I’ve been enjoying the new videos available at LearnLiberty, all of which give clear, insightful discussions of fundamental concepts of classical liberalism (including economics). My highlight of the day is Tom Bell’s “Can order be unplanned?”
The answer is yes. Here Tom explores the rich intellectual history of the concept of spontaneous order, and how individuals pursuing their own ends can coordinate their decentralized actions in ways that lead to the emergence of unplanned order. His brief discussion explains the concepts, refers to its articulation by Adam Smith and F.A. Hayek, and shows how the answer to “who’s in charge here?” can be “no one” without society descending into chaos.
Today’s Google banner celebrates the 172nd birthday of Paul Cézanne, my favorite artist. I love how he unpacks the underlying layers of geometry in landscapes. When I first saw the painting above, Le lac d’Annecy, in the Courtauld Gallery in London when I was a college student, it literally took my breath away.
Last year when I read Jonah Lehrer’s Proust Was A Neuroscientist, I was riveted by his chapter “Paul Cézanne: The Process of Sight”, because he articulated so clearly (where I cannot!) why I respond so strongly to Cézanne’s art:
His paintings were about the subjectivity of sight, the illusion of surfaces. … But Cézanne believed that light was only the beginning of seeing. “The eye is not enough,” he declared. “One needs to think as well.” Cézanne’s epiphany was that our impressions require interpretation; to look is to create what you see.
We now know that Cézanne was right. Our vision begins with photons, but this is only the beginning. Whenever we open our eyes, the brain engages in an act of astonishing imagination, as it transforms the residues of light into a world of form and space that we can understand.” …
… Cézanne’s art exposes the process of seeing.
None of this, or its appeal to someone like me, should surprise any of you familiar with Hayek’s The Sensory Order. On a related note, see this post from Steve Horwitz on The Sensory Order and optical illusion.
Stephen Dubner at Freakonomics points to a Macleans story on some wild experimentation going on in the National Hockey League: shallower nets, moving the second referee off the ice, moving the face-off circles, three-on-three and two-on-two shootouts, and more. The article said:
The unusual nature of some items tested at the camp reminded Simon Fraser University business professor Lindsay Meredith of the freewheeling “skunk works” divisions that tech companies create to investigate advanced projects. “Any major corporation should have some kind of skunk works—a bank, a university, whatever,” he says. “An enterprise of that size and sophistication would be foolish not to.”
FIFA, you listening?
(Related: an April 2009 story in the Financial Times about an “experiments in business” course taught by Freakonomics co-author Steve Leavitt and John List at the University of Chicago.)
David Warsh’s Economic Principals column this week is about complexity, and the study of complexity in economics. It is as informative and insightful as Warsh’s columns usually are, despite its selective coverage. He highlights some ideas that I think are important for the future direction of economics — the isolation of the twin methodological peaks of what David Colander calls the “summit of Mt. Walras” and Warsh calls “Game Theory Massif”, a brief history of complexity economics since the 1980s, and the extent to which complexity necessitates a change in research methodology to incorporate work like agent-based modeling and variables that are less “formalizable” on Mt. Walras, such as institutions and knowledge.
This was not Warsh’s purpose in his column, but I’d expand beyond his column to incorporate the intersection of his ideas with Hayek’s “Theory of Complex Phenomena” (1967) and the general relevance of the knowledge problem to why and how phenomena are complex. In social systems, diffuse private knowledge is a big reason why complex social systems evolve, and why we discover and design rules that exploit that complexity to get better outcomes. Markets and prices are just the most obvious and pervasive example, but there are multitudes of others.
I recommend Warsh’s column, both today and as a worthwhile weekly read, for some good thought provocation and for some discussion of the ideas that animate the work here at Knowledge Problem and related ideas.
