This post continues the story of quantum economics, which began here. There is a summary of posts to date at the end of this post.
Can you please note when reading this post and others in the series that I am not suggesting that quantum physics and economics are akin to each other. Instead, I am exploring how quantum thinking might help build new economic narratives, which is quite a different goal.
Quantum Uncertainty and Economic Forecasts
“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin
He might have added: “and the failure of economic forecasts.”
Economics loves forecasts. Governments base their budgets on them. Central banks set interest rates in response to them. Businesses plan investments around them. Journalists report them breathlessly.
And yet, if there is one thing more certain than the forecast itself, it is that it will be wrong. Growth turns out weaker than predicted, or stronger. Inflation runs hotter or colder. Recessions always arrive unannounced and seemingly by surprise.
Why? Because economists still think in Newtonian terms. They imagine the economy as a machine tending towards equilibrium, disturbed only by temporary shocks. And they model the future as if it can be known with precision, given enough data.
Quantum thinking shows why this is nonsense. The world is not determinate. It is uncertain, relational, and subject to uncertainties rather than probabilities. To treat the future as knowable is not just optimistic. It is fundamentally wrong.
First: the Newtonian fantasy of forecasts
At present, the dominant macroeconomic models are Dynamic Stochastic General Equilibrium (DSGE) models. The name is impressive, but the assumptions are simplistic:
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The world is populated by rational economic agents (otherwise known as people, who always act consistently and as if possessed of the best possible knowledge of all possible economic data).
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Markets invariably tend towards equilibrium, where supply always equals demand and best possible economic outcomes are achieved.
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Random shocks are the only source of change because it would be irrational to assume otherwise, given the first assumption.
As a result, these models pretend to predict the path of the economy by projecting forward from today's supposed state of economic equilibrium. These models reduce uncertainty to risk, assign supposedly known probability distributions, and claim scientific rigour. But as anyone who has lived through the past fifty years knows, the economy is not a pendulum disturbed by random nudges. It is much more like a storm system, generating its own turbulence, and it is impossible to reduce its behaviour to neat equations.
In that case, forecasts based on equilibrium models are not just flawed. They are fraudulent.
Second: the quantum principle of uncertainty
In contrast to this world of economic fantasy, in quantum mechanics, uncertainty is fundamental.
Heisenberg's principle says we cannot know both the position and momentum of a particle at once. The more precisely we measure one, the less precisely we know the other. This is not a failure of measurement. It is a property of reality. The particle within quantum mechanics does not have both a definite position and momentum simultaneously. As a result, reality is at best probabilistic and definitely not deterministic. The consequence is that the future is, in quantum mechanics, uncertain.
Applied to economics, the lesson is stark: the future there can also not be known in precise terms. The economy is not a machine running forward. It is a cloud of possibilities, collapsing into outcomes only as time passes.
Third: the forecast as a wave function
In that case, we need to think of economic forecasts as a wavefunction. They describe possible states of the economy, with probabilities attached.
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The Office for Budget Responsibility predicts GDP growth of 1.5%.
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What this really means is a cloud of possibilities: perhaps 0.5%, possibly 2.5%, and perhaps worse.
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The mean is 1.5%, but the distribution is wide.
- And the outcome could be very different.
Worse still, people like the Office for Budget Responsibility and the Bank of England make a critical assumption in their forecasts, and that is that, as necessarily follows from the assumptions they make, the economy will always return to its mean projection, extrapolated from past economic activity. In other words, it reverts to the mean on all occasions, and as a result, there is, in effect, no uncertainty in their modelling at all.
The problem, then, is that economists present the mean as the reality. They talk as though their forecasts are a specific outcome, and not one of many possibilities. As a result, they in effect collapse the wavefunction prematurely, misleading politicians and the public.
Fourth: fiscal rules as a denial of uncertainty
The problem gets worse when we bring fiscal rules into the mix.
