The Role Of Uncertainty in Economics

So much of economic theory needs to be replaced. We now realize that. I am especially focused on getting rid of the artificiality of rationality and complete knowledge from our thinking. At best they are crude approximations to real life. At worst they totally undermine our ability to deal with real world economic issues. They obscure reality, which to me is riven through with uncertainty.

Indeed, it seems to me that uncertainty is the central fact motivating all economic activity. Without it we would be living in some kind of nirvana devoid of the problem of scarcity. Uncertainty bedevils all living things. It motivates the invention of problem solving, competition, cooperation, and search. More to the point the process of learning is a response to the constant need to press back against the shadows uncertainty casts. It causes us to create boundaries within which we protect and control resources. It impels us to plan in order to invent viable futures to act out. It forces us to build institutions to stabilize our relationships and thoughts. It encourages us to develop cultures to enable association, network, and interchange. And it requires us to be relentless in our creativity in order to fend off the degradation and consumption of whatever exists today.

Above all else it manifests itself as entropy and the perpetual loss of order in our lives and surroundings. That is the greatest threat of all. One solution we have arrived at in our defense is the construction of economies. For an economy is simply the imposition of a kind of order – a system – within which we can exchange, create, and consume so we can survive despite the prevalence of uncertainty in our environment.

It is because such an order necessarily involves our geographic locale, our institutions, our cultures, our depth of knowledge, our technologies, and the networks we construct with each other, that economics is profoundly heterodox in nature. In other words, that heterodoxy is directly derived from the problem represented by uncertainty that economic systems seek to “solve”.

This is why orthodox economics and its simplistic focus on the mechanism of constrained allocation fails to account for the richness of real world economics systems, and why it is insufficient either as an explanatory or predictive account of real economies. Economic theories must confront uncertainty, else they are not dealing with economics.