Steve Strogatz is a professor of applied mathematics at Cornell and a master of explaining abstract mathematical principles to non-mathematicians. He also posts occasionally on the New York Times’ Opinionator blog, and his post on Sunday was a real treat. Using the domestic conundrum of how to flip your mattress to maximize its longevity and inspired by a couple of recent publications, his delightful and clear post provides a wonderful introduction to group theory.
By looking into mattress math in some detail, I hope to give you a feeling for group theory more generally. It’s one of the most versatile parts of mathematics. It underlies everything from the choreography of contra dancing and the fundamental laws of particle physics, to the mosaics of the Alhambra and their chaotic counterparts …
The mattress group also pops up in some unexpected places, from the symmetry of water molecules to the logic of a pair of electrical switches. That’s one of the charms of group theory. It exposes the hidden unity of things that would otherwise seem unrelated …
I’m fascinated with symmetry and spatial relationships of objects, so I relished this post, and I hope you do too.
This month’s issue of Cato Unbound has a topic that sits at the core of the issues of interest here: Hayek’s concept of spontaneous order, its universality, and its applicability to orders beyond market processes, including the common law.
Examples abound. No one individual or committee sets market prices; those who have tried have always failed. No designer created the English language, and artificial languages have never met with any great success. Scientific discovery through repeated experiment causes truth to emerge, but scientific truth is not forged through rationalistic design. Instead, it is a product of many uncoordinated searches, serendipity, and replication across the scientific community.
Timothy Sandefur’s lead article lays out what he sees as four problems with Hayek’s normative conclusions arising from his analysis of spontaneous (or, as I prefer, emergent) social orders and the processes by which they evolve. John Hasnas, Dan Klein, and Bruce Caldwell provide responses to Sandefur’s argument. Taken as a whole, these four articles provide a thoughtful and thorough critical examination of Hayek’s arguments. If you have any interest in legal and regulatory institutions and the processes by which they evolve, these articles are well worth reading and thinking about carefully.
I am doing a lot of reading and thinking, trying to make some headway on a way-overdue paper, and have been reading a striking working paper from David Colander, Richard Holt, and Barkley Rosser, “The Complexity Era in Economics” (August 2009). Their insights are directed toward the evolution of economics methodology and the absorption of complexity-related concepts and techniques. In addition to being relevant to my own work on regulatory institutions and technological change, I found the paper insightful in the context of the discussion a couple of weeks ago about this year’s new institutional economics Nobel prize and the dominant methodological hegemony in economics.
One of their interesting observations is also pertinent to the reexamination of macroeconomic theory in light of the financial market context of the past year and a half. This quote, in particular, illustrates what I find especially striking in macroeconomics:
However, while the new theoretical models have done a good job in eliminating the old theory, it is less clear as to what the new theoretical work has added to our understanding of the macro economy. At best, the results of the new macro models can be roughly calibrated with the empirical evidence, but often the calibration of these new models is no better than any other model, and the only claim they have to being preferred is aesthetic—they have micro foundations. However, it is a strange micro foundation—a micro foundation based on assumptions of no heterogeneous agent interaction, when, for many people intuitively, it is precisely the heterogeneous agent interaction that leads to central characteristics of the macro economy.
It’s also interesting that in that section they footnote Leijonhufvud, who wrote the only macroeconomic theory that I ever felt like I had any kind of grasp on, On Keynesian Economics and the Economics of Keynes:A Study in Monetary Theory.
If you haven’t had you fill of current critiques of macro theory, and you are interested in reading their thoughts on the evolution of economics to incorporate the analysis of economic systems as complex adaptive systems, I recommend this short working paper.
From WSJ Environmental Capital:
When it comes to greenhouse-gas emissions, Energy Secretary Steven Chu sees Americans as unruly teenagers and the Administration as the parent that will have to teach them a few lessons.
Speaking on the sidelines of a smart grid conference in Washington, Dr. Chu said he didn’t think average folks had the know-how or will to change their behavior enough to reduce greenhouse-gas emissions.
“The American public…just like your teenage kids, aren’t acting in a way that they should act,” Dr. Chu said. “The American public has to really understand in their core how important this issue is.”
