The Future of Economics

The recent failure of classical economics to predict and manage the catastrophic failure of the world’s financial system has triggered a re-evaluation of the whole basis of current economic theory, which has been applied to sustain capitalism for the last 100 years. .

By the end of the 20th century traditional economics was dominated by the classical paradigm based on notions of rational consumers making rational choices in a simple supply/demand world of finite resources, with prices constrained by decreasing returns; all driving the economy to an optimal equilibrium point.

Twentieth century economists had finally realised their dream of creating a rational, rigorous and well-defined mathematical model for describing the workings of the global economy. This standard model has been applied by business leaders, finance ministers, central bankers and presidential advisers ever since.

Up until recently classical economic theory has appeared to work adequately by a process of trial and error. In times of growth people are generally optimistic and the theory describes reality reasonably well. But in extreme circumstances panic quickly spreads and the theory fails spectacularly, amplified by the performance of the quantitative risk algorithms beloved by hi-tech stock market traders.

Unfortunately such a clockwork model has proved over the last four decades to be seriously out of synch with reality, as global markets have been roiled by a series of disastrous credit, market, liquidity and commodity crises. The predictions of the standard model have failed to match real world outcomes, generated in succession by the Savings and Loan, Asian, Mexican, Dotcom and now GFC bubble disasters.

In this latest incarnation of excess greed debacles, high risk mortgage loans were repackaged many times over into opaque risk financial instruments, such as Collateralised Debt Obligations or CDOs, which ended up through an unregulated banking system in the portfolios of nearly every bank and financial institution around the world. Because of lack of controls, members of the shadow system such as hedge funds and merchant banks borrowed scores of times their own worth in cash. When the CDOs finally failed, the losses rippled through the world economy. The banks stopped lending, leading to further business failures and investors were then forced to sell previously sound stocks causing a stock market crash.

But this crash was far more serious- perhaps even more so than the Great Depression, as it could be contained within borders as easily or so simply solved by pump priming mass lending and job creation programs. Now we’ve seen the biggest banks, car manufacturers, miners, energy suppliers and national economies toppling like dominoes around the world, under trillions of dollars of debt.

The current global interventions have now staunched the haemorrhaging but not cured the disease.

The stronger economies of China and south east Asia, Brazil and Germany, less affected by the carnage, have bounced back. But the European economy is still fragile, with Greece, Spain and Portugal and other smaller nations struggling to contain debt; while the recent G20 summit in Toronto failed to enforce the rigorous regulation and improved economic governance previously mandated. The US recovery is also weak, with the latest OECD report predicting that the US employment rate will not fall to pre-recession levels before 2013.

In fact a number of interdisciplinary thinkers, starting in the seventies, began to question the credibility of the entire basis of the classical economic model, likening it to a gigantic academic think tank experiment rather than a serious science. And it gradually began to dawn on this group that at a number of the key premises or axioms underpinning the existing model were seriously flawed.

As mentioned, the first is the assumption that humans are rational players in the great game of market roulette. They are not. Behavioural scientists have shown that while people are very good at recognising useful patterns and interpreting ambiguous or incomplete information in their decision-making, they are very poor when it comes to performing complex logical analysis, preferring to follow market leaders or flock according to the latest fashion. This can further amplify distorting trends.

The new theories of behavioural finance argue that during a bubble the rate of buying and selling can become manic, resulting in irrational decisions. Making money actually stimulates investor’s brain reward circuitry, causing them to ignore risk- increasing the difficulty of valuing stocks accurately.

But perhaps the most critically flawed assumption is that an economic system always reaches an ideal equilibrium of its own accord. In other words, the market is capable of benign self-regulation- automatically allocating resources and controlling excesses in an optimum way, best effected with minimum outside interference.

Since the nineteenth century the fundamental principle underpinning economics has therefore been based on the mythology that the economy is a system that moves from one equilibrium point to another, driven by shocks from external disruptions – whether technological, political, financial or cultural- but always eventually coming to rest in a natural equilibrium state.

The new emerging evolutionary paradigm however postulates that economies and markets, as well as the web, enterprises and the human brain, are all forms of complex systems in which agents dynamically interact, process information and adapt their behaviour to a constantly changing environment; never reaching a final stable equilibrium or goal.

In biological evolution, the natural environment selects those systems that are best able to adapt to its infinite variation. In economic evolution, the market is a combination of financial, logistical, cultural, organisational and government regulatory elements, which adapt to and in turn influence a constantly changing ecological, social and business environment.

