Beinhocker Ch.18 -- Policy in a Complex World
Beinhocker argues that traditional economics treats the economy as a machine to be engineered, but complexity economics reveals it as an evolving system. Policy should not try to pick winners or engineer specific outcomes. Instead, it should shape the fitness landscape -- lower barriers to entry, fund the evolutionary search process (innovation), limit monopoly power, and provide safety nets that allow creative destruction to operate without catastrophic social costs. This simulation models an economy of firms evolving on an NK fitness landscape under different policy regimes.
There is no single "optimal" policy. Each regime makes tradeoffs between growth, equality, innovation, and stability. Laissez-faire maximizes raw evolutionary pressure but generates inequality and instability. Social democracy reduces inequality but may slow the evolutionary search. The adaptive regime -- adjusting policy to conditions -- embodies Beinhocker's prescription for governing complex systems: don't optimize, adapt.