Ikonoclast — Mathematics and the constructions and emergent outcomes of socioeconomic phenomena

Digging into systems. Not as wonkish as it may sound.

Real-World Economics Review Blog
Mathematics and the constructions and emergent outcomes of socioeconomic phenomena

Ikonoclast

Also at RWER

Ecological limits and hierarchical power
from Blair Fix, Shimshon Bichler and Jonathan Nitzan

Jonathan Birch — Organisms as societies

Here, "society" is being used as a metaphor rather than a description. I would prefer to use "system" rather than "society," and to compare biological systems with social systems, since this is more descriptive and less evocative. At the same time, I agree that the use of "society" is legitimate and useful in biology and evolutionary theory.  

There are three major types of systems, corresponding to the three major branches of science — physical, biological, and social. There are resemblances and important differences in these types of system.

That said, the article is short and worth knowing about, since it indicates a rising trend in the field and evolutionary biology is exerting increasing influence on social, political, and economic thinking. 

So is the systems approach. General Systems Theory was founded by biologist Ludwig von Bertalanffy. Economist Kenneth Boulding switched from conventional economics to general systems theory. 

OUPblog

Organisms as societies

Jonathan Birch is an Assistant Professor in the Department of Philosophy, Logic and Scientific Method at the London School of Economics and Political Science, specializing in the philosophy of evolutionary biology

Sony Kapoor — The rising complexity of the global economy

A complex system can be roughly understood as network of nodes, where the nodes themselves are interconnected to various degrees through single or multiple channels. This means that whatever happens in one node is transmitted through the network and is likely to impact other nodes to various degrees. The behaviour of the system as a whole thus depends on the nodes, as well as the nature of the inter-linkages between them. The complexity of the system, in this instance the global economy, is influenced by a number of factors. These include first, the number of nodes; second, the number of inter-linkages; third, the nature of inter-linkages; and fourth, the speed at which a stimulus or shock propagates to other nodes. Let us now apply each of these factors to the global economy…

Everything involves tradeoffs. Increasing efficiency may reduce resiliency.  Increasing complexity may increase fragility. Emergence creates not only new opportunities but also fresh challenges along with them.

Such systems are more efficient, and the quest for efficiency has given rise to just-in-time supply chains and the rising speed of financial trading and other developments. But this efficiency comes at the cost of rising fragility. Evidence that financial, economic, pathogenic, security and other shocks are spreading more rapidly through the world is mounting.

To sum up, the Dynamic Stochastic General Equilibrium (DSGE) models and other traditional approaches to modelling the global economy are increasingly inadequate and inaccurate in capturing the rising complexity of the global economy. This complexity is being driven both by the rising number of nodes (countries) now integrated into the global economy, as well as the number and nature of the interconnections between these, which are intensifying at an even faster pace.

This calls for a new approach to policymaking that incorporates lessons from complexity theory by using a system-wide approach to modelling, changes institutional design to reduce the fragility of the system and deepens international and cross-sector policy making and policy coordination.

OCED Insights

The rising complexity of the global economy
Sony Kapoor, Managing Director, Re-Define International Think Tank and CEO of Court Jesters Consulting
ht Mark Thoma at Economist's View

Eric Beinhocker — The Great Transformation: Economics, Policy, Politics

Economic ideas matter. The writings of Adam Smith over two centuries ago still influence how people in positions of power – in government, business, and the media – think about markets, regulation, the role of the state, and other economic issues today. The words written by Karl Marx in the middle of the 19th century inspired revolutions around the world and provided the ideological foundations for the cold war. The Chicago economists, led by Milton Friedman, set the stage for the Reagan/Thatcher era and now fill Tea Partiers with zeal. The debates of Keynes and Hayek in the 1930s are repeated daily in the op-ed pages and blogosphere today.

Economic thinking is changing. If that thesis is correct – and there are many reasons to believe it is – then historical experience suggests policy and politics will change as well. How significant that change will be remains to be seen. It is still early days and the impact thus far has been limited. Few politicians or policymakers are even dimly aware of the changes underway in economics; but these changes are deep and profound, and the implications for policy and politics are potentially transformative.

