by From Peter Radford “Formation is the vanishing of being into nothing, and the vanishing of nothing into being” Hegel loved his dialectics. But it isn’t just contrasts that illuminate reality. It is connections also. Connections matter. Single things are interesting. Perhaps even intriguing. But it is the way in which things connect that leads us to the better understanding of our surroundings and of ourselves. Our modern world rests largely on a web of technology that mediates our existence and removes us from our primitive origins. We pride ourselves on this web. Our ability to render nature compliant and exploit both our context and our intellect to produce comfortable lifestyles is the essence of modernity. Any brief study of the past two hundred years will astonish us at
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from Peter Radford
“Formation is the vanishing of being into nothing, and the vanishing of nothing into being”
Hegel loved his dialectics. But it isn’t just contrasts that illuminate reality. It is connections also. Connections matter. Single things are interesting. Perhaps even intriguing. But it is the way in which things connect that leads us to the better understanding of our surroundings and of ourselves.
Our modern world rests largely on a web of technology that mediates our existence and removes us from our primitive origins. We pride ourselves on this web. Our ability to render nature compliant and exploit both our context and our intellect to produce comfortable lifestyles is the essence of modernity. Any brief study of the past two hundred years will astonish us at the gulf in everyday existence between now and then. We really do seem to have broken the Malthusian grip that nature held us within for so long.
A great part of that ability to break free consists in our imposition of reasoning on the problems previously preventing us from escape. We learned to abstract. We learned practical problem solving. We learned both to reduce problems to solvable sizes and then to reconstitute solutions from those now-known component parts. We created, to borrow from Brian Arthur, a reliance on modularity: we learned to build technologies from various parts. And each part itself was itself modular. The implied reductionism in this prompted the illusion that the method for superior knowledge was always through breaking things apart and re-assembling them once we knew what each part did.
Economics took heed of this method and ran with it as if the economy was a technology comprised of parts easily assembled back into a whole. Economics is justifiably proud of its internal logic. But is it something that matches reality well?
We need to heed the words of Jorge Luis Borges, who warned us of “reasoning with an internal logic, where reality does not collaborate”. It is possible to fall for the efficacy of abstraction and to forget your purpose. You can get stuck in a distant corner replete with an enormous library of logical components each of which is exemplary in its consistent splendor but each of which fails utterly to explain much. Except, perhaps, itself. Economics long ago, I am afraid, arrived in such a corner. It has become supremely good at explaining itself. It has become much less useful in explaining the economy.
A major part of the problem comes straight from the “micro foundations” movement. This effort to explain all higher order phenomena as a simple extrapolation of lower order facts is a danger all scientific endeavor has faced. The problem for economics is that it has failed to re-invent itself subsequent to the modern realization that radical reductionism is a step too far. It soldiers on in defiance of the increasing understanding that the complexity of reality calls into being phenomena at higher levels that are not constructed of lower level parts. They exist only higher up. Connections matter. The hand of the likes of Prigogine is not felt strongly in mainstream economics.
It may be true, to some extent, that a cloud is simply a bunch of raindrops, but there’s something profound being missed to imagine that “bunch of raindrops” is a sufficient understanding of a cloud. Yet that’s where economics totters along. Aggregate phenomena are treated as just that, aggregations . Even the name betrays the thought process. As a result macroeconomics, once a venerable pursuit, is reduced to almost nothing with enormous policy and social implications. We are told that things “work in practice but not in theory”. With a straight face. We are given presentations on such things as efficiency as if, at a higher order, it were possible to conceive of an efficient result. What, exactly, is efficiency at a systemic level, when that system is an open flow subject to uncertain fluctuations and a near incomputable assemblage of information? A trivial example is the feedback between supply and demand that sits at the center of economics. Feedback is a connective and dynamic concept. It says that the two components, in this case supply and demand, can never be thought of either as two separate phenomena and analyzed as such. They can only be thought of as inextricably linked with neither having a separate existence. When we iterate back and forth to explain how supply adjusts to demand or vice versa we lose our ability to analyze either by itself. They now exist as a pair. Any focus on either separately is rendered useless. Supply and demand are functions of each other. They bring each other into existence. Each relies on the other. Studying either as if this was not true is to ignore the essence of the insight. It is to fall for the reductionist illusion. It is an abstraction too far. It is to ignore Borges and to go somewhere where “reality does not collaborate”.
The result is not knowledge. It is ignorance.
