Dan Gay — #Minsky

I’ll be very interested to see Keen’s model, especially to see how it copes with randomness, the existence of black swans (unknowable events with a big impact) and reflexivity (people changing their behaviour in response to events that become predictable). Presumably this is what complexity theory is supposed to be good at, because attempts have certainly been made in the past to construct full working models of the economy, such as Oscar Lange’s socialist planning supercomputer, which was much criticised by Hayekians amongst others for being unable to cope with the subjective nature of the tacit information held by the ‘man on the spot’. The Philips machine was another dubious effort at trying to model the economy within a closed system. I’m sure Keen’s model will be far more sophisticated.

Emergent Economics
#Minsky (April 9, 2012)
Dan Gay

Dan Gay holds a PhD in economics, a Masters degree in economics, a Masters degree in political theory and an Honours degree in politics, philosophy and economics. He works as a consultant for the United Nations and other development agencies in the South Pacific, East Asia, Central Asia and Africa.

Ramanan — Income = Expenditure

Ramanan sums up the state of the recente debate fron his perspective and adds the dimension of the Dirac delta function.

The Case For Concerted Action
Income = Expenditure!
Ramanan

Equilibria, unique and not-so-unique (guest post by Roger Farmer)

Wonky.

Read it at Noahpinion
Equilibria, unique and not-so-unique (guest post by Roger Farmer)
Posted by Noah Smith

Noah Smith — DSGE vs. Weather Forecasting

Why would "disequilibrium dynamics" be important? I can think of several reasons.

Reason 1: The equilibrium may shift at about the same speed that convergence happens. If the economy is trying to hit a moving target, chaos will result. See this paper by Andrew Lo for a semi-technical explanation of why this true. (In math-speak, this happens when the rate of convergence, k, may be of the same order as the parameters governing the time-scale of the shock process.)

Reason 2: The equilibrium may not be stable. See this blog post by Jonathan Schlefer (whosebook I just ordered off of Amazon):In 1960 Herbert Scarf of Yale showed that [even the most ideal kind of] economy can cycle unstably. The picture steadily darkened. Seminal papers in the 1970s, one authored by [General Equilibrium inventor] Debreu, eliminated "any last forlorn hope," as the MIT theorist Franklin Fisher says, of proving that markets would move an economy toward equilibrium. Frank Hahn, a prominent Cambridge University theorist, sums up the matter: "We have no good reason to suppose that there are forces which lead the economy to equilibrium."In other words, the smooth convergence equation that Lucas wrote down may simply not be true.

Reason 3 (the biggie): There may be multiple equilibria. You rarely see famous and influential DSGE papers with multiple equilibria, and when you do see them, there are usually only two equilibria. But I know of absolutely no reason why the real economy should have a unique equilibrium. And I know of absolutely no reason why the number of equilibrium in the economy should be small! But there seems to be a huge publication bias in favor of smaller number of equilibria (Roger Farmer's efforts notwithstanding). This annoys me.

Read the whole thing at Noahpinion

DSGE vs. Weather Forecasting

by Noah Smith
(ht Mark Thoma)

A Dynamic Function for Energy Return on Investment

Abstract: Most estimates of energy-return-on-investment (EROI) are “static”. They determine the amount of energy produced by a particular energy technology at a particular location at a particular time. Some “dynamic” estimates are also made that track the changes in EROI of a particular resource over time. Such approaches are “bottom-up”. This paper presents a conceptual framework for a “top-down” dynamic function for the EROI of an energy resource. This function is constructed from fundamental theoretical considerations of energy technology development and resource depletion. Some empirical evidence is given as corroboration of the shape of the function components.Keywords: EROI; net energy; energy-return-on-investment

Read it at Sustainability

A Dynamic Function for Energy Return on Investment
by Michael Dale , Susan Krumdieck, and Pat Bodger
(h/t Oil Drum)

Steve Keen — MMT Convergence?

Neil Wilson recently posted A Double Entry View on the Keen Circuit Model

at 3spoken.

This elicited some excellent comments, including a couple of extensive contributions by JKH.

Keven Fathi emailed me that Steve Roth just posted at angry Bear that he regards Neil's post as The Most Important Econoblog Post This Year.

Congratulations, Neil, on moving this debate significantly forward.