Hoo, Boy, how to entirely miss the point

Robin Stafford says:
April 1 2021 at 11:19 am
Can I recommend this talk on complexity economics by J Doyne Farmer of the Santa Fe Institute

When PSR mentions the ‘chaos’ of the rugby field you might be even closer than you realise. The mathematics used by macro economic modellers is fundamentally unable to deal with the complex, chaotic systems of human behaviour that lie behind economic ‘systems’. Meteorologists and ecologists have understood this for decades as have a very few economists, notably Steve Keen. Also Eric Beinhocker, a regular at Santa Fe, whose book Origins of Wealth should be on the reading list of anyone interested in non mainstream economics.

By accident I did a project on chaotic systems using the maths of chaos and non linearity, 50 years ago… has always struck me that most phenomena of interest and pretty much all human behaviour are non-linear in nature and hence chaotic. However most people find the idea of non linearity counter intuitive – especially accountants! COVID has shown how most people struggle even with exponential behaviour.

Richard Murphy says:
April 1 2021 at 11:47 am
Agree with all that

Steve is a rare exception, which is why he has been kept outside the fold

Yes, economies are very complex, even chaotic systems. Which makes them very hard, impossible even, to plan.

At which point all the people who insist that they should be the ones to plan the economy agree. You know, all the people who entirely misunderstood Hayek and the Pretence of Knowledge, which is that economies are very complex, chaotic even, and thus very hard if not impossible to plan?

Leaving us with the only calculating engine we’ve got, the economy itself?

9 thoughts on “Hoo, Boy, how to entirely miss the point”

  1. There is more to economics than modelling. Is it the result of Samuelson and his focus on trying to make it as mathy as possible that so many people assume that it is about modelling and predictions? All that formal mathy stuff about elasticity of demand and Ramsey optima is not much more than theoretical w*nkery, impossible to use in real life, although the concept is reasonable

  2. Cnut commanding the waves was actually him giving his nobles a demonstration of the limits of his power.

    Apologies if that’s what you meant!

  3. “non-linear in nature and hence chaotic”: nope. The fact that only nonlinear systems (of order 3 or more) can show chaotic behaviour does not mean that nonlinear systems must show chaotic behaviour.

    Mind you, I often see the expression ‘nonlinear’ tossed around in the sort of word salad that implies that the writer has no clue what she is talking about.

  4. Those who would be planners believe the chaos can be controlled, and that the chaos to begin with is largely just people behaving badly. Like Wyatt Earp cleaning up a rowdy cow town, they would ride in and set things to right. Having had some experience in the real estate development game I’ve seen this first hand. And the planners have largely succeeded in controlling the process. Nothing gets built without their approval of the most minute detail, often right down to colors. More often they see their role as stopping building. Of course, it can take years to get anything done which has the effect of making supply lag demand, but again, the increasing prices in response to the growing demand but lack of supply is just people acting badly so they propose price controls. They certainly won’t let greedy developers build and sell at market rate prices. You don’t have to spend much time around these people to understand that they fervently believe that no one should be allowed to do anything without their consent. Starting a tech company in a garage will just become a forbidden use of garages. Don’t kid yourself that they can be educated that the chaos is more than they can control.

  5. At a professional level there’s not a lot of chaos on a rugby field, it may look chaotic but every player is part of a system and knows where they are supposed to be and their task. Changeover from attack to defence cause realignment and disruption but teams are much quicker at that now.
    Like a lot of things it only looks chaotic if you don’t understand what’s going on

  6. If economies were actually chaotic, then tiny perturbations would yield large swings. Which we don’t see. A 1% rise in bank rates gives pretty predictable results. Really stupid actions imposed without warning (rent controls, say) still only cause slow change.

    That a system is not entirely predictable is not the same as chaotic.

    Our understanding of economics has some holes, but we’d be clueless if it was actually chaotic.

    Some actors may be chaotic — individual firms do rise fast and collapse suddenly. People go from earning a fortune to dead. But the aggregate smooths this out.

  7. Of course it’s chaotic, Chester. At the base of all economies are individuals. They, individually, make the decisions. For their own reasons. Doesn’t matter how big & important the players. Ultimately they’re governed by the decisions of individuals. Yes individuals react to stimuli similarly. So theirs a degree of predictability. In the same way weather’s chaotic but you can normally count on a warm August.
    I’ve a suspicion that predictability may not hold in the immediate future. Government have spent the last year sowing irrational fear into the public. It’s not going to able to just turn that off like a switch. Irrational people make irrational decisions. Personally, I haven’t a clue what’s going to happen. And I don’t think the predictions coming out of economists are worth a light. But they never were. Economics is an interesting historical subject. But as a predictive tool it’s out there with astrology & palm reading.

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