Sunday, April 30, 2017

Peter Radford — Complex Simplicity

The simple so-called laws of economics may or may not hold, but they are inevitably swamped within a context so riddled through with idiosyncrasy that they become very weak and only partial explanations of events. To strengthen those laws in the face of this turmoil past economists have dedicated themselves to extracting bits and pieces from the economy for isolated analysis, as if by such reduction they could learn some truth that would still hold once the isolated part was re-introduced into the complex whole. This method has produced a brilliant array of components disassociated from their context none of which have much value when the components are all re-assembled. So modern economics is not a solid body of thought so much as an amalgam of “neat tricks” that are handy for illuminating this or that, but which are insufficient for explaining the whole. Even then they fall short....
Real-World Economics Review Blog
Complex Simplicity
Peter Radford

49 comments:

Matt Franko said...

"extracting bits and pieces from the economy for isolated analysis,"

I don't think this is a bad thing to do .... from a deterministic perspective... it's the way things are typically done, you establish a work breakdown structure....

https://en.m.wikipedia.org/wiki/Work_breakdown_structure

Subsystems can operate independently... if the AC goes out in your car you can still get from A to B...

Matt Franko said...

Here:

"The European Central Bank (ECB) has developed a DSGE model, often called the Smets–Wouters model,[10][11] which it uses to analyze the economy of the Eurozone as a whole (in other words, the model does not analyze individual European countries separately)."

They don't look at Greece as a subsystem.. or any of the others for that matter...

.. too bad for the Germans being led by human damaged goods from WW2 it looks like it is going to cost them their only money center bank unless Trump can get the US well back above 3%....

Tom Hickey said...

Matt, that's the model of the economy or society, that is, the system under study, as machine. If it were so there would be a general theory that fits the data in economics and sociology. Same with psychology.

The model in biology is the system as an organism. The mechanistic approach to biology failed.

Modeling social systems as either a machine or organism has not worked so well either.

Economics, sociology and psychology haven't discovered a suitable analogy yet. Hence, that studies that fit the data are special case studies and they chiefly use stochastic method rather than deterministic.

There is no general theory of economics that fits the data. There is no general theory of sociology that fits the data. There is no general theory of psychology that fits the data.

It has not proved possible to combine a lot of studies of special cases into a general case that does not describe an ideal world that doesn’t fit the real world well enough to be accepted as a general theory.

Harvard Business School figured this out some time ago and adopted the case method as the best way to deal with "vulgar economics," that is, economics that actually works wrt the real world.

A very simple reason is transaction costs. Economists abstract from transaction costs. Businesses cannot do this and survive. But there is no penalty for economists failing to hit the target with any great precision.

It is possible to do physics abstracting from friction. But it is not possible to do engineering without taking friction into account.

The difference between physics and economics is that friction is mathematically tractable while transaction costs are not.

And transaction costs are just one example of intractability. Moreover, it is a pretty simple one. There are plenty more that are a lot more complicated and some that are complex.

There is no problem with applied mathematicians doing theoretical economics. But there is a problem with claiming that the models they generate of ideal worlds represent the real world without comparing the data broadly enough to show that the result is general.

When you want a bridge built, you call in civil engineers. When you want an electrical grid built you call in electrical engineers. When you have a health issue you call a physician. When there is an economic issue, who do you call?

Noah Way said...

When there is an economic issue, who do you call?

A profiteer, of course.

Tom Hickey said...

To put this another way, if an issue is not formalized, is there a problem that is scientific? Or it is it just a competition among various stories.

Tom Hickey said...

I a not denigrating the use of storytelling in problem solving. A great deal of human problem solving has been and still is based on storytelling.

But to confuse storytelling with scientific explanation would not be correct.

Matt Franko said...

"There is no general theory of economics"

Don't need one....

Matt Franko said...

"that's the model of the economy or society, that is, the system under study, as machine"

No it is not... if you understand something, you use functional equations period....

The human body is not a machine but we can use functions to administer medicines, if we know population/demographics we can use functions at macro level to figure out what we have to do at macro level and then divide the resources/finances to accomplish economic goals...

Material systems are described by functions, all material oriented systems are analyzed this way that is what Brian is getting at...

They are different systems but the application of math is the same... just because you use functions doesn't mean everything is a machine...

Bob said...

It helps to specify a problem before finding a solution.

There are stories that are helpful and then there are wild goose chases.
There is trial and error.
There is deconstruction and integration.

Matt Franko said...

We use functions in electronics ... nothing moves in electronics it just sits there... electricity is not a machine either... but we can use functions to administer electronic systems...

