Some considerations on equilibrium and realism

Abstract

For Lang and Setterfield (2006-7), economists should reject the traditional equilibrium approach for its unrealism. Their criticism of the mainstream equilibrium approach is correct, but they fail to stress that realism of the analysis, however, requires being concerned with equilibrium, seen as the analysis of the conditions under which the economy is stable—that is, it does not tend to explode or implode. Keynes regarded the substantial stability of the economy as "an outstanding characteristic of the economic system." The determination of underemployment equilibria is Keynes's attempt to explain such a characteristic, although differently from the mainstream equilibrium approach.

Keywords:

• current heterodox approaches
• disequilibrium
• economic methodology
• general equilibrium