One of the first serious computer programs I ever wrote was a game for the BBC Micro (Model B, built by Acorn, 32K of RAM, 2MHz 6502 CPU, round about 1984). The user was in control of a farm. Every round he/she was shown some statistics about the size of the crop, profits earned, cost of seed and fertilizer, rainfall, etc. He/she then had to decide how much and what to purchase, how much to sell, what to sow, etc. I do not have the source code any more, and I don’t remember the formulas, but I’m sure they were not very complex. Nevertheless, it was a challenging game to play. But even more challenging was tuning those formulas just right so that the game would not be too difficult or too easy. It was quite complex.
I’ve just watched a programme on TV about the world economic crisis and it seems to me that we (all of us) are having the same problem: the world economy is a complex game and, while certain basic operations are well-understood, it is very difficult to “tune” the global economy to perform well. I know very little about economics, but this sounds appealing to me because it is, in essence, a scientific problem. We have a complex (natural) system whose behaviour we would like to formalize.
Physics – the science of the physical world, not the laws of the natural world themselves – is premised on the idea that the basic laws are fixed, and that the same experiment yields the same outcome. There may be some exceptions to this, but they are either very rare (in fact, we do not know of any for sure), or they turn into non-exceptions at a higher level (I thinking of quantum mechanics).
I’m not so sure that the same kind of premise holds for economic systems. There may be too many exceptions for us ever to understand all of the complexity. One could argue about this point: under normal conditions, the effect of raising interest rates are roughly known, under normal conditions, physicists cannot predict cloud formations. The latter problem is one of computational power of course, and at the atomic level, economic systems themselves are physical systems. Nonetheless it seems clear to me that the “science” of economics has far to go. (While the science of physics have arguably gone far enough in some directions.)
From what I understand, a lack of understanding is exactly what caused the current problems. Sophisticated instruments (in plain language: complex formulas) were developed and, while they were relatively well understood at a local level, their impact on the system as a whole was not known. This lack of a global vision and some bad luck brought us to the situation we are in. Some may have been greedy, but all (99.99%) of the players were sincere, and still the crisis happened. Clearly the global economy needs more regulation. And this is where my game comes in, because how much and what should we regulate? I am a bit of a fascist or a benevolent monarchist. All people should be given an opportunity to live simply, normal lives, free from the complexity of sophisticated instruments. In my kingdom, speculation is mostly outlawed and excessive profit is frowned upon.
Another question raised in the television programme was the ludicrous bonuses paid to CEOs and others. Obviously something is morally wrong with this system of incentives, but I’m not sure that it is a broken part of capitalism. The big C is driven by greed; if we love the system, we should love the greed, the bonuses, and especially the unfairness of it all. Capitalism is economic (and genetic and geological) unfairness. My kingdom would probably regulate the free market to death, but it would also give people other things to worry about!