12 Short Steps to Retell the Story of Economics

It’s time for a different economic narrative

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By Jag Bhalla

Are there key plot holes in a tale that shapes our times?

1. Economics illustrates “the pitfalls of a good story,” says science writer Philip Ball.

2. It is built on a simple story that can discount or hide complicating logic.

3. Here’s Adam Smith’s plot summary: “He who intends only his own gain … is … led by an invisible hand … [and] frequently promotes [the interest] of … society.”

4. The key “characters” are self-seeking individuals and competitive markets, where prices automatically coordinate good collective outcomes (benign efficient “spontaneous order” = unintended consequence).

5. But what Smith’s invisible hand “frequently promotes,” it can’t guarantee. The other logical possibility is that self-seeking can cause collective harm, intended or not.

6. Plus the “simple story” mischaracterizes competition and prices.

7. Competition can be efficient, or wasteful — see Markets Dumb As Trees.

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8. Prices often aren’t “right.” Both sellers and buyers gain (short-term) by ignoring “externalities,” like pollution costs. That complicates voluntary fixes.

9. Two “invisible hand” types exist. Sometimes local incentives combine to generate good group outcomes. Sometimes they undermine group goals. As Charles Darwin saw, these bad invisible hands create spontaneous disorder, which local incentives can’t cure.

10. Parts relate to wholes in two distinct ways. Sometimes we can predict how wholes behave from the properties of their parts. Other times not; it’s more complicated.

11. The field of “complex systems” studies these trickier beasts. That’s an unfortunate name — jet engines are complex but predictable, and two simple parts can generate unpredictable complexity (Wolfram Rule 30).

12. Markets are the most powerful social forces on earth, they shape how billions of people live. Let’s get their whole story straight. We can’t afford to continue ignoring their complicating logic.

For less one-sided stories, and more on efforts to deploy tools and ideas from complex systems, evolution and business, keep following Evonomics.

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  • jothwu

    Markets work beautifully, except where they don’t. We should consider the obvious reason the invisible hand is invisible.

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  • Jan de Jonge

    There are many visible hands that support the invisible hand. Think of organizations, institutions or the government.

  • David Burns

    Efficient compared to what?

  • Jorge Icabalceta

    This article is a total contradiction. It starts by saying “…It is built on a simple story…” Well, this is exactly what this “article” is doing. It criticizes economics for being so simplistic and then the author makes a simplistic “article” (not sure it actually is). I actually wonder myself why evonics has fallen so low in the quality of what they publish. And then I answer my own question when I remember that evonics is a garbage site

    • robertmkadar

      Great useless comment. Did you know that you can choose not to read and just leave?