the scale of economics
There was a time when Newton's and Kepler's laws of motion reigned supreme. The universe was a perfectly explainable place, with every body following particular rules of motion that could be calculated and predicted. The only problem? They were wrong.
As the 19th century dawned, it seemed that Newton’s Theory of Gravitation had won the day. All sorts of motion could be described by the equations that we have looked at (all based on F = ma and F = GM1M2/d2). However, it soon became clear that the planet Mercury was not obeying Newton’s Laws. At this point, scientists can do one of two things: either reject the theory and replace it with a better one, or find some subtlety that had been missed in examining the problem the first time.
- http://www.physast.uga.edu/~loris/astr1110h/RelativityI.htm
Astronomers tried to find a small planet inside Mercury's orbit that would explain the deviation. They found none. They faced a significant problem. Their wonder-formula was failing, but they couldn't explain why. It wasn't until the arrival of Einstein and his theories of relativity that an answer finally appeared. Mercury is deep inside our sun's gravity well, and time dilation effects were changing its orbit. Not only does the quantum (small-scale) reality differ from our own, but so does the astronomic (large-scale) reality.
Just as physics requires a frame of reference to make its equations applicable, could it be that economics also requires a frame of reference?
While exploring "Post-Autistic Economics" topics, I have read the call to remove macro- and micro-economics from introductory economics classes. The claim is that these theories have proven to be utterly wrong because of their profound, worldwide, and expensive failure to account for and predict our current economic mess. At first, I agreed wholeheartedly. Now, though, I think the problem might be a matter of scale.
I've been insisting on the end of exponential economics. I've called for an end to fiat money and a return to "money" that is measured by actual physical objects (gold, beer, lima beans, whatever). What if such material valuations are a means of enforcing "local scale" where traditional economic theories can still apply? In other words, suppose traditional economic theories really do work, but only when material is kept within 1 or 2 steps from producer to consumer? What if our transition to fiat money and stocks and derivatives (and other arcana of money markets) has removed the "reality check" that's needed to keep transactions faithful to their real-world value?
Traditional economics claims that rational self-interest will succeed at regulating a market more effectively than any form of imposed regulation. "Post-Autistic Economics" claims that this old theory is not only wrong but also harmful. The real world has now witnessed the results of traditional thinking; the prediction failed. People are not rational actors within their systems. Or, phrased more generously, people are not rational actors within their systems when viewed within a lengthy timeframe that can account for ecologically sustainable and morally acceptable activity.
Perhaps at very large scales of activity where individual people are far removed from the actual material produced, imposed regulation may be necessary to create sustainable activity. Small-scale endeavors may require altogether different (more traditional) kinds of economic measurements (and laws) than large-scale endeavors. The scale of economic activity might influence the equations that can be used to predict (and laws that influence) its behavior.
Instinct would claim that economic theories should apply at all scales of operation. Instinct, though, would also claim that moving clocks always tick at the same pace as stationary clocks. In the real universe, though, moving clocks tick more slowly.
The question is, is this crazy world really our world? In other words, do experiments bear out these effects? The answer is yes. All experiments done to date confirm that these effects really work out as the equations of Special Relativity dictate.
What if economics also operates under different rules depending on the "scale" (proximity to material produce) and timeframe? What if "adjustments" (laws) are necessary to force large-scale operations (and exponential money nonsense) back down to face the appropriate real-world limitations?
As astronomers faced a dilemma when viewing Mercury's orbit, perhaps now economists face the same dilemma when viewing recent economic failures. Either the entire theory on which it was based is false (which seems unlikely), or it's time to accept that the theories are situational. It could be the case that barely regulated markets are enormously effective within small scales and timeframes, yet intense regulation is necessary for large scales and timeframes.
As the 19th century dawned, it seemed that Newton’s Theory of Gravitation had won the day. All sorts of motion could be described by the equations that we have looked at (all based on F = ma and F = GM1M2/d2). However, it soon became clear that the planet Mercury was not obeying Newton’s Laws. At this point, scientists can do one of two things: either reject the theory and replace it with a better one, or find some subtlety that had been missed in examining the problem the first time.
- http://www.physast.uga.edu/~loris/astr1110h/RelativityI.htm
Astronomers tried to find a small planet inside Mercury's orbit that would explain the deviation. They found none. They faced a significant problem. Their wonder-formula was failing, but they couldn't explain why. It wasn't until the arrival of Einstein and his theories of relativity that an answer finally appeared. Mercury is deep inside our sun's gravity well, and time dilation effects were changing its orbit. Not only does the quantum (small-scale) reality differ from our own, but so does the astronomic (large-scale) reality.
Just as physics requires a frame of reference to make its equations applicable, could it be that economics also requires a frame of reference?
While exploring "Post-Autistic Economics" topics, I have read the call to remove macro- and micro-economics from introductory economics classes. The claim is that these theories have proven to be utterly wrong because of their profound, worldwide, and expensive failure to account for and predict our current economic mess. At first, I agreed wholeheartedly. Now, though, I think the problem might be a matter of scale.
I've been insisting on the end of exponential economics. I've called for an end to fiat money and a return to "money" that is measured by actual physical objects (gold, beer, lima beans, whatever). What if such material valuations are a means of enforcing "local scale" where traditional economic theories can still apply? In other words, suppose traditional economic theories really do work, but only when material is kept within 1 or 2 steps from producer to consumer? What if our transition to fiat money and stocks and derivatives (and other arcana of money markets) has removed the "reality check" that's needed to keep transactions faithful to their real-world value?
Traditional economics claims that rational self-interest will succeed at regulating a market more effectively than any form of imposed regulation. "Post-Autistic Economics" claims that this old theory is not only wrong but also harmful. The real world has now witnessed the results of traditional thinking; the prediction failed. People are not rational actors within their systems. Or, phrased more generously, people are not rational actors within their systems when viewed within a lengthy timeframe that can account for ecologically sustainable and morally acceptable activity.
Perhaps at very large scales of activity where individual people are far removed from the actual material produced, imposed regulation may be necessary to create sustainable activity. Small-scale endeavors may require altogether different (more traditional) kinds of economic measurements (and laws) than large-scale endeavors. The scale of economic activity might influence the equations that can be used to predict (and laws that influence) its behavior.
Instinct would claim that economic theories should apply at all scales of operation. Instinct, though, would also claim that moving clocks always tick at the same pace as stationary clocks. In the real universe, though, moving clocks tick more slowly.
The question is, is this crazy world really our world? In other words, do experiments bear out these effects? The answer is yes. All experiments done to date confirm that these effects really work out as the equations of Special Relativity dictate.
What if economics also operates under different rules depending on the "scale" (proximity to material produce) and timeframe? What if "adjustments" (laws) are necessary to force large-scale operations (and exponential money nonsense) back down to face the appropriate real-world limitations?
As astronomers faced a dilemma when viewing Mercury's orbit, perhaps now economists face the same dilemma when viewing recent economic failures. Either the entire theory on which it was based is false (which seems unlikely), or it's time to accept that the theories are situational. It could be the case that barely regulated markets are enormously effective within small scales and timeframes, yet intense regulation is necessary for large scales and timeframes.