic power. But increasing returns cut to the heart of that myth. If small chance events can lock you in to any of several possible outcomes, then the outcome that’s selected may not be the best. And that means that maximum individual freedom—and the free market—might not produce the best of all possible worlds. So, by advocating increasing returns, Arthur was innocently treading into a minefield. Well, he had to admit that he’d had fair warning. It was in 1980, he recalls. He had been invited to give a series of talks on economic demography at the Academy of Sciences in Budapest. And one evening, at the bar of the Budapest Intercontinental Hotel, he found himself chatting with academician Maria Augusztinovics. Standing there with a scotch in one hand and a cigarette in the other, she was a most formidable lady. Not only had she married, in succession, most of the top economists in Hungary but she was a very perceptive economist herself. Moreover, she was an influential politician, with a post high in the Hungarian government. She was rumored to eat bureaucrats for breakfast. Arthur saw no reason to doubt it. What are you working on these days? she asked. Arthur enthusiastically launched into a discourse about increasing returns. “It explains so many problems,” he concluded, “all these processes and patterns.” Augusztinovics, who knew exactly what the philosophical stakes were for Western economists, simply looked at him with a kind of pity. “They will crucify you,” she said. “She was right,” says Arthur. “The years from 1982 through 1987 were dreadful. That’s when my hair turned gray.”

    Brian Arthur’s story from, Mitchell M. Waldrop. Complexity: The Emerging Science at the Edge of Order and Chaos

    • November 29, 2019 at 5:46 pm

      Ken, perhaps we can have a useful discussion of this.

      First, I agree with your 1) and 2), but there are the prior conditions that action takes place in space and time, and you cannot anything without some form of language to locate it. Hence geometry, and our living in effect on a spherical surface, so geographical description of your anthropologist’s societies needs latitude, longitude, poles and a reference event (e.g. the birth of Christ) to locate structures and events in solar time. The language part of this I can accept is culturally constructed, but not that we live on the surface of a sphere: only our knowing it.

      In your second para you say “the basic question we need to ask and work to answer is: how does society work?” Again, some form of language has to be prior in order to ask the question and establish whether we have found the answer. You are moving on to ‘complexity’, which is the Latin for “with parts”. In that sense the old ‘dualism’ of body and soul is already complex, but that did not account for language which is neither a machine nor a ghost driving it: both quantitatively ‘none’ and logically ‘not’. For this geometry offers the planar language of complex number: a cross representing the machine vertically and the ghost (action) horizontally, with ‘none’ in the middle and ‘not’ (negatives) below this. As I pointed out to Frank recently, these complex numbers are the general form of which types of linear numbers are an abstraction. Unfortunately, there is also an algebraic form of complex numbers (a, ib) where the i (an operator indicating the right angle between the axes as a rotation) is usually left out, suggesting its extension to the ‘a to the n’ and matrix forms taken for granted by economists. Which allows us to discuss the language of chaos theory, its misunderstanding of ‘complication’ (with ties) as ‘complexity’ (reifying Shannon’s information capacity), and Brian Arthur’s increasing returns being the D of PID.

      A reminder from Economics – Enslaved. “Back in 1956 I had been introduced to pre-war Practical Radio use of positive feedback to boost the efficiency of amplification. I saw the net effects of this were to reduce the bandwidth of the signal (i.e. strip off the harmonics which gave the sound its quality, c.f. small shops disappearing from town centres) and when too much was used, to turn the amplifier into an oscillator (as rediscovered by chaos theorists).”

      Let me remind you of what you said next: “In this work it became quickly clear that instead of looking for the simplest pieces possible, as social scientists do now, we needed to look at how those pieces go together into complex wholes. Complexity enters our work. Signifying human societies and cultures are emergent or self-organizing, the terminology preference largely dependent on which author one reads. Both terms refer to systems in which ‘the action of the whole is more than the sum of the actions of the parts.’ Other terms associated with complex systems are non-linearity and chaotic. Complexity is everywhere. It is that new paradigm that Craig writes about”.

      Complexity isn’t a paradigm (i.e. example). Agreed on understanding the construction of social systems, though for me that is applied science: exploring where fundamental science suggests you look. ‘Emergent’ seems more appropriate than ‘self-organising’, as it suggests a tendency rather than a specific ‘self’, whose actions must include not acting and restraining (i.e. negating). We could talk all day about that ! Complex numbers are linear but they are also directional. In the simplified algebraic form of the logistic equation, the stable outcome bifurcates as the exponent approaches 2-1/2, and becomes chaotic thereafter, just as happened in the old-fashioned radio when one added too much positive feedback. Looked at in the PID terms of steering, correcting the direction and position keeps one on track, but with too much diverting before one has got back on track one could end up anywhere.

      Having read Waldrop (supurb) and visited Santa Fe with friends, I read some of Brian Arthur’s work and corresponded with him about it. It was obvious he saw positive returns as making money, but of course it applies to the whole business of getting in first and generating fashions with celebrity advertising: regrettably, not least in politics.

      What you wrote comparing the American ideology of freedom, German local democracy and English deference I find very interesting, given my Distributist local democracy background and Pope Leo XI’s 1931 principle of subsidiarity. Thanks very much for that.

    • November 29, 2019 at 6:14 pm

      Ken Zimmerman

      You say: “Economics, as any historian or anthropologist can tell you instantly, is hopelessly intertwined with politics and culture. Perhaps the lesson is obvious, but many had to learn it the hard way. Everything is interlocked, and no piece of the puzzle can be considered in isolation from the others. Thus, the basic question we need to ask and work to answer is: how does society work? In this work it became quickly clear that instead of looking for the simplest pieces possible, as social scientists do now, we needed to look at how those pieces go together into complex wholes. Complexity enters our work.”