Governments like to promise that budgets will be balanced “over the fiscal cycle” or “within five years”, or whatever else they alone choose. These promises do, however, depend on forecasts. Only if growth is as expected, if inflation is as expected, and if tax receipts are as expected, will the books then balance.
But these are huge ifs. No one knows what growth will be. No one knows what shocks will occur. To tie today's policy and actions to forecasts of what might happen five years ahead is to deny uncertainty. Instead, what fiscal rules do is treat models of the future as if they deliver specific outcomes that can be treated as fact in the present moment, and that makes no sense.
The result is paralysis. Governments cut spending now for fear of breaching a fiscal rule in the future that is based on a forecast that is almost certainly wrong. Public services suffer as a consequence because economists cannot admit uncertainty about the future.
Fifth: the illusion of precision
To consider this issue, think about inflation forecasts.
Central banks set interest rates based on forecasts of inflation two years ahead. But inflation depends on energy prices, wages, exchange rates, global events, and unknown shocks, most of them unknown, and in some cases unknowable in advance. The Bank of England's own record shows forecasts are wrong more often than they are right. Yet, they still claim the authority to manage the economy by pretending they know what inflation will be. This claim is based on an illusion of precision which cannot be justified. Quantum thinking would insist on humility: the acknowledgement that we cannot know.
Sixth: measurement as intervention
In quantum physics, measurement changes the system. The act of observing alters the outcome.
Economics is the same. Forecasts are not neutral. They change behaviour. For example:
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If the Office for Budget Responsibility predicts weak growth, businesses may cut investment, making weak growth more likely.
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If the Bank of England forecasts high inflation, it may raise rates, slowing demand and altering inflation.
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If government departments are told that spending will be cut in three years, they start cutting now.
In that case, forecasts are not passive descriptions. They are interventions that alter the future they claim to predict. It appears that all too often this is not appreciated.
Seventh: uncertainty versus risk
Keynes knew this distinction well. Risk is calculable. You can roll dice and know the odds. Uncertainty is not. You cannot know the odds of war breaking out, or of a pandemic arriving, or of a financial bubble collapsing.
Economists have collapsed uncertainty into risk. They use probability distributions to describe what cannot be described. They pretend that uncertainty can be tamed by statistics. It cannot.
This is why Black Swans occur. This is why recessions come as surprises. This is why models fail.
Eighth: policy for an uncertain world
So what would policy look like if we took uncertainty seriously? The following might be appropriate considerations:
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The aim should be robustness, but not precision. Instead of aiming for precise fiscal targets, policy should be designed to work under a range of scenarios. It is better to be roughly right than precisely wrong.
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Automatic stabilisers should be emphasised. This would mean strengthening benefits, emphasising progressive taxes, and public investment that expands when the economy weakens and contracts when it strengthens. These adjust automatically, without relying on forecasts.
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Flexibility is key. Budgets should be allowed to change as reality unfolds. This means that rigid fiscal rules should be scrapped and that plans must adapt.
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Resilience is key. Investment should be made in systems that can withstand shocks: renewable energy, public health, and social safety nets. If the future is unknowable, it is essential to build key strengths in areas where need is known rather than gamble on forecasts.
Ninth: the politics of uncertainty
Admitting uncertainty is politically difficult. Politicians prefer certainty. They like to promise that growth will be X%, that the deficit will fall by Y, that inflation will be Z. But these promises are always false. As a result, they always set governments up to fail. They create cynicism when forecasts prove wrong. They lead to damaging policies designed to hit targets that were meaningless from the start. A politics of honesty would instead admit uncertainty. It would say: the future is unknowable, but we will design policies that protect you whatever happens. That would be braver, and truer, and would restore political credibility.
Conclusion
Economic forecasting is Newtonian fantasy. It imagines certainty where there is uncertainty, equilibrium where there is turbulence, and precision where there is probability.
Quantum thinking shows the truth. The economy is a cloud of uncertainty, not a machine. Forecasts are interventions, not predictions. Uncertainty is fundamental, not reducible.
