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.