      First, economics is NOT a social science but a system science. The question is NOT how society works but how the economy works. Second, you forgot to mention that the whole complexity thing was an Oligarchy-sponsored project. Not much different from the General Equilibrium thing that went before.

      “By the way, he said, he’d recently been up in New York at a meeting of the board of the Russell Sage Foundation, which gives away a lot of money for social science-type research. And while he was there he’d talked to a friend of his, fohn Reed, the new chief executive officer of Citicorp. Now, Reed was a pretty interesting guy, said Adams.” (Waldrop, p. 91)

      “Since becoming CEO in 1984, said Reed, he’d spent the bulk of his time cleaning up this mess. It had already cost Citibank several billion dollars-so far-and had caused worldwide banking losses of roughly $300 billion. So what kind of alternative was he looking for? Well, Reed didn’t expect that any new economic theory would be able to predict the appointment of a specific person such as Paul Volker. But a theory that was better attuned to social and political realities might have predicted the appointment of someone like Volker-who, after all, was just doing the politically necessary job of inflation control superbly well. More important, he said, a better theory might have helped the banks appreciate the significance of Volker’s actions as they were happening. ‘Anything we could do that would enhance our understanding and tease out a better appreciation for the dynamics of the economy in which we live would be well worth having,’ he said. And from what he’d heard about modern physics and chaos theory, the physicists had some ideas that might apply. Could the Santa Fe Institute help?” (Waldrop, p. 95)

      Better to forget the complexity hype which was just another failed approach. For more on increasing returns and macroeconomics see

      Increasing Returns and Stability
      https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1921267

      Egmont Kakarot-Handtke

      • Ken Zimmrman
        December 4, 2019 at 11:38 am

        Egmont, as I understand it the most common cataloguing of the sciences that study humans is social sciences (anthropology, sociology, etc.), behavioral sciences (psychology, psychobiology, anthropology, cognitive science, etc.), and biological, physiological, etc. concerning human biology and functioning. As I understand it, all of these are also system sciences, since their focus is human or human-related systems. So, economics is both a social science and a system science.

        You are correct that corporations and corporation’s foundations fund scientific work, including work in the social and behavioral sciences. But why do you believe the “whole complexity thing was an Oligarchy-sponsored project?” Yes, the Santa Fe Institute and those that went through it play a role in inventing complexity. Since Santa Fe is a physics focused institute, it’s not surprising the physicists there looked at complexity as another potentially unifying theory for, in this case, everything. From human biological, social, and behavioral life to the cosmos, and the tiniest parts of the universe. And this is precisely how physicists have used complexity. But it’s not the first time one concept has been put up as able to unify everything. In the early part of the 20th century sociology made this claim. Per sociology associations is the basis of everything. And the associations are complex. Historically this is how humans have created explanations. By linking one concept to another. On the practical side, you are correct that corporations and other parts of the economic and political elites have made efforts to use complexity for their purposes. But then these elites attempt the same with every new concept and most of the old ones.

        As to failed, complexity is still a relatively new concept. It only emerged after WWII. I believe it can be useful for the social sciences. It’s too early in its history to talk of failure.

    • Craig
      November 29, 2019 at 7:38 pm

      “Complexity is everywhere. It is that new paradigm that Craig writes about.”

      Not correct. A new paradigm is a single concept that re-orders and in certain ways eliminates complexities while creating an entirely new pattern. Pursuing complexity as a paradigm is an oxymoron and a fools errand. Complexity IS a reality in the temporal universe, but a genuine paradigm change is the only historical phenomenon that resolves and makes human sense out of complexity’s conflicts and apparent overwhelming reality.

      “In situation after situation complexity is completely reshaping sciences.”

      In economics it’s actually only bringing more and more stress to its conflicting assumptions which like a zen koan is intended to bring enlightenment and a unitary realization of thirdness greater oneness out of an obsessive duality/conflict.

      And this is good until one thoroughly sees the new insight and the single concept and practical problem resolving effects of the new paradigm. After which it becomes alternately amusing and sometimes momentarily frustrating to watch others puzzle over the koan.

  6. Ken Zimmerman
    November 29, 2019 at 2:25 pm

    XX

    • Craig
      November 29, 2019 at 8:35 pm

      Ah, well and good, Grasshopper.

  7. November 30, 2019 at 7:14 am

    Sorry folks, haven’t been able to give this attention. We have a fire threatening our little town, though safe for now. Still not even summer yet in coal-exporting, coal-burning, coal-loving-govenments Australia.

  8. December 2, 2019 at 7:48 am

    The situation in my home town has stabilised for now, though one house lost, some other farm sheds etc., much woodland burnt (20,000 hectares) and it’s still burning in the hills out there with no prospect of rain for – how long? Weeks? Months? Barely the beginning of summer here and already heavy losses in one of the most severe droughts on record. Our fire is far from the largest or most destructive. And a government that denies humans have any responsibility for the climate crisis, a government (and opposition) thoroughly corrupted by fossil fuel money.

    My interest in economics is at the practical level of why the human world is so poorly governed, which comes to why wealth and power become so concentrated.

    I think we talk past each other a fair bit on this blog, from different perspectives with different language and asking different questions.

    Dave I don’t deny that ontology and epistemology have some relevance, I’m just not very interested in that level of enquiry. How does “my” system evolve and where is it evolving to? I don’t know. I do think it is an advance to identify the system as an evolving system. Yours is one of the very many enquiries that might grow out of this identification.