Matt Franko said...

Remember Taleb, "philosophers use concepts, jurists use constructs...". You CANNOT administer/regulate/control material systems using concepts and constructs it simply will not work... those methods are best used for non material matters...

Matt Franko said...

Economists are simply not trained in the appropriate methods to be involved in reference to any sort of material oriented systems ...

Bob said...

An electronic device could be referred to as a sessile machine. Just saying...

Matt Franko said...

Tom the jurists have come up with a legal construct, its called the Humphrey Hawkins full employment act, its based on the philosophical concept that those who want to work should not be prevented from employment ....

Now, get the F out of the way and let competent technical people implement the Fing policy in material terms...

Matt Franko said...

Or instead we can hire a 2 bit clarinet player Ayn Rand worshiping non qualified person to be "the maestro!" ...

Tom Hickey said...

What are the Maxwell's equations of econ, or Newton's laws of motion, or the periodic table, etc.

There is not this level of specificity.

Take Humphrey Hawkins full employment act

Have an economist write the functions to generate full employment deterministically. Yeah, right, I didn't think so.

Tom Hickey said...

No it is not... if you understand something, you use functional equations period....

This is why econ is storytelling. No functions that correspond to data.

Tom Hickey said...

It helps to specify a problem before finding a solution.

There are stories that are helpful and then there are wild goose chases.
There is trial and error.
There is deconstruction and integration.


This is what econ, sociology, political science, and psychology are working on. they don't even have a story they can agree upon let alone a mathematical model to generate hypotheses to test empirically.

Bob said...

Humphrey Hawkins full employment act, Act 1: A Job Guarantee

Audience: Booooooo!

Tom Hickey said...

Remember Taleb, "philosophers use concepts, jurists use constructs...". You CANNOT administer/regulate/control material systems using concepts and constructs it simply will not work... those methods are best used for non material matters...

"The language of science is mathematics."

If it is not formalizable, it is not science. Without formalization there is no way to know exactly what is being claimed and therefore there is no way to test claims with precision.

Tom Hickey said...

There is little doubt that the people in charge are incompetent.

But the question is whether there are any competent people to both do policy and also sell it.

So far, no.

Tom Hickey said...

Then there is the further question of whether the US electorate is capable of recognizing genuine solutions to the problems they want solved if such solutions were presented to them.

It doesn't look like it.

Tom Hickey said...

The fundamental problem in econ wrt to policy now is that the neoclassical formalistic approach is dominant. It allows for formalization using tractable mathematical models. No other approach does, so no other approach meets the basic criteria for science.

The problem with the neoclassical approach is that to make the modeling tractable mathematically, the assumptions have to be restrictive.

Rather than say that the scientific approach is not suitable to econ wrt policy, many economists advise simplifying the society and its economy to fit the stylized model.

This is the approach of economic liberalism, which attempts to impose a pure form of "capitalism" as an economic standard from which the political and social aspects of the society follow.

Presently, there is no agreed upon approach to economics and policy. So policy formulation is largely guessing justified by storytelling.

Tom Hickey said...

To put in yet another way, there are no social engineers available to provide deterministic solutions based on sound scientific theory to societal issues in which the social, political and economic aspects of society are entangled.

Matt Franko said...

Tom I literally cannot understand what you are saying ... this is a slam dunk imo,...

Matt Franko said...

Tom,

Prince has no fing idea what Maxwells field equations are yet they are at work :

https://youtu.be/efhlDbZ4SmY

Bob said...

Then there is the further question of whether the US electorate is capable of recognizing genuine solutions to the problems they want solved if such solutions were presented to them.

It doesn't look like it.


When was this put to the test?

Tom Hickey said...

When was this put to the test?

In just about every presidential election since FDR, but especially now with the GOP in control of the presidency, Congress, and most of the governorships and state legislatures, with only the top 20% doing modestly well and the top 1% doing very well economically, while the remaining middle 70% comprise the precariat and the lowest 10% the impoverished.

Tom Hickey said...

Tom I literally cannot understand what you are saying ... this is a slam dunk imo,...

Write up a platform backed up with deterministic models and run on it, or give it someone who will.

Bob said...

Have the electorate doesn't vote, nor are they presented with alternative policies. Look at the response to Bernie Sanders and his reforms.

Bob said...

*Half*

Noah Way said...

There is little doubt that the people in charge are incompetent.

Define competent. They are very good at perpetuating self-service.

Have the electorate doesn't vote

Why should they? As tRump has demonstrated (and BO before him), it makes no difference which puppet is in the chair.

