Why network analysis is the way to describe the (better?) future

[this blog is now featured on the opendemocracy.net ‘New thinking for the British Economy’ site here ]

What it is, what it’s not

Network analysis is the method of the future. That is not only – certainly not primarily – because we are ever more connected in some superficial social-media driven internet sort of way. All of that may be fascinating (and certainly can be analysed using network analysis), but it is not fundamental to our existence as humans – we existed before Facebook, we will exist after it is gone.

Entirely fundamental though are the complex linkages between humans, problems and resources. And those linkages are just as important as the humans, problems and resources themselves. Analysing the links, not just the elements in isolation, requires network analysis.

The problem

In environmental, human and, therefore, long-run economic terms the models we use to describe the world currently find false optimal flight-paths towards unsustainable monolithic solutions. And don’t forget what an important and multi-faceted word unsustainable is – not just environmental concerns, but also the physical and mental health of populations, poverty and income divergence, political and societal fractures.

Human society is ever more linked. But the business, wider economic and political imperative hangs doggedly onto an assumption of individualism. And alongside this grand assumption sit the linear, non-network methods of analysis. It is hard to say which way cause or effect works – almost certainly some in both directions. And anyway, these traditional ways of seeing the world produce apparent ‘knowledge’ (or, even more dangerously,’solutions’) whilst in fact pushing the societal direction of travel entirely the wrong way.

Networked animals

Embedded within the definition of network analysis is its proximity to our human experience. Network data occurs whenever there is

some kind of ‘entity’, be that a human agent, an event, a geographical location, and
some kind of linkage or relationship between these e.g. humans meeting, events of a similar nature or occurring simultaneously, geographical places linked by transport.
A simple example of how this contrasts to non-network analysis is on risks of communicable disease. A non-network model would assign the risk of disease to someone according to characteristics: where they live, their income level, general health status, etc. But if we bring in the power of networks, understanding who had a relationship with who, we can analyse how someone is positioned in the network. If they are where many people had the disease and links were many and strong, or if very close to several people who were at high risk then that would indicate a high risk of contracting the disease. Clearly, with networks included we build a much more powerful model.

A better world…

Co-operation was shown many years ago to be the optimal solution in a vast range of situations, far outperforming the blind pursuit of individual interest. But this fact is ignored by most of the human systems that are shaped and built by government and business. In exactly the same way the reality of a connected world is ignored in decision-making models from big data, through HR ‘performance systems’, health, education and other metrics, GDP and other economic statistics. Ultimately, we have to understand linkages and feedback in network models and reform our thinking all the way to the classic (linear) economic model where, most dangerously, the assumption of ‘independence’ is so heavily embedded it cannot be escaped.

…based around humans and the planet

Dynamic, interconnected analysis approaches built around networks (and associated complexity methods) are able to create more human-centred and sustainable directions – also they can reveal the weaknesses in our society built on an ignorance of complexity. If we model who we really are, what we really do and our relationship with a complex world more faithfully and subtly we can make progress. Such models illustrate the potential of shifting and changing solutions rather than a distracting and damaging simple point-estimate.

“Models are opinions embedded in mathematics”*

Perhaps solidarity and co-operation have gone out of fashion. Perhaps an empathy with the natural world is ebbing away. Or maybe these values stand no chance in a world shaped around the flawed machine algorithms and models that now measure and decide our lives.

Some models don’t ignore this, such as many trading algorithms for financial instruments, and they succeed greatly – in a sense – by making large profits for those who run them and dumping the costs on us. Partly because our models don’t recognise what theirs do.

So the knowledge is out there, but not being used for our benefit, yet! We should demand better in the models that shape our everyday lives – and follow the best. We must adopt network analysis widely to embrace concepts which model our modern human reality and reject the outdated, disconnected and linear view of the world.

 

*thanks to Cathy O'Neill from her book "weapons of math destruction"
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Bigger data than ideas

We are all being measured in ever more detailed, unseen and uncontrolled ways. David Beer makes some excellent points on this topic in his recent blog here . David highlights the value of such data for immediate feedback and adjusting our course subtly to get better results in, say, our social media life. No argument with that and little likelihood of harm. But there is another angle to this which raises some quite serious concerns.

