This is the first preview of J. Doyne Farmer's upcoming book, Making Sense of chaos: A Better Economics for a Better World, set to be published by Allen Lane on 25 April 2024.
- Is the current mainstream approach to understanding the economy really the best we can do?
- What causes financial turbulence? Why do markets malfunction, and can we make them work better?
- Is dealing with climate change going to be costly and slow? Or can we rapidly transition the economy to make energy cleaner and cheaper than it has ever been?
In Making Sense of Chaos one of INET Oxford's most influential scientists, J. Doyne Farmer, 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.
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 to beat the house in Las Vegas, hoping to use 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.
About Doyne Farmer
J. 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.
Advance praise for Making Sense of Chaos
Standard economics has failed us when it comes to the challenge of climate change, and in this remarkable book Doyne Farmer explains why--and shows that a more complex understanding of how economies work yields insights that can help us see, and build, a workable future. Farmer's insights are more general, extending to all kinds of realms; indeed, it's exciting to sense the intellectual ground being broken here. But it's also of the highest practical importance; heeding his thoughtful counsel offers a path out of the box canyon where we're currently stuck as a species. Bill McKibben, author The End of Nature
In this riveting book, Doyne Farmer profoundly unravels the role played by complex systems in our economy. From the time he was living in a tent while working on climate models on the American west, to his more recent years in the hallowed halls of Oxford University, Farmer’s lifelong journey is a testament to the creativity and perseverance needed to succeed in the rugged landscapes of multidisciplinary science. César Hidalgo, author of Why Information Grows
I can't think of a better person to help us make sense of chaos than one of the founders of the field of chaos theory, J. Doyne Farmer. A physicist by training, but with plenty of financial and economic street cred, Farmer takes on the formidable task of making complexity economics understandable, fascinating, and fun. And he succeeds! Andrew W. Lo, author of Adaptive Markets
This is the book I’ve been waiting for. It reinvents economics in terms of computerized agent-based modeling and complex adaptive systems theory developed over four decades. In many situations, "complexity economics" is more predictive than classical economics and therefore provides a better basis for public policy. Doyne Farmer’s life work with Santa Fe Institute is embodied here. Stewart Brand, founder, The Long Now Foundation
One of this century’s biggest threats is linear thinking. Our greatest challenges, such as climate change, force us to see the world through a new lens. Doyne Farmer shows us how to grapple with these complexities, bringing some clarity to the chaos. Essential reading for those who want to understand our most pressing problems and work towards solving them. Hannah Ritchie, author of Not the End of the World
This book is a real achievement from which I learned a great deal. . The economics profession should be much more open to Farmer type complexity approaches. I hope this book is an inspiration to young scholars from many disciplines concerned with economic questions. Larry Summers
After 2008, everybody except conventional economists seemed to realise that conventional economics is failing us. I applaud this bold and exciting new approach, born out of the 21st century rather than the 19th. It’s about time! Brian Eno
Mainstream economics achieved an impressive level of mathematical rigor, but at the expense of grossly simplified assumptions and an exclusive focus on the equilibrium, making it ineffective in helping us solve real-world problems. Is “predictive economics” even possible? In this remarkable book, Doyne Farmer, a co-founder of the modern science of chaos, shows that it is. He convincingly argues that we need to build realistic agent-based models, grounded in data, that will enable us to find effective ways to run our economy and navigate societal challenges. A must-read. Peter Turchin, author of End Times: Elites, Counter-Elires, and the Path of Political Disintegration
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