Ever since the collapse of Soviet-bloc socialism, and the associated breakup of the Soviet Union itself, it has been accepted by the vast majority of political economists that Friedrich A. Hayek and his fellow Austrians, notably his mentor, Ludwig von Mises, were the unequivocal victors in the famous “socialist calculation debate” that had raged for a good seven decades. It was over. The anti-socialist, Austrian position had won. Market capitalism was triumphant in both theory and practice. The combination of lack (...) of incentives and inevitably dispersed and asymmetric information had doomed command central planning of economies, especially in an increasingly complicated modern world economy (Rosser and Rosser, 2004, Chap. 3). (shrink)
A deep theme of Austrian economics has been that of spontaneous order or selforganization of the economy. The origin of this theme dates to the putative founder of the Austrian School, Carl Menger, with his theory of the spontaneous emergence of money for transactions purposes in primitive economies being archetypal example (Menger, 1892). Menger drew this approach from the Scottish Enlightenment figures David Hume, Adam Ferguson, and Adam Smith, with the latter’s Wealth of Nations (1776) particularly important. The most important (...) developer of this idea within the tradition after Menger was F.A. Hayek (1948), who would identify this self-organization phenomenon with emergence, later expanding upon this into the broader concept of complexity (Hayek, 1952, 1967). Caldwell (2004) argues that this became an increasingly important focus of Hayek’s thought in the later years of his life. Among those examining this development in more detail besides Caldwell have been Koppl (2006, 2009), Rosser (2010a),1 and Lewis (2010). This essay will consider more thoroughly the relationship between the concepts of emergence and complexity and the roles that they have played in Austrian economics as well as more broadly in philosophy and science. An important point is that both of these concepts do not possess precise meanings; they are “terms of art” within philosophy. However, while closely linked through the general idea of a whole being “greater than.. (shrink)
distraction that leads innocent Post Keynesians into “classical sin.” Davidson (1994, 1996) argues that core Post Keynesian (PK) ideas such as that insufficient aggregate demand arise from fundamental uncertainty in a monetary economy do not depend on nonlinearity or complexity, that these core concepts are axiomatically and ontologically true, and that the inability of agents to forecast well in dynamically complex situations reflects mere epistemological problems of insufficient computational abilities. Thus complex dynamics is merely a classical stalking horse. This writer (...) (Rosser, 1990, 1998, 2001) disagrees with the argument presented above and its relatives (Mirowski, 1990; Carrier, 1993). Dynamic complexity provides a foundation for fundamental uncertainty in Keynesian and PK models, and this applies to most of the various sub-branches of PKE besides Davidson’s “fundamentalist” or “Keynes-Post Keynesian”2 approach. The argument will be considered regarding three subdivisions of Post Keynesianism as identified by Hamouda and Harcourt (1988): the aforementioned fundamentalist Keynesianism, Sraffian (or neo-Ricardian), and Kaleckian (or Kaleckian- Robinsonian).3 Following King (2002, chap. 10), I admit to being more in sympathy with those he describes as “synthesizers” than with the more partisan sectarians of these approaches.4 I shall describe how each sub-branch has been analyzed using ideas of.. (shrink)
Kumaraswamy Vela Velupillai [74] presents a constructivist perspective on the foundations of mathematical economics, praising the views of Feynman in developing path integrals and Dirac in developing the delta function. He sees their approach as consistent with the Bishop constructive mathematics and considers its view on the Bolzano-Weierstrass, Hahn-Banach, and intermediate value theorems, and then the implications of these arguments for such “crown jewels” of mathematical economics as the existence of general equilibrium and the second welfare theorem. He also relates (...) these ideas to the weakening of certain assumptions to allow for more general results as shown by Rosser [51] in his extension of Gödel’s incompleteness theorem in his opening section. This paper considers these arguments in reverse order, moving from the matters of economics applications to the broader issue of constructivist mathematics, concluding by considering the views of Rosser on these matters, drawing both on his writings and on personal conversations with him. (shrink)
According to Bikas Chakrabarti (2005, p. 225), the term econophysics was neologized in 1995 at the second Statphys-Kolkata conference in Kolkata (formerly Calcutta), India by the physicist H. Eugene Stanley, who was also the first to use it in print (Stanley, 1996). Mantegna and Stanley (2000, pp. viii-ix) define “the multidisciplinary field of econophysics” as “a neologism that denotes the activities of physicists who are working on economics problems to test a variety of new conceptual approaches deriving from the physical (...) sciences.” The list of such problems has included distributions of returns in financial markets (Mantegna, 1991; Levy and Solomon, 1997; Bouchaud and Cont, 1998; Gopakrishnan, Plerou, Amaral, Meyer, and Stanley, 1999; Sornette and Johansen, 2001; Farmer and Joshi, 2004) the distribution of income and wealth (Drăgulescu and Yakovenko, 2001; Bouchaud and Mézard, 2000; Chatterjee, Yarlagadda, and Charkrabarti, 2005), the distribution of economic shocks and growth rate variations (Bak, Chen, Scheinkman, and Woodford, 1993; Canning, Amaral, Lee, Meyer, and Stanley, 1998), the distribution of firm sizes and growth rates (Stanley, Amaral, Buldyrev, Havlin, Leschhorn, Maass, Salinger, and Stanley, 1996; Takayasu and Okuyama, 1998; Botazzi and Secchi, 2003), the distribution of city sizes (Rosser, 1994; Gabaix, 1999), and the distribution of scientific discoveries (Plerou, Amaral, Gopakrishnan, Meyer, and Stanley, 1999; Sornette 1 and Zajdenweber, 1999), among other problems, all of which are seen at times not to follow normal or Gaussian patterns that can be described fully by mean and variance. The main sources of conceptual approaches from physics used by the econophysicists have been from models of statistical mechanics (Spitzer, 1971), geophysical models of earthquakes (Sornette, 2003), and “sandpile” models of avalanches, the latter involving self-organized criticality (Bak, 1996). An early physicist to assert the essential identity of statistical methods used in physics and the social sciences was Majorana (1942). A common theme among those who identify themselves as econophysicists is that standard economic theory has been inadequate or insufficient to explain the non-Gaussian distributions empirically observed for various of these phenomena, such as “excessive” skewness and leptokurtotic “fat tails” (McCauley, 2004).. (shrink)
