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Those lumps matter

Summary:
From Peter Radford I feel bad for anyone who ventures into the social sciences.  Society is, after all, a devilishly complex subject.  Pull on any one string and you can convince yourself that you have understood it only to realize the next day that you missed the entire story.  It’s a maze: enter at your own risk. Of course the flip side is that you can never be entirely wrong either.  Just about any half-baked idea has a smidgeon of truth hidden within it. Take a look at mainstream economics.  It’s about as nutty as can be, based as it is upon axiomatic foundations that bring gales of laughter to anyone seriously interested in depicting or comprehending reality.  But we have whole academic departments filled with very clever people who cringe disbelievingly at the ridicule outsiders

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from Peter Radford

I feel bad for anyone who ventures into the social sciences.  Society is, after all, a devilishly complex subject.  Pull on any one string and you can convince yourself that you have understood it only to realize the next day that you missed the entire story.  It’s a maze: enter at your own risk.

Of course the flip side is that you can never be entirely wrong either.  Just about any half-baked idea has a smidgeon of truth hidden within it.

Take a look at mainstream economics.  It’s about as nutty as can be, based as it is upon axiomatic foundations that bring gales of laughter to anyone seriously interested in depicting or comprehending reality.  But we have whole academic departments filled with very clever people who cringe disbelievingly at the ridicule outsiders hurl at them.  What do those silly outsiders know?  Aren’t they impressed by the elegance of it all?  The intellectual rigor is stunning.  It takes a lot of raw brainpower to keep the discipline aloft midair whilst pretending to be rooted firmly on the ground.

One outsider I admire — Daniel Dennett — uses the words “sky hook” to describe an idea that is used to support an intellectual edifice in place without proper foundation. The idea is to create the illusion of a solid foundation, and to start the argument above, rather actually on, the ground.  The history of ideas is littered with sky hooks.  Economics is full of them.

“As If” is a sky hook. 

If something looks a tad complex, perhaps too intractable for the standard math or, perhaps, ideologically inconvenient, then economists argue that it behaves “as if ” it were simple.  So they blithely sweep aside complexity and discuss the simplicity.  “As if ” arguments can be found in several key corners lurking to disguise the dismissal of swathes of reality that might fog up the pristine vision economists want to impose on the landscape.

For instance: we all now that the economy is a bit more complicated than the simple combination of a few producers and a few consumers interacting as equals in some information flooded space.  For one thing geography matters.  Distance is a reality.  So is the resource endowment of this side of the mountain as opposed to the other side.

Distance had its day in economics, it helped spur the original thinking around marginality.  The distance from market implies a cost curve for the logistics of travel and moving goods.  The rest is history.  Nowadays employees are valued at their marginal productivity, as if it is possible to calculate such a quantity.  How, exactly, does a corporation of a few thousand people extract such fine information from the web of its activities?  Arbitrarily. So much for the theory.  But it sounds really good.  And it is a wonderful simplification.  So economists love it.  It helps maintain the integrity of their math.  That it doesn’t reflect reality is neither here nor there.  Businesses are assumed to act “as if” they could calculate marginal productivity.  It fits better with the models.

Most of economics strikes me this way.

Structure is another example of something economists leave aside.  The economy is inherently lumpy.  Those lumps matter.  The economic landscape is littered with various types of organization.  That organization doesn’t always fall neatly into the two bucket system of economics.  You cannot collapse all the nuances of organization into a binary choice.  The problem with this lumpiness is that it needs explanation.  Why does the real world seem to be full of exceptions to the super simple binary world posited in economics?  It seems to me that the simplicity of a market — as discussed in economics — is the exception and not the rule.

It’s impossible to reflect reality with “representative” anythings if everything is unique.

The irony is that the most eager of free-market advocates acknowledge the inherent complexity of the real world.  Indeed, the most ardent of them deploy complexity as the most obvious and devastating element undermining the concept of “central planning”.  How on earth could anyone one gather all that information, process it, and come up with the most efficient solution to whatever question is being posed?

Well, no one could.

The economy has a computational problem.  It cannot be computed.  There are too many variables.  There is too much information, too many inconsistencies, illogical oddities, and inescapable contradictions.  No one could possibly get the “right” answer to that mess.  Whatever the right answer is.

But here’s the sky hook: that intractable problem, the one that no one could possibly solve, the one where all that information is simply impossible to collate into a coherent whole, well, what do you know?  The market can fix that!

The impossible becomes possible.

Magically.

The “as if” sleight of hand brings order to that disorder.

You see, it’s like this: all those lumps and impenetrable bumps, all those knots and twists all get smoothed out if you squint hard enough and imagine that the roiling perpetual motion and change of the real world is actually a manifestation of some flat land perfectly manicured and ordered.  You just have to imagine it.  There’s order in there somewhere if only you squint hard enough.  It’s disorder imagines “as if” it were order.

Once you manage to understand that, once you use your imagination, all becomes clear.

Not only this, but you can also believe that anyone introducing lumps back into that nice flat land is disrupting everything.  They are making the flat land uneven.  They are being inefficient.  They aren’t introducing reality.  Heavens no!  They are messing things up.  They are getting in the way of the inexorable forces of flatness.

I live in the mountains of Vermont.  They aren’t very big mountains because they’ve been around too long.  They have a history which is part of the explanation for them.  I have some very large rocks sitting on the land out back.  The glaciers put them there.  They’re called erratics.  They aren’t some glitch on an otherwise flat landscape.  They are the landscape.  So are the streams and ponds they sit next to.  I don’t have to erase all the topography to get an understanding of the Vermont landscape.  To flatten it is to erase it.

So it is with economics.

The landscape of an economy is inherently lumpy.  Power relations.  Social ties. Geography. Culture.  Knowledge concentrations. Technology. Networks of various forms. And amongst it all: organization.  These are the things that determine the economic order.

The economy is anything but an arbitrarily defined binary landscape with producers and consumers, or market and governments, or supply and demand.  Nor is it static.  Nor is it inexorably determined.  It has evolved, and still is evolving, within a context.  It is, to channel David Bohm, in a constant state of becoming.

We organize in order to overcome our lack of certainty.  We offset the computation problem by breaking it up and organizing the bits.  We create as much local order as we can by asserting control over small parts of the whole.  We flood energy into the spaces we control to bind things together.  We create pockets within which to operate insulated from the wider world.  We create rules and institutions to act as structure to channel work.

And by doing so we extract what we can from the disorder around us.  We substitute our own imperfect but more orderly reality for the uncertainty we find.

We create lumps.

Yes, lumps matter.

They are what economists need to study.  Why are there lumps?

Don’t talk to me about the flatland.  We don’t live there.

Peter Radford
Peter Radford is publisher of The Radford Free Press, worked as an analyst for banks over fifteen years and has degrees from the London School of Economics and Harvard Business School.

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