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Category Archives: Macroeconomics

Imagine a simulation in which a large of number of actors, defined by a large range of properties, acquire utility based on a set of complicated rules that are applied to their properties and to other actors’ properties.  For instance, a particular actor might accrue utility if it shares three specific properties with a large number of other actors.  A different actor might accrue utility only if other actors share two of those properties but do not share the third.  Actors are able to modify their own properties based on certain constraints, but there is a utility to cost to these modifications.  Further, actors have limited information about other actors’ properties (for instance maybe they are only aware of actors that share a particular property with them, or they only have out-dated information about most actors) and also about the rules that define the simulation (their utility function is not exactly what they think it is).

You could plot a very simple version of this simulation on a grid, with each axis representing a property and dots representing each actor, or imagine a more complicated version in n-dimensional space.  Presumably, the simulation would play out by actors moving from their starting position and arranging themselves in better locations, eventually finding local maxima and remaining there, or at least creating fairly stable sub-optimal equilibria.

Now suppose you modify the simulation such that actors are suddenly able to access all of the information across the entire simulation.  Both rules and all other actors’ properties become immediately accessible to every actor.

With this change to the simulation, presumably two things would happen: drastic reorientation of actors, and vastly higher total utility.

If you haven’t yet guessed, the simulation is meant to describe humanity; the modification to the simulation is the advent on the internet and real-time communications networks; properties are physical location and things like political orientation, job skills, and membership in organizations, etc.  The point of the exercise is to try to illustrate just how significant this technological development is.  Humans have built our social framework premised on communication being expensive, and the entire framework now can be rearranged to exploit the fact that communication is essentially free.

In other words: this internet thing is going to be huge.  We’re only just starting to figure it out.

I say these statistics are much more important than these statistics.

One purpose of this blog has been to question the way to think about problems.  I’m specifically interested in how philosophy of science, statistics, and rhetoric shape the way we think.  Another purpose has been to identify which world problems are most worthy of discussion, having received insufficient attention.

Today I followed Tyler Cowen’s link to Mike McGovern’s essay about development economics.  Development economics is a topic I don’t understand well but consider highly important and under-discussed.  It’s also a meta-analysis, exploring different ways to think about problems.  For instance:

The difference between poets and economists…there is an acceptance that there are many ways to write a great poem, just as there are many enlightening ways to read any great poem. Bound as it is to the model of the natural sciences, economics cannot accept that there might be two incommensurable but equally valuable ways of explaining a given group of data points…Paul Collier, William Easterly, and Jeffrey Sachs can all be tenured professors and heads of research institutes, despite the fact that on many points, if one of them were definitively right, one or both of their colleagues would have to be wrong. If economics really were like a natural science, this would not be the case.

I wasn’t expecting to find philosophy of science (or philosophy of poetry) in an essay about third world development, but I think this type of thinking is necessary to address the particulars of third world development.  It’s a slightly morbid point of view; most people who want to solve problems want to do something; instead I want to think about thinking.  But actions are driven by views, and views and driven by the way we think about the world; when we don’t analyze the ways we think, we’re more likely to hold misguided views and take misguided actions.

McGovern’s assessment of development economics is shaped by his philosophy of science; in the above paragraph, he first criticizes economists for trying to be scientists, and then criticizes economists for being bad scientists.  The two criticisms contradict, and don’t account for the fact that throughout history, hard science regularly maintains contradictory points of view, whether in cosmology or mathematics.

My concerns about McGovern’s philosophy of science should dismiss what’s he written; his concerns about development economists may have more to do with their rhetoric than their scientific thinking.  On the whole, his essay is a really interesting read, and I’ll continue to think about it throughout the day.

Happy July 4th.

Thinking about macro-economics hurts my head.  I can’t explain why without getting pretty technical, so feel free to skip this post if you’re not a fan of calculus.

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