Roger Koppl (2009, p. 1) argues that “Austrian economics is a school of thought within the broader complexity movement in economics.” Is he correct? While there are many who have argued for some overlapping between the two, I shall argue that this is probably an overly strong statement. The main reason is that there are substantial elements and strands within Austrian economics that do not fit in with any of the multiple varieties of complexity theory, even though there are some (...) that clearly do. While I have some disagreements with Koppl’s argument, I think that he does a good job of identifying some of the main strands of Austrian economics that are consistent with complexity thought. The most important of these are associated with the work of Friedrich A. Hayek, who.. (shrink)
The science writer, John Horgan (1995, 1997), has ridiculed what he labels “chaoplexology,” a combination of chaos theory and complexity theory. A central charge against this alleged monstrosity is that it, or more precisely its two component parts separately, are (or were) fads, intellectual bubbles of little consequence. They would soon disappear and deservedly so, once scholars and intellects realized what worthless dross they truly were (or are). As the culminating centerpiece of his argument, Horgan introduced the label, “the four (...) C’s,” which consist of cybernetics, catastrophe theory, chaos theory, and complexity theory.[2] More.. (shrink)
The paper reviews statistical models for money, wealth, and income distributions developed in the econophysics literature since the late 1990s. By analogy with the Boltzmann-Gibbs distribution of energy in physics, it is shown that the probability distribution of money is exponential for certain classes of models with interacting economic agents. Alternative scenarios are also reviewed. Data analysis of the empirical distributions of wealth and income reveals a two-class distribution. The majority of the population belongs to the lower class, characterized by (...) the exponential (“thermal”) distribution, whereas a small fraction of the population in the upper class is characterized by the power-law (“superthermal”) distribution. The lower part is very stable, stationary in time, whereas the upper part is highly dynamical and out of equilibrium. (shrink)
Three principles of dialectical analysis are examined in terms of nonlinear dynamics models. The three principles are the transformation of quantity into quality, the interpenetration of opposites, and the negation of the negation. The first two of these especially are interpreted within the frameworks of catastrophe, chaos, and emergent dynamics complexity theoretic models, with the concept of bifurcation playing a central role. Problems with this viewpoint are also discussed.
Much empirical analysis and econometric work recognizes that there are nonlinearities, regime shifts or structural breaks, asymmetric adjustment costs, irreversibilities and lagged dependencies. Hence, empirical work has already transcended neoclassical economics. Some progress has also been made in modeling endogenously generated cyclical growth and fluctuations. All this is inconsistent with neoclassical general equilibrium. Hence there is growing evidence of Kuhnian anomalies. It therefore follows that there is a Kuhnian crisis in economics and further research in nonlinear dynamics and complexity can (...) only increase the Kuhnian anomalies. This crisis can only deepen. However, there is an ideological commitment to general equilibrium that justifies “free enterprise” with only minimal state intervention that may still sustain neoclassical economics despite the growing evidence of Kuhnian anomalies. Thus, orthodox textbook theory continues to ignore this fact and static neoclassical theory remains a dogma with no apparent reformulation to replace it. (shrink)
The implications for how teach macroeconomics at the undergraduate level of the emergence of the multidisciplinary study of nonlinear complex dynamics are examined. A definition of complex dynamics is presented and a broad review of various applications in macroeconomics is made. Some particular implications are emphasized such as how complex dynamics raise serious doubts about the rational expectations assumption. Several models and approaches are suggested that can be used to make these ideas accessble to students.
Relationships are studied between the non-observed economy, income inequality, corruption, social capital measured as trust, and various institutional quality, policy, and macroeconomic variables for a global data set of countries for two time periods accounting for social interactions. Tentative support is found for positive relations between the non-observed economy and income inequality, the non-observed economy and corruption, and a negative relation between corruption and trust. No significant relation was found between the nonobserved economy and tax rates, contrasting with previous studies (...) finding significant relations of opposite signs. Data difficulties and weak robustness tests suggest limits to our results. (shrink)
We consider Friedrich Hayek’s Road to Serfdom in light of global ideological and economic developments during the sixty years since its publication. Specific problems considered include socialism and planning, whether national socialism was really socialism, whether Hayek’s views could be labeled as social democratic and whether his critique of social democracy was too strong, and his discussion of the prospects for international economic order. While often right and enormously influential, Hayek himself agreed that some of his predictions did not become (...) true. (shrink)
This paper examines the rising competition between computational and dynamic conceptualizations of complexity in economics. While computable economics views the complexity as something rigorously defined based on concepts from probability, information, and computability criteria, dynamic complexity is based on whether a system endogenously and deterministically generates erratically dynamic behavior of certain kinds. On such behavior is the phenomenon of emergence, the appearance of new forms or structures at higher levels of a system from processes occurring at lower levels. While the (...) two concepts can overlap, they represent substantially different perspectives. A competition of sorts between them may become more important as new, computerized market systems emerge and evolve to higher levels of complexity of both kinds. (shrink)
Much empirical analysis and econometric work recognizes that there are nonlinearities, regime shifts or structural breaks, asymmetric adjustment costs, irreversibilities and lagged dependencies. Hence, empirical work has already transcended neoclassical economics. Some progress has also been made in modeling endogenously generated cyclical growth and fluctuations. All this is inconsistent with neoclassical general equilibrium. Hence there is growing evidence of Kuhnian anomalies. It therefore follows that there is a Kuhnian crisis in economics and further research in nonlinear dynamics and complexity can (...) only increase the Kuhnian anomalies. This crisis can only deepen. However, there is an ideological commitment to general equilibrium that justifies “free enterprise” with only minimal state intervention that may still sustain neoclassical economics despite the growing evidence of Kuhnian anomalies. Thus, orthodox textbook theory continues to ignore this fact and static neoclassical theory remains a dogma with no apparent reformulation to replace it. (shrink)
