The 21st-Century Case for a Managed Economy: The role of disequilibrium, feedback loops and scientific method in post-crash economics
By Sean Harkin
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About this ebook
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For decades, free-market economists have told a consistent story. Markets are rational, efficient, stable and fair, and even volatile financial markets should be left mostly to their own devices. The economic crisis that began in 2007 has, however, disproven such belief in the perfection of markets.
The reason market fundamentalism fails is simple: it is built on economic theories that incorporate only one half of how the economy actually operates. These theories focus on a concept of long-run equilibrium that sees the economy as being continually drawn back to balance after any change from this position, in a form of what scientists would call negative feedback.
However, there is also positive feedback; a process whereby a given change amplifies itself until the system is driven far from equilibrium, and this phenomenon is equally visible in the economy. Positive feedback drives economic growth, speculative bubbles, inflation, recessions, deflation and self-perpetuating inequality. It is what gives us the secular trends and cyclical fluctuations we observe in the real economy. And it deserves to be a central part of our economic theory.
This book makes a first attempt at applying the concept of feedback to economic theory and economic policy. It recognises that the state must support desirable feedbacks while suppressing undesirable ones. But it also recognises that central planning leads to oppression and inefficiency. This leads us back to the common-sense idea of a mixed economic system in which the role of the state is almost as great as that of the market.
Sean Harkin
Sean Harkin is a risk manager working in the City of London. He specialises in quantitative analysis of financial and economic data and has worked on structured finance, sovereign debt, bank capital and other areas. Sean was previously a research scientist working in the field of cell and molecular biology. He holds an MPhil from University College London and a BSc from the National University of Ireland.
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