Thought Control in Economics

Whirlpools and Turbulent Flows

When weather scientist Edward Lorenz was programming a computer to predict weather patterns in 1961, he entered the decimal .506 as a shortcut for the full sequence of .506127. The result was a radically different weather scenario. Lorenz remarked on this finding in a 1963 paper: “One meteorologist remarked that if the theory were correct, one flap of a seagull’s wings could change the course of weather forever.” Appearing before the American Association for the Advancement of Science, Lorenz gave a talk entitled “Does the Flap of a Butterfly’s Wings in Brazil Set Off a Tornado in Texas?” The title has since become a shorthand expression for nature’s interconnectedness.

Lorenz’s findings kick-started the 1980s academic cottage industry of “chaos theory.”

Lorenz’s findings kick-started the 1980s academic cottage industry of “chaos theory.” Aided by the personal computing explosion, scientists plumbed the bizarre, psychedelic landscapes of fractals and “strange attractors,” mathematical forms that appeared to underlie some of nature’s most persistent themes. Suddenly it became possible to see links between seemingly unrelated things. From dripping taps to the collapse of caribou populations, from the whirlpool of cream in your coffee cup to the pinwheel of stars in a galaxy millions of light years away, chaos theory supplied the connections. Charles Fort was right: you could measure a circle beginning anywhere.

The disciplines of chaos theory and complexity theory have both had a strong influence on the physical sciences and on some of the life sciences as well. Urban planners and social scientists have also seized the new ideas. Yet as far as neoclassical economics is concerned, it’s as if the discoveries of Lorenz and his colleagues never occurred. The disconnect between rhetoric and reality has alerted some of the silverbacks within the financial-speculative complex that something is very wrong with their profession. Among them are Joseph Stiglitz, former senior vice president and chief economist of the World Bank, former hedge fund financier George Soros and University of Bologna professor of political economics Stefano Zamagni.

David Suzuki is another skeptic and he offers a great anecdote about economic thinking. While at the University of British Columbia, Suzuki figured it would be a good idea to supplement his academic background in biology with an understanding of economics. During the first class, Suzuki’s instructor stood at the blackboard drawing lines in chalk to show the flow from the resource base into the market, with subsidiary industries adding value and creating wealth for investors.

Suzuki pointed to the side of the blackboard that was empty of equations, the resource base, and asked whether the calculations took into account the effect of human activity on the environment, the diminishing reserves and growing waste that Suzuki reasonably regarded as a cost mortgaged into the future. “That’s an externality,” the instructor responded drily. In other words, the environment is something external to the grand human workings of the market and not worth factoring in. Suzuki left the class on the spot.

According to Stefano Zamagni, economics was referred to as “the science of happiness” prior to the 1900s. By the late 20th century, it bore the ignominious title, “the dismal science.” In a lecture in Vancouver in 2004, Zamagni described the crisis facing economic science. Economists identify the common good with the sum total of individual goods, the professor says, which doesn’t work, as it ignores “the good of every individual in all the dimensions of a human being.” What Zamagni calls the “original sin of economics” is the reductionist idea that economic relations are reducible to the exchange of equivalence: I give or do something for you and you give or do something for me of the same value.

Yet there is another dimension to exchange, based on the principle of reciprocity, and as Zamagni noted, “... the principle of reciprocity is completely different from the exchange of goods.” Reciprocity is closely tied to trust, and both variables are missing entirely from economic equations. In fact they are extremely difficult or impossible to quantify, yet immensely important for sustaining fair economic relations. Enron, anyone?

Zamagni connects several decades of materialistic economic philosophy – with its reductionistic disconnect from the real world – to the deterioration of North American civic and family life. The “instrumental rationality” of economic thinking, he says, has ventured far beyond its sphere of applicability, justifying a dog-eat-dog paradigm for both interpersonal and international relations.

Steve Keen, associate professor of economics and finance at the University of Western Sydney, describes conventional economic theory as “autistic.” “What passes for ‘normal’ in economics barely deserves the appellation ‘science,’” he asserts in his 2001 paper “Economists Don’t Have Ears.”

Keen writes: “Most introductory economics textbooks present a sanitized, uncritical rendition of conventional economic theory ... the courses in which these textbooks are used do little to counter this mendacious presentation. Students might learn, for example, that ‘externalities’ reduce the efficiency of the market mechanism. However, they will not learn that the ‘proof’ that markets are efficient is itself flawed.” Keen also assails the economics taught at an undergraduate level as “profoundly boring.” And those who move from the discipline into accountancy, finance or management learn just enough to walk away from the classroom with a warped view of the world.

Although there is a vast body of literature critical of economic thinking, the students aren’t exposed to any of it. Most students end up swallowing the axioms of economic science because, as Keen notes, “... their training leaves them both insufficiently literate and insufficiently numerate.” Neither are they given the historical context for economic thinking, making it seem as if some bearded prof had delivered it from on high, reading from inscribed tablets.

Economics has persevered with mathematical methods that professional mathematicians transcended long ago, Keen writes. “This dated version of mathematics shields students from new developments in mathematics that, incidentally, undermine much of neoclassical economic theory.”

In particular, applying the findings of chaos theory to real-world market behavior involves an understanding of “ordinary differential equations.” Yet this topic is taught in very few courses on mathematical economics, notes Keen. When it is taught, it is not covered in sufficient depth.

“Economics students therefore graduate from Masters and PhD programs with an effectively vacuous understanding of economics, no appreciation of the intellectual history of their discipline and an approach to mathematics which hobbles both their critical understanding of economics and their ability to appreciate the latest advances in mathematics and other sciences. A minority of these ill-informed students themselves go on to be academic economists and then repeat the process. Ignorance is perpetuated,” Keen claims.

Ultimately we are no more “rational utility maximizers” in a “free market” than we are sacks of chemicals disconnected from the air we breathe. We are creative patterns, whirlpools and turbulent flows, inseparable from all the other patterns in the river of being. This is what ecology and the sciences of connectedness have been telling us for decades. And as the frogs, songbirds and honeybees continue with their vanishing acts, the time is running short for the wizards of the dismal science to get it.

Geoff Olson is a Vancouver-based writer and political cartoonist. His articles and artwork can be found at geoffolson.com. From Common Ground, August 2008.