December 31, 2014

Still alive in some heads: equilibrium

Comment on  'Still dead after all these years  general equilibrium theory'

Blog-Reference

You describe the equilibrium metaphor. This is storytelling. The question is whether this metaphor is applicable to the economy. And the definitive answer is: IT IS NOT.

“The mathematical failure of general equilibrium is such a shock to established theory that it is hard for many economists to absorb its full impact.” (Ackerman, 2004, p. 19)

Some people, however, simply cannot get their heads around it.

“And so  faithful to the theory's conceptual cornerstones and hoping against all hope that the unthinkable may still be achieved (i.e., a satisfactory theory of the price mechanism)  the tormented upholders of the validity of the paradigmatic core of economic equilibrium theory appear singularly reluctant to face the problem of comparing expectations and results and assessing the consistency of the theory.” (Ingrao and Israel, 1990, p. 346)

You seem to be one of those people. Just in case you are really interested in the correct theory of the price mechanism see (2014).

Egmont Kakarot-Handtke


References
Ackerman, F. (2004). Still Dead After All These Years: Interpreting the Failure of General Equilibrium Theory. In F. Ackerman, and A. Nadal (Eds.), The Flawed Foundations of General Equilibrium, pages 14–32. London, New York, NY: Routledge.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL