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Let's start this installment of the blog with a brief rant. I confess to having something of a prejudice against economists, which can be summarized as follows: (1) It's not science just because it uses mathematics. (2) If it doesn't generate testable hypotheses, it's not science. (3) If it generates testable hypotheses, and you don't test them, it's still not science. And the coup de grace from my perspective: (4) If your underlying assumptions are crap, and you don't build in a mechanism to iteratively improve the assumptions, your results will not be better than crap other than by chance. (And no, it's still not science if you don't specifically set out to disprove and then improve your old assumptions.)
Consider, for example, the notion of Homo economicus that still afflicts modern economics. (I say this as someone who occasionally edits manuscripts by economists who publish in major research journals.) The basic assumption is that humans are rational and act in their own self-interest, and that you can build useful models based on that assumption. Yet even to a casual observer, it's clear that even the most rational among us are manifestly irrational at times, that many of us are motivated by more than pure self-interest (pace Dawkins), and that we are all affected by certain cultural assumptions and pressures. Garbage in, garbage out: if the fundamental rationale is flawed, the results aren't going to be much better.
Also consider the assumptions that markets (as instantiated by the actors in those markets) function better than any alternatives because actors in those markets have access to perfect information (here, all the information they need to make rational and self-interested decisions). This too is clearly nonsense; if it weren't nonsense, there would be no such thing as insider trading and stock markets would only ever rise. In reality, information is always asymmetrical and markets plunge periodically because people don't always act rationally or act on imperfect information.
Don't even get me started about the concept of externalities—that's good for at least an hour of ranting, though I'll try to restrain myself when I return to that topic later.
One of the themes in this blog is that science fiction is all about asking the question "what if?", so it's not unreasonable to ask the following question: "What if economists were held to the same standards as scientists?" Here endeth the rant: the modern science of experimental economics is a healthy step in the right direction, though of course it's only as good as its underlying assumptions. This is also true of science, lest you feel that I'm ignoring the many blemishes of the scientific process.
Karl Schroeder started the panel off with the observation that (paraphrased) "history is the record of things that went wrong in between longer periods when people just went on with their lives". I'm not sure why he felt this was relevant to the topic, other than perhaps because history is, among other things, the story of economics. Economics, at its roots, is about how to allocate finite resources, and that's why it comes from the same etymological roots as "ecology". As an ecologist (my university specialization), it pains me that so many economists continue to blithely ignore that underlying principle. Where they do it most egregiously, they invoke and then ignore externalities whenever convenient.
This is a particular problem when it comes to environmental issues: externalities are fundamental to all activities that occur within an ecosystem, and are particularly fundamental when humans are involved. Externalities are typically ignored because they're inconvenient (when the economist is working primarily to further an agenda) or recalcitrant (when they're exceedingly difficult to quantify in an objectively reasonable manner). Many economists are now working to resolve these problems, but the underlying paradigm remains severely flawed; economics-based solutions to environmental problems focus on price mechanisms, leading to severely flawed notions such as "cap and trade" markets for carbon credits. (Harper's magazine published an interesting review of the problem a month or two back.)
From a scientific perspective, such markets can only work if the underlying science is sound. This is a serious problem on several levels. For example, capturing greenhouse-gas emissions by planting trees in the southern hemisphere assumes that emissions in the northern hemisphere will reach and be captured by those trees before they produce inconvenient externalities in the northern hemisphere. There isn't any good evidence this will happen. Another problem involves those pesky externalities again; greenhouse-gas emisions are only one of the serious problems related to our over-reliance on fossil fuels, as the recent BP disaster in the Gulf of Mexico shows yet again.
From a combined economic and ecological perspective, the markets can only work if the cap (analogous to the number of shares in a company) is continuously lowered until we reach a sustainable level of emissions. That approach continuously increases the prices of carbon credits by lowering their supply (Economics 101), giving people incentives to look for alternatives. The current assumption is that this will happen because energy needs continue to grow, and with a fixed cap on emissions, this will achieve the same effect. We'll see.
Returning to Schroeder's point, economics therefore underlies, at least potentially, any story in which the characters must choose between alternatives and allocate their resources accordingly. We don't see much, if anything, written about externalities in science fiction. It's long overdue for someone to open that can of worms (he said, hinting broadly).
