2006. From math to narrative in economics.

Schumpeter’s meme, that economy is about creative destruction should suggest that math, which requires stability of the variables in order to be applied, won’t work.
Mainstream economics, neoclassical – wants to treat the world in some form of A=kB, where k is some constant and A and B are variable in an unrealistic world where ceteris paribus, everything else is equal. But players in the economy are trying to innovate: taste, technology and product, managerial style, and use war as a last resort. As a result A and B are anything but stable in their role as major independent and dependent variables. In much of economics what looks like A or B has to be replaced by variables that are actually determinant at any one time, but not in the next.
The result is that mathematizing the economy, a slow process anyway, does not fit a dynamics of open systems with constantly new variables. What is needed is the ability to tell meaningful stories about what is happening, which means narrative, characters, social shifts, complexity. The major economists: Smith, Marshal, Mill, Keynes, among many others, have all argued that the use of math is not quite legitimate and gives a distorted view of the unfolding facts.

But we have a further problem. For whom is the current neoclassical done? Not only are most economic papers not widely read, they are not widely read by economists. What then is their purpose? I think it is clear that the publishing mafia that controls the main journals is interested in a regime of methodology and publishing that makes economics look substantial, delivering prestige while supporting the 1% that wants to believe that the economy is ok if we just fix a few glitches. Economics is also, in its neoclassical/mainstream form, an aid to career alignment and departmental management of hiring and tenure.

The serious problem is, what would the content and education of a narrative focused economics look like?

Dani Rodrik writes in Project Syndicate

What’s Been Stopping the Left?
Apr 10, 2018 DANI RODRIK
If progressive political parties had pursued a bolder agenda in the face of widening inequality and deepening economic anxiety, perhaps the rise of right-wing, nativist political movements might have been averted. So why didn’t they?

Yet the lesson of recent studies is that beliefs about what the government can and should do are not immutable. They are susceptible to persuasion, experience, and changing circumstances. This is as true for elites as it is for non-elites. But a progressive left that is able to stand up to nativist politics will have to deliver a good story, in addition to good policies.

1995.Current economics supports careers, not insight

provocation # 128. Current economics supports careers,  not insight

When I was studying physics and working half-time in the physics labs at Caltech I was hit almost daily with news about new experiments and theories. News traveled fast. If it was really exciting, an afternoon physics colloquium would be called and a few hundred, some obviously from other departments, would gather to hear  the story and examine the details as much as they were accessible.  The whole field felt like a living organism, each part of the periphery aware of the other parts. There was a broad agreement as to what had been achieved, and what remained as serious or interesting problems. 

There is a very interesting article about Keyes and his critique of economics, which  is devastating, and solid.  The article  asks, why do we keep making the same mistakes  ( in this case assuming  that a few variables can adequately describe the infinite variety of economic causes.). Why is there no accountability in economics and we continue of a disproven path? 

(Keynes’ critique of econometrics — still valid after all these years,  rwer.wordpress.com · by Lars Syll · March 30, 2018

Since I do a lot of reading I discover, over and over,  that there is (almost) no thought  about the current state of society and economics which isn’t already in print. The range and quality is amazing. But we don’t make use of it, we don’t harvest it,  and move on. Economics more than most fields, stays in a narrow band of readings and writings. 

If we don;’t step outside the narrow  lines, how can we expect to be creative? Two examples.

Bernard Harcourt writes The Illusion of fFee Markets, looking in  exquisite detail of the policing of the early markets in Paris (think of Stendhal’s novels)  show that regulation of markets and law started as merged, operating around private property. “If you don’t use the right font on your tomatoes sign three days in jail.” He discovers that markets arise through regulations. 

Second, the idea that capitalism starts with capital which is the output of breeding cattle could give rise to rethinking what capital is, who owns it and how society relates to it.

Most economics papers will not use a single word that moves outside the normal boundaries of mainstream economics, using  no vocabulary that cross the lines of conventional economic writing . “The impact of land tax policy on productivity in the upper Niger delta.”  No mention of the impact on people, on the land, on corruption, on climate. 

If we don’t read and think out of the normal lines of a field,  creativity is thwarted just as we seriously need it.

