ANS -- “The Actual Economy is a Complex System” An Amazon Review of “Economyths – Ten Ways Economics Gets It Wrong” By David Orrell

This is a relatively short, mild critique of how economists view the economy -- that is, way too narrowly.  It's actually a review.
Find it here:  http://www.facebook.com/permalink.php?story_fbid=284848721575261&id=110450115681790  
--Kim

Unitarian Universalists for a Just Economic Community


"The Actual Economy is a Complex System"An Amazon Review of "Economyths – Ten Ways Economics Gets It Wrong"By David Orrell

By Dick Burkhart, UUJEC Board

Author David Orrell gets it right exactly where mainstream economics gets it wrong, from the mathematics to the environment. Already on page 5 he lists the 10 myths, then devotes one chapter to each myth: "The economy can be described by economic laws; The economy is made up of independent individuals; The economy is stable; Economic risk can be easily managed using statistics; The economy is rational and efficient; The economy is gender-neutral; The economy is fair; Economic growth will make us happy; Economic growth is always good."

Applied mathematician Orrell is a champion of the complex systems approach to economics. He cites agent-based models as a promising approach to capturing the non-linearity and chaos that is intrinsic to real-world economics (p. 24): "Agent based models have been used to reproduce the boom/bust behavior of markets, and have found many other applications in areas from transportation to cancer therapy." He advises economists to forget about "predicting", except for isolated "pockets of predictability", to focus on scenarios, and qualitative and comparative behavior instead.

He lists 4 properties of "robust networks" that economics should emphasize but doesn't (pp. 40-43): Modularity, Redundancy, Diversity, and Controlled Shut Down. Incidentally you can find some good examples of failures in economic networks in "Cornered – The New Monopoly Capitalism and the Economics of Destruction" by Barry Lynn.

Orrell demolishes economic "efficiency, stability, rationality", showing how 19th century attempts by Walras, Jevons, Pareto and others to emulate Newtonian mechanics failed to due to the oversimplification required. Unfortunately they also failed to take note of Maxwell's classic 1876 paper "On Governors" (used by steam engines) which analyzed how negative feedback could be used to control instability, or how positive feedback would generate instability.

Later Orrell takes on the normal distribution and shows how power law distributions and fractal phenomena are a better match for many economic data sets. Then he goes after the Arrow-Debreu equilibrium model and Milton Friedman, saying right up front that "The aim of models should be not to predict the unpredictable but to help design the financial system so that it is more robust".

From there Orrell goes on to characterize mainstream economics as highly masculine in its formulation (preferring abstract models to real-world concerns), unfair (inequality arises naturally in a deregulated economy), focused on growth (growth is unsustainable and GDP is a bad indicator of true economic health, the ecological footprint is ignored), portrayed as a closed system (the actual economy is open to the environment and resources so that "scale and timing and the flow of energy" are critical).

In the end, David Orrell calls for a totally new economics, saying that (p. 238): "We're living in a bubble…We have a line of credit with the rest of the planet, and it's flashing red." Right on!

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