Doyne Farmer

If, again, that pole is the economy in a standard model, the story goes like this. I am a perfect pole balancer. So somebody knocks the pole. All right. So the pole gets knocked. I then calculate exactly how to move my hand to bring the pole smoothly to rest back at the top, maximizing consumption in the economy as I do it. And before I get to the top, somebody knocks the pole again.

If, again, that pole is the economy in a standard model, the story goes like this. I am a perfect pole balancer. So somebody knocks the pole. All right. So the pole gets knocked. I then calculate exactly how to move my hand to bring the pole smoothly to rest back at the top, maximizing consumption in the economy as I do it. And before I get to the top, somebody knocks the pole again.

Now, there can be elements of both stories. If I'm standing on a sailboat in a storm, I'm getting knocked all the time. That happens. But the point is, even if I'm standing on level ground, the pole's oscillating, and there's no breezes. There's no outside influences. It doesn't take outside influences. So that's the side of the story that's missing, whereas

Now, there can be elements of both stories. If I'm standing on a sailboat in a storm, I'm getting knocked all the time. That happens. But the point is, even if I'm standing on level ground, the pole's oscillating, and there's no breezes. There's no outside influences. It doesn't take outside influences. So that's the side of the story that's missing, whereas

Mainstream tries to explain everything in the way I said.

Mainstream tries to explain everything in the way I said.

They are secretly unstable. But you have to assume, like with a rational decision maker, the rational decision maker can keep it pinned at its stable point.

They are secretly unstable. But you have to assume, like with a rational decision maker, the rational decision maker can keep it pinned at its stable point.

And in their favor, taking their side of viewing things, they would say, well, maybe it's a good enough approximation to say it's an equilibrium. It's true. For some purposes, just saying the pole's vertical is good enough. If it's oscillating through a 10-degree angle, Well, 10 degrees, you know, it's not a big deviation.

And in their favor, taking their side of viewing things, they would say, well, maybe it's a good enough approximation to say it's an equilibrium. It's true. For some purposes, just saying the pole's vertical is good enough. If it's oscillating through a 10-degree angle, Well, 10 degrees, you know, it's not a big deviation.

But on the other hand, I would argue that, yeah, the economy tends to go up, but business cycles are the swerves around it, and that's the pole deviating from equilibrium.

But on the other hand, I would argue that, yeah, the economy tends to go up, but business cycles are the swerves around it, and that's the pole deviating from equilibrium.

Yeah, exactly right.

Yeah, exactly right.

Well, Going back to what I described before is called an agent-based model. Agent-based models are just simulations on computers that involve agents who make decisions. And the challenging part is you have to figure out how those agents are making decisions. What decisions are they making in each situation? Now, first of all, take the example of the COVID model I made.

Well, Going back to what I described before is called an agent-based model. Agent-based models are just simulations on computers that involve agents who make decisions. And the challenging part is you have to figure out how those agents are making decisions. What decisions are they making in each situation? Now, first of all, take the example of the COVID model I made.

That model actually has no agents making decisions. Okay. Because all we have to understand is that industry can't produce if it doesn't have demand, labor, or the inputs it needs. So the production function, as it's called, the recipe for making stuff, does all the work. And the dynamics of the simulation, which tracks what everything's doing. Now, that's...

That model actually has no agents making decisions. Okay. Because all we have to understand is that industry can't produce if it doesn't have demand, labor, or the inputs it needs. So the production function, as it's called, the recipe for making stuff, does all the work. And the dynamics of the simulation, which tracks what everything's doing. Now, that's...

You often do need agents making decisions. That model, by the way, it worked. It was very simple and it didn't have prices, but that meant we couldn't address things like inflation. Now, we correctly guessed. We said, we think that's okay because for the first year or so, we don't think there's going to be inflation.

You often do need agents making decisions. That model, by the way, it worked. It was very simple and it didn't have prices, but that meant we couldn't address things like inflation. Now, we correctly guessed. We said, we think that's okay because for the first year or so, we don't think there's going to be inflation.