Forecast

December 3, 2012
Time to grapple with the stormy realities of an unbalanced marketplace, argues this scathing critique of economics-as-usual. Physicist and journalist Buchanan (The Social Atom) attacks what he thinks are the unrealistic assumptions of modern economics: that financial markets efficiently process all information; that humans make perfectly rational decisions; that market economies reliably find a placid equilibrium when freed from regulation. To understand the real economy of irrational mortgage bubbles, prolonged recessions, and split-second stock-market crashes, he contends, we must look to other sciences—meteorology, physics, cognitive psychology—for insights into the intrinsic instabilities of complex systems like the market. Buchanan’s case against mainstream free market economics, which takes aim at Nobel luminaries like Milton Friedman, Robert Lucas, and Gary Becker is a lucid, cogent one that reveals the shaky foundations of much overconfident theorizing and ill-conceived deregulatory policies. His brief for a new economics of nonequilibrium dynamics is less incisive; he does a good job explaining some conceptual underpinnings of the science of complexity, but since that approach relies on modeling chaotic markets with mysterious black-box computer simulations, it lacks the analytical clarity and catchiness of neoclassical economics’ simplistic theories. Still, Buchanan offers a compelling outsiders’ take on the hubris and failures of reigning economic orthodoxies. Agent: Lisa Adams, the Garamond Agency.

January 1, 2013
Former Nature and New Scientist editor Buchanan (The Social Atom: Why the Rich Get Richer, Cheaters Get Caught, and Your Neighbor Usually Looks Like You, 2007, etc.) offers his take on why economic theory breaks down when it comes to making predictions. The author focuses on the increasingly evident failures of contemporary economic theory to offer either useful or timely predictions of future problems. He proceeds from the assumption that "merely predicting what is possible and likely can be hugely valuable, giving us warnings of specific dangers." He compares the failures of the still-dominant school of economics--which failed to predict the 2008 crash--with weather forecasting. Prior to World War I, weather forecasting, as a predictive discipline, was in roughly the same shape that economics is in now. Modern predictive capabilities, including tornado and hurricane warnings, still stem from work done in the late 1950s. During the same time period, economics was going in the opposite direction, elaborating a theory based on self-stabilizing equilibrium. Buchanan summarizes the theory as it developed from the work of Kenneth Arrow and Gerard Debreu and shows how mechanisms associated with positive feedback were ignored. He provides some intriguing documentation on how Nobel-winning economists like Milton Friedman and others have resorted to verbal games to defend "unrealistic assumptions." Buchanan also features other economists who reject empirical data that doesn't fit their theoretical models or represent "the reverse attitude that rejects theories that do fit the data if they don't fit the theoretical orthodoxy." The author's stimulating deconstruction of contemporary economic theory parallels a treatment of major positive developments in physical sciences and pays due respect to the functions of government and law.

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