Hello again and thanks to everyone who participated in our last conversation about building a New Economic Paradigm! The level of interest and insightful suggestions and dialogue that resulted gave me hope that we might yet be able to turn this ship around! I'm hoping that the enthusiasm and conversations continue, and who knows, we might possibly find ourselves in a place where we might be able to make that crucial difference. As a number of you said, we have to try.
In today's installment I'd like to explore what I see as some preliminary groundwork it might be helpful to lay on our building site before we can begin construction. So please grab your shovels rakes and join us below the fold!
(previous diary here: http://www.dailykos.com/... )
If I had to pick just one word to describe human civilization right now, that word would have to be "overdetermined". I first encountered it when I was an undergraduate student working my way through French philosopher Louis Althusser's 1969 work, For Marx, where he uses it to describe the conditions that give rise to revolutions. While that particular definition is certainly applicable to our current times, I would like to turn our attention to the more general one:
Overdetermination is a phenomenon whereby a single observed effect is determined by multiple causes at once, any one of which alone might be enough to account for ("determine") the effect. That is, there are more causes present than are necessary to cause the effect.
Let's explore this concept in two ways to see how it might help us in thinking about what we're facing in the monumental task of constructing any new economic paradigm: first, in understanding an important aspect of our brains, and second, in trying our hands at a bit of traditional political economy. After we do that we'll poke through some of the jumbled building blocks in the rubble of the collapsed neoclassical paradigm and see where we might go from there.
First, I am convinced that we are way too hard on ourselves when it comes to not having solved society's obvious global problems. Yes, we've known for forty years that the limits to growth were coming and that we should have back then started the transition to a global steady-state economy fueled by renewable energy resources. But consider this for a moment: studies have shown that the maximum number of variables the human brain can reliably process simultaneously is three. Three. Significant processing breakdowns occur at four; at five variables our decision-making capability is equal to random chance. This goes a long way in explaining why we have so far been unable to implement any sort of rational, coherent, or comprehensive set of policies to deal with the world's problems: there are just too many variables involved for us to grasp. This overdetermined situation, with multiple causes resulting in single effects (global warming being the most obvious example), leads groups of us to erroneously identify incomplete causal mechanisms through our natural propensity to simplify our understanding of and social and political discourse about very complex systems. This realization should be reflected in any attempt at trying to formulate a new economic paradigm.
So what does this mean for our new paradigm-building project? How are we to look at the pieces of the failed models and respond to Andrew Haldane's call to "rethink some of the basic building blocks of economics" in light of the above? Which pieces can we reuse and which must we discard? These are not easy questions to answer, and however nice it would be if someone out there would be ready to volunteer in reply to Foundation Earth's plea last year:
...that is not going to happen. Our global economic and natural systems are too complex, too interconnected, and too overdetermined for one person's mind to grasp the entirety of our multiple dilemmas and come up with a workable new economic conceptual framework. We are all going to have to build this together. We are all going to have to revive the fundamental approaches of political economy as practiced by Marx and Smith and look with a fresh set of eyes and a different perspective at our world economic systems and decide what has worked and what hasn't and build up from there.
To better understand just how basic those new building blocks need to be, and to encourage thinking in a more radical direction about a new economics, I'd like to share an analogy from engineering. It's helped me in thinking about these things and maybe it will for you, as well. I promise to be brief and not too technical. :)
Hydraulic Engineers design piping, plumbing, and pumping systems. To do this they apply a branch of physics called Fluid Mechanics. In Fluid Mechanics there are two basic types of flow: laminar flow, which is smooth and continuous, and turbulent flow, which is chaotic and unpredictable.
Designing hydraulic systems in the laminar flow "regime" (as it is called) is a pretty straightforward line of work with few headaches. The equations engineers use are pretty simple and have only a few variables to worry about. Mathematically, the equations look like this:
F = X(a,b,c)
The above flow F is a function of X involving three (or so) variables a, b, & c (which are things like pipe diameter, fluid viscosity, and so on). The forces involved are predictable so the stresses on the pipes and pumps can be engineered (with an appropriate safety factor) to prevent system breakdowns at minimal cost. Hydraulic engineers working in laminar flow regimes rarely even need to do any calculations; once the basic system requirements are known, figuring out what type of equipment to use amounts to nothing more than looking things up in a standard engineering handbook.
When our piping systems start to enter the turbulent flow regime, however, things start to get a lot more complicated. The forces on the system components in turbulent flow can be quite a bit larger than in laminar flow, such that the pumps and pipes might leak or even catastrophically fail if they aren't beefed up in size and strength. Designing for turbulent flows isn't a simple matter; to do the calculations the forces are harder to model and our equations start to look like this:
F = X(a,b,c) + Y(d,e,f,g,h,i)
In mathematical language the X formula is known as a first-order function/effect, and the Y formula is a higher-order function/effect.
Bear in mind that all of these forces and their effects are inherent properties of all fluids and are always there in operation in both types of flows; it's just that in laminar flow the higher-order effects can be assumed to be zero because they are so small (these are called simplifying assumptions in engineering practice). By the way, if you're the clever sort and feel up to a big challenge (not to mention maybe need some spare change), if you can rewrite the above equation into a simpler version that can be understood by a human being and does not require the largest supercomputers on the planet to solve, you may want to enter the Navier-Stokes Existence and Smoothness Millennium Prize Problem contest. The elusive solution to this turbulent flow phenomenon is one of the biggest unsolved problems in physics and engineering, and if you win the prize you'll pocket a cool $1,000,000!
