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)
“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)
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.
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)
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, 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 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)
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 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 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)
“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.”.
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 ‘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).
“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.”.
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)
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)
To acquaint the student with the problems of open-economy macroeconomics. These include the theory and policy issues related to the international balance of payments, the determination of foreign exchange rates, the functioning of the macroeconomy under different exchange rate regimes, the operation of macroeconomic policy under different exchange rate regimes, and the evolution and future of the international monetary system as a whole.
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)
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.
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..