Like writing about climate change: which most people assume by now  is a serious problem, yet most papers and books coming from social thought (sociology, history, politics) are written that ignore it, staying stuck in the narrow band in which the researcher normally operates. Even papers that deal directly with climate are long on policy proposals, short on implementation.The same seems true in economics. A whole issue of many current economics journals often have not a single article that relates the content to larger issues of climate, corruption,  or future jobs, to say nothing about the lack of insight into the impact of economics on quality of lives. Considering both economics and climate change as two examples of the same thing, helps clarify the dynamics (or lack of them).

For climate, people are afraid to change because thy cannot imagine the consequences on income and life circumstances. “It is not crazy to stay in a leaky canoe if you don’t have an alternative canoe.”

For climate that means inability to imagine a successful outcome as to how changes  would affect  jobs and living conditions. 

For economics it is the same.  A researcher taking the state of the standard economic  literature  and moving it a tiny notch toward rigor and data can get you through graduate school and into the major journals and a tiny step toward tenure. Writing about the recognized main issues of our time does not. 

Economics can’t  see interesting things outside as we only look for the past that created the present, not the pasts that could create other presents – when we need them like now.  We are  more afraid of change than driving over the cliff.

A recent article on  history of economics (The Return of Economic History?

booksandideas.net · by Guillaume Calafat) 

considers only mainstream histories that are looking for the factors that created the present, not the things that did not create the present but might help create a better future.

Perhaps the problem is “the”economic” in the title. If we don’t  read histories of archeology,the impressionists, philosophy, regulations  and the chemical industry, we can’t break out if we don’t try.  The way out is through the door, how come no one uses that method? 

I want to raise the idea that everyone might be  acting rationally, given their actual circumstances. Getting into grad school, keeping the house in the energy wasting suburbs – all reasonable. End of the world? Maybe just accept it. Maybe we just have to learn how to feed each other. 

1994. good economics we need

Provocation # 127 The good economics we need

Economics, if it were empirical, would be interested in the major economic phenomena some of which are:

Class (fruits of talent in one generation passed to the next in a frozen system)
Money (psychology of abstraction and desires)
Interest (as in shifting value of assets over time. The father has an interest in the pregnant wife)
Ownership (who does, who doesn’t, its basis)
Capital (surplus of production over cost)
Property (from what is proper to show rank in society)
Corporations (what is a body? A person?)
Individual (a social construct?)
Trade (CMC shifts to MCM across space and time)
Markets (where all that is made under many conditions is sold to many with a variety of motives, obscured by supply- demand without curiosity about where those come from)
Stock market (ownership problem)
Makers (workers)
Takers (capital owning rent extractors)
Quality of life (the output of the system)
Political regime (who decides?)

The problem is that the system, which ought to be feedback loops among all the terms aborts to ownership and wealth as outcome targets and leaves out quality of life and instead shifts to the feedback loops that maintain power and wealth in the hands of a small elite. Education, location of home, job entry, marriage, are all part of the narrow system we have, not the broad system we should have.

This would be ok if it didn’t lead to wars and environmental damage and broken hearts. But the current economy does. The economics that would help us get out of this mess does not yet exist. It would have to take seriously capital, ownership and politics and analyze all the feedback loops.

Most economic research seems to circle around the temple but not enter.

Your thoughts?

1950. Difference between economics and the economy

provocation # 126.

Lets start from the idea that economics is not the economy. Economics is a more or less adequate description and analysis of what an economy is. The economy is not a concept. It is a reality to be explored.

But is the economics we have the economics we want? Does it discuss capital, what it is and who owns it, Does it deal with property and why we have it? Does it deal with the skewed impact on people of corporations? Does it deal with class and how such divisions are maintained? Does it deal with the health of the land? Does it deal with the soundness of parenting? The happiness of children and their access to the world? Does it deal with incarceration for breaking property rules.

Perhaps there is an economics that we really want but don’t yet have that would better fit our feeling, our intuition, for what economics should be and would also be more objective, closer to reality.

What is clear is that the economics we really want is more objective, more real, than the economics we have, more objective even than the economics we usually think we want.

 

 

1949. Prices of things. Supply and demand does not describe a real system.

provocation 125

The nearly ubiquitous teaching tool in economics is the suppy-demand curve. The idea is that supply and demand will come into balance.

