Frectally speaking

While working on something completely different, a podcast on Economics recently caught my attention.
Entitled “Economics Rebellion” it had just been broadcast on BBC Radio 4 , the blurb exploring “Why is there so much dissatisfaction about how economics is taught at universities? ”
It went on to say that “Since the financial crash, many students have been in revolt in the UK and overseas, determined to change the content of their courses. They are not alone. Employers and some economists share many of their concerns.”.

Now I am no economist, I have never studied the subject in any depth, yet I was curious so I listened in.  What surprised me wasn’t that economics as a subject was in such an agitated state, but rather I noted a few important missing links that no one seemed to mention. Please let me explain…

Though I have no formal training in economics whatsoever, I sense/believe that economics as a discipline is suffering from problems that are familiar to me from the rest of my work. I’m a medical doctor, with additional education/training in management and information technology… but not economics… yet here are the parallels that I see.

• Firstly economics is an important subject, but not particularly well understood by the layman.
• Secondly, like politics , management, healthcare…  economics is a discipline under scrutiny and trying to both progress and explain itself in the 21st Century to a public who sense all is not well.
• Thirdly, though some of us may have assumed there were economics professors or masters who “knew it all” , the financial crash of 2008 suggests that no one individual has a complete grasp of the discipline, so increasing number of us are skeptical about the “science” involved.

Those “limitations” about the state of economics could also be pointed at modern medicine, management or software engineering disciplines. An experience of my own, working through the NHS National Programme for IT, billed at the time as “the biggest computer programme in the world…ever”,  also highlighted real shortcomings/ key knowledge gaps in these other/unrelated fields.

One of the key points missing from that recent BBC Radio 4 analysis of Economics was a look at economics from a “complex systems perspective”… this sounds esoteric, but bear with me, there are important parallels at play here.  As I’ve learned about medicine, management and information technology I’ve picked up on the importance of “complex systems” thinking which seems to me to apply at least as equally to economics…

To begin without any controversy, I might suggest .. some of economics may be “simple”, more is “complicated”, it appears frequently “complex”, then may at least occasionally exist on the “edge of chaos”.
Those 4 keywords  (simple/obvious, complicated, complex, chaos) come from a highly useful framework that has helped much of my thinking, named the Cynefin framework. This framework, helps us make sense of the world, came from the original thinking of Dave Snowden and I’ve see it grow in appeal across many disciplines over the last several years that I have been following it… yet not widely enough in economics.

To explain further I might try to explain the world of Economics as I see it myself..;
(NB Amateur attempt here, but here goes. Comments to improve these examples are most welcome)

Simple (Obvious) Stuff.
(They say Simple Stuff can be taught in about 10 hours)
e.g. Definition of an Economic Profit.
“An economic profit occurs when the Total Revenue  (TR) less the Total Cost (TC) is greater than 0.”
My instinct is that no one wishes to argue about this stuff. Its simple .. or obvious.
(If trying to work through this simple stuff the tactic here is simply to Sense, *Categorise* and Respond.)

Complicated Stuff
(They say Complicated Stuff can be taught in about 1000 hours.. 6 months of full time work… perhaps a year of education?)
I’ve never looked at it but assume this is where Mathematical Economics comes in… plenty of deep maths that looks complicated to learn but given enough time can be mastered, perhaps with an Economics degree, perhaps after a year or so working in this full time in banking etc? Sure they may be more than one way of doing mathematical economics, am sure there are many many ways, but one would at least expect some good practice in this field has been agreed on?
This might perhaps be explained at the basis of “the science of economics”? The Economics Rebellion piece mentioned “physics envy” as a factor in economics education pulling towards the “hard” sciences.
If maths & economics are to be intertwined as a science that certainly that fits with the “Sense, *Analyse* and Respond” approach that underpins this aspect of the Cynefin framework.
Now that complicated stuff is all very well but I would suggest that only takes our understanding of economics so far. So we must move on…

Complex Stuff
(They say Complex Stuff takes 10000 hours to master.. 5 years of full time work)
To explain…. “Complex Adaptive Systems” are by definition made up of many parts, with many interactions between those parts. Such systems are open, difficult to explain, hard to put boundaries around or control. In many ways they are a very good way to explain what economies are and behave like… yet this is rarely said or explained properly.. indeed this understanding was strangely missing from discussions of economics in the media.. e.g. the aforementioned Economics Rebellion piece…
Why isn’t Economics explained more often as a Complex Systems challenge? Are we expected to believe that its all about men with calculators in central banks that are working it all out along perfect mathematical models alone??  Lets hope we get some discussion on that.
Regardless of how economics is taught, my sense is that experienced economists must/do understand this dimension to this discipline, even if they don’t routinely articulate this or talk about it. Experience is the key here.. understanding the complexity takes time… This is where the years of experience comes in , where those who have done there time see patterns and trends at play.
I guess if they work in the stock markets or elsewhere and they are good at what they do, they will spot these patterns earlier than their peers and may move to “buy” or “sell”. If they work in policy (eg IMF, World Bank, Central banks) you would hope they can harness and use their understanding of the  key patterns at play to influence the economics climate they govern.

How to deal with complexity ? Probe, Sense and Respond
If this sounds all too abstract , consider this…we all know at least one key pattern and means at influence at play here in controlling economies around the world … that of the interest rate mechanism.
If economic growth is low my understanding is that interest rates are cut to try to stimulate growth.
If economic growth is too high, then the opposite is used, interest rates are raised to try to limit that growth.
Of course these are not perfect tools but may be the best that can be used in a complex adaptive system? The interest rate acts as a probe into the economy, then indicators are sensed/looked for… is it working? does the rate need to respond by adjusting up or down? The central banks Probe, Sense, Respond… an ongoing and continuous iterative cycle of adjustment is the only way through…
This complex systems aspect of economics, is I sense best explained as “the art of economics”.

One of the best ways to explain patterns within complex systems is to use narrative rather than numbers. To his credit my fellow Irishman (and imho global thought leader on economics) David McWilliams has a real talent for explaining complex economics with narrative and related stories.  My sense is his deep and meaningful understanding of economics helps him identify the key recurring patterns at play and how to convey complexity with narrative better than anyone else I’ve seen.

Chaos
(Some say there is no training you can get for handling chaos, its a leadership trait you either have or not)
After the financial crash of 2008 we should be better able to understand that economies are complex systems “on the edge of chaos”.  Such days are full of unpredictable turmoil and we see them at regular enough intervals when markets surge or tumble.
The key to getting out of such chaos is the need for leadership and action… any action… (see above .. Act, Sense , Respond)
We know that at the height of the 2008 crisis, “in a dramatic meeting on September 18, 2008, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke met with key legislators to propose a $700 billion emergency bailout of the banking system. Bernanke reportedly told them: “If we don’t do this, we may not have an economy on Monday. ”
One might argue that any ongoing EU economic malaise is due to the wrong form of leadership or indeed the lack of real leadership?

Here end’th a brief discussion on Economics, Complexity and the Cynefin framework.. for now at least. I’ve been looking for others to bring these subjects together for a while and not found any, so here’s hoping someone else picks this one up and takes the thinking further…

Any efforts to improve my/your/our understanding of the important yet misunderstood discipline of Economics are appreciated in advance..