Home > Uncategorized > Using ‘small-world’ models in a large world

Using ‘small-world’ models in a large world

from Lars Syll

Radical uncertainty arises when we know something, but not enough to enable us to act with confidence. And that is a situation we all too frequently encounter …

kayThe language and mathematics of probability is a compelling way of analysing games of chance. And similar models have proved useful in some branches of physics. Probabilities can also be used to describe overall mortality risk just as they also form the basis of short-term weather forecasting and expectations about the likely incidence of motor accidents. But these uses of probability are possible because they are in the domain of stationary processes. The determinants of the motion of particles in liquids, or overall (as distinct from pandemic-driven) human mortality, do not change over time, or do so only slowly.

But most of the problems we face in politics, business (including finance) and society are not like that. We do not have, and never will have, the kind of understanding of human behaviour which emulates the understanding of physical behaviour which yields equations of planetary motion. Worse, human behaviour changes over time in a way that the equations of planetary motion do not …

Discourse about uncertainty has fallen victim to a pseudo-science. When no meaningful quantification is possible, algebra can provide only spurious precision, while at the same time the language becomes casual and sloppy. The terms risk, uncertainty and volatility are treated as equivalent; the words likelihood, confidence and probability are also used as if they had the same meaning. But risk is not the same as uncertainty, although it arises from it, and the confidence with which a statement is made is at best weakly related to the probability that it is true.

The mistake that Viniar of Goldman Sachs exemplified as the credit crunch bit was to believe that a number derived from a “small world” model—a simplification based on a historic data set—is directly applicable to the “large world,” complex and constantly evolving, in which we live. We are both strongly committed to the construction and use of models—we have spent much of our careers in academia and in the financial and business world doing exactly those things. But that has left us aware of the limitations of models as well as their uses.

John Kay & Mervyn King

Since yours truly thinks this is a great article — as is the authors’ book Radical Uncertainty (The Bridge Street Press, 2020) — it merits a couple of comments.

To understand real world ”non-routine” decisions and unforeseeable changes in behaviour, ergodic probability distributions are of no avail. In a world full of genuine uncertainty – where real historical time rules the roost – the probabilities that ruled the past are not those that will rule the future.

Time is what prevents everything from happening at once. To simply assume that economic processes are ergodic and concentrate on ensemble averages – and a fortiori in any relevant sense timeless – is not a sensible way for dealing with the kind of genuine uncertainty that permeates open systems such as economies.

When you assume the economic processes to be ergodic, ensemble and time averages are identical. Let me give an example: Assume we have a market with an asset priced at 100 €. Then imagine the price first goes up by 50% and then later falls by 50%. The ensemble average for this asset would be 100 €- because we here envision two parallel universes (markets) where the asset-price falls in one universe (market) with 50% to 50 €, and in another universe (market) it goes up with 50% to 150 €, giving an average of 100 € ((150+50)/2). The time average for this asset would be 75 € – because we here envision one universe (market) where the asset-price first rises by 50% to 150 €, and then falls by 50% to 75 € (0.5*150).

From the ensemble perspective nothing really, on average, happens. From the time perspective lots of things really, on average, happen.

Assuming ergodicity there would have been no difference at all. What is important with the fact that real social and economic processes are nonergodic is the fact that uncertainty – not risk – rules the roost. That was something both Keynes and Knight basically said in their 1921 books. Thinking about uncertainty in terms of “rational expectations” and “ensemble averages” has had seriously bad repercussions on the financial system.

Knight’s uncertainty concept has an epistemological founding and Keynes’ definitely an ontological founding. Of course, this also has repercussions on the issue of ergodicity in a strict methodological and mathematical-statistical sense. I think Keynes’ view is the most warranted of the two.

The most interesting and far-reaching difference between the epistemological and the ontological view is that if one subscribes to the former, Knightian view –- as Kay and King do –- you open up for the mistaken belief that with better information and greater computer-power we somehow should always be able to calculate probabilities and describe the world as an ergodic universe. As Keynes convincingly argued, that is ontologically just not possible.