    There are many thousands, perhaps millions of people out there doing actual science, without having worried too much about the philosophical underpinnings of what they do. Some of it is misguided and some is a waste of time, but overall there is an advance of knowledge about many things. So my frustration on this site is that people spend a lot of time agonising about how one might do economic science but they don’t jump in and do it, or learn how.

    More later.

    • December 2, 2019 at 9:59 pm

      Geoff, my son lives in Brisbane and one of the outlying fires was at Noosa where he once took us for Christmas dinner; so the Aussie crisis is a bit personal for me too.

      Your interests in economics are practical as methodological issues in mine. Myers-Briggs personality profiles justified by information system and physiological architectures provide a “Nature or Nurture?” basis for analysis of concentration of wealth and power, development being significantly arrested by narrow schooling in verbal rather than visual (iconic) language.

      Having tentatively satisfied myself about these, I’ve moved on to visualisable mapping of how economics fits into the evolving scheme of things, how evolution develops by PID limitation (control) of actions, and how an information-based PID system can go wrong when it acts on false information, e.g. about money and (c.f. Copernicus) its directions of motion.

      Tentatively satisfied on this, personality types come back into the issue of how to make practicable what the systems analysis has shown to be possible, socially necessary and logically efficient. Replacing shared bank money with constitutionally guaranteed free personal credit will do this: the familiar credit card, recognising human credit-worthiness and repaid by the worthwhile work it facilitates. Credit indebts you insofar as it is spent, so it incentivises self-imposed austerity and is not worth stealing or accumulating. If the idea is accepted it is very easy to implement, changing interpretations more than social functions. Detailed working out of the principle is of course beyond the scope of a blog comment.

      The psychological problem is the ‘verbal’ majority seeing only what they already have names for, i.e. are already taking for granted. Hence Craig: “a credit card is not a monetary gift, it is a DEBT….and that places you unmistakably in the private banker’s mindset and paradigm of DEBT ONLY as in a monopoly paradigm”. The virtual inversion of the meaning of ‘credit’ and ‘debt’ is seemingly beyond his comprehension, as I guess (despite his appeal to ‘integration’) is Fullbrook’s inversion of the whole and all its incommensurable parts.

      [A valuable classic on social as against mathematical integration is Metcalf H C and L Urwick, eds., “Dynamic Administration: The Collected Papers of Mary Parker Follett”, 1963, Pitman].

      So yes, this blog can be frustrating when we foreigners are ignored, for it is said, one can only learn what one doesn’t already know. Let us at least keep on trying to learn from each other?

      • December 2, 2019 at 11:41 pm

        Dave, I often have trouble with discussions of credit/debt when they are not clear who owes and who is owed. Plus you are a bit abstract for me. For example: “Credit indebts you insofar as it is spent, so it incentivises self-imposed austerity and is not worth stealing or accumulating.” Do you mean I won’t use my credit card too much because it will indebt me? Because many people do use their credit card too much because they like the things they “buy” with it.

      • Craig
        December 3, 2019 at 12:07 am

        C’mon Dave. A credit card’s balance IS A DEBT THAT MUST BE PAID BACK. A debit card at the central bank debited with a $1000/mo.universal dividend is a GIFT OF MONEY THAT DOES NOT NEED TO BE PAID BACK, and with the 50% discount/rebate policy at retail sale would enable one to purchase $2000/mo. worth of goods and services.

        Who has the misunderstanding regarding credit-debt and monetary gifting here, you or me?

      • December 3, 2019 at 4:46 pm

        Sorry, this me trying to keep things simple, and not avoiding Einstein’s “too simple”! Both your reactions are helpful in their different ways.

        Geoff, I had to decide what credit and debit are before I could satisfy myself as to who owes whom. Muddling the picture is money, love of which is very plausibly “the root of all evil”, so why do so many people still love it? I don’t, which took me into personality differences and growing up, and the order in which we learn to use the different part of our brain: expressing feelings, doing things, talking and writing, intuitive judgement maturing with wide experience into Craig’s wisdom. To learn to understand money children need to work with something tangible (and so I’m now finding do those entering their second childhood). So for educational reasons I don’t propose getting rid of money altogether, I just want to sideline it.

        There are currently two ways in which we buy something. We debit either our bank account or our credit card account. It has now been shown that even credit entries in our bank account were created somewhere as loans supposedly indebting us to the banks. But the loans were created “out of nothing” by a few key strokes, so they don’t really exist, and if we believe they do, all they do is act as a credit limit, i.e. a limit on how much we can spend. In the “credit card” interpretation, the banks simply give us a credit limit depending notionally on how credit-worthy they believe us to be, and expenditure is shown as a debit (how much we owe) on the account, and thus how much of our credit-worthiness we have left. The bank account, by contrast, tells us how much (fictitous) money we still have in the bank, and all the goods we have acquired with it. The one focuses our minds on our own credit worthiness and our need to help repay (in terms of real goods) society’s debt to nature. The other focusses our minds on what we can get for our “money”, with paying it back the last thing on our minds until misfortune leaves us at the mercy of the fraudulent banks.

        I don’t deny there is a long tradition to overcome here, and that “it takes a long time for little acorns to grow into mighty oaks”, but to follow Ken’s story-telling line, using credit cards is already familiar practice, so all we have to change is the story we teach our children – especially the budding economists.

        Craig, I agree a debit card’s balance represents (NOT is) a debt which has to be paid back. What you cannot do is repay a real debt (for all the goods you’ve acquired) with fictitious money, no matter how much you have of it. Have a think about what I’ve just explained to Geoff.

      • December 3, 2019 at 5:45 pm

        From “Macroeconomic Uncertainty”: “Dave, I’m not sure I follow you, but you seem to claim I’m mainstream for *describing* the nature of modern token money.”