The first is that we are wrong to suggest that the mainstream is no longer limited to a restrictive orthodoxy of beliefs and assumptions that discourages dissenting voices. In developing his argument, Vernengo claims that our characterization of a cutting edge branch of the mainstream that does not hold to a neoclassical orthodoxy is misleading. Although he states that he accepts our characterization of the economics profession as a complex adaptive system, with many competing views, he sees the cutting edge (...) as a sham. He argues that the true role of the cutting edge is to allow the mainstream to “sound reasonable when talking about reality, while orthodoxy provides authority to the cutting edge.” He calls this an “organized hypocrisy” and calls us naive about the sociology of the economics profession. Because of this naiveté on our part he believes that we are giving bad advice to advocate that heterodox economists should think of themselves as economists first and heterodox economists second. (shrink)
Increasingly in economics what had been considered to be unusual and unacceptable has come to be considered usual and acceptable, if not necessarily desirable. Whereas it had been widely believed that economic reality could be reasonably described by sets of pairs of linear supply and demand curves intersecting in single equilibrium points to which markets easily and automatically moved, now it is understood that many markets and situations do not behave so well. Economic reality is rife with nonlinearity, discontinuity, and (...) a variety of phenomena that are not so easily predicted or understood. At the same time the broad coherence of economic systems is more impressive than ever in the face of such phenomena. The order of the economy appears to emerge from the complex interactions that constitute the evolutionary process of the economy. These phenomena have come to be labeled as complexity in economics. Even what seems simple in economics generally arises from behavior not reflecting rational expectations; we live in a world that reflects the enormous variety and diversity of humanity in their knowledge, attitudes, and behaviors, interacting with each other in an enormous range of institutional frameworks. What emerges in the aggregate may have little to do with what happens at the individual level. But this aggregate cannot be simply described by some set of aggregate equations. It emerges out of the soup of the individual and particular with all its multiform interactions and peculiarities. (shrink)
“The ‘fallacy of composition’ that drives a felicitous wedge between micro and macro, between the individual and the aggregate, and gives rise to emergent phenomena in economics, non-algorithmic ways – as conjectured originally by John Stuart Mill…, George Herbert Lewes … , and codified by Lloyd Morgan … in his popular Gifford Lectures - may yet be tamed by unconventional models of computation.” --K. Vela Velupillai (2008, p. 21).
This paper argues that a new economic system is emerging in the world economy, that of the new traditional economy. Such an economic system simultaneously seeks to have economic decision making embedded within a traditional socio-cultural framework, most frequently one associated with a traditional religion, while at the same time seeking to use modern technology and to be integrated into the modern world economy to some degree. The efforts to achieve such a system are reviewed in various parts of the (...) world, with greater analysis of the Islamic and neo- Confucian economic systems. (shrink)
Needless to say, Coward has not only innovated the main ideas of Cowen, but has succeeded in going much further in suggesting how to implement them in a successful effort to consume exciting while inexpensive cuisine. Thus, while Cowen recommend seeking out low price outlets such as carts and cheap Chinese restaurants in obscure shopping malls with ugly women in them and awful décor, not to mention scowling and feuding members of the ethnic groups associated with the restaurants, Coward has (...) gone much further in this. One area he is still the master of is the expanding arena of restaurants that charge negative prices. They pay you to eat their food, how inexpensive can you get? This phenomenon is as it has been at Hole in the Stomach, generally tied to money laundering operations by underworld types from the country in the question. Now, quite aside from the low cost, this has other appealing aspects. (shrink)
Over the last several decades the view that economic reality is somehow fundamentally complex has increasingly taken hold among economists, not only those focused on abstract theory but even policymakers as well (Greenspan, 2004). Consequently such economists have been forced to wrestle with the problem not only of how to forecast, which has always been difficult, but even how to understand the apparently most simple economic phenomena in principle as well. More to the point, even how to think about how (...) to understand such phenomena has become a serious challenge. In short, economists increasingly must grapple with fundamental problems of epistemology, how to know what they know in a complex economic reality. This paper will consider three foundational aspects of this problem. The first involves to what extent the source of the problem is endogenous to nonlinear dynamics. The second involves to what extent it is logical and computational. The third will consider whether or not the epistemological problem is really an ontological problem. The problem of nonlinear dynamics and epistemology is most clearly seen in relation to chaotic dynamics, particularly the problem of sensitive dependence on initial conditions, also known popularly as the “butterfly effect.” If minute changes in initial conditions, either of parameter values controlling a system or of initial starting values, can lead to very large changes in ultimate outcomes of a system, then it may essentially require an infinite exactness of knowledge to completely understand the system. Likewise such problems as fractality of basin boundaries in systems with multiple basins.. (shrink)
Flaws, biases, and ethical problems surrounding research and diagnosis may lead to inappropriate or inequitable treatments that exacerbate or fail to improve the misery that some individuals face due to their psychiatric conditions. Possible androcentric biases in the choice and definition of categories for diagnosis available in DSM-III-R may in turn influence the approaches of therapists to clients, particularly male therapists towards female clients. Androcentric bias in diagnosis, which may also be reflected in the values of the psychiatrist, may lead (...) to treatment regimens designed to make clients fit into roles, positions, and norms prescribed by a culture reflecting patriarchal values. Some acceptance of attempts by feminists to correct androcentrism are beginning to emerge in psychiatric diagnosis. Keywords: androcentrism, bias, feminist, psychiatry of biology CiteULike Connotea Del.icio.us What's this? (shrink)
This paper will focus upon the confluence of two strands of discussion and debate that have been developing for some time and their interaction and mutual implications. One involves the nature of economic complexity, how it is to be defined, what is the best way of thinking about it, both theoretically and empirically. The other is the question of the nature and relevance for economics of the recently developed sub-discipline of econophysics. Debates over both of these strands have become more (...) intensified in recent years, and this observer sees the debates as having. (shrink)