Now, what has any of this to do with a possible new economic paradigm? Quite a lot, in my opinion. Our economic systems and the forces in them are in many ways quite like the systems and forces found in fluid mechanics. Both have their origins in natural systems; both can sometimes behave in straightforward ways that can be readily understood and other times behave in ways that are beyond our comprehension; both are subject to constraints that are ruled by the laws of physics; and the areas of our lack of understanding of both constitute some of the most important and pressing questions at the frontiers of our knowledge of both physics and economics. However, it is looking at the history of capitalism and the discipline of economics through this lens that I find the most interesting. Consider the following (note: this is my own reading of only one slice of history vis-a-vis this analogy; it by no means represents my complete views or understanding).
From its birth in the 16th-century English enclosures to its spread in the 17th and 18th centuries, capitalism's dynamics were pretty much a first-order affair. Where social or environmental instabilities did arise as higher-order functions/effects in the form of wealth inequalities, labor strife, or resource scarcities, they were relatively localized and readily contained and/or ameliorated. As a result, early political economists such as Adam Smith, David Ricardo, and John Stuart Mill were able to formulate with first-order analyses what became the basic tenets, theories, and vocabulary of classical economics which remain with us to this day. As the Industrial Revolution accelerated and expanded capitalist social relations in the 19th century this dynamic continued. With the widespread use of coal, many capitalist owners realized that accommodating labor's demands were made much easier through using these fossil fuels to grow the wealth of the entire system, thereby damping these higher-order instabilities.
With these proactive mechanisms relatively in place by the beginning of the 20th century, and helped by rapid industrialization with the introduction of cheap oil, the golden age of economics as a "science" began to bloom. Contentious issues and debates about fuzzy higher-order forces were quickly swept aside and the discipline settled on a set of simplifying assumptions that enabled straightforward quantitative analysis of first-order variables and relationships of supply, demand, wages, production, prices, etc. As higher-order effects occasionally surfaced, new economic theories arose to deal with the flaws in the underlying assumptions, and entire new schools of economic thinking proliferated (the current number of economic theories is over two hundred). By 1970 a new set of higher-order fluctuations began to appear on the horizon, this time in the form of large-scale environmental externalities. Here again, cheap fossil fuels came to the rescue and allowed a return to a relatively stable first-order state of affairs. It was business as usual once again.
Which brings us to today. If my analogue-based reading of history is correct, the arrival of peak oil and planetary limits to growth means that we have entered a period of history wherein the predominant economic forces and effects will all be unstable higher-order ones for the foreseeable future. This implies that it will probably be pointless to try to utilize standard first-order control mechanisms in an attempt to regain global or national economic stability. To the extent that stability will be possible, it will likely be able to be achieved only in locations that are developing their own independent economies utilizing alternative measures of wealth and capital and complementary currencies parallel with the existing standard national currency and measures. The goal of the new economic paradigm would then be to provide a descriptive and prescriptive template that could be used as a guide and catalyst to facilitate adoption of alternative new economic systems in communities who may not have yet begun transition initiatives.
So to return to the task at hand - - sorting through our pile of building blocks scattered about our feet. What are we to make of all of these different economic theories? Which ones hold the most promise for our new economic paradigm? What aspects of each might be best suited for addressing all of the items in our laundry list? Which new ones will we have to hew anew? I don't profess to have the answers to these questions, nor do I expect any one person could. I have not personally gone through all 200+ theories and evaluated each on their relative merits. However, I have looked at quite a few, and in the spirit of the theoretical quantum physicists a century ago, would like to take the initiative at proposing three branches of economics in particular that I think are best suited to the job. These are Environmental / Ecological Economics, Evolutionary / Complexity Economics, and Agent-Based Computational Economics. I will elaborate on these choices in a future diary. But first, the bottom line for using any existing model is that it be able to address our laundry list without having to rely on first-order models. Again, these three are just a preliminary proposal based on my own limited research. Any comprehensive paradigm-building project would need a more thorough evaluation of all existing theories and models. Your feedback and dialogue is warmly welcomed and encouraged.
Whatever reused building blocks make the final list and combine with whatever new building blocks we have yet to fashion, we are still going to need one more thing: a unifying principle that allows us to blend them together into one holistic approach. For that we are going to have to put our collective heads together and craft it out of whole cloth with each others help and guidance. Our present is too overdetermined, and our individual brains too limited, to do otherwise.
But we need a starting point from which to depart on this exploration, and for that I am going to again make another proposal to you. This will be the topic of our next installment, and begin with the rediscovery and expansion of the ideas of a philosophical genius who died nearly a century ago.
So let's head back to the house, we're done with groundwork for today - - good work, and thanks! And when we get there, you'll have to get your winter weather gear out of storage that you just packed away. Sorry about that. You'll need it for where we're going next, though.
The wild boreal forests of Siberia beckon. Hope you can join us!
~ vasudhaiva kutumbakam ~
scott