Read This Book

I just finished this book (The Origin of Wealth by Eric Beinhocker), and it is one of the best I’ve ever laid my hands on.  Although economists set in their ways will find discomfort in its challenge to their worldviews (neoclassical, neo-Keynesian, take your pick), it will be a page-turner for anyone else—especially anyone who has a background in science or engineering, although that’s definitely not a prerequisite. 

The economy is a stubborn thing that does not behave the way the equations say it should—regardless of which economists’ equations we’re talking about, and regardless how many centuries they’ve spent developing the deterministic models.  Instead, the economy is a complex adaptive system, always evolving (or trying to evolve) to a higher state of order. 

If you only read two chapters, pick chapters 3 and 4.  Chapter 3 summarizes the critique of conventional economics’ assumptions and so-called axioms; as at the end of the Wizard of Oz, it is an unveiling of the man behind the curtain.  Chapter 4 introduces the new paradigm, using agents in computer simulations to demonstrate how complex economies evolve from scratch in an environment with just a few simple rules and survival motives.  After you read chapter 4, I predict you won’t want to stop reading. 

The future is nowhere near as predictable as deterministic equations and models would suggest.  That’s why there’s a better way to prepare for a better future than predicting, committing, and planning.  The better way is to experiment, learn, and adapt; to try a whole lot of new, different things, each one in a little way; i.e., to adopt the "Thomas Edison" approach.  All it takes to discover a paradigm-shift technology is just one success out of all those many little experiments—and there’s no way of knowing ahead of time which of those many experiments will succeed. 

A few years ago, my company was experimenting with a few large customers on a new idea for doing business together.  Early on, we had many disappointments; I described the process as follows:

“We’ve been trying a lot of things that don’t work.  That’s encouraging, because the faster we do that, the sooner we’ll run out of things that don’t work.”

Experiment, learn, and adapt.  That’s how (not just) economies evolve faster and better.  The more favorable the environment for that process, the faster the economy evolves to a higher order. 

I’ll be talking more about that process in the next few articles (coming soon) of my series on energy.