I’m an intern there [the Santa Fe Institute] – which is why I’m particularly interested. I’ll be in college next year, and my degree program is very similar to some of the complexity science stuff.Who has fallen under the spell of the Pied Piper of Path Dependence, Brian Arthur;
If this sort of thing interests you, I’ll direct you to this new paper by W Brian Arthur, a stalwart of the field....Of course, it turns out that Brian Arthur seems to be unaware of what Joseph Schumpeter wrote in the 1940s, in Capitalism, Socialism and Democracy, about equilibrium (i.e. that the economy is never in equilibrium, but is always moving toward it);
...complexity economics accords with political economy. In the “computation” that is the economy, large and small probabilistic events at particular non-repeatable moments determine the attractors fallen into, the temporal structures that form and die away, the technologies that are brought to life, the economic structures and institutions that result from these, the technologies and structures that in turn build upon these; indeed the future shape of the economy—the future path taken. The economy at all levels and at all times is path dependent. History again becomes important. And time reappears.
A natural question is whether this new approach has policy implications. Certainly, complexity teaches us that markets left to themselves possess a tendency to bubbles and crashes, induce a multiplicity of local attractor states, propagate events through financial networks, and generate a sequence of technological solutions and challenges, and this opens a role for policies of regulating excess, nudging towards favored outcomes, and judiciously fostering conditions for innovation.Arthur--and his Stanford pal Paul David, and their acolytes Paul Krugman and Robin Wells--has been challenged to produce some evidence for his theories. Every time he does, they're exposed as either mistaken or fraudulent.
Stakes are driven through the heart of QWERTYcula, but he never dies. He keeps coming back to corrupt the economics profession (and, now, its impressionable youth).
Patrick [from my comment on TheMoneyIllusion, but so your readers know]
ReplyDeleteArthur clearly knows about Schumpeter and, if you read the paper, gave him due credit:
""The other driver of disruption is technological change. About a hundred years ago, Schumpeter (1912) famously pointed out that there is “a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained.” That source was “new combinations of productive means.” (Nowadays we would say new combinations of technology.) Economics does not deny this, but incorporates it by allowing that from time to time its equilibria must adjust to such outside changes.""
As well as to Hayek and Smith (particularly Smith).
The difference, which he clearly maintains today, is that computation can actually help people study this unlike, you know, the 1940s. The start of the paper asserts that this is nothing new.
As I've pointed out to you now (also at The Money Illusion), Ashok, Arthur is quoting Schumpeter from 1908, not the 1940s;
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Patrick R. Sullivan
23. April 2013 at 09:24
Well, Arthur says;
‘But this technology force is more disruptive than Schumpeter allowed.’
From 1908! Then he goes into a tiresome explanation;
‘Novel technologies call forth further novel technologies: when computers arrive, they call forth or “demand” the further technologies of data storage, computer languages, computational algorithms, and solid-state switching devices. And novel technologies make possible other novel technologies: when the vacuum tube arrives, it makes possible or “supplies” the further technologies of radio transmission and receiving, broadcasting, relay circuits, early computation, and radar. And these novel technologies in turn demand and supply yet further technologies.’
And on and on. Which Schumpeter (1942) pretty much did describe. Arthur is re-inventing the wheel.
Patrick R. Sullivan
23. April 2013 at 09:33
And Arthur clearly doesn’t know his Hayek, since he writes;
‘Complexity economics, by contrast, teaches us that the economy is permanently open to response and that every part of it is open to new behavior—to being exploited for gain, or to abrupt changes in structure.’
That hardly would be news to the author of ‘The Use of Knowledge in Society’. Who would then understand the folly of concluding;
‘A complexity outlook would recommend putting carefully thought out controls in place, much as authorities put sensible building codes in place in seismic regions. But just as important, it would bring a shift in attitude in the direction of realism. The economy does not consist of a set of behaviors that have no motivation to change and collectively cause optimality; the economy is a web of incentives that always induce further behavior, invite further strategies, provide collectively “reasonable” outcomes along the way, and ever cause the system to change.’
Which is exactly the reason Hayek gave for believing that ‘carefully thought out controls’ would not only not work, but would be further disruptive.
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