Introduction to the first annual special issue on Macro Economics and Development

The Editorial Board of Industrial and Corporate Change is pleased to announce its newest venture as part of ICC’s ongoing commitment to highlighting important issues in management, economics, and business. With this Special Issue ICC launches an annual Special Issue devoted to the theme of Macro Economics and Development.

As important economists early recognized, the crisis of 2008 fully exposed the inability of macroeconomic theory to account for the possibility of macroeconomic crises as well as deep and long-lasting downturns. This theoretical crisis rests at the very foundations of mainstream economics with its strict commitment to the equilibrium and far-sighted “rationality” of a fictitious representative agent. Unfortunately, a good deal of the intellectual efforts of macroeconomists since the crisis has gone into adding “epicycles” to an already baroque Ptolemaic construction, namely DSGE (Dynamic Stochastic General Equilibrium modeling), by means of a new wave of frictions and rigidities and, in few cases, homeopathic doses of heterogeneity and bounded rationality.

In the view of the Editors of this ICC Special Issue such patchwork is far from sufficient. We need a radical departure with radically different foundations. And we need some prestigious venues, where likeminded scholars, especially younger ones, can publish and debate without the tyranny of the “top five” journals, whose conservatism prevents new ideas and approaches from blossoming.¹

This overriding purpose drives the launching of this first annual ICC Special Issue.It is proposed by a group of scholars who strongly agree on some propositions (and do not disagree too much on a few others).² A non-exhaustive list of such propositions would include the following:

• The economy has to be analyzed as a complex evolving system. Evolution is driven by (partly endogenous) technological, organization, and institutional change. Complexity stems already from the interactions among multiple agents.

• Heterogeneities are ubiquitous in terms of access to information, capabilities, “models of the world,” and decision processes.

• More is different. There is no isomorphism between micro behaviors and more aggregate dynamics. The latter is not simply the sum of micro entities but the outcomes of their interactions, most often out-of-equilibrium ones.

• (Varying degrees of) aggregate order is likely to be an emergent property, stemming from out-of-equilibrium interactions.

• Dynamics ought to be taken very seriously. Any analysis of the properties of any equilibrium ought to be ideally accompanied by the answers to the question: “how did one get there?”.

• All this does not rule out the usefulness of simpler, equilibrium models allowing full rationality but taking seriously heterogeneity in information access and capabilities. However, the imperative is that simple models must have even more so properties: if any result applies to simple equilibrium and rationality set-ups, it has to apply even more so to environments where such assumptions cannot apply.

• In a complex evolving system, it is simply unfeasible to ever achieve an environment of complete markets, which implies that there is no way to ensure that economic plans that involve debt and credit will always be consistent. Thus, it is possible that the system falls into a state of macroeconomic disequilibria associated with intertemporal coordination failures—the failure of a decentralized market economy to deliver a solution that satisfies all equilibrium conditions in a dynamic environment, a theme that macroeconomic theories that intend to shed light on the phenomenon of macroeconomic and debt crises must tackle without assuming the problem away by construction—as in DSGE models.

• The nature of learning, capabilities accumulation, and innovation is central to the analysis of growth and development. Together, so are the properties of industrial dynamics, structural change, and inter-sectoral interactions. In that setting, supply and demand dynamics interact both in the short- and long-term.

• Non-linearities are widespread. Learning as such is intrinsically associated with dynamic increasing returns. Those in turn normally involve multiple equilibria and trajectories which are inevitably path dependent. History counts. Such system dynamics are likely to display self-organized criticalities, hysteresis, tipping points, and irreversibilities.

• The search of proximate laws of motions ought to be encouraged—on, for example, multipliers, accelerators, “learning curves,” as in the cases of Lotka-Volterra processes and Kaldor-Okun laws.

• Uncertainty in complex evolving environments is endogenous and radical in a Knightian sense: there is no hope of reducing it to probabilizable risk.

• In such a framework, bounded rationality should not be considered an imperfection, a departure from the fully rational equilibrium case, but rather as the way that agentsbehave, adapt, and learn in a complex environment. In such a framework, often less ismore: in the presence of radical uncertainty, which is quite ubiquitous, one needs to relyon heuristics or other simple rules.

• The dynamics of socioeconomic systems is nested in a rich thread of institutions and is influenced by a large ensemble of policies which also shape the patterns of interactions and the behaviors of the agents.

• Inequality is an endemic property of the system and it affects its short- and long-term performance. Its drivers and the policies to curb it ought to be under the spotlight.

• Finance is not just a “veil” but interacts and influences real dynamics and income distributions.

• Markets do not work in a vacuum. The functioning of a market economy depends on the laws, rules, norms, and institutional structures under which it operates, all determined by power relations; and the outcomes it produces affect the distribution of power itself.

• The co-evolution between climate warming and economy should be carefully studied from a complexity perspective, considering the implications for the very survival of humankind and the possible pathways to achieve sustainable growth.

• Macroeconomics is not an island: we ought to learn from other disciplines, and interdisciplinarity should be encouraged.

All these points carry strong policy implications, and our Marco Economics and Development annual Special Issue will encourage their exploration.

In support of its aims, the ICC Special Issue will target, among others, the following topics for papers:

• All macro models focusing on the consequences of heterogenous information and coordination failures.

• ABM (macro but also at lower levels of aggregation).

• Models of endogenous macroeconomic and financial instability.

• Models of macroeconomic and financial crises emergence and resolution.

• Evolutionary models of growth and development.

• Networks (with general macro implications).

• Empirical and theoretical analyses of labor markets and labor relations.

• Income distribution and inequalities.

• Trade and development.

• Post-Keynesian macro analyses.

• Any empirical papers (such as those by, e.g., G. Katona and G. Gigerenzer) and experimental papers that provide evidence about the behavior of agents, markets, and institutions.

• Any works that improve agent-based validation, estimation, sensitivity analysis.

• Applied macroeconometrics addressing complexity, such as, e.g., nonlinearity, heterogeneity.

• Empirical and theoretical works studying the economic impact of climate change and coevolution between climate and economic dynamics.

• Political economy written large with special attention to socioeconomic phenomena.

• Interdisciplinary papers with a macro flavor.

• Economic history papers related to crises, growth, development, but also to the working of institutions and markets.

• Analyses of policies, including the reflections of actual policy makers.

• General topics, including: macroeconomics, debt, development, institutions, climate change, political economy, socioeconomic, and political history.

• By launching this first of annual special issues on Macro Economics and Development, the ICC Editors are confident that they will be offering original and pathbreaking contributions at this pivotal time of reassessing and restructuring theory and policy into the foreseeable future.

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Footnotes

1

Heckman and Moktan (2020).

2

More on them are to be found in Simon (2009, Colander et al. (2008), Kirman (2010, 2016), Stiglitz (2011, 2015, 2018), Dosi and Virgillito (2017), and Dosi and Roventini (2019).