Nick Rowe: “If it wasn’t an equilibrium, it would be somewhere else.”

I can’t begin to tell you how much I’ve learned from reading Nick Rowe’s stuff. But still, I constantly feel that his underlying assumptions are wrong. Here’s a great example:

The US economy is currently in equilibrium. It’s not a market-clearing equilibrium. It’s not a very good equilibrium. But it is an equilibrium. If it wasn’t an equilibrium, it would be somewhere else.

My response: a nanosecond from now, it will be somewhere else. So it must not be in equilibrium now, or it would stay there.

I step out on my deck and scan the weather over Seattle. Hints of sun through broken clouds, some low fog. “Hmm,” I say, “it’s in equilibrium.” And a second later I say the same thing. And again a second after that.

Does this make any sense?

via Worthwhile Canadian Initiative: E(NGDP) here’s level-path targeting for the people of the concrete steppes.






3 responses to “Nick Rowe: “If it wasn’t an equilibrium, it would be somewhere else.””

  1. Bill White Avatar
    Bill White

    I think by equilibrium in physics one means that at any instant, t, all forces balance. That is to say, their sum is zero. It doesn’t mean that at time t+h the system will be in the same state as at time t. It allows one to analyze the forces instantaneously. There are a bunch of kinds of equilibrium, though, as a trip to Wikipedia shows.

  2. Asymptosis Avatar

    Hey Bill: yeah, have done some trips through those wiki pages. Thanks.

    Here’s what I said over at Nick’s place:

    In the planet metaphor, a “moving equilibrium” means an object (like the earth) is not accelerating or decelerating.

    Whatever “acceleration” might mean for an an economy (something that is measured by GDP or similar?), is an economy ever in such a state?

    And the economy is much more like the weather than like a planet’s orbit. Is the weather ever in “equilibrium,” moving or otherwise? Is the term useful or even meaningful in that context?

    I add here: I suppose you could say there’s a rough equilibrium when flows and/or stocks are varying regularly within certain ranges, but wouldn’t variance or volatility be far more useful concepts than that loose definition of equilibrium, especially since regular variance is pretty much unheard-of in our measurements of the economy?

  3. Dave Raithel Avatar

    Christomighty, that paragraph is less informative and not as funny as Buckaroo Banzai reminding us that wherever we go, there we are.