If probability distributions do not exist for certain phenomena, those distributions are not only not knowable, but the whole question regarding whether they can or cannot be known is beside the point. Keynes essentially says this when he asserts that sometimes they are simply unknowable.

John Davis

To Keynes, the source of uncertainty was in the nature of the real — nonergodic — world. It had to do, not only — or primarily — with the epistemological fact of us not knowing the things that today are unknown, but rather with the much deeper and far-reaching ontological fact that there often is no firm basis on which we can form quantifiable probabilities and expectations at all.

Sometimes we do not know because we cannot know.

  1. ghholtham
    November 19, 2020 at 8:36 pm

    All progress has followed from people believing they could know something unknown that the savants presumed unknowable. Lars is right to warn against hubris but his delight in doing so risks tipping over into obscurantism. We know little but we can know more than he supposes.

    • Meta Capitalism
      November 19, 2020 at 10:39 pm

      “We know little but we can know more than he supposes.”

      How do you “know” what Lar’s inner mind supposes? Is this deductive or inductive reasoning your are using or is it abduction with a heavy dose of hubris (presumed mind reading)? Gerald your pseudo-argument hinges on making a value judgement of Lar’s state of mind. This is not an argument at all but a mere indication his point is touching a sore spot with one of cherished beliefs; that econometrics and statistics can tell us “more than we know.” You inability to see your own blinders is obscurantism in itself. And it shows a certain hubris which is proving very corrosive to culture in America today.
      .
      You are providing a perfect example of claiming to “know” more than one can know. Here context counts and your claim to “know more” is without context. Have you even read Kay et. a.? I found he did an excellent job of revealing what we can know through such “small world” experiments as well as how sometimes the so-called “experts,” like Kahneman, claim to know more than they really know when they attempt to use “small world” definitions in real world contexts.

  2. Yoshinori Shiozawa
    November 20, 2020 at 4:28 am

    I agree with Lars Syll that the large world is qualitatively and structurally different from the small world. Small-economy models of standard economics are wrong because they do not grasp the large-world properties and how the large economy works. This is the very reason why I have named Chapter 2 of our book A large economic system with minimally rational agents.

    But, arguments of Kay and King and Syll sometimes overrun the good course and contends some claims beyond reasonable range of arguments.
    One example from Kay and King:

    [H]uman behaviour changes over time in a way that the equations of planetary motion do not

    If this comparison is used as a relative differencebetween human science and physics, this is not a good example, because the equations of planetary motion also change by situation. For example, Kepler’s three laws of planetary motion (laws expressed by equations of different kind) are only true when the following three conditions are satisfied:(1) The medium (or space) between stars (the sun and planets) is almost vacuum.(2) The majority of mass is concentrated in the sun.(3) The Interaction of planets (attractive force between planets by gravity) can be neglected.If one of these conditions is violated, Kepler’s three laws are no more exactly correct. There are plenty of “solar” systems other than our solar system that violate three conditions. Therefore, even in physical sciences, the laws like Kepler’s are discovered by a rare fortunate situation and by continuous and persistent effort that continued for many years.

    First, why do we not try to search for a good situation that we can know structurally and quantitatively?  Second, why do we not pay continuous and persistent efforts, most probably far less than but a bit comparable to Kepler?

    Another example this time from Lars Syll:

    When you assume the economic processes to be ergodic, ensemble and time averages are identical. Let me give an example: Assume we have a market with an asset priced at 100 €. Then imagine the price first goes up by 50% and then later falls by 50%. The ensemble average for this asset would be 100 €- because we here envision two parallel universes (markets) where the asset-price falls in one universe (market) with 50% to 50 €, and in another universe (market) it goes up with 50% to 150 €, giving an average of 100 € ((150+50)/2). The time average for this asset would be 75 € – because we here envision one universe (market) where the asset-price first rises by 50% to 150 €, and then falls by 50% to 75 € (0.5*150).