This paper considers the implications of complex ecologic-economic dynamics for three broad, Post Keynesian perspectives: the uncertainty perspective, the macrodynamics perspective, and the Sraffian perspective. Catastrophic, chaotic, and other complex dynamics will be seen as reinforcing the conceptual foundations of Keynesian uncertainty. Predatory-prey models will be seen as deeply linked to Post Keynesian macrodynamic models. Finally, certain cases in ecologiceconomic systems will be seen as generating such Sraffian, capital theoretic conundra as reswitching. Ecologic-economic models considered besides predator-prey will include fisheries, (...) forestry, lake dynamics, and global climatic-economic dynamics. (shrink)
One is the very founding document of oligopoly theory, Cournot’s seminal work of 1838. This is both because the specific model that he presented has been much studied for its ability to generate complex dynamics and also because of its more general foreshadowing of game theory. It has often been noted that the Cournot equilibrium is but a special case of the Nash (1951) equilibrium, the more general formulation used by modern industrial organization economists in studying oligopoly theory. Indeed, it (...) is sometimes even called the Cournot-Nash equilibrium. Although many of the models of complex oligopoly dynamics use the specific Cournot model, many use more general game theoretic formulations. We note simply as an aside here that Cournot’s work was the first to apply calculus to solving an economic optimization problem and also was the first to introduce supply and demand curves, albeit in the "Walrasian" form with price on the horizontal axis. (shrink)
In discussing the nature of econophysics, a primary issue must be to understand what it is. This is a rather complicated matter, but attempts at definition have been made. As the neologizers of the term,[1] Rosario Mantegna and H. Eugene Stanley have a distinct authority in this matter. They have proposed the following to define “the multidisciplinary field of econophysics …[as] a neologism that denotes the activities of physicists who are working on economics problems to test a variety of new (...) conceptual approaches deriving from the physical sciences” [2, pp. viii-ix]. (shrink)
This article argues that the neoclassical era in economics has ended and is being replaced by a new era. What best characterizes the new era is its acceptance that the economy is complex, and thus that it might be called the complexity era. The complexity era has not arrived through a revolution. Instead, it has evolved out of the many strains of neoclassical work, along with work done by less orthodox mainstream and heterodox economists. It is only in its beginning (...) stages. The article discusses the work that is forming the foundation of the complexity era, and how that work will likely change the way in which we understand economic phenomena and the economics profession. (shrink)
We examine the “new comparative economics” as proposed by Djankov et al. (2003) and their use of the concept of an institutional possibilities frontier. While we agree with their general argument that one must consider a variety of institutions and their respective social costs, including legal systems and cultural characteristics, when comparing the performance of different economic systems, we find various complications and difficulties with the framework they propose. We propose that a broader study of clusters of institutions and such (...) newly emerging forms as the new traditional economy may be better suited as ways to approach the study of comparative economics in the era after the breakdown of the old comparison of market capitalism and command socialism that came to an end with the breakup of the Soviet Union. (shrink)
“A Public Domain, once a velvet carpet of rich buffalo-grass and grama, now an illimitable waste of rattlesnake-bush and tumbleweed, too impoverished to be accepted as a gift by the states within which it lies. Why? Because the ecology of the Southwest happened to be set on a hair trigger.”.
Economies making a transition from centrally planned socialism to market capitalism can experience chaotic hysteresis. This can arise from elements of the previous system persisting even as institutions are transformed with the system possibly experiencing chaos during this conflict. A model of investment cycles accompanied by technological stagnation shows this phenomenon which can be viewed from a cusp catastrophe perspective. Empirical tests of Soviet investment and construction data provide incomplete support for the cusp structure with chaos. Nonlinear structures are found (...) with bifurcation effects for all cases and possibly chaotic dynamics for five-year lagged construction data. (shrink)
considerable publicity in some of the leading general science journals such as Science and Nature. While most of this research has appeared in physics journals, some has appeared in economics journals as well, more often when at least one author is an economist. Strong claims have been made by some advocates regarding its reputed superiority to economics (McCauley, 2004), with arguments that in fact the teaching of microeconomics and macroeconomics as they are currently constituted should cease and be replaced by (...) appropriate courses in mathematics, physics, and some other harder sciences. The lack of invariance principles in economics and the failure of economists to deal properly with certain empirical regularities are held against it in this line of argument, although most econophysicists do not go as far as McCauley in proposing the complete replacement of economics as such by econophysics. (shrink)
This paper examines how institutions for managing environmental resources change over time with economic development and the seriousness of various environmental problems. Different problems tend to be more serious at different levels of development requiring different approaches. Traditional systems of management in poorer countries were often effective at managing common good resources, and institutions that replicate their advantages may work at higher levels of economic development as well. Problems of inter-level relations are also be considered.
For transition economies, income inequality is positively correlated with the share of output produced in the informal economy. Increases in income inequality also tend to be correlated with increases in the share of output produced in the unofficial economy. These hypotheses are supported significantly by empirical data for sixteen transition economies between 1987 to 1989 and 1993 to 1994. Various causal mechanisms may operate in both directions, an increasingly large informal economy causing more inequality due to falling tax revenues and (...) weakened social safety nets, and increasing inequality causing more informal activity as social solidarity and trust decline. (shrink)
OBJECTIVE: To acquaint the student with the field of urban economics and to show how the principles of microeconomics and macroeconomics can be applied to the analysis of urban economic issues and problems. Such issues and problems include land issues, suburbanization versus central city development, housing availability and quality, racial discrimination, poverty, transportation, environmental quality, local public finance, and cities in less developed countries.
