Abstract
AbstractMarket capitalism typically goes through cycles of expansion and contraction. Every now and then, these common economic cycles go off the hinges. They become unstable and can lead to recessions, crises and depressions—phenomena that economists typically explain by looking to exogenous forces. Alternative explanations—mostly Marxian and Keynesian—for the instabilities have been sought within the structure of the economic system itself. One such explanation is provided by Steve Keen in his Goodwin–Minsky model. The model effectively mimics the dynamics of key indicators prior to, during and after the 2007/08 crisis. However, the model is also over‐specified, highly sensitive to initial conditions and therefore more difficult to convey. In line with George Box's plea for parsimony, this paper presents a more straightforward version of Keen's model that remains consistent with its fundamental behaviour. The model also illustrates the potential for further dialogue between Marxian economics and system dynamics.© 2019 The Author System Dynamics Review published by John Wiley & Sons Ltd on behalf of System Dynamics Society
Highlights
The world economy, measured as gross world product (GWP), has grown at a rate of ~7.4% from 1960 to 2016 (World Bank, 2017)
All nations have contributed to this expansion through their individual gross national products
Economic instability has taken on global proportions (Bonaiuti, 2012; Cairó-i-Céspedes and Castells-Quintana, 2016)
Summary
The world economy, measured as gross world product (GWP), has grown at a rate of ~7.4% from 1960 to 2016 (World Bank, 2017). Following Keen’s approach, Goodwin’s model is extended to account for Minsky’s understanding of debt-fuelled boom-and-bust cycles (Minsky, 1992). It must be noted that system dynamics has developed more robust alternative formulations to capital investment flows since Goodwin proposed his model (e.g., by accounting for desired capital and compensating for depreciation) (see Meadows and Wright, 2008).
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