Thanks.

]]>seems like important background

would be interesting to hear more about this

]]>Euler was probably the last of the great, what they often call, high school mathematicians. He rarely worried about limits or convergence or whether a mathematical operation could even produce a result. Economists seem to all be high school mathematicians when they talk about equilibrium. They suppose it exists, but they never actually sit down and prove it. They describe systems with differential equations, but never consider the actual topology of the solution space. They are shocked when they discover chaotic behavior in the real world.

Anyone who has taken a college level course in engineering or biology most likely has run into modern system theory. One expects cycles, resonances and damping and under-damping and chaotic behavior in most natural systems. Populations boom and crash. Planets orbit provisionally. Engineers learn to establish an operating domain. Over the last 50-100 years scientists, engineers and mathematicians have learned that differential equations are hard and don’t always produce intuitively obvious results.

Economists seem to have somehow avoided it. I can’t imagine how a theory of business cycles could be in conflict with a system with an apparent equilibrium state. Most talk about equilibrium as short hand for describing the apparent forces acting in a system. It’s which way things are headed, but not necessarily where they are going to wind up. Consider even the a simple model of predators and prey. The predators are wiping out their prey, the extinction of both is the equilibrium, but the structure of the equations results in a chaotic cycling of populations. Surely economic systems are as complex as this and no less subject to mathematical behavior.

I think it is time that economists moved past high school and starting using college level mathematics. There has been a lot of really good stuff done in the last 50 or 100 years, and it could get rid of a lot of apparent contradictions.

]]>Are there any actual ways to measure expectations for individuals? Fischer Black in his paper ‘Noise’ for instance talks of a really similar theory in where he states that expected future cash flows being met or not met explain business cycles. However, because we can’t measure why these things happen (they could be changes in taste, degradation of human capital etc etc) it also seems sort of limited.

Also because this post relates back to the backing theory of money, I wanted to see what you thought of Augusto Graziani’s critique of Tobin 63.

It’s pages 84-87, I looked at your old posts about endo-money and I’ve seemed to found where you and the new generations of Post-Keynesians disagree.

]]>Maybe I am misunderstanding your posts, but what you seem to be saying is that modern heterogeneous agent DSGE models are wrong theoretically, which seems to be quite a claim. ]]>