Complexity and Policy

Lorentz Workshop on Socio-Economic Complexity

Leiden, 23– 27 March 2015

Carlo Jaeger

Global Climate Forum, Beijing Normal University, Arizona State University

Complexity, Austerity, and Growth

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

Prelude

1. Multiple Equilibria, Good and Bad

1. Equilibrium Selection trough Norm Dynamics

1. Policy Design: Optimal Control or Co-Evolution?

1. Green Growth for Europe?

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

Contents

27 March 2015

From Trichet, bypassing Weber, to Draghi:

“countries have found themselves in a bad equilibrium”

“we will do whatever it takes…”

Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

The Fundamental Theorem of Demand and Supply(Sonnenschein-Mantel-Debreu)

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

Equilibrium Selection and Norm Dynamics

Background: M.Burke, H.Peyton Young, Social Norms,In: Handbook of Social Economics, 2011

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

Norm Dynamics and Resilience of Currency Regimes

M.Hallier, Formalization and Metastability Analysis of Evolutionary Agent-Based Models (PhD thesis, HU Berlin)

Tim

e

Distribution of Currency Choices

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

Contents

C. Jaeger, A Choice for China, China & World Economy, 2014

Norm Dynamics: Austerity or Professionality?

Tinbergen: At least as many policy variables as policy goals.

Theil: Set policy variables so as to maximize a social welfare function.

Goodhart: When a measure becomes a target, it ceases to be a good measure.

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

Tinbergen, Theil, and Goodhart

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

Socio-Economic Complexity RequiresCoevolution of Policy and Economy

→ Fast→ Unemployment→ Median incomes

→ Intermediate→ Inflation expectations→ Accountability of financial operators

→ Slow→ Coordination between European nations→ European professional culture

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

The Time Scales Challenge

→ By 2050, global population will grow from 7 to more than 8 billion people

→ In the coming decades, global GDP will grow from 80 trillion to over 300 trillion $

→ A these scales, continuation of present patterns of polluting air, water and soil with their associated health risks will not be accepted

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

The Green Growth Frame

→ Environmental damages

→ Learning by doing from investment

→ Matching tasks and skills

→ In a preliminary way, these can be taken into account by stepwise improvements of existing models

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

Socio-Economic Complexity: Three Intertwined External Effects

21.04.23 Page 15Carlo Jaeger (GCF) | Investitionsorientierte Klimapolitik

Preliminary results of a project for the German government

21.04.23 Page 16Carlo Jaeger (GCF) | Investitionsorientierte Klimapolitik

Preliminary results of a project for the German government

→ Study links between finance and “real economy” in a green growth perspective

→ Add useful features to existing models

→ Build multi-agent models as iterated games in complex networks

→ Stay hungry, stay foolish

27 March 2015Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

Some Research Directions to address Socio-Economic Complexity