Complexity, Austerity, and Growth

1. Complexity and Policy Lorentz Workshop on Socio-Economic Complexity Leiden, 23– 27 March 2015 Carlo Jaeger Global Climate Forum, Beijing Normal University, Arizona State University Complexity, Austerity, and Growth

2. Prelude Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

3. Contents • Multiple Equilibria, Good and Bad • Equilibrium Selection trough Norm Dynamics • Policy Design: Optimal Control or Co-Evolution? • Green Growth for Europe? Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

4. From Trichet, bypassing Weber, to Draghi: “countries have found themselves in a bad equilibrium” “we will do whatever it takes…” Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

5. Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

6. The Fundamental Theorem of Demand and Supply (Sonnenschein-Mantel-Debreu) Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

7. Equilibrium Selection and Norm Dynamics Background: M.Burke, H.Peyton Young, Social Norms, In: Handbook of Social Economics, 2011 Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

8. Norm Dynamics and Resilience of Currency Regimes Time Distribution of Currency Choices M.Hallier, Formalization and Metastability Analysis of Evolutionary Agent-Based Models (PhD thesis, HU Berlin) Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

9. Norm Dynamics: Austerity or Professionality? Contents C. Jaeger, A Choice for China, China & World Economy, 2014 Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

10. Tinbergen, Theil, and Goodhart Tinbergen: At least as many policy variables as policy goals. Theil: Set policy variables so as to maximize a social welfare function. Goodhart: When a measure becomes a target, it ceases to be a good measure. Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

11. Socio-Economic Complexity Requires Coevolution of Policy and Economy Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

12. The Time Scales Challenge • Fast • Unemployment • Median incomes • Intermediate • Inflation expectations • Accountability of financial operators • Slow • Coordination between European nations • European professional culture Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

13. The Green Growth Frame • By 2050, global population will grow from 7 to more than 8 billion people • In the coming decades, global GDP will grow from 80 trillion to over 300 trillion $ • A these scales, continuation of present patterns of polluting air, water and soil with their associated health risks will not be accepted Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

14. Socio-Economic Complexity: Three Intertwined External Effects • Environmental damages • Learning by doing from investment • Matching tasks and skills • In a preliminary way, these can be taken into account by stepwise improvements of existing models Carlo Jaeger (GCF) | Complexity, Austerity, and Growth

15. Preliminary results of a project for the German government Carlo Jaeger (GCF) | Investitionsorientierte Klimapolitik

16. Preliminary results of a project for the German government Carlo Jaeger (GCF) | Investitionsorientierte Klimapolitik

17. Some Research Directions to address Socio-Economic Complexity • Study links between finance and “real economy” in a green growth perspective • Add useful features to existing models • Build multi-agent models as iterated games in complex networks • Stay hungry, stay foolish Carlo Jaeger (GCF) | Complexity, Austerity, and Growth