Towards an Economic Theory of Everything in under 5 minutes
By: The Moral Economist
Tags: Economics, Investing, Finance, Psychology, Philosophy

Economics is traditionally defined as the study of the allocation of scarce resources which have alternative uses. Microeconomics is further defined as the study of individual decision making, or of supply and demand, price theory, market design, and so on. Macroeconomics is defined as the study of aggregative economic phenomenon, national accounts, GDP, fiscal and monetary policy.

In some sense, economics can be called the science of scarcity. Nevertheless, most economists are not scientists in the traditional meaning; some are engaged in empirical research that is profound, but as a field, economics, especially the foundations, is closer to mathematics than a science.

Only loosely can the traditional definition account for most of what economists do. Decision making under uncertainty can be considered the science of individuals allocating resources of time under scarcity of information. Macroeconomics can be the study of governments making decisions under political constraints. And so on.

But a more general definition is needed. Here’s one: economics is the study of agents, their evolution, and their interactions in complex environments. This definition includes both microeconomics and macroeconomics, it includes the “science” of economics, as well as the math, and it includes the study of humans, animals, aliens, and artificial agents (parts of computer science).

One economic theory of everything would be to actually create micro-foundations for the macroeconomy. This has historically been done through rational expectations and representative agent models. In the future, this can be behavioralistic and even neuroeconomic models.

Anwar Shaikh actually believes that microeconomics needs better macro-foundations, not the other way around. This would involve class, gender, social relations, political factors, culture, etc.

Perhaps it will prove too difficult to model individual decision making with realistic accuracy (I doubt this given enough time), nevertheless, at least theoretically, it seems possible that increasingly accurate simulations of economic behavior is possible.

Unifying neuroeconomics with macroeconomics seems to be one way of creating an economic theory of everything.

Shaikh also shows that you don’t necessarily need micro-economic foundations to do macroeconomics, since aggregates are robustly insensitive to individual parts- the whole is greater than the sum of the parts.

In this sense, Shaikh believes the proper focus for economists is studying the economy, not necessarily individual units.

Finally, economics needs to integrate with computer science, especially artificial intelligence. This is for several reasons. Humans are a form of artificial intelligence. Reinforcement agents can model human behavior. Eventually, accurate simulations of economies will be created with the aid of AI.

So if there is going to be an E=MC² in economics it will likely come by

expanding the definition of economics to account for the mathematical study of agents, not just scarcity of resources

2. creating macro-foundations for microeconomics, perhaps through sociology, anthropology, political science, etc.

3. creating micro-foundations for macroeconomics, perhaps through behavioral economics and neuroeconomics

4. incorporating reflexivity, interactions, and complexity into models

5. integrating with AI/ computer science

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