Tom Hickey said...

Define competent.

At a minimum filling in the potholes in a timely way (little things count bigly) and not having bridges collapsing, water supplies being poisoned, etc.

Tom Hickey said...

Another way to look at it is in the Sixties, the US was rising in distributed prosperity and the young reacted against materialism owing to the plenty (dialectical again). In a sense TPTB were too competent in a way then, with the US in the driver's seat of the world after WWII, when the rest of the developed world was still in recovery from the war and before the undeveloped world began emerging.

Now the US is being compared to a developing country with a top tier engaging in conspicuous consumption and the rest struggling to make it, and the leadership involved in foreign adventures and world domination while ignoring pressing issues at home.

Tom Hickey said...

Peter Temin says 80 per cent of the population is burdened with debt and anxious about job security.

Independent
US has regressed to developing nation status, MIT economist warns
Chloe Farand

This is extreme incompetence.

Bob said...

Why should they? As tRump has demonstrated (and BO before him), it makes no difference which puppet is in the chair.

Non-participation by the electorate has grown over the decades. They are tired of voting for shit sandwiches. So what set of policies would bring the non-voting block back? Trump's "populist" campaign did not persuade them.

Tom Hickey said...

Right now, Bernie is the most popular politician in the US.

But Bernie is not the guy to carry the ball across the finish line. New blood needed.

But first the Democratic Party needs to purge itself of the neoliberal losers and corporatists.

Neil Wilson said...

"The human body is not a machine but we can use functions to administer medicines"

Only up to a point. The failure of pharmaceuticals to make any real advances recently is precisely because they are still using population medicine assuming we're all the same, rather than individual medicine accepting we are all different.

People are dying in trials because genetic variation is now a very large factor, not a small one that can be abstracted away.

Matt Franko said...

Sounds like there is another term(s) in the functional equation we will have to add Neil...

Matt Franko said...

"US is being compared to a developing country"

We've taken in 10s of millions of people from those "developing nations" so ofc we are going to look like one a bit...

Also doesn't help to have the B Team in control while that influx is happening...

Tom Hickey said...

"The human body is not a machine but we can use functions to administer medicines"

Medicine uses stochastic functions, not deterministic ones. Assumes random selection in a homogenous population. There are issues with both assumptions.

AXEC / E.K-H said...

Complexity and stupidity
Comment on Peter Radford on ‘Complex Simplicity’

When economists are at the end of their wits they invoke complexity: “Economies are devilishly complicated things. They are full of obstreperous and notoriously difficult subject matter. Notably people. And people, as we all know, do the darnedest things. They, for instance, change their minds and sometimes even contradict themselves ― with a straight face too. This makes plotting and explaining their activity very hard.”#1

Since Newton’s and Adam Smith’s days, when economists ask themselves why they have failed in both relative and absolute terms one invariably hears the same complexity-uncertainty-hard-stuff refrain.

“There is a property common to almost all the moral sciences, and by which they are distinguished from many of the physical; this is, that it is seldom in our power to make experiments in them. … We therefore study nature under circumstances of great disadvantage in these sciences; being confined to the limited number of experiments which take place (if we may so speak) of their own accord, without any preparation or management of ours; in circumstances, moreover, of great complexity, and never perfectly known to us; and with the far greater part of the processes concealed from our observation.” (Mill, 1874, V.51)

Or:

“Years ago I heard Mr. Cobden say at a League Meeting that ‘Political Economy was the highest study of the human mind, for that the physical sciences required by no means so hard an effort.’” (Bagehot, 1885, PE. 13)

Or:

“The motives and conditions are so numerous and complicated, that the resulting actions have the appearance of caprice, and are beyond the analytic powers of science.” (Jevons, 1911, p. 15)

Or:

“Knight accuses the positivists of overlooking the complexity and uncertainty of testing in all sciences and argues at length that positivist views of science are particularly inappropriate to economics, which, like all sciences of human action, must concern itself with reasons, motives, values and errors, not just causes and regularities.” (Hausman, 1989, p. 118)

Or:

“Economics is a strange sort of discipline. … too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the ‘laws’ of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses.” (Solow, 1998, pp. x-xi)

We know from the history of science that Ptolemy’s theory of planetary motion was very complex ― in the end he dealt with more than 20 epicycles ― and that the complexity vanished into thin air by changing the vantage point. Could it be that complexity is not in the subject matter but in the observer’s mind? Could it be that economists observe and argue, like Ptolemy, from the wrong vantage point?