        My apologies. That was not at all intended, Being “too simple” again, I suppose! What I had in mind was something like: EVEN though you are not mainstream, you are still describing a system which in fact operates on the assumption that money is valuable (as against of no or negative “real” value).

      • December 4, 2019 at 12:02 am

        Thanks for clarifying Dave, and apology accepted. I don’t think I can explain more clearly than in Chapter 3 of the book. I’ll just emphasise a couple of points.

        You say money created in a loan ‘doesn’t exist’. I say it is an implicit social agreement. Perhaps it comes down to all our mutual obligations not having a physical representation but still being essential to our community and humanity. Those obligations can be abused, but that doesn’t change their nature.

        My attitude to money is not ‘love’, but that it is extremely useful. It enables us to move beyond the severe limitations of barter. The way money is issued at present is idiotic, exploitative and destabilising. It could be issued in ways that serve us without these problems, as I explain in the book.

        That said, token money is a form of debt, and debt involves risk. So money is like fire, very useful, even powerful, but you’d better be careful how you handle it. At present it is being managed by incendiarists.

      • December 4, 2019 at 11:06 am

        Geoff, I’m not sure our current interpretation of money is a social agreement. As I see it, it has been enforced by law. In any case, changing the interpretation doesn’t make it any less useful, just less attractive.

        It has been really helpful to have you, Craig and before him Ken, allowing the discussion to proceed to the point where I have been able to survey most aspects of my argument. Let us leave aside the money aspect for further discussion. There is something further needs saying about the PID argument, basically that the method of steering applies to parts as well as the whole of a journey, e.g. if we humans are PID systems then we rely on homeostatic P, PI and PID subsystems within us. But let me first go back to my starting point that we will not necessarily disagree with each other. I am “starting economics again” with a different fundamental theory, which will influence what Kuhn’s “normal” scientists like yourself will be looking for.

        The fundamental theory of economics at the moment is that it is an equilibrium system. PID is saying it is not automatically at equilibrium: it requires us to keep it there: by agreed aims and the necessary information feedback circuits enabling us to make corrections that help KEEP it near enough in equilibrium.

        Applying PID theory directly in the “cybernetic” paradigm, i.e. steering ships, it obviously applies not just to one but to any ship. Much economic theorising at the moment assumes it is directed to controlling the government, but it is just as relevant to the management of firms, and to the ordering of households dictated by their biological nature interacting with the microbes, vegetables, mobile animals and signalling of their ecology.

        How to express this multi-level ordering? I have tried to use use the analogy of arabic numbering, where the same adding and overflow procedures operate whether we are adding ones, tens, hundreds or billions. The billions emerge from the ones, not the number of ones from the number of billions. In my analogy the ones are the household, the tens the firms, the hundreds government, the thousands controllers of national currencies etc. The word ‘subsidiarity’ was coined decades ago to reflect this ordering and the “bottom up” form of democratic government.

        So, if equilibrium is not automatic but up to us, isn’t that more or less what you are saying as a normal scientist rather than a mainstream economist, and isn’t PID just giving us a handle on how to go about achieving it?

      • December 4, 2019 at 11:22 am

        Being as Egmont Kakarot-Handke started this (not just here but with an RWER article on “Time to scrap the lot and start again”), it would be good have his assessment of PID as a new starting point.

      • December 4, 2019 at 12:32 pm

        We’ve not discussed “relating the schools”. With discussions of Krugman’s position in mind, I’ve referred to the mainstream position as “automatic” equilibrium, but of course the issue is “general” equilibrium, P feedback being assumed in terms of pricing controls quantities exchanged. The aggregation has been shown not to work out, yet Mainstream schools still assume it does and in trying to explain why use statistics or methods in which errors cancel out. Marxists seem to replace statistical with direct control, Evolutionists, Increasing Returns and Chaos theorists emphasise differentiation by D feedback and Institutionalists P mediation of system functions by status rather than price. These for discussion, being just off the top of my head.

      • December 4, 2019 at 12:53 pm

        Again, missed a key point picked out by Ken below at Dec 3, 11:44: “In his critique of the left, Beinhocker concludes,” the economy is simply too complex for the central planning required by socialism to work effectively.” The significance of ‘subsidiarity’ is that the smaller the unit, the more able it is to detect and correct its mistakes. Ultimately, this is about the need for errors noticed by our group to be corrected by us before they are acted on by levels of government with wider scope. “For want of a nail the battle was lost”.

      • December 4, 2019 at 11:35 pm

        Dave, I meant ‘social’ to include all collective decisions in a society, including those through governments, i.e. law.

        Your description of how ‘steering’ might work seems compatible with my thinking, so perhaps PID will help us to guide the ship. Yes I think guidance is up to us, it is not automatic – and I’m saying guidance because we may or may not want ‘equilibrium’ in any given context. Or ‘steady state’, or homeostasis.

      • December 5, 2019 at 11:25 am

        Geoff, your using the bucket word ‘social’ (as in ‘socialism’) gives the impression of controlling everything by ‘government’ controlling the bucket. The ordering word ‘subsidiarity’ is unambiguously ‘bottom up’, starting with self-government and family groups. It is about not delegating our responsibilities to far-seeing people who can’t see what is under their noses.

        For sure I agree with you about not aiming for equilibrium in the contexts like development or being in the wrong place. It might help you to remind yourself that PID is about learning from the Present, Past and [signals from] the Future.

        By ‘homeostasis’ I understand a mechanism which keeps its own actions in a steady state, this involving a balance of forces rather than the information processing of a PID servo.

