Noah Smith — Liberals Compete for the Soul of Economics

But there are not one, but two big trends in liberal economic thinking. One wants to modify the economic thinking of the past few decades, and the other wants to rip it up. I expect to see a lot of the economic debate in the coming years play out not between the left and right, but between these two strains of thought.

More controversy on the way. Will MMT finally get a hearing?

Not if Noah Smith has it right. Noah completely ignores Post Keynesian economics and Institutinoalism as an overlapping cluster of schools and talks instead of evolutionary economics and complexity economics, which are still in their infancy compared with PKE.

Is Noah blindsided, or is this Bloomberg policy?

Bloomberg View
Liberals Compete for the Soul of Economics

Noah Smith, contributor
ht Mark Thoma at Economist's View

Peter Cooper — The Macro-Institutional Delimitation of Economic Complexity

What Peter is calling attention to in this post is addressed in sociology in terms of the interaction of the micro, mess and macro levels. Each is influenced by the others and in turn influences the others.

What is the difference between the macro, meso, and micro levels. Complex social systems are comprised of individuals or agents that are the elements of the system, the relationships such as affiliations and institutions that group individuals, and the system itself. A complex social system is a web or network of element that are configured in nodes with the overall context of the structure and function of the system in which they are embedded.

Failure to any of the relevant aspects of a system into account in an explanation will limit the explanation. Obviously, everything cannot be considered in an explanation, whose purpose is simplification for modeling. However, failure to include relevant aspects of the system or failure to model them correctly relative to the system will vitiate the explanation.

Economics has not yet come to grips with this approach, at least for the most part. This is actually stated as part of the methodological assumptions for methodological convenience. Sociologist, on the other hand, admit that modeling general cases in complex social systems is usually not possible to achieve, and so they are more modest in their approach to analysis and explanation.

heteconomist
The Macro-Institutional Delimitation of Economic Complexity
Peter Cooper

W. Brian Arthur — Economic complexity: A different way to look at the economy

Economics is a stately subject, one that has altered little since its modern foundations were laid in Victorian times. Now it is changing radically. Standard economics is suddenly being challenged by a number of new approaches: behavioral economics, neuroeconomics, new institutional economics. One of the new approaches came to life at the Santa Fe Institute: complexity economics. 

Complexity economics got its start in 1987 when a now-famous conference of scientists and economists convened by physicist Philip Anderson and economist Kenneth Arrow met to discuss the economy as an evolving complex system. That conference gave birth a year later to the Institute’s first research program – the Economy as an Evolving Complex System – and I was asked to lead this. That program in turn has gone on to lay down a new and different way to look at the economy.…

But it took us a couple of years before we realized we were developing an economics based not just on different methods, but on different assumptions.

Instead of seeing agents in the economy as facing perfect, well-defined problems, we allowed that they might not know what situation they were in and would have to make sense of it. Instead of assuming agents were perfectly rational, we allowed there were limits to how smart they were. Instead of assuming the economy displayed diminishing returns (negative feedbacks), we allowed that it might also contain increasing returns (positive feedbacks). Instead of assuming the economy was a mechanistic system operating at equilibrium, we saw it as an ecology – of actions, strategies, and beliefs competing for survival – perpetually changing as new behaviors were discovered.

Other economists – in fact some of the greats like Joseph Schumpeter – had looked at some of these different assumptions before, but usually at one assumption at a time. We wanted to use all these assumptions together in a consistent way. And other complexity groups in Brussels, France, Ann Arbor, and MIT were certainly experimenting with problems in economics. But we had the advantage of an interdisciplinary critical mass for a program that ran across all of economics. The result was an approach that saw economic issues as playing out in a system that was realistic, organic, and always evolving.…

Our artificial-worlds-in-the-computer approach, along with the work of others both inside and outside economics, in the early 1990s became agent-based modeling, now a much-used method in all the social sciences.…

None of this means the new, nonequilibrium approach has been easily accepted into economics. The field’s mainstream has been interested but wary of it. This changed in 2009 after the financial meltdown when, as theEconomist magazine observed dryly, the financial system wasn’t the only thing that collapsed; standard economics had collapsed with it. Something different was needed, and the complexity approach suddenly looked much more relevant.…

Where does complexity economics find itself now? Certainly, many commentators see it as steadily moving toward the center of economics. And there’s a recognition that it is more than a new set of methods or theories: it is a different way to see the economy. It views the economy not as machine-like, perfectly rational, and essentially static, but as organic, always exploring, and always evolving – always constructing itself. 

Some people claim that this economics is a special case of equilibrium economics, but actually the reverse is true. Equilibrium economics is a special case of nonequilibrium and hence of complexity economics.

Complexity economics is economics done in a more general way.

Santa Fe Institute
Economic complexity: A different way to look at the economy
W. Brian Arthur | External Professor, Santa Fe Institute; Visiting Researcher, Palo Alto Research Center

h/t Steve Keen

Rick Bookstaber — A Crack in the Foundation of Economics -- More Readings

Last year I did a post on a mathematical error that has dictated the direction of important work in economics, and more especially finance. The discovery of this error, by U.K. mathematician Ole Peters, has slowly gained some recognition, though for some reason the journal where the original paper was published has not been willing to publish this correction.

At its root the error is obscure -- as would inevitably be the case for it to have persisted for so long and for its incorrect conclusion to be relied on by such luminaries as Paul Samuelson and Kenneth Arrow.

Rick Bookstaber
A Crack in the Foundation of Economics -- More Readings