Chapter

The Structural and Dynamical Instability of the Modern Economy

Richard M. Goodwin

in Chaotic Economic Dynamics

Published in print November 1990 | ISBN: 9780198283355
Published online November 2003 | e-ISBN: 9780191596315 | DOI: http://dx.doi.org/10.1093/0198283350.003.0005
 The Structural and Dynamical Instability of the Modern Economy

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Addresses a weakness in Schumpeterian thought: innovation need not lead to higher output. An innovation has two opposing effects: it increases investment, thereby increasing labour demand; it also raises productivity, thereby reducing labour demand. A model is developed with three dynamic elements: quadratic investment outlay, dynamic Kahn–Keynes multiplication of output, and a specification for the rate of real wage increase. The model shows that if the real wage is sufficiently responsive, innovation can increase output permanently. The chapter concludes with a Rössler model designed to model short and long waves as a chaotic growth‐oscillator.

Keywords: dynamic instability; innovation; investment; labour demand; long wave theory; output; productivity; Rössler model; Schumpeter; wage

Chapter.  3730 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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