        From Dec 4 at 12.04 pm, I’ve looked again at your Chapter 3 of your book [“Economy, Science, Nature”] and I couldn’t fault it for lack of clarity. The section on Debt and Risk, though, fails to mention the current answer to Jane’s monetary problem (insurance), nor the fact that the real loss of Tom’s crop has to be borne by its consumers (society), and may be negligible if there is over-production elsewhere. Here my “credit card” approach would simply write off rather than maintain Tom’s monetary debt, and resupply Jane with credit as needed.

  9. Ken Zimmerman
    December 2, 2019 at 11:14 am

    Geoff, et al, my suggestions here refer to the question, “How/Can we start over in economics?” If we accept the two broad generalizations with which I began, and then assume complexity plays a big part in working out human culture and society, we can attempt to investigate the details of how that occurs. More specifically, we can investigate the forms economics might take and the theories economists might invent to explain economics and economic actors.

    For example, consider causation. In the early 1980s, Brian Arthur and Russian colleagues developed equations that allowed economists to not only follow the entire process by which one outcome emerged, they could see mathematically how different sets of historical accidents could cause radically different outcomes to emerge. This is supported by Edward Lorenz’s work on weather. Lorenz used one of the new computers to test Newton’s promise that the world unfolded along a deterministic path, rule-bound like the planets, predictable like eclipses and tides. In theory a computer could let meteorologists do what astronomers had been able to do with pencil and slide rule: reckon the future of their universe from its initial conditions and the physical laws that guide its evolution. A promise around which modern economists had built their science. Turned out, Newton was wrong. Instead, uncertainty was everywhere. Weather repetitions were never quite exact. There was pattern, with disturbances. An orderly disorder. To test what he believed he saw Lorenz varied a run. He began in the middle of the numbers, typing them into the computer himself. The new run should have exactly duplicated the old. Neither the numbers nor the program had changed. Yet as he stared at the new printout, Lorenz saw weather output diverging so rapidly from the pattern of the last run that, within just a few months, all resemblance had disappeared. He looked at one set of numbers, then back at the other. He might as well have chosen two random weathers out of a hat. His first thought was that the machine was broken. Suddenly, he realized what had happened. There had been no malfunction. The problem lay in the numbers he had typed. In the computer’s memory, six decimal places were stored: 0.506127. On the printout, to save space, just three appeared: 0.506. Lorenz had entered the shorter, rounded-off numbers, assuming the difference—one part in a thousand—was inconsequential. A small numerical change was in Lorenz’s mind like a small puff of wind—surely the small puffs faded or canceled each other out before they could change important, large-scale features of the weather. Yet in Lorenz’s system of equations, small changes proved catastrophic. Lorenz continued to examine these outcomes. Finally, realizing that any physical system that behaved nonperiodically would be unpredictable. Social systems tend toward nonperiodicity more so than physical systems, so tend toward greater unpredictability. This changes radically what science is and what scientists can accomplish. Is this a new starting ground for economics? I believe it is. Recognizing nonperiodicallity and accepting it are two different things, however. During the 1950s and 1960s, there was wide belief in the notion that human society would free itself from weather’s turmoil and become its master instead of its victim. Geodesic domes would cover cornfields. Airplanes would seed the clouds. Scientists would learn how to make rain and how to stop it. The intellectual father of this popular notion was Von Neumann, who built his first computer with the precise intention, among other things, of controlling the weather. Economists have for some time shared a similar notion about control of economies. Economists’ work revolves around assumptions, most of which are absurd.

    In this view the world is vague, diffuse or unspecific, slippery, emotional, ephemeral, elusive or indistinct, changes like a kaleidoscope, often by accident, or doesn’t really have much of a pattern at all. Where does this leave social science? How might we catch some of the realities we are currently missing? Can we know them well? Should we know them? Is ‘knowing’ the metaphor that we need? And if it isn’t, then how might we relate to them? But one thing is sure: if we want to think about the messes of human existence at all then we’re going to have to teach ourselves to think, to practice, to relate, and to know in new ways. We will need to teach ourselves to know the realities of the world using methods unusual to or unknown in social science.

    Currently, what happens when social science tries to describe things that are complex, diffuse and messy. The answer, I argue, is that it tends to make a mess of it. This is because simple clear descriptions don’t work if what they are describing is not itself very coherent. The very attempt to be clear simply increases the mess. What might it be like to remake social science in ways better equipped to deal with mess, confusion and relative disorder? No doubt some things in the world can indeed be made clear and definite, at least in some instances. Income distributions, global CO2 emissions, the boundaries of nation states, and terms of trade, these are the kinds of provisionally stable realities that social and natural science can deal with more or less effectively. But alongside such phenomena the world is also textured in quite different ways. My argument is that academic methods of inquiry don’t really catch these. So, what are the textures they are missing out on? If we start to make a list, then it quickly becomes clear that it is potentially endless. Pains and pleasures, hopes and horrors, intuitions and apprehensions, losses and redemptions, mundanities and visions, angels and demons, things that slip and slide, or appear and disappear, change shape or don’t have much form at all, unpredictabilities, these are just a few of the phenomena that are hardly caught by social science methods. It may be, of course, that they don’t belong to social science at all. But perhaps they do, or partly do, or should do. That, at any rate, is what I want to suggest. Parts of the world are caught in our ethnographies, our histories, our statistics, and our theories. But other parts are not, or if they are then this is because they have been distorted into clarity. This is the problem social scientists need to address immediately.

    Geoff, the situation around fires, climate change, and forests burning is complex and messy. Social scientists have consistently, thus far responded poorly to these events and their effects on people and the planet. Perhaps the changes I suggest can help fix this failure.

