On economics

This article explores the development of Keynesian macroeconomics in its early years, and especially in the Big Bang period immediately after the publication of The General Theory. In this period, as standard macroeconomics evolved into the “Keynesian-neoclassical synthesis,” its promoters discarded many of the insights of The General Theory. The paradigm that was adopted had some advantages. But its simplifications have had serious consequences—including immense regulatory inertia in response to massive changes in the financial system and unnecessarily narrow application of accelerationist considerations (regarding inflation expectations).

This study shows that even in the fairly simple behavioural models of normal form games, complexity and competition change whether players will use a rational strategy and reach equilibrium. We find that if player incentives aren’t aligned they are unlikely to find equilibrium when the game gets complicated. Many situations in economics are complicated and competitive. This raises the possibility that many important theories in economics may be wrong: If the key behavioural assumption of equilibrium is wrong, then the predictions of the model are likely wrong too.