In essence, economic and financial systems have been fundamentally misclassified. They are not perfect self-regulating systems. They are enormously complex adaptive networks, with topologies that include decision hubs, relationship connections and feedback loops linking multi-agent groups which interact dynamically in response to changes in their environment; not merely through simplified price setting mechanisms, tax and interest rate cuts, liquidity injections or job creation programs. They must be understood and managed at a far deeper level.

Modern evolutionary theorists believe that evolution is a universal phenomenon
and that both economic and biological systems are subclasses of a more general and universal class of evolutionary systems. And if economics is an evolutionary system, then it follows there are also general evolutionary laws of economics, which must be understood and harnessed if it is to be effectively managed.
This contradicts much of the standard theory in economics developed over the past one hundred years.

The economic evolutionary ecosystem is now fed by trillions of transactions, interactions and non-linear feedback loops daily. It may in fact have become too complex and interdependent for economists and governments to control or even understand. Therefore, as several eminent complexity theorists have recently stated, it might be on the verge of chaos. Too much or not enough regulation can distort the outcomes further- creating ongoing speculative pricing bubbles or supply and demand distortions.

There is now an urgent need to understand at a much deeper level the genie that modern capitalism has engineered and released. This can only be done by admitting the current crumbling edifice is beyond repair and building a radical new model from the ground up; a system that incorporates the hard sciences of network, evolutionary, behavioural and complexity theory.

Tinkering around the edges with the old reactive tools is not an option anymore.
To have any real chance of harnessing the economic machine of the 21st century for the benefit of all human society, not just the wealthy, it must be modelled at the network level and managed autonomously according to adaptive evolutionary principles.

If a business as usual economic philosophy prevails, it is likely that the resulting ultra-massive waste of resources and social turmoil of a second GFC would be catastrophic for our civilisation.

The Future of Health

A dominant partner role is forecast for the Intelligent Web 4.0 in healthcare management by 2050, as well as a significant increase in human longevity in developed societies to 150 years and the emergence of Transhumans.

By 2020 most developed countries will have established comprehensive electronic Health Record systems to track lifetime patient medical and general population health histories, including personal DNA genome sequences and SNP microarray test results. An individual’s medical records will then provide personalised drug and vaccine protocols based on genetic response variants. Whole-of-life e-health records will be accessible across the developed and much of developing world, eventually allowing the creation of online global networks of population health records from pre-birth to death.

Global e-Health archiving will also accelerate the provision of expert biomedical advice and services to populations across the planet, utilising the communication modalities of the Web and smart mobile phone technologies. These will also function as personalised helpers, performing real-time monitoring and transmission of vital patient status data including images, via ubiquitous sensor networks. These will forward continuous data to government and private healthcare hubs for expert online assessment and intervention.

In addition, health and lifestyle support will be managed increasingly in conjunction with global professional care and patient social networks. Such networks operating via the open standards of web-based technologies will promote collaboration between patients, caregivers and health providers, offering interactive exchange of case information- symptoms, diagnosis and treatment options; improving lifestyle outcomes and ensuring individuals feel less isolated.

By 2025 A Universal Health Grid will be in operation connecting e-health client records seamlessly across all nations; providing ubiquitous communication support for the acquisition and delivery of life enhancement knowledge on a global basis. In addition, scanned images will be linked in vast virtual databases providing remote expert support to local medical teams and practitioners. This will facilitate advanced surgical techniques, applied remotely using robotic, virtual and augmented reality technologies.

By 2030 tens of thousands of human genomes from diverse populations will have been sequenced and made available online for research into the genetic basis of common diseases. Analysis will have moved from understanding the role of single gene mutations to the highly complex networks of multiple genetic interactions. Polygenic natural selection has allowed new traits to rapidly sweep through populations in the past, allowing humans to adapt to extreme climates and new food sources.

The genetic basis of the major diseases and injuries afflicting humans will have been traced and effective therapies addressed covering- Neurodegenerative - such as Parkinson’s and Alzheimers; Pathogenic and parasitic based- - including malaria, dengue fever, cholera and lyme; Cancers and auto-immune diseases; Organ failure- such as heart, pancreas, lung, liver and kidney; Injuries to the nervous system, joints and bone- spinal cord trauma and arthritis.
Improvements in these therapies will continue at an accelerating rate.

In addition, the power of the web will be supported by a new way of unlocking a deeper understanding of nature and its evolution in the form of Systems Biology- already marking a paradigm shift from traditional reductionism to a more holistic level of understanding of biological phenomena. This approach interprets organisms in terms of information processing networks at the system rather than component genetic, protein and environmental level. Systems biology also marks the beginning of a more quantitative science, highlighting the causality and dynamics of biological interactions by applying mathematical models and the capability of simulating interactions at all levels- cells, organs and the total organism.

