Are the pictures of Economics changing?

The gathering momentum of systems thinking since the 1970s crystallizes a sense that we have reached diminishing returns to reductionism as a perspective to comprehend the world.

At its core, systems thinking encourages us to see the world in loops, not lines.

All complex systems contain ‘positive’ or reinforcing loops, which exacerbate situations and ‘negative’ or dampening loops, which balance a system. At any time, the overall dynamic of a system depends on whether the reinforcing loops or the dampening loops have the upper hand. In the former, runaway situations develop. In the latter, a system exhibits balance.

Economics is starting to grasp this – ‘complexity economics’, no less – and it is set to change our sense of whether economics is a ‘social science’ or a ‘social story’.

Some of our ‘theories’ may be more accurately described as self-fulfilling narratives – no more so than Friedman’s Feedback Loop.