The Implications of Complexity for Economic Analysis

Abstract

Economists are confounded by the turbulence of economic events and are unable to answer most important questions posed to them. They are notoriously unable to forecast turning points in economic time series, to discern when a high priceearnings level of stock prices denotes a bubble; when economies will spin into catastrophic slumps; how to attain a higher rate of output growth; what forces shape changes in the distribution of income, or even if the average rate of increase in money wages next year will be higher or lower than the current rate. Economists are not only unable to predict future events. They have equal difficulty retrodicting past events. The causes of the Great Depression of the 1930s remain highly controversial.

Monetary theory especially has to be developed in time, (with) future becoming present, and present becoming past, as time goes on … One must assume that the people in one’s model do not know what is going to happen, and know they do not know just what is going to happen. As in history.

John Hicks, 1977

In a world where all economic units are continually revising and rearranging their plans over time in their attempts to anticipate future events, equilibrium can never occur … Time and equilibrium are incompatible.

George Shackle, 1972

The future waits not for its contents to be discovered, but for that content to be originated.

George Shackle, 1980

I should, I think, be prepared to argue that in a world ruled by uncertainty, with an uncertain future linked to an actual present, a final position of equilibrium such as one deals with in static economics does not properly exist.

John Maynard Keynes, XXIX: 222