Friday, January 8, 2010

The Elegant Universe, the Myth of the Rational Market and the Logic of Clunky Liberal Bureaucracy

Posted by on Fri, Jan 8, 2010 at 12:19 PM

Why we havent seen more Lolconomists these past couple years is perplexing. (Or: is not perplexing.)
  • Why we haven't seen more Lolconomists these past couple years is perplexing. (Or: is not perplexing.)
The New Yorker's John Cassidy recently wrote a book about how irrationality, self-interest and incomplete information brought about the collapse of an economic system based around faith in the self-regulation and logic of an unfettered economy operating according to the efficient-markets hypothesis. In the current issue, he visits the University of Chicago, intellectual and professional home of free-market economics since the time of movement godhead Milton Friedman, to see how his disciples are adjusting, or rationalizing, the world's apparent disputation of their worldview.

The piece is online for subscribers only, and is mostly what you'd expect, but Cassidy makes an interesting analogy:

The over-all reaction I encountered put me in mind of what happened to cosmology after the astronomer Edwin Hubble, in 1929, discovered that the universe was expanding, and was much larger than scientists had believed. The profession fell into turmoil. Some physicists stuck to the existing theories, which posited a stable universe. Others, Albert Einstein included, tried to adapt the old models to Hubble's data. Still others attempted to come up with a new account of how galaxies formed; it was this effort that ultimately produced the theory of the big bang.

I'm really interested by the parallel to the realm of physics.

The political and intellectual and social thought that came out of the U of Chicago (Leo Strauss, Allan Bloom, Saul Bellow), was often characterized by an eloquent, worldly, arrogant rationality. The Chicago School's market fundamentalism has always struck me in much the same way.

What I'm reminded of, by Cassidy's analogy, is the search for a grand unifying theory of everything; the belief that the universe must necessarily be "elegant." And I see something similar in free-market economics—a belief in the pure well-oiled efficiency of quantifiable systems.

But, you know, Occam's Razor is a rule of thumb, not an actual principle invariably borne out. In reality the universe, like the economy, like society, is, and follow me very closely here, incredibly fucking complicated. If there is a single formula, it takes up more blackboards than the U of Chi has on hand.

Which is why I believe an inefficient crypto-socialist bureaucracy is the best and most sustainable style of government!

Dig: Interventions in markets and social problems—liberal solutions—are often criticized for creating bloat, inefficiencies, corruption and uneven or marginal results. This is true, often.

But it's possible, isn't it, that when these complex systems with many moving parts bog down, they do so because it's very hard for many, many people to consistently and coordinatedly function at the high level of focus and vigilance required for the maintenance of complex systems with many moving parts? That the failures of liberal systems, which generally require a flexible but interconnected program of common interest, are signs of human operator error, as opposed to like indictments of our nambypamby presumption to meddle in god or Adam Smith's grand design?

Not our stars, but ourselves, and all that.

Better to put one's faith in a school of thought that requires the participation of people, rather than one that regards them as an inconvenience.

Anyway.

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