Economic Manhattan Project or simple creative destruction?
In the latest Edge newsletter is an article proposing and discussing an economic Manhattan Project where a group of good scientists would get together and “solve” the current economic crisis. On the surface this doesn’t sound completely bad when the initial description is:
The economic crisis has to be stabilized immediately. This has to be carried out pragmatically, without undue ideology, and without reliance on the failed ideas and assumptions which led to the crisis. Complexity science can help here. For example, it is wrong to speak of “restoring the markets to equilibrium”, because the markets have never been in equilibrium. We are already way ahead if we speak of “restoring the markets to a stable, self-organized critical state.”
I like the idea of helping restore the “market” to a self-organized critical state, but I’m not sure that the authors of the idea understand what the “market” is.
Interestingly, in the same issue, a selected panel of Edge regulars have responded to the idea. Given that the idea of group of scientists fixing the world is pretty clear in its intent, it means that taking a position on the efficacy of the idea would also be clear.
Michael Shermer echoes my position on the idea most closely when he suggests,
The economy is a product of human action, not of human design. Trying to redesign something that was never designed in the first place is futile.
He suggests this thought experiment:
…imagine the futility of government bureaucrats trying to find the right price for each of the approximately 170,000 different books published each year, factoring in hardback versus paperback prices, special discounts for multiple purchases of bundled books, plus shipping specials for minimum sales and factoring in, of course, the discriminatory pricing now used in the same way the airlines price their tickets, and then imagine multiplying that process by the hundreds of thousands of different markets, industries, and businesses and it becomes crashingly clear why no top-down system could ever match the real-time sensitivity to prices provided by the bottom-up complex adaptive pricing system currently in place.
People have been making and trading for millennia, and doing it fairly efficiently in the absence of punitive governmental controls. Every experiment of a designed economy in recent human history has created misery on a scale unmatched by the self-organization of a free market. (Dr. Shermer has a good post discussing the idea that the mere existence of almost 80,000 pages of financial regulations will create unforseen incentives that will often cause breakdowns in a market economy.)
Douglas Rushkoff mistakenly suggests that a market economy is “synthetic and manufactured” and misses the point that open markets are a self-organized system, not one that can easily be bettered through some kind of design. He seems to think that economics is all models, rather than more clearly identifying that a self-organizing economy might be able to be partially modelled, but certainly isn’t based on a model of any kind.
Nassim Taleb makes a good point that what he calls scientism, the attempted design of the economy (and as I see it, the creation of perverse incentives), is primarly to blame for the current economic crisis, not open-market failures.
George Dyson suggests, quite succinctly:
Instead of attempting to prop up failed institutions with money that does not exist, we should be launching new institutions with money that does.
Emanuel Derman is more poetic when he writes:
Whenever we make a model of something involving human beings, we are trying to force the ugly stepsister’s foot into Cinderella’s pretty glass slipper. It doesn’t fit without cutting off some of the essential parts.
Currently slinging trillions of dollars randomly at a problem, with no current discernable affect is like giving a cold sufferer a random drug and suggesting that in 6-10 days they’ll feel better. The ones doing the throwing of taxpayers money have no idea, and two years from now will have no idea what amount of the money spent had a positive effect on the economy.
Any politician or public servant that suggests that they have a solid idea of a “cure” for the current crisis is willfully ignorant or is lying to funnel money to their pet projects. What the world economy needs, in this transformation from an industrial economy to an information one, is a bit of creative destruction. Let the economy shed old gangrenous parts and allow for creation of new, dynamic engines of growth.
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Comments
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Thanks for reading my post at Edge, but I think you misunderstand what I’m saying (or, worst case, forgetting how our markets work).
I’m not saying that that all markets develop in an unnatural or synthetic way. I’m saying that *our* market has been developed on a set of rules. There are rules, put in place as far back as the 1400’s, dictating how our market works. It didn’t evolve naturally, and is highly regulated. Alternative currencies, for just one example, were outlawed during the beginning of the Renaissance in order to tilt the market towards chartered corporations.
I’m arguing for less regulation, not more. The market you are calling nature was actually an act of intervention by monarchs on a existing bottom-up marketplace.