From Bridget Rosewell
It amuses me that in Mark Buchanan’s article “Can science fix economics?” it is suggested that “it should be possible within a decade to have functioning models of the global economy to which policy-makers could look for sound insights” (6 June, p 35). For those of us with long memories, this is just what was said when models of the economy first began to appear in the 1960s and 1970s.
Such assertions help to generate funding, but they also make the cardinal error of conflating understanding, prediction and management.
The only sense in which the statement is true is that it might reduce policy-makers to impotence, but they are not likely to draw that conclusion themselves. Paul Ormerod and Craig Mounfield have used the physics tool of random matrix theory to show that much of the economic variability we observe contains noise and not true information (Physica A, vol 293, p 573).
The analysis of such data is not capable of generating robust forecasts, let alone the kinds of policy levers which enable us to predict their effects. More complex or complicated models will not remove this fact.
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One reason why modern economics is such a “dismal science” is that it has failed to question its underlying assumptions (6 June, p 35).
Can physicists, engineers and biologists work out why financial dealings in money and property are more profitable than the capital and labour that supply goods and services? Why do we allow speculative buying and selling to make the share market as changeable as the weather, rather than sticking to its original purpose of facilitating investment? Psychologists such as Stephen Lea and Peter Cooper are challenging assumptions about human behaviour by describing how our “disastrous heuristics” have contributed to the present financial crisis.
George Akerlof and Robert Shiller’s recent book Animal Spirits: How human psychology drives the economy, and why it matters for global capitalism may help scientists to model a more stable economy, rather than accept what markets have become and try to tinker with them.
Mount Waverley, Victoria, Australia
In his review of the book Newton and the Counterfeiter, Richard Webb talks of England’s currency in 1696 being “debased by counterfeiters and the ‘clippers’ who shave silver from its poorly minted coins” (23 May, p 42). That sounds familiar.
Modern currencies are seriously debased, worth roughly 10 per cent of their value 40 years ago. The difference is that the “clippers” are now governments who tax the inflation component of interest on savings as if it were real income.
It’s about time that mathematically skilled scientists followed Newton’s example and contributed to the present economic debate. The views of eminent scientists on how they would restore trust in today’s currencies, as Newton did over 300 years ago, would be illuminating.
One might begin by asking them if they, like US Federal Reserve’s Donald Kohn and Ben Bernanke, support 2 per cent inflation over the long term, which effectively halves the value of the currency every 35 years.
Carine, Western Australia
London, UK
