Economic Theory: Forrester Economic Theory for the New Millennium

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 to 70 years apart. Simpler system dynamics models can become the vehicle for a relevant and exciting pre-college economics education. Today I will discuss an alternative to the methods that now dominate the field o