When we have a lot of data it potentially leads us to use the data, because it is there, without having a well-defined question to address.

In short,as a logical implication:

data > thought => problems

And it does not take much reflection to see that in the world of ‘big data’ that there is a quite high chance of having more data than thought . Also, in the world of austerity (and meanness, naturally), ‘value for money’ is ever more important and so the desire to quantify the things on which we spend our cash becomes unstoppable. What happens?

  • We start to commodify things that we can measure – trading and rewarding according to the most accessible, rather than the best, information – even when commodification does not make sense
  • We confuse the price derived for something (from these accessible measures) for the value of that thing (which may perhaps only be elicited through information that we do not have readily to hand)

In my work, across the private, public and third sectors alike, I am continually trying to break the cycle of desperate desire to (ab)use the data. I love evidence, and I particularly love really cool huge datasets that I can wallow through. But when someone pays me (well) I know well to rein in this geek-pleasure and I spend as much time as possible helping to shape sensible questions (yes, sometimes based on a geeky sprint through available numbers). Once we have done that crucial work together, I can then carry on to see whether we can find the numbers that are robust enough to answer those questions. Done well the result is that the work co-created with my clients can realistically contribute to some of the big decisions that leaders are concerned with.

But, all the time, somewhere down the road there are plenty of charlatans, both business and political, flashing around really big numbers coming from ever bigger data. But not stopping to think whether making decisions and building our systems and lives around this is really the best thing to do.

So, here is a take away thought – if you are not prepared to look at all your evidence, knowledge and experience to shape the questions you are asking of big data, you may as well just use the number 12.745, or £12.745m, or 12.475%.

Because that’s as good as the answer you will get in the absence of ‘more thought than data’. And I just gave it to you for nothing.

(Picture credit ozz13x)

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Economic Choices: the role of the state

Session 3 of my course ‘Economic Choices in Public Policy’ on the Sciences Po MPA is probably the most crucial to understand what economic choices are all about. So I think it is wise to share the reading list for those interested who are not in a position to register for the course!

Nick Barr’s seminal ‘Economics of the Welfare State’, which in its 5th Edition is now unrivaled for teaching about the reality of economics in government (and anywhere else!), is more than essential. Also notable, an emotive, highly reasoned and provocative talk by Jo Stiglitz (2009) that complements Barr’s precision and clarity. (Don’t underestimate Barr’s passion though!)

The list:

Barr, N. (2012): Economics of the welfare state. Oxford University Press, Oxford, 5th edn.
Section 3.5 and 3.6 p70-75 optional Ch 2 and the rest of Ch3 and then as examples Ch 11 and 12 [4th ed.Chapter 4.6 pages 89-92]

Brockway, G. P., The end of economic man. Norton, New York.
[Appendix A – On perfect Competition]

Chang ha-Joon (2014) “Economics: The User’s Guide”
Chapter 11 – Leviathan or the philosopher King?

Common, M., and S. Stagal (2005): Ecological economics. Cambridge University Press, Cambridge.
[Pages 325-339]

Hopkin, J. (2014), The politics of Piketty: what political science can learn from, and contribute to, the debate on Capital in the Twenty-First Century. The British Journal of Sociology, 65: 678–695. http://onlinelibrary.wiley.com/doi/10.1111/1468-4446.12110/full

Kay, J. (2004b): The truth about markets: why some nations are rich but most remain poor. Penguin, London, 1st penguin edn.
[Page 317-318 and Chapter 28 ‘The embedded market’]
** Pay attention to differences in American edition **

Stiglitz (2007) “What is the Role of the State?” in Escaping the Resource Curse, M. Humphreys, J. Sachs, and J.E. Stiglitz, eds., New York: Columbia University Press, 2007, pp. 23-52.
https://www0.gsb.columbia.edu/faculty/jstiglitz/download/papers/2007_Role_of_State.pdf

Stiglitz (2009) “Moving Beyond Market Fundamentalism to a More Balanced Economy,” Annals of Public and Cooperative Economics, 80(3), pp. 345-360.
https://www0.gsb.columbia.edu/faculty/jstiglitz/download/papers/2009_Moving_Beyond_Market_Fundamentalism.pdf

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Refreshed course: Economic Choices in Public Policy

I will be teaching this year over the Spring on the Sciences Po (IEP, Paris) Masters of Public Affairs programme. My course is a fully refreshed version of the course I taught on their inaugural programme in 2005/6.

