The economic meltdown in 2008 has made it essential to change the way we look at economics. In this short video Brian Arthur explains the inner workings of the complex system:
When we study economics we are taught that the markets are perfect and correct themselves. But that approach proved to be wrong when Lehman Brothers collapsed. Economists hence had to start looking at how we approach economics in a world that is not orderly.
Events can multiply swiftly
Brian Arthur, as opposed to many economists, don’t believe the world is orderly. According to him, standard economics leave out a lot of issues . Complexity economics consequently looks at the same world from a much broader context that include what’s not perfect and allows the kind of domino effect that happened when Lehman Brothers collapsed.
The Eurozone didn’t balance out
The current crisis in the Eurozone shows that the belief in economics that everything balances out is wrong. The fact that Germans are well off didn’t spread to the rest of the member states. Brian Arthur believes that it’s time to stop looking at the economy as a perfect machine and accept that it’s complex, alive and vital. That will enable us to adjust and re-architect economics which will be beneficial.
Do you agree with Brian Arthur that complexity economics will enable us to make the economy perform better? Would such an approach have enabled us to foresee what would happen when Lehman Brothers collapsed? Would the Eurozone be in better shape today if it had not been presumed that German affluence would spread to the rest of the member states? Is it time for economists to stop presuming that the markets are perfect and will correct themselves? Would you like economics to be re-architectured to take imperfection into account? Or maybe you believe that the markets are perfect and the economic crash in 2008 was just a one-off?
Video & Picture: World Economic Forum