“Others, the inexperienced students, make guesses that are very complicated, and it sort of looks as if it is all right, but I know it is not true because the truth always turns out to be simpler than you thought.” (Feynman, 1992, p. 171)

Could complexity be an indicator of dilettantism or confusion?

See part 2

AXEC / E.K-H said...

Part 2

Imagine for a moment an aircraft flying from, say, New York to Paris. Now we can ask why? One way to answer the question is to speculate about the motives and reasons of the passengers, the pilot, the crew, the flight controllers, and the managers and stockholders of the airline. The other way to look at the flight is to think about the laws of aerodynamics, thermodynamics and so forth.

We could know in advance that there is no such thing as ‘laws’ of human behavior that could explain flying, not to speak of a particular flight. Real scientists have always been well aware of this.

“The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition … is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown, 2011, p. 211)

Hume and Adam Smith, though, missed this crucial methodological point and subscribed to the primacy of what was called the Science of Man.

“It is evident, that all the sciences have a relation, greater or less, to human nature: and that however wide any of them may seem to run from it, they still return back by one passage or another. Even. Mathematics, Natural Philosophy, and Natural Religion, are in some measure dependent on the science of MAN; since the lie under the cognizance of men, and are judged of by their powers and faculties.” (Hume, 2012, Introduction)

By anchoring economics firmly in the social sciences Hume and Smith set the discipline on the WRONG track and programmed failure.

…there has been no progress in developing laws of human behavior for the last twenty-five hundred years. (Hausman, 1992, p. 320), see also (Rosenberg, 1980, pp. 2-3)

Ergo: economics is not a science of behavior (Hudík, 2011); economists have to change their vantage point; economics has to be redefined.

Economics is NOT a social science but a system science:

OLD definition, subjective-behavioral: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”

NEW definition, objective-systemic: “Economics is the science which studies how the monetary economy works.”

In non-technical terms this is what a paradigm shift, a.k.a. new economic thinking, is all about.#2 Because they are unable to perform the paradigm shift economists are stuck in the cul-de-sac. To complain about the complexity of reality has always been a ridiculous excuse of incompetent scientists.#3 Radford, Syll, Zaman, the heterodox muddle heads, are no exception. Keynesianism, for example, is inconsistent since 80 years and Post Keynesians have not rectified the foundational error/mistake/blunder until this very day.#4 This has NOTHING to do with complexity but with stupidity.#5

Egmont Kakarot-Handtke

References see
http://axecorg.blogspot.de/2017/01/complexity-and-stupidity.html

#1 Source
https://rwer.wordpress.com/2015/03/02/economic-ignorance/
#2 See ‘From Orthodoxy to Heterodoxy to Sysdoxy’
http://axecorg.blogspot.de/2016/03/from-orthodoxy-to-heterodoxy-to-sysdoxy.html
#3 See ‘Methodology 101, economic filibuster, and the mother of all excuses’
http://axecorg.blogspot.de/2016/12/methodology-101-economic-filibuster-and.html
#4 See ‘How Keynes got macro wrong and Allais got it right’
http://axecorg.blogspot.de/2016/09/how-keynes-got-macro-wrong-and-allais.html
#5 See also ‘Failed critique of failed economics’
http://axecorg.blogspot.de/2017/05/failed-critique-of-failed-economics.html

jrbarch said...

I'd want to know if the pilot was competent, sane, had his priorities (passenger safety) right etc ....

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

@E. K-H

“Economics is the science which studies how the monetary economy works.”

Egmont – I read your prologue at your website and the above comments. From a ‘story-tellers’ perspective a lot of stuff seems to be upside down, because of one error.

Am also wondering about your decision to adopt a ‘Punch & Judy’ style of presentation – beating up economics with a big stick. I guess it’s entertaining, attention-grabbing, and if a few tomatoes are pelted at the stage, you’re safe pulling the strings. Makes me wonder who or what pulls Egmont’s strings; but then I wonder that about everyone. But I don’t think ‘Punch & Judy’ is really a method that works? Is it working? Am sure you would change course if not. Just speculating as storytellers are want to do, but I can’t help wondering if your handle had something to do with this confrontational approach: - I know in Australia you would have had to have learnt how to fight at a very early age (‘boy named Sue’ syndrome) :-) !

(By the way, your site has an insecure connection – safer being http over ssl – i.e. https?)

Anyway, doing my best to put storytelling aside: -

There is the skin of the earth and its resources (air, water, earth, and space waiting as a symbol) and human ingenuity transforming and distributing those resources in accordance to the ‘level of collective consciousness’ as Tom would say (leaving $money out of the transformations for the moment). So as far as I can understand this stock and trade scenario, the same human propensities, imperfections and inequalities would persist, but without the flow that $money allows.