This is intuitive. The problem comes when it is treated as the core example of economics analysis, and thus to justify treating the economy as a precise system that self regulates and that government should stay away from modifying.
If we take prices in this way a physicist might argue that yes but, like a falling stone affected in its gravitational grip is also modified by the friction of air. Yes, but says the economist, we can measure that too so we have two measured things adding to each other.
But, says the physicist gravity is known, air friction is known. But in economics the way people make up their minds is a mix of supply demand and an infinite number of other factors few of which are known or knowable.

Can you give and Example?
Sure, here are several.

1. I once spent a year inside Hewlett Packard on a Harvard research grant. The task was to understand how HP worked, among other things, in the market.(I never heard the work “market” at HP.)

A typical sales meeting would never look at any supply demand curve but go like

A. “If we raise the price by X I think we can sell almost as many.”
B. Yes if we also add some new features.
C. Hey, our identity is being high-end, we can afford to have a higher prices and sell less because its like advertising. We must keep our image as high end quality all the way, no sacrifice of quality for price.
A. OK let’s go for twenty percent.
C. A little more caution. Fifteen.
A.Done.

———
Note that the supply demand analysis leaves out so many interesting considerations, the kinds of things that real societies run on, and creates an image of a market that looks rigorous hence rational hence like physics.

Second example.
I watch a neighbor and her husband buying a new car.
Yea, we need a new one, this one is on the edge. Costs of repair will go up (no numbers, not spread-sheets).
I like the Toyota X.
That’s good. Which model?
The one with the glass roof.
What if something falls on it?
These days glass is as strong as whatever it is they make the normal roof from.
OK.
But I like the one with the good sound system.
If that’s is important to you.
Well I like the glass roof too.
What does it cost?
32 thousand.
You think we can talk them down?
Bill at work has one and he said he got fifteen percent off.
Sounds good. What color…?
——
No comparisons hardly, no spread sheets, no listing out pro’s and cons. Mostly intuitive. This points to a different kind of society (maybe even more efficient and functional) than one filled with robotic accountants looking at prices and car details, such as the kind of rings on the pistons, or weight distribution.

The equilibrium in a demand supply situation leaves out that the price offered has a history. The rich person pays less interest. If we only add in that factor, the”other” equilibrium – wealth – shifts inevitably to the already wealthy. Why is one model equilibrium accepted and the other ignored?Supply and demand do not ad up to economic thinking.

1938. Trump Alternative?

Provocation 124. Trump alternative?

Without a meaningful alternative to Trump the president’s job approval must stay relatively high (currently hovering between 45 and 32 %) because the question “do you approve of the way the President is doing his job?” is implicitly comparative. Without an alternative to Trump, responsive to climate, automation, inequality and governance – we (not you and I but the winning power-block) will continue to stick with the more sullenly organized Trump-supporting minority Republican Party (we only have minority parties). With increased violence, increased poverty, increased health problems, failing in education and an economy we will not able to use effectively new paradigms such as teamwork, automation and greening. China, precariously, wins and the US, deeply mired, loses. The possibility of cooperation rather than competition among China the United States and Europe (we are all in the same boat) fails to materialize.

The absence of mature leaders with some wisdom, broad education and gravitas, is alarming.

Creating a viable alternative to Trump (and the rest of the Young Republican alumni) seems to me to be crucial. This means politics as well as economics. Economics tends to seek harmony through equilibria. Politics is the management of conflict, conflict left out of economic thinking.
==============

Note, the argument “look at how well the immigrants are doing! No crime, great jobs,” shows how we fail in empathy with those in the US who feel bypassed by urban technocratic society that has no path for them to participate. . These are exactly why so many are opposed to immigration: the immigrants are better motivated (going up rather than going down) and take the cream – from our kids – leaving them with broken family life, no expectations, crime, drugs and unemployment .” Tying immigration to economic success is more cynical than humanitarian solidarity.

 

1937. The shift from home to workplace.

 

We have traded time at home for time at work. The result is that home is now the morning and evening utility, not a place we take creative pleasure in.

Economy serves the business world, owned be elites which is really the world of consumerism and the supporting infrastructure: accounting, computing, legal, service, police (and war).

