Some really smart folks over at The Edge have made a really stupid proposal for an "Economics Manhattan Project." As they describe it:'
The economic crisis has to be stabilized immediately. This has to be carried out pragmatically, without undue ideology, and without reliance on the failed ideas and assumptions which led to the crisis. Complexity science can help here. For example, it is wrong to speak of "restoring the markets to equilibrium", because the markets have never been in equilibrium. We are already way ahead if we speak of "restoring the markets to a stable, self-organized critical state."
In the near-term, Eric Weinstein has spoken about an "economic Manhattan project". This means getting a group of good scientists together, some who know a lot about economics and finance, and others, who have proved themselves in other areas of science but bring fresh minds and perspectives to the challenge, to focus on developing a scientific conceptualization of economic theory and modeling that is reliable enough to be called a science.
They then proceed to make some smart, but mostly pretty stupid criticisms of economic theory. For example, they suggest much could be learned from an input/output model of the physical and energy flows of the economy. As though such a model could tell you much about the value of what is flowing through it. The Soviets tried exactly this approach with results that should be all too obvious after the fall of the Berlin Wall. It's almost as though they have never read any current economic theory.
And may Mammon help them, these naifs suggest that the development of computer climate change models might point the way for economic models:
In the longterm, there needs to be an independent, non-partisan methodology for economic and financial modeling which involves globally agreed upon standards, as in the world of climate modeling. As in that world, one can imagine an international commission of economic scientists who develop, test and benchmark economic models against each other, and against past data, so that there is a reliable understanding of what the best models are and how reliable they are for studying different kinds of problems and predicting the impacts of proposed new economic and financial regulation. This will allow new proposals for innovative financial instruments or changes in trading rules or accounting rules to be tested in an open environment using best practices to understand their results.
It is as though they think that no one has ever thought of creating an econometric model before.
In any case, commentators at The Edge have, for the most part, sensibly rejected the proposal. A few choice comments are below.
Stanford University new growth economist Paul Romer:
Imagine that fires were devastating the world's forests and you came across this manifesto:
The forest crisis has to be stabilized immediately. This has to be carried out pragmatically, without undue ideology, and without reliance on the failed ideas and assumptions that led to the crisis. Complexity science can help here. For example, it is wrong to speak of "restoring the forests to equilibrium," because forests have never been in equilibrium. We are way ahead if we speak of "restoring forests to a stable, self-organizing critical state."
Would this convince you that only complexity science can prevent forest fires?
With one tweak, this is the first paragraph from the pull-quote for this piece. All I've done is change "market" to "forest." The forest version sounds pretty implausible to me, but after a financial crisis, people seem to be drawn to the version with "markets." For example, after Citibank made some bets that turned out badly in the Latin American debt crisis of the 1980s, its CEO John Reed helped mid-wife the Economics Program at the Santa Fe Institute. He wanted the new theoretical insights about financial crises that the new complexity scientists promised. Ever since, the complexity scientists have been telling us that markets are self-organizing systems. For the life of me, I can't see how this puts us way ahead. Didn't seem to help Citibank either, which I've noticed is back in the headlines.
Then as now, a key recommendation is to recruit some "good" scientists (their modifier, not mine; see the second paragraph from the pull quote) from other fields. I guess that these outsiders are supposed to purge economics and finance of the aforementioned ideology and failed assumptions. But before we put up money for an "economic Manhattan Project," wouldn't it make sense to ask if there is any evidence to support the basic claim here--that more theory, developed by people who don't have domain experience, is the key to scientific progress in macroeconomics and finance?
Or Skeptic Magazine editor, Michael Shermer:
…imagine the futility of government bureaucrats trying to find the right price for each of the approximately 170,000 different books published each year, factoring in hardback versus paperback prices, special discounts for multiple purchases of bundled books, plus shipping specials for minimum sales and factoring in, of course, the discriminatory pricing now used in the same way the airlines price their tickets, and then imagine multiplying that process by the hundreds of thousands of different markets, industries, and businesses and it becomes crashingly clear why no top-down system could ever match the real-time sensitivity to prices provided by the bottom-up complex adaptive pricing system currently in place.
Expand the problem by many orders of magnitude and we get a sense of the breathtaking inanity of trying to control an entire economy, no matter how smart the experts in our hypothetical economic Manhattan Project may be. The economy is a product of human action, not of human design. Trying to redesign something that was never designed in the first place is futile. I vote no on an economic Manhattan Project.
My favorite comment comes from Black Swan author Nassim Nicholas Taleb:
I spent close to 21 years in finance facing "scientists" in some field who show up in finance and economics, realize that economists and practitioners are not as smart as they are (they are not as "rigorous" and did not score as high in math), then think they can figure it all out.
Nice, commendable impulse, but I blame the banking crisis (and other blowups) on such "scientism".
We've seen them from all fields of study-particularly that finance pays (used to pay) a multiple of what someone can earn in the more respectable sciences. We've seen people from astrophysics, statistical mechanics, mathematical biology, pure mathematics, applied mathematics, semi-applied mathematics, probability theory, engineering, solid state physics, turbulence … literally ever single field.
Meanwhile the most robust understanding is present among practitioners who do not have the instinct to reduce ambiguity and uncertainty that scientists have. I urge you all scientists to go take your "science" where it may work-and leave us in the real world without more problems. Please, please, enough of this "science". We have enough problems without you.
Read the whole Economics Manhattan Project proposal and commentary here.
Hat tip to Matt Wolinsky.