As policymakers, academics, and activists prepare for next month's United Nations climate summit in New York, they should consider precisely what it will take to build a truly sustainable global economy. First and foremost, the world needs a new multidisciplinary approach that is broad enough to tackle the challenge....Project Syndicate
Traditional economic theory is rooted in a 19th- and 20th-century understanding of science and mathematics. At the simplest level, traditional theory assumes economies are linear systems filled with rational actors who seek to optimize their situation. Outputs reflect a sum of inputs, the system is closed, and if big change comes it comes as an external shock. The system’s default state is equilibrium. The prevailing metaphor is a machine.
But this is not how economies are. It never has been. As anyone can see and feel today, economies behave in ways that are non-linear and irrational, and often violently so. These often-violent changes are not external shocks but emergent properties—the inevitable result—of the way economies behave....
Machine view [physical] : Wealth = individuals accumulating moneyGarden view [biological] : Wealth = society creating solutions
One of the simple and damning limitations of traditional economics is that it can’t really explain how wealth gets generated. It simply assumes wealth. And it treats money as the sole measure of wealth. Complexity economics, by contrast, says that wealth is solutions: knowledge applied to solve problems. Wealth is created when new ideas— inventing a wheel, say, or curing cancer—emerge from a competitive, evolutionary environment. In the same way, the greatness of a garden comes not just in the sheer volume but also in the diversity and usefulness of the plants it contains.
In other words, money accumulation by the rich is not the same as wealth creation by a society. If we are serious about creating wealth, our focus should not be on taking care of the rich so that their money trickles down; it should be on making sure everyone has a fair chance—in education, health, social capital, access to financial capital— to create new information and ideas. Innovation arises from a fertile environment that allows individual genius to bloom and that amplifies individual genius, through cooperation, to benefit society. Extreme concentration of wealth without modern precedent that has undermined equality of opportunity and thus limited our overall economic potential.…Economist Kenneth E. Boulding joined biologist Ludwig von Bertalanffy in founding the discipline of general systems theory. It was the precursor of evolutionary economics also known as complexity economics. Kenneth Boulding's economics was close to MMT, and MMT economists have recognized him as a precursor. Boulding and his wife Elise were prominent Quaker peace activists. Boulding also worked in conflict studies and emphasized love as a foundation of well-functioning society and economy.
Neither history, nor the present-day pace of scientific discovery supports the notion of diminishing returns to technological innovation. The challenge for growth economists is that analytic models are poorly suited to capture, and set society’s expectations for, these impending disruptions. Some consequences will be too pervasive and long-term to show up clearly in the immediate data. Some will change our behaviours, and by doing so invalidate prevailing economic assumptions. And some will transcend the economic sphere entirely to touch higher human values.
Growth economics is powerful. At its best, it is an empirical science that helps determine how to lift human wellbeing – one of civilisation’s most important tasks. But it is unable to capture the dynamism of our new age of discovery for a reason. Much that matters is still beyond its sight.The authors argue in the post that big changes are in the works and that a this will result in a paradigm shift. Pessimism in growth economics is unwarranted pessimistic.
How can we redesign money— and our mind-set—for a mature economy or an ecological civilization?…
Perhaps the defining issue of our age is that the human economy has grown to a scale where it impacts the environment at every level: on land, in the oceans, and in the air. As Kenneth Boulding put it, we are transitioning from a cowboy economy, where the world is an open frontier, to a spaceman economy, where we are restrained by natural limits.
This transition, ecologist Eugene Odum argued, resembles that followed by ecosystems as they become established. At the early stages of an ecosystem’s development, available energy (whose ultimate source is the sun) is rapidly exploited by a few species in a sudden bloom of growth. As the ecosystem matures, the food chain switches from a linear chain—carnivores eating herbivores eating plants—to a more web-like, decentralized structure in which multiple species interact in increasingly complex ways. The waste of one organism is recycled as food for another, and resources such as nutrients and minerals are conserved. An example of a mature ecosystem is a tropical rain forest, where most of the nutrients are not in the ground but in the trees and the species that live in them. The land itself has little agricultural productivity, as farmers discover if they cut down the trees and try to grow soy or provide pasture for cattle.
Economies also develop in a similar manner. In a society of pioneers, wrote Odum, “high birth rates, rapid growth, high economic profits, and exploitation of accessible and unused resources are advantageous.” As the economy matures, the emphasis switches to “considerations of symbiosis (i.e., civil rights, law and order, education, and culture)” and the recycling of resources. However this transition is a work in progress: “Until recently mankind has more or less taken for granted the gas-exchange, water-purification, nutrient-cycling, and other protective functions of self-maintaining ecosystems, chiefly because neither his number nor his environmental manipulations have been great enough to affect regional and global balances. Now, of course, it is painfully evident that such balances are being affected, often detrimentally.” And matters have not improved in the ensuing half-century, as carbon dioxide emissions have climbed and the lifesupport abilities of the planet have continued to degrade. We have grown richer in monetary terms but the hidden charges are mounting up.…Very much worth the read.
As the Harvard political philosopher Michael J. Sandel explains, “We have drifted from having market economies to becoming market societies. The difference is this: A market economy is a tool—a valuable and effective tool—for organizing productive activity. A market society, by contrast, is a place where almost everything is up for sale.” In this case: “What role should money and markets play in a good society?Lots of info that raises more questions than the authors are able to answer, which they recognize, but these are the kinds of questions that we need to answer in a complex adaptive system subject to emergence.
I was recently asked to take part in a roundtable co-organised by Nik Gowing and CIMA (the Chartered Institute for Management Accountants). The roundtable was designed to feed in to the Churchill 2015 conference in November, and was on the subject of ‘thinking the unthinkable’ with regard to global leadership. The premise, which I agree with, is that the world is changing rapidly, such that those in positions of authority who are meant to lead us through such problems are being overwhelmed by multiple wicked problems.
These wicked problems include: climate change; ISIS; the Arab Spring (which I see as a generally good thing); the financial crisis of 2008 and the ensuing global recession; and rising tensions between the West and Russia.
I thought I would share my thoughts, some of which I shared at the roundtable, on this (hugely complicated) subject via a blog article.
Ultimately, I see these wicked problems arising from a tension between two broad points: the world looks more like a closed system that is now hitting capacity constraints; and we are employing a ‘simple systems’ mind-set to what are complex system problems.
The World as a Single, Closed System
The first point is that the world is now behaving more like a single, closed system than at any point in human history. It isn’t actually a closed system because it is open to the sun’s energy but, if I were to put it bluntly, there is no longer any ‘outside’ from which we can import solutions and export problems. At the same time, feedback effects have become more pronounced, and the earth’s capacity constraints have begun to be tested by the simultaneous growth of the human population and its average per capita consumption.
These features appear to have arisen from the stunning advances in transportation technology over the past hundred years or so and, more recently, by the advancement of information and communication technology. All of this has cultivated a much more integrated, interacting world.
Prior to this, for several hundred years, the world was organised, both in a real and a legal sense, in to nation states, which operated – broadly speaking – like small open systems. In such a world, you can generally ignore the impact you have on the wider host system. You can also export some types of problem (sending convicts to other shores, for example) and import solutions to other types of problem (invading resource-rich countries, importing slaves etc.).
And, generally speaking, the more powerful countries were more able to seek solutions from their outside than the less powerful, and they could do this without any expectation of a significant detrimental response / feedback. Hence, empires were built.
We have moved away from this world for the reasons cited above: transportation technology, ICT, and increases in population and per capita consumption. Of course, the resulting wicked problems are not only important at the global level for national politicians and diplomats: they are also challenging the senior executives of organisations of varying sizes and types. The environment for many directors has changed, and continues to change, rapidly.
The ‘Simple Systems’ Mind-Set
The second point is that the dominant way of thinking in the world is reductionist, linear and static. Reductionism is the idea that we can break a whole system in to parts to understand it; linearity is the notion that cause is proportional to effect (i.e. small causes create small effects and vice versa); and by static I mean that dynamical effects are either ignored or under-emphasised.
In my opinion, this ‘simple systems’ thinking is demonstrated most clearly in orthodox Western economics. But economics is not merely an exemplar here, it is also important because it has widespread effects on corporations and governments all over the world. It frames decision making concerned with trillions of dollars of resources.
Now, an important point to note here is that the simple systems mind-set is a reasonable approximation for decision-making in the old world of multiple small open systems. Indeed, the relationship between the two is brought in to focus if we make the inverse point: we can imagine this simpler mind-set emerging in this old world as a reasonable approximation of how it works. Our pattern-recognition capabilities are, after all, concerned with reasonably approximate hypotheses.Synthesis
In my opinion, and this is the core point of this article, the global wicked problems listed above have arisen because we are living in a world for which the simple systems mind-set is no longer a sufficient approximation. Among other things, the world in which we now live has no outsides, it is prone to cascading effects (like global financial crises) and acute feedback effects.
There is a lot going on in America and the world today: climate change, increasing separation between the rich and the non-rich, entrenched poverty in cities, continuing effects of racism in American life, and a rising level of political extremism in this country and elsewhere, for starters. Add to this politico-military instability in Europe, continuing social conflict over austerity in many countries, and a rising number of extreme-right movements in a number of countries, and you have a pretty grim set of indications of what tomorrow may look like for our children and grandchildren.
