The Theory of Qualitative Economic Growth: A New Framework for Economic Growth Theory

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Sergio Focardi – Founder of Economics and Complexity, Bargagli, Italy
Frank J. Fabozzi – Professor of Practice, Carey Business School, Johns Hopkins University, Baltimore, Maryland

Series: Economic Issues, Problems and Perspectives
BISAC: BUS069030
DOI: https://doi.org/10.52305/QGRQ5553

This book develops the theory of qualitative growth. This theory provides a major overhaul of economic theory. Modern economies are evolutionary complex systems subject to a process of rapid innovation that makes aggregation very difficult. Mainstream economics is based on aggregating variables. When aggregation is impossible, mainstream economics creates idealized economies without any empirical basis. Our theory of qualitative growth is based on the principles of modern empirical science where models might include terms and variables that acquire meaning through global theory and its measurement processes. That is, in modern empirical sciences, variables are ultimately defined by the process of observation. However, the observation process might include the entire theory. For example, we do not observe temperature directly but only through instruments that exploit how temperature is linked to other variables such as the elongation of a column of mercury. We develop an integrated monetary economic model where the real economy is represented by hidden abstract variables that include quantity, quality, and generalized inflation. These variables do not have a direct observation process but are in relationship with observables such as the Economic Complexity Index. In this way, we develop an economic theory able to support decision making for qualitative growth while in contrast mainstream economics would label qualitative growth as a recession. The idea of qualitative growth, put forward by Capra and Henderson in 2009, is the basic notion that growth is a good and essential feature of human societies, but it must be understood as organic development of qualitative aspects of life. Qualitative growth responds to the basic need of “decoupling” growth from the use of natural resources which is now recognized as a pillar of the green transition.

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Table of Contents

Preface

Acknowledgments

About the Authors

Chapter 1. A New Framework for the Economic Growth Theory
Economies as Evolutionary Complex Systems
Models of Complex Systems
From Quantity to Value: Gross Domestic Product
Criticisms of GDP
Inflation, Nominal and Real Quantities
The Concepts of Quality
Applying the Global Approach of Empirical Sciences to Model Quality
Models Connect Observations
The Concept of Qualitative Growth
The Duality of Modern Economies
The Green Transition
Theory Risk

Chapter 2. Complexity and Quality in Modern Science
Is Science Purely Formal and Abstract?
Reductionism and Complex Systems
Physics and Qualities
Are Qualities Inevitably Related to Sentient Beings in Economic Systems?
Quality and GDP
Measuring the Quality of Life
Measuring the Quality of Output
Economics and Complex Systems
Measures of Complexity

Chapter 3. The Problem with Aggregation of Economic Output
Aggregation of Agents
Indexes
Aggregation of Goods
Single Good
Composite Goods
Heterogenous Goods and the Cambridge Controversy
Looking Forward
Reductionism and Complexity

Chapter 4. Inflation Is Not What You Think It Is
The Classic Concept of Inflation
Reconciling Households’ Perception of Inflation with Its Overestimation
Why Inflation Is Not a Self-Regulating Phenomenon
Dynamics of Inflation
Why Is Inflation so Feared?
Shortcomings of the Classical Concept of Inflation
Productivity Slowdown
How the Concept of Inflation Can Evolve

Chapter 5. Why Qualitative Growth Theory Is Needed
A Complexity-Based Approach to Decision Making
Why Do We Need a New Economic Framework Now?
Better Understanding of Growth, Expansion and Recession
Productivity
Inflation and Innovation
Why Do We Need a New Economic Framework for the Green Transition?

Chapter 6. Models of Qualitative Growth
Theories and Models in Modern Science
Economic and Financial Models
Volatility
Regime-Switching Models
Factor Models
In Summary
Macroeconomic Models
Solow-Swan Model
The Predator-Prey Model, the Goodwin Model, and the Keen Model
Keen Model
Integrated Stock Flow Consistent Models
Summary
Modelling Quality and Complexity
Why Do We Need Abstract Variables in Macroeconomic Models?
How to Represent Quality, Quantity, and Generalized Inflation
Model
Measures of Complexity and Generalized Inflation

Chapter 7. Economies as Complex Systems
Networks as Complex Systems
Description of Networks
Types of Networks
Some Results of Complexity Theory
How Is Monetary Profit Generated?
How Is Complexity Measured?
How Can Economic Complexity Grow?
Are There Additional Segmentation of the Economy?

Chapter 8. Social and Economic Consequences of Qualitative Growth
The Birth of Growth
Growth Is Not an Observable
Misleading Advising
What Would Have Happened if Qualitative Evaluation Would Have Been Applied?
Warnings and Indifference
How to Obtain Decoupling

Chapter 9. Summary View of the New Economic Framework
References

Index

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