In Hollywood, William Goldman’s famous dictum that nobody knows anything is accepted as gospel. Nobody can tell you how much a movie will gross before it’s released, no matter how big the stars or advertising budget. Compare the box-office receipts of two summer-of-’99 horror movies, if you have any doubt about this law: The Blair Witch Project, with no stars and a small budget, earned far more money than the very expensive, star-driven The Haunting. Yet, in economics, it’s assumed that everything boils down to an engineering calculation: Maintain girders A, B, and C, and the roof will never cave in.
Paul Ormerod, author of The Death of Economics(1994), offers a different idea: "In the current state of scientific knowledge, it is simply not possible to carry out forecasts which are systematically accurate over a period of time." The title Butterfly Economics comes from the idea in chaos theory that a butterfly flapping its wings here could cause a hurricane on the other side of the world. It’s not that chaos is guaranteed in economics; it’s just that we never know when it’ll occur, or what will cause it. "Small changes can have big consequences, and vice versa, " Ormerod notes. His arguments range far afield. He talks about crime and family structure, biology, fashion, and many other topics seemingly unrelated to economics. But it comes down to this: No matter how you analyze it, human behavior is surprisingly random. And no economic model can account for all of it at any given time.
Butterfly Economics will, of course, be of most use to those with professional interest in the titular topic(economics, that is, not butterflies). But anyone seeking a good read on the vagaries of life might want to give this one a shot. Any author who can analyze the behavior of ants and Hollywood studio executives in successive breaths deserves a wide audience.
This is a brilliant successor to Ormerod’s previous Death of Economics. It lucidly and wittily demonstrates the fallacy that economic forecasts can predict. More important, it further develops his economic theories based on complexity. His conclusion: "governments should do much less . detailed short-term intervention . and [spend more time] thinking about the overall framework.’
Ormerod is rare(I am tempted to say unique) among economists. He uses clear and straightforward English - and he has a devastating wit. Assuming that you bring yourself to read books on economics, when was the last time that one caused you to laugh aloud?
Butterfly Economics combines clear English, humour and the capacity to translate the realities of human behaviour into a credible explanation of the behaviour of economies. It is very readable, even if you are not really interested in economic theory. The importance of the book and its predecessor is that they provide a better explanation of what is going on than do conventional explanations. It explains why so much of government economic policy produces unintended side effects and it also supports the arguments of Brian Arthur and others that initial inequalities tend to become magnified. Behind the simple explanation is some quite rigorous analysis based on the mathematics of complexity, but this is kept decently in the background for the sake of the general reader.
Whereas the primary focus of attack in The Death of Economics was the assumptions underlying’general equilibrium theory’ - the cornerstone of economics and economic policy - Butterfly Economics concentrates on one aspect of human behaviour - choice. It shows what happens when one relaxes the unreal assumption that buyers form their preferences independently and are not influenced by the behaviour of others.