Modern Economy and Reconsideration of the Equilibrium Assumption

Is it possible to reconstruct "effective" economics?

Abstract

The market autonomously finds an equilibrium where supply and demand meet by using price as a signal —this is "invisible hand" of Adam Smith who is called as "father of economics." However, has the very power of this doctrine, particularly due to its underlying assumption of equilibrium achieved by nominal variables, prevented economists from directly confronting the realities of the modern economy?
This paper reinterprets economic phenomena that traditional models have failed to capture as the "dynamic equilibrium," where the stability is maintained by the interaction with internal characteristics of economic agents such as preference structures and external environments like capital transfer. Among the various mathematical expressions derived from the model, perhaps the most crucial is the following:
R_t-ρ=n+D_a-(U_(θa)θ)/U_c
This means that the discrepancy between the return on assets R_t and the time preference rate ρ (on the left side of the equation) is balanced by two forces on the right side. One is the force of keeping capital within the economy (the marginal utility of assets compared to consumption (U_(θa)θ)/U_c ) and the other is to promote its diffusion or dilution externally (capital outflow D_a and population growth n). Kinds of economics has been likely to focus on the left-hand side of this equation to discuss the situation of economies, but this paper argues that it should also be understood from the perspective of its right-hand side.
If the time preference rate is an inherent and entrenched characteristic of economic agents, an economy with a relatively lower time preference rate will have a funds surplus, but a certain portion of this surplus will be balanced by capital outflow or a weak preference for assets, so the decline in the real interest rate will be limited. Conversely, an economy with a relatively higher time preference rate will face a funds deficit, but a certain portion of this deficit will be balanced by capital inflow or a strong preference for assets, so the rise in the real interest rate will be suppressed. The balance between these two forces—the power to generate and retain assets within an economy and the power to diffuse them externally and promote equalization—will generate and maintain differences in asset levels, capital transfer from one economy to another, supply-demand imbalances and income inequalities even if agents are rational and markets are efficient.
Through these insights, I reinterpret the disequilibrium phenomena facing modern economies as a result of the rational behavior of economic agents and offer clues for more effective macroeconomic policies.