Sunday, December 14, 2008

Mathematics - the inelegant fool

You'll notice that conceiving of economies as informational flows exposes the limits of mathematical procedure.

To do so requires the fencing off of a proportion of the informational flow and then asking it to operate in a particular way (by means of a function).

To be accurate the model needs to be correct in two ways.

1) By describing the area of information fenced off - this can be done in very precise detail with matrices of ever-dizzying order but nonetheless amounts to drawing a circle by means of straight lines.

2) By describing the way this area operates - in other words the quality of the mathematical function. It is in this way that the greatest amount of contrivance and guesswork occurs. Functions are chosen for mathematical convenience not how they accurately describe the way information is flowing.

Functional quality can be likened to drawing a circle using straight lines and then using these as a design for bicycle wheels.

No one uses straight lines to make bicycle wheels. Firstly they don't work and secondly, those forced to use them are in for a bumpy ride.

What's depressing is that mathematics is not used to describe but to inform economic theory.

At school, a classmate of mine operated a scam where he would pretend to send vintage LPs to a friend who received them smashed (as they were before they entered the envelope). When questioned by the post office to verify the claim, the guy would post himself as a quality dealer and vastly inflate the records' prices. He made a lot of money this way as well as for others who would pose as bunnies to pose and receive the records.

Economics does the same thing. It not only proposes models based on mathematical theory, but verifies them in the same way. At both ends we get the same limitation describing behaviour and verifying its existence. As long as the theory is bounded by this tight mathematical system it will be forever suspended above what's going on on the ground.

What's suggested is the need for a more qualitative approach, understanding of the way organisations, people and fields of operation interact.

For this we need a syncretic approach that more greatly acknowledges sociology, anthropology and by crikey - real human existence.

Otherwise we'll be locked in a discipline that allows people like Larry Summers to rise to the top of the tree. A man who thought carbon trading was a good idea because it didn't matter so much that people in Africa got lung cancer because (guffaw!) they were hardly likely to live that long anyway.

Welcome to change we can believe in.

For this reason, this blog is beginning to look at ideas and concepts that can manoeuvre economic thinking in a direction that is more accurate and therefore more just.

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