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Global Letter

LlewellynConsulting  |  Macro series  | John Llewellyn                                                                                                     4 January 2021

Global Letter


New Year resolutions


'Equilibrium’ and ‘cycles’ out: ‘drivers’ and ‘sustainability’ in. 

The turn of the year is conventionally a time for resolutions. We have two: to refrain from using the words ‘equilibrium’ and ‘cycle’, and to focus rather on ‘drivers’ and ‘sustainability’.

The unhelpful concepts of ‘equilibrium’ and ‘cycles’ 

The word ‘equilibrium’ is used a lot in economics. It can be useful as a pedagogical device when explaining that, in a complex economic and financial system, ultimately everything depends on everything else. But it is a dangerous word, at least when applied to the real world. 1

Even in comparatively normal times the concept has little content:2 economies are seldom close to anything that can be claimed to be such a state. And at present, with GDP in many countries having contracted by at least 10%, and in some by 20% or more, they are miles away.3

Moreover ‘equilibrium’ in turn engenders notions that are themselves suspect, not least that of

the ‘business cycle’ – the idea that activity not only fluctuates with regularity, but also tends, unless

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