Thursday, 5 April 2012

Complex Systems

I've just noticed that Prof Yaneer Bar-Yam of the New England Complex Systems Institute replied to my letter (full version here) on the New Scientist's Limits To Growth article. I'm quite chuffed about this - Prof Bar-Yam is a big guy in the world of applying complex systems theory to the social sciences: for example see his recent (joint) paper on social unrest and food prices, incorporating speculators and biofuel production, which makes a definite prediction that "Policy actions are needed to avoid a third speculative bubble that would cause prices to rise above recent peaks by the end of 2012."

Naively, and certainly before I started studying economics, I would have guessed that the above paper would have been classified as an economics paper. It's not though: complex systems is a separate discipline, and although of interest to many economists, it's a difficult topic for economists to get involved in. (On a seperate but potentially related topic, I recently came across this record of correspondence that Prof Ken Judd compiled on his difficulties in getting computational work published.)

The basic problem as I see it is that the economics profession has collectively made a methodological decision to study how decisions are 'optimally' made. This is a perfectly valid choice for microeconomics, and it does a good job of constraining and disciplining our models i.e. we cannot just assume any old behavioural rule or heuristic.

It is much more difficult to conclude that this choice is valid for macroeconomics (see recent debate on microfounded models in macro), partly because of aggregation issues, but also because this choice actively gets in the way of studying what many people would regard as economics: the allocation of scarce resources, regarding human society as part of an ecosystem that is subject to the same rules of thermodynamics as any other ecology. Has it really been demonstrated that the growth of human society within the fixed boundaries of the Earth is any more rational and forward looking than the growth of bacteria in a petri dish?

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