For almost 200 years the politics of the west, and more recently of much of the world, have been conducted in a framework of right versus left – of markets versus states, and of individual rights versus collective responsibilities. New economic thinking scrambles, breaks up and re-forms these old dividing lines and debates. It is not just a matter of pragmatic centrism, of compromise, or even a ‘third way’. Rather, new economic thinking provides something altogether different: a new way of seeing and understanding the economic world. When viewed through the eyeglasses of new economics, the old right–left debates don’t just look wrong, they look irrelevant. New economic thinking will not end economic or political debates; there will always be issues to argue over. But it has the promise to reframe those debates in new and hopefully more productive directions.…

So how might new economics move us beyond the mechanistic view of policy and regulation, and towards a view that takes into account the complexity, unpredictability, and reflexivity of the economy?

My view is that we must take a more deliberately evolutionary view of policy development. Rather than thinking of policy as a fixed set of rules or institutions engineered to address a particular set of issues, we should think of policy as an adapting portfolio of experiments that helps shape the evolution of the economy and society over time. There are three principles to this approach…

Theoretical physicist John Hagelin ran for president on a similar platform some time ago as the Natural Law Party candidate. (I voted for him because of the platform rather than because he happens to be a friend.) While he had no chance of winning, it got him in a lot of doors with both parties and also leaders in important fields. He said he found a surprising level of agreement with his position that through science we already know promising solutions to virtually all our major problems, but that we are not trying them. The reason he got from those who agreed was that no one wanted to buck the trend by proposing something new and unknown to the public. It was just too risky for a politician career-wise.

Evonomics
The Great Transformation: Economics, Policy, Politics
Eric Beinhocker | Executive Director of the Institute for New Economic Thinking at the Oxford Martin School, University of Oxford

Andrew G Haldane: Managing global finance as a system

Text of the Maxwell Fry Annual Global Finance Lecture, given by Mr Andrew G Haldane, Executive Director and Chief Economist of the Bank of England, at Birmingham University, Birmingham, 29 October 2014

Bank of International Settlements
Andrew G Haldane: Managing global finance as a system

Tom Atlee — Comparing “Wisdom of the Crowds” to Real Collective Wisdom

“The Wisdom of Crowds” is about how accurate (or not) dozens or thousands of people are when they are guessing the number of beans in a bottle or predicting who is going to win the World Cup. The number of times their average collective guestimates are accurate is remarkable – which is the subject of Surowiecki’s book. But is that what WISDOM is really about? 

If some individual could predict the outcome of this year’s US elections, would we call them wise? Is that what we proclaim Christ or Buddha as wise for doing? 

I would love it if we would reserve the terms “wisdom” and “wise” for guidance that makes life better – especially useful guidance that makes life better for most or all of us – including all the creatures of this living, fragile Earth – over the long term. That’s what we need wisdom for, now more than ever. 

The traditions of the world’s great religions are one source of that wisdom, if we are mindful and heartful about which aspects of them we choose to follow, such as the near-universal Golden Rule of treating others the ways we would like to be treated. That’s wise. 

Various forms of systems thinking – from shamanism to ecology and complexity sciences – offer such wisdom because they deal with the wholeness and interconnectedness of the world. Nature’s ways of solving problems – as revealed by the sciences of biomimicry and evolution – also offers such guidance because nature’s solutions (and ways of generating solutions) have arisen and proven themselves through millions of years of testing.

Public Intelligence Blog
Tom Atlee: Comparing “Wisdom of the Crowds” to Real Collective Wisdom

Robert Vienneau — Steve Keen: Economists Are "Insufficiently Numerate"

More thoughts on teaching economics.

Economists should know something beyond mathematics [including that necessary for analyzing chaotic and complex systems, which many economists do not learn now]. For example, they should have some knowledge of the sort of history developed by, say, Fernand Braudel or Eric Hobsbawm. And they should have some understanding of contemporary institutions. How can they learn all of this necessary background and the needed mathematics5, as well? I do not have an answer, although I can think of three suggestions. First, much of what economists currently teach might be drastically streamlined. Second, one might not expect all economists to learn everything; a pluralist approach might recognize the need for a division of labor within economics. Third, perhaps the culture of economics should be such that economists are not expected to do great work until later in their lifetimes. I vaguely understand history is like this, while mathematics is stereotypically the opposite.

Thoughts On Economics
Steve Keen: Economists Are "Insufficiently Numerate"
Robert Vienneau

Systems, systems, systems. Start with modeling simple static closed systems that are highly stylized and build up to modeling chaotic and complex dynamic open systems that aims at being representational. The math and application have already been developed in other sciences.