Economics began as estate management by which Aristotle meant the whole thing, especially where people lived actual lives. From land to grain to cattle to slaves to family to community, but later economics became the management thinking for how to get more income from land, trade, manufacturing and finance for large landowners and later factory and finance owners.. At one point economics was conventionally called “the science of wealth”. “I need to know what to invest in” was not the need of the citizens but of a restricted elite.

The result is we have a vocabulary that supports a consumer economy: GDP, income, salary, investment, trade balance,, market. These are all aspects of consumerism: do people have enough money o buy the stuff we make for them? Economics is mostly interested in the flow of dollars from work to wages to buying to profit to investment. If it ain’t in that circle it doesn’t count. Economics does not much talk about the quality of life and the interactions of preferences. Identity economics looks to the dollar equity, not what people can do with it.

People used to live at home: whether mansion or cottage, and home was the center of family life and constructive crafts, children playing, adults making their space attractive and interesting and functional. Economics could have picked up at this point and made it much better.

But the economy split off the work projects and put these in factories and offices. People got up at home and left for work and came home tired.

The whole world has shifted from home to work and the pleasure of the home and its local community as places of creativity and relationships has fallen on hard times. Much of our social pathologies follow from the this split. The whole enterprise is a somewhat tuneable machine for producing wealth for those who have it.

Economics seems to have little interest in the resulting lack of quality of life. An alternative that did not survive the roaring 20’s was the Craftsman movement, “a democratic architecture for a democratic America,”

This splitting of work from home served the ex slave masters by having a system that approximated slavery. During the time people are being paid they are owned. Our “social capital” is bought by someone else. Good lives are subordinated to the economy.

If things are allowed to run to “natural”, no constraints, the stronger humans would eat the weaker.

We cannot go back to simple villages and cottages. But what is the goal forward? Certainly an assessment of what we have lost is a good place to start.
———

https://en.wikipedia.org/wiki/Arts_and_Crafts_movement#North_America

https://en.wikipedia.org/wiki/Arts_and_Crafts_movement

Laslett: The World we have Lost

1936. Economics, big data and imagination

If we make a model of a set of data, the model necessarily represents past or near contemporary states of the economy. By the very nature of data we can’t have data about future states unless they are similar to past states. Since we are looking for new economic thinking we probably need to think beyond models that represent data. This probably means greater reliance on narratives of what’s possible than summaries through data of what already is.

Restricting research to existing data, especially big data sets, is a support for conservative thinking (the future should be like the past). Querying big data sets cannot introduce new categories since anything new will not be represented in the data.

We cannot query large data sets about things which have not yet happened and lie outside the boundaries of the preset and past.

For example, the impact of some form of universal income raises questions about what people would do and what social trends would emerge. No amount of existing big data can answer – because the relevant data does not exist.

Then the model is unhelpful because it can only represent varying states of the currently assumed parameters.

Big data cannot tell us about future states except in so far as they are like previous ones.

This means that imagination becomes more important and analysis less important.

1932. Math, humanities and economics

Provocation # 120 Math and economics.

Math has a dampening effect on an economics of observation and participation in real lives. Prep for war, chaos of poverty, dynamics of hope and despair eddy around all economic activity – but is largely ignored in main stream economics which favors formalism.

We know that in the ancient world: Mesopotamia and then Greece and in the background China, accounting created numbers that it was important for the state to be able to predict: how much tax could be collected (bags of grain), how much grain would be grown next year. We know that contracts were written that specified payback times and included interest. Calculation merged with accounting and then with mathematics. The new power was used by temple managers and priests representing an elite support class, obviously for its power, and this becomes a major part of the math story for economics. Math and its supported economics is the plumbing so to speak for the flow of wealth in the society benefitting the elites. I think it is obvious that this attraction for economists to use math is to show they have tools that are useful to elites. Though often not directly, because the elites don’t actually use the results but as a sign of sophistication and expertise.