    This is a quite strange illustration of the ergodic hypothesis. Statistic physicists would complain that this is a rude illustration. But,  what I want to point out is this. Lars always insists that neoclassical economists (or mainstream economists) suppose ergodicity. I wonder if there are economists explicitly expressed that they support or assume this property (axiom or hypothesis). What Paul Davidson called the ergodic axiom is very different from what statistical physics called the ergodic hypothesis. Lars Syll here uses the version close to the latter. Even if there are many economists who substantially assumed Davidson’s ergodic axiom (because it means simply that the economy tends to an equilibrium point), it would be hard to find an economist who claimed explicitly or substantially the ergodic hypothesis in the meaning  physicists conceive.

    As a conclusion of this example, I want to say that Lars Syll gives too distorted an image of what mainstream or neoclassical economists contends. To attack mainstream economists by distorted pictures is not a good strategy to reconstruct economics. We should not do it. If we do, we surely fall in obscurantism. It is a world of post-truth.

    • November 20, 2020 at 10:01 am

      Hard “to find an economist who claimed explicitly or substantially the ergodic hypothesis in the meaning physicists conceive”? Hmm … I humbly suggest reading this post:.
      https://larspsyll.wordpress.com/2020/11/20/paul-samuelson-and-the-ergodic-hypothesis-2/

      • Meta Capitalism
        November 20, 2020 at 10:33 am

        Not so humbly, Shiozawa is truly ignorant of the history of the very field he claims expertise.

    • November 20, 2020 at 11:53 am

      YS, I think I agree with what I think you are trying to say. Do you think that if you and Lars got together over a pint (or whatever) you could come up with something that might enable us to move forward? It seems to me that if economists were better economists they could offer useful advice to public health officials. And vice-versa. (!)

  3. November 20, 2020 at 12:07 pm

    Gerald unfortunately seems to have changed the topic from econometric models to an attack on Lars. The nub of the original argument seems to put thus by Lars:

    “Knight’s uncertainty concept has an epistemological founding and Keynes’ definitely an ontological founding. Of course, this also has repercussions on the issue of ergodicity in a strict methodological and mathematical-statistical sense. I think Keynes’ view is the most warranted of the two.

    “The most interesting and far-reaching difference between the epistemological and the ontological view is that if one subscribes to the former, Knightian view –- as Kay and King do –- you open up for the mistaken belief that with better information and greater computer-power we somehow should always be able to calculate probabilities and describe the world as an ergodic universe. As Keynes convincingly argued, that is ontologically just not possible”.

    I’ve attacked this myself in various ways, most often by our making mistakes by going beyond our own knowledge and others with different knowledge putting us right. That is commonly taken to be the point of democracy, but it can be formally expresses as PID logic, which applies also to visually steering a boat or a car and so acquired the name “cybernetics”, from the Greek word for steersman. That raises the question of how far, given the speed of light and/or a fog, can the steersman see into the future.

    Regarding the epistemological versus ontological issue, I recently came across the term “second order cybernetics” and saw I’ve been taking this for granted in how I’ve understood the position of data in computer programming. The reality is not a set of computer-intelligible 1’s and 0’s, so these are merely epistemological: they “stand for” the ontology of reality.

    Now here’s the interesting bit. In his “Mathematical Theory of Communication”, C E Shannon explains how coded messages can be decoded (so we can interpret what we see of reality), but when we send the decoded message to someone else, some of it gets distorted by what he calls noise. He doesn’t assume away the noise by thinking it ergodic: he draws attention to what we SEE as noise being more or less what’s there in reality, so the measure of it (entropy) is the same in the [epistemological] signal as in the [ontological] physics. He then shows how we can usually distinguish what is noise and what is signal by ASSUMING the noise we see is ergodic. The point of the signal is to guide actions, so if one can recognise noise the common sense solution is not to act on it. Shannon actually goes one better and shows how the hidden bits of signal can usually be restored. (Only “usually”, so it is wise to see how any residual errors stack up: the Integral in PID. Which incidentally is what Keynes did, seeing the need to correct unemployment).

