Saturday, August 25, 2012

Joshua Wojnilower — Macroeconomics Could Benefit From Complexity


How complexity affects macroeconomics and results in calculation problems in ergodic (deterministic) models due to emergence in that a whole (system) is greater than the sum of its parts (elements) since unforeseeable properties may arise from the relations among the elements. This is true even in the physical sciences and even more so in the life and social sciences. It's one reason for radical uncertainty and a strong argument against a neoclassical approach.

Bubbles and Busts
Macroeconomics Could Benefit From Complexity
Joshua Wojnilower

5 comments:

jrbarch said...

Similarly, there are genetic and personality traits transferred from parents to children, but each child is unique; so much so that in the whole wide universe, from start to finish - each of us are absolutely unique! Never, ever - to come again. I wonder what that means ....

Trixie said...
This comment has been removed by the author.
jrbarch said...

Well, it just means (after scannng the article) I get surprised when people 'discover' complexity when they look out and around them, and find that fascinating; but will not entertain the proposition that there is simplicity within?

It is in the 'nature' of hydrogen and oxygen to combine and form water and it is in the 'nature' of water to have the properties that it does. Add carbon and you can get an astoundingly large number of compounds (carbohydrates) each with their own 'nature'. But what about looking back in the other direction - that is truly fascinating considering the same root (energy) is in everything, including you and I.

Australians do their best work on the beach Trixie ....

paul said...

""…will not entertain the proposition that there is simplicity within?"

For me this is an important distinction. The universe is extremely complex, but embedded within the complexity are patterns that are extremely simple.

The properties of systems, open, closed, entropy, etc are examples. The sectoral balances identity is a model of a closed system. Can't get much simpler than that.

In modern economics (not MMT of course) this simple concept is ignored.

Thus, the foundation of economics as taught in universities across the world is deeply flawed and becomes irrelevant from there.

Even though economics is riddled with complexity, it doesn't tell us much. The math that has been chosen in place of the S/B model is highly complex but doesn't tell us anything useful about reality.

It is a collection of puzzles that don't need solving, an exercise in navel-gazing.

Which is why it becomes difficult to have discussions with neo-classical economists and students on this blog and others.

We must first defer to them (they have the power in numbers) that their foundation has merit, when it doesn't, and then make our arguments from there.

We end up running a one-legged race.

Joshua Wojnilower said...

paul - Good comments.

The point of my post was not to actually support greater complexity but point out that real-world complexity is an argument for simpler, pattern-recognition attempts to understand the macroeconomy. Sectoral balances has been a wonderful tool in helping me understand the economy and make general predictions about the future direction of growth, inflation, unemployment, etc.

Both the simplicity and complexity of our world are fascinating, btw.