MFiM™

If one accepts this ontological position, that the economy is complex, evolutionary, and reflexive, then one can start building a set of theories and models to describe it in those terms, and test those models empirically. In his paper, Romer calls neoclassical macroeconomics “post-reality economics”. He’s right. So the key challenge is whether we can use these new tools and ideas to describe the economy as it really is – a glorious mess of real human behavior, social networks, cultures, institutions, politics, and innovation – rather than the sterile idealized account of neoclassical theory. We know from economic history that the economy is an incredibly dynamic system, from the explosion of growth unleashed by the industrial revolution, to the booms and busts of financial crises, to the co-evolution of technologies and institutions. This doesn’t look much like an equilibrium system, and traditional economics has struggled to explain these phenomena. A key test then is whether a complex, evolutionary, reflexive view can do better.