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The Wiki Man

The tangled truth

7 July 2012

6:00 AM

7 July 2012

6:00 AM

There is a kind of mercantile speculation which ascribes every action to interest and considers interest as only another name for pecuniary advantage. But the boundless variety of human affections is not to be thus easily circumscribed.

This is from a sermon by Samuel Johnson. I can’t find the date, but suspect he is having an early pop at Adam Smith, whom he met only once (they didn’t hit it off). Around a hundred years later, here’s Friedrich Hayek, accepting the Nobel prize for economics.

It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences — an attempt which in our field may lead to outright error. It is an approach which has come to be described as the ‘scientistic’ attitude — an attitude which… is decidedly unscientific… since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.

Both men spotted a fundamental flaw of standard economics — in that it owes its seductive mathematical neatness to an insane oversimplification of human behaviour. Human actions, especially our collective actions, almost never display the linear certainties of Newtonian physics, and do not even approximate to it. Meteorology or vulcanology might be more realistic areas for economists to draw on for inspiration, not least because these two sciences acknowledge the limits to their predictive ability.

Recent years have seen a slew of excellent books on how it is impossible to understand behaviour (and therefore riots, crashes and recessions) without understanding networks. Paul Ormerod’s Positive Linking is one excellent and easily intelligible example, as is The Tangled World, by Gerald Ashley and Terry Lloyd. Steve Keen’s Debunking Economics is a brilliant assault on the false certainties underlying neo-classical economic theory.

What may be unexpected is that it is computers that are beginning to teach us how so much of real life is effectively beyond computation. It was an accidental input to a computer in 1961 which led Edward Lorenz to discover what is now known as the ‘butterfly effect’. (To save time, Lorenz had typed 0.506 instead of the full 0.506127 in one of a long sequence of numbers, and discovered this tiny change to the input transformed the outcome of the meteorological model.)

So are economists making pro­gress? Well, in theory. Except that, for every network-theory genius with a supercomputer, there are 10,000 accountants with a spreadsheet and a hazy grasp of some simplistic economic theory they were taught in 1987. We have to wait for them to retire. As Max Planck observed, ‘Science progresses one funeral at a time.’

While The Spectator’s letters page has been debating a certain racial epithet, I was reminded of an incident when an urbane and affable Englishman was appointed to run the Tokyo office of an international ad agency. Though his record overseas had been exemplary, within hours of his arrival in Japan the phone lines to New York were buzzing with complaints from indigenous members of staff protesting about his casual and habitual racism. Someone flew out to investigate. After hearing the staff restate their complaints, the inquisitor went to the bemused manager to demand an explanation. He began by asking him to describe his behaviour in the course of a typical day. After a minute, the penny dropped. The complainants were called into the boardroom: ‘Um, there has been a misunderstanding. When Rupert enters the office every day, what he is in fact saying is, “Good morning, chaps.” ’

Rory Sutherland is vice-chairman of Ogilvy Group UK.

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