Economists like to think that there’s an equilibrium that the economy is either briefly moving away from or heading back to, and it’s all explained in those simple models we did at school. Those were mostly microeconomic models, of course, that are somehow magically interpreted at the mac level. Or there are more complex mathematical models that reflect only a tiny slice of the bigger picture. But didn’t Sonnenschein–Mantel–Debreu theorem debunk that? This week Prof Steve Keen tells Phil Dobbie that even their work ignored a fundamental feedback loop which clearly demonstrates that equilibrium is fantasy land.
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