Late last year, a group of authors including a business man, and accountant, a professor of complexity science, and a theoretical quantum physicist put forward a proposal for an Economic Manhattan Project on the online-salon style website edge.org.
In their article, Brown, Kauffman, Palmrose, and Smolin suggest that outside scientists and practitioners should be organized with practicing economists to rebuild the core theories of economics, whose serious limitations, not least their failure to conform to empirical tests, are increasingly easy to see. They suggest that we need to go beyond the incremental modifications suggested by game theory and behavioral science that have adjusted the edges of economic thought over the last twenty years. They particularly point to the emerging science of complexity as a key piece to integrate into the core of economics - bringing with it, for example, better explanations of dynamics, networks, and emergence. (See Eric Beinhocker's The Origin of Wealth for a thorough critique of traditional economics and an explanation of what a complexity economics has to offer). They then set out a wide range of objectives from better and more open accounting standards to empirical tests to research on the dynamics of financial instruments to better reflect their actual risk. Overall though, an improved science of economics is simply the tool; the aim is a better capitalism.
Brown, Kauffman, Palmrose, and Smolin's article was largely panned by the edge.org community. Many of the complaints are serious - for example, the science of complex systems or the mathematics required may not be up to the task of prediction within such a complex system, now or ever. Some arguments are instances of people talking past each other while seeming to actually agree. But overall, I share the reviewers skepticism that a truly predictive, explanatory science of economics will be forth coming for the foreseeable future - the complexity is just too great, the power-law feedbacks too chaotic. Perhaps, as computing technology continues to improve, there will be opportunities in huge agent based simulations. But one review took a very different tack than the others.
That review was written by George Dyson, science historian and author and son of the famous Princeton physicist Freeman Dyson (e.i. Dyson Sphere, for all you trekkies out there, or Orion drives if you are even nerdier).
I have excerpted the first half of Dyson's response here (link to the rest):
Brown, Kauffman, Palmrose, and Smolin have hit the nail on the head. But is it the right nail? When the patient needs first aid, do you ask "is there a modeler in the house?"
Financial systems exhibit the Gödelian incompleteness characteristic of all (sufficiently powerful) formal systems: within the given system it is possible to construct statements (or financial instruments) whose value appears to be sound, but cannot be proved within the system itself. The same limitations apply to models of financial systems.
There is good news and bad news in this. No financial system (or model of such a system) can ever be completely secure and closed. On the other hand, there is no limit to the level of concepts that an economy (or a model of that economy) is able to comprehend.
So, what should we do? Assigning an international team of experts to formulate a global economic model is a worthy undertaking, but can the rest of us afford to hold our breath and wait? We also need Plan B, just in case. Plan B is to nurture new, grassroots economic systems that directly (and honestly) couple the flow of currencies to the flow of goods, services, and information—down to the last bit, and the last dollar, from the bottom up.
"Ten years ago I started a company based on the assumption that people are basically good," argued E-Bay founder Pierre Omidyar (at the Santa Fe Institute) in 2004. "And now I have the data to prove it." Instead of putting a dozen scientists in a room to come up with a better model of the existing global financial system, we should put a dozen Pierre Omidyars, Elon Musks, Salar Kamangars, and Jeff Bezoses in a room (with Danny Hillis) and let them actually build one (a new financial system, not another model). (emphasis mine)
As I see it, perhaps we need to focus our efforts on developing innovative economic technologies - alternative capitalisms. In the history of human intellectual endeavor science and technology have by necessity advanced together - new theories create the deductive space for new inventions, and new apparatus opens experimental doors. My response to the post-modernist assertion that we can't know if science is true is to point out that technology works. This is not idle sophistry; the proof of our theories of electromagnetics (indeed of their universality, regardless of linuistics, post-colonialism, or qualia) is that we have reliable electric motors, radios, and lasers. Science is true to the extent that it works.
To take this idea to the field of economic science and integrate Dyson's exhortation to actually start building new business and financial structures, I would propose that our goal should first and foremost be improved economic technology. It may even be the case that without improved economic technology a better economic science may be impossible in the same way that the technology for electricity storage, metal refining, etc. were necessary before the formulation of electromagnetic laws was possible.
Similarly if our modern economics doesn't appear to be working, certainly we must address it's academic failures (a discussion of the difference between reason and empiricism is needed on this blog at some point) but we also need to get to work creating a new economic system, in parallel, along side our current ailing system in the same way that the proto-capitalist economies of medieval Europe grew up in cities alongside a much larger feudal agrarian economy. Fortunately people around the world have already begun designing the institutions of a new capitalism. A few examples:
Creative Commons and Wikipedia - Information yearns to be free. The Creative Commons Project shows that people will work on creative projects without an expectation of monetary return - out of pride or curiosity or community belonging. These community solutions to property and creativity may provide answers to the pressing problems of "over ownership" identified by Michael Heller in The Gridlock Economy.
Economic Gardening - An experiment in endogenous economic development pioneered in Littleton Colorado which seeks to nurture local entrepreneurs.
Community Banking - Models such as micro-finance in the developing world and credit unions in the united states suggest alternative banking solutions for disadvantaged people who face much higher economic costs for financial services, e.g. payday loans, or lack banking services entirely. Local banks have weathered the financial storm in most cases intact.
New Economic Performance Indices - "You Get What You Measure." From Bhutan's Index of Gross National Happiness to the Green GDP or the Environmental Performance Index changing the way we measure our economy or our well being can alter our policy choices and our economic models.
Social Businesses - Proposed by Muhammad Yunus, social businesses would operate like for-profit businesses but would work towards social goals and reinvest profits into their organization in an effort to become self sufficient rather than returning dividends. Capital would be attracted from philanthropy and move to firms that are achieving the greatest social goods.
Islamic Banking - Perhaps the oddest consequence of the financial collapse has been the emerging interest in the alternative system of Islamic banking. Based on the tenants of traditional Islamic law, Islamic banking has avoided the financial collapse because of the moral strictures under which it operates. Perhaps there are lessons that can be learned from this parallel banking system about how we should reconstruct our own - or even create another from scratch.
Corporate Personhood - Perhaps the cruelest irony of constitutional law following the American Civil War, the ability of corporations to sue, lobby congress, and shield decision makers from liability stems from choices made in state and federal governments about how corporate charters should be written. Corporations are a human construction, they have not always been thus, should we wish too, we can change that structure.
Restructuring Tax Codes - A large scale overhaul of the tax code in developed countries could create massive changes to existing incentive structures. Target taxes on things that are undesirable, like pollution, carbon extraction, or over consumption rather than on incomes, homes, or productive capital.
Certainly none of these ideas are yet fully formed or without problems. But they point a way towards a better approach to the economic crisis than bemoaning the failure of government regulation or academic economics. Let's get out there and create new systems that do actually work.
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