    • Robert Locke
      December 2, 2019 at 2:02 pm

      If there is no science, in Newton’s sense of predictability, from which we can seek answer, then we have to seek answers from the “scientists” who are creating the “science” we use; and yet they are not reliable guides to economic problem solving. Schmalenbach wished to create such a reliable body of experts when he set out to educate people in the disipline of business economics. He made the firm the focus of the new science, Betriebswirtschaftslehre, I thought we were trying to create a body of people skilled in this science through academic study and business experience; but we have failed. Why?

      • Ken Zimmerman
        December 2, 2019 at 3:26 pm

        Robert, I gave some of the requirements I see as necessary for science that simply are not part of science today. In sum, social science needs to consider the entire breath and depth of human experiences. Today it considers only what fits into a rational, logical framework. Even if it must distort many experiences to make them fit. Something we can only partially blame on the ancient Greeks and the Enlightenment. The rest of the blame we can place on corporate/governmental big science that long ago lost interest in doing any science that does not serve the goals of profit and control. Such science must always fail, since its range of investigation is stifled and thus its ability to deal with the areas of concern of people is curtailed. Revolutionary, even emancipating science cannot exist in this historical context. We need to change that context. The changes I suggest can, in my view do this.

      • December 3, 2019 at 12:02 am

        Robert, there is more to science than predicting the future. To me science is about stories the help us to understand what we can observe. But yes there are many parts of our complicated societies that exhibit regular patterns some of the time, and it’s useful to have ‘experts’ who recognise them.

        Ken, you overstate. Many people are working to bring systems/complexity/chaos into many branches of knowledge, including the social sciences. You are not the lone flag bearer.

      • Ken Zimmerman
        December 3, 2019 at 12:24 am

        Geoff, not many in economics. Some of Mandelbrot’s work is accepted by some in economics. But, in my view mostly because it’s mathematical, not because they want to change the basics of economics.

      • December 3, 2019 at 5:48 am

        Ken, Eric Beinhocker summarises a lot of complexity work in economics in The Origins of Wealth, and that was back in 2006. You quote(?) Waldrop, but are you following Brian Arthur and many others connected with the Santa Fe Institute?

      • Ken Zimmerman
        December 3, 2019 at 11:44 am

        Geoff, I use Waldrop’s ideas because they are easier for the non-initiated to grasp. And Brian Arthur is just one example of an economist putting out suggestions for a new economics based on a notion of complexity (chaos). Beinhocker’s an interesting person. I knew him when he was at McKinsey & Company. He’s smart and agile. But like most with his background, when considering complexity, he can’t take the next step to place everything in the context of complexity. While his book, “The Origin of Wealth” is a good attempt to place economics and wealth within that context, Beinhocker can’t bring himself to treat left v. right economics the same. In his book the section titled ‘Left-Wing Utopias and Free Market Fantasies’ shows this flaw clearly. In his critique of the left, Beinhocker concludes,” the economy is simply too complex for the central planning required by socialism to work effectively.” This gives away the game. Socialism as centrally controlled economies is a comic book version of socialism. Arising from the history of central planning in the USSR and China. But democratic socialist countries decentralize actions while centralizing overall planning through democratic elections, not through markets. Something with which the US after WWII had experience and did well. He sides with Hayek that we must have markets to provide the feedback needed to judge the results of the economic arrangements that are operating. Why he believes voting by the people whose economy it is can’t provide that feedback eludes me. To top it off Beinhocker refuses to critique capitalism, claiming that, “Complexity Economics views markets as both useful and necessary, [but] … knocks them off their optimally efficient pedestal.” It’s perversions of markets and capitalism like the “Neoclassically inspired Right-wing fantasy of how capitalism works” that are the real problem, according to Beinhocker. The marks of complexity, self-organization and emergence are found in all of these. Which tells us that the adaptive systems created via complexity (including economics) can be both successful and unsuccessful. For reasons that are apparent and explainable, or reasons that are unknown, and perhaps unknowable.

      • December 4, 2019 at 1:30 am

        Ken, I didn’t say I agreed with Beinhocker’s politics. I agree with most of your critique, but it doesn’t mean everything in his book is worthless. It galls me that he, Brian Arthur and co avoid drawing the big implications out of complexity. That’s what I do.

      • Ken Zimmerman
        December 4, 2019 at 11:48 am

        Geoff, I did not intend to imply that you agree with Beinhocker’s politics. Please accept my apology. And I agree that parts of “Origin of Wealth” are interesting, if a bit simplistic and self-serving. Drawing out the implications of complexity is what a lot of people are attempting right now. At my age I’m not likely to see the results of the debate in full, but it should make waves. Particularly, since many younger scientists, scholars, and just ordinary folks are involved.

    • December 2, 2019 at 3:12 pm

      To “assume complexity plays a big part in working out human culture and society” is one thing, but Ken, are you thinking of the concept of ‘complexity’ seen raw in complex number formats, or of the quantity of interacting parts?

      • Ken Zimmerman
        December 2, 2019 at 3:32 pm

        Dave, I’m thinking of complexity as I describe it in my comments. And that is not just complex numbers, or even a single area of complexity such as geology or biology, or complexity mathematics such as fractal mathematics.

    • December 2, 2019 at 11:55 pm

      Ken, yes, my little book is an attempt to explain concisely, for students, how systems can become erratic, complex or chaotic. It also explains how we might proceed, despite all the technical complexity and human complicatedness. It is to look for patterns in the system’s behaviour. Perhaps just to recognise them, as a horse trainer recognises “horsey” behaviour. Perhaps to go further and make a simple model, such as a boom and bust driven by excessive debt creation (too many promises made that can’t be redeemed). As I illustrate in the book. In so far as I understand your very long posts, I think I am showing how to proceed in the situations you describe (although weather is technically chaotic, not complex)

      btw, do you cut and paste from books (like Gleich and Waldrop)? If so could you more concisely summarise, because I usually ignore very long posts.

