Monday, August 8, 2011

…every decision, WAIT-T

By kay.e.strong


Nothing screams WAIT-T better than today’s headlines and bylines--these from today’s NYT.

Shock waves from the downgrade of the United States credit rating hit global markets over the weekend and traders on Wall St. prepared their strategy.

The European Central Bank said it would intervene in bond markets; Group of 7 finance officials said they would take "all necessary measures" to support stability.

The declines were not as sharp as at the end of last week, but the Nikkei 225 index in Japan, the Kospi in South Korea and the Australian market all fell.

Politicians have yet to get a handle on the true nature of the economy. Despite all the seat time logged in Principles of Economics, the economy is not a gigantic machine.  It can not be tinkered with and tweaked-at-will. The economy is a living, responsive organism.  It lives and breathes as does every other organism. Every organism is composed of parts.  Politicians, investors, businesses, consumers, workers and households are all parts (agents).  The parts are interdependent, intimately connected in the economic web of life.  Every organism responds to feedback from its environment.  Changes introduced by one part of the system or the larger environment, induce changes in the behaviors of other parts, sometimes in novel and quite unanticipated ways.

William Brian Arthur, an early pioneer and authority on economics and complexity theory, differentiates the textbook view of the economy from the complex.  

“In the standard view of the economy, which has an intellectual lineage that goes back to the enlightenment, the economy is mechanistic. It is complicated but can be viewed as a series of objects and linkages between them. Subject and object—agents and the economy they perform in—can be neatly separated. The view I am giving here is different. It says that the economy itself emerges from our subjective beliefs. These subjective beliefs, taken in aggregate, structure the micro economy. They give rise to the character of financial markets. They direct flows of capital and govern strategic behavior and negotiations. They are the DNA of the economy. These subjective beliefs are a-priori or deductively indeterminate in advance. They co-evolve, arise, decay, change, mutually reinforce, and mutually negate. Subject and object can not be neatly separated. And so the economy shows behavior that we can best describe as organic, rather than mechanistic. It is not a well-ordered, gigantic machine. It is organic. At all levels it contains pockets of indeterminacy. It emerges from subjectivity and falls back into subjectivity.” (The End of Certainty in Economics, P6)

To reiterate: the economy is "not a well-ordered, gigantic machine.  It is organic." 

As an organism it's health is wholly dependent on healthful interaction among its parts.  The truth be told: some parts have been acting in extremely unhealthy ways, deluded in their belief about not being part of the organic whole.  But the system is not fooled.   The headlines all but scream WAIT-T—we’re all in this together!


Kay Strong, Ph.D., Southern Illinois University, M.T., University of Houston, M.A., Ohio University; Associate Professor at Baldwin-Wallace College; Areas of expertise: international economics, contemporary social-economic issues, complexity and futures-based perspectives in economics. E-mail: kstrong@bw.edu

1 comment:

  1. Actually, two comments:

    1. It would be really fruitful to know where the high-degree nodes - the most connected entities - are in the global network. I suspect that we have conferred such status on nexuses as the major stock exchanges, the FRBG, S&P, and in doing so have made them actually important. It's not that they are inherently - whatever that means - critical to the network, but rather that t\we have vested them with oracular power, thereby creating oracles that actually drive the system. This comment is getting 'way too long and is about to sprout footnotes: I think I'll extend it in a separate blog.
    2. (Much shorter) Check this recent (8/9/11) blog entry at dotearth:
    http://dotearth.blogs.nytimes.com/2011/08/09/the-risks-in-jarring-a-complex-system/

    ReplyDelete

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This blog lives under the auspices of the Department of Economics whose mission has been to hold high the lantern beaming an "economic way of thinking" onto the world. Selfishness, rationality and equilibrium have been central to the teaching of an economic way of thinking rooted in the Renaissance. And, in this regard, the department has faithfully stayed the course. The intent of this blog, thinking out loud..., however, is to entertain exchanges which may challenge the centrality of economics as we teach it.