But deeper was and still is the attraction to math by many economists because of its power as an unseen force. A drawn triangle was known to be imprecise but Pythagoras knew that [a squared plus b squared = c squared] was true for all time, invariant and that the real triangle drawn in the sand was a mere approximation. The imagined triangle is more real than the drawn one. There is behind appearances, so the thinking from Pythagoras to the present went, a deeper truth of invariant relations, approximately true in the material world but unequivocally true in the world of the mind, as somehow representative of the forces of the universe, the creative power of number, the ultimate force of the universe. The cosmos was lawful, the microcosm down here reflects the big cosmos up there. The truth of math precedes the first humans and will still be true when there are no humans.

After Newton further advanced the move toward understanding the motions of planets as mathematical, the success was so profound, it seemed magical, god-given, the model of what knowledge should be: true, invariant in time, and elegant.

Reality is created, again following Pythagorians, out of something not material. Math is architectural for everything that can be. The body, with its harmonies, balances of energies, is an effect of the abstract harmonies organizing the material as an unseen equilibrating entity. It was assumed by later economists that Adam Smith’s Unseen Hand had real effects.

Because the material world of Newton’s time was strongly based on trade and empire, navigation made the realm of the stars seriously important for investment in voyages and this was only enhanced as mathematical representation came to seem more real than the thing it represented.

The impact on economics can be seen in the following: imagine a globe with the land masses and all the lines of latitude, longitude the tropics, the constellations projected downward onto the surface. For economists the lines and measurements became increasingly more real than the land masses underneath. Even if the earth vaporizes, the pythagorian belief in number says the lines and numbers persist for all time and are an essential part of the non material universe.

Math had an appeal because of its success, its power, its hint at things unseen but true. It avoided the noise of the world for the complete clarity of the mental in touch with the essence.

For Plato following Pythagoras, all things were relational and relations were math and math was numbers. Plato was interested in harmony of the heavens and of music. The discovery that music was relational (attributed to Pythagoras) and precise CEG for example with its harmonized relations, you can hear the beats of the mismatch when two slightly out of tune strings are plucked, as on a guitar)

There were other trends in Greek thought. Heraclitus (before Plato) saying you can’t step into the same river twice, all things are flux, but the platonic won out because it could lead to calculations and predictions whereas the heraclitian world was a nice story but didn’t lead to action.

Part of the appeal of math was its relation to contemplation, an extreme denial of the body as a distraction from the real. Contemplation to get to the real avoids day to day affairs in order to get to the ultimate nature of things.

That math is more real than material appeals to economists, many of whom are drawn to careers in economics because of the formalism, more than to it as the science of pragmatic action or as a guide to public policy. Undergrads in economics courses have these broader interests nut get sorted out by the series of required courses leading to a higher degree.

You will notice than any use of math must assume some constancy in the referred to system, for example the constancy of the sample space over time. Otherwise calculation is not possible.

The tendency of math to seek for and represent constant relationship suggests that the economics that prefers math is perhaps unconsciously support ing a conservative view thta things basically don’t change. Change is seen only a perturbation within a fixed system. The struggle between economics as observational, journalistic, humanitarian and motivated by interests will remain in tension with an economics that seeks hidden patterns and causal formal systems.

———————

From Wikipedia on math.

Galileo Galilei (1564–1642) said, “The universe cannot be read until we have learned the language and become familiar with the characters in which it is written. It is written in mathematical language, and the letters are triangles, circles and other geometrical figures, without which means it is humanly impossible to comprehend a single word. Without these, one is wandering about in a dark labyrinth.”[11] Carl Friedrich Gauss (1777–1855) referred to mathematics as “the Queen of the Sciences”.[12] Benjamin Peirce (1809–1880) called mathematics “the science that draws necessary conclusions”.[13] David Hilbert said of mathematics: “We are not speaking here of arbitrariness in any sense. Mathematics is not like a game whose tasks are determined by arbitrarily stipulated rules. Rather, it is a conceptual system possessing internal necessity that can only be so and by no means otherwise.”[14] Albert Einstein (1879–1955) stated that “as far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality.”[15]

Well , can you imagine a book written only in geometrical figures? In economics texts you will see a formula followed by a few english sentences which have the form A=,Q=.. Etc. My view is that the real understanding is in understanding what A, Q etc are, not in the math, which while often interesting is secondary to the hard work of figuring out things like income, wealth, ownership, contract. Take “unemployment” for example. All the equations hide the debate about what it is, perhaps the idea that unemployment means talents that are not used in work.

