SEARCH

SEARCH BY CITATION

Jay Forrester delivered this paper at the 2003 System Dynamics Conference in New York City, which was promoting the theme of “Economic Dynamics”. Jay shared the stage with two economists who had more than a passing familiarity with system dynamics. The first was Jed Shilling, an MIT PhD in economics who had been Forrester's RA for a short time, and had held positions at the World Bank (Head of the Modeling Division) and Gerry Barney's Millennium Institute (Senior Advisor). The second was Glen Atkinson, an institutionalist who was one of the first economists to accept the argument that system dynamics was appropriate for formal economic modeling. All three men presented papers offering their views on the use of system dynamics for economic analysis.

Forrester's paper is an interesting read for several reasons. It presents a sweeping overview of the places Forrester feels system dynamics modeling can make significant contributions to economics, including the examination and critique of descriptive theories of economic behavior, explaining major depressions (certainly a relevant contemporary topic), designing economics education curricula for K-12 students, and helping redesign actual economic systems. Throughout the paper Forrester utilizes structure and behavior from his system dynamics macroeconomic model to illustrate many of his points. Of particular note is that Forrester used the paper to publically reveal, for the first time I think, a significant change in his thinking vis-à-vis his decades-long macroeconomics modeling project. In Forrester's mind, his macroeconomic model was no longer the “System Dynamics National Model” (of the United States Economy), but rather a “general theory of economic behavior.” Indeed, in the paper Forrester emphasizes that good system dynamics modeling practice yields models that are generic in nature and can mimic the behavior of any specific member of a class when properly parameterized for that entity.

From a historical perspective, Forrester's paper is another contribution to a decades-long theme. If one examines Memo D-0000, the very first paper in the field of system dynamics, one will see that Forrester began critiquing traditional economic modeling, and suggesting a role for system dynamics, back in 1956. Good literature is timeless.

  • Forrester, J.W. 2003.

  • Michael J. Radzicki Economic theory for the new millennium. Plenary address at the International System Dynamics Conference, New York, July 21, 2003.

Abstract

Traditional mainstream academic economics, by trying to be a science, has failed to answer major questions about real-life economic behavior. Economics should become a systems profession, such as management, engineering, and medicine. By closely observing the structures and policies in business and government, simulation models can be constructed to answer questions about business cycles, causes of major depressions, inflation, monetary policy, and the validity of descriptive economic theories. A system dynamics model, as a general theory of economic behavior, now endogenously generates business cycles, Kuznets cycles, the economic long wave, and growth. A model is a theory of the behavior that it generates. The economic model provides the theory, thus far missing from economics, for the Great Depression of the 1930s and how such episodes can recur 50–70 years apart. Simpler system dynamics models can become the vehicle for a relevant and exciting pre-college economics education.