The obsession with equilibrium
Real-World Economics Review Blog Editor
The changes to economic theory beyond the micro level involve a complete recanting of the neoclassical vision. The vital first step here is to abandon the prevailing obsession with equilibrium.
The fallacy that dynamic processes must be modelled as if the system is in continuous equilibrium through time is probably the most important reason for the intellectual failure of neoclassical economics.
Mathematics, sciences and engineering long ago developed tools to model out of equilibrium processes, and this dynamic approach to thinking about the economy should become second nature to economists. An essential pedagogic step here is to hand the teaching of mathematical methods in economics over to mathematics departments. Any mathematical training in economics, if it occurs at all, should only come after students have done at least a basic study of calculus, algebra and differential equations – the last area being one about which most economists of all persuasions are woefully ignorant. This simultaneously explains why neoclassical economists obsess too much about proofs, and why non-neoclassical economists like those in the Circuit School (Graziani 1989) have had such difficulties in translating excellent verbal ideas about credit creation into coherent dynamic models of a monetary production economy (c.f. Keen 2009).
Neoclassical economics has effectively insulated itself from the great advances made in these genuine sciences and engineering in the last forty years, so that while its concepts appear difficult, they are quaint in comparison to the sophistication that is evident today in mathematics, engineering, computing, evolutionary biology and physics. This isolation must end, and for a substantial while economics must eat humble pie and learn from these disciplines that it has for so long studiously ignored.
Some researchers from those fields have called for the wholesale replacement of standard economics curricula with at least the building blocks of modern thought in these disciplines, and in the light of the catastrophe economists have visited upon the real world, their arguments carry substantial weight.
Source: RWER Blog, 14 March 2015