If economics embraced this, policy would change. Fiscal rules would be scrapped. Forecasts would be treated with humility. Policy would focus on resilience, robustness, and adaptability.
And then, perhaps, economics would serve society better. Because only by respecting uncertainty can we fund the future.
Previous posts in this series
- Discussing quantum economics, accounting, money and more
- Quantum economics, part 1: Why Quantum Thinking Matters for Economics
- Quantum economics, part 2: Money as Particle and Flow
- Quantum economics, part 3: Entanglement and Double-Entry Bookkeeping
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I enjoy all of your posts and have learned much from them. Thank you. The recent posts on quantum economic thinking are very interesting. One question: might the book(s) of the Canadian mathematician David Orrell on quantum economics (and finance) help to inform and advance the discussion do you think?
Best regards from Sydney, Australia
David contacted me last night.
The answer is, not a lot. We have looked at this from quite differemt directions, withn his focus being very heavily on money, and there I am not at all sure he draws the right economic conclusions. MMT does not get a mention. He thinks money came out of barter, and it almost certainly did not. And he does not mention accounting, double etry, tax or labour almost at all in what he writes, and that rather misses the economic point for me. I am not dismissing his work but I would describe what I am doing is complementary to it, and not building on it. In fact, until last night I had only read 26 pages of it. I have now read 200 more.
You wrote of my work that I think “money came out of barter” so first of all I should set the record straight for your readers. The Evolution of Money (2016) stated that “Money did not emerge from barter.” Quantum Economics (2018) said: “schoolyard swaps and the like aside, barter has never played a big role in commerce.” A Brief History of Money (2020): “economies based purely on barter don’t appear to exist, or (probably) ever to have existed.” Money, Magic, … (2022): “Rather than emerging naturally from barter, the money system was a designed social technology that was imposed at the sharp end of a sword, and in many respects was an expression of power.” And so on. On the other hand, I do go into depth on the issues of duality, entanglement, uncertainty, etc. – the connection with wave/particle duality for example got an entire section almost a decade ago in The Evolution of Money.
You also say the focus of my work is “very heavily on money”. Quantum Economics and Finance (2022) does not have a chapter on money. My work over the last five years has focused on practical applications in finance.
Of course you make it clear that you are “not building on” my work or that of others, but are engaging instead with ChatGPT as an interlocutor. Might still be good to check both the facts, and the sources – there is a reason authors have issues with AI: https://www.theguardian.com/commentisfree/2025/sep/10/tech-companies-are-stealing-our-books-music-and-films-for-ai-its-brazen-theft-and-must-be-stopped
Quantum economics and finance is a growing field and as you point out there is much to explore on things like the implications for accounting or policy – areas which you seem eminently qualified to address. As with a quantum system, our approaches can be both different and complimentary – but it might be more interesting and productive to build out from common ground rather than exaggerating differences.
Finally, since your readers seem interested in the relation with physics, this paper might be of interest:
https://journals.sagepub.com/doi/10.1177/29767032241237547
and for applications to law:
https://journals.sagepub.com/doi/10.1177/29767032241298302
I have written to David about this issue.
It is not helpful to open a correspondence in this way, and I will not be continuing it in this way as a result.
That said, I know the limitations of ChatGPT, and I am now more familiar with his work then I was on Tuesday morning, as a result of which I now know that I disagree with him on some quite fundamental economic issues, including his apparent failure to recognise that money is always debt and so is essentially metaphysical in nature, and that it consequently has uncertain characteristics until it comes to be spent, that double entry bookkeeping is fundamental the way in which money works, which fact he does not seem to mention in what I have read so far, and that tax, labour and capital don’t seem to appear in any significant way in his book, and all of them appear to be somewhat significant omissions when creating a theory of economics, as he sought to do, perhaps most especially when it comes to tax, which is the essential flipside of money. I am therefore confident that ChatGPT did not reference his material, because if it had I would not have used it, but that it did instead draw on my own ideas, along with arguments on quantum physics, to assist the discussion Jacqueline and I had. I have trained ChatGPT to use my blog as a source, and there are 23,000 posts and more than 7 million words for it to draw from there. That, I think, is what it did — plus quantum ideas from external sources, of course.
