To place economics on a solid footing, we need to build its intellectual foundations
By David Sloan Wilson and Eric Beinhocker
Enjoyed reading the conversation, thank you, and mostly agree with Eric (with both of you actually).
Eric said “A core dynamic of the economy is the interplay between the subjective reality in people’s heads and the objective reality of the world.” which for me captures part of it but doesn’t actually go quite deep enough. It seems to me that we need to be explicit that for every one of us, our experience is of a subconsciously generated model of reality, and never of reality itself. So the distinction between subjective and objective is never as clear as a naive view of that distinction might think. Even at our most objective, a great deal of subjectivity remains at many different levels.
Enjoyed reading Beinhocker2013.
Soros in Beinhocker2013 states:
“In order for an agent to successfully pursue its goals, it must have an accurate enough internal model of the system it is operating in so that its perceptions via its cognitive function lead to the correct actions through its manipulative function to move closer to its goals.”
This is great, and obviously true, and also masks something deeper.
The whole idea of “accurate enough model” is heuristically based, and filtered (at all levels) by what happened in the past. That is all sensible enough in an evolutionary context, except – that now we find ourselves in an exponentially changing present, with an exponential expansion of paradigms available. With many people only being aware of one paradigm, and most people operating from sets of available paradigms numbering in single digits, very few people seem to even be conscious that the paradigm space available seems infinite.
Our exponential expansion is taking us places where there is no historical precedent.
Relying on historical validation is not necessarily a safe option.
Some will find that a difficult concept to grasp.
We seem to be in a system where both the perceptions and actions of most players are determined by paradigms that are no longer appropriate.
I have been consistently arguing that this goes so far that even the assumption that markets deliver a useful measure of value is no longer valid. And I am clear that few people have sufficient paradigms available to them to allow them to even ask such a question, let alone see my argument as a valid conclusion.
In 4.4 of Beinhocker2013 Eric is entirely accurate with “Indeed, biological evolution depends on ‘useful enough’ models muddling through without the ability to forecast. Evolution picks up on regularities and through experimentation, selection, and amplification finds heuristics that are ‘good enough for now’ until something better comes along or something selects against them.”
In 4.5 He does acknowledge “the only way we can access and perceive our world is via the models we create” and does explicitly take the next step in that line of argument, which is to be clear that all knowledge, understanding, concepts, models (call them what you will) are and must be essentially based on heuristics.
The mathematics of quantum mechanics is quite clear that the remarkably consistent regularities we observe in matter are based upon essentially random processes within certain probabilistic constraints – we simply have the hubris (or ignorance) to call them “laws of nature”. It seems quite clear that they are simply useful heuristics in contexts we normally encounter – very useful heuristics most of the time, and not always.
4.5 concludes with “In this way, inherently fallible agents muddle through with inherently imperfect models. Yet, these models may improve over time, even if they are only for a time, and in this way our knowledge grows.”
I entirely agree with this sentiment.
But automation has now taken us into territory where the utility of markets, and economics as a discipline, is exponentially degrading, and may already have crossed the axis into negative territory.
Beinhocker2013 states of economics that it “is built on a base of empirically disproven assumptions” – which I entirely agree with, except that I take it one step further, with the assertion that the very concept of using markets as a measure of value has social utility has now been disproven – even if very few people can actually see that as yet.
Coming back to the interview itself:
Agree with most things in the interview up to the statement:
“In our view the purpose of capitalism is not allocative efficiency (as often argued in neoclassical economics) but rather is an institutional system for incentivising and rewarding cooperative problem solving, and evolving new and better forms of cooperation and solutions.”
Capitalism is a possible mode of organisation based upon exchange and using markets to measure value.
My thesis is, that it is the use of exchange values (markets, money), that now pose (in this age of exponentially expanding computation and automation) the single greatest existential risk to humanity.
That is because markets cannot value universal abundance of anything above zero, and therefore cannot eliminate poverty.
Markets require poverty (at some level) to function.
Just look at the market value of air.
Fully automated systems have the capacity to deliver universal abundance (of a large and exponentially expanding set of “things”), and markets must always resist such abundance (and the systems that deliver them).
That is a fundamental injustice.
Human brains are very good at detecting injustice, even if they are not so good at being explicit about why they experience injustice.
That reality is a major source of risk to everyone.
I see in the comment “We have some pretty jaw-dropping rejection letters, e.g. strong empirical work being rejected because it doesn’t fit the theory.” evidence for the above.
What you do not make explicitly clear in this interview (but do in Beinhocker2013), is that our models largely determine what we can see (most of the time – recurse to infinity).
We can be deeply recursive complex systems, and I enjoyed and aligned with most of your descriptions of complex and evolutionary and reflexive systems
What economics currently seems to ignore, is that every human being has this potential, yet the systems we have in place (largely economic, largely shaped by market pressures), prevent most people from gaining such awareness (seemingly intentionally so at some levels).
That too is not simply foolish, it is dangerous.