This book is about the economics profession, or more precisely, the cutting edge of the economics profession. Economics is currently at a turning point; it is changing from a static approach to understanding, in which deductive reasoning is the key method used, to a complexity approach to understanding, in which inductive and deductive methods are used simultaneously, and the full complexity of the system is acknowledged and dealt with. The change is just beginning, but the groundwork is currently being laid. (...) This book is about that groundwork and those economists who are developing it. They are the cutting edge of economics. Those who are doing cutting edge work are researchers who are pushing and testing the boundaries of the profession in such a way that it draws the attention of the elite in the profession. The cutting edge has the potential of changing mainstream economics and ultimately what is considered the orthodoxy. (shrink)
E. Roy Weintraub’s How Economics Became a Mathematical Science (2002) presents a original, distinctive, and provocative perspective on the evolution of mathematical economics from the late nineteenth century to the late twentieth century. Its originality and distinctiveness and provocativeness extends as well to its view of the relationship between mathematics and economics. He reveals many little known facts and punctures many fallacious, if widespread ideas. At the same time, he ultimately leaves us hanging on certain crucial points with an ambivalence (...) that is never resolved. However, he is careful not to claim too much for his work: it is not the definitive history of mathematical economics nor does it claim to provide ultimate answers. (shrink)
This book is about the economics profession, or more precisely, the process by which economic thinking changes. We believe that this process is important because economics is currently at a turning point; it is changing from a static approach to understanding, in which deductive reasoning is the key method used, to a complexity approach to understanding, in which inductive and deductive methods are used simultaneously, and the full complexity of the system is acknowledged and dealt with. The change is ongoing (...) and has many levels and dimensions, most of which have not coalesced to the degree that they have reached the lay public. But anyone involved in economic research recognizes the changes, although they do not necessarily understand how they all fit together. (shrink)
We attempt to clarify divisions made by us in previous work (Colander et al., 2004a,b) between “orthodox, mainstream, and heterodox” in economics, following very useful remarks in Dequech (2007-08), whom we thank. We also provide specific advice for heterodox economists, namely: worry less about methodology, focus on being economists first and heterodox economists second, and prepare ideas to leave the incubator of heterodoxy to enter the mainstream economic debate.
This essay reviews the arguments made for a New Austrian theory of business cycles by Tyler Cowen, based on risk analysis and assuming rational expectations. This contrasts with the Old Austrian view that questions measurable risk in economic analysis. The way risk is applied to analyze business cycles suffers from serious inconsistencies. The use of rational expectations is mistaken in the face of economic complexity as understood by the traditional Austrians. However, Cowen is commended for his open-mindedness, even as this (...) leads him away from a strictly Austrian perspective. (shrink)
“A ‘Public Domain,’ once a velvet carpet of rich buffalo-grass and grama, now an illimitable waste of rattlesnake-bush and tumbleweed, too impoverished to be accepted as a gift by the states within which it lies. Why? Because the ecology of the Southwest happened to be set on a hair trigger.”.
Speculative bubbles present a problem for the development of sophisticated financial markets in developing economies. This paper discusses the evolution of regulatory institutions in Pakistan pertaining to the Karachi stock exchange and empirically tests for the presence of stock market bubbles in that stock market in recent years. A fundamental is estimated using a VAR approach, and residuals of this fundamental are tested for trends using Hamilton regime switching and Hurst rescaled range methods. Nonlinearities beyond ARCH are also tested for (...) using the BDS test. We are unable to reject the hypothesis of no bubbles or non nonlinearities during the period studied, indicating that Pakistan faces this difficult problem in developing appropriate regulations and institutions for the oversight of its financial markets. (shrink)
The most important fact about 21st century economics is that it is the post-neoclassical era in terms of the frontiers of economic research. One can still find orthodox, neoclassical theory in most textbooks, especially those at the upper undergraduate level. However, this no longer reflects the reality of how economists at the cutting edge of economics are thinking, including those who are in the mainstream of the profession. The intellectual orthodoxy of neoclassicism has died (Colander, 2000) and the current thrust (...) of research at the cutting edge of the frontier is the search for the appropriate alternative to replace it. (shrink)
“On the plane of philosophy properly speaking, of metaphysics, catastrophe theory cannot, to be sure, supply any answer to the great problems which torment mankind. But it favors a dialectical, Heraclitean view of the universe, of a world which is the continual theatre of the battle between >logoi,’ between archetypes.”.
