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June 13, 2006

Equilibrium vs. Jiggle

Michael Blowhard writes:

Dear Blowhards --

Where economics is concerned, I'm incapable of doing anything but dog-paddling around the shallow end. (I have a strong aversion to charts and graphs as well as a, er, small problem with any math that ventures beyond adding and subtracting ...) I'm not about to let my disabilities stop me from having strong opinions about the field, though. "Equilibrium," for instance: What in the world is that obsession about? (Wikipedia tries to explain.) Why would anyone think that it's in the nature of a market to tend towards an equilibrium?

The preoccupation with equilibrium strikes me as such an odd thing that I find myself suspecting all of academic economics of being a species of mass self-delusion. My killer argument? Well, goshdarnit, life just doesn't seem to work that way. I have a hard time, in fact, thinking of anything in life that I'd be comfortable describing as tending towards equilibrium. Marriage? Nope. Health? Nope. Ideas? Feelings? Nope and nope. Life seems to me to be something that we sometimes lead, that sometimes happens to us, and whose nature is semi-decently characterized as being in a semi-constant, ever-evolving, highly-unpredictable state of disarray. Except when it isn't, of course.

Steve Keen, one of the most articulate of the Post-Autistic Economics gang, gets in some digs at the equilibrium-obsession in this interview with the Yale Economics Review. He gets in digs at many other academic-economics assumptions too, but they're all over my head. (Thanks once again to Jimbo for introducing me to the Post-Autistics.) Keen may have a political agenda for all I know, and one that's worth being wary of. If so, I don't know what it is. I do like the one agenda-bit that's clear from the Yale interview, though: Keen would like to see economists become less arrogant. Let's hear it for that. A nice quote:

"Economists meddle with the economy in a way that ecologists do not meddle with an ecology. Neoclassical economists -- and for that matter Keynesian economists before them -- act as if they not only understand this most complex of systems, but also know how to make it function better: just make it look more like the textbook models."

Keen isn't shy about taking on the whole neoclassical-economics tradition:

"[Adam] Smith put forward the notion that the market established a "natural order": in place of the rigid hierarchy of feudalism we would have the beneficent equilibrium of the market.

This has been the organizing vision of mainstream economists ever since -- whether of Classical or Neoclassical bent. Only the Classical malcontents (Hobson, Marx, etc.), the Austrians, Schumpeter, and to some extent the Post Keynesians, have pushed the perspective that capitalist society is unstable; and only Schumpeter and the Austrians have seen this instability as a good thing. There has been a strong desire to prove preconceived notions of stability, optimality, equilibrium, welfare maximization, etc., and this has perverted the theory whenever it has transpired -- as it almost always did -- that theory, let alone reality, wasn't that straightforward.

Nowadays, researchers who are aware of complex systems theory know that any complex system is going to be cyclical, or "unstable' to some degree, and the only way to impose equilibrium on such a system is to kill it."

I was also glad to see Keen compare economics to meteorology -- it's a comparison that has often occurred to me in my clueless adventures poking around the field. As with the weather, a lot can be and is known -- yet how good is the discipline's batting average where predictions are concerned? And how great is its ability to shape and modify what it investigates and attempts to describe?

Here's a Steve Keen MP3 talk.

I'm also tickled to see that Paul "Butterfly Economics" Ormerod has a new book out: "Why Most Things Fail." A good and under-discussed theme! Ormerod is another post-Autistic-y figure; like Keen, he argues that complexity, disequilibrium, and change-ability aren't weird discrepancies from the norm, they're fundamental to what markets are. The Financial Times has its reservations about the new book but also thinks that Ormerod scores some points. I notice that the intro to Ormerod's "Butterfly Economics" can be read online.

I wondered out loud if something is the matter with economics back here. Tyler Cowen responded here.

Economics smackdown: Adam Smith vs. Candy Barr

Meanwhile, I was sad to learn that the stripper and burlesque star Candy Barr died recently at the age of only 70. She had lived quite a life. Born Juanita Dale Slusher (gotta love some American names) in Texas, she ran away from home at 13, starred in a 1951 porno movie, and soon became a headliner on the stripper circuit -- Candy was known for her cowgirl props: six-guns, holsters, a cowboy hat. She shot one of her husbands; she knew Jack Ruby; she served three years for possession of marijuana (the case went all the way to the Supreme Court); and she choreographed a number for a Joan Collins film. In her autobiography, Joan Collins wrote of Candy Barr: "She taught me more about sensuality than I had learned in all my years under contract ... [She was] a down-to-earth girl with an incredibly gorgeous body and an angelic face." At the age of 41 (by which time she was already a grandmother), Candy appeared in a nude layout in Oui magazine.

Here's Wikipedia on Candy Barr. Lady Bunny reprints the LA Times' obit. This page features a bio, a lot of stills, and a couple of video clips. You can watch a Candy burlesque routine here. Candy -- who was one well-upholstered cutiepie -- certainly had a lot of hearty effrontery and humor. And god knows there was nothing "equilibrium" about her life.



posted by Michael at June 13, 2006


Appreciate both the discussion of economics and Ms. Barr, but uncertain on connection between two. Please explicate.

Posted by: Friedrich von Blowhard on June 14, 2006 11:53 AM

I think the point is that the attempt to bring an economy into equilibrium can only succeed by imposing stasis and inviting the rules of entropy.

A dynamic economy requires a freedom of elements that, while resulting in inevitable bumping and grinding of gears, achieves a pleasing sway and bob.

Posted by: Sluggo on June 14, 2006 12:20 PM

FvB - You're asking for substance? From me? And how long have we known each other? But let's see ... If I'm going to fake up an actual thought here ... OK: sex! The experience of sex is like being blown about (pardon the wording) on the ocean. Who knows what's next? (Not that there aren't better ship commanders and worse ones ...)Yet sex is also nothing if not central to life. Exchange (aka the market thang) is also central to life. Why wouldn't we do better to take the market-thang more as being akin to being blown about on the ocean than as tending towards equilibrium? Sheesh, I hope nobody takes me too seriously here ...

Sluggo -- Yes! Thanks for doing better than I can. That's it: the market est une femme. And have you ever known a one that can be described as tending towards equilibrium? It seems like such a naive-male kind of approach to the topic, doesn't it? Like trying to make sense of your wife by starting with a robot and working your way backwards ... Dumb dumb dumb. Although, who knows, maybe it suits some guys ...

Posted by: Michael Blowhard on June 14, 2006 12:55 PM

I'm not sure your theory and that of economists is so different, but they (economists) are heavy-handed about not admitting it. By which I mean--they say markets are always "trending toward" or "moving toward" equilibrium---not achieving it. Markets rarely achieve it---they are overshooting and adjusting all the time. It's like equilibrium is the magnetic weight in the middle---no one postulates that markets are totally random, or "tending toward a disequilibrium which 10% to the left of center." Equilibrium is the goal, and not so much consciously but sort of the inevitable outcome (i.e., the price of a stock will stop moving up or down when the current price generates an exactly equal number of buyers and sellers), but not the always realized or achieved goal. I think that's quite similar to life, and to your own description.

Posted by: annette on June 14, 2006 1:28 PM

Two other analogues: climate and evolution. Neither has a steady state equilibrium. The earth is always getting cooler or warmer, wetter or dryer. Natural selection does not bring organisms - especially not Man - closer to some kind of golden equilibrium. The trend, if any can be discerned, is always changing. Yet many people still believe that evolution is moving life toward perfection and that without those darn SUVs the Earth would be a perfect temperature forever.

Posted by: Robert Speirs on June 14, 2006 2:40 PM

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