image edited by Fernando Kaskais
Money and brains are both quantum phenomena – so it’s not surprising that economics is overdue for a quantum revolution
‘I’m not absolutely certain of my facts,’ wrote P G Wodehouse in his story ‘Jeeves and the Unbidden Guest’ (1925), ‘but I rather fancy it’s Shakespeare … who says that it’s always just when a fellow is feeling particularly braced with things in general that Fate sneaks up behind him with the bit of lead piping.’
It certainly seems to be the case in science that, just before a field is completely disrupted by a major discovery, someone has to make a statement that sums up the field’s complacency for future historians. For years in the future, people can look at it and think, they had no idea what was about to hit them (and sometimes the lead pipe is used more than once).
In 1894, this task fell to the American physicist Albert Michelson, later Nobel laureate, when he announced that ‘it seems probable that most of the grand underlying principles have been firmly established, and that further advances are to be sought chiefly in the rigorous application of these principles’. A few years later, those principles were hit by the discovery that, at the subatomic scale at least, nature moves in sudden quantum leaps and jumps.
A century on, at the 2003 Presidential Address of the American Economic Association, the job fell to the Nobel laureate, economist Robert E Lucas Jr, who told his audience: ‘My thesis in this lecture is that macroeconomics in this original sense has succeeded: its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.’ A few years later, that conclusion was shattered by the discovery that the economy had suddenly leaped off a cliff.
Lucas’s optimism was not out of place at the time. With its visions of ‘efficient markets’ and ‘rational expectations’ all firmly grounded in mechanistic equations, economics was the undisputed queen of the social sciences. But the question now is whether history will repeat itself in another sense. In physics, the quantum revolution reshaped the field. Will the financial crash lead to a similar reshaping of economics? After all, mainstream or neoclassical economics is explicitly based on the classical mechanics of the 19th century, with people seen as individual atoms, their behaviour guided by deterministic laws. Surely it is ripe for an update?
Indeed, in recent years there have been many calls for economics to reinvent itself, most noticeably from student groups such as the Post-Crash Economics Society, and Rethinking Economics. In 2017, the United Kingdom’s Economic and Social Research Council announced that it was setting up a network of experts from outside economics whose task it would be to ‘revolutionise’ the field. And there have been countless books on the topic, including my own Economyths (2010), which called for just such an intervention by non-economists.
But progress has been slow. Back in 2008, the French physicist and hedge-fund manager Jean-Philippe Bouchaud wrote the paper ‘Economics Needs a Scientific Revolution’ in the journal Nature. In late 2017, he provided an update to the Financial Times: ‘Following the financial crisis, many of us hoped that the economics profession had finally realised that their models were not representative of how the real economy works, and that their flawed methods would quickly change. That assumption was wrong.’ He concluded that: ‘If we don’t embrace new methods of modelling the economy, we will be as blind to the next crisis as we were to the last one.’
One problem is that, while there have been many demands for a revolution, the exact nature of the revolution is less clear. Critics agree that the foundations of economics are rotten, but there are different views on what should be built in its place. Most think that the field needs more diversity and should be more pluralistic, and feel that the emphasis on economic growth for its own sake needs to be reconciled both with environmental constraints, and fair distribution. Many, including Bouchaud, argue that economists need to adopt techniques from other areas such as complexity theory. There have been attempts to base the subject more on data than on theory. And, of course, the idea of rational economic man – which forms the core of traditional models – should be replaced with something a little more realistic.
But what if the problems with economics run even deeper? What if the traditional approach has hit a wall, and the field needs to be completely reinvented? What if, as with 19th-century physics, the problem comes down to ontology – our entire way of thinking and talking about the economy?
And what if the metaphorical piece of lead piping that mugged both physics and economics was in each case exactly the same thing – namely, quantum reality?
For a start: what is economics? If you ask an economist, or look in a textbook, it turns out that most follow the English economist Lionel Robbins, who wrote in 1932: ‘Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.’ Or as it is often paraphrased, economics is the science of scarcity.
And if you ask, what is the point of economics – what is it trying to do? – then the typical answer is to say that economics is about optimising utility. Or as one book put it: ‘Economics is about happiness.’…