Towards an Economics of Evolution, Emergence, and Innovation
The only function of Economic Forecasting is to make Astrology look respectable. John Kenneth Galbraith
Page after page of professional economic journals are filled with mathematical formulas leading the reader from sets of more or less plausible but entirely arbitrary assumptions to precisely stated but irrelevant theoretical conclusions. Wassily Leontief
The men of the sciences that are proud to own themselves modern find fault with economists for being still content to occupy themselves with repairing a structure and doctrines and maxims resting on natural rights, utilitarianism, and administrative expediency. Thorstein Veblen
The new approach [complexity economics] is not just an extension of standard economics, nor does it consist of adding agent-based behavior to standard models. It gives a different, nonequilibrium view of the economy: one where actions and strategies constantly evolve, where time becomes important, where structures constantly form and re-form… This view gives us a world closer to that of political economy than to neoclassical theory, a world that is organic, evolutionary and historically-contingent. Brian Arthur
Can Economics Be More Scientific Than Scientology?
When it comes to light bulb jokes, the standard answer for how many economists is “none, the market will take care of it”. In our real world of highly rigged economies, the answer involves psychologists, where the answer is “only one, but the bulb must really want to change”. Nearly a century and a quarter ago, one leading figure in economics, Thorstein Veblen, asked a gathering of his learned colleagues “Why economics was not an evolutionary science”, which is to say why it is not doing science the way the other sciences were beginning to do it? I repeated Veblen’s question to economists who showed any tiny interest, as well as published a diatribe for my colleagues in the Real World Economics Association (https://www.worldeconomicsassociation.org/newsletterarticles/adaptive-systems/) a few years back, in light of advances in the study of Complex Adaptive Systems (or “Complexity Economics” for short). This group of orphaned heterodox economists originated with rebellious doctoral students at top European universities a few decades back and once held the cheeky label “post-autistic economics”. Okay, I was preaching to the choir, but hey mainstream economists were still not listening, despite their complete debacle in recent financial crises (which still remains unresolved). Even my unorthodox colleagues seemed to be a bit ho-hum about the potential of complexity to revolutionize the way economics is done.
The Complexity Approach dates back to work in Systems Theory and Cybernetics following WWII, especially work in the realms of nonlinear dynamics, self-organizing systems, and adaptive evolution (note: https://www.press.umich.edu/2453488/systemic_choices), and relates to economics by way of what I called “Institutional Ecology”. Colleagues of mine at the University of Michigan, back in the 70s and 80s, were developing computer simulations with diverse agents (cooperative, reciprocating, altruistic, as well as greedy) in order to provide “an artificial reality check for economists”. These algorithms shifted the unit of analysis from the individual to the patterns of interactions between individuals and their institutions with both evolving over time to address novel situations. These nonlinear simulations exhibited unpredictable “emergence” (where the system is greater than the sum of its parts). We thought we were really on to something, but it would be nearly another 30 years before complexity was beginning to be considered a new foundational approach to economics, and that realization only fortified the mainstream recalcitrance.
Let’s face facts, mainstream economists are far from stupid, they know their tidy (but gravely unrealistic) models mostly serve a larger ideological project, just as they know exactly on which side their bread is buttered. Economics departments were originally funded (often hand-picked) by rich industrialists during the Gilded Age that Veblen lampooned in his best seller A Theory of the Leisure Class. Much of the mainstream has been pandering to predators and plutocrats ever since. They still command among the highest university salaries as well as highly lucrative consulting and lobbying fees. Plus, as became general knowledge following the award-winning documentary The Inside Job (about the great financial crisis of 2008), they pursue their corporate and governmental sides gigs, as well as publish faux science articles, with virtually no concern for conflicts of interest.
