# Why do economists fail to predict crises? | Jakub Jedlinský | TEDxVSE University Source: https://www.youtube.com/watch?v=gHxeP5yUJGo Recap page: https://rapidrecap.app/video/gHxeP5yUJGo Generated: 2025-12-10T16:51:36.468+00:00 --- ## Quick Overview Economists fail to predict crises because standard neoclassical models rely on assumptions of stable equilibrium, which are contradicted by dynamic system theories from Schumpeter, Minsky, and Keen, who argue that instability and change are inherent to the market, as demonstrated by the speaker using props like a bird model and a jar of water to illustrate how small external shocks can lead to systemic failure when the system is inherently unstable. **Key Points:** - Economists often fail to predict crises because their standard models assume a stable equilibrium, which is not representative of real-world economic dynamics. - The speaker advocates for a dynamic approach rooted in the work of Joseph Schumpeter, Hyman Minsky (Financial Instability Hypothesis), and Steve Keen, who recognize that instability and change are inherent features of the market. - The speaker demonstrated instability using a boomerang-like bird model that returns to its origin and a jar of water balanced precariously on the edge of a table, showing how a small external shock (a 'nudge') disrupts equilibrium. - Minsky's theory suggests that periods of stability lead to speculative investing and increased indebtedness (represented by moving beads on an abacus), which eventually causes the system to overheat and crash. - The speaker noted that while Warren Buffett and George Soros employ different strategies, both understand the market relies on disequilibrium rather than stable equilibrium. - The 2008 credit crunch was predictable using dynamic modeling (like the predator-prey cycle analogy shown on screen) that accounts for feedback loops and momentum, unlike static neoclassical methods. - The failure to predict crises is systemic, as mainstream economic models are built on equilibrium assumptions that ignore inherent instability and the possibility of large, unpredictable events ('Black Swan events'). ![Screenshot at 00:17: The speaker demonstrates the principle of instability using a boomerang-like object that returns to its original launch point even after being thrown, illustrating how systems naturally seek equilibrium unless acted upon by an external force.](https://ss.rapidrecap.app/screens/gHxeP5yUJGo/00-00-17.png) **Context:** Jakub Jedlinský delivers a TEDx talk titled "Vision from Theory: Why do economists fail to predict crises?" at TEDxVSE University, arguing that the standard, equilibrium-based models used by most mainstream economists are fundamentally flawed for predicting financial instability. He contrasts this approach with dynamic system theories, referencing influential thinkers like Joseph Schumpeter, Hyman Minsky, and Steve Keen, who emphasize that instability and change are intrinsic to economic reality, not external anomalies. ## Detailed Analysis Jakub Jedlinský argues that economists consistently fail to predict crises because their prevailing models, rooted in neoclassical economics, assume market stability and equilibrium. He posits that this assumption is fundamentally wrong, contrasting it with the dynamic, evolutionary views of Joseph Schumpeter, Hyman Minsky (Financial Instability Hypothesis), and Steve Keen. Jedlinský uses physical demonstrations to illustrate instability: first, a bird model that flies out and returns to its starting point, showing that stability is the natural state unless disturbed. Second, he uses a jar of water balanced on a table's edge, explaining that a slight nudge will cause it to fall, emphasizing that systems in equilibrium are fragile to small shocks. He further illustrates the risk in financial markets using a large abacus, where speculative investors (represented by moving beads) increase debt and asset prices, eventually leading to an unsustainable situation where cash flow cannot cover interest payments, resulting in liquidation and collapse (a crash like a house of cards). He points out that investors like Warren Buffett and George Soros succeed because they embrace disequilibrium, contrasting this with the static models taught in most universities. He references the 2008 credit crunch as an example of a predictable crisis if dynamic modeling techniques, which account for momentum and feedback loops, had been employed instead of static equilibrium assumptions. The failure to predict is therefore a failure of the underlying methodology, which ignores the inherent tendency for instability. ### Demonstrating Instability - Bird model flies out and returns to origin - Jar of water on table falls with a slight nudge - Equilibrium is inherently fragile ### Economic Instability Analogy - Abacus used to model debt accumulation from speculative investors - Cash flow fails to cover interest payments when prices stop rising - Leads to liquidation and market crash ### Theoretical Underpinnings - Cites Schumpeter, Minsky (Financial Instability Hypothesis), and Steve Keen - Contrasts their dynamic approach with static neoclassical equilibrium models ### Predicting Crises - Mainstream models fail to predict crises like 2008 because they ignore inherent instability and momentum - Dynamic models, like predator-prey cycles shown on screen, can predict these events ### Investor Wisdom - Successful investors like Buffett and Soros understand and exploit market disequilibrium, not stability ![Screenshot at 00:04: Speaker Jakub Jedlinský introduced with the talk title: "vision from theory: Why do economists fail to predict crises".](https://ss.rapidrecap.app/screens/gHxeP5yUJGo/00-00-04.png) ![Screenshot at 00:16: Speaker demonstrates the boomerang-like bird model, explaining that it returns to its origin, symbolizing a system seeking equilibrium unless disturbed.](https://ss.rapidrecap.app/screens/gHxeP5yUJGo/00-00-16.png) ![Screenshot at 00:54: Speaker gestures toward a jar of water balanced on the edge of a table to illustrate how a small external shock \(a 'nudge'\) can lead to total collapse.](https://ss.rapidrecap.app/screens/gHxeP5yUJGo/00-00-54.png) ![Screenshot at 03:33: Speaker uses a large abacus with three colored rows \(yellow, light green, dark green\) to represent debt, investment, and cash flow in the real estate market.](https://ss.rapidrecap.app/screens/gHxeP5yUJGo/00-03-33.png) ![Screenshot at 10:22: Screens display portraits of economists Joseph Schumpeter, Hyman Minsky, and Steve Keen, illustrating the intellectual lineage supporting dynamic economic theory.](https://ss.rapidrecap.app/screens/gHxeP5yUJGo/00-10-22.png)