Market Forces – Another View
This article in The New York Times, by theoretical physicist Mark Buchanan, complains that economists rely too heavily on outdated views of how markets work. There’s lots to think about here, and perhaps argue with, but it is a very thoughtful piece worth a read.
a quick excerpt…
Well, part of the reason is that economists still try to understand markets by using ideas from traditional economics, especially so-called equilibrium theory. This theory views markets as reflecting a balance of forces, and says that market values change only in response to new information — the sudden revelation of problems about a company, for example, or a real change in the housing supply. Markets are otherwise supposed to have no real internal dynamics of their own. Too bad for the theory, things don’t seem to work that way.
I teach principles of economics courses and a course in the economics of healthcare at Southern Oregon University.
Interesting article, and definitely reflective of my reservations about economics in general. One of my specific interests in games theory involves the development of procedural algorithms. Allow me to explain…
By setting up a very simple set of rules and observing the most likely outcomes of performing within those rules, we can “zoom out” of the microcosm and begin to see a large pattern emerge in the macroscopic view.
However, by changing a single variable within the microscopic routine, or altering the way a rule works, we can witness a new pattern of “emergent complexity” at the macroscopic level as the change is propagated. This means that a seemingly minor change can cause a system to realize a greater level of complexity to the point of approaching realism. A minor change can also cause a catastrophic instability in the macroscopic picture (cascade failure).
In economics, we seem stuck on the idea of modeling rational behavior either at a macroscopic level or a microscopic level, and relegating the gray area between the two to a sort of “separation layer.”
If there is one positive thing about the current crisis, I think it can be found in the response. Old school economists are now being forced to re-evaluate their thinking on many issues. More than this, new talent is likely to find its way into the field, possibly taking on the task of challenging the fundamental assertions of the establishment. Ultimately, the pump has been primed for a new economic calculus which may help us all.