Undecidable econ vs. Perfect Rationality, June 18, 2002
Reviewer: Professor Joseph L. McCauley (see more about me) from Texas + Austria I've read about 250 pages and can recommend that anyone with an interest in economics and finance should read this fantastic book. The basis for the text are the contributions of Shannon, Turing, von Neumann, Wiener, Koopmans, Marshak, and Arrow. Mirowski tells us the main story of the interaction of the Cowles Commission with RAND, which Bernstein does not at all hint at in his Capital Ideas. Having praised the book, I will now concentrate mainly on a few points of disagreement. Undecidability should not be confused with noise in stochastic processes. Systems at the transition to chaos can define automata that can perform simple arithmetic. That 'cyborg' has it's origin in the physical sciences seems farfetched (the connection between Turing and physics is supposed to be via Maxwell's demon, but was Turing really motivated by the idea of Maxwell's demon?). Nonlinear dynamics and fractals ('chaos' and fractals) certainly did not evolve from cybernetics or 'system theory' ('system theory' was based at best on an awareness of equilibria and limit cycles of differential equations, and made vague, unjustifiable allusions to holism). Cybernetics cannot really be seen as the midwife of what is now loosely called 'complexity' either, rather, that (still undefined) field grew out of nonlinear dynamics, neural networks, computability theory and molecular biology. Mirowski is right that many scientists confuse simulations with experiment and observations. I have argued against this confusion in papers and books.
Mirowski paints an intriguing picture of (Gödel-influenced) von Neumann, RAND, researchers with awareness of information and computability limitations leading to agent-based modelling with some respect for empiricism on the one hand, and then, on the other hand, Arrow, the Cowles Commission and their later rejection of empirics, instead with emphasis on Bourbaki-style existence proofs leading to infinte demands on information requirements on Walrasian agents and noncomputable equilibria. We now know that agent-based modelling can easily lead to fat-tailed price distributions (as observed empirically), whereas in contrast the origin of the systematic head-in the-sand philosophy of the neo-classical economic theorists is made quite clear in this work. One can summarize the neo- clasical economic agent as follows: his dynamics are trivial (equilibrium, including Nash equilibria) but the information demands made on him to interact with other agents and locate an equilibrium point are impossible (noncomputable). Moreover, we now know that financial market statistics point toward the instability of Adam Smith's hand, so that the notion of dynamic equilibrium is complelety uninteresting so far as understanding markets is concerned.
On Sun, 20 Apr 2003 07:51:13 -0700, Michael Perelman <michael at ecst.csuchico.edu> wrote:
> I don't see how this group would be neocons instead of just plain cons.
> Mirowski's new book shows how some cold war social democrats came within
> the ambit of RAND and the Pentagon.
>
> The neocons seem to revel in state power, not the shrivelled state that
> Friedman and the conservatives want.
>
> Maybe I am missing something.
>
> On Sun, Apr 20, 2003 at 12:01:22AM -0700, Ian Murray wrote:
>>
>>
>> Many neocons have a soft spot for Schumpeter, Friedman, James Buchanan,
>> Thomas Sowell, George Gilder [not really and economist] and Mancur
>> Olson.
>> All of these economists, following James Madison and his experience of
>> watching the Virginia legislature, abhorred what came to be known as
>> rent
>> seeking behavior [Schumpeter may have been the most
>> tolerant/understanding
>> of the lot]; but it seems the Republican Party has gone dialectical on a
>> free market nono and turned it into a full time strategy for channeling
>> taxpayer dollars to their districts and the corps. that send them the
>> checks. It's downright mercantilist in a way, which is why I think
>> there's
>> something to be said for Frederic Lane's and Charles Tilly's approach to
>> protection rents/rackets. Alexander Hamilton would probably feel
>> enthralled and repulsed...............
>>
>
-- Michael Pugliese
"Without knowing that we knew nothing, we went on talking without listening to each other. Sometimes we flattered and praised each other, understanding that we would be flattered and praised in return. Other times we abused and shouted at each other, as if we were in a madhouse." -Tolstoy