    “Dumbed down”, that amounts to my argument that economics is not just about “ships of state” directed by a captain, but about boats of any size being free to do their own thing so long as they follow the rules of the sea about passing and giving way. For American inlanders or city dwellers who have never enjoyed “messing about in boats”, the same applies to the rules of the road: in the UK, keep left and give way at roundabouts.

    • Craig
      November 20, 2020 at 5:19 pm

      Dave,

      Wouldn’t you agree that “the trick” is to attune the economic system so close to the natural state of the temporal universe that it acts as the temporal universe does….and is then approximately just as inexorably flowing as the temporal universe?

      In other words time in the temporal/time universe inexorably flows because the temporal universe is almost utterly dynamic, interactive and integrative. Thus integrate the efficacious tool of money throughout the entire economy and at its most purposeful points (point of sale and at the point of loan signing) that it reflects the inexorable free flowing-ness of the temporal universe.

      Of course there is just enough randomness in the cosmos to allow for change and circumstance, but that is what time actually is, i.e. change of position of particle in space, and regulations are just such encouragements and inhibititive-ness to guide its inexorable flow.

      The key of course is to awaken to the various aspects of the definition of grace as in dynamic, interactive and integrative flow…and how that accurately reflects the native state of the temporal universe/cosmos. That way we can just apply the relevant aspects of grace to everything from spirituality to economics.

      It’s the best possible PID system.

      • November 20, 2020 at 10:11 pm

        The problem, Craig, is that the universe isn’t a complete PID system, it is an open-ended evolving one, going at each stage from no feedbacks through 1, 2 and then 3 feedbacks, at which point it becomes something else which it wasn’t before, that in turn starting from no feedbacks. In short it is like an algorithmic (arabic) number in which each digit counts only up to 4, so transferring the four into newly created space to leave the previous space empty (although its 1, 2 and 3 still exist).

        There is thus not a “best” PID system, just throughout time almost everything from electrons through atoms through four types of living thing to humans with four parts to their brain, able to tell lies much sooner than they can turn into supermen. As I see it, the reason we tell lies is that our ability to use our brains has to evolve as we grow ups, and though we can be taught to be gracious and help others to become themselves, most of us never get as far as using the D level wisely to advance all our capabilities, tending to use P and I feedbacks to maintain the status quo in their own favour. Which is only okay if the status quo is a good one, not evolving too quickly.

      • Craig
        November 20, 2020 at 10:35 pm

        Well then we should still attempt to match the cosmos. Consciousness has evolved not just because of natural selection, but because increasing system complexity toward self awareness IS both its natural thrust and what leads logically and healthily to awareness of the basic sameness of oneself and of others. Hence ethics and morals, and grace/gracefullness as in love in action their pinnacle concept and goal.

  4. ghholtham
    November 20, 2020 at 1:51 pm

    I only know what he tells me.
    E.g. “But most of the problems we face in politics, business (including finance) and society are not like that. We do not have, and never will have, the kind of understanding of human behaviour which emulates the understanding of physical behaviour..” Or: “Sometimes we do not know because we cannot know.”

    Human behaviour in the aggregate is often predictable. In Lars’ world traffic jams would always be a surprise when in fact you generally know when and where they will occur. Insurance companies and bookmakers manage to survive in a non-ergodic world. The thing is Lars’ basic stance is one I agree with but he always pushes it too far.
    Not only have I read Kay, I have co-authored articles with him. I agree with nearly everything he says. But Lars complains that Kay thinks uncertainty is epistemic, while he thinks it is ontological. That’s an example of going too far. In the quantum world randomness appears to be a feature of reality. At the level of our sense the world certainly looks determinate. So what the hell is ontological uncertainty? Big words and woolly thinking.

    • November 20, 2020 at 5:14 pm

      Clearly Gerald Holtham, knowing everything, hasn’t bothered to study what I’ve just tried to explain – which is not obvious, but is pretty fundamental.

