A must read if you're into economics and business
How long does it take to finish a 527-page book? No more than a week, in my experience, if the book is as fascinating as Eric Beinhocker’s “The Origin of Wealth“. By now, you probably already suspect that the classical economics you’ve learned in school is wrong - or, if not “wrong”, a pretty poor description of reality. So, what does a more useful economic science look like?
Here’s a few clues:
• You’ve read about emergent properties of complex systems ever since “Gödel, Escher, Bach” by Hofstadter.
• You know that a system doesn’t even need to be complex in order to produce unpredictable outcomes, for example if you’ve ever played the Beer Game, which was a big deal in System Dynamics training back in my McKinsey days.
• You’ve followed the progress in the field of behavioral economics and you’ve enjoyed a few laughs with “Freakonomics” by Levitt and Dubner.
• You may have heard about Epstein and Axtell’s Sugarscape model, where even agents modeled with very simple rules for metabolizing commodities and trading them with each other results in simulated economic landscapes in which the degree of inequality is strikingly similar to the one we witness in human societies.
• You’ve heard some of the debate around Matthew Miller’s “The Two Percent Solution“, who writes “Suppose I told you that for just two cents on the national dollar we could have a country where everyone had health insurance, every full-time worker earned a living wage, every poor child had a great teacher in a fixed-up school, and politicians spent their time with average Americans because they no longer had to grovel to wealthy donors? Suppose I also said we’d largely be using ‘conservative’ means (like tax subsidies and vouchers) to reach these seemingly ‘liberal’ goals–and that when we were done, government would be smaller than it was when Ronald Reagan was president?”
• You’ve enjoyed the descriptions of “open-source” companies in LaBarre and Taylor’s “Mavericks at Work“.
• When the mess of your desk has gotten out of control, you’ve invoked the Second law of thermodynamics.
What Beinhocker does, admirably, is put it all together. This is an ambitious book, far-reaching and stopping just short of intellectual sprawl. Overall, it is a great success and a must read for anybody interested in these issues.
A few, admittedly minor, quibbles. Why call the unifying theory Complexity Economics? If you can explain it without a single recourse to calculus in over 500 pages, it’s way less complex to understand than traditional economics. Of course, if the economy is like the weather, sitting in constant disequilibrium, requiring massive computational power to simulate, and defying forecasts, it is complex indeed. But it is complex for reasons that even a child can verify, by playing a simple computer game. I don’t have a proposal right now, but I’d like to suggest that the field needs a better label.
Finally, Beinhocker’s four concluding chapters about the theory’s implications for real life are not as insightful and innovative as the rest of the book. “Strategy” and “Organization” are useful, but don’t tell you anything new if you’ve gone to business school in the last, say, fifteen years. “Finance” is a bit more interesting (so, here’s what was wrong with CAPM!) and “Politics and Policy” makes you wish that, well, you could vote for the guy. But overall, I almost wish he’d finished the book at the end of Part III. Still, one of the best books I’ve read this year.Read full review
