All wet like a river

by
Peter Radford
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from Peter Radford

I am still stuck wondering about Diane Coyle’s defense of economics.

Heraclitus exists only in fragments.  That’s unfortunate because aphorisms are not the best way to tackle the hubris of the technocrat.  He was on to something though.  We all know his well-worn saying about stepping into rivers.  He tells us that they’re never the same twice.  And yet they stay the same.  Beware, then, the analyst that thinks she sees a regularity in our economy.  It may look the same as before, but it isn’t.  Not in detail.

Yes, I am still stuck wondering about Diane Coyle’s defense of economics.  It has, she says, changed a great deal since it was exposed as somewhat vapid back during the Great Financial Crisis.  I am trying to be gentle.  In truth it was exposed as being a lot worse than vapid. 

The problem I have is that the resurrection of economics, in the eyes of Coyle, is in its contribution as a technocratic bulwark against the visceral or uneducated emotions of democracy.  As a center of empirical wisdom economics can, apparently, regain its luster and provide a counterweight to the fogginess of ideas that emerge, not from dogged adherence to statistical analysis, but from the vague good intentions of the people’s representatives.  The economist-as-technocrat thus replaces the economist-as-theorist at the epicenter of modern policy and decision making.  Technocrats can do what mere politicians might not.  They can stand aloof and make the hard choices.  They can point out the opportunity cost of a choice.  They can hammer out the alternative values within an array of choices.  They can sort the costs from the benefits and weigh them objectively so as to ensure that society reaches the peak of its potential.  They can, in short, make us all efficient.

Whatever that means. 

Who knows?

But then the technocrats have a definition of efficiency so we can rely on them.

The issue with this turn towards technocracy is the inherent uncertainty pressed upon us by the rivers of Heraclitus.  Can we really draw solid conclusions from the flow of history such that we can predict what to do next?  Is not uncertainty an irreducible problem blocking our view forward?

Certainly the technocrats have amassed a set of tools that dazzle us all.  But the information they rely upon is history.  It is in the past.  Yet it is the future they pretend to discuss.

This is the dilemma we now find ourselves in after centuries of technological advance.  So alienated are we from the simpler world we have been ejected from we now are forced to rely on specialists who decide for us how to interact with our own circumstances.  We have, and the irony is startling, surrendered our agency in order to find our independence.  We, unlike our ancestors, no longer control the provisioning of the necessities or luxuries that we require.  We simply provide our effort in the production of one tiny element of the whole.  We rely, for the rest, on the enormous coordination and administration of the complex we call an economy.  This reality implies we are surrounded not just by the technology that has enabled this complexity, but by the minders of the machines and the technocrats that delve into the deeper workings and meanings of that complexity.  It is only in moments of crisis that we realize just how fallible the technocrats can be.  For all their pomp and hubris, for all their self-evaluation and peer reviewing, and for all their self-referential self-regard they are not that much better at seeing into the future than any of the rest of us.  And their track record, the longer it produces evidence for us to evaluate, ought puncture what remains of the hubris surrounding their status.  They are valuable.  They are just one component of any democratic decision making process.  They ought not dominate how we go about navigating the waters of technological advance.

Prominent economists have, of course, called our attention to the fallibility of decision making.  It is always strange to hear economists like Coyle refer to Hayek’s attack on centralized management, based as it is on the massively fragmented nature of information spread throughout society, as if it is a defense of market based allocation of resources.  As I have said many times: that fragmentation destroys entirely our ability to determine whether any system of management is “better” than any other.  We simply have no idea.  We have no idea whether way over in some corner of the decision space there isn’t a better one lurking and waiting to be discovered.  Likewise we cannot assert that an equilibrium ever exists.  We don’t have the information or the computational power to determine what an equilibrium might look like in the real economy, let alone whether it exists.

This inscrutability within the data was also mentioned by Jean Fourastié who hit upon another feature of the problem.  Amongst his many insights into the difficulties of understanding the complexity of a modern economy one that comes to mind in the context of Coyle’s defense is that time is not homogenous.  Things change.  Compositions change.  Heraclitus was correct.  The river never stays the same.  Worse, the time-lag in gathering data for analysis, and then the time consumed in analysis itself, means that the object of study is obsolete by the time we learn anything from that study.  In Fourastié’s words:

“Factors Become Modified During the Time Required to Verify Them. … One fact is sufficient to prove this; and I ask the reader to reflect upon it, since it is, to my mind, the heart of the problem: the time required to gather information exceeds the duration of the action being studied.”

I call this dead-time.  Our ability to use data as a gateway to understanding the future, and to the development of strategies to determine our path forward, is circumscribed by time.  If the pace of change is faster than our ability to forecast based on analysis, then we are reduced to reaction alone.  And lessons from the past are redundant before we even have a chance to deploy plans based on them.

Thus the speed of our evolution beyond our more primitive, simpler, past, which gave rise to the very need for the study of economics undermines the efficacy of much of what we learn.  As Fourastié points out, the original founders of economics, those who laid out its path, were less affected by the phenomenon of dead-time.  The pace was slower back then. But the technological whirlwind unleashed by industrialization has subverted much of what they took to be solid and invariable lessons.

Which implies a much reduced space for technocratic certainty even as the need for that very technocratic certainty has risen.  Coyle’s hope for economics needs to be modified to accommodate this paradox.  Her technocrats need to be modest.  The increasing complexity of modern economies calls for a greater understanding of what makes them what they are, and yet, simultaneously, makes that understanding less likely.

We are, to put it bluntly, stuck.

“The river where you set your foot just now is gone — those waters giving way to this, now this …”

Exactly.

Heraclitus knew a thing or two.