I’ll resist engaging the paternalism that oozes from Chu’s choice of metaphors, and instead suggest to Dr. Chu the particular value of markets and prices in coordinating the actions of “average folks [lacking] the know-how or will to change their behavior.” In fact, I’ll more than agree with Chu, I’ll go beyond him. It isn’t just average folks – no one knows everything that is needed to stabilize the climate in the recent historical range for the same reason that no one knows everything that is needed to make a pencil (as per Leonard Read) – not Presidents, nor Congress, nor Nobel prize winners, nor anyone else.
Markets can coordinate actions even in cases in which no one person has the “know-how or will to change”, though admittedly when dealing with climate stabilization issues creating a useful market will be complicated.
Grant McCracken always has insightful interpretations of various human/social phenomena, and in this recent post he offers one that he calls “concatenating capitalism“. In discussing “eco-entrepreneur” Joshua Onysko and his work developing his Pangea Organics products, Grant makes a decidedly beyond-Schumpeterian observation about the role of entrepreneurs in transforming the economy and the daily lives of consumers:
But Joshua is not interested in the usual life trajectory of the entrepreneur. No, he is intent on the reformation of capitalism. He wants to change the way we think about products, packaging, manufacture, retail, consumption, and the planet. (Some Pangea products have seeds embedded in the packaging…to make the garbage bloom.)
In a sense, Joshua is exercising the advantage of his generation. My generation (boomers) tend to see the world as a series of discrete episodes. What happens here doesn’t have any necessary connection there. My generation can see consequences but we tend to think of them as capital letters joined by little arrows: A > B. It’s clear that Joshua thinks more in terms of concatenation, where events run in all directions at once.
I think this deceptively simple insight is profound because it illuminates the inherent non-linearity and complexity that characterize the aggregation of real interactions in real markets, a connection that Grant goes on to make in his characteristic thought-provoking way:
It is the genius of capitalism that it is so very pliable. It doesn’t really care about the details, just so long as interested parties can engage in transactions that work to their respective advantage. Indeed, it has conventionally preserved that brilliant act of reduction that Adam Smith accomplished in Wealth of Nations. It removes from consideration everything extra-transactional, all the cultural, social, political, ecological factors coming in and going out of the transaction. All of these were, in Kuhnian terms, extra-paradigmatic. The model didn’t include them. It didn’t need to know about them. Onyesko and the double entrepreneurs appear now to be reinstalling these factors, making them visible, thinkable, calculable, perhaps even manageable.
I’ve left out quite a bit, so do go read his whole post, and more of his work.
Ron Bailey’s Hit & Run post, Ant Hills=Brains=Cities, reminded me of some really important, fundamental ideas that tend to get lost as we natter about financial regulation, health care regulation, climate regulation …
Emergent orders abound, and occur at all sorts of different scales — molecular, cellular, all the way to complex social structures that were not deliberately designed through some central planning group or function. Ron cites the excellent Godel, Escher, Bach to introduce some new research arguing that cities are like brains in their emergent order construction for successful functioning. Ron quotes Mark Changizi, a neurobiology expert and assistant professor in the Department of Cognitive Science at Rensselaer Polytechnic Institute:
… brains and cities, as they grow larger, have to be similarly densely interconnected to function optimally.
Interesting. Not surprising, especially if you’ve thought about emergent orders, and double-especially if you’ve read any of Jane Jacobs’ writing on cities. I recommend the Jacobs interview at Reason that Ron links, as well as other Jacobs sources linked in the various posts I’ve written invoking Jane Jacobs and her work over the past several years.
Given how much attention we are having to pay to imposed orders, and the increasing efforts to create more deeply imposed orders in finance, healthcare, etc., it’s important to remember how much of the social life of individuals is a web of emergent orders, and that the biggest and best value creation and thriving and innovation that we have seen in human history arises when individuals can choose and take action in emergent orders.