    • Meta Capitalism
      November 21, 2020 at 10:22 am

      Gerald distorts both Kay et. al. and Lar’s arguments and grossly misrepresents Kay. Gerald states,

      “Human behaviour in the aggregate is often predictable. In Lars’ world traffic jams would always be a surprise when in fact you generally know when and where they will occur. Insurance companies and bookmakers manage to survive in a non-ergodic world.”
      .
      Kay and Lars distinguish between those events that are characterized by underlying stationarity (e.g., traffic flow, mortality statistics and such underlying insurance, etc.) and therefore are not subject to the same kind of indeterminism and uncertainty as the kind of questions _that really matter_, like will Trump inflict unrecoverable damage upon American democracy? Will America resolve its economic and military disputes with China without ending up in military conflict? Is health care a basic human right or a commodity that only the privileged few can afford? Once that more fundamental value judgment is decided can we begin to use science to aid (in some limited cases) how best to achieve those objectives.
      .
      The human behaviour that really matters is not necessarily predictable. That doesn’t mean no human behaviour is predictable, only that there is a difference between the many cases were this kind of reasoning is useless and those few specific definable cases where it is amenable to such analysis.
      .
      Gerald’s “small world” pseudo-argument that “In Lars’ world traffic jams would always be a surprise,” is both poppycock and disingenuous and leads me to wonder if he _really_ read Kay’s book or if he did why he would so grossly misrepresent and neglently distort their arguments? First, solvable “puzzles” like traffic jams and insurance actuarial tables are NOT what either Kay or Lars denying exist and are legitimate problems in the domain of probility science. Gereld is be disingenuous and trying to obscure the real issue Kay and Lars are tsising, what Kay calls “radical uncertainty” or “Unknown unknowns”:
      .
      “At the opposite pole of uncertainty from true randomness are the genuinely unknown unknowns.” (Kay et. al.)
      .
      Kay calls the kind of problems that cannot be reduced to solvable puzzles “mysteries,” “radical uncertainty,” and simply notes they are life problems that are not solved by probability thinking but individual judgment based on human experience and “communicative rationality” and the wisdom of seeking wise counsel from those experienced in the problem domain under consideration.
      .
      I’ll let Kay speak for himself:

      “After the crisis of 2007–08, there were many explanations of why it was inevitable even though it was anticipated by few. Former Federal Reserve chairman Alan Greenspan was almost alone in observing that ‘I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works’; most people discovered that the crisis confirmed what they had been saying all the time. On many economic issues there will always be an explanation of why the anticipated outcome failed to materialise, and no means of disputing the explanation other than derision. Economists have repeatedly used this excuse, and received that derision. But variants of the falsificationist argument have enabled economists ever since to deflect criticism of their models for failing to confront the reality of how people behave, and to dismiss critiques of their predictive failures by reference to auxiliary hypotheses. Such a view is closer to religion than science.” ( https://a.co/bNOA2wT )

      “After the financial crisis of 2007–08, the industrialised world experienced the most severe downturn since the Great Depression in the 1930s, and the decade following saw a prolonged period of unusually slow economic growth. Financial crises, like wars, have occurred many times. But neither crises nor wars are the result of a stationary process; each is a unique event. The advances in economic theory lauded by Lucas did not prevent a major downturn in the world economy, nor did they give policy-makers the tools they required to deal with that downturn. The models he described assumed a stable and unchanging structure of the economy and could not cope with unique events that derived from the essential non-stationarity of a market economy.” ( https://a.co/fiMS6td )

      “As Nobel laureate Paul Romer wrote about macroeconomic theorists: ‘Their models attribute fluctuations in aggregate variables to imaginary causal forces that are not influenced by the action that any person takes. A parallel with string theory32 from physics hints at a general failure mode of science that is triggered when respect for highly regarded leaders evolves into a deference to authority that displaces objective fact from its position as the ultimate determinant of scientific truth.’
      .
      Over forty years, the authors have watched the bright optimism of a new, rigorous approach to economics – an optimism which they shared – dissolve into the failures of prediction and analysis which were seen in the global financial crisis of 2007–08. And it is the pervasive nature of radical uncertainty which is the source of the problem.” ( https://a.co/8oGaSz7 )

      “In a powerful address to her Princeton students, Anne-Marie Slaughter, a distinguished American international lawyer who served in the Obama White House, argued:

