In the New year, I have generally been busy reading and browsing on a wide range of topics. In the process, I keep encountering interesting facets of thoughts and ideas, ranging from very old books to recent developments in research. In the weeks to follow, I intend to post about some of these, that seem worthy of sharing and discussion.. which shall hopefully resurrect this place. Let there be blog!

At some point, I got curious about understanding the ‘big’ economic picture mathematically. That is when I first began learning of problems in the very nature of some basic ideas in macroeconomics. For example, the mechanics of money creation, which largely happens today on the basis of “Fractional Reserve Banking“, seems rather bewildering. The ‘system’ went beyond my tangible perception somewhere, so let us leave that. Beginning to critically go through the arguments presented in a microeconomics book, I encountered something very strange being done there.

In the introductory chapter, the book said that the [presented] economic theory is based on the assumption that firms try to maximize their own profits; and though this may be inaccurate at times, there is sufficient reason to generally use the theory since it largely explains a broad range of phenomena regarding the behaviour of firms.
Well, this is where I perceive a flaw in the cause-effect dependence. To justify the assumption of self-maximizing firms, we observe the ‘phenomenal’ behaviour of existing firms; which makes you wonder.. don’t the policies and decisions made based on economic theories shape the behaviour of firms? And in that case, how are these theories and policies made for the ‘first’ time, if that is to be?

Escher 'outdraws'.. himself, I'd say. Twice.
Do you see what we do? To ourself?

Let us turn to a parallel in mathematics: Euclid’s fifth postulate was based on the observation of the ‘existing’ lines, i.e. the straight lines drawn on flat paper as seen and imagined by Euclid and others; and hence the Parallel Postulate seemed to be a reasonable property to assume.

It goes without saying that Euclid and others have tried to derive the property from other axioms, but in vain. Possibilities of creating “non-Euclidean geometries” that work without using that axiom began to be pursued over time; but they fully bore fruit much later. For instance, hyperbolic geometry and Riemannian geometry came about in the 19th century.

There are several lessons to learn here, I feel. Think about it.. the mental energies of people across several thousand years were put to work on a seemingly small point! And yet, we abandoned a radical idea such as Google Wave so easily. (There are still a couple days left for you to try Wave, before it shuts down.) There were initial issues with providing a glitch-free experience; and there was the question of the learning curve; rather, of our readily considering such a radical mental transformation. Why are we so short-sighted that we acted the way we collectively did? As I see it, the power of Wave API together with the open-source development model could have transformed that service.. only if it were given a chance.

The consequences of our actions become even more a topic of introspection, when one realizes that Riemannian geometry, a result of an age-old pursuit for the seemingly trivial, is one of the key concepts used by 20th century Einstein to base his theory of General Relativity! If those hundreds of mathematicians had not worked towards their unseen future, the occurrence of relativity (and hence, many modern technologies such as GPS and flight/space navigation) might have been offset by years.. maybe decades.. maybe eternity? Scary thought. I am only glad that Wave would reappear as Apache Wave, so nothing would be lost.. probably.

Besides this, there is another lesson to learn through the above example.. when mathematics was faced with a dilemma, it willingly split into multiple possibilities; it did not ‘choose’ one and kill the other. In a very similar fashion, when the study of economics is made on such a one-sided self-recurring basis as the profit-maximization assumption, I feel the possibility of there being another economical model that is created to work without such an assumption. Current economic theories are based on a marginally softer notion of self-maximization than the extreme end; yet, the entire spectrum is not represented. (Ideas such as communism and socialism are not directly relevant here; they are elaborate socio-economic models and do not relate to any fundamental mathematical assumptions in micro/macroeconomic analysis.)

The final lesson: One has to make the mental leap of considering a hyperbola to be a line, to get to a whole new geometry. When will we all evolve?

Escher's reptiles
Transcend pattern.. think better

Escher all the way..

PS: Rate this!

12 responses to “∀∃∞

  1. Economics is a mostly normative science, and when it does go into the positive domain, it does tend to be meek and suggest marginal changes in the existing machinery [I think this was your point?] rather than going out of the way to suggest something radical.

    But when you say that socialism and communism are not relevant to this subject because (I quote) “… they are elaborate socio-economic models and do not relate to any fundamental mathematical assumptions in micro/macroeconomic analysis…”, you are probably missing two things-
    1. Not everything can be formalised- at least, not without great difficulty- owing to the great number of hidden variables involved. A proper mathematical model for society and social behaviour does not yet exist, as far as I know.
    2. The economic picture in today’s world cannot be separated, under any assumption, from the social and political scenario, without oversimplifying the whole deal. I think this part is pretty obvious.

    I haven’t read much economics, but it seems to me that the days of policy decisions (at least of the order of, say, Adam Smith’s canons of taxation) are over. There was a time when the situation was volatile and humanist philosophy was a valid source of economic ideas, but that situation no longer exists. Things may be bad, but they are still pretty okay and hardly anyone will be willing to take a chance and try to implement a new economic model at the risk of destabilizing the whole system.

    Risk is, again, where economics differs from the natural sciences. Whereas it didn’t hurt to take, say, non-Euclidean geometry or Relativity seriously, except for perhaps a possibility of one’s time being wasted, but making a complete overhaul of a country’s economic system might cause the entire world to come unhinged if not done properly. Things which work at the level of, say, a village or a town may not work for entire countries. The only countries where new ideas may be tried out are those without a very stable socio-economic system- the poorest Latin-American or African countries, say- but are you willing to use them as guinea pigs in an experiment that has to potential to shatter the fragile peace that exists and bring back the era of famines and civil war?

    • Viewing economics as largely a normative science, it is interesting that people, firms and nations would often feel and say that they do the things they do “because economics says so”. How does that work?
      I agree with both 1 and 2; further, I feel that things such as the study of where incentives and moral sentiments come from, also needs to enter the purview of considerations in non-normative economic design; which is something that the current economic systems are largely ignoring.

      One need not, however, ‘destabilise the entire system’ to test and study new models.. nor does anybody have to get an ‘inferior’ feeling of being considered a guinea pig. (Otherwise, what would ‘experimental’ economics do?) If I am given a chance to be a part of such an economic experiment, I would be very positive about giving it a serious try. I am more concerned that people simply do not seem to think enough in that direction.

      We need to be more open-minded.

      • I was talking of economic experiments in the sense that Communism, The European Union and Indian Socialism were economic experiments.

        Could you elaborate what kind of economic change you are looking for?

          • You should never have watched “The Zeitgeist Movement” 😛

            Yes, nice ideas, but not implementable. Just like socialism. You have to assume that human beings are selfish creatures whose only goal is sustenance of self, rather than community, and that too, in the easiest means possible.

            You are expecting too much out of the human race.

                • Well, better better spam than spam spam. As regards to Zeitgeist: Moving Forward, I have repeatedly watched it, often from a deliberately critical point of view.. yet it rings out a lot of sense. And even if you think that it has conditioned me, at least I have the consolation that my bias just makes me forever critical about what I am biased towards.

                  “You are expecting too much out of the human race.” – Isn’t this a bit too cynical? For starters, biologically it is not impossible, because we are all altruistic towards some things. Then, socially/culturally.. we were largely egalitarian around after 40,000 BC, so even that is possible to keep. With respect to personal gain, the only hurdle could be short-sight. Which often would be a shadow of irrationality.. rather, inadequate rationality.

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