How should we think about what our country will look like in twenty or thirty years? And how can we find ways of acting today that make the prospects for tomorrow as good as they can be?UnderstandingSociety
What the physicists DO believe, however, is that markets and economies are great examples of what scientists have come to call “complex systems” — systems of many elements (people, firms, etc.) with strong interactions between those elements which create webs of non-linear feedback. The elements learn and adapt, their interactions create “emergent” coherent structures and fluctuations at the collective level, and these structures then act back downwards to influence the behavior of the elements. What happens in the system comes about through this interplay of bottom-up and top-down cause and effect. In this sense, economic systems share a deep character with many physical or biological systems from the earth’s crust to turbulent fluids to ecosystems. It’s this complex systems aspect of economics which makes physicists believe that ideas from physics (and other natural sciences) can be useful in economics.
This is precisely why many physicists, myself included, are convinced that modern economics is indeed, in an important sense, “held back because of a deficiency of mathematical tools and techniques”, to use Chris’s words. I can’t do better than to quote a short section from Brian Arthur’s excellent article Complexity Economics, which describes what many people (including physicists) believe is lacking from current economics:The Physics of Finance
Paul Samuelson claimed that the “ergodic hypothesis” is essential for advancing economics from the realm of history to the realm of science.
But is it really tenable to assume – as Samuelson and most other neoclassical economists – that ergodicity is essential to economics?
The answer can only be – as I have argued here, here, here, here and here – NO WAY!Lars P. Syll's Blog
I think you’ve put your finger on a major issue here that is often not made explicit when ideas from complexity are applied to social systems. This has created a lot of confusion and miscommunication and we need more discussion at this level to clarify the issue. I think it was Popper who noted that since our actions in the world are strongly affected by our view or model of the world – and this changes with experience – then strongly predictive theories of the social world are logically inconsistent since they imply we can predict now how we will view the word tomorrow. Or to put it another way: if we can know now how we will view the world tomorrow then why are we not viewing the world like that now? Or to put it even more starkly – if you could produce a model that predicted the next theoretical breakthrough in physics then you’ve already made that breakthrough.
On the subject of coherent theories of collective action – well, there was the old classic by Mancur Olson “the logic of collective action” but that was from a purely rational action perspective. I would say that the more recent classic by Eleanor Ostrom “governing the commons” is the good start on this enterprise – based as it is on empirical work and self-organisation principles. What is true of both through is that importance of the group, how it is defined, where its boundaries are and how the behaviour of some relate others.Greg Fisher recommends The Romantic Economist: Imagination in Economics by Richard Bronk. Here is some information at Amazon:
Since economies are dynamic processes driven by creativity, social norms, and emotions as well as rational calculation, why do economists largely study them using static equilibrium models and narrow rationalistic assumptions? Economic activity is as much a function of imagination and social sentiments as of the rational optimisation of given preferences and goods. In this 2009 book, Richard Bronk argues that economists can best model and explain these creative and social aspects of markets by using new structuring assumptions and metaphors derived from the poetry and philosophy of the Romantics. By bridging the divide between literature and science, and between Romanticism and narrow forms of Rationalism, economists can access grounding assumptions, models, and research methods suitable for comprehending the creativity and social dimensions of economic activity. This is a guide to how economists and other social scientists can broaden their analytical repertoire to encompass the vital role of sentiments, language, and imagination.David Colander likes it, too: "The book is superb-a wonderful blend of common sense, erudition, and imagination." - David Colander, Christian A. Johnson Distinguished Professor of Economics, Middlebury College
Yes. The problem is that " modern " economics is just old Benthamite Utilitarianism in new mathematical garb
By Michael Emmett Brady VINE™ VOICE
The author has,in general,put his finger on the fundamental problem facing economics today as it is taught to undergraduate/graduate students in the average college/university economics class. The problem is that economics is just the latest use of cribbed mathematical and statistical techniques shoehorned to fit the latest version of Benthamite Utilitarianism,which is what all variants of neoclassical and Austrian economics are. The author correctly points out that the " Romantics " rejected Benthamite Utilitarianism He recommends their writings as a counter weight to Benthamite Utilitarianism. However,a more powerful antidote , in my opinion,would entail going back and digesting what was written in the Old and New Testament, as well as in the works of Aristotle, Plato, Augustine, Thomas Aquinas and Adam Smith. Smith ,for instance completely rejected both libertarianism and Benthamite Utilitarianism in Part V of The Wealth of Nations (1776). Unfortunately, Part V of the Wealth of Nations is not taught /covered in any undergraduate/graduate level course at any college /university in the world .