A critique of reductionism is not some modern, novel, or radical phenomenon. The debate about complexity and its ramifications has raged for decades. As long ago as 1972 the Nobel winning physicist P.W Anderson could say the following, in an article titled “More is Different”:
“The main fallacy … is that the reductionist hypothesis does not by any means imply a ‘constructionist one’. The ability to reduce everything to simple fundamental laws does not imply the ability to start from those laws and reconstruct the universe”.
Economics clearly paid no attention to Anderson.
When we abstract for the purpose of elucidation we must be sure that the implied loss of information was worth the gain. We must be careful not to throw the baby out along with the bathwater. Or, put alternatively, we need to be truly humble about what we know when all we know is based upon the elimination of great swathes of information.
Modernity is good at eliminating information. We do it all the time. We reduce the intensity of reality into more manageable pieces. We cast aside what we don’t need for the task at hand. We automate and thus eliminate the need for thought on the part of the production team. We rationalize and thereby smooth off the edges that might cause disturbance to the flow of thought. We gain deep insight this way, but at the loss of texture and context. We gain depth at the cost of breadth.
Ever since the rise of industrialization we have narrowed the lens through which information passes. Our machines replace or amplify muscle power. So our contact with nature is removed from its immediacy and elevated into a more abstract realm governed by measurement, containment, and management. Each of which implies the elimination of information deemed unnecessary. We engineer our surroundings and our workplaces rather than simply living in them. And each new technological advance adds to the removal of that direct contact. Layer by layer we lose contact with our origins and substitute in its place a mythic alternative with a far more limited information content. We steadily systematize the chaotic in order to extract value from it. We move more and more into a world of structured connections and away from the natural complexity in which we began.
The steady accumulation of technology has resulted in a poverty of information even though we think of ourselves as living in an age of information. Our rationalization of the natural world necessarily eliminates what we consider as irrelevant. And by so doing we cast aside information. The stimulus of the broad lens of nature is replaced by the narrow lens of constructed artificial reality.
This steady loss of information, as we narrow the lens continually in order to overcome nature, leads us astray. We believe we are in control and are more knowledgeable when, in fact, we are increasing our ignorance. We begin to make leaps of thought that make sense in the confines of technological currency but which make little sense in the face of the unknown beyond. There is a great danger lurking in that lost information. And every so often it asserts itself and disrupts our so-called advance. Just when we think we are in control we realize we are not. Such a circumstance reminds us of our deliberate ignorance. It reminds us that our abstractions bring with them the risk that we stripped out information that might become relevant when we re-engage with the real world.
Economics is a primary example of this process of casting aside information.
It has reduced itself, by and large, the study of exchange, allocation, and distribution. It ignores any information not directly applicable to that study. So the needs of society become reduced only to those visible in such circumstances. Anything not involved in the process ending in exchange is stripped away. This abstraction opens the door to formal understanding of a very narrow facet of economic reality. It says nothing about social reality except that certain consumers are willing to pay price x for product y. Upon this simple matrix economics has built a host of observations that belie the simplicity of its basis.
Economics has, in essence, taken the feedback mechanism between consumers and producers, called it grandiosely the market system and then imagined it has understood the relationship between human needs and the ability to satisfy them. It has not.
Then again, that feedback mechanism is about as good as we can hope for. To refine it further or improve upon it would require us all to be able to articulate our needs more clearly in ways that could be accumulated in to some sort of aggregate demand amenable both to study and satisfaction through organized production. Such an ability and the knowledge associated with it lie permanently beyond our cognitive capacity. The best we can do is to fudge. The best we can do is rely upon approximation and rely on the modest workings of the market to get what we can.
Perhaps Hayek was right in his denial of the efficacy of central planning. After all the complexity of reality means that a centrally arranged matching of supply and demand lies beyond our current ability. But he was wrong to imagine that markets are in any way superior. They, too, fail to match all needs with all possible solutions. We simply have no way of knowing whether markets work well. Any appearance that they do is simply an illusion.
And that’s the lesson of reality: a market is nothing more than a modest effort to meet what needs we can within the narrow scope of a limited flow of information. Is it the best we can do? Is it perfect? Is it better than anything else? Is it optimal? Is it efficient? We have no way of knowing. We lost the information to do those kinds of calculations along the way. And even if we had the information we wouldn’t be able to do the calculation.
Pretending that such a modest mechanism as a market should dictate anything beyond its limited scope is a foolish error, which if we act upon it, imposes large costs on society as whole. Markets do what they do. Nothing more. Let’s leave it at that. Those connections matter. Borges was right. We should always ensure that reality collaborates with our efforts at logic. The rest is fantasy.