The aims of the course are:

  • To enable students to understand where economic choices should, are and can be made and to learn how to re-evaluate received wisdom about the role of the market and government in public policy.
  • For students to appreciate the importance of understanding the role of the fundamental assumptions behind economics in making public policy and the possibilities of using some of the recent more practical, but less academically studied, non-traditional directions in economics to analyse and inform policy change.
  • For students to be able to assess economic issues, identify choices and convey their findings through broad economic concepts rather than ‘doing economics’.

The approach will be very practical and is intended to strengthen the skills of those who work with economists, but not as economists, in the public sphere to stand their ground. To be able to understand and challenge from a position of strength based on evidence or sound argument.

There are no formal prerequisites. Students must be ready to work on understanding some technical economic and sometimes mathematical concepts although they will not necessarily be required to do any advanced mathematics.

In brief, this course will enable students to understand where economic choices should, are and can be made. Learning how to re-evaluate received wisdom about the role of the market in public policy and to question both when it is applied and when it is rejected and where government intervention may be preferable or essential (and implicitly vice-versa).

Students will understand the ‘myths’ about markets, the importance of understanding the role of the fundamental assumptions behind economics in making public policy and the possibilities of using some of the recent more practical, but less academically studied, non-traditional directions in economics to analyse and inform policy change.

Overall, students will learn the ways in which political decisions and economic systems are linked and why different models are more or less appropriate in different conditions. Whether they are economists or not students will also learn the important skills for dealings between experts and non-experts in government and other similar public policy settings.

Students will learn how to assess economic issues and convey their findings through broad economic concepts rather than ‘doing economics’.

The series of lectures and discussions will take in study of specific policy areas where we can see different choices and relate the above ideas to analysing how those choices work, especially in the area of social protection and wider social policy.

For those with economic training the course is also valuable as it will encourage learning to move away from the core, narrow, economics syllabus in order to understand economics in a way that has reality for real world government and public policy.

You can follow me @stuartastill on twitter to see some of the course material in the run up to teaching and during the course.

If you would be interested in seeing the book that will emerge (in due course) from the course material on this topic please get in touch, I will be happy to hear your views on what you would like to read about.

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Victoria Beckham – Teaching us about some hard economics (the wrong way)

Several sources (including the Guardian http://www.theguardian.com/lifeandstyle/2014/oct/26/victoria-beckham-britains-most-successful-entrepreneur) have written about ‘Management Today’ having Victoria Beckham at the top of their list of entrepreneurs. The Guardian (and others) should know better than to spout this nonsense as a neutral story

The fact that the successes in increasing turnover and profit have come from selling “T-shirts for more than £700 and handbags for up to £18,000” is ludicrous in itself and should have put us on the alert – but the attempt to make it look like she is doing anyone other than herself a favour by this activity is desperately off the mark.

This whole thing just tires me so much, but I must draw a few lessons from it, for life, for the good of business and for people who want to understand economics properly.

The report says that “her staff has grown from three to a 100-strong team.” But remember that these jobs are (almost entirely) not ‘additional jobs’. For the most part she will have taken money/business off someone else, somewhere else. So most of those jobs will equally be drawn from elsewhere.

But it gets worse.

All these people are doing is taking something worth a few quid (t-shirt, handbag) and convincing people to pay an absolute packet for it. These 100 people are not doing any work of benefit apart from lining VB’s pockets with cash.

And of course it gets double worse.

