Complexity in Economics

Traditional epistemological theories have fostered an endless debate on dichotomies characterized by forms of objectivism, on the one hand, and forms of relativism/skepticism on the other. Currently, among the deep global social and cultural challenges, the crisis in epistemology is characterized by a radical questioning of the whole matrix within which such dichotomies have been drawn.

Taking into account the evolution of Economics as a science, the need for a deep epistemological has already been pointed out by outstanding economists.  Joseph Schumpeter, for example,  rejected the kind of economic thought that mainly favours deductive methods of inquiry – based on mathematical reasoning- because this  habit  generates analytical unrealistic results that are irrelevant to solve the real-world economic problems. Also John Maynard Keynes warned that the understanding of the economic phenomena demands not only purely deductive reasoning, but also other methods of inquiry along with the  study of other fields of knowledge- such as History and Philosophy. Today, Schumpeter’s and Keynes’s criticism could be certainly addressed to those economists whose beliefs ultimately privilege the adoption of a nominalist bias because the dialogue between the economic theories and the economic reality turns out to be abandoned not only in academic research but also in the policy making process.

Considering this background, the shift to Complexity in economic thinking can contribute to substantive epistemological insights in order both to face the contemporary theoretical and methodological challenges and to reject the Cartesian theorization of knowledge under an anthropocentric foundational model of rationality, complete order and truth.  Descartes reinforced the analytical-synthetic process of reasoning. Following the deductive method of pure inquiry, human knowledge grows throughout a rigorous chain of ideas. As a consequence, new thoughts arise while the human subject applies deductive reasoning so as to create a chain of ideas that links the most simple to the most complex ones. In this attempt, true knowledge can be obtained. The Cartesian method represents an attempt to extend the mathematical method of inquiry to all of human knowledge in the form of the mathesis universalis.  Indeed, this extension is at the center of the a priori foundations of scientific knowledge in Neoclassical Economics.

Edward Fullbrook, in his  book Narrative Fixation in Economics, also highlights that the Cartesian view of human reality has deeply shaped the way Neoclassical Economics theorizes about the economic and social existence (2016, p. 45). Indeed, while emphasizing the relevance of the pure thought of a disembedded human subject, Neoclassical Economics has reinforced the relevance of the Cartesian method of inquiry that moved the so called scientific (true) knowledge out of the general flux of experience.

Indeed, the dialogue between the economic theories and the economic reality is complex and a dialogical approach should be considered in any attempt to build realistic economic theories, as Keynes warned.

The changing environment of real-world markets through time -that is irreversible- refers to a certain degree of ontological indeterminacy that should be considered in realistic economic theories.  In thruth, a shift to Complexity in economic thinking can favor the adoption of a realist standpoint that relates to

  • A non-anthropocentric approach
  • A social ontology that is rooted in actual experience
  • A new approach to rationality
  • An evolutionary approach based on the coexistence of laws and change
  • Ontological indeterminism
  • Epistemological fallibilism
  • An endogenous approach to norms and ethics

Considering the relevance of this topic in economics education, students should be aware of the consequences of different epistemological approaches. Complexity in Economics is not  just a new label, but represents a  way of rethinking economics as a science.  

 

 

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15 comments
  1. Economists love complexity. It prevents them from seeing or believing anything really really simple – like the simple fact that if I create new money by promising to pay it back to my bank by a certain time in the future, and you have it and will only LEND it, and then apply that to ALL of the money in existence, the whole cyclical mechanism of booms and busts should be obvious by simple deductive reasoning.

    Eliminating the destructive downside of the business cycle is the primary concern of the general public regarding the role of economists in society. By simple logic and obvious fact, the existence of multiple simultaneous principal debts of the SAME money is the root cause of the business cycle. The real world statistics of M1 and M2 in the USA PROVE that to be the case. But economists don’t see money as what it really is – principal debt on a schedule. They IGNORE money.

    http://paulgrignon.netfirms.com/MoneyasDebt/MAD2016/economists_play.htm

    My experience trying to alert economists to this simple irrefutable truth has been to be ignored, ridiculed and even censored for pointing this out.

    http://paulgrignon.netfirms.com/MoneyasDebt/MAD2016/experiencewitheconomists.htm

    • Maria Alejandra Madi said:

      Thanks for your comment. Complexity in economic thinking is about a paradigm that relates to real world economics where money as an active has not role in business cylces. My understading of complexity has not a nominalist bias.

  2. chdwr said:

    Wisdom being the integration of both deductive and inductive reasoning, and the pinnacle concept of wisdom being grace it might behoove economists to consider learning how to garner and use both to craft policy out of the complexity. In fact such policies might be used to create a dynamic linearity where complexity currently exists primarily to obscure.

    • Maria Alejandra Madi said:

      Thanks for your comment. Indeed, inductive and deductive reasoning are necessary besides abductive reasoning that can help us to create new links between variables in order to clarify the complexity of economic and social relations. The main idea is that we cannot reduce economic thinking to binary relations, but we can find out them and show their relevance in a complex set of relations.