A new traditional economy combines elements of traditional culture, such as Confucianism, with a modern, technologically advanced economy, while a new institutional economy minimizes transactions costs through its institutional structure. South Korea has enhanced its competitive edge by drawing on Confucian elements such as respect for education and the search for family-like harmony in chaebol corporations that can reduce transactions costs (despite problems) in an open system. Despite also emphasizing respect for education, North Korea has drawn on anti-mercantile elements of (...) the Confucian tradition such as the excessive authoritarianism of its command socialism and the hermit-like closure induced by its juche policy of self-reliance. (shrink)
This book is an expanded version of an article by the same authors that appeared in 2000 in the Journal of Economic Literature (Schneider & Enste, 2000). It seeks to be the definitive work on this increasing global phenomenon and does provide excellent coverage of most of the theoretical, empirical and policy issues associated with it. While it is indeed a truly international survey, many of the in-depth studies and examples come from the authors’ home countries (Austria for (...) class='Hi'>Schneider, who is at the University of Linz, and Germany for Enste, who is at the University of Cologne). Also, a substantial portion of the references are from German language publications, including a few that were originally written and published in English but are listed under German titles. However, by and large, the coverage of sources and issues is reasonably comprehensive. To the extent that there are real problems in this area they are connected to a more serious issue, an ideological bias against taxes that in places distorts the discussion and the analysis, a matter we shall discuss further later in this review. (shrink)
In 1991 this author published a book entitled, From Catastrophe to Chaos: A General Theory of Economic Discontinuities with Kluwer Academic Publishers. Due to the con troversial and unusual nature of this book’s content, there was considerable difficulty in getting publishers to agree to publish it prior to its being accepted by Kluwer. Initially conceived as a heterodox challenge to established economic thinking, this book became viewed by many readers as a reference volume on applications of nonlinear dynamics in general (...) to many fields of economics. Now, in 2000 Volume 1 of the second edition has appeared from Kluwer also, subtitled, Mathematics, Microeconomics, Macroeconomics, and Finance. It covers in expanded form the material contained in the first eight chapters of the first edition. What is this book about and how does the new edition differ from the first one? The underlying philosophy presented is that discontinuities are important objects of study in economics, indeed in many disciplines beyond economics as well. Although discontinuities may arise dynamically due to random exogenous shocks, the more truly interesting ones are those that arise endogenously from dynamical economic systems. In dynamical systems discontinuities can arise endogenously in the presence of nonlinearities in the systems. Thus, the more general topic of nonlinear dynamics in.. (shrink)
We present three arguments regarding the limits to rationality, prediction, and control in economics, based on Morgenstern’s analysis of the Holmes-Moriarty problem. The first uses a standard metamathematical theorem on computability to indicate logical limits to forecasting the future. The second provides possible nonconvergence for Bayesian forecasting in infinite dimensional space. The third shows the impossibility of a computer perfectly forecasting an economy with agents knowing its forecasting program. Thus, economic order is partly the product of something other than calculative (...) rationality. The joint presentation of these existing results should introduce the reader to implications of these concepts for certain shared concerns of Keynes and Hayek. (shrink)
This paper presents a view of the process of transition from planned command socialism to mixed market capitalism involving nonlinear complex dynamical phenomena. After the former institutional structure disappears a coordination failure can bring about macroeconomic collapse as in almost all of the former Soviet bloc or macroeconomic boom as in China. A closely linked phenomenon is the rise of the underground economy as inflation and income inequality increase. This can lead to a jump from one equilibrium to a very (...) different one as nonlinear social feedback processes operate in the transition. (shrink)
Various complex dynamics in ecologic-economic systems are presented with an emphasis upon models of global warming dynamics and fishery dynamics. Chaotic and catastrophic dynamic patterns are shown to be possible, along with other complex dynamics arising from nonlinearities in such combined systems. Problems associated with amplified oscillations due to these nonlinear interactions in the combined interactions of human economic decisionmaking with ecological dynamics are identified and discussed. Implications for policy are examined with strong recommendations for greater emphasis in particular upon (...) the precautionary principle to avoid catastrophic collapses beyond critical thresholds and the scale-matching principle to ensure that efforts to manage complex nonlinear dynamics are directed at the appropriate levels of ecologiceconomic interaction. Key Words: complex dynamics, chaos, catastrophe, fisheries, global warming.. (shrink)
September 2008 Abstract: We consider the precursors to the discovery of sensitive dependence on initial conditions by Edward Lorenz (1963) in his model of climatic fluid dynamics. This will focus on work in various disciplines that imply either such sensitivity, irregular endogenous dynamic patterns, or fractal nature of an attractor, as is also found in the attractor underlying the model Lorenz studied. Going from ancient hints in Anaxagoras through nineteenth century mathematics and physics, the main areas of such development will (...) be argued to have been in celestial mechanics, oscillators, and economics. (shrink)
Among the most striking developments in the process of economic transition has been the very diverse paths these economies have taken with respect to income distribution, with some maintaining degrees of equality similar to the socialist era while others now exhibit degrees of inequality noticeably greater than any advanced market capitalist economies. We argue that these outcomes reflect divergent dynamics with multiple equilibria wherein the pattern of income distribution interacts with the level of corruption and the breakdown of the public (...) sector and social safety nets, with the possibility of societies going sharply in one direction or another. This argument is supported by empirical data linking income inequality and measures of the size of the unofficial economy in a set of fifteen transitional economies. (shrink)
Substantially increased international financial mobility and internal financial reforms in many countries have led to apparently increased volatility of their financial markets. This heightened volatility has sometimes been associated with rapid increases or decreases in asset values that many observers suspect contain elements of speculative bubbles and their associated crashes, not justified by rational expectations of underlying fundamentals. In addition, these possible bubbles may coincide with nonlinear dynamics beyond basic ARCH effects, thus being nonlinear speculative bubbles.
Daily returns of stock markets in 27 emerging markets in Asia, Africa, South America, and Eastern Europe from the early 1990s through 2006 are analyzed for the possible presence of nonlinear speculative bubbles. The absence of these is tested for by studying residuals of VAR-based fundamentals, using the Hamilton regime-switching model and the rescaled range analysis of Hurst. For the first test absence of bubbles is rejected for 24 countries (except Mexico, Sri Lanka, and Taiwan), and for the second it (...) is rejected for 26 (except Malaysia). BDS testing on residuals after ARCH effects are removed fails to reject further nonlinearity in the residual series for all countries. (shrink)
Fishery dynamics are considered within the context of an integrated ecologiceconomic, or bioeconomic, approach. The possibility of complex dynamics is examined, both of the chaotic as well as the catastrophic variety. Issues involving learning and convergence by fishers are considered. Complications arising from multi-species interactions are considered as are complications arising from the hierarchical nature of fisheries. Policy responses to these problems are seen to involve the precautionary..
