NeuroGovernment

Along the same lines of my own research – simulation of cultural change.  Computational social science is going to revolutionize the social sciences as simulation revolutionized the hard sciences.

In my previous blog, I wrote several posts praising Eric Beinhocker’s The Origin of Wealth.  It is a brilliant application of complexity theory to economics that demonstrates the failure of classical economic theory.  As Beinhocker explains, early economists attempted to make economics more scientific by grafting classical physic theories onto the field.  The most pervasive concept was “equilibrium” which has guided economic thought since the 1800s.  It was this central concept that has divorced economic theory from economic reality as Beinhocker successfully demonstrates in Part One of his book.  A better explanation of what really happens in economic systems is the interaction of autonomous agents acting in a complex and evolving fitness landscape.

I was reminded of Beinhocker’s book when I read John Cassidy’s How Markets Fail: The Logic of Economic Calamities.  Cassidy recounts the economic history of the last hundred years to explain the market failures of 2008 and 2009.    Like Beinhocker, Cassidy also blames the emphasis on equilibrium in classical economics to blinding economists like Greenspan to the realities of how economic systems actually work (as Greenspan himself admits in the book’s introduction).  Even though Cassidy calls his conclusions “reality economics,” his descriptions of subprime mortage market and the near-failure of the market giants are great examples of complexity economics.   In fact, it is hard not to read Part Three of How Markets Fail without thinking of how complexity economics (Part Two of The Origin of Wealth) can much better explain the events of 2008 and 2009 better than traditional economic theories.

How Markets Fail is an important book and another great argument on rethinking economic theory.  Why this is important to government is that efforts to fix the economy are based on outmoded theories which only go to make the situation worse.  By adopting complexity economics, governments can better treat economic issues and help sustain the market system.

And when you read the article by Dr. Richard Cook, you will hang them on your office wall too.  Four pages that encapsulate a great deal of wisdom.