Sameness is Just Wrong

There is something truly odd about any economist who lives wholly in the world of equilibrium.  Truly odd.  Just think of what they have to assume to get there:

The first step is to make sure the problem they are tackling is well defined.  Really well defined.  Without ambiguous objects lurking in dark corners.  The problem must be well lit and sanitized of any potential taint.  And it mustn’t be connected to anything that might, under some circumstance or another, become entangled with it.  Good luck with that in the real world.

Then, this being economics, all the actors within the problem have to be identical.  They have to behave rationally — where rationality is something defined by the economist to make sure the math works out nicely — and they have to “know” everything, including what all the other actors know and will do.  Nirvana: we all know what we all know.

Next, the economist ensures that the actors behave in such a way that their aggregate behavior is both assembled from and validates their individual behavior.  Micro to macro is the watchword.  No emergence is allowed.  No nasty intermediate layers to get in the way of reductionist perfection.

With all this in place the preferred mathematics can then be applied.

And, hey presto, out can pop an equilibrium.

This is my version of the process that Brian Arthur described in a talk in 2019.  When followed rigorously and applied to the kinds of problems amenable to such a process, it can produce useful results.  Or at least that’s what Arthur said.  I am a little more skeptical.

The blandness, the sameness, the lack of difference, and the striking lack of reality make the process almost a caricature of itself.  I can comprehend why economics went down this road back in the 1800s, but why it became entrenched there is more confusing.  And more annoying.  Yes, there’s a great deal of work going on to lift it out of the hole it fell into, but, as yet, the public face of economics is still dominated by those who kneel before the altar of equilibrium.

Difference is the very core of economics: exchange is unnecessary without differences.  Asymmetry is the substance or the essence of an economy, it is not an aberration to be shunted off for later thought.  The economic landscape is rugged with enormous concentrations of resources, information, and energy surrounded by equally sparse regions.  It resembles a mountain range not a billiard table.  Sameness is the enemy of economic activity not its description.  Yet the equilibrium folks are enforcing sameness in order to use their preferred mathematics.  Talk about backwards.

This enforcement of sameness is a process that can be applied to an economy.  Which means that economists working in the realm of equilibrium thinking — if they’re being honest about it — have admitted they are discussing economics and not the economy.  They are refining and explicating a set of issues and problems that their limited method allows them to.  As Arthur said in this same talk: ” .. if we assume equilibrium so that we can do mathematics, it puts a very, very strong filter on what we can see”.  Which is why we need to move on and look at a more general approach.  Those interesting equilibrium problems are but a small subset of the larger, and far more interesting subject matter economists could engage if they would simply leave the world of equilibrium behind.

But, as the song goes, it’s cold outside.

 

 

Take the poor people of Texas.

They have suffered mightily in recent weeks because of the application of equilibrium economics to the provision of electrical power.  In many ways the Texas power debacle will surely become an object lesson when we finally move on from the modern standard textbook.

No, markets are not the be all and end all solution to every problem.  Indeed, most economic problems are beyond the grasp of the market.

No, efficiency is not a sensible or desirable goal.  Set aside the impossibility of computing an efficient solution in an open system like the economy, focus on the consequences: efficiency requires the elimination of redundancy.  There can be no inventories, spare parts, savings for a rainy day and so on.  Efficiency insists on there being no such thing.

So we are reduced to dealing with the average event.  We plan for that average to be the norm. We exclude anything odd, because to include them implies some level of redundancy.  And the sudden enormous spiking in energy prices are not a satisfactory consequence of the market reflecting supply and demand, they are a life shattering human moment that will, likely, produce misery and bankruptcy.

And, yes, there have been economists defending the spike in prices precisely because it defines the smooth operation of the interaction between supply and demand.  Such indifference to the over-application of what ought to be a restricted set of ideas is a stunning demonstration of cluelessness.  Being able to understand why prices spike under such circumstances is something different from applauding its occurrence as proof of a theory.  The ethically responsible way forward is to develop a theory that includes both an understanding of the simplicity of the workings of a market and the complexity of the more general economy.  Including, for example, the ramifications on the lives of human beings affected by the workings of simple markets.

But, to use the old saying, this is all a dead horse.  Why berate something that is manifestly in decay?  Remember the Great Recession?  Who knew?

 

Addendum:

The very last article in “The Economy as an Evolving Complex System II” [1997] is by Philip Anderson and consists of two pages of math and discussion of Pareto followed by this…

“In conclusion, I have tried to bring out one general ideas. [sic]  Much of the real world is controlled as much by the “tails” of distributions as by means or averages: by the exceptional, not the mean; by the catastrophe, not the steady drip; by the very rich, not the “middle class”.  We need to free ourselves from “average” thinking.  

Yes we do.