Neoclassical economists love saying critics don't understand...
Relearning Economics@RelearningEcon
4 views
Nov 30, 2025
~2 min read
1
Neoclassical economists love saying critics don't understand equilibrium.
But the irony is this the more they explain equilibrium, the clearer it becomes that the concept has been stretched so far it barely means anything anymore.
Allow me to explain 👇
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x.com/JesusFerna7026…
But the irony is this the more they explain equilibrium, the clearer it becomes that the concept has been stretched so far it barely means anything anymore.
Allow me to explain 👇
🧵1/15
x.com/JesusFerna7026…
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They say: Equilibrium isn't stable, it can explode.
If your equilibrium can be unstable, fragile, or blow up… then what exactly is equalised or balanced?
Redefining equilibrium to include instability strips the term of the meaning it has in every other science.
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If your equilibrium can be unstable, fragile, or blow up… then what exactly is equalised or balanced?
Redefining equilibrium to include instability strips the term of the meaning it has in every other science.
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They say: Equilibrium doesn't imply efficiency.
Sure, in theory.
In practice, mainstream teaching links equilibrium and optimality everywhere: welfare theorems, intertemporal optimization, competitive markets.
They deny the link while building their models on it.
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Sure, in theory.
In practice, mainstream teaching links equilibrium and optimality everywhere: welfare theorems, intertemporal optimization, competitive markets.
They deny the link while building their models on it.
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They say: Equilibrium isn't unique.
Great, so we can have 1, 10, or 10,000 equilibria depending on the assumptions. Or simply put, fuckery...
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Great, so we can have 1, 10, or 10,000 equilibria depending on the assumptions. Or simply put, fuckery...
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They say: It doesn't require perfect foresight.
True.
But DSGE models requires something stronger, rational expectations.
Agents must know the model's probability structure, something even economists don't know without solving the model.
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True.
But DSGE models requires something stronger, rational expectations.
Agents must know the model's probability structure, something even economists don't know without solving the model.
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They say: Real economies aren't in equilibrium, but that's fine, it's just a tool.
If your main analytical tool can't describe the system you're studying, maybe the tool is the problem.
Calling it just conceptual is an admission of weakness and an excuse.
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If your main analytical tool can't describe the system you're studying, maybe the tool is the problem.
Calling it just conceptual is an admission of weakness and an excuse.
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They say: Equilibrium works with behavioral biases.
Only if those biases are reverse-engineered to satisfy the model's constraints and optimization conditions. In other words, more pure fuckery.
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Only if those biases are reverse-engineered to satisfy the model's constraints and optimization conditions. In other words, more pure fuckery.
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They say: Equilibrium includes dynamics and learning.
Yes, but only dynamics that converge to some internally consistent belief path.
Real-world adjustment, delays, cascades, crises, and amplifying feedbacks don't fit neatly into equilibrium learning.
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Yes, but only dynamics that converge to some internally consistent belief path.
Real-world adjustment, delays, cascades, crises, and amplifying feedbacks don't fit neatly into equilibrium learning.
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They say: Expectations are central.
Exactly, and that's the problem.
Expectations in DSGE models aren't measured, they're solved by the model.
It's circular, the model predicts expectations by assuming expectations match the model. More fuckery...
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Exactly, and that's the problem.
Expectations in DSGE models aren't measured, they're solved by the model.
It's circular, the model predicts expectations by assuming expectations match the model. More fuckery...
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They say: Equilibrium doesn't exclude policy.
But it forces all policy to be analysed as a move from one hypothetical equilibrium to another.
Most policy works through disequilibrium processes, multipliers, feedback loops and crises.
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But it forces all policy to be analysed as a move from one hypothetical equilibrium to another.
Most policy works through disequilibrium processes, multipliers, feedback loops and crises.
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They say: The Latin plural thing.
When economists run out of arguments, they retreat to grammar.
Enough said.
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When economists run out of arguments, they retreat to grammar.
Enough said.
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There is a deeper issue, every time a critique arises, equilibrium gets redefined:
Not stability, not optimality, not uniqueness, not rationality, not realism…
At some point you have to ask
If equilibrium is none of these things, then what is it?
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Not stability, not optimality, not uniqueness, not rationality, not realism…
At some point you have to ask
If equilibrium is none of these things, then what is it?
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The Answer:
It's a modelling habit.
System dynamics, complexity, and real-world data show we don't need equilibria to study economies.
We need feedback loops, not fixed points.
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It's a modelling habit.
System dynamics, complexity, and real-world data show we don't need equilibria to study economies.
We need feedback loops, not fixed points.
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Until macro drops this equilibrium fixation, it will keep explaining the world in terms of the solutions to its own equations, not the dynamics of real economies.
And that's why people question econ equilibrium.
Not because they don't understand it,
but because they do.
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And that's why people question econ equilibrium.
Not because they don't understand it,
but because they do.
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