We are on the verge of a revolution in economics, in fact, it might have already started. Many have pointed out that the current climate within the discipline is such that it cannot continue. I have linked to these discussions in previous posts, although, I have neglected to include other heterodox forms of the field such as feminist economics, humanistic economics, etc, but mostly because I don’t feel as if I know enough about them to give them proper representation. Though, even in the mainstream, economists have begun to seek new ways of their craft things outside the status quo rate of the field’s continual evolution.
Something that must be warned against is the potential for economists to use economic theory as a means to their own ends, instead of merely a means to discover truths about the nature of humanity and economies. I would argue that economics has value in and of itself, without the addition of value placed on it by those who are consulting or use the prescriptions to further their own interests. An economy is not something that can be engineered. More so, an economy is not something that can be altered from the outside. None of us can take a metaphorical wrench and adjust the economy in seemingly knowable/predictable ways that will guarantee specific outcomes. However, many economists attempt to do just that.
While I think there is a mix of good intentions and hubris involved in the decisions of those who wish to alter the state of the economy using tools and policies, there is something to be said about what a fully engineered economic system would look like. What if we could model the economy down to the very basis points of interest rates and cash flows? One could imagine that a computer capable of doing such things might not be too far in our future, especially since quantum computing is closer than ever before. We could know exactly what is going to happen and how to change the dials and the knobs to secure specific outcomes. For many, that would be a Utopian dream. Imagine eradicating all poverty just by changing some set of parameters to complement a given set of initial conditions.
This has been considered before, over 200 years ago, but it was through the eyes of classical mechanics and not economics. Pierre Simon Laplace realized some 150 years after the invention of Newtonian Mechanics that if there was some being that could know the exact specifications of everything, the entire universe could be modeled. He stated in A Philosophical Essay on Probabilities,
“We may regard the present state of the universe as the effect of its past and the cause of its future. An intellect which at a certain moment would know all forces that set nature in motion, and all positions of all items of which nature is composed, if this intellect were also vast enough to submit these data to analysis, it would embrace in a single formula the movements of the greatest bodies of the universe and those of the tiniest atom; for such an intellect nothing would be uncertain and the future just like the past would be present before its eyes.”
This supreme intellect became known as Laplace’s Demon. The reason being the point at which everything becomes predictable then the universe becomes entirely deterministic — free will ceases to exist, we become cogs in the machine. Because this machine could crank time forwards and backwards and we would be no more than actors playing a predefined script. Quite quickly, this Utopian vision turns into an existential nightmare. Fortunately, this kind of machine or intellect was proven to impossible with the discovery of quantum mechanics ca. 1900, but there has been some talk of a “computer” that could model the universe via quantum wave functions. However, the size of the computer is probably the same size as our universe.
I have argued against the fatalist view of economics (essay to be posted later), I think there are marginal changes that can be made through the work of policy and individuals allowing us a better world. Nothing is entirely set in stone, complexity allows us to appreciate the myriad number of potential outcomes and how all of the interactions of individuals make for beautiful, interesting world. Using economics as a tool to mess with the supposed “cogs” might end up doing more harm than good, but we are able to learn from the works of others. Economics isn’t merely decision theory, it is the theory of explaining how people interact to achieve their goals at both the micro and macro scale (as far as those actually exist). So while I think economists working in the public and private spheres provide a necessary service, what is unnecessary is for economists to create versions of economics that have vested interests. If one is to remake a better version of DSGE, it shouldn’t be a means to the greater positioning of oneself, but for a greater understanding of behavior that will in turn help humanity.
Deric Tilson 