Background
Disequilibrium refers to an economic condition where planned economic activities cannot be executed as originally intended because of mismatches or inconsistencies in ex ante (planned) activities. This scenario typically arises when the preset plans for various economic actions, such as spending, selling, producing, and consuming, are unable to align with each other.
Historical Context
The notion of disequilibrium has been studied over centuries to understand economic dynamics and the forces that drive economies out of balance. It became especially prevalent in economic discussion during periods marked by market inconsistencies, such as the Great Depression and oil crises, which revealed the intricacies of market stability and adjustments.
Definitions and Concepts
Disequilibrium occurs when there are imbalances in economic actions. For instance, if the planned demand for a product (ex ante demand) exceeds available supply, not all demand can be fulfilled. This results in outcomes (ex post outcomes) that mismatch initial economic intentions.
Major Analytical Frameworks
Classical Economics
Classical economists minimized the long-term impact of disequilibrium by asserting that markets self-correct through flexible prices and adjustments in supply and demand.
Neoclassical Economics
Neoclassical perspectives recognize disequilibrium but emphasize swift adjustments through market mechanisms to restore equilibrium.
Keynesian Economics
Keynesians argue that markets can remain in prolonged disequilibrium due to sticky wages and prices, advocating for government intervention and fiscal policies to restore equilibrium.
Marxian Economics
Marxian economics views disequilibrium as an inherent feature of capitalist systems, propelled by disparities in capital accumulation and labor exploitation.
Institutional Economics
Institutional economists attribute disequilibrium to rigidities and the influence of institutional practices that impede elastic market responses.
Behavioral Economics
Behavioral economics considers psychological factors and bounded rationality in decision-making as key contributors to disequilibrium in markets.
Post-Keynesian Economics
Post-Keynesians highlight the organic and path-dependent nature of markets, contending that economies do not necessarily gravitate towards equilibrium states.
Austrian Economics
Austrian economists consider disequilibrium as vital to market processes, where entrepreneurial actions exploit imbalances to drive towards equilibrium.
Development Economics
Economists in this field analyze how structural bottlenecks, low resource utilization, and systemic issues in developing countries contribute to sustained disequilibrium.
Monetarism
Monetarists believe monetary disturbances cause disequilibrium and assert central banks should focus on controlling money supply to mitigate imbalance.
Comparative Analysis
While major economic schools of thought differ in how they perceive and address disequilibrium, they collectively underscore its relevance. Classical and neoclassical schools trust market forces to rectify imbalances, whereas Keynesian and institutional structures emphasize corrective policies. Marxian and post-Keynesian analysis view disequilibrium as more inherent and persistent due to systemic structures, compelling differentiated interventions.
Case Studies
- The Great Depression illustrated a prolonged state of disequilibrium, revealing sticky prices that necessitated extensive policy intervention.
- Post-2008 financial crisis dynamics underscored how perceived equilibrium states can swiftly devolve into disequilibrium, calling for manual interventions.
Suggested Books for Further Studies
- “Principles of Economics” by Alfred Marshall
- “General Theory of Employment, Interest and Money” by John Maynard Keynes
- “Capitalism, Socialism, and Democracy” by Joseph Schumpeter
Related Terms with Definitions
- Equilibrium: A state where market supply equals demand, and planned economic actions can be executed as intended.
- Ex ante: Refers to planned events or actions based on foresight and expectations.
- Ex post: Refers to events or outcomes that occur after the fact, reflecting actual results.
