by Mike Brown, Stuart Kauffman, Zoe-Vonna Palmrose and Lee Smolin.
Having had the privilege to read a draft of this essay some weeks ago, I am thoroughly unsurprised to see my comments were completely ignored. To begin with, I must have repeated several times it is Jeffrey Sachs, Sachs, Sachs - not Sacks. Btw, his quotation used in section 4 you first read here. I doubt anybody else was stupid enough to rewind the recording two hundred times to do the transcript.
But that's what writing a blog is good for I guess, so I can now publish my comments here.
I largely agree with the overall scope of the essay, to the extend that my knowledge about economy is limited and some details escape me. The main statement however comes across very clearly: we need a scientific approach to modeling our economy, a necessity that have referred to as “Finishing the Scientific Revolution”. Given that our social, political, and economic systems affect the lives of billions of people this is in our responsibility as scientists. In their essay the authors make this point very aptly, pointing out especially the interdisciplinary nature of this endeavor:
“When physicists made the atomic bomb they realized what they had conceived and immediately felt a sober responsibility to help make the world safe from their invention. At this time there is a responsibility for those with the knowledge and skills to understand the financial instruments involved in this crisis to help first to resolve this crisis and to next turn their attention to the design and regulation of a stable market system. This will involve economists, mathematicians, physicists, biologists, computer scientists and others working together to make a more stable economic system.”
The authors first summarize common assumptions of neoclassical economics and then proceed “to ask if there are alternative ideas, principles and methods of modeling economic systems which might also provide the basis for wise advice and policy.” My social democratic heart was very pleased to see they explicitly acknowledge the necessity to regulate a system so it can properly fulfill its function, and especially that it can do so without running into instabilities:
“[E]conomies, financial institutions and markets cannot function without a context of rules and laws, which regulate them. In a market, each participant tries to do the best they can for themselves. In a properly architected and regulated market this contributes to the public good. There is simply no place for an ideological discussion about regulation. Stable systems in nature such as individual organisms and ecosystems are regulated. So must ours be. The only relevant question is do the regulations work or not, where work means that stable markets allow an orderly flow of capital to and from the goods and services economy and the people who comprise it.”
I previously wrote about the need to set up systems appropriately so they work towards their primary goal in my recent post The Best of All Possible Worlds.
Overall, the essay is for a bunch of Americans very well balanced and - in contrast to many other pamphlets on the topic that I have come across - notes that there is a plurality of what nations will consider optimal solutions depending on their citizens' preferences:
“An economy involves finding balance between long- and short-term objectives, acceptable distributions of wealth, and rewards for innovation and risk taking. Different governments may embrace different social philosophies and may seek to establish economic and financial regulations to obtain somewhat different desired results. The role of an independent, non-partisan scientific conceptualization of economics should be to provide these policy makers with a notion as to the likelihood that new economic and financial regulations they are considering will have the results they desire and that these will not involve unintended consequences to others.”
They finish with an appeal to scientists from different areas to join forces to increase our conceptual understanding of the systems that govern out lives with the aim to provide advice on their organization and regulation. Such an approach must be scientific, “should not be a matter of opinion or ideology” and “has to be carried out in an interdisciplinary and open spirit”. Or, as I put it in my post This is your Economy on Drugs
“[T]he central issue is trust in our ability to detect and correct shortcomings of the system. A detection that should not be hindered by faith-based argumentation, should not be tampered with by rhetoric, should not be driven by psychological effects. It requires a solid data base, shared knowledge, objective evaluation, and validation of models and predictions. In short, it requires a scientific method to reestablish trust in the working of our political and economical systems.
The Scientific Revolution, which has lead to a stunning progress in the natural sciences four centuries ago, has not yet been extended to the applications of social sciences. To a large extend, developments in these areas are still made in a process of trial and error, experiments with the well-being of billions of people. It is a slow learning process often plagued by a lacking ability to learn from past mistakes. Given that trial and error has worked for a long time, and that the computational prerequisits to deal with large amounts of data are only available since recently, it is not surprising this revolution did not take place earlier. But it is about time we upgrade to the 21st Century.”
Indeed, one should fund an institute to carry out such research to extend the scientific method to the applications of social science. Doesn't that sound like a great idea? It certainly does to me! Though I am not exclusively concerned with the economic system, the more general goal of combining insights from the social, the natural and the computer sciences to better understand and manage the complex systems that shape our living together on this planet is the idea behind The Lightcone Institute (see also this post). If you happen not to have lost all your billions of dollars in the last months, I would greatly appreciate some start-up support.
Okay, before you throw up because I'm praising this essay too much, let me mention what I think the authors did not sufficiently emphasize. Throughout, the economic system is treated as being coupled to the political system only in the sense that the latter acts as a provider of regulations. The idea seems to be that scientists will gather, analyze and model the economy, and provide some advice for proper regulations.
That is a well meant, but very short-sighted attempt and bound to fail. You can't understand and update the economic system and improve its functioning without simultaneously understand and update the political system that is supposed to balance and regulate it. The cause of the problems we have is a severe mismatch in timescales on which the global economic system evolves and reacts, and the timescales on which our global political system evolves and reacts - the latter is lagging severely behind. To fix that problem the political system too needs a scientific investigation and advise on how to set up flexible institutions that are able to learn in a timely manner - instead of reacting with panic meetings only when things have already gone disastrously wrong.
Besides this, it might seem like a redundant point to mention, but the essay completely fails to at least address the central question what it actually is our economic system is supposed to work towards and who decides that - again the connection to the political system is missing. The primary purposes they mention (provide capital, provide a stable repository for our collective savings, provide credit to individuals) sounds perfectly reasonably, but are actually what I referred to not as primary, but secondary goals. I have no reason to question their desirability, but they are only relevant because of the benefit they bring in increasing the well-being of the people. That really should be the primary goal. And yes, scientists can help in achieving it.