      • Ken Zimmerman
        December 3, 2019 at 9:10 am

        Geoff, systems become complex for what might seem like small changes. For example, Lorenz shows that changing numbers entered into a computer at the thousandth decimal place can change future results. Initially, slightly but quickly thereafter in major ways. Looking for and recognizing patterns in a series of actions requires sensitivity to uncertainty, emotional states, “crazy” motivations, etc. that most social scientists don’t even acknowledge in their professional work. Though they talk about these in informal meetings and writings. The problem with recognizing making promises you can’t meet or being a horse’s ass is that for many using such references denigrates and denies the current cultural norms of science. And this of course leads to declines in scientific reputation for the transgressors, which leads to diminished career options, lower pay, and lower tier employment. Dangerous in modern societies. My prose style is a mix of academic, policy, and journalism. With some legal terms mixed in. It simply came out this way from the work I’ve done for the last 30 years. This does tend to lead to longer posts. Particularly, since like journalists I write for the 8th grade reading level and like to include examples where I can. But I will as always attempt to be as succinct as I can.

  10. ghholtham
    December 2, 2019 at 3:13 pm

    All forecasts in any discipline are conditional. There are always potential forces that we have not observed in the recent past but which might come into play in future. No theory proceeds without abstraction from things that are or may be significant in reality. No forecast model includes and parameterises every variable that could possibly bear on the outcome. The more complex the system with a larger set of interactions and feedbacks and a greater number of relevant variables, the greater the difficulty in specifying the domain of the conditional forecast and therefore in determining its accuracy, even ex post.
    As a practical matter if you analyse the economic forecasts of international organisations like the OECD, for seven or eight years out of ten they will be fairly small – say 1per cent of GDP. Two years in ten they will be very large – 4 per cent of GDP or more. Most of the time the near future resembles the recent past in that the same fundamental forces are at work and their effects have been calibrated even if not fully understood. From time to time a dormant variable or variables erupts so to speak, the economic course changes and the forecast is awry. Any success of conditional forecasts in economics is due more to inertia in the system than to any profound understanding of its dynamics. Of course, a better understanding of the evolving system might have made the eruption predictable but its quantitative effect would probably still have been unfathomable given the sensitivity of chaotic systems to minute variations in initial conditions to which Ken Zimmerman refers. Economic outcomes are predictable only when nothing happens. When something happens, the most perspicacious analyst may have an idea of the direction of events but not their magnitude.

    • Ken Zimmerman
      December 2, 2019 at 4:03 pm

      ghholtham, if we knew what things are or may be significant in reality, or what that reality is you would be correct. Mostly, we do not. It’s not specifying the domain of the conditional forecast and therefore in determining its accuracy that is our foremost problem. Rather it is being aware and sensitive enough to see events as they unfold, deeply and fully, or if the events have already unfolded, to sense where they began and how they ended where they did. This is often buried in emotions, half expressed, or not expressed motives and perceptions of what’s real that may vary greatly from those of the social scientist. Why don’t mainline economists discuss greed, envy, revenge, slavery, etc? These cannot be fitted within so called rational/logical models, particularly those economists draw up. So economists leave these to psychologists or anthropologists. Thus economists grasp only a small, sometimes a minute portion of the concerns and factors that move economic actions, particularly the many uncertainties. And all too often economists end up focusing on the wrong factors. So their “academic” work comes off as amateurish or, read in a negative fashion, intentionally misleading or attempting to serve a specific agenda. And like your comment, economists treat human experiences as if only a few of them are uncertain,vague, emotional, ephemeral, accidental, mixed together like a kaleidoscope, and often show no visible pattern. Your overall conclusion is that most systems show order, but only within disorder. Humans mostly recognize this, since they have no way to change it. And have learned to deal with it in their daily lives. Social scientists, on the other hand are trained to believe that finding order only requires the correct theory and methods. That’s the divide we need to bridge if social science is to be relevant to people lives. Economics is just the current most extreme example of that failure. At one time psychology and sociology were in that same boat. Neither was anthropology excluded during it history.

    • December 3, 2019 at 4:59 pm

      Gerard, I accept most of what you are saying, but you might try getting your head round the interplay of positive and negative feedback in a “flip-flop” computer circuit.

  11. ghholtham
    December 2, 2019 at 3:51 pm

    sorry wrote too fast – “they” should be “their average errors”. It is the size of errors that shows a pattern.

  12. ghholtham
    December 2, 2019 at 5:14 pm

    I don’t wish to defend the homus economicus approach and certainly not the assumption that we can suppose the theory of rational choice operates in conditions of uncertainty. But practical forecasting for policy purposes does not depend on those assumptions (though some practitioners pretend it does while filling their equations with distributed lags that do all the work). Practically, forecasting and analysis depends on homely assumptions like when people get more income they will spend more and that when firms make more profits their stock price will rise and they might invest more. Certain things do tend to apply fairly generally: if governments run a moderate deficit, aggregate demand increases (contrary to the doctrine of Ricardian equivalence); if a country’s terms of trade improve, economic activity will increase. We know some things about economic aggregates and can calibrate what we know for the recent past. That is not deep, general theory, and no-one sensible would claim as much. Attempts to derive such practice from fundamentals of individual behaviour have been a failure. We don’t have a science of individual behaviour and we certainly can’t derive the behaviour of economic aggregates from any such knowledge.
    Experience plays a role too. Situations can have parallels with historical episodes which can lead to putting more emphasis on elements that were unimportant in the most recent past. As for relevance to people’s lives, macroeconomic policy errors, whether induced by ideology or false beliefs can have large effects so it helps to get it right.
    Applied macroeconomists, if you like, are playing draughts (or checkers in American). You can play well or badly but it is pointless to criticise them for not playing chess. They can’t – they haven’t got the pieces. As some of us keep repeating, economics properly understood is a set of tools that can be used or misused and not a general theory or view of life. The views of individual economists are usually shaped by their political ideology, which tends to be true in all social “sciences” and often in biology too.
    .

