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The third thing Labour needs to appreciate is that except in economic theory there are no perfect outcomes in the real world. Economic theory teaches there is such a thing as equilibrium – where everything is optimal. But to be polite, that’s utter nonsense. It never happens.

Equilibrium does not even suggest optimality.

Economic equilibrium is a condition or state in which economic forces are balanced. In effect, economic variables remain unchanged from their equilibrium values in the absence of external influences. Economic equilibrium is also referred to as market equilibrium.

Further, equilibrium never happens – it’s a basic part of the idea:

Economic equilibrium is a theoretical construct only. The market never actually reaches equilibrium, though it is constantly moving toward equilibrium.

And again:

Equilibrium is a concept borrowed from the physical sciences, by economists who conceive of economic processes as analogous to physical phenomena such as velocity, friction, heat, or fluid pressure. When physical forces are balanced in a system, no further change occurs.

Now, this is actually important. Think of Keynesian economics. Or post-Keynesian, or Murphonomics even. The insistence is that things can and will go to pot unless there is a firm guiding hand upon the economy. It is possible, through that firm thwack, to move the economy from one less than optimal equilibrium (this is expressly stated in Keynes) to one closer to a desired optimum. We can have an economy in recession, or below maximal output, and by p-rinting money – monetary stimulation – or spend without tax – fiscal policy – shock the economy up to that higher and more optimal level.

Once again Spud is missing the implications of his very own statements. The entire case for fiscal and monetary policy depends upon the fact that we can have equilibriums which are non-optimal.

But to be polite, that’s utter nonsense.

Yup, Spudnomics so often is.

5 thoughts on “Err”

  1. I suppose it’s economic entropy, soon everything will be the same grey mass and there will be no energy ( literal and metaphorical ) being created because it has all burnt out.

    Did this happen to Japan ? It certainly looks like it is happening in Germany.

    Britain’s politicians embraced this in the 1970s with the concept of “managed decline” and certainly all govt policies since 1992 have also been dedicated to creating the conditions for decline.

  2. I believe the physical sciences have a similar concept, which like economics is helpful when modelling the real world, rather than being an actual description. Hence in models light travels in straight lines, but it is possible to observe that actually it doesn’t.

  3. Light travels in space-time geodesics, which in 99.99% of the universe (and everywhere on earth) are very closely approximated by straight lines.

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