Wednesday, March 21, 2018

Economyths by David Orrell

When I first took a course in Economics in college as a sophomore, 6E:1 “Introduction to Microeconomics,” I was quite taken with the subject. Unlike my major subjects, history and political science, it was so neat, so tidy. You could plot supply and demand curves and arrive at a price. Of course, there were monopolies and externalities and the like, but those were flies in the ointment of economic rationality. Of course, macro got messier, and by the time I took my third course, Public Finance, I lost my infatuation with the subject. All of what at first seemed so neat and clean now appeared rather messy, not at all tidy. (And I didn’t get as good a grade). As it turns out, the neat and tidy represented a degree of unreality while the messy and frustrating was much closer to reality.

I’ve known and thought for some time that economics, once hailed as the king of the social sciences, was an emperor with no clothes. Okay, that’s unfair, but I will say that it is arrayed in tattered rags rather than regal robes. Over the years, my innate, naïve disenchantment with economics has been articulated by persons more qualified than me to articulate and identify the problems. The “Nobel” prize for economics has implicitly recognized flaws in the discipline by presenting its awards of late to a political scientist (Elinor Ostrom), a psychologist (Daniel Kahneman), and to two behavioral economists, Robert Schiller and Richard Thaler, among other less mainstream, math-oriented recipients.

Thus, with some background in the flaws of economics, and appreciating its importance, I read David Orrell’s Economyths: How the Science of Complex Systems is Transforming Economic Thought (2010). Like many of the most trenchant critics of the economics discipline, Orrell didn't train as an economist. He is a Ph.D. mathematician. Orrell argues that economics is (still) primarily built on an outdated conception based on 19th-century physics and its equilibrium-based mathematics.  Economics became the royalty of the social sciences because of its mathematical models, which often worked well—but not very well if you’re in a pinch. And in fact, we’re almost always in a pinch.

Reviewing the field from a variety of perspectives (equity, happiness, gender, stability, etc.), Orrell finds that the prevailing models of economics don’t mesh well with economic realities. Of course, writing in 2010, he needn’t direct his reader any further back than the crash of 2008 to find an enormous and consequential gap between the prevailing theories of economics and the reality that we all faced. Put simply; economic models depend upon rationality and equilibrium (and therefore) a stability that does not—cannot—exist. Human societies, human economies, especially those in the contemporary world, are dynamic and fluctuating and varied in ways that no simple math of equilibrium or postulates of (presumed) human rationality can capture. Of course, everything is fine on a sunny day, but the theories failed when the storms hit. We now have models for complex systems that can deal more realistically with all of the inherent turbulence of a vast economic system, although not at all perfectly when it comes to prediction. (We need to adjust our understanding and expectations.) We need to deploy these models.

Orrell writes quite well. And while quite sophisticated in his mathematical ability, even a math simpleton like me could follow him. He doesn’t overwhelm us with complexity and math. He writes in a manner that any interested layperson can follow. Orrell’s project follows a path laid down by Eric Beinhocker in The Origin of Wealth (2005) (which Orrell cites and that I’m now going to complete). And Orrell's perspective is also well-represented by writings found at the Evonomics: The Next Evolution of Economics Blog, directed by David Sloan Wilson, a biologist turned economics student. These fellows, among many others, from outside of the formal economics community, are pointing the way to a more sophisticated understanding of economics, one that recognizes the contexts of ecology, sociology, and politics in which the economy is embedded.

By the way, I came to know of Orrell through an essay that he published in Aeon entitled “Economics is Quantum,” which I found quite instructive. He has a book along the same lines coming out early this fall. The article is an excellent place to start if you just want to dip your toe into his project.

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