As luck would have it, insights from Michigan and a premier institute in Santa Fe, New Mexico into the actual functioning of the economy were just beginning to emerge when the US political economy was plowing ahead into a much more outrageous Gilded Age (hyper-financialized, with deregulation and privatization destroying all the shared prosperity of post war era). The mainstream was once again captured by a cult of ideologues from places like the University of Chicago (known as neoliberals but for sake of clarity I call them neofeudals) fortified by an even grander outpouring of elite largesse in the form of institutes, think tanks, and endowed chairs (and even semi-governmental bodies). Meanwhile this cult swept into the highest halls of power with Reagan and Thatcher. They also strengthened the tenuous hold on fake science, by issuing their own Nobel Prizes (actually the Swedish Bank Prize given at the same time as the real prizes, and over the objection of the Nobel family).
The Evolutionary Crux of Complexity Economics
So, what is this new foundational approach to economics all about? First and foremost, complexity studies gives a much richer understanding of evolution (societal as well as biological) than the simple Darwinian model of Veblen’s era. It is noteworthy that it was the Social Darwinist (and Eugenicist), Herbert Spencer, who coined the phrase “survival of fittest”, NOT Darwin. But I digress. As corporations have proven there is just as much cooperation (including out and out collusion) in industrial ecosystems than there is head-to-head to competition. One of my Michigan colleagues, John Holland, generated new evolutionary perspectives useful in economics. From the basic principles of a “self-organization”, he coined the term “perpetual novelty”, to characterize how natural and human systems vacillate between replication and mutation. In times of stress successful systems devote more resources to “exploration” than “exploitation”. The key point here is that mainstream economics is largely stuck on exploitation.
The Godfather of Complexity Economics, Brian Arthur (of Stanford University and the Santa Fe Institute) noted that economics is mostly about allocation and largely ignores the nexus of the economy which is REFORMATION. That is, it focuses on the prices and quantities, as determined in mythical perpetuity by markets, and excludes careful consideration of how an economy emerges and changes its structures and functions overtime. The ancient Greeks who coined the phrase economics (from eco or home) actually set the stage for it being an ecological science. But, in modern times it focused exclusively on static systems that the Greeks labeled chrematistics (“the accumulation of money for its own sake”). As Arthur contends, a new “foundation” centered on the dynamical processes of “formation” would send it on a course toward greater experimentation and innovation.
We already have mountains of data telling us that the on-going era of hyper-financialization coincides with a precipitous decline in research and development. Not to mention that a substantial portion of the heavily concentrated wealth has been devoted to overwhelming political processes and securing undue supremacy for stagnant or zombie industries, hyper-inflated existing assets, and insanely leveraged “phantom wealth”. The nominal value of financial derivatives dwarf the global GDP by hundreds of trillions of dollars. Worse yet, the general “weirding of the economies” (widespread insecurity, ill distributed risk, and precarious employment) are fertile ground for full frontal fascism (with its demands for a return to mythical past glories and racial/ethnic scapegoating).
The good news is that many leading universities are finally facilitating curriculum changes to allow a tad more time for Complexity Economics. But the bad news is that current cascading crises (environmental/climatic as well as financial) may not wait for economics to realize its scientific potential. Moreover, as the Arthur’s quote above alluded, many mainstreamers still maintain that complexity can be co-opted (like behavioralist and game theorists were) and thus be merely grafted onto their exiting theories and methods (via so called “agent-based modeling”). I would remind you that it is not the agent (as rational individual), but their often mercurial and multi-motivated interactions with changing institutions that is the basic unit of analysis (what I call “systemic choices”). And, our systems have some very important ones to make very soon.
However, as the famed physicist, Max Planck, observed “science advantages one funeral at a time”. If we must endure another generation of unrepentant ideologues (with their well-heeled patrons tipping the scales), then most of us, and in all probability, much of the planet will be dead before they are. Like that great Tom Toro comic with an adult and kids, in tattered clothing, sitting around a post-apocalyptic camp fire, and he is telling them: “yes the planet got destroyed, but for a beautiful moment in time we produced a lot of value for shareholders”.