David and I have now exchanged mails on barter anbd I now accept his work is more nuanced by some way than I suggest based on my reading of one book.
I hope we will engage further.
The analogy of money mechanics being like quantum physics can be taken further to a simpler one which argues the very existence of consciousness in the universe means that it makes sense to view phenomena from as many different viewpoints as possible before deciding on a course of action or attitude of mind. Accordingly viewing money as just “particles” to be counted as opposed to a “wave” that behaves as a variable loop where there is creation followed by drainage to a greater or lesser extent according to the state of the economy also makes sense. If there is economic decline in the UK it’s primarily because its people are failing to look at what’s going on from a variety of angles or viewpoints, there’s rigidity of thinking or consciousness!
Agreed.
Most of the universe is made up of dark matter and energy and its influence is uncertain.
We also have ‘dark money’ (George Manbiot uses the term ) which also has a uncertain influence.
I will curb my enthusiasm but again this is really an interesting subject – I have to forecast spend on development schemes against fee schedules themselves based on a contract sum, reported quarterly. The idea is to pick up variances early and ensure that if need be, within a certain range, the council’s Treasury has to allocate more cash (so that the expenditure is seen to be under some sort of control as it is deemed to be ‘public money’). But you see, at this level, there is a ‘project’, a ‘contract sum’, a ‘fee schedule’ and a predevelopment process addressing risks to get close as possible to those outcomes.
However, even though I am talking about a micro economic situation, at the macro level, things are just obviously more complex. People who hate government will make hay out of what is perceived as over spends etc., to the point where their answer is to do nothing. That is the problem at the moment.
A Chatgpt summary of David Orrell’s analysis and its implications for looking at the UK economy , seems to indicate that there are considerable overlaps between the two of you in the practical implications
https://chatgpt.com/share/68c13817-bd68-800b-97ec-38f20ebdb5e7
Although I still think that much of your critique (and others) of the conventual analysis and suggested alternatives do not seem to need the quantum paradigm.
Clearly there are overlaps. But certainly the way of getting there is very different.
Weather forecasting is a quite close analogy to economic forecasting, I think. Both needs lots of data in real time, and the data for weather forecasting are measurable and known. Weather forecasting can be reasonably accurate for next 24 hours, and not too bad for up to 5 days. Do we know what we should be measuring in real time for economic short-term forecasts? How short term would such forecasts be?
And forecasting climate is not the same as forecasting weather. Different data used, different model.
Enjoying the series as well. This one, especially the mentions of black swans and the need for resilience (plus the general pointing out the hubris of neoclassical economists claim to prediction and certainty) reminds me of Taleb’s Antifragile. You’ve probably read it, but some useful thoughts in there.
Thanks
The discourse on our economic affairs by the media and all the others who add their self-important views needs to change. It should always focus on the needs of the people. The key question for me is “Are the needs being met”? If not, changes should be proposed and implemented. The objective then should be to look at what has been done in the past and see/judge if the issues that they were meant to solve have been successfully dealt with.
For example, whether inflation is 1.4% or 1.5% is, to me, irrelevant, but the trend is all-important. This is only known from past data. What matters to me is the price of all I need to buy, and that determines how much of what I want to buy I can afford. This is where we all have to cope with uncertainty, (unless we have the luxury of a large income or savings to fall back on).
By pretending there is no uncertainty, the neoliberal acolytes force the uncertainties onto those least able to cope with it, the poor, the sick, the disadvantaged and the elderly. The uncertainties have to emerge somewhere (see Heisenberg) and I see the neoliberal mantra as a kind of forcing function, and it isn’t a healthy, ethical or moral one. These attributes seem to me to be a useful way to distinguish between different options/courses of action.