  3. David Harold Chester said:

    Complexity is what makes this simple subject seem like it will never provide answers. To reduce the degree of complexity we have to classify our various macroeconomics activities into various kinds. If and when we are studying the macro-side of it, then in fact this process give only about 6 kinds of agents and 19 kinds of activities. You will see this in my short paper SSRN 2865571 “Einstein’s Criterion Applied to Logical Macroeconomics Modeling”, on the internet.

    This kind of model is obviously not as simple as when the idea was first proposed in 1936 with only 2 agents, but it clearly avoids so much of the complexity about which most would-be modellers want to avoid, as to become feasible. This is the basis for my analytic book on the subject “Consequential Macroeconomics”, and until the experts begin to see that here is a way out of the complexity problem, they will be unable to make true progress in understanding how our social system works.

    • Maria Alejandra Madi said:

      Thanks for your comment. One of the main concerns of current economic thinking is how we can find a way out of the dichotomy between micro and macro theories. What are your thoughts on this ?

      • David Harold Chester said:

        Its simple, they are completely different subjects.

        Its analogous to the properties of separate molecules and the gas laws, in physics. The former deals with fine details about the nature of the individual objects whilst the latter deals with how a large and varying mass of such interacting particles combine, when they all are pushing against each other to produce some aggregate overall effects.

        A little physics is always a good thing!

  4. The following is the comment I posted to Maria Alejandra Madi’s post to Real World Economics Review Blog.

    In the comments to the original paper in WEA Pedagogy Blog, two persons are objecting the idea of Economics of Complexity.

    Paul Grignon contends that Economists’ love of complexity prevents them to understand what is really simple. David Harold Chester points that “Complexity is what makes this simple subject seem like it will never provide answers.”

    They have some truth, but do not see why Complexity must be at the center of our scientific interest. Maria Alejandra Madi’s presentation has misled the subject by focusing on her objection to Cartesianism. Complexity has nothing contradictory to Cartesianism. Mathematical theory of complexity (theory of computing complexity) is done within the Cartesian spirit and achieving a tremendous development. Although many Complexity economists have forgotten it, economics is much influenced by this development.

    Complexity arguments in economics have a tendency to be confined to nonlinear dynamics: Chaos, Strange Attractors, Initial-value sensibility (or Butterfly effect), Second Cybernetics, Complex Adaptive Systems, Co-evolution, Self-Similarity and Self-organization. They give us some hints when we consider macroeconomic dynamics, but hints are always hints and do not produce theories. We must remind of the Catastrophe craze. Many social scientists liked cite catastrophe theory, but it faded away without leaving any real products in social sciences.

    However, I believe that Complexity must be the central theme for the reformation of economics and its paradigm shift. Non-linear dynamics has little to do with this change. What is central is to reconsider the real nature of our economic behaviors.

    Neoclassical economics considers that our economic behaviors are something similar to rational calculations. The typical example is the utility maximization. Behavioral economics has shown many anomalies in human calculations, but in my understanding it is still in the paradigm of rational calculation. If we really think of complexity of calculation, it becomes clear that the prototype of human intentional behavior is much simpler than calculation. It is a set of if-then reactions. This is the only practical solutions for an animal of bounded rationality and sight to achieve an object in a complex world.

    It is necessary to renovate microeconomics from its very foundations. The true microfoundations of macroeconomics are only possible with the full conversion of neoclassical microeconomics. I have been working with this approach since 1980’s. There are now many results from the theory of value (including the new theory of international values) to the theory of market coordination. The latter explains on how a big network of productions and exchange works without economic agents with infinite rationality and sight. See my (draft) paper in ResearchGate:

    Microfoundations of Evolutionary Economics
    https://www.researchgate.net/publication/301766363_Microfoundations_of_Evolutionary_Economics?

    • Maria Alejandra Madi said:

      Many thanks for your comment.My analysis on the relationship between Cartesianisn and Complexity is founded on the philosophical contributions of Charles Peirce and Egdard Morin.

      • dmf said:

        thanks for your reply on RWER as a student of the late R. Rorty I have some serious reservations about Peirce but will look into Morin, here is my reply to your reply on the other blog:
        hi Maria, that’s the issue robots work (to the degree that they do) only by being highly focused in their programming/reach and by functioning in highly restricted/managed environments, whereas human-beings aren’t made in this way (from the wiki of Stephen P. Turner “In The Social Theory of Practices as well as in other writings Turner argues against collective concepts like culture: what we call culture (and similar concepts), he argues, needs to be understood in terms of the means of its transmission. There is no collective server by which it is simply downloaded and “shared”. What we take as “collective” is really produced through experiences of interaction which are different and produce different results for different individuals but which also produce a rough uniformity through mechanisms of feedback rather than “sharing”. )
        and work/exist in relatively open-systems/environs (what could it mean to try and track the interactions between such individuals and the economy” as a whole, what are even the boundaries and components of a whole economy or market, as was suggested by another here?), we’ve long suffered the cybernetics sci fi dreams of these folks and their dumbed down “smart” systems/.models, a saner take on the promise (of at least the British tradition) comes via physicist and sociologist Andy Pickering who wrote a book on the cybernetic brain (mindset really)that is worth a look:
        https://syntheticzero.net/2017/04/07/andrew-pickering-engaging-emergence-from-cellular-automata-to-the-occupy-movement/
        cheers, d.

