Why Economic Systems Thinking
By: Econsystems Thinking
Tags: Political Economy, Introduction, First Post, Economics, Systems Thinking

Photo by Philippe Bout on Unsplash

While it could do with some more attention Economic Systems Thinking isn’t new. In the early 2000s Professor Alfredo Moscardini Dr Mohamed Loutfi at University of Sunderland made the case for incorporating Systems Thinking into economics education. Their paper “Systems Thinking and Economics Teaching” notes that the relationship could be mutually beneficial to both economics and systems thinking. The paper is available online here. It is relatively brief and readable so I recommend it, but I’ll try to summarize some key points that appeal to me.

Systems Thinking (Introduced here better than I ever could by Leyla Acaroglu) has struggled as an interdisciplinary subject to find a true home. Economics could in theory provide it. Economics, in turn can be a bit inflexible, outdated, and overly focused on theory that doesn’t translate to the real world. Systems Thinking could make the subject a bit less dogmatic.

On Economics the paper states “From the outside, it appears to consist of a well reasoned, coherent body of knowledge but once one begins to read the literature, it is evident that there are many versions of economics:- e.g. Marxian Economics, Neoclassical Economics, Austrian Economics, Sraffian Economics, Keynesian Economics and Institutionalist Economics. Each of these has a completely different mental model of economics which then results in different conclusions.”

This implied authority on very disputable arguments is the main thing that draws me to Systems Thinking as an appropriate model for learning and teaching economics. We become more conscious of the difficulty in predicting how changes may play out in a system. That’s not to say that the present curriculum should be discarded, more that it should be supplemented. When using systems thinking in economics, the assumptions, biases, and general worldview of the map maker are made apparent. Results are presented more honestly as somewhat ideological speculation as opposed to incontrovertible fact, and different economic worldviews can be compared visually side by side.

A very brief example I’ll use is the never ending minimum wage debate. For the sake of brevity I’ll use two simplified straightforward opposing perspectives on the issue.

(Remember dotted lines represent an opposite relationship.)

Libertarian take on Minimum Wage

From a libertarian perspective minimum wage first and foremost reduces employment particularly among unskilled labor. The more something costs (employees) the less will be demanded. The less employment the more poverty, and the less growth of an economy.

Minimum wage also could decrease entrepreneurship since new up and coming small businesses would struggle to employ the people necessary to turn a profit. There’s also the argument that no one will want to create new technologies or start new companies because they can already live a comfortable life working at the mall.

In summary a higher minimum wage only leads to higher poverty and lower growth. TL;DR It’s bad.

Now we’ll look at a generic leftist perspective.

Generic Left take on Minimum Wage

For the left perspective some would concede that minimum wage laws might decrease employment if raised too high or too quickly. On the other hand consumer spending would increase with wages which would actually lead to equal or higher employment as there is more economic activity generated by more money being spent. Higher consumer spending leads to higher growth. Another effect of the minimum wage is the reduction of poverty. The less poverty the less crime, the less crime the less incarceration, the less incarceration the less state expenditure.

So in summary a higher minimum wage would mean higher economic growth and lower poverty as well as the social ills that come with it. TL;DR It’s good.

Depending on your assumptions, I’d expect you to not only disagree with at least one, but I’d imagine one of them might have even made you angry. Both arguments can come off as naive and idealistic to different people. That’s not to say they’re equally wrong; it’s more to say it doesn’t matter for now. Regardless of how we react, at least we can understand the underlying logic behind each worldview. Equally as important, we can examine which elements take precedence in the minds of different thinkers and how they measure success/failure.