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Why I would opt for a classical economyThe Wealth of Nations
The Economic problemEconomics is sometimes called the 'dismal science' because it deals with scarcity. For instance the textbook EconomicsEconomics
MoneyI can't help thinking that money is given too much importance in our society. Not by economists, to whom it is clear that money is simply a medium of exchange. Rather in our own lives, we tend to have too much of a distinction between things that cost money and those that don't. I think that the reason for this is that we can actually produce what we want using very little labour, but not on our own, as the book The Toaster ProjectThe Toaster Project
Note that I'm not saying we should all strive to get the most stuff possible, rather the opposite, that we should be able to work as much as we need for what we want, and so appreciate the leisure that Keynes promised us 80 years ago . The rat race and CompetitionSometimes people decide to disconnect themselves from the problems of today's economy, maybe getting together with a collection of like minded people to form a community run on different principles. This may work for a while, but problems are likely to spring up. How strict should they be in avoiding the external economy? Too strict and power tends to get concentrated in the hands of a few people. Not strict enough and people will be seduced by the benefits of the external economy. But supposing a group accepted that they were going to act along free market principles, but try to avoid the distortions today's economy - that might just avoid such problems. I've no idea of how this would work in practice thoughWe're used to the idea of competition being central to free market economics. The trouble is that we tend to see competition as very inegalitarian. When businesses compete with each other we expect something like a race, where one ends up a winner and the rest lose out. That, however, is not the competition of classical economics. Suppose you're obliged to have you're corn ground at a certain mill. Then the owner is going to benefit from this and is going end up substantially richer than you. But introducing competition by allowing anyone to set up their own mill means the income from being a miller probably won't be so different to that of everyone else. In classical economics competition is an equalising force. ComplexityIt seems that we tend to think in terms of hierarchies, and that creates inequalities in our society. For instance, classical economics predicts income should follow a lognormal distribution, but what we observe looks like a power law, which is less egalitarian. This is what you'd expect from a hierarchical network. (See Gatti et. al. A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility for more details).It looks like its the complexity of our economy that moves it away from that predicted by classical economics. There's a discussion of this in the paper From simplistic to complex systems in economics by John Foster. This has four levels of complexity. The first level, which is closest to classical economics, is based on physics, and in particular thermodynamics. As is pointed out in the book More Heat than Light More Heat than Light
Information rules
Agent based computational economicsWhat I want to investigate, then, is whether it's possible to achieve the more egalitarian society that classical economics says we could have, and in particular what individuals can do in order to bring this about. My opinion is that the best way to investigate this is using Agent based computational economics (ACE) in which we model the behaviour of individuals and see what properties emerge for the economy they inhabit. I've started doing something along these lines at econo.me.uk with a simple model of inhabitants trading with each other. It's just a beginning at present, but I think such an approach is likely to succeed better than the more mathematical economics of differential equations, as it lends itself to seeing how changes in individual attitudes and behaviour affect the economy as a whole. For instance one thing I hope to include in the model is variable attitudes to risk which I believe is a critical factor in trying to understand the economics of inequality. I see a model such as this as a first step in trying to understand how we as individuals can help to create a more equal world in which all can benefit from the wealth that we can surely create.Published on Monday, March 7, 2016 |