Nobody has died yet as a result of the ongoing trials for transferring money internationally without a license of four Harrisonburg men from Kurdish parts of Iraq: Rashid Qambari, Ahmed Abdullah, Amir Rashid, and Fadhil Noroly. However, before coming here they were threatened because of their work for groups associated with the United States, and they were brought here by the United States government as part of Operation Pacific Haven. Saddam Hussein killed members of local Kurdish families. Qambari, convicted on (...) January 30, 2006, has stated, “If I get deported back to Iraq, I will be a nice gift to the insurgents. I will be dead.” Deportation is a possible outcome of his conviction. (shrink)
Large increases unofficial economies in many transition economies arise from a dynamic interaction with rising income inequality and public sector changes in multiple equilibria system. Returns to unofficial activity are first increasing and then decreasing, implying two distinct stable equilibria, with changes in inequality possibly causing a jump from one to the other. Multiple regressions of data from 18 transition economies find income inequality significantly correlated with the size of the unofficial economy, with the maximum annual rate of inflation also (...) significantly correlated. The latter appears to be the only significant correlate with the increase in the size of the unofficial economy. (shrink)
In talks given early in the 1990s, Jean-Michel Grandmont (1998) introduced the concept of the self-fulfilling mistake. This phenomenon can emerge when economic agents cannot distinguish between randomness and determinism, a situation that can occur when the underlying true dynamics are chaotic (Radunskaya, 1994), although such a situation could arise with other forms of complex nonlinear dynamics besides those involving chaotic dynamics. In such a situation, agents may be unable to discern the true dynamics and may adopt simple, boundedly rational (...) “rules of thumb” based on some kind of backward-looking adaptive expectations (Bullard, 1994). For certain kinds of underlying processes, agents may be able to mimic the actual dynamics with such an “incorrect” behavioral rule, an outcome known as a consistent expectations equilibrium (CEE), a concept formalized by Hommes (1998) as meaning that the two processes have identical means and also autocorrelation coefficients at all leads and lags. Sorger (1998) and Hommes and Sorger (1998) have shown how in some cases agents can learn to converge on such CEEs, or self-fulfillingly mistaken behavior. These models all involve discrete dynamics. The first realization that a discrete chaotic dynamic could be mimicked by a simple linear autocorrelation function is due to Bunow and Weiss (1979) and Sakai and Tokumaru (1980), the latter demonstrating the possibility for the case of the asymmetric tent map, a result studied in more depth by Brock and Dechert (1991) and Radunskaya (1994). (shrink)
The literature on speculative bubbles in foreign exchange rates is voluminous, with much of it failing to reject the presence of bubbles in many exchange markets.1 Serious testing of this issue began with the work of Meese (1986), Evans (1986), and Woo (1987). Each used a different approach, and each found evidence failing to reject the presence of bubbles in at least some exchange markets.
The evolution of Mancur Olson’s views of his book, The Rise and Decline of Nations (1982), the middle of his three main books, is examined. It expands and extends to history and the world arguments presented in his The Logic of Collective Action (1965). While he never abandons the idea that the accumulation of interest groups in a democratic society may lead to its economic stagnation, how this comes about and can be overcome changes somewhat by the time of his (...) final book, Power and Prosperity (2000), which focuses on the problems of the transition economies and proper political governance. A sign of the greater complexity of his later views emerges in his analysis of the U.S. South, presented in his presidential address to the Southern Economic Association (1983). (shrink)
A new explanation of kurtosis in asset price behavior is proposed involving flare attractors. Such attractors depend on chaotic fundamentals driving subsystems which trigger nonlinearly response functions each with a switching mechanism representing the changing of agents from stabilizing to destabilizing behavior. Heterogeneous agent types are shown by a set of these response functions that are interlinked. With a larger number of agent types system behavior resembles that of many financial markets. Such a model is consistent with newer approaches relying (...) upon evolutionary learning mechanisms with heterogeneous agents as well as models depending on fractal characteristics. (shrink)
This book is about the economics profession, or more precisely, the cutting edge of the economics profession. Economics is currently at a turning point; it is changing from a static approach to understanding, in which deductive reasoning is the key method used, to a complexity approach to understanding, in which inductive and deductive methods are used simultaneously, and the full complexity of the system is acknowledged and dealt with. The change is just beginning, but the groundwork is currently being laid. (...) This book is about that groundwork and those economists who are developing it. They are the cutting edge of economics. Those who are doing cutting edge work are researchers who are pushing and testing the boundaries of the profession in such a way that it draws the attention of the elite in the profession. The cutting edge has the potential of changing mainstream economics and ultimately what is considered the orthodoxy. (shrink)
Abstract Tyler Cowen's ?New Austrian? theory of business cycles is based on risk analysis and the assumption of rational expectations. This contrasts with the Old Austrian view, which questions the feasibility of measuring economic risk. Despite Cowen's admirable eclecticism, the way he applies risk analysis to business cycles suffers from serious inconsistencies, and his use of rational expectations is mistaken in the face of economic complexity?a phenomenon that was accurately understood by the traditional Austrians.
