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Averting worse economic collapses

Date:
June 25, 2013
Source:
Springer
Summary:
By managing macro-economic parameters, scientists believe that -- unlike previously thought -- it is possible to steer an economy around irreversible changes in its complex dynamics and avert potential economic disasters.

By managing macro-economic parameters, scientists believe that -unlike previously thought- it is possible to steer an economy around irreversible changes in its complex dynamics and avert potential economic disasters. These findings, about to be published in The European Physical Journal B, stem from the theoretical work of Michael Harrι and colleagues at the Complex Systems Group at the University of Sydney, Australia.

Physicists have a long experience of using statistical mechanics to study equilibrium points and small fluctuations in large numbers of interacting particles under varying pressure and temperature conditions. By applying statistical-mechanics methods to economic game theory, it is possible to describe the strategic interactions between, say, businesses which are influenced by their own incentives as well as the incentives of third parties.

By changing a macro-economic parameter like tax rates, previous research has shown the system will usually move away a little from where it had settled, but not much. Their new results show that such optimisation can produce a tipping point where a change in the tax regime, for example, will cause the whole economy to suddenly collapse.Harrι and colleagues found that it is possible to find a steady state in the specific scenario where the contributions each business makes to the whole economy are maximised in terms of financial return. And even if an economy is drifting inexorably towards a tipping point, they showed that small perturbations of the system parameters can move an economy around a tipping point, thus averting it.

The ability to exert control on economies depends on having sufficient control of the system parameters -potentially addressed by empirical research, and knowing where the economy is relative to these tipping points- provided by recent measuring techniques.


Story Source:

The above story is based on materials provided by Springer. Note: Materials may be edited for content and length.


Journal Reference:

  1. Michael S. Harrι, Simon R. Atkinson, Liaquat Hossain. Simple nonlinear systems and navigating catastrophes. The European Physical Journal B, 2013; 86 (6) DOI: 10.1140/epjb/e2013-31064-x

Cite This Page:

Springer. "Averting worse economic collapses." ScienceDaily. ScienceDaily, 25 June 2013. <www.sciencedaily.com/releases/2013/06/130625121237.htm>.
Springer. (2013, June 25). Averting worse economic collapses. ScienceDaily. Retrieved July 28, 2014 from www.sciencedaily.com/releases/2013/06/130625121237.htm
Springer. "Averting worse economic collapses." ScienceDaily. www.sciencedaily.com/releases/2013/06/130625121237.htm (accessed July 28, 2014).

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