Certain Uncertainty

Uncertainty is the nature of the universe. Get used to it.

Change is the only constant.

Those are far more profound statements than they appear to most people. Once we introduce time into the three-dimensional realm of space and matter, change is inevitable and with change we get the unpredictable nature of the future. Mankind is merely a bystander in this universe of uncertain change and it’s really the puzzle that has confounded the most brilliant minds in history: from Ptolemy to Copernicus to Einstein to Hawking.

The puzzle becomes more salient when we realize how uncertainty has shaped natural biology with biodiversity, adaptation, and the survival instincts that help species perpetuate in an uncertain environment of constant change. Humans are different only in that we are cognitively aware of the uncertainty. Together with our naturally endowed survival instincts, this awareness helps determine our behavioral adaptations. It applies to individual behavior and aggregate social behavior.

The social sciences, especially economics and finance, have now started to focus on this uncertain nature of the universe and how it determines how we cohere and interact in social communities characterized by economic exchange and social and political organization.

We can perhaps appreciate the extent that uncertainty infuses our lives by noting its influence on shaping our cultures and institutions. Religion, for example, is a faith-based belief system that not only shapes social behavior through doctrine, but also offers succor through prayer for the fears that uncertainty provokes. Modern democratic government has been called upon to manage the societal and economic risks of uncertainty through social insurance programs for retirement and healthcare, welfare, income maintenance, environmental risk and national defense.

A few authors have explicated a world characterized by uncertainty, most notably Nassim Nicholas Taleb with his compendium of books, including The Black Swan and Antifragile, as well as John Kay and Mervyn King with their collaboration, Radical Uncertainty.

I highly recommend these books, along with Peter Bernstein’s classic, Against the Gods. These frameworks for analysis help us understand the nature of uncertainty, risk and reward, and the imperatives of risk and loss aversion. Then we can decide how best to manage its inevitable effect on our lives.

Link to an excellent podcast of a symposium at the London School of Economics with the two authors of Radical Uncertainty:

https://www.lse.ac.uk/lse-player?id=4867

The Economics of Change

When non-economists start talking about the limits to economic growth, we often enter the bizarro world.

For example, here is a YouTube video titled: Economic Growth, Climate Change and Environmental Limits

https://www.youtube.com/watch?v=AQscc1HYjhU

I suppose this is because growth is most easily understood by our biological experience as a living organism – we are born small and end up bigger. The universe is expanding. But from an economic point of view that definition can be challenged.

When our skeletal bodies stop expanding, sometime around our late teenage years, do we stop growing? Or is growth merely measured in change over time? Certainly we see ourselves growing in wisdom, knowledge, emotional understanding, etc. In fact, economic growth statistics, like gross domestic product (GDP), are actually measures of year-over-year change, not necessarily physical expansion.

For instance, when we recycle old, used goods into new goods, we measure positive economic growth in terms of GDP, yet there may be no physical expansion at all. If your old car is recycled into steel, rubber, and glass and a new, more efficient electric car is produced from those materials, we have engineered positive economic growth, but there is no extra car on the road. A more absurd example would be if we paid a worker to dig a hole in the backyard, then paid another worker to fill it in. Both activities would register as positive GDP growth (workers’ income), but there will be no physical expansion of something created, only the loss of energy. (The Second Law of thermodynamics still applies.)

Economic growth is merely the conversion of energy into different forms so that all living organisms can adapt to a changing environment in order to survive and thrive. Positive growth is merely a measure of doing this successfully. That is certainly a good thing. It means that future growth will probably be less focused on expansion of markets and more on preserving certain scarce resources like clean air, water, and a sustainable biosphere. That is economic growth.

Just consider then what an anti-growth agenda implies: a universe frozen in time. In other words, a dead universe.