by Paul Ormerod. For a brief background of how I came upon this subject, my most recent interest in economics began a couple years back when I began reading classic works of Hayek and Keynes, among others. Probably surprising to many, I found the work of both these giants in the field to offer timeless insights about the macroeconomy that had seemingly been lost leading up to the financial crisis. More specifically, I was curious about the broader ideas of uncertainty and emergence that each touches on, though in different manners. Allowing my reading selections to follow a random path, I stumbled upon books in theoretical and particle physics discussing those intriguing subjects in the context of chaos theory and network effects. Ormerod’s book, among other things, is trying to encourage mainstream economics to re-incorporate these lost ideals from the past with new lessons from physics and other social sciences.
Aside from Ormerod, there are numerous others simultaneously working to construct new models of the economy that include these areas of research. One of those is Steve Bannister, at Naked Keynesianism, who offers this conclusion to a critique of the Lucas critique:
I propose two things to restore the dominating importance of emergent macro properties on economic behavior. One is a recommitment to econometric modelling. Ever increasing data and increasingly better tools will continually improve modelling and forecasting results.
The other is a methodology that is vastly underused in economics, but widely used in various other sciences: network system analysis based on the mathematical theory of graphs. These methods lets us directly measure and model emergent dynamic behaviors from groups, like the individuals in an economy. No added up methodological individualism required; no agent-based model needed. Observe, model, and predict directly at the macro level.
While I believe empirical models, properly done, are fundamental to understanding and policy, network models provide us with a dynamic theory, emergent macro behaviors, that support our correct Keynesian beliefs that it is the macro foundations of micro behavior that matter, not the other Lucasian way around.