  5. “What is central is to reconsider the real nature of our economic behaviors.”

    “Neoclassical economics considers that our economic behaviors are something similar to rational calculations.”

    The second statement is correct for some people – it is correct for those who succeed in a property based system. This should be obvious if anyone has any historical account of property and political economics. We must remember, contrasted to today’s world where everyone is almost expected to own property and treat every relation as contractual, several hundreds of years ago just as the Victoria age and the property trust were taking hold, a large portion of the people did not own property and did not enter into contracts. If an economist of the time was describing anyone, it would only have been those who did own property, for what reason would they have to even bother with a serf? It takes ‘rational calculations’ and all the other capitalist type descriptions to succeed in a property based environment.

    When a society, based on fear and vanity, is all forced to find security in property and contracts, if any one of them has the psychology which is 180 degrees to that required to succeed in a property/contract system, then it is inevitable we will have the misery we have today. I don’t care what anyone says, based on pure self-observation, I know for a fact I am not one of those with the psychology necessary for a property/contract based resource system and therefore my whole life I have felt out of place being in a society which imposes this ideal on everyone; and I also know this is true for many other people out there – and it is also my claim that the number of people out there who suffer from this is probably larger than the average unemployment rate for most countries operating under a property system.

    Stop blaming neo-liberals for something than has been imposed on us long before they came into power. I don’t care what side of the political spectrum you are on, if you believe that the only way resources should be treated is as commodities under property and contract laws, then you are part of the problem for you lack the understanding that a large portion of the human population lack the necessary psychology to operate under such an environment. The people who suffer the most in our westernized world are those who desire to operate under trusts, not contracts – this should be so obvious it is perplexing that people miss this – does anyone ever bother to actually observe your own emotions, thinking, and behaviours when you are engaged in economic activities and when you make demands of others? Does any of it actually feel normal and human to you? Maybe for some of you it does feel normal, but for some of you, if you are honest you will admit that you hate having to make legally binding demands of others, even if it is under the guise of mutual exchange.

    This is not to suggest that property itself should be abandoned and we move to some communist regime – far from it, that is even worse because it does the same thing the property system is doing, it imposes it’s ideal on everyone (so too does every ‘ism’)! What is needed is very simple – multiple or alternative resource holding arrangements so that those who want to deal in property and contracts can play in one sandbox, those who want to operate under something else (like islamic type arrangements, or custodian type arrangements) can play in their respective sandbox, and so forth. Those who fit the description which economists have always made of people will obviously gravitate toward the property sandbox, those who do not will gravitate toward other models (and this will comprise of a large portion of the CHUP sector).

    This is the crux of my economists challenge, I present alternative resource model (which will reduce the CHUP sector) to co-exist alongside the property based system, and I challenge economists to prove the alternative model will cause property owners loss, a challenge which no economist will ever take up – they always claim because they lack the time, but the real reason is because they are motivated by selling books, or pushing some political agenda, and that if they admitted my model to work, they would be admitting that the field of economics would then fall into disuse.

    • Maria Alejandra Madi said:

      Thanks for your comment. I agree that economic thinking and the evolution of institutions are linked since economic thinking is embedded in society and culture. Cosnidering the current challenges, the main one might be that “The Gospel of greed”, as the American philosopher Charles Peirce recalled, is still alive.

  6. First, what do folks say about realism? According to experts somewhere, realism is an approach to the philosophy of science (including economics) that argues that empirical and experimental investigation is unintelligible in the absence of an external world, and human capacity to intervene in that world and monitor the results of their actions. But what’s involved with getting to realism is never said by realists. My answer to that mystery is that realism is like all other aspects of human cultures made up of associations which we can describe with the shorthand actor-networks. The items associated in any actor-network determine its form and actions. These associations can literally include anything. For example, the boats, houses, fish, myths, fisherman, clergy, store keepers, ocean, etc. that make up a fishing village. Or, the universities, paradigms, tenured faculty, junior faculty, undergraduate students, graduate students, books, journals, etc. that make up an academic school of philosophy. Realism is also an actor-network. I’ll leave it to those on this blog who know it better to identify the items associated to make that network. Complexity is a term Sapiens invented to describe the associations of a network. In complex networks many or even all the items associated have the potential to alter the network in form or actions or both.

    • Maria Alejandra Madi said:

      Hi Ken,

      Thanks for your comments. I like your approcah to the concept of REPRESENTATION. This is what we need: a realistic representation of economic relations where complex networks are considered.

      Maria

      • Maria, humans choose to make networks complex or not. It seems to me while economists might use the terms complex or complexity, the networks they describe in their theories and their work are not complex. Economists associate things in their networks that cannot and do not change the ultimate actions or forms of the network beyond those economists have chosen before choosing these networks. The networks always operate as predicted with results fully known in advance. Anyone observing economics in actions knows such networks are rare. So, it seems economists are content to describe the 10% of economic networks that are not complex and pretend the other 90% either don’t exist or are irrelevant.

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