    • December 3, 2019 at 12:14 am

      Well said.

      I might put it this way: we can develop a more humble version of macroeconomics, but it is pointless to try to create a microeconomic theory of everything economic.

      It may also be useful to do some constrained microeconomic modelling of parts of a system to learn how such systems behave, as some of the complexity modellers are doing, described by Eric Beinhocker in The Origin of Wealth.

    • Meta Capitalism
      December 3, 2019 at 4:50 am

      Agreed. Well said.

    • Ken Zimmerman
      December 3, 2019 at 9:04 am

      ghholtham, what you see as a researcher or policy facilitator also depends on your experiences. And whether forecasting and research for policy depends on the “rational-logical” assumptions many economists make depends on who’s doing the forecasting and research. Take for example, the forecasters/researchers who work to create visceral divisions among portions of the American population. They assume that people often don’t really want to understand what’s happening, depend for action on prejudices and lies, are always only dimly aware of surroundings outside their immediate area, and are frightened and uncertain about their future wellbeing. While they go too far in basing their work on these assumptions, so called “legitimate” researchers and forecasters don’t go far enough in including these assumptions in their work. When you speak of the actions and beliefs that “make people rational” you’re speaking of learned truths. What does one do when they get a pay raise? In many portions of America, increase your spending is the cultural answer to the question. But these truths are frequently violated, as people also put pay increases into savings accounts, invest them into the wellbeing of their children, or simply pretend the pay increase never happened. As to theories of “individual” actions, it’s not that we don’t have a theory, it’s that we have many theories. From many sources (social science, self-help, TV stars, history, etc.). How we choose one over another is the big question. And that’s certainly a complex process. Whether such processes go up or down depends on how up and down are defined. Populism rests on the assumption they should go up. The modern democratic assumptions of government in America are that the process should go down. For example, from the CEO or President, down. Using and misusing economic tools depends on the context. In other words, to use or misuse economic tools we must have some standards against which to judge the actions. In economics today there are several such standards. If we assume for the moment that the standards applied are those of neoclassical economics, it’s clear to me many of these standards have not just been violated, but actively manipulated in the name of career gains, political affiliations, and money. Even in the face of the uncertainty and vagueness of many of these standards, these violations standout as egregious.

    • December 3, 2019 at 5:04 pm

      “We don’t have a science of individual behaviour”.

      No, but we do have a science of TYPES of individual behaviour; see Isobel Briggs Myers: “Gifts Differing”.

    • December 5, 2019 at 2:58 pm

      Gerard and Geoff, on the whole, well said indeed.

      “As some of us keep repeating, economics properly understood is a set of tools that can be used or misused and not a general theory or view of life”.

      On this, macro-economics is about what an economy does (provision a society), not what a micro-economist does (whatever he can do with the tools at his disposal),

  13. Gerald Holtham
    December 4, 2019 at 6:39 pm

    Whatever view you take of the motives of individuals or small decision-making groups, the mathematics of aggregation mean you cannot derive the behaviour of aggregates like total consumer spending from them. The aggregate sums all the behaviour with weights determined by relative incomes. Change income distribution and you change the aggregate even if individual behaviour is unchanged. Moreover individual decisions probably cannot be expressed as linear equations of a few variables, even if we could measure greed, envy or other things you want to introduce. Non-linear equations do not survive numerical adding up of individual decisions about e.g. consumer spending. Only additively separable functions survive such aggregation. You want economists to be empirically oriented, and I agree, but remember what data macroeconomists are dealing with – numbers for categories defined and collected by national statistics institutions. The equations we use are stochastic and that random error term does a lot of work!
    Microeconomic studies of particular situations can delve more profoundly into individual behaviour. The work of Esther DuFlo, which Lars’ keeps knocking, is a case in point. But it applies to its own situation and can rarely be applied at the all-economy level.
    We agree that the uncritical application of neoclassical comparative static analysis to macroeconomics is nearly always misguided. It has been used to make policy prescriptions, unfortunately, but no-one whose livelihood depends on forecasting is fooled.

    • December 5, 2019 at 1:05 pm

      Gerard, are you assuming that political economics is all about doing sums with money? Decision making, surely, is more like coming to a cross-roads, and different people having different views on the best way to go. Shannon’s explanation of e.g. writing is not our knowing the next word in advance but that we will more probably choose one word rather than others in our vocabulary. This is “fuzzy logic”, the logic of more or less rather than quantities, and indeed tendencies rather than numerical probabilities; the logic of sense when one cannot say that an object is exactly 1 cm long but one can usually say definitely if it is between 1 and 2 cm and nearer two than one; likewise going north-east rather than north-west when steering; information being static, or drawn from the present, the past or the approaching future

      If we are seriously going to start again with economic theorising we really do need to start by understanding the different forms of logic applicable to sets, choices and motions. To bring this argument together for new readers here’s a link to my preface about axioms on Nov 27 at 2.41 and Nov 28 at 9.15 in the discussion of wrong theory:

      https://rwer.wordpress.com/2019/11/24/economics-enslaved-by-the-wrong-theory/

  14. Craig
    December 4, 2019 at 7:52 pm

    This is a nice chat board with an occasional good thought, but “It’s the monetary, financial and economic paradigms, stupid.”

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