How researchers are grappling with the fundamental complexity of economics
CONSIDER THE task economists have set themselves. The global economy is the outcome of near-constant interaction between billions of unique individuals. To attempt to model even a small corner with a few equations is bold, even foolhardy. That economists have made as much progress as they have is impressive.
Complexity economics draws on strands of the discipline less enamoured of equilibrium. Joan Robinson, a British economist, worried that equilibrium models understated the role of history in determining outcomes. Joseph Schumpeter, an Austrian economist, saw the economy as undergoing constant change, powered by innovation. And Friedrich Hayek, another Austrian, wrote on how the separate actions of individuals could generate “spontaneous order” of incomprehensible complexity.
The meeting was timely. In the 1970s critics of Keynesian economic models had argued that important macroeconomic relationships, such as that between unemployment and inflation, were not fixed but would change as people observed and adjusted to government policy. A reliable model of the macroeconomy, they reckoned, should have “microfoundations”. It should derive its descriptions of the economy as a whole from mathematical characterisations of individuals’ behaviour.
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