      Thinking like a lawyer also means that you can make arguments on any side of any question. Many of you resist that teaching, thinking that we are stripping you of your personal principles and convictions, transforming you into a hired gun. On the contrary, learning how to make arguments on different sides of a question is learning that there are arguments on both sides, and learning how to hear them. That is the core of the liberal value of tolerance, but also the precondition for order in a society that chooses to engage in conflict with words rather than guns. It is our best hope for rational deliberation, for solving problems together not based on eradicating conflict, but for channeling it productively and cooperating where possible.’34 In that process of rational deliberation, statistical reasoning can assist, but never replace, narrative reasoning. We develop narratives and use them to convince others of our point of view. A world of radical uncertainty is one governed not by statistical distributions but by unique events and individuals. Justice requires a process of legal reasoning which respects that uniqueness. The courtroom is a place for stories to be told, evaluated, and judged. But certainly not the only place.” ( https://a.co/gNtCXOz )

      • Meta Capitalism
        November 22, 2020 at 1:12 am

        “real issue Kay and Lars are tsising” should read “real issue Kay and Lars are discussing … “

  5. November 20, 2020 at 3:58 pm

    (As usual) I share Lars’ view that KK’s book irrespective of all its other merits stops short of talking about the truly relevant kind of uncertainty. Economists would do us all a favour if they shifted their research efforts towards studying ontological uncertainty.

    • Meta Capitalism
      November 22, 2020 at 1:15 am

      Still reading your book Christian. I reread as I work my way through. Are able to answer questions? Remaining persistent in Japan :-)

    • Meta Capitalism
      November 22, 2020 at 1:33 am

      It turns out that subjective views do indeed matter on financial markets, which lends convincing support to the alternative hypothesis, which is the prevalence of uncertainty in economics and in the economy.

      Uncertainty in economics destroys a great many certainties in concurrent economics. It easily proves that mainstream ontology is ill-fitted for answering the most pressing questions about the course of the economy and the appropriate design of its institutions. This deficit has already led to a situation in which economists only nominally honour natural science’s epistemology and ontology while – unconsciously or not – adopting more suitable ontologies such as constructivism. However, in order not to get lost in ontological arbitrariness, economists must enter a deliberate discussion about the best-fitting approach for economics. Putting uncertainty in the centre of this discussion holds the promise of considerable scientific returns on investment – and on top of that, the monarch need not ask Her question again. (Christian Mueller, p. 110)

  6. ghholtham
    November 20, 2020 at 4:36 pm

    I would volunteer but I have no idea what it is. Will someone offer a definition?

    • November 22, 2020 at 9:20 am

      Ontological as against epistemological uncertainty? Put simply: what will happen in the future (due to the way the world is) as against what has already happened (even if we don’t know where).

      There is another type of uncertainty, when you have a ruler with marks only a certain distance apart, so that in between the best one can do is interpolate. The classic example is trying to measure pi with a linear number. One can’t: in linear mathematics it is an irrational number. Arguably this is significant, as economics is all about cyclic processes.

  7. ghholtham
    November 22, 2020 at 4:50 pm

    This is philosophy rather than economics but never mind. I would distinguish three sorts of uncertainty: Things we don’t know but might; things we don’t know and which might be impossible for us ever to know given the structure of information flows in the universe; finally things that are in themselves indeterminate, i.e. not only do we not know, the universe itself doesn’t know. I understand the third sort to be ontological uncertainty – it exists in the nature of things. The other two are epistemological; they talk about what we can know, not what is. I don’t know whether ontological uncertainty exists in that sense. Are there gaps in the web of cause and effect? The fact that we cannot predict the future does not prove it is not determinate and therefore predetermined.
    Both kinds of epistemological uncertainty clearly exist but it is not always easy to tell one kind from the other. Much of what we know today would once have been regarded as beyond possible as well as actual knowledge. I don’t suppose we shall ever be able to predict the future in any sort of detail but I cherish the hope that we shall understand human society and commercial activity better than we do now. That sort of optimism seems essential to any science.
    Your ruler example Dave is an example of the more severe kind of epistemological uncertainty. We cannot measure initial conditions closely enough to be able to forecast the path of a chaotic process – it is unknowable. Nevertheless if you can write non-stochastic equation for it, it is determinate. The universe knows though we can’t, epistemological not ontological uncertainty.
    I can’t see that the distinction matters in practice for economics but Christian and Lars think it does. One day they might tell us why.