These people could have been doing something useful like making people happy. OK, at the moment they are making one/two people happy per handbag. But they could be riding a unicycle, looking after someone during their illness or even (god forbid) innovating for a real entrepreneur. They are not available to do that because they are selling things worth £2 for £700. [If you feel the need to study economics this is called opportunity cost.]

Anyone who tries to tell you that “if the market values something at £700 then that is what it is worth, so those people are doing productive work” is eihter mistaken or trying to fool you. The person who tells you that should be confronted to consider why the market values a £2 t-shirt at £700 but values the service of someone wiping down an elderly person who has soiled themselves at £4.50 per hour. If they don’t come up with the answer that the super-rich having all this money is a market distortion then they should be ignored in anything else they say.

If people have enough money to distort the market in that way why don’t we balance off the ‘distortion’ of taxation against the distortion of the super-rich until they cancel each other out. So let’s tax the super rich until Mrs Beckham goes out of business or drops her prices to a non-distortionary level.

Giving the top spot in entrepreneur awards to someone with this business model is very dangerous. The implication is that we can build a successful economy on selling-on over-priced tat to people who have too much spare cash.

As the income distribution becomes ever wider those at the bottom have less to spend on things that have a valid contribution to GDP, social value and well-being. I’m not being sophisticated in my sense of GDP, social-value and well being – food, energy and basic clothing all contribute to those three in a big way. The people at the top have more to spend on what is fundamentally a £2 t-shirt, which distorts GDP, adds nothing to social value and, in terms of net well-being, makes one person feel great that they are spectacularly t-shirted but makes many other people feel badly off.

So, in conclusion, so because Beckham and her pals have the economic power to divert labour to the vapid activity of making t-shirts sell for a lot of money we see the whole supply and demand of labour is perverted.

Work of high social value is not only undervalued, but crowded out more and more by work of no social value at all.

If you think I have added more social value by writing this blog post than by selling a handbag for £18,000 please get in touch and I will tell you how to give me some of your hard-earned cash.

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Complexity and policy bubbles

sheepThe nature of the mathematics that causes bubbles and herding is truly complex and non-linear. This means that a very small (perhaps undetectable, perhaps entirely random) change in circumstances can set of a chain reaction that causes a massive bubble; although nothing really significant has changed apart from the way the feedback grows to cause a big fuss. Not a fuss about nothing, but about things that in many or most cases would not have a big fuss – if the tiny tipping point has gone the other way.

Moshe Maor makes some interesting points about ‘Policy Bubbles’ but does not engage entirely with the mathematical processes behind herding that make this interesting as a ‘complex’ or ‘chaos’ idea. This is a great read at http://blogs.lse.ac.uk/politicsandpolicy/policy-bubbles/

Is anyone doing research to establish where bubbles have happened with no particular reason other than the nature of mathematics and the nature of ‘bubbles’?

It seems to me that this would be more fruitful and possibly more falsifiable or confirmable than looking for a myriad of reasons, other than the nonlinear mathematics, of why some issues mushroom.

I am afraid that if you look for a reason where there is none, or where it was so small as to be unimportant except as a ‘tipper’; you will find them where they don’t really exist.

In a forthcoming chapter on complexity, Paul Cairney and I discuss how the traditional ’cause and effect’ notions and ‘looking for reasons’ need to be transformed towards ‘exploring environments’ and ‘understanding systems’. We also make an appeal to researchers to understand at least some of the mathematics beneath complexity in political science when they embark on studies in such areas. Research on policy bubbles suggests that a harsh initial hypothesis, based on mathematics, of ‘this could happen with no generalisable cause’ may not be a bad place to start. And then, proving, disproving or not being able to do either would be equally enjoyable and enlightening.

Photo credit: http://www.photosofyorkshire.com/Yorkshire-sheep-and-wool(2914182).htm

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Unorthodox economics

What can we hope for by questioning, and thereby immediately humiliating, the traditional academic economics that gives almost complete primacy to ‘free market’ neo-classical approaches? I believe we can gain a generation of fertile minds, freed to achieve what nef call a ‘transformed economy’. We can start to fight against the complex, but enduring, positions built on sand that defend the entrenched interests across the world. We can start to hope another world is possible rather than the same old stories repeated year after year by those who have too much to defend and not enough humanity to see it.