Eytan Kollin, coauthor of The Unincorporated Man, teaches high school economics, and he does so in a particularly clever way: he makes it personally relevant to his students. For example, to introduce the concept of deficit financing, he asks them the following rhetorical question: "Imagine that your parents had a magic credit card that would let them buy anything, but that you kids would have to pay for it. How would that make you feel?" If only government economists asked that question of their children, and then listened to the answer!
Not sure who raised this point (probably Charles Stross), but it was noted that central planning inevitably underperforms the market because it has even-less-perfect access to information than under a market mechanism. But with very powerful computers and near-perfect information flow, that could theoretically change in the future. This could lead to interesting possibilities for fiction: with that near-perfect information flow, could we also include the externalities in our economic models, thereby allowing us to account for them? Another interesting possibility was raised by (I believe) Stross, who noted that "you don't truly own anything that you cannot carry with you at a dead run." That kind of resource allocation scenario is near and dear to the hearts of many writers, particularly those who enjoy post-apocalyptic scenarios or anything to do with colonization of a new world.
It's interesting to note that not all economic systems are monetary in nature, at least not as most of us think of money. One thing that science fiction does well is to home in on core concepts, and ask questions about their real meaning. (That is, it lets us perform thought experiments to explore the implications of a belief.) For example, we non-economists tend to forget that money represents value in some form (the ability to exchange a token of some sort for value in another form). But that's not necessarily what we think about when we hold a coin in our hands. Thinking outside the box reveals many examples that seem just plain odd to us provincial moderns.
In the Chinese system of guanxi, the currency is an interlocking network of favors and obligations to repay those favors. We sort of understand that here in the West, but the extent of its importance in China is unfamiliar to us. Stross's Accelerando has way too much fun with the notion of one protagonist, Manfred Macx, existing solely on the kindness of strangers who shower him with money and other favors because he has spent his adult life sharing knowledge at no cost that enriches many others. Cory Doctorow's concept of whuffie is both another example in my endless series of justifications for why people who come up with interesting ideas shouldn't be allowed to name them and a riff on Stross's notions, although here the currency is reputation.
Finally, there's the potlach system of the Haida and other west-coast Indians, which poses an interesting challenge to traditional Western economics: here, the goal was to give away copious quantities of gifts to demonstrate your wealth rather than hoarding that wealth to support your own needs and desires. It works far better than Western economics in ensuring that everyone is fed and in forging powerful reciprocal social relationships within a tribe that lead to social cohesion.
All of these would be interesting topics to explore in more depth through the clarifying lens of fiction.
Consider, for example, the notion of Homo economicus that still afflicts modern economics. (I say this as someone who occasionally edits manuscripts by economists who publish in major research journals.) The basic assumption is that humans are rational and act in their own self-interest, and that you can build useful models based on that assumption. Yet even to a casual observer, it's clear that even the most rational among us are manifestly irrational at times, that many of us are motivated by more than pure self-interest (pace Dawkins), and that we are all affected by certain cultural assumptions and pressures. Garbage in, garbage out: if the fundamental rationale is flawed, the results aren't going to be much better.
Also consider the assumptions that markets (as instantiated by the actors in those markets) function better than any alternatives because actors in those markets have access to perfect information (here, all the information they need to make rational and self-interested decisions). This too is clearly nonsense; if it weren't nonsense, there would be no such thing as insider trading and stock markets would only ever rise. In reality, information is always asymmetrical and markets plunge periodically because people don't always act rationally or act on imperfect information.
Don't even get me started about the concept of externalities—that's good for at least an hour of ranting, though I'll try to restrain myself when I return to that topic later.
One of the themes in this blog is that science fiction is all about asking the question "what if?", so it's not unreasonable to ask the following question: "What if economists were held to the same standards as scientists?" Here endeth the rant: the modern science of experimental economics is a healthy step in the right direction, though of course it's only as good as its underlying assumptions. This is also true of science, lest you feel that I'm ignoring the many blemishes of the scientific process.
Karl Schroeder started the panel off with the observation that (paraphrased) "history is the record of things that went wrong in between longer periods when people just went on with their lives". I'm not sure why he felt this was relevant to the topic, other than perhaps because history is, among other things, the story of economics. Economics, at its roots, is about how to allocate finite resources, and that's why it comes from the same etymological roots as "ecology". As an ecologist (my university specialization), it pains me that so many economists continue to blithely ignore that underlying principle. Where they do it most egregiously, they invoke and then ignore externalities whenever convenient.
