On equilibrium and bad economics for the global system

Orthodox economists, including New Keynesians such as Paul Krugman, think that economies eventually converge to equilibrium. This thinking can lead to the idea of a “return to normal” after any recession or depression, when the depth and especially the length of the recession might instead lead to a lowering of expectation by investors and a consequent lowering of the long-term growth rate.
It is very helpful to abandon equilibrium as an organising concept in understanding the processing at work during recessions and in forming expectations about climate change mitigation and carbon prices. It is helpful to realise that the interacting economies in the world system are not in equilibrium (or disequilibrium for that matter) but in a chaotic but remarkably orders dance with some outcomes more stable through time than others. Abandoning equilibrium also downgrades the search for the global social optimum in modelling. We can expose the absurd assumptions of the benign global dictator required to solve integrated assessment models (IAMs) of climate change economics such as William Nordhaus’s DICE family of models.


Terry Barker

4CMR, University of Cambridge

A Remark on Global Systems

In the philosophy of science (according to Paul Feyerabend an under-researched form of madness), there is a story of two friends at a party where one says to the other: “Let’s go talk to the lady who is pouring herself a glass of vodka over there!” They approach her and realize it’s a man drinking gin. The morale: we can successfully refer to something by means of erroneous descriptions.

Of course, the description has to contain an element of truth, but to recognize it, one must get more familiar with the object referred to. So let’s start with a very preliminary description of global systems, taken from the invitation to the first open GSS conference. A global system is something like:

  • the energy, water and food supply systems
  • the internet
  • the global financial system
  • the agents, resources and mechanisms involved in climate policy
  • the web of military forces and relations
  • globally spreading diseases
  • the scientific community

In understanding, studying and shaping global systems, computer networks are essential. I was trained to look at computers as Turing machines, and to coupled Turing machines – and therefore at computer networks – as big Turing machines. I am not so sure anymore, for two pretty abstract reasons. First, the work by Dina Goldin and Peter Wegner at Brown university has led me to think about extended Turing machines as devices mediating between unending streams of inputs and outputs (Google has the pdfs). And second, the conversation between Turing and Wittgenstein (documented in C. Diamond, ed., Wittgenstein’s Lectures on the Foundations of Mathematics) has led me to look at computer networks as embedded in human conversations in an inextricable way.

Some philosophers have seen human conversations as embedded in an overarching conversation of humankind. While this was a powerful metaphor in the past, the evolution of global systems is increasingly turning it into a reality. Humankind has begun to engage in a global conversation, be it via the channels of science or of mass media, of social networks or of face-to-face encounters mediated by global travel. Global system science is a reflection on this conversation, while being a part of it.

For the moment, all I am trying to do is to refer to global systems with preliminary descriptions, starting with examples rather than with a definition based on some conceptual frame. To see how important global systems have become, just think about the relation between the global financial crisis and the troubles of the Eurozone, or give a look at http://arxiv.org/abs/1107.5728…

Carlo Jaeger

First Open Global Systems Science Conference

Dear colleagues,

We are pleased to invite you to the First Open Global Systems Science Conference, to be held in Brussels at the Stanhope Hotel, November 8 – 10th 2012. The aim of the Conference is to contribute to the development of Global Systems Science (GSS). The study of problems as diverse as global climate change and global financial crises is currently converging towards a new kind of research – Global Systems Science.

GSS could not emerge without substantial advances in information and communication technology (ICT). The use of computer models, digitized data, and global virtual networks are vital for GSS, and GSS can provide a key domain for socially useful ICT developments.

GSS builds on economics as well as on climatology, on history as well as on geography and on a variety of further disciplines. However, it is no attempt to renew the failed pursuit for a single unified science. It simply integrates insights and methods that are useful in studying global systems and develops them further for that purpose.
Important examples of global systems are:

  • the energy, water and food supply systems
  • the internet
  • the global financial system
  • the agents, resources and mechanisms involved in climate policy
  • the web of military forces and relations
  • globally spreading diseases
  • the scientific community

The conference is organized by the EU project Global Systems Dynamics and Policy (www.gsdp.eu), a project coordinated by the Global Climate Forum (www.globalclimateforum.org), and carried out by a team involving a transdisciplinary group of institutions based in Europe and other parts of the world.

GSS is one of those fields of inquiry where a separation between basic and applied science is misleading. The community of researchers engaged in GSS will evolve in a close dialogue with practitioners, policy-makers and other stakeholders. Therefore, – following the experience of previous successful GSDP meetings (Berlin 2011, Barcelona 2012) – this conference will bring together a unique cohort of researchers and practitioners relevant for GSS.

We look forward to meeting you in Brussels and to engage with you in this challenging and exciting conference.

On behalf of the GSDP steering committee,


Further Information:

Out now: COMPLEXITY ECONOMICS – Complexity, Choices & Crises

The aim of this new journal is to enhance the knowledge and the know-how required for responsible action in the global economy of the 21st century. The global economy is likely to induce and experience transformations that we currently can hardly imagine. It will be characterized by complex networks combining local, national and global linkages, and by surprising interactions between the economy and its political, social and biophysical environments. In view of these new possibilities, the journal wants to preserve the insights developed since the days of Adam Smith in modes of analysis based on the conceptual device of representative agents. It will emphasize the opportunities provided by newer approaches to dynamic social networks, where actions are attributed to heterogeneous agents ranging from physical persons to multinational organizations, and where rationality has more aspects than the classical logical coherence. In view of this perspective, multi-agent modeling of complex economic networks will be an important focus of the journal.

Articles of the first issue can be accessed free of charge on: www.complexityandeconomics.com.

Contents and ordering details:

Green Growth in Global Systems Science

ECB President Mario Draghi, on September 6th, 2012, stated that

the assessment of the Governing Council is that we are in a situation now where you have large parts of the euro area in what we call a “bad equilibrium“, namely an equilibrium where you may have self-fulfilling expectations that feed upon themselves and generate very adverse scenarios. [see here]

At the same time, the current fossil-fuel-based economy, with its CO2 emissions, constitutes a “bad equilibrium” for the climate system. Green growth as a strategy to move from a bad equilibrium to a good one in these two dimensions seems a worthy research topic for global systems science. The Eurozone crisis and sustainability are largely discussed in disjoint debates. Global systems science could combine these two current challenges in order to identify cross-benefits between policies targeted at either one of them.

Germany’s “Energiewende” – a transformation towards an energy-efficient and green economy – could be an element of a strategy to move to a better equilibrium. Unfortunately, the recent public debate in Germany seems to be missing this point. Started off by the announcement that electricity prices will rise, due to a rising feed-in-tariff levy for renewable energy, the debate centers around these costs, and for the most part overlooks benefits that a consequently pursued green growth strategy would entail.

German Green Growth Model

We – the Lagom research group at the Global Climate Forum – are working on a model to study green growth opportunities, with a focus on Germany. The model shall be made available in a modular open-source framework, so that it can be combined with existing models providing more detail on particular sectors. By explicitly representing the possibility of multiple equilibria and corresponding growth paths for the economy in general, and the strongest European economy in particular, our research contributes important building blocks to the emerging Global Systems Science.

More detailed information on the project can be found here. The model development is based on a manifold dialogue with potential model users, experts of existing models, new economic thinkers and the general public. To extend this dialogue into the virtual world, we kindly invite comments, as well as a broader discussion of the arguments merely sketched above, on this blog.