What Complexity Economics Can Add to Our View of the World
Odd Lots
Bloomberg
4.5 • 2K Ratings
🗓️ 22 July 2021
⏱️ 52 minutes
🧾️ Download transcript
Summary
Over the past year it's become clear that traditional economics doesn't necessarily do a great job of accounting for real world problems like transport gridlock or irrational decision makers. For instance, sawmills' first response to the Covid crisis was to cut back production because they were scarred by the memories of the 2008 housing bust. Container shipping issues have caused widespread supply chain issues, and so on and so on. Enter complexity economics, which views the economy as the outcome of decisions by sometimes irrational participants who are constantly interacting and learning from each other. In this version of economics, nothing is ever stable or at equilibrium and everything is always changing. Brian Arthur, economist at the Santa Fe Institute and visiting researcher at PARC, explains why complexity economics might be the perfect way of viewing the world right now.
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| 0:43.6 | Hello and welcome to another episode of the Odlots podcast. My co-host Joe Weisenthal is a way |
| 1:00.9 | today, so it's just going to be me for a bit. And one of the discussions we've been having |
| 1:07.4 | on Odlots over the past year or so is this idea that traditional economics doesn't actually do |
| 1:14.5 | a great job of taking into account a lot of important parts of the world economy right now. |
| 1:21.1 | And what I mean by that is if you look at something like the supply chain issues we've been |
| 1:26.0 | having in the market, we've been talking a lot about the shortage in semiconductors, |
| 1:30.6 | or if you look at things like transportation gridlock, we've spoken tons about the chaos |
| 1:36.1 | and container shipping this year. A lot of those sort of factors or complexities don't actually |
| 1:42.7 | make it into traditional economics. So for instance, one of the things I learned this year was that |
| 1:49.0 | the sort of classical definition of comparative advantage where one nation is very good at making |
| 1:55.8 | guns and the other nation is very good at making butter or wine versus cloth, something like that. |
| 2:01.7 | And so they're supposed to trade with each other. That classical model doesn't actually take into |
| 2:06.6 | account transport costs or at least it didn't when it was first proposed. So if economics is all |
| 2:12.9 | about simplifying assumptions in order to make it useful, you kind of have to ask about the trade |
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