Book contents
- Frontmatter
- Contents
- Preface
- List of abbreviations
- 1 Introduction
- Part 1 Methodological foundations of macroeconomics
- 2 Equilibrium, disequilibrium and economic theory
- 3 Dynamic instability and economic models
- 4 Structural instability and economic change
- 5 Uncertainty, predictability and flexibility
- 6 Rationality and expectations
- 7 Probabilistic causality and economic analysis: Suppes, Keynes, Granger
- Part II Keynes after Lucas
- References
- Subject index
- Author index
3 - Dynamic instability and economic models
Published online by Cambridge University Press: 05 January 2012
- Frontmatter
- Contents
- Preface
- List of abbreviations
- 1 Introduction
- Part 1 Methodological foundations of macroeconomics
- 2 Equilibrium, disequilibrium and economic theory
- 3 Dynamic instability and economic models
- 4 Structural instability and economic change
- 5 Uncertainty, predictability and flexibility
- 6 Rationality and expectations
- 7 Probabilistic causality and economic analysis: Suppes, Keynes, Granger
- Part II Keynes after Lucas
- References
- Subject index
- Author index
Summary
Positions of unstable equilibrium, even if they exist, are transient, non-persistent states, and hence on the crudest probability calculation would be observed less frequently than stable states. How many times has the reader seen an egg standing upon its end?
(Samuelson, 1947, p. 5)[Filippo Brunelleschi] suggested to the other masters, both the foreigners and the Florentines, that whoever could make an egg stand on end on a flat piece of marble should build the cupola, since this would show how intelligent each man was. So an egg was procured and the artists in turn tried to make it stand on end; but they were all unsuccessful. Then Filippo was asked to do so, and taking the egg graciously he cracked its bottom on the marble and made it stay upright.
(Vasari, 1568, p. 146)Introduction
There is a long-standing conviction that a model which describes a dynamically unstable equilibrium cannot be used to describe, explain or forecast economic reality. The motivation for this is well expressed by Samuelson's famous comment reported in the first epigraph above.
Similar assertions were repeated in even cruder versions by Samuelson in other parts of the Foundations (and elsewhere). He contended that unstable equilibria are not only less likely to be observed than stable ones, but that they are ‘infinitely improbable’ in the real world. It is precisely in this ‘strong’ version that ‘Samuelson's dogma’ became accepted. Fisher reports the following statement expressed by an ‘extremely prominent economist’: ‘The study of stability of general equilibrium is unimportant, first, because it is obvious that the economy is stable and second, because if it isn't stable we are all wasting our time’ (1983, p. 4).
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- Information
- Methodological Foundations of MacroeconomicsKeynes and Lucas, pp. 30 - 42Publisher: Cambridge University PressPrint publication year: 1991