This is a particular problem when it comes to environmental issues: externalities are fundamental to all activities that occur within an ecosystem, and are particularly fundamental when humans are involved. Externalities are typically ignored because they're inconvenient (when the economist is working primarily to further an agenda) or recalcitrant (when they're exceedingly difficult to quantify in an objectively reasonable manner). Many economists are now working to resolve these problems, but the underlying paradigm remains severely flawed; economics-based solutions to environmental problems focus on price mechanisms, leading to severely flawed notions such as "cap and trade" markets for carbon credits. (Harper's magazine published an interesting review of the problem a month or two back.)
From a scientific perspective, such markets can only work if the underlying science is sound. This is a serious problem on several levels. For example, capturing greenhouse-gas emissions by planting trees in the southern hemisphere assumes that emissions in the northern hemisphere will reach and be captured by those trees before they produce inconvenient externalities in the northern hemisphere. There isn't any good evidence this will happen. Another problem involves those pesky externalities again; greenhouse-gas emisions are only one of the serious problems related to our over-reliance on fossil fuels, as the recent BP disaster in the Gulf of Mexico shows yet again.
From a combined economic and ecological perspective, the markets can only work if the cap (analogous to the number of shares in a company) is continuously lowered until we reach a sustainable level of emissions. That approach continuously increases the prices of carbon credits by lowering their supply (Economics 101), giving people incentives to look for alternatives. The current assumption is that this will happen because energy needs continue to grow, and with a fixed cap on emissions, this will achieve the same effect. We'll see.
Returning to Schroeder's point, economics therefore underlies, at least potentially, any story in which the characters must choose between alternatives and allocate their resources accordingly. We don't see much, if anything, written about externalities in science fiction. It's long overdue for someone to open that can of worms (he said, hinting broadly).
Eytan Kollin, coauthor of The Unincorporated Man, teaches high school economics, and he does so in a particularly clever way: he makes it personally relevant to his students. For example, to introduce the concept of deficit financing, he asks them the following rhetorical question: "Imagine that your parents had a magic credit card that would let them buy anything, but that you kids would have to pay for it. How would that make you feel?" If only government economists asked that question of their children, and then listened to the answer!
Not sure who raised this point (probably Charles Stross), but it was noted that central planning inevitably underperforms the market because it has even-less-perfect access to information than under a market mechanism. But with very powerful computers and near-perfect information flow, that could theoretically change in the future. This could lead to interesting possibilities for fiction: with that near-perfect information flow, could we also include the externalities in our economic models, thereby allowing us to account for them? Another interesting possibility was raised by (I believe) Stross, who noted that "you don't truly own anything that you cannot carry with you at a dead run." That kind of resource allocation scenario is near and dear to the hearts of many writers, particularly those who enjoy post-apocalyptic scenarios or anything to do with colonization of a new world.
It's interesting to note that not all economic systems are monetary in nature, at least not as most of us think of money. One thing that science fiction does well is to home in on core concepts, and ask questions about their real meaning. (That is, it lets us perform thought experiments to explore the implications of a belief.) For example, we non-economists tend to forget that money represents value in some form (the ability to exchange a token of some sort for value in another form). But that's not necessarily what we think about when we hold a coin in our hands. Thinking outside the box reveals many examples that seem just plain odd to us provincial moderns.
In the Chinese system of guanxi, the currency is an interlocking network of favors and obligations to repay those favors. We sort of understand that here in the West, but the extent of its importance in China is unfamiliar to us. Stross's Accelerando has way too much fun with the notion of one protagonist, Manfred Macx, existing solely on the kindness of strangers who shower him with money and other favors because he has spent his adult life sharing knowledge at no cost that enriches many others. Cory Doctorow's concept of whuffie is both another example in my endless series of justifications for why people who come up with interesting ideas shouldn't be allowed to name them and a riff on Stross's notions, although here the currency is reputation.
Finally, there's the potlach system of the Haida and other west-coast Indians, which poses an interesting challenge to traditional Western economics: here, the goal was to give away copious quantities of gifts to demonstrate your wealth rather than hoarding that wealth to support your own needs and desires. It works far better than Western economics in ensuring that everyone is fed and in forging powerful reciprocal social relationships within a tribe that lead to social cohesion.
All of these would be interesting topics to explore in more depth through the clarifying lens of fiction.