Working Papers

I am supposed to speak about Complexity Economics and the issues this theoretical approach is able to illuminate. Defined as such, it appears as if I should discuss methodology and I am reminded of Paul Krugman’s quote: “It is said that those who can, do, while those who cannot, discuss methodology”. So, having a discussion centered on methodology may give the impression that the panelists in this session are unable to make scientific progress.

Elephant seals have got too big for their beaches. A large specimen might weigh over 8000 lbs (3700 kg).Their size has a simple evolutionary explanation. Large males fight for the right to mate with a whole beach full of females. For elephant seals it is, quite literally, winner-takes-all. And the key to winning is simple – size.

We have grown accustomed to regulating financial markets based on imagined, not real markets. Real markets are shaped by and co-evolve with institutional arrangements within two fundamental constraints: Imperfect knowledge and the threat of illiquidity.

The financial sector can support growth but it can also cause crisis. The present crisis has exposedgaps in economists’ understanding of this dual potential.

In the seemingly never-ending aftermath to the economic crisis that began in 2007, there is little disagreement that financial markets are characterized by instability rather than stability.

Taking a long‐run view from economic history, I make three points about instability in financial markets. First, I argue that economic historians have a relatively good understanding of the proximate causes of financial crises.

“Natural rate theory” has dominated interpretations of economic trends and policy prescriptions over many decades. European-type welfare state institution were claimed to cause a compressed wage distribution that distorts otherwise well functioning labor markets.

Many models of economic growth exclude materials from the production function. Growing environmental pressures and resource prices suggest that this may be increasingly inappropriate.

The topic of this session of the INET conference is a question: does the effectiveness of fiscal policy in stabilizing an economy depend on the underlying economic context in which the policy is implemented?

The present paradox, as ecological economist Bill Rees is fond of putting it, is simple yet profoundly troubling: “The ecologically necessary is politically infeasible, but the politically feasible is ecologically irrelevant.”

Three major crises are confronting the world. The first is the increasing and uneven burden of humans on the biosphere, and the observation that we have already surpassed the ‘safe operating space’ for humanity with respect to three planetary boundaries: climate change, the nitrogen cycle and biodiversity loss.

The path to better understanding the economy requires treating the economy as the complex system that it really is. We need more realistic behavioral models, but even more important, we need to capture the most important components of the economy and their most important interactions, and make realistic models of institutions.

In 1803 Louis Poinsot, a French physicist, wrote a book of great success, Elements de Statique, which was destined to have practical and social influences unimaginable to the same author.

In the last few years the impact of income distribution on macroeconomic dynamics has received growing academic attention.

Long periods of unequal incomes spur borrowing from the rich, increasing the risk of major economic crises