Systemic failure in macroeconomic modelling
by Martin Reynolds
International Journal of Applied Systemic Studies (IJASS), Vol. 5, No. 4, 2014

Abstract: Terms like systemic crisis and systemic failure are used with increasing frequency particularly by journalists, politicians, as well as academics, to account for things going wrong in an increasingly complex and uncertain world. But what does systemic failure actually mean from a systems thinking perspective, and how might more effective systems reduce incidences of systemic failure? This paper argues that three interwoven traps of modelling contribute as a confluence towards systemic failure - reductionism, dogmatism, and managerialism. Using the example of systemic failure of academic economics in averting the global financial crisis - as expressed by prominent economists themselves - each of the three traps is explored. The confluence of these traps working together are illustrated by ideas from a tradition of critical systems thinking associated with systemic triangulation, and ideas from the science of political economy associated with the 'iron triangle'. Some practical tools from systems approaches are suggested to counter traps of systemic failure using a suggested heuristic of systems thinking in practice.

Online publication date: Fri, 14-Nov-2014

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