Adding $money just enables the flow, amplifies our propensities, and replaces the stock and trade units on the scoreboard. Not that much of a science as far as I can see at the moment?

What changes over time is the ‘collective consciousness’. If people valued kindness and their humanity over transforming resources and exercising power over transformed resources (including material living beings) then your economic ‘science’ would change to reflect that. So, I think you have to start with the human being. Water the root.

We arrive on this planet and get conditioned, captured, bound head and foot, by everything that is here. To me, the greatest storytelling (‘fake news’) is the social story as our only story. We are not taught to explore our being. My storytelling truth is that the collective consciousness seeks to be self-conscious. That is why we come here. This story is as old as humanity itself.

AXEC / E.K-H said...

jrbarch

Complexity is an issue where one can clearly see he difference between substandard thinkers like economists and genuine scientists. Here is how complexity is properly dealt with.

“The Principia begins with an idealized world, a simple mental construct, a ‘system’ of a single mathematical particle and a centrally directed force in a mathematical space. Under these idealized conditions, Newton freely develops the mathematical consequences of the laws of motion that are the axioms of the Principia. At a later stage, after contrasting this ideal world with the world of physics, he will add further conditions to his intellectual construct ― for example, by introducing a second body that will interact with the first one and then exploring further mathematical consequences. ... In this way he can approach by stages nearer and nearer to the condition of the world of experiment and observation, introducing bodies of different shapes and composition and finally bodies moving in variant types of resistant mediums rather than in free space.” (Cohen, 1994, p. 77)

Economics, too, starts with an idealized world but then it does NOT move nearer and nearer to the world of experiment and observation but in the OPPOSITE direction in order to rationalize an unsuccessful initial idealization. Thus idealization, which is indispensable, becomes counterproductive. There is only a thin line between fruitful abstraction and barren absurdity. To assume that the moon is a mass point is unrealistic but fruitful, to assume that it is made of green cheese is unrealistic but nothing else. Most assumptions/abstractions/idealizations/simplifications of standard economics fall into the green cheese category. This is how economics has become so gaga.

The crucial point of scientific methodology is the undissolvable combination of axiomatics and empiricism. Despite much imitation this point never got across to the storytellers of the so-called social sciences: “Did anyone ever attempt to found a system of social science or economics on the level of identity with Newtonian rational mechanics or the Newtonian system of the world? In my research I have never found such an example. (Cohen, 1994, p. 61)

The task of Heterodoxy in general and the methodological loudspeakers Radford, Syll, Zaman in particular is NOT to wax so lyrical about complexity but to successfully deal with it.

Egmont Kakarot-Handtke

jrbarch said...

@ E. K-H

Thank you for your response Egmont. I am sympathetic towards any frustration felt, towards explanation of the ‘dismal’ science.

A photon could be thought of as a Principia. Taking up to 500,000 years to escape the sun, it arrives on earth some 8.3min later, a mass-less ‘packet wave’ of energy, which manages to alter the mass of systems as they depart and enter. Under the axioms of this photonic Principia, photons are absorbed by atoms, provoking transitions in their energy levels, that can cause chemical alterations producing nerve impulses determining human vision; or break asunder chemical bonds. These simple axioms extend to transform the whole of the skin of the earth and its denizens, as light acts upon all cellular life which cells in turn under the invisible hand of the hidden ‘qualities’ of these wave packets, work in congeries to determine organ function and the coordinated and interrelated systems of the city of the body. Sunlight is the engine that drives transformations in this material world.

So it is agreed that this level of systemic investigation and clarity is painfully absent from the dismal science.

But why think economics is complex? I am not sure what your ideal world, Principia of economics is (sorry, I haven’t read any further than the prologue). If we define economics for one human being as looking after NEEDS (shelter, hunger, thirst, procreation) that is not complex. For two we enter the world of WANTS and that is on the social side a human relationship involving perceived VALUE; and on the material or services side an agreement as to how that value is objectified (quantified,qualified). Still looks strikingly human to me? Can human WANTS be packaged as a science? It seems the biggest problem is people think we can run out of $money; and that too is a human being ignoring the facts.

Human beings are rich; but they need to look at themselves to find out how rich. It still seems natural to me, that the only tool we have to bring an idealised world into objectivity, is through peace.

Bob said...

Can human WANTS be packaged as a science?

Yes, as science fiction. There are also thought experiments for those who are willing.