Comment: The only ‘laws’ governing economics should be legal ones
Economics is indeed important, like history or politics, but it is as much art as science. Like phrenology and astrology, this most dismally soft science likes to surround itself with arcane and seemingly convincing formulae. In practice, however, somehow, for 30 years the answer has been the same no matter what variables are entered: reduce wages, taxes and public welfare spending.
Central bankers rarely show the humble scientific candor of demons and drunkards, but brandish intense algebraic equations purporting to describe the behavior of human beings in their billions. Given that these tend to assume a ‘perfect market’, they should indeed raise serious questions: a model based on something that does not exist is unlikely to meet scientific, let alone pragmatic, tests.
By contrast, hard scientists rarely claim such certitude; they deal in probabilities. An individual gas molecule’s random movement is called the Drunkard’s Walk, as it bounces off the molecular equivalent of walls and lampposts. Statistically, when you have trillions of molecules all bumping into each randomly, you can predict their collective movements with some degree of accuracy. You add heat, they move faster; the gas expands.
With the hundreds of millions of people involved in the real markets for tangible objects, there are many advantages in terms of relatively rapid real-time feedback. Even here, however, there can be little in the way of prediction. No algebra can calculate the ups and downs of hemlines; these are mysteries that cannot be predicted by any equation, no matter how differentiated. But with the millions of eccentric consumers involved, markets can make adjustments: once those hotpants start piling up on the shelves, the sewing has to stop.
In this Brave New (post-industrial) World, mere manufacturing with inputs, outputs and added value has almost disappeared from calculation. Economic models concentrate on financial markets with their illusion of statistically significant samples. But behind those large numbers lurks the destabilizing fact that these are not independently active units: their movements are controlled by Mammon’s Demons, a shrinking number of traders and programmers who make actual choices.
With indexes, exchange-traded funds and computer trading shrinking the universe of investors who base their decisions on the real world of making, buying and selling products, the world economy is being held hostage by a diminishing number of decision makers basing their decisions on figures provided by bankers trying to justify unjustifiable bonuses.
As we have seen, such movements might well be chaotic in their effects, but they are not random in their origins. If we could entangle a single financial particle – a dollar, in some version of quantum economics – we would probably find that in a day it had passed through the same accounts more often than recycled London water passes through Cockney kidneys in a year.
When your inner circle of the financial Inferno includes the Mammon’s Demons who gave you the S&L crisis, the tech bubble, the South East Asian meltdown, the subprime crisis and more, you can see there are laws that should be involved – but they should be more sentences than equations.