The key question for me is “Are the needs being met”?
I wholeheartedly agree.
It’s unfortunate that there are so many bright minds trapped within a prison of manufactured logic. I genuinely can’t imagine anything more exciting as an economist that was learning the barriers, that felt so unintuitive, were actually a large part of the issue with modern economics. Great economists who are willing to challenge the lessons they have been taught and collaboratively grow have the power to change the world.
As you said, everything is uncertain. I’ve met an awful lot of people who loathe the idea that one of the most blatantly complex man-made systems of all time is not easily predictable with a rather limited set of academic tools. It must be incredibly hard to confront decades of pre-established knowledge, taught to you by people you respect, and I sympathise with that. Yet pride will destroy this planet if we are not careful.
Tversky and Kahneman demonstrated pretty clearly that, expert or otherwise, we are all idiots when it comes to the belief we hold in our own intuitive judgement and decision-making. Not only did they empirically destroy the foundational assumption of rational decision making, but they also quite clearly demonstrate that humans really don’t have room to have precise confidence in the face of *any* uncertainty, let alone the economic kind. Your ideas for broad and adaptable policy make far much sense when human nature is considered.
“Quantum thinking shows why this is nonsense. The world is not determinate”
Well, you fall at the first hurdle.
The world on Newtonian physics level is very much determinate. If you know where an asteroid is, and where it’s going at what rate, you can accurately predict its position in the future. This holds true for balls, cars, rocks, anything on our sort of scale.
This is the opposite of quantum mechanics, where if you know where something is, you literally can’t even know where it’s going. And the more you try to find out where it’s going, the less accurately you know where it is. Leading to quantum tunneling.
You are so far out of your depth..
You seem to be furiously agreeing with me, whilst arguing against yourself.
You are so far out of your depth, it would seem.
This approach really works for me. Interesting though that your reference to resilience also suggests there are lessons to be learned from evolutionary biology where the concept of “redundancy” is really important….its the key to complex life evolving through an ability to balance stability with adaptability. Neoliberalism downgrades redundancy in the pursuit of so-called “efficiency”. Tim Lang adopts the right language when he advocates replacing “Just in time ” management of the food system with a “Just in case” system. The latter is the title of his recent report on the UK food system.
We have a version of these ideas based upon quantum biology which will follow this series.
If you strip away the ‘quantum woo-woo’ window dressing, all you’re saying is “economics deals with complex systems full of uncertainty, so forecasts are necessarily limited and incomplete.”
Hardly new. Hayek set this out in his lecture, “The Pretence of Knowledge”, in 1974. That was a Nobel lecture, by the way.
A summary of what Hayek said would be “Economics is complex, full of unknowables, and forecasts must be approached with humility”.
You’re re-branding this by saying “Economics is complex, full of uncertainty, so let’s borrow the language of quantum mechanics to make that sound radical and claim to have invented something new”.
What you’re claiming as some amazing new insight is a 50 year old idea which has been absorbed into mainstream economic methodology for decades.
‘quantum economics’ is just Hayek’s ‘pretence of knowledge’ with a coat of science-fiction paint.
Politely, none of the followers of Hayek have ever notcied what he had to say in that case, so it needs resaying all over again, even presuning you are right (which I leave open to doubt).
What you have actually highlighted is the the inadquancy of neoliberal thinking and thinkers as a rsult. I find that rather amsuing.
[…] I have explained in my quantum economics series, turning the future into the present in a deterministic way, as […]
I commend you ask ChatGPT to read Strategy:A history by Professor Lawrence Freedman.
There are two types of strategy: Force and deception.
Economics claims authority but amounts to deception.
Once you weave a little political reality in to the physics you might have a workable system.
Using Quantum in your title is just surfing on Quantum computing hype. NB It doesnt work reliably .
But fantastic first read: I must read the rest…
Thanks