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Posts Tagged ‘economic theory’

I suppose some might consider it a good thing that the Economics Oracles are starting to make far less definitive statements and/or predictions.

Consider the following:

Someone pointed out to me that I hold this view that economists might not know as much as they claim to because I don’t really know that much about economic theory.  That’s true.

However, it is highly unlikely that the current situation is understood by anyone, much less was it accurately predicted.  Worse, no one really has a defensible plan of action – economicly speaking.

I posit that there is no way to predict the economy in a far reaching/come up with a national plan kinda way.  Like much of what we study, we can understand isolated systems and behaviors.  With that useful knowledge we can proceed adjusting our courses in a million ways as we go along.  In the end, we just need to make something happen.  We need to CREATE and SHAPE what happens next, not predict it.

In that way, it seems very freeing to not be under the constant pressure of the Down Jones average or the Fed rate cuts.  The world has always been more complex than that and we’re swimming in that complexity.

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Now here’s a MEATY discussion on Edge.org about the role scientists should play in helping improve the economic conditions.  Chew on this awhile.

Here’s one of my favorite chunks of the discussion lifted from George Dyson’s comments:

Brown, Kauffman, Palmrose, and Smolin have hit the nail on the head. But is it the right nail? When the patient needs first aid, do you ask “is there a modeler in the house?”

Financial systems exhibit the Gödelian incompleteness characteristic of all (sufficiently powerful) formal systems: within the given system it is possible to construct statements (or financial instruments) whose value appears to be sound, but cannot be proved within the system itself. The same limitations apply to models of financial systems.

There is good news and bad news in this. No financial system (or model of such a system) can ever be completely secure and closed. On the other hand, there is no limit to the level of concepts that an economy (or a model of that economy) is able to comprehend.

So, what should we do? Assigning an international team of experts to formulate a global economic model is a worthy undertaking, but can the rest of us afford to hold our breath and wait? We also need Plan B, just in case. Plan B is to nurture new, grassroots economic systems that directly (and honestly) couple the flow of currencies to the flow of goods, services, and information—down to the last bit, and the last dollar, from the bottom up.

“Ten years ago I started a company based on the assumption that people are basically good,” argued E-Bay founder Pierre Omidyar (at the Santa Fe Institute) in 2004. “And now I have the data to prove it.” Instead of putting a dozen scientists in a room to come up with a better model of the existing global financial system, we should put a dozen Pierre Omidyars, Elon Musks, Salar Kamangars, and Jeff Bezoses in a room (with Danny Hillis) and let them actually build one (a new financial system, not another model).

Why is this my favorite?  He seems to be saying, get on with it.  Rather than endlessy try to model things you can’t model, start creating.  I’m not a huge fan of the Omidyar quote, as it’s not an accurate nor useful statement.  However, the idea that we can generate all sorts of new ways to buy, sell, create and generate things/services people want is right. We do it all the time and we need to do even more of it.  It’s about the do.

There’s also a fallacy brought up many times by the various contributors that science and modeling can somehow FIX this.  It can’t.  It helps us explain and make sense of things, but that doesn’t imply control.

Also worth noting is seeing how scientists attack a “real life” problem.  Are they shrinking back from the tough stuff or being realistic in what science and scientific approaches can contribute?

Eric Weinstein answers that question:

To be clear, the world’s markets are going to be analyzed, modeled, and regulated by panels of “experts”. That is not at issue. What is at issue is whether the scientific community has the moral luxury, as some commenters here heartily recommend, to sit this one out and complain from the sidelines when most of the skills needed to debunk seemingly sophisticated failed market theory are scientific in origin. But to believe in one’s own ability to improve a theory and make contributions across disciplines require taking serious risk and I well understand that some may find such risk frightening. I would be happy enough for those who feel sure they have nothing to contribute to avoid such an undertaking.

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