Monday, December 24, 2012

Economics Of The Steady State

A steady state is characterized by the economy having a constant rate of growth. I here select a number of expositions of analyses of steady state I have made on this blog:

  • The Harrod-Domar model of warranted and natural rates of growth.
  • Karl Marx's volume 2 model of simple and expanded reproduction.
  • An extension of the Kahn-Kaldor-Pasinetti-Robinson macroeconomic model of income distribution.
  • Explanations of aspects of the non-substitution theorem.
  • Neoclassical Overlapping Generations (OLG) models with intertemporal utility maximization.

Consider the hypothesis that a consumer's decision to save should be viewed as a choice between current consumption and future consumption so as to maximize an utility function. Except in the last case above, I have no need of that hypothesis. Alternative theories of value and distribution exist. (Does Nick Rowe imagine that I am in his intended audience for this post?)


Unknown said...

In all sciences other than economics, a dynamic steady-state would refer to a system that has a constant flows of inputs and outputs, and would so be characterised as having exactly zero growth. The example of Japan of the last two decades shows that such states can exist and are stable.

A continuously growing economy is NOT in a steady state.

The challenge for economists is to produce a model of this true steady state first, then expand this to encompass economies that are in a state of constant growth.

This universal attempt by economists; orthodox and heterodox, to attempt to run before they have even learnt to crawl, let alone walk, is the source of great confusion. (A classic disaster is the Goodwin model that takes the perfectly sensible Lotka-Volterra model for a steady state system, but substitutes time variable quantities for the stock quantities in the L-V; producing a model that literally confuses flows and stocks, and so is quite intractable.)

For some true 'steady-state' models that not only work, but explain a number of stylised facts, google 'why money trickles up'.

Nathan Tankus said...

In your version of the Marxian reproduction schemes, is the capitalist class as a whole saving and if so what are they saving?

Robert Vienneau said...

I disagree with "Unknown". The state variables in a dynamic system need not be directly observable. Here the state variables are the quotients of, for example, the outputs of various industries and constant efficiency units of labor. I do think it of interest to introduce land-like natural resources and see whether the resulting dynamic system evolves to a stationary state.

In the linked post on Marxian reproduction schemes, the math seems to suggest that savings should be in natural units, namely tons of steel. This is not an adequate representation of a capitalist economy. One also does not want to require the capitalists in a given sector to be constrained to save in that sector.

In my exposition of the Kahn-Kaldor-Pasinetti-Robinson model, savings are expressed in terms of shares in capitalist firms, which is better. But maybe that model represents an economy in which industrial capital dominates financial capital, in some sense. So perhaps that model is appropriate for, say, the U.S.A. and the U.K. in the post war "golden age", but not more recent decades. And one would like other financial instruments in the model for savings.