Provocation 224   Life threatening Dorian and life threatening economy collapsing through climate change -how we think. 

Why are a number of the economists I know  so tuned in to Dorian but not tuned in to climate change? (I am going to leave this rough, like a conversation, not giving the false appearance of being well worked out. Imagine that we are just having a cup of coffee and  chatting. )

 There are some deep similarities between the way we look at the climate, economy and  change and the way we look at Dorian . For example, the focus on numbers such as GDP and category 4 or 5.  But Hurricane categories seem visceral while   GDP a is OK for approximate calculation. GDP (and other performance measures for the economy, such as “incomes are rising”) do not get us in the gut – because it is too far away from visceral experience, and, as in this case, badly misleading. We know for example that cutting trees can contribute positively to GDP while also a loss  of wealth from the earth. But we don’t feel it the way trees falling in Barbados tears at our imagination.  In the economy our  numerics and our intuition often move in opposite directions.  House work and child care don’t count.  For hurricanes it seems like a more coherent experience.

The main difference might be that hurricanes are delivered in narrative form as a sequence,   “this then this then this”, whereas economics are delivered in equations – only “if this then this”. The narrative form is open and easy to include emerging or missing steps. In economics such things are treated as external to the system and mere disrupters of our professional stance. 

What can we learn about this? It really is a call for a deeper understanding of human feeling and cognition if we want to increase our understanding of what happens.. Our narratives about the hurricane seem fairly accurate, taken together, while for  climate change they are just touching the surface. Death  by hurricane is spoken, death by climate change is not.

One way to think about this s to compare an approach through systems thinking with narrative thinking.  I was in a meeting yesterday where a silicon valley thinker said he was relabeling himself a story teller, no longer  a systems thinker. System thinking tends to form around a single heavy model, narratives are more like  a handful of butterflies.

provocation 223. aug 19

An allegory about the modern economy.

Once upon a time a small group of hunter-gatherers discovered a good sized pond and found that it was full of fish which they caught and ate and these fish became the center of their diet. The group grew and more people fished at the edge.The number of fish caught was related to the number of people fishing.The economists wrote equations. After a while of good living, space at the edge was harder to just walk up to and altercations broke out. Stronger men seemed to find themselves in the most favorable spots for an easier catch. The economists watched all this, related the population to the catch, and helped draft some rules to apportion the space along the pond’s edge. Some of the men found it better to go make fishing poles from somewhat distant saplings and trade the poles for fish. But what was not noticed, because better poles kept the catch proportional to the population of people, was that the total number of fish in the pond was going down. What they did see was that with more men fishing with better poles the catch remained reassuringly constant per person. More children wee born, more men made fishing poles. All seemed more or less ok, until. Ah, until.

After all, this is a fairy story. Until with no new pole innovations the number of fish caught was suddenly in decline, not enough to feed the fishermen and heir families and the pole makers and their families. The fish being caught were smaller and fewer. The economists had always assumed that more effort would mean more fish caught. Maybe a new technology would lead to more fish more easily caught. What they missed was that there were no longer enough fish to feed all the people. More effort, better technology, would not help. Other small groups had discovered other ponds, fields, herds and followed a similar path. There was nothing more out there.

In our time we have extracted much of the wealth from the land and the sea and sold it to the bulging population. But competition started pushing prices up, so we loaned money to the bulge – mostly against the value of their homes – to keep buying. What was not noticed was that that prices were higher, more welfare was distributed, and the people were skinnier (or fat from bad food which is the same thing) and living in increasingly poor housing or on the street. The society, having stripped the environment and the people, could no longer feed them all. Less food, more people, more debt, more anger. The economists looked for a new configuration of people and resources that would work, little realizing that there as no way to configure all the variables except possibly a wise leader who could with authoritarian verve bring land, technology, people into new equilibrium. But there was no such person in sight and what there was of “leadership” would lead to to much pushing and pulling, taking lots of time and making it impossible to get to any such new configuration and equilibrium. Any new technology would lead to the loss of jobs in old sectors and continue to deplete the environment. The old elite would look for robots algorithms and gated communities as defensible liveabe islands and this turns out to be, for lots of logistical reasons, an illusion.

So we are stuck. We can either start here and struggle for creative solutions, or just withdraw and let the curtain come down, figuratively to hide the reality from ourselves, or realistically, the drama is over.

 Provocation 221 Economic formalism vs economic theory.

Much recent critique of economics has been on its formalism – more interested in the equations than in reality,   and hence  not a terrific science . The alternative to formalism is theory (narrative). Sounds strange. How are formalism and theory different, are they not the same?

Formalism usually raises the question how can I express this data in a set of equations, what is goin on with  the numbers.. Theory asks what is really going on here, what is happening outside the numbers.?

The difference is subtle. Take “capital”. No quantitative questions come to mind, but what is it leads to questions: who owns it, how does it affect society, are there alternatives? Same with “ownership” “property” or “land”. Formalism tends to work with what is (data sets) whereas theory pushes intuition and metaphor into the unknown.

To encourage a bit more playfulness in economics, here is a simple tool.

What comes in and out of the economy? Try a few of your own. Things will occur to you. Better questions, interesting answers. Obviously any such diagram is incomplete, the question is, is it fruitful?

Most economists assume relevant reality is “in the economy”, but the simple circle suggests that much of importance economically is usually treated as outside the economy. Such an assumption is very limiting on creating better theory.

comments much appreciated. doug@dougcarmichael.com