The wickedest problem in fixing the economy

The latest book by Doyne Farmer, 'Making sense of Chaos: a better economics for a better world" is an absolute gem. Farmer is one of the founding fathers of so-called Complexity Economics. In this book, he describes how this school of thought fundamentally differs from mainstream economics. I have written on this paradigmatic gap numerous times (this gap will even cause the saving-the-world effort of the Degrowth-movement to fail), but Farmer does this much more elaborate, and supplies this with numerous anecdotes on this 'turf-war' between the economic orthodoxy and its complexity-heterodoxy.

As can be expected from a founding father, he delivers an exhaustive and accessible explanation of the field, and, as such, really paves the way for a better economics for a better world.

Blindspots

There are, however, two major aspects still in the way. The first aspect may be recognized by him and many others, but the second aspect is a fundamental blindspot, even within complexity economics.

The first aspect is that the paradigmatic gap between social-science-economics and complexity-science-economics seems insurmountable, from an intellectual standpoint. You can explain to an economist that his or her model is flawed, you can even prove it and demonstrate it mathematically, beyond every doubt, but for the mainstream economist it remains a psychological, intellectual, paradigmatic blindspot, which just cannot be fixed.

The second aspect is strictly fundamental. It concerns an even bigger blindspot within the complexity-economics discipline. Farmer mentions the notion of 'self-organizing systems' a lot, and that, within complexity-economics 'the economic system' is regarded as a self-organizing system. That is a crucial aspect to use in making better models and making predictions for economic policy-making. It is an important aspect of so-called non-equilibrium systems.

Generalization of systems

The paradigmatic gap between mainstream economics and complexity economics sits in the failure of mainstream economics to make a generalization of the economic system to the class of non-equilibrium systems. Their models are only applicable to the equilibrium/linear parts of the economic system. That will be adequate for many aspect, but especially in this era of globalization, the non-linear fundamentals have become much more dominant. That requires a generalization of the system to the higher class of non-linear/non-equilibrium systems, which, again, is essentially what complexity economics does.

However, in order to even better understand and grasp the self-organizing aspects of the economic system (and what we call 'living systems' like organisms, ecosystems, and for example the climate system), we need to make yet another generalization. This might prove to be another paradigmatic gap to cross, since it is requires an extremely abstract mathematics and physics approach. Where complexity economics is very mathematics based, it misses the physics component that is the fundamental driver and the ultimate constraint for a system to behave in.

Physical systems

The self-organizing aspect of systems actually points to this physics aspect. From a physics perspective, real-world systems are driven by the supply of energy. Dynamic systems are dynamic because they process this energy. These systems try to process this energy as efficiently as possible. They are energy-dissipating systems. They use the flexibility of its infrastructure, it transactional capacity, its agents, to find ways of lesser resistance, to dissipate the energy that is being fed to them. As such, these physical complex systems (life, the economy, climate, etc) generalize towards thermodynamic systems. There are many simple, not-complex thermodynamic systems as well, and they are the most simple ones to describe and understand. Also there are many complex systems that are not physical (or physically driven), and as such not thermodynamically driven, but the economic system first generalizes to a complex system, and then still generalizes to a thermodynamic system. There is already a huge academic mathematical discipline for describing these systems, and the myriads of types of associated entropy, providing not only a descriptive but also a prescriptive framework.

Farmers book easily qualifies as a complexity-economics-framework-101 book to the max. It provides the necessary generalization towards the complexity-paradigm. But it is still not sufficient. It mentions the terms entropy or thermodynamics not once. It does NOT make the necessary and sufficient generalization towards the thermodynamics paradigm, which is needed for an ultimate framework for the economic system.

It illustrates that there is still a collective underestimation of the physical reality, and the primary importance of its principles, not only in diagnosing the economic system and designing policies for it, but even in fundamental understanding of it.

Even in academic physics there is still a collective underestimation and ignorance of its most fundamental aspect, called the Principle of Entropy Production Maximization. (It is a rather abstract mathematical inference, and in my paper I argue that this principle is actually a generalization of the 2nd law of thermodynamics. See link below).

This, in an era where literally everything that happens around us, is a testament of this thermodynamic principle:

• the global IT-system wants to produce as much noise as possible, as much generativeAI images as possible, as much likes and replies as possible, as much measurable datapoints as possible, etc
• the health-system wants as much burocratic intermediary as possible, as much registration systems as possible, as much declarational endpoints as possible, etc
• the global financial system wants to produce as much derivative products and ETFs as possible, as much transactions as possible, as much crypto-coins as possible, as much offsetting-products as possible, etc
• the publishing system wants to produce as much academic papers as possible, as much cheap and bad books as possible, as much magazines as possible, as much blogs and newsletters as possible, etc
• the economic systems wants to settle as much supply and demand as possible, it wants as much cheap fast fashion as possible, as much electronic devices as possible, etc
• nature wants as much life as possible, as much plants and trees as possible, as much algea-surface as possible, as much viral load as possible, etc

And these are just some examples. All these systems want the same thing: to dissipate whatever it is they dissipate as fast as possible. This force just cannot be countered, and is the main driver behind practically everything, even behind your own existence. Its non-linearity produces turbulence in the most physical sense of the word, like eddies and tornados, living organisms and other 'self-organizing systems' and as from turbine-motors of an airplane. Self-organizing systems do not organize themselves, they are nonlinear, turbulent, collateral eddies of dissipation-maximization of the hosting sytsem.

We are not so much dealing with chaotic systems, we are dealing with thermodynamic chaotic systems. They continuously adapt in order to optimize, in order to maximize entropy production.

There is wicked, more wicked, and wickedest

As such, if Degrowth really wants to save the world, if economics really wants to fix the system, if we really want a sustainable economy, we don't have 1 paradigmatic gap to cross, but 2 gaps.

Bridging these gaps is the wickedest problem of all.

It is a meta-problem: in order to fix the problem, we need to fix the paradigmatic problem first.