Reply #45: I can describe some things I think economics should address. [View All]

A good theory of economics should model agents who have a fairly limited planning horizon. Based on my observation of human and corporate behavior, this planning horizon would rarely be greater than about 5 years, and in many cases limited to about one quarter.

It should include a notion of fitness landscapes that co-evolve with the agents occupying them. In fact, the agents must be considered an integral part of the fitness landscape.

It should include a notion of phase changes in fitness landscapes, from percolating -- lots of adaptation pathways -- to non-percolating, where adaptation pathways become disconnected, and the system enters into a period of recession, that is analogous to an extinction event. Recession/extinction events will obey a scale-free distribution, like the kind of distribution exhibited by earthquakes, or the distribution of biological extinctions in nature. Lots of small, inconsequential events, and occasional catastrophic events.

For that matter, this theory should be, in the end, readily applicable to biological ecologies. Or vice versa.

It should be able to model what happens when an economy becomes highly adapted (over-tuned) to a keystone resource, like oil, and then model what happens when that resource declines steadily over two or three human generations. It should be able to model various scenarios, for instance what happens if the resource declines so fast that the fitness landscape becomes non-percolating.

In fact, ideally it should be able to tell us where the critical decline rate is: how fast does the resource have to decline, to trigger a phase-change from percolating to non-percolating?