Large increases unofficial economies in many transition economies arise from a dynamic interaction with rising income inequality and public sector changes in multiple equilibria system. Returns to unofficial activity are first increasing and then decreasing, implying two distinct stable equilibria, with changes in inequality possibly causing a jump from one to the other. Multiple regressions of data from 18 transition economies find income inequality significantly correlated with the size of the unofficial economy, with the maximum annual rate of inflation also (...) significantly correlated. The latter appears to be the only significant correlate with the increase in the size of the unofficial economy. (shrink)
Although Bernard Lewis is a deeper scholar of Islamic history, and the late Charles Issawi was a greater scholar of the economic history of Muslim societies, Timur Kuran has emerged in the last decade and a half as the leading scholar in the world of the rising field of Islamic economics. While most who study this field are advocates of Islamic economics as a superior system for Muslim societies, and possibly for all societies, Kuran has been a consistent critic. (...) This volume gathers six of his papers published on the subject between 1989 and 1997 together, along with an updating preface. Although they have been edited to some degree, Kuran himself argues in his preface (p. xvii) that, “Looking back at the essays grouped in this book, I am struck by how well they have stood the test of time.” By and large this is a correct assessment, and his critical stance now is heightened in the wake of the events of 9/11/01 and its aftermath. The clear theme unifying these essays is that Islamic economics as such is not a genuine answer to the world’s economic problems, but an “invented tradition” that serves as an adjunct to the broader, anti-Western, Islamist (or Islamic fundamentalist) political-religious movement. (shrink)
“When demand and supply are in stable equilibrium, if any accident should move the scale of production from its equilibrium position, there will be instantly brought into play forces tending to push it back to that position; just as if a stone hanging by a string is displaced from its equilibrium position… But in real life such oscillations are seldom as rhythmical as those of a stone hanging freely from a string; the comparison would be more exact if the string (...) were supposed to hang in the troubled waters of a mill-race, whose stream was at one time allowed to flow freely and at another partially cut off. Nor are these complexities sufficient to illustrate all the disturbances with which the economist and the merchant alike are forced to concern themselves. (shrink)
We investigate how stochastic asset price dynamics with herding and financial constraints in heterogeneous agents’ decisions explain the presence of a period of financial distress (PFD) following the peak and preceding the crash of a bubble, documented by Kindleberger [2000, Appendix B] as common among most major historical speculative bubbles. Simulations show the PFD is due to agents’ wealth distribution dynamics, selling because of financial constraints after the bubble’s peak in relation to switching behavior of agents. An increase in switching (...) tendency increases the length of the PFD and decreases bubble amplitude, while increasing strength of interaction between the agents increases bubble amplitude. (shrink)
A time series of the Shanghai stock index in China for the 1990s is studied for the possible existence of nonlinear speculative bubbles. Three alternative specifications of fundamentals are estimated using VAR models of domestic and international variables. These are subjected to regime switching tests and rescaled range analysis tests. Nulls of no persistence were mostly rejected, suggesting the strong possibility of bubbles. Nonlinearities beyond ARCH effects using the BDS test could not be rejected. The paper also discusses the special (...) circumstances of the stock market in an emerging transition economy. (shrink)
How large the non-observed economy (NOE) is and what determines its size in different countries and regions of the world is a question that has been and continues to be much studied by many observers (Schneider and Enste, 2000, 2002).[1] The size of this sector in an economy has important ramifications. One is that it negatively affects the ability of a nation to collect taxes to support its public sector. The inability to provide public services can in turn lead more (...) economic agents to move into the non-observed sector (Johnson, Kaufmann, and Shleifer, 1997). When such a sector is associated with criminal or corrupt activities it may undermine social capital and broader social cohesion (Putnam, 1993), which in turn may damage economic growth (Knack and Keefer, 1997; Zak and Knack, 2001). Furthermore, as international aid programs are tied to official measures of the size of economies, these can be distorted by wide variations in the relative sizes of the NOE across different countries, especially among the developing economies. (shrink)
I support several of President Bush’s economic proposals: tort reform for medical malpractice suits, and in principle increased free international trade, increased use of market mechanisms for environmental protection, and tax simplification. However, President Bush’s proposal for social security reform is unnecessary and dangerous to the economic health of our country. The system is not broke and does not need to be “fixed.”.
This volume represents a magnum opus by Wolfgang Weidlich, summarizing his long work in the area of sociodynamics. It lays out the origins and development of his ideas on this topic, presents a variety of applications drawn from his previous work, and offers some new insights and suggestions. For those acquainted with Professor Weidlich’s work it is a satisfying summing up. For those unacquainted with it, the book provides a good overview and discussion of what is involved in it, both (...) its weaknesses and its strengths. It has a definite predecessor, Weidlich’s 1983 book with his frequent coauthor, Günter Haag, Concepts and Models of a Quantitative Sociology, but goes well beyond the arguments and models presented in that volume. (shrink)
A new recommendation has appeared in the Ethnic Dining Guide of Washingtoon, capital of the Unconscious States of Amurrica, put out by Tailor Coward III, Director of the Mercantilist Center and Professor of Shriekonomics at George Madison University, which is scattered across several municipalities in the northern Vagina suburbs of Washingtoon. Tailor’s father was from the clothier branch of the famous English playwright’s family, but had to flee to Amurrica when his stitch in time saved only eight. After marrying a (...) nice girl from Old Teashirt, they moved to Hoople, Southern North Dakota, where Tailor would become the regional chess champion at age 6, only to be defeated some years later by the 4-year old I.M.A. Bach, great-great-great-greatgreat-great-great grandson of P.D.Q. Bach, who had studied obscure gambits with Bobby Fischer’s dog. (shrink)
This paper presents a view of the process of transition from planned command socialism to mixed market capitalism involving nonlinear complex dynamical phenomena. After the former institutional structure disappears a coordination failure can bring about macroeconomic collapse as in almost all of the former Soviet bloc or macroeconomic boom as in China. A closely linked phenomenon is the rise of the underground economy as inflation and income inequality increase. This can lead to a jump from one equilibrium to a very (...) different one as nonlinear social feedback processes operate in the transition. (shrink)
The paper reviews statistical models for money, wealth, and income distributions developed in the econophysics literature since the late 1990s. By analogy with the Boltzmann-Gibbs distribution of energy in physics, it is shown that the probability distribution of money is exponential for certain classes of models with interacting economic agents. Alternative scenarios are also reviewed. Data analysis of the empirical distributions of wealth and income reveals a two-class distribution. The majority of the population belongs to the lower class, characterized by (...) the exponential (“thermal”) distribution, whereas a small fraction of the population in the upper class is characterized by the power-law (“superthermal”) distribution. The lower part is very stable, stationary in time, whereas the upper part is highly dynamical and out of equilibrium. (shrink)