If math is method, the real science is in the understanding of the things counted, not so much in the counting.. For an alternative view of some attempts at interesting use of quantification see for example

http://peterturchin.com/cliodynamics

Another site full of interesting perspectives is
https://understandingsociety.blogspot.com

From within Economics the series of book reviews by Diane Coyle is a good education.

http://www.enlightenmenteconomics.com/blog/

My discussion of math and economics is a prelude to a discussion of the division in economics between calculation and the humanities, especially literature.

The shift from math to statistics is another story of an apparent gain in accuracy and computability but a loss of underlying understanding. It is very hard, in a statistical discussion, to introduce a nuanced shift in the meaning of one of the variables because it would throw off the whole basis for calculation. A story for another time.

 

 

 

 

 

 

 

 

 

1928. Economy, economics and competition.

Provocation #118. Competition and economics.

Why does economics have such an appreciation for competition? Competition creates winners but also losers, and can we afford more losers? Change always has losers, but a good society would be concerned that the changes help society, and compensate those who have been hurt, not just work for the few. We are not asking what would make a better society but what would make more profitable corporations. Is economics part of a society for the game players, or for all the people?

Agricultural society needed agricultural workers and industrial society needed industrial works. But it is clear that the current economic machine does not need many people. Old elites begrudgingly paid attention to the needs of the whole, but modern elites are much more cynical and disdainful, or pragmatically don’t need to care for the many.

Competition needs to be compared with cooperation and cooperation means relationships and relationships mean some sense of community. The business mind thinks: what is going on that I can participate in that will pull money from the people? They look at an environment in terms of what is not yet exploited. Innovation is encouraged not to make a better society but for a wedge to pry out profit. That Tim Cook makes 500m is a distortion of the logic which says a good economy pays out proportionately to those who contribute. I doubt that Cook’s contribution is worth that much more. If economics were more of a science it would be much more curious about such issues.

Economists tend to like equilibrium but those who think of getting rich know that disruptions and strong cycles are the only way to make serious money. Schumpeter had the least disguised view with “creative destruction,” naming it for what it is, and these days “disruptive technologies” are sought for by VCs.

But could we have an economy that provides more steady state, less disruptive to replace what for many, is, lets face it, a life shattering economy? Think of the high rents on houses bought up through foreclosure, or the land grab in Puerto Rico. Why is there no electricity in Puerto Rico? Drive the price down, shift ownership from those struggling to the beknighted. Then we can have electricity. Probably subsidized solar. How can we more effectively use our concern for the kind of society being built? Where are those economists asking, what would be a good society and then looking for the economy to support it?

I live in redwood country and hear about board-feet in that tree, not its place in the aesthetics of the forest, and the trucks carrying the logs tear up the roadways paid for by gasoline tax which is highly regressive. The apple orchards are replaced by grapes because the payoff is three to five times as great per acre. But then the pollution – mostly excess fertilizer – runs off into the river.
We all know many examples, yet we do not seem to look for alternative systems. Are we that much more beholden to the forces that be that it does not occur to us to think of alternatives? Bad and boring science.

——————
An example of economic thinking that fails to be curious and questioning:

Ricardo developed the “principle of comparative advantage”. The example of trade in cloth and wine between England and Portugal. Assume that, in Portugal, 90 hours of labor are needed to produce a bale of cloth and 80 hours for a cask of wine. In England, meanwhile, it takes 100 hours for cloth and 120 hours for wine. Portugal possesses an absolute advantage with respect to both products, and with respect to wine also a comparative (relative) advantage: the cost difference for wine (80/ 120) is greater than for cloth (90/ 100). (Correspondingly England faces an absolute disadvantage with respect to both products but a comparative advantage with respect to cloth.) etc. you know how it goes. “The happy message of Ricardo’s finding is this: whoever is inferior to another person in everything can nonetheless become involved in a division of labor that is mutually advantageous.” (From Kurz Short History of Economics)

What is missed is that the way business people think is that if our industry is behind that in another country in costs, something might be wrong with the way we are organized and we need to rethink our process, not just for this industry but for others in our country. Certainly not to institutionalize our current “comparative advantage.”
I think we can see what Ricardo is doing ; assuming a fixed system in order to make the calculations work.