    • November 23, 2020 at 8:42 am

      As Meta put it, “Uncertainty in economics destroys a great many certainties in concurrent economics. It easily proves that mainstream ontology is ill-fitted for answering the most pressing questions about the course of the economy and the appropriate design of its institutions.”

      The point about this is that mainstream ontology does have a philosophy and an ontology, but it is so ill-fitted that it pretends it hasn’t. Says Gerald: “The fact that we cannot predict the future does not prove it is not determinate and therefore predetermined”. Says Tony Lawson in effect, the fact that some event – a leaf falling from a tree – is determined does not mean its course in space-time is pre-determined, only that it is possible, “other things being equal”.

      My own philosophical starting point is that the universe and ultimately we are possible, given a father-like trinitarian God to start it. That four-fold measure permits knowledge of PID structure aimed initially at doing good: in life a progression from microbes to vegetation to animal mobility to human mental mobility, this last generating freedom to NOT do what was necessary (environmental regeneration) to achieve the original aim. In between, topological variation suggests sub-systems with less feedbacks which we find to exist, providing control over things like temperature and rate of blood circulation. If Gerald wishes to use his freedom to deny this, then he will need good luck, as he will be entering the realm of chaos.

      It seems he doesn’t, but is standing on the epistemological doorstep, watching the action without getting engaged:

      “I don’t suppose we shall ever be able to predict the future in any sort of detail but I cherish the hope that we shall understand human society and commercial activity better than we do now.”

      Don’t we all!

  8. November 23, 2020 at 6:54 am

    Keynes’s radical uncertainty is ontological? Then what’s his fundamental point of departure, the identity Y = C + I, all about? One thing Is sure, ontologically uncertain it’s not. So any derivations from it aren’t either, and Keynes’s radical uncertainty is induced as an additional axiom. And what good would that do, since no explanations can follow that aren’t contradicting his other fundamental point of departure? I realize that we’re on epistemological terrain now; but it all seems pretty inscrutable to me, and no more than being an article of faith.

    Say that the economy is well approachable as being ‘radically uncertain’. This would mean at least Keynes had the right hunch, and that a number of his conclusions are indeed correct. But it’s neither epistemological, nor being ontological in its accepted meaning of finding its origin in a power beyond our own and inaccessible without possessing godlike qualities. How about – an economy is simply a purposeful all human-created systemic process, wherein nothing ever is, but where everything is always on its way in overlapping incompletable stages towards becoming, and thus achieving its purpose? Now we’d have a formal system to explore, because the rules of simple arithmetic apply, but any “higher” math approach is inapplicable. (e.g.) Forget about Y = C + I being valid at any time.

    The ontology of such a system would lie in its necessity of each of its activities having to be accounted-for in order to exist (i.e. be ontological), in its non-material terms as happening within an economy. And never mind material supplies or resources of any kind – no returns, no economy, period.

    So, an economy is radically uncertain simply because of the fact that it’s accounted for. An economy stands, progresses, and falls, by the status of its non-material accounts; its materiality, as a would-be mathematical approach towards its reality, remaining entirely unaffected under all those circumstances. Expenditures need to happen first; so that returns can, but may not, happen later. A free-enterprise system has got to have its failures too. All the bulk of its players are asking economic theory to ensure is that formally, a level playing field exists; and have economists provide authorities with the information that allows them to implement measures ensuring the game isn’t rigged. Every accountant knows that demand determines supply, earmarking its desired continuity; but, as an economist, Keynes unfortunately felt it necessary to hedge his approach and got stuck in a purgatory, endlessly haunted by paradoxes. You’d really want to stay there keeping him company in spirit? Or perhaps move on forward instead?

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