Yesterday I made a post on the need for a new economics. In this post I will elaborate more on the possibilities of replacing the economic science of today with the complexity of tomorrow.
The main questions for me are: where do we go from here? How do we make a new economic reasoning? We can do this using some economics that is already here: Evolutionary economics. This kind of economics is more based changes in systems rather than the optimization and equilibrium that is more present in classical economics. In evolutionary economics it is thought that all sorts of things (products, companies, strategies etc.) follow the evolutionary algorithm that was found in biology by Darwin. This means that less fit things (products, etc.) will eventually give way to more fit things (other products, etc.).
Evolutionary economics also employs another interesting concept: bounded rationality. In short, bounded rationality means that actors in systems (you and me) do not make the most optimal decision, or make a completely random decision but rather something that is in between: we make a strategy which is OK. These strategies are then mainly chosen, not because they are the optimal strategy, but because we are satisfied with them. I think that this is far closer to human nature (and also that of companies and other larger actors) than an optimizing approach.
Unfortunately there is always something to complain about: in evolutionary economics the focus is solely on the evolutionary algorithm that obscures systems of our economy which do not have evolutionary properties. A good example of this is the behavior of consumers (again you and me), where there is not really a process where bad consumers get replaced by good consumers. But this can be solved by taking a broader perspective of economic systems and creating a theory of complex systems in which the evolutionary algorithm is just one component, be it a very important one.
However, there is a real problem with the state of evolutionary and other ways of describing the economic system. By my knowledge (please answer this post if I am wrong) there is not a single complex way of describing the entire economy. There is no answer to the question what is the increase in GDP the next year or over the next 5 years. Or: what will happen in X years to our government debt if we raise taxes on middle-incomes by 3 percentage points? All models of from complexity economics are just models: they are good at describing one behavior or give an understanding into dynamics of different systems but they cannot really be applied to real-world economic policy questions.
Classical economic theory offers answers to these questions. But we know that these answers are not only inaccurate but they are also skewed towards certain outcomes (something that I will come back to in a later post). Therefore I believe that we need to come up with an economic theory based on complexity that is general and that can be applied to answer economic policy questions.
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