You don’t have to search very far on Google News to find stories about economics students revolting in Manchester, at the LSE (coincidentally my almae matres) or in, apparently, 19 countries.

And you don’t have to look much more deeply to find that this movement has been going on for a long time. It started long before the ‘post-crash’ and long before I started teaching a course at Paris Sciences-Po in 2005 that promised “a new course developed to examine the differing economic choices that are made when deciding between market solutions and state-led solutions .” In fact the history of heterodox economics goes back before my earliest reference (from the PAE network) of revolt where the ‘Paris students’ demanded change in 2000. It wouldn’t be hard to assume that for as long as there has been an orthodoxy, there has been a heterodoxy.

So why does it seem like a constant struggle to pull politicians, press and, especially, academics away from narrow assumptions, ever harder mathematics and the insane presumption that real-world solutions can be both loosely and precisely drawn from a model that diverges from reality on so many fronts?

Self-interest keeps narrow economics unimaginatively taught by people who enjoy refining equations; often difficult maths becomes an way to prove the value of their work to ‘ordinary’ people. Of course a good number of academic economists escape this trap, including notable Nobel prize winners – who one might hope are as a group more talented and able to engage more widely than others less talented. Let us recognise that when this happens they provide a radical view of our world that no-one else can.

Amongst the academics, therefore, a lot of people who do understand the tricky issues aren’t interested.

Conversely, a lot of people who really are interested in a new economics don’t understand enough economics – or at least so they have been told. I have yet to talk about economics to anyone that cannot grasp all the essential principles. As long as you don’t set out to confuse people you will find that a five year-old can engage.

Sadly the other side of the coin keeps the tired old discipline going by giving it a lot of love. A lot of people who have power and/or money know, just by looking, that the conclusions drawn from the orthodox economics gives them more money, more power and a set of ready-made lies to deliver. All this backed up by impenetrable equations to stop anyone else from disagreeing – or at least to turn that disagreement into an academic exercise and hence largely neutralise it.

So we end up with often repeated ‘facts’ such as the invisible hand, free markets and ‘individual choice’ all leading to ‘optimal solutions’. Such simplistic statements about ‘what works’ are incredibly valuable to politicians and, to be fair, everyone in the world has a susceptibility for clear and compelling solutions that have the backing of an army of experts (especially those that can handle complicated graphs and equations). Whether the ‘facts’ are true or not may not trouble us – we are only human.

The misrepresentations and lies can actually be refuted in very few words, but sadly the few words are much more complicated than the original statement. It is short, but not sweet, to explain that ‘individual choice’ is optimal only under some very strict conditions (such as independence of those choices) and that the ‘optimal’ outcome is one particular kind of optimality (Pareto optimality) that would allow one person in the world to accumulate all future increases in wealth.

To get even very bright economics students to encompass all of this requires basic economics, some strong mathematics, especially logic, philosophy of science and a reasonable dose of political history and even political theory (oh dear).

There are many branches of heterodox economics currently alive and kicking that have rigour and proper support from broad-minded economists and non-economists and, importantly, the public who expect academia to actually progress in pace with the changing world. Most people would not expect economists to freeze their discipline in an apparent attempt to sustain the social status quo. You can see my list of ten important heterodox economics issues in a previous post.

It isn’t just the students that should be demanding better economics teaching – it should be all of us. And then we can demand and expect real economic literacy of people who pronounce on economics and public policy. We should all be making clear our refusal to accept the entrenched, restricted and biased view of the world that we are given by almost anyone who has power and a public voice. We can take away their smokescreens and their excuses. And, along with these students, year after year, make clear our disgust that a restricted view of our world that leads to poor policy decisions is still supported by a lot of people who should know better.

  • Declaration of interest: I have no power and a very quiet public voice.
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