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Economics, Faulty Assumptions, Climate Change

May 27, 2012

In a certain sense, nothing makes me crazier about the news than economics. The reasons for this crazy-making economic annoyance are many, but today I want to highlight just a few stories and two core ideas:

  1. Economics is mathematically precise.
  2. Growth is the fundamental and eternal truth of economies.

“Economics” is meant to sound like “physics.” It used to be called political economy, and I prefer that term. If you look at economic arguments, it becomes very clear that the primary center of gravity is political and not mathematical. People argue for specific views of economics based on their political persuasion. That doesn’t mean every measurable economic idea suffers from perspectivism – some theories can be tested and confirmed or rejected, though they rarely are.

I could rant about the relative uncertainty of economics and how badly math is used to hide the truth of what we do and do not know, but I’ll just state my main objection plainly for now:

One of the core reasons people believe markets have magical powers comes down to the idea of equilibrium. The mathematical models generally employed make a whole bunch of unrealistic assumptions to indicate a natural kind of “field” or “space” where everything tends towards one singular equilibrium. This has never been shown to be true, and will never be shown to be true without making completely ridiculous assumptions. Why is this important? Because as complex as the mathematics of economics can be, they are actually simplified beyond recognition by this assumption. There are mathematical disciplines that are most widely recognized as “Dynamic Systems” or “Chaos” that deal with systems that do not demonstrate such a simplistic and singular equilibrium. This is not nit picking. This is the demolishing of many, many economic models except as very horrible approximations and rhetorical tools.

Here is a slightly different perspective from INET.

This is the article INET was reviewing. Essentially the argument here is that we should be discussing real world things and applying math a little more modestly within economics. He definitely points to my primary issue with the neoclassical math (Simple Equilibrium) but doesn’t go down the path of Dynamic Systems – which we could of course do. Worthwhile read. He also touches briefly on the idea that growth can not continue indefinitely. Nothing makes me crazier than the fact that we aren’t discussing this from a few different perspectives with intensity and creativity. I’ll explain briefly below.

In order to talk about growth – at least for today – I want to highlight just two simple blog posts on climate change.

This one details some of the political polarization.

This one barely scratches the surface of the larger question about developing countries.

Suffice it to say, this is one of the things that makes me crazy about the news, so I will be returning to this topic again and again and again. Instead of trying to answer the bigger questions, let me just ask a few instead.

  • How many people can the earth support?
  • And how do we evaluate that question?
  • Water usage?
  • Energy usage?
  • Life expectancy?
  • Food production?
  • Also, what is the engine of this supposed eternal growth?
  • If it is energy usage, as it most surely is, what is the “Return on Investment” for energy nowadays?
  • Similarly, are we at peak oil?
  • And can we start to put some premiums on climate change?
  • Do we have any kind of sustainability models that we can realistically implement?

As should be obvious, we are not taking the long view of human-earth habitation. By some estimates humans have been around for 200-300 thousand years. Only the last 10,000 or so have been agriculturally based. Only the last 300-500 years have been on this rapid acceleration cocktail of economic growth, energy usage and population explosion. Let’s start with those observations and then figure out what we can realistically do.

From → Economics

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