At the heart of a discipline is a method, for the humanities, or a formalism, for a social science or hard science. Economics is predicated on two large families of formalism: simultaneous linear equations that are at the heart of the micro-economic marginal thinking, and the equilibrium of macro-economics between aggregates of demand. In general there is a third form of economics which is under-recognized: econometrics, which is the process of translating measurements into a formalism. Freakonomics is the brand name Dubner and Leavitt go by, but his work shows that there is a creative flexibility in econometrics, and a method which should have a formalism. Between micro- and macro- there are a variety of models and studies which can be termed "synthetic" thought, such as the neo-classical synthesis, which attempts to put macro-economics in micro-economic footing, or argue down from macro-economics to a micro-economic stability. Like the equivalent problem in physics, it has seemed intractable.

However, there are two areas of economic thinking that are often herded into one of these two areas, with disastrously bad consequences for all concerned: meso-economics, and mega-economics. The first is a term used for some time, the second may well be used but I have not heard it used consistently as a formalism. Late last year a paper which considered an economy as a mega-economic surface was published, however this is in the area of synthesis.

To assert these as branches of economic thinking requires an assertion of fundamental formalism. Fortunately for both, they exist.

Meso-economics

Meso-economic thinking is the study of non-linear dynamics that arise between macro- and micro- scale of economics. It is the region where not only do the assumptions of the efficient market of micro-economics don't apply, but the actors involved are aware of it, consciously or not, and these effects alter decisions. Micro-economics works when all information can be encoded in price. However, to encode multiple dimensions into price, it must then become holographic, by, for example, using volatility to infer properties which are not present in price itself. This creates incomensurabilities, and the introduction of variables other than price itself. Basically, if people were to wake up forgetting yesterday we could all be micro-economic actors without further effects.

The fundamental formalism of meso-economic thinking, is the theory of games. The game theory formalism provides a mechanism by which the necessary holographic information can be encoded in price, and in price expectations. Previous expectations can be encoded in diffusion equations, e.g. Black-Scholes theory, Ito Calculus, Bayesians - and used to produce the two necessary formal game theory matrices: one which represents the actual payoffs, the other which represents the imperfect information expected pay offs of the actors. That is, the space they think they are making the decision in.

As such meso-economic thinking has a long and solid history, but needs to be divorced from attempts to shoe horn it into either micro- or macro- thinking. Barro calls what he does "new classical economics" because he believes that by making micro-economics a strategic framework, it creates the necessary scales to make macro-economics an extension of it. It is a move similiar to string theory: it looks good on paper, but not in theory or practice, because it is able to predict anything at all with sufficient design of the underlying games.

Thus a course in meso-economics would begin with the implicit game theory which exists in micro-economics in Smith and Hume, detail the division of political economy from economics, which rests, to no small extent on the possibility of encoding information in price among rational economic actors, outline the beginnings of scaled thinking in early Modern Liberalism such as the examples in FDR's economic programs. It would then begin on the formalism proper, beginning with the theory of games of von Neumann, Nash equilibria, Arrow's Impossibility theorum.

From there more recent work could be incorporated. It could then be tied to the other two strains of meso-economic thinking: the interactions between industries of radically different levels of expected return and the commensuration of risk. That is to say, some areas of human activity have particular set areas of profit, either then they have to have risks reduced to that level of profit, or risks imposed on those who have no choice in the matter.

The gem of meso-economic thinking is the concept of strategic equilibria, rather than simultaneous equilibria, as the driving force at scale of an economy. That is, that the distribution of effort will not be at the pareto optimality predicted by micro-economic perfect markets, but at the point where no actors can improve their position without creating a strategic response.

Mega-economics

When looking at economic scales of hundreds of years, the macro economic formalism breaks down. The data simply is not available beyond, roughly the turn of this century, for strongly predictive models based on macro-variables. There is some data from the 19th century on interest rates and inflation, and inferred data can be created. But we have price data that goes back farther than that, and when looking for examples of large scale shocks, it is often useful to go back to previous periods of time. For example, what happens in a shift of energy basis, there just aren't that many examples. Another problem is that the emergence of capitalism itself well predates sufficient data. This isn't unreasonable, much of the data we collect is because of the desire to maintain a working market economy.

However, again, there is a formalism already present that can act as the foundation of an entire area of inquiry: that formalism is trend line analysis. When dealing with long scales large trendlines are drawn. There are then two areas of inquiry, one is the effects of shifting the trendline up or down, the other is the variation from trendline in terms of surplus or slack along the trend. For example, GDP can be seen to have a long trendline of growth, with periods of over production and underproduction. The assertion of mega-economics is that production will eventually return to the trendline, and that the trendline can be investigated based on underlying material factors. That is measurable improvements.

What is lacking in mega-economic thinking is the commensuration between physical and relative value. The simplest way to look at this is with calories of food. There is the ability to create raw calories of food: how much work does it take to produce 1 calorie of food. There is also the quality of food, how much work does it take to add the various other nutrients that people need. Some of this produces an absolute improvement in well being, however, the other part is the competitive equilibria. Living on a diet of 1800 calories with moderate nutritional deficiencies is much worse in a culture where most people don't have the same deficits of calories and nutrients, than in a culture where everyone is a bit underfed. Thus over the long scale there are two rates of "real" economic change. One is based on the physical material change, the other in how much of that is boiled away from the actor's point of view as being competitively required.

It his here that meso-economic formalism and mega-economic formalism link: because, after all, one of the things one can do in game theory is show the preferences of actors for relative gains against absolute gains. In fact, one can expressly design experiments to see when there is a "strategic preference."

This links both back to macro-economic policy making, because many of they key concepts in macro-economics are, in fact, strategic concepts. Consider for example "liquidity preference." Liquidity preference is a strategic consideration: the ability to see as a possible future game a situation where liquidity would be preferable, and rolling back to the present to save liquidity rather than spend it, even though the price/utility function based on the general level of prices might well be in favor of spending now.

Thus the break down of economics would be into four formalisms, with the discipline of econometrics linking them. Each has it's own particular data, each links to the others, in that seen from the central point of each discipline, the others appear as special cases with "effects." Stickiness, an effect, is, from the point of view of meso-economics pricing a strategic equilibrium into place. Strategic equilibrium appears to transmit all information into price at a micro-economic frame work.

The reason for going through this intellectual difficulty is entirely pragmatic: present pushing of strategic calculations into micro-economic terms, and forcing macro-economic policy to meet an illusory micro- equilibrium - more or less, cooking the books - with an unsustainable mega-trend line - more or less, ignoring that we can't pollute and drill for ever - is what lead to our current crisis. The failure to correctly compute and account for strategic equilibria has caused two of our most important financial meltdowns.

Hence, while there is going to be no small amount of screaming and shouting, and the terms may vary, it is inevitable that economics will move to a new symmetry of formalisms: micro- meso- macro- mega-, with none reducible to the others in general cases.

There is a great deal of shouting, but the two fold symmetry of the 20th century is over.