More: Can science reinvent the economy?

Can we pack an entire economy, with all its complex human and political interactions, into a computer? Physicist Dirk Helbing of ETH thinks so – as long as we’re bold enough in going about it.

He points out that financial systems aren’t the only monsters we’ve let out of the box. How traffic flows in and around huge cities simply cannot be grasped by mathematical analysis, but computer models let millions of virtual vehicles interact on realistic road patterns – and often discover potential problems before they occur in reality.

The complexity of today’s economy, Helbing suggests, demands a similar approach. “We’re not currently using the best capabilities of science,” he says. “We need to bring together scientists from different fields and put together tools that can be used as a kind of wind tunnel for testing out social and economic policies.”

The approach has already proved its worth on a small scale. Several years ago, when the state of Illinois decided to deregulate its electricity market, it wanted to avoid California’s disastrous experience, when the disgraced firm Enron manipulated prices, created shortages and caused rolling blackouts. The state authorities hired Charles Macal and colleagues at Argonne National Laboratory to build a sophisticated model of Illinois’ power market, incorporating suppliers, consumers and regulators, as well as the full network along which power flows.

The team first interviewed the various market participants to learn their behaviour. Each was represented in the model by virtual agents who could act on those strategies, but also learn on their own. Running the model, the team found that the initial legal framework for deregulation had flaws which made it vulnerable to Enron-like manipulation. The state successfully altered its plans, and the approach has since been used in similar cases in Croatia, Portugal and South Korea. Some stock markets, such as NASDAQ, have used it in planning changes to their trading rules.

Groups in the US and Europe are already building similar models of whole economies, including millions of individuals, families, firms and banks, as well as government regulators. Helbing and colleagues have lodged a proposal with a European Union funding body to start building the extensive communities of researchers and collaborations – between economists and other social scientists, physicists, lawyers and computer scientists – that would be needed to simulate whole economies effectively.

With growing computing capacity and greater understanding of complex systems, they suggest it should be possible within a decade to have functioning models of the global economy to which policy-makers could look for sound insights with which to penetrate the overwhelming complexity of today’s markets.

More: Can science reinvent the economy?

Share/Bookmark

Will the current economic meltdown, and worker reaction to it, be a reenactment of the Great Depression? Could the politics of racist resentment on the US-Mexico border explode into (more) violence? Are global elites truly motivated to combat climate change? Mike Davis, author of In Praise of Barbarians, tackles these and other issues.

Mike Davis, “Can Obama See the Grand Canyon? On Presidential Blindness and Economic Catastrophe” TomDispatch

Mike Davis, “Living On the Ice Shelf: Humanity’s Meltdown” TomDispatch

Share/Bookmark

Incidentally in connection with the superabundance of industrial capital which appears during crises the following should be noted: commodity-capital is in itself simultaneously money-capital, that is, a definite amount of value expressed in the price of the commodities. As use-value it is a definite quantum of objects of utility, and there is a surplus of these available in times of crises. But as money-capital as such, as potential money-capital, it is subject to continual expansion and contraction. On the eve of a crisis, and during it, commodity-capital in its capacity as potential money-capital is contracted. It represents less money-capital for its owner and his creditors (as well as security for bills of exchange and loans) than it did at the time when it was bought and when the discounts and mortgages based on it were transacted. If this is the meaning of the contention that the money-capital of a country is reduced in times of stringency, this is identical with saying that the prices of commodities have fallen. Such a collapse in prices merely balances out their earlier inflation.

The incomes of the unproductive classes and of those who live on fixed incomes remain in the main stationary during the inflation of prices which goes hand in hand with over-production and over-speculation. Hence their consuming capacity diminishes relatively, and with it their ability to replace that portion of the total reproduction which would normally enter into their consumption. Even when their demand remains nominally the same, it decreases in reality.

It should be noted in regard to imports and exports, that, one after another, all countries become involved in a crisis and that it then becomes evident that all of them, with few exceptions, have exported and imported too much, so that they all have an unfavourable balance of payments. The trouble, therefore, does not actually lie with the balance of payments. For example, England suffers from a drain of gold. It has imported too much. But at the same time all other countries are over-supplied with English goods. They have thus also imported too much, or have been made to import too much. (There is, indeed, a difference between a country which exports on credit and those which export little or nothing on credit. But the latter then import on credit; and this is only then not the case when commodities are sent to them on consignment.) The crisis may first break out in England, the country which advances most of the credit and takes the least, because the balance of payments, the balance of payments due, which must be settled immediately, is unfavourable, even though the general balance of trade is favourable. This is explained partly as a result of the credit which it has granted, and partly as a result of the huge quantity of capital loaned to foreign countries, so that a large quantity of returns flow back to it in commodities, in addition to the actual trade returns. (However, the crisis has at times first broken out in America, which takes most of the commercial and capital credit from England.) The crash in England, initiated and accompanied by a gold drain, settles England’s balance of payments, partly by a bankruptcy of its importers (about which more below), partly by disposing of a portion of its commodity-capital at low prices abroad, and partly by the sale of foreign securities, the purchase of English securities, etc. Now comes the turn of some other country. The balance of payments was momentarily in its favour; but now the time lapse normally existing between the balance of payments and balance of trade has been eliminated or at least reduced by the crisis: all payments are now suddenly supposed to be made at once. The same thing is now repeated here. England now has a return flow of gold, the other country a gold drain. What appears in one country as excessive imports, appears in the other as excessive exports, and vice versa. But over-imports and over-exports have taken place in all countries (we are not speaking here about crop failures, etc., but about a general crisis); that is over-production promoted by credit and the general inflation of prices that goes with it.
(Capital^W, Volume 3, Chapter 30, Money-Capital and Real Capital, I. pp. 478-9)

Share/Bookmark

Spanish painter Miquel Barcelo used over 100 tons of pigments from all over the world to make a 16,000-square-foot brightly-colored abstract painting for the United Nations offices in Geneva. “On a day of immense heat in the middle of the Sahel desert, I recall with vivacity the mirage of an image of the world dripping toward the sky,” Barcelo said. “Trees, dunes, donkeys, multi-colored beings flowing drop by drop.” As the work was unveiled, UN Secretary-General Ban Ki-moon thanked Barcelo for putting his “unique talents to work in service of the world”. He added: “The artwork you have created for this room is innovative and radiant. I have no doubt that people will come to see it whether they have business here or not.” The painting, on the ceiling of the Human Rights and Alliance of Civilizations Room, has been criticized for it’s $23 million price tag. (via BBC News)

Sharon Butler

Share/Bookmark