Complexity and Economic Policy: A Paradigm Shift or a Change in Perspective? A Review Essay on David Colander and Roland Kupers's Complexity and the Art of Public Policy

Abstract

In their recent book, Colander and Kupers (2014) argue that viewing the economy as a complex adaptive system should change the way in which we make economic policy. This would necessitate a paradigm shift. Economics has, over time, tried to produce a coherent model to underpin the dominant laissez-faire liberal approach. But we have never proved, in that model, that left to their own devices, the participants in an economy will self-organize into a satisfactory state. This is an assumption. Complex interactive systems with direct interaction between heterogeneous agents may show no tendency to self-equilibrate and will undergo endogenous crises. Economists should concentrate on the emergence of certain patterns. Colander and Kupers suggest that we may be able to nudge the system into “good” basins of attraction. A more radical view is that there are no fixed basins of attraction; these change with the evolution of the system and it is illusory to believe that we can choose good basins. We may be able to recognize and influence the emergence of certain states of the economy, but we are far from Leon Walras's dream of economics as a science like astrophysics. (JEL B10, B20, C63, D04, E61)

In order to stand up you must keep cycling: Change and coordination in complex evolving economies

“…1 2 The economy as a complex evolving system Start with the most minimalist notion of complexity: it stands at the very least for the fact that the economy is composed by multiple interacting actors. As H. Simon, also cited in Kirman, (2016), puts it:…”

A pluralistic approach to public policy: the case of the OECD's New Approaches to Economic Challenges initiative

“…The various strands of pluralism including behavioural, institutional and complexity economics have impacted the academic debate (e.g., Kirman, 2016;Arthur 2013;Thaler and Sunstein, 2008); and on public policy. Pluralism can be appealing in the policy world given the limitations and failings of economics to make sense of the economy.…”

“…The OECD was a proponent of standard neoclassical economics assuming that rational self-interested agents trade in markets, and their (individualistic) preferences and choices scale up to an efficient state via the 'invisible hand'. However this view of how an economy works is not well founded in either theory or practice (Kirman, 2016). In fact, Offer and Soderberg (2016) go further: "its premises are unrealistic, the models it supports are inconsistent, and the predictions it produces are often wrong" (Offer and Soderberg, 2016;Kirman, 2016;Jacobs and Mazzucatto, 2016).…”

“…By examining the research questions, our paper makes two interlinking contributions. First, to the growing literature on pluralism and pluralist thinking (e.g., Kirman, 2016;Arthur, 2013;Thaler and Sunstein, 2008;Reardon, 2009) as well as the literature on crisis response in international organisations and change within organisations (Haas, 1990;Lambany, 2010;Moschella, 2011;Porter, 2009;Zaring, 2010), in particular the OECD (e.g., Eccleston, 2013;Carroll and Kellow, 2011;Mahon and McBride, 2008;Martens and Jakobi, 2010;Woodward, 2009). Second, we contribute methodologically by drawing on a new survey 2 of changes in economic policy perspectives within international organisations.…”

Resource Criticality in Modern Economies: Agent-Based Model Demonstrates Vulnerabilities from Technological Interdependence

“…Macroeconomic aggregate outcomes emerge as an explicit result of economic behavior. As an economy grows increasingly interdependent from these interactions, it has been shown to behave as a complex adaptive system (Andersen 1996;Anderson and Arrow 1988;Arthur et al 1997;Durlauf 2012;Kirman 2016;Colander and Kupers 2014). Agentbased models are a particularly appropriate methodology for examining an economy as a complex adaptive system.…”