They seem to think that they’re better at teaching students “the maths they need to become economists”, but my experience as a first year undergrad doing both was that the Quantitative Methods lectures literally skipped 7 lines of derivation in every line written on the blackboard (I entertained myself during lectures by working this out). I realised that all my fellow students who weren’t doing math were taking this stuff on faith.

I think it is time for that–though there’s also an argument for a history of economic thought oriented course–and I’ve recommended as such in a chapter in a new book on teaching heterodox economics.

If any maths, science or engineering student can learn them in 1st and 2nd years, why not economics students? It is time for compulsory mathematics subjects in economics courses?

I understand exactly where you are coming from. It would be great if we could know the final outcome and work back from the solution. Unfortunately the odds are about as good as winning the lottery.

The reason is that there an “infinite” number of possible solutions and trying to pick a good one – which is what you do when you start at the top – is unlikely. You may fluke it but the odds are way against it happening. Good search algorithms in complex spaces are ones where you start with a solution – modify it a bit in dozens of different ways – then pick the ones that give the best results and move on from there.

We all like to think we can see where things are going but inevitably things do not turn out as we expect. An evolutionary approach is one where we can say – “that looks like a good idea let us give it a go”. If we try it and see it is different to what is expected then we adjust and try something else. Unfortunately bureaucracies and politicians and economists are uncomfortable with this approach. They seem to want “certainties” instead of probabilities and they do not like to change their minds.

For example I believe very confidently that decreasing the cost of finance for new assets relative to the cost of financing existing assets will stabilise the monetary system – but I cannot be sure until it is tried. If it does not work as expected then we need to be in a position to rapidly adjust and say – ‘that did not work because of xyz but it did make a bit of an improvement because of pqr so let us follow the pqr path’.

Evolutionary systems do not work by knowing the answer and working towards them. Evolutionary systems work by trying things out and killing off the ones that do not work. We have a system where creating money ONLY through debt backed by existing assets, including other debt, does not work but we seem unable to “kill it off” and try something else.

Today I presented the idea of giving zero interest non recourse loans to create productive assets and at the same time create new money “backed” by possible future assets. I was told “that does not obey the principles of double entry bookkeeping so it cannot even be considered”.

Hello.

Still I am undeterred and I will continue to press on and try to get someone, somewhere to put new asset creation at least on an equal footing relative to financing costs to the finance cost of purchasing old assets. The trick is to make the changes small enough that they “silp in” without people noticing and once they are in and work they become difficult to dislodge.

The most important of which are the very “emergent properties” that multi-agent models try to uncover. Those these are obvious at the systemic level–in economics this includes the development of financial crises–the individual level behaviour that gives rise to this is not at all obvious. So I prefer to work with “tops down” differential equation models.

A second reason for this is that–apropos my comments on the generational debate which sprung up here recently–is that the structure of society does more to determine the performance of that society than the operations of individual agents within it. Again this is my reason for preferring tops down modelling to multiagent. One day, when we’ve done the former well enough, I’ll have time and interest for the latter.

We can describe the economic activity in collecting food of an ant colony with a description of the “rules of behaviour” of an ant.

If I find food then collect it and start to move in the general direction of the nest and leave a trail.

If I hit a trail then follow the trail.

If I meet an ant see if it is carrying food. If no food with the other ant continue down the path. If food wait for an ant that has no food.

If I have no food then follow a trail. If I find a trail junction then follow the strongest trail.

If I have no food and am not on a trail then wander around at random looking for food.

The scent I drop fades over time.

These simply rules results in complex patterns of behaviour that can be easily modelled using computational methods based on “ant agents”. The models we construct by building a system looks like the behaviour of an ant colony particularly when we introduce external events such as the breaking of trails and see what happens.

We can change the “rules” and we can see what happens. For example, what happens if we change the rules associated with meeting another ant on a trail?

We can describe “markets” in the same way and we can model them by having agents “interacting” and observe what happens to the models. The rules of behaviour are relatively simple but the total activity is complex.

Economic modelling using general equilibrium is like modelling an ant colony by taking snap shots of the ant trails over time and observing changes in the patterns of trails and trying to deduce what will happen in the future by looking for correlations with other variables such as the initial distribution of food, or the amount that each ant can carry, or the amount of scent each ant on average can drop. Such models explain nothing because the patterns are the result of the activity and cannot be predicted from other patterns.

If you want to change the system you look for changes in the way interactions are carried out. If we want to fix the money market we are best to look at the rules we use in the money market system and vary them.

At the moment we increase the money supply through loans against existing productive assets. We rarely increase the money supply with loans against new productive assets. We might use loans against old assets to build new assets but it is unusual to give loans backed by future assets.

What if we biased the cost of money so that targetted future productive assets had lower finance costs through loans of low or zero interest?

If the targetted assets are assets where there is a propensity for asset inflation (houses, stocks) then this gives a mechanism to prevent such bubbles by creating enough loans to satisfy demand with new assets.

If the targetted assets are ones that have a general social good such as investments in renewable energy then we would find that those investments would occur instead of investments in energy plants that burn fossil fuel.

It is obvious when examining a typical institution of private property: the capitalist firm. I don’t think humans have created a more psychopathic and organizationally totalitarian institution than this one, along with the fascist and Bolshevist state systems.

Austrians and Marxists have got one half of the equation right, but neither are consistent with the original meaning of the word libertarian (that is, both the state and private property are authoritarian institutions).

Hayek wrote the book The Road to Serfdom, but what he favored and advocated was the road to private serfdom.

“the political philosophy of libertarianism – the supremacy of freedom of the individual, the minimal need for governments and taxes.”

The term libertarian was first coined in 1858 by an anarchist as an alternative for his anti-state socialism:

http://anarchism.pageabode.com/afaq/150-years-of-libertarian

Genuine libertarians argue that individual freedom does not stop at the boundaries of private property and that wage-labour and landlordism are just as oppressive as states (which exist, of course, to defend private property and the power of its owners).

Since the 1970s, the free-market right have tried to steal the term “libertarian” to describe their vision of private serfdom, but there are still anarchists around to protest this mis-appropriation by the right of a great label of the left!

While I appreciated that there were different schools of economics I had decided in my head that they were either dis-proven or unproven.
It never occurred to me that the alternative might actually be more correct!