Making Sense of Chaos: A Better Economics for a Better World, reviewed

We look at this thoughtful attempt to dig into the complexity of real world situations and the attempts to make better models to understand what is happening around us and why. See more about the author Doyne Farmer here.

Making Sense of Chaos: A Better Economics for a Better World, reviewed

This is a challenging topic to do well. Models are always limited by their inherent nature, how many factors do you incorporate? How much data do you need, over how long a time period? How do you factor in the slightly to very unpredictable behaviour of humans themselves, and their inclination towards capricious behaviour sometimes? The author does a good job of explaining these challenges, while offering some small hope with positive and interesting examples.

The ability to predict the weather is one example that the author refers to. Citing the observation, that, with each decade that passes, humanity seems able to predict one more day further into the future. For sure we can’t yet say what the weather will be one month from now, but one to three day forecasts are pretty reliable, and even four to six days out, we are now able to have a pretty good idea of what is coming down the line. Of course human’s impact on global warming, and more unstable weather systems does then counter impact on these improvements.

Farmer also discusses the solar industry with interesting, and potentially hopeful and positive predications about the continued fall in the price of solar generated energy units, relative to those generated from fossil fuels. We found this book to be well written, self critical, and aiming to tackle something which, by it’s vary nature is extremely difficult to do really well. If you are looking to get up to speed in any of the topics tackled then we would recommend it.

More about the book

In Making Sense of Chaos one of our most influential scientists, J Doyne Famer, tackles these questions and more. Introducing the new field of complexity economics, he describes how rebellious economists and other scientists are revolutionising our ability to predict the economy, developing new approaches to global problems – like climate change, inequality, and the devastating impact of financial crises, which hit the poorest hardest.

These issues are all rooted in the economy, yet mainstream economics isn’t helping to solve our most pressing problems.  Farmer explains why it can’t do the job, and suggests a better alternative, called complexity economics.  Complex systems are characterized by emergent phenomena – creating a whole that is qualitatively different from the sum of its parts. Examples are the human brain, the weather system, and of course, the economy.

The ideas behind complexity economics have been around for many years, but enabled by enormous improvements in computing power and big data, its time has come. We can now build real-world computer simulations of the economy that track its emergent behaviour in detail.  For instance, it is possible to simulate how the occupational labour force changes through time, how economic policies affect rich or poor households, or how the economy will evolve during the energy transition.

This new science, Farmer shows, will allow us to test ideas and make better economic predictions, enabling us to better tackle global problems like inequality and climate change, creating sustainable growth, and more.  And, ultimately, create a better world.

More about the author

Doyne Farmer is an American complex systems scientist and entrepreneur who pioneered many of the fields that define the scientific agenda of our times: chaos, complex systems, artificial life, wearable computing, and more. Currently he is Director of the Complexity Economics programme at the Institute for New Economic Thinking at the Oxford Martin School, Baillie Gifford Professor of Complex Systems Science at the University of Oxford, Chief Scientist at Macrocosm, and an External Professor at the Santa Fe Institute.

Previously, he was an Oppenheimer Fellow and the founder of the Complex Systems Group at Los Alamos National Laboratory. While a graduate student he led a cooperative that built the first wearable (and concealed) digital computer and used it in casinos, successfully beating the house. He was a founder of Prediction Company, an early quantitative automated trading firm that was sold to the United Bank of Switzerland in 2006. An adventurer and avid sailor, Doyne finds time to sail his boat Eudemon, and is a founder of Macrocosm, a new company using complexity economics to guide the green energy transition.

A Life in prediction

An unconventional scientist and entrepreneur, Farmer has led a variety of scientific adventures, including…

1975: The Project: Farmer dropped out of graduate school to predict roulette, beat the house in Las Vegas, and used the winnings to found a science commune with his friends. People assume roulette is unpredictable, but since it follows Newton’s laws of motion, it can be beaten by gathering the right information and doing the needed calculations.  For this, he led a cooperative that invented the world’s first wearable computer, which was concealed under his armpit and transmitted the right bet to an accomplice with a sensor hidden in her bra.

1991: The Prediction Company: In 1991 Farmer founded a company to play the financial markets: one of the world’s first quantitative hedge funds, which was sold to UBS for a hundred million dollars in 2006.  The trading system that he helped develop comfortably outperformed the market for 19 out of 20 years.

2010: Good news on solar:  Could the energy transition be cheaper and faster? In 2010 Farmer published a prediction in Nature that solar energy would be cheaper than coal-fired electricity by 2020. At the time, solar was very expensive — even in 2014, a widely quoted article in The Economist held that ‘solar power is by far the most expensive way of reducing carbon emissions’.  But the cost fell roughly as Farmer predicted, and in most locations, solar energy is now even cheaper than coal-fired electricity. And by 2030 he predicts solar-generation will be substantially cheaper still.

2020: The economic impact of COVID: In March 2020 Farmer and his colleagues rushed to make predictions about the impact of lockdown on the UK economy for the government.  They predicted a 21.5 percent contraction of Q2 2020 GDP in the U.K. economy, remarkably close to the actual contraction of 22.1 percent.  The Bank of England forecast 30 percent.

2020s Shaping public policy: The Climate Policy Laboratory being developed now aims to analyse and assess strategies for mitigating climate change in order to transform the global economy as rapidly, fairly, and efficiently as we can.   Macrocosm, Farmer’s new company aims to build large-scale granular models of the economy that can be used in both the private sector and by governments to create a fairer, more sustainable world.

See more reviews here.