Friday, January 23, 2009

Managing Complexity - Economic Rationalism

Well, the economy is a pretty complicated thing! Plenty of folk want to manage it, either to their own benefit, but, usually to everybody's benefit. And a lot of us believe that it aught to be possible to manage the economy.

Physics, Engineering, and many other disciplines, manage complexity, by modeling the thing to be managed, and then study the model, and study the disparities between the model and actuality, gaining insights, and then refining the model. Ad infinitum. This is at the heart of statistical process control. Simple idea, but not always obvious.

Economists model in all sorts of ways. Some very mathematical, some not. They come up with reasons as to why things are the way they are, and recommend approaches based on that. Sometimes they are right and sometimes not.

Thing is, when the economies of the world go wrong, a lot of folk encounter misery. So it would be really good if we could get things right so that everybody could have a better chance of a good life. Perhaps if we truly understood the value of economics we would spend more on getting it right.

Now that we are all more aware, getting it right has become the sole reason governments get elected.

With all modeling, it is all too easy to over simply the model, get things really wrong, but be so sold on the model you're blinded to falicy. This is what I think has happened with economic rationalism, or the market driven economy. (Economists argue on that terminology, so see wikipedia). The true complexity of the economy is terribly over simplified. The ardent believers are blind to the problems of their idealism, and in the end we all suffer.

No comments: