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What We Read Today 15 April 2015

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

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Nonlinearity, Multiple Equilibria, and the Problem of Too Much Fun (Wonkish) (Paul Krugman, The New York Times)  First, the good news:  Paul Krugman is addressing the issues of equilibrium states and nonlinearity in macroeconomics.

Next, the bad news:  Paul Krugman is NOT addressing the issues of equilibrium states and nonlinearity in macroeconomics.

In this short article Prof. Krugman mentions "multi-equilibrium" (or a similar form) about 10 times (plus equilibrium itself a couple more) and "non-linearity" (or a similar form) 6 times.  Not once is anything related to "dynamic" or "dynamical" mentioned.  This is like claiming to present a meaningful description of calculus with a series of discrete values but never incorporating the processes of differentiation and integration.

The problems associated with considering macroeconomic systems in terms of one or more equilibrium states derive from the fact that the macroeconomy is in a time continuum and, without analyzing time flow of economic activity, any model is, at best, only a crude approximation.

Prof. Krugman is one of many locked in a conceptual trap who think in terms of static states when trying to understand dynamical system flows through time.  No matter how many snapshots (multiple equilibria) are considered  information is lost unless the number of snapshots approaches infinity.  When that happens the process leaves algebraic addition and reaches functional integration.

Dynamical analysis, chaos and time-flowing non-linearity are the logical end points of any discussion of nonlinear and multi-equilibria processes in macroeconomics.  Prof. Krugman has started on that journey - he just has a way further to travel to reach the end.

For two recent GEI Analysis articles by Ted Carron on this see:  (1) Nonlinearity: The Simple and Useful Side of Dynamical Analysis and (2) Chaos: The Simple and Useful Side of Dynamical Analysis.



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