Saturday, February 9, 2013

Here is Why I think He is the Smartest, Again

I keep scanning the economics blogs for insight, but I often know that it will not be there, except for Nick Rowe, again and again. What insight, from a recent one he states:

My guess is that price controls may be a good thing in the short run but will be a bad thing in the long run. I can explain why I think that, but I can't build a model to show that. That's the trouble with models. 

If the real world really were as simple as my simple model, then price controls really would be a good thing, in both the short and long run. But the real world is much more complicated than my ability to model it, so I think that price controls will be a bad thing, at least eventually. But I can't model it, because it's too complicated for me to model.

I think that it is thoughts like this that drive Austrian economists to distraction. I sympathise. I think they are right. The, um, medium of modelling biases the message.

 In fact it goes back to something I tried to analyze decades ago. Namely systems where the system changes to oppose anything you try to do to change it. Consider some dynamic system, yes it is stochastic, but even more so, it has some form of perverse intelligence. So try to exert some external force to change it but then it decides to modify its internal dynamics to oppose the change. But you cannot determine that until after it does it.

That is the nature of the human economy. It is really hard. Humans a smart, if you put up a mountain they will go around it or under it but the seem to get to the other side. Just look at the Tax Code. Now many economists believe that they have ultimate wisdom. In fact they do not, they are just arrogant, and alas dumb. But they tell our Government what to do. Is that bad? Only if they all align in the same direction. If they just wander around in some form of Brownian motion then their actions will cancel out.

The blog, The Money Illusion has an interesting piece relating this to quantum physics. In fact this is where I got the Rowe piece. Worth a read.