This is just a followup on my previous post about Noah Smith over at Noahpinion on the subject of future models-what might the future in macro be assuming it does move away from the Lucas consensus of the last 40 years? http://diaryofarepublicanhater.blogspot.com/2012/04/noahpinion-on-equilibrium.html
Farmer has some ideas. While he insists that it's desirable to stay with equilibrium rather than disequilibrium his idea is to move beyond a single unique point of equilibrium to a model with multiple equilibria. The idea is that with multiple equilibria there is no need for equilibrium-rather than moving from one single equilibrium to disequilibrium you move from one equilibrium to another.
"This article is an attempt to reformulate what I take to be two key insights from Keyne"General Theory (Keynes, 1936). The first is that there is something profoundly different about the labour market from most other markets in the economy. The second is that the beliefs of participants in the asset markets have an independent influence on economic activity. In the language of modern dynamic general equilibrium theory, we would say that there is a continuum of labour market equilibria and that beliefs about the value of the stock market select an equilibrium."
"The General Theory contains many ideas, some of which are internally inconsistent, and Keynes did not try to reconcile his theory with Walrasian economics. That task was carried out by a group of interpreters, including Hansen (1936) and Hicks (1937). The current dominant paradigm, new-Keynesian economics, originated with the third edition of Samuelson’s (1955) undergraduate textbook in which he introduced the idea of theneoclassical synthesis. According to this doctrine, the economy is Keynesian in the short run but classical in the long run. The short run is defined as the period over which not all prices have had time to adjust to their Walrasian levels."
He is not a proponent of non-Walrasian prices-Noah is not sure that this is a fruitless area of inquiry. In any case it's food for thought. Interesting that he preserves some idea of rational expectations yet still is able to let Keyne's animal spirits in. For the most part DSGE seems to have no place for Keyne's General Theory -including the New Keynesian model- so Farmer is certainly on different ground. To be sure one can question this reconciliation of General Theory with the Classical School, but that's another discussion.
To be sure I don't yet know why Farmer prefers multiple equilibria and that disequilibrium is the wrong way for economics-in his idea it belongs to the physical sciences. Heck, there's plenty about all this I'm not sure about yet. But it's an exciting new idea.
Again, if you think of Kuehn's idea of scientific revolutions it's interesting to consider whether macro is headed for another revolution. The last two were effected by individual men-Keynes with his GT in the 30s which became Hick's IS-LM and Lucas in the 70s with DSGE.