An excellent post from Stumbling and Mumbling linking Richard Feynam’s perspective on physics as an analogy for what sort of knitting economists should stick to. Essentially Feynam saw the practice of physics as solving micro problems from which a larger, simpler, explanatory theory might (and he would emphasize the word ‘might’) emerge, but just as likely any solution merely revealed another ‘layer of the onion’. Likewise economists, Feynam might argue, should avoid aiming for some unifying law to explain the world when their descriptions of events are so open to interpretation and ambiguity. The new theme of ‘macroprudence’ which seems to be emerging as driving the basis of future financial regulation smacks of the same potentially hubristic perspective; i.e. that looking at the stars tells you something about the future (otherwise known as confusing astronomy and astrology). It also continues the ideology that rational decisions are those which bear the most sustainably profitable fruit in the long run. However, it seems a long stretch even for the philosopher kings of Threadneedle street to fight against the alternative short term individualistic rational perspective of the City and engender a long term, collective or perhaps (?!) moral philosophy amongst the traders and barrow boys. If macroprudence means a renewed focus on the plumbing of the financial system and economists becoming the IT dept of our money superhighways then I don’t have a problem with it. However, if it means economists trying to ‘plan’ for the future and second guess the economy then one or two alarm bells start ringing. Coming back to the physics analogy might be useful for a second. Classical economics gives a cogent description of the economy just as the models of classical physics give a fairly accurate description of the universe, however both lack the ability to predict or even explain events with any certainty because both must ignore the fundamental uncertainty (call it free will, irrationality, culture, luck, probability, etc) at the micro/quantum scale. Feynam, in his book "QED" (describing Quantum Electrodynamics in a paperback page turner style) describes the ‘complex dance’ of light photons when they interact with a glass surface to reflect back to an observer. Arguably the focus of observers of human life should be on understanding this complex dance in more detail rather than looking for a theory of everything that will avoid the creation of a ground hog style mess in the future?
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