Post Holiday Boredom Link: Stimulate the Catallaxy?

Stimulate the Catallaxy?

April 2002 • Volume: 52 • Issue: 4 • Print This Post0 comments

Last fall and winter’s brouhaha over the so-called economic stimulus package got me thinking about how far off target most people are when they talk about “the economy.” To hear the politicians and commentators tell it, the economy is a big machine located somewhere in Washington, D.C. That machine requires a skilled operator, and elections are more or less occasions for choosing that operator. Sometimes the machine slows down and needs a stimulus — perhaps an infusion of cheap credit, or government spending, or even tax cuts. At other times it risks overheating and needs to be cooled down — perhaps higher interest rates or a tax increase.

This misapprehension is helped along by a good part of the economics profession, many of whose members see themselves as the aspiring mechanics.

To state the obvious: an economy isn’t a machine….

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5 Responses to Post Holiday Boredom Link: Stimulate the Catallaxy?

  1. David Foster says:

    Even if one did think of the economy as a machine, it would be a very very complicated machine with multiple interacting feedback looks….and few economists and even fewer journalists seem to understand the inherent complexities of trying to predict the behavior of such a system.

    A professor named Dietrich Doerner has done some very interesting studies of decision-making using experiments that involve simulation, and found people to have extreme difficulty in dealing with situations involving feedback and time delays between action & consequences. From my review of his book The Logic of Failure:

    “The Moro simulation puts the subject in charge of a third-world country. His decision-making must include issues such as land use, water supply, medical care, etc. Time delays and multiple interactions make this simulation hard to handle effectively…a high proportion of subjects wound up making things worse rather than better for their “citizens.” Human beings, Doerner argues, have much more difficulty understanding patterns that extend over time than patterns that are spatial in nature.

    Many subjects in this simulation showed obsessive behavior–they would focus on one aspect, such as building irrigation canals, and ignore everything else, without even really trying to understand the interactions.

    Doerner wanted to know what kinds of previous experience would help most in this game, so he ran it once with a set of college students for subjects, and again with a set of experienced business executives. The students had probably been more exposed to concepts of “ecological thinking”–but the executives did significantly better. This argues that there are forms of “tacit knowledge” which are gained as a result of decision-making experience, and which are transferable to at least some degree across subject matter domains.

    One simple but surprisingly interesting experiment was the temperature
    control simulation. Subjects were put in the position of a supermarket
    manager and told that the thermostat for the freezers has broken down.
    They had to manually control the refrigeration system to maintain a temperature
    of 4 degrees C–higher and lower temperatures are both undesirable. They had
    available to them a regulator and a thermometer; the specific control mechanism
    was not described to the subjects. The results were often just bizarre. Many participants failed to understand that delays were occurring in the system (a setting does not take effect immediately, just as an air conditioner cannot cool a house immediately) and that these delays needed to be considered when trying to control the system. Instead, they developed beliefs about regulator settings that could best be described as superstitious or magical: “twenty-eight is a good number” or, even more strangely, “odd numbers are good.”
    “Policy” experts would probably argue that *they* have the ability to handle such complexities, but in reality, the only solution is to put the decision-making as close as possible to the action and the consequences rather than trying to centralize everything.

  2. David Foster says:

    multiple interacting feeedback LOOPS…sheesh

  3. Justin says:

    Economic professors aspired for the idea of a science, especially with mathematical equations and predictions. In reality, economics is more a field of psychology.

    The average person is little more than a primitive when thinking of the economy. Primitives think that the prosperity of the realm depends on the virtues of the ruler, pleasing the gods. Good king = prosperity, bad king = poverty. It is a very powerful cornerstone of the human psychology, and explains why the number one predictor of whether we re-elect our Presidents is the state of the economy.

  4. Default User says:

    @David Foster

    The Logic of Failure is a great read for anybody who is thinking of designing, building or modeling a complex system. Indeed if you are only an actor in such a system (e.g., life) it is a good read.

    I had another comment in mind, but your comment and the book mention pretty much sums it up.

  5. David Foster says:

    Also, column in today’s Financial Times (Gideon Rachman) argues that a primary function of *historians* should be to impart humility to economists, and also to other flavors of social scientist.

    Default–interesting that you’ve read Logic of Failure. I’m really curious what other work the author has done lately, but last I looked around on the web (several years ago), I couldn’t find much.

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