Non-equilibrium economics: A physicist's point of view

Abstract Equilibrium is central to mainstream economic thinking, which assumes that economies are intrinsically stable and that equilibration is "fast". I argue, from a physicist's vantage point, that convergence to equilibrium is likely to be the exception rather than the rule in large, complex, interacting systems. Through a series of stylized models, I show how excess volatility, endogenous crises and persistent inequalities can emerge naturally from out-of-equilibrium dynamics, without large exogenous shocks. Three generic mechanisms recur: trapping in a multiplicity of history-dependent equilibria; the impossibility of dynamically reaching equilibrium, leading to oscillations and chaos; and the spontaneous evolution towards fragile, marginally stable states -self-organized criticality. These are phenomenological scenarios rather than calibrated theories: there is, at this stage, no "smoking gun", but the burden of proof should be on the equilibrium camp.