Keen – equilibrium is blither

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Steve Keen on “Equilibrium is blither”

The following is taken from pp.188-189 of Keen, S. (2011). Debunking economics: the naked emperor dethroned? (Rev. and expanded ed.). London; New York: Zed Books Ltd.

As Keynes…once remarked, ‘equilibrium is blither.’ So why, fifty years after Keynes, are economists still blithering? Why do economists persist in modeling the economy with static tools when dynamic ones exist; why do they treat as stationary entities which are forever changing?

There are many reasons, but the main one…is the extent to which the core ideological beliefs of neoclassical economics are bound up in the concept of equilibrium. As a by-product of this, economists are driven to maintain the concept of equilibrium in all manner of topics where dynamic, non-equilibrium analysis would not only be more relevant, but frankly would even be easier. This obsession with equilibrium has imposed enormous costs on economics.

First, unreal assumptions are needed to maintain conditions under which there will be a unique, ‘optimal’ equilibrium…

Secondly…even the unreal assumptions of general equilibrium theory are insufficient to save it from irrelevance, since even the model of general equilibrium has been shown to be unstable, so that no modeled or real economy could ever be in a state of equilibrium.

Thirdly, the emphasis on modeling everything as an equilibrium phenomenon has isolated economics from most if not all other sciences, where dynamic analysis — and in particular evolutionary analysis — is now dominant. Economists are now virtually the only ‘scientists’ who attempt to model a real-world system using static, equilibrium tools. As a result of this isolation, economists have been shielded from developments in mathematics and other sciences which have revolutionized how scientists perceive the world.

This isolation is to some extent fortuitous, because if economists really knew what is common knowledge in other sciences, then they would finally have to abandon their obsession with equilibrium, and economics as outlined in this book would cease to exist. Most modern-day economists believe, as did the founding fathers of economics, that dynamic analysis would simply ‘fill in the dots’ between the static snapshots, thus replacing a series of still photographs with a moving picture. In fact, modern research in mathematics, physics, biology and many other disciplines has shown that dynamic analysis normally leads to results which contradict those of static analysis.

Added 13 October 2014