Thursday, March 05, 2009

A new economics is being born

In my next life, I hope I will write an article like "Time and symmetry in models of economic markets."

Alas, in this life, I am no Lee Smolin.

This paper is about the need for a new framework for economics that acknowledges its "complex and dynamical emergent phenomena." In other words, economic systems are in dynamic states rather than equilibria.

This is a fundamental re-framing that is critical to understanding the nature of economic growth and development.

From the introduction:

"Economics is a unique subject in that it is about nothing but human behavior, but it is also highly mathematical. The economic theory that appears to be most widely in use by experts, called neoclassical economics or general equilibrium, is remarkably like physics, in that it is based on a few simple principles, which lead to a rigorous mathematical formulation.

This mathematical formulation leads to some basic theorems, which are taken to be a rough or approximate description of a well functioning economy. A large body of results and models is built up around this theory, and there is a community of experts that express confidence in its basic correctness.

At the very least, the neoclassical theory of general equilibrium establishes that eco- nomics is one of the mathematical sciences...

But if the evolution of the other mathematical sciences is any guide, one cannot expect that the first successful theory in a domain is the last word. Precisely because of its suc- cess, we should expect that sooner or later any mathematical theory of real phenomena is replaced by a deeper and even more successful theory.

There are reasons to think that the present is a perspicuous moment for seeking to improve economic theory..."

Thanks to my brother Patrick for pointing me to this paper after I told him I was reading Wolfram. And to Stuart Kauffman for giving me a grounding in autocatalytic systems ten years ago.