Stem Cell therapies, including both adult and embryonic stem cell differentiation, will be commonly applied to the repair of human tissue and organs including— skin, cartilage, blood vessels, bone, eyes, spine, pancreas, liver and heart muscle. The future treatment of diseases such as heart failure and breast cancer will be revolutionised by such technologies, with the option of growing new organs and tissue inside the human body using the patient’s own stem cells and biodegradable scaffolds to avoid immune rejection.

Stem cell technology will complemented by Molecular Engineering techniques such as gene therapy, involving the correction of genetic mutations by inserting reengineered genes into cells. Molecular engineers are already beginning to create custom-built proteins with enhanced functions, including the capacity to correct disease genes causing hemophilia, muscular dystrophy and sickle cell anemia.
Understanding the role of RNA in cells will also be vital in understanding gene silencing and targeting cancer and other diseases.

By 2035 Cyber-Human symbiosis will also be routinely applied, allowing the direct linkage between computer-electronic control and virtual reality technologies and human biological systems. This science is already includes the use of -
Sensory augmentation implants such as early retinal and corneal implants;
prosthetics such as a neurally-controlled limbs; brain interfaces, overcoming paralysis using brain signals; artificial hippocampus- assisting patients with memory deficits; brain image extraction and reconstruction and interactive humanoid robots to provide human companionship and physical support.

By 2040 Neuro-Engineering technology will be commonly applied enabling enhancement of human intelligence, memory and creativity. Significant advances are already being made towards simulating the brain’s capacity for sensation, perception, action, interaction and cognition, using advanced 3D fMRI and Optogenetics technologies,allowing better analysis of neural circuits to reveal new neural regulation and drug treatment targets.

Cognitive enhancement compounds will also be widely used. These will be applied to Alzheimer’s and other forms of dementia as well as generally enhancing human decision-making, alertness and memory capability. The impact of cyberspace on the evolution of the brain is also likely to be very significant over the coming decades. Children are constantly being neurally rewired as the interactive Web becomes an essential part of their lives in the form of virtual realities, multimedia and social media/ networking.

Brain simulation is also a nascent field offering huge future potential. A brain with a billion neurons and ten trillion synapses- equivalent to a cat’s cortex or 4.5% of a human brain has been simulated by IBM; while a team of European scientists have taken the first steps towards creating a silicon chip designed to function like a the cortex of a human brain.
With research and development converging on all fronts in this field, both at the hardware and software level, it will be only a matter of time before a brain with mammalian and eventually human-level complexity is scaled up for experimental use.

Molecular biology has largely been applied as a reductive science but now synthetic biologists are beginning to build machines from interchangeable DNA parts that work inside living cells, deriving energy, processing information and eventually reproducing. Flexible reliable fabrication technology, together with standardised methods and design libraries have enabled a new generation of biological engineers to already create new organisms from biological components from the ground up..

By 2045 the nanobiotechnology revolution of new and enhanced life forms will be common. For the first time in human history an artificial life form with synthetic DNA has been created by Craig Venter This will open a portal for the explosion of human potential beyond the confines of biological evolution alone. In addition, Medibots are being designed. These are tiny robots only a few millimetres in size that can work internally and are designed to enter the body through the mouth, ears, eyes or lungs and swim through the bloodstream.

These will be widely used to conduct robotic surgery, install medical devices, including a camera in a capsule small enough to be swallowed, deliver drugs and take tissue samples. Nanoscale machines and motors will be inserted inside cells which can then self-assemble and seamlessly integrate with other cell functions. Smart implants and tiny biological fuel cells are also on the drawing board, capable of producing electricity from glucose and oxygen in the bloodstream.

By 2050 the super-intelligent Web 4.0 combining human and artificial intelligence will be ubiquitous, powered by a smart computational sensory, grid/mesh, enveloping and connecting all human life and encompassing all facets of social, technological and scientific knowledge- always on, aware and available.

This capability will be essential for supporting the immensely complex decision-making and problem solving requirements essential for civilisation's future progress; including applying algorithms to manage medical research, diagnosis and treatment. The Web will then have emerged as the senior partner in complex medical diagnosis and specialist intervention, as well as genetic discoveries, driving healthcare advances into the future.

Within 40 years the rate of medical/health progress will have accelerated knowledge discovery to the point where it will begin to eliminate most human diseases, doubling human lifespan to 150 years. Combined with accepted human cloning and breakthroughs in organ replacement and cognitive enhancement, the stage will be set for the emergence of a new generation of Transhumans.