When you have agents engaged in multiple interactions over space and time, you get a strong dynamic nonlinear, non-equilibrium process, which results in structures and patterns, also known as self-organization. This arises entirely from interactions internal to the system. If we then cause the system to change due to external inputs, we get turbulence in the system, making the system even more nonlinear, throwing it into a far-from-equilibrium state. It is when it is in the far-from-equilibrium state that it is most creative. If the economy is a spontaneous order, it is a self-organizing system/process. And if it is a self-organizing process, it is a non-equilibrium process. And if it is a creative process, it is likely to be in a far-from-equilibrium state (and if it is a dynamic, self-organizing process with external inputs, it is likely to be in a far-from-equilibrium state).
Of course, neoclassical economics is based on the idea of equilibrium. However, I have noticed that the following result in disequilibria:
space
time
entrepreneurship involving new ideas/products
ignorance
knowledge
success
failure
different cultures and subcultures
Now, since these are features of any real economy, and each causes diseqeuilibria, piling diseqeuilibria on disequilibria, does it make any sense to discuss equilibria? It is argued that it is a "useful fiction," but one does have to wonder how useful it really is, if it creates a consistently false picture of the economy. Worse, it creates "ideal conditions" which are unachievable, creating the fiction that there is such a thing as "market failures." Market failures are impossible except in the utopia of neoclassical equilibrium theory. That makes it a theory failure.
2 comments:
Well put. I used to be willing to concede that equilibrium is a "useful fiction" but I no longer think so.
At best, equilibrium is a useful concept in the microeconomic short run e.g. supply, demand disturbances etc. It's not relevant even in the micro long run where innovation and uncertainty are the dominant forces. And certainly not in macroeconomics in the short or long run.
This isn't to say that there are no equilibriating forces but this is a trivial statement to the effect that some negative feedback forces operate.
No arguments with your list but ignorance/irreducible uncertainty alone is a sufficient condition for a disequilibrium approach. Not necessary obviously but sufficient - and I find it the most interesting line of enquiry given that an uncertainty-driven approach is essentially an evolutionary approach.
No doubt it is sufficient, but why not pile on if you can? :-)
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