**Steve Keen** (*s.keen@uws.edu.au*)

*Wed, 15 Dec 1999 09:09:18 +1100*

**Messages sorted by:**[ date ] [ thread ] [ subject ] [ author ]**Next message:**Gerald Levy: "[OPE-L:1925] Re: the money supply"**Previous message:**michael a. lebowitz: "[OPE-L:1923] Re: Re: productivity increases and rising real wages"**In reply to:**Patrick L. Mason: "[OPE-L:1894] Re: productivity increases and rising real wages"

Hi Jerry,

and thanks for the intro to the group too.

On the questions:

At 10:21 1999-12-14 -0500, you wrote:

*>I have a few questions for Steve K:
*

*>
*

*>> The latter is his thesis, though substantially revised, and presented
*

*>> using systems engineering "flowchart" tools rather than differential
*

*>> equations.
*

*>
*

*>1) is this only a question of "presentation" or are there inherent
*

*> non-presentational (i.e. analytical) advantages in the use of systems
*

*> engineering flow charts?
*

It's mainly presentation, but there are also inherent advantages. The

presentation advantage is that the general public's reaction to seeing

equations in a book is to put it down and move on to the next candidate for

a purchase--a mate of mine calls it the "MEGO" effect: "My Eyes Glaze

Over". Since I want to reach a wider audience, flowcharts are far less

intimidating. And yet they (in the guise of programs like Vissim, Ithink

and Simulink) do the same thing: numerically simulate systems of ordinary

differential equations.

The advantages include the ease with which you can incorporate real-world

features such as time delays, time lags (a different phenomenon), etc., the

ability to structure a model (with sub-levels), and the ability to produce

models without having to do calculus. The latter is something I enjoy, but

f'rinstance with Vissim I can build Goodwin's predator-prey model in terms

of Y,K,L,W (output, capital, labor, wages) rather than y,k,l,w (ratios of

preceding) and without having to reduce it to a pair of coupled ODEs in w

and l.

*>2) what do you see as the analytical advantages of systems engineering
*

*> tools and differential equations rather than other tools like matrix
*

*> algebra and game theory to model capitalist dynamics?
*

Matrix algebra presumes static outcomes, unless you're using matrix

notation in a system of ODEs/PDEs. I recently had an exchange with Ian

Steedman on this front, in reply to his "Questions for Kaleckians" in ROPE

in 1992 (I think). He showed that Kaleckian markup pricing is incompatible

with input output analysis; I showed that static input output analysis is

only valid if the input output matrix is dynamically stable. For example,

matrix algebra would rule out an input-output model which gave negative

equilibrium prices. However, the same matrix, when part of a linear ODE

model, results in an unstable equilibrium in which inflation occurs. Prices

therefore always diverge from the equilibrium", and so such an input-output

model is quite valid in a dynamic setting--even though it is invalid in a

static one.

Game theory... I'm a somewhat ill-informed agnostic on that area. I have

seen some good work (I very much like what Yanis Vourifakis at Sydney Uni

does in that area and the related area of experimental economics). There's

also some interesting stuff coming out of Japan generalising games into

network models and cellular automata. "Commerce, Complexity and Economics",

which should be out in March/April from CUP, has several examples of that.

But a lot of what I've seen sucks too!

*>3) what branches of mathematics are best suited for the development of
*

*> chaotic models?
*

*>
*

Differential equations are the foundation. Beyond that, numerous

computational approaches exist--cellular automata (which get spatial as

well as temporal aspects of chaos), genetic algorithms, etc.

Anyone who isn't yet into that area and wants to check it out should buy

two books: "Ordinary Differential Equations and their Applications" by

Braun, the most readable maths book I've ever read; and Ott's introductory

book on Chaos, also very accessible.

*>4) is capitalism chaotic? Why or why not?
*

It's highly nonlinear, so it's almost certainly chaotic. The catch is that

high dimensional chaos is indistinguishable from random noise--which fits

the neoclassical paradigm, but in a rather destructive way! But chaos

doesn't mean "out of control", as it happens (though it can in some

circumstances)--just endogenously unstable and aperiodic. Most "tests of

chaos" in economic data haven't found it, but most tests produced by

economists--such as the BDS statistic--are massively compromised by their

belief in equilibrium. A good read on this is Francisco de Louca's

"Turbulence in Economics".

cheers,

Steve

Dr. Steve Keen

Senior Lecturer

Economics & Finance

University of Western Sydney Macarthur

Building 11 Room 30,

Goldsmith Avenue, Campbelltown

PO Box 555 Campbelltown NSW 2560

Australia

s.keen@uws.edu.au 61 2 4620-3016 Fax 61 2 4626-6683

Home 02 9558-8018 Mobile 0409 716 088

Home Page: http://bus.macarthur.uws.edu.au/steve-keen/

Workshop on Economic Dynamcs: http://bus.macarthur.uws.edu.au/WED

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