Complex dynamics and elementary economic theory

Abstract

Contrary to the view that complex dynamical systems are curiosities at a safe distance from core tenets of economics, it is shown that they undermine a few fundamental constructs and models. The long run macroeconomic equilibrium defined as the limit of a sequence of short run equilibria is shown to be a problematic construct in simple aggregate models. The demonstration also undermines the very notion of the long run as used in mainstream economics, and the dictum that prices are flexible in the long run.