Mark Setterfield Presents Distinguished Maloney Economics Lecture

Integrating Real and Financial Forces an Important Factor in Study of Growth and Crises

​Mark Setterfield, Maloney Family Distinguished Professor of Economics at Trinity College, delivered his inaugural lecture December 3 to an appreciative audience in the McCook Auditorium at Trinity. Entitled “Growth and Crisis: A Multi-Agent System Approach,” the presentation centered on an ongoing research project on which Setterfield has collaborated with Bill Gibson, John Converse Professor of Economics at the University of Vermont.

From left to right: Dean of Faculty Rena Fraden; President James F. Jones, Jr.; Jennifer MacDonald; Mark Setterfield, Maloney Family Distinguished Professor of Economics; Kevin J. Maloney '79; Leslie Warner-Maloney; Erik Maloney; and Laura Maloney.  Photo: Nick Lacy.

Setterfield, who joined the Trinity faculty in 1992, is chair of the College’s Department of Economics. In addition, he is an associate member of the Cambridge Centre for Economic and Public Policy at Cambridge University (UK), a senior research associate at the International Economic Policy Institute, Laurentian University (Canada), and a member of the Centre d’Économie de l’Université Paris Nord (CEPN) at l'Université Paris XIII (France). His main research interests are macrodynamics (with a particular focus on the development and application of concepts of path dependence) and Post-Keynesian economics. He is co-editor of the newly released After the Great Recession: The Struggle for Economic Recovery and Growth (Cambridge University Press, 2013), author of Rapid Growth and Relative Decline: Modelling Macroeconomic Dynamics with Hysteresis (Macmillan, 1997), editor or co-editor of six other volumes of essays, and has published in numerous journals including the Cambridge Journal of Economics, Journal of Post Keynesian Economics, European Economic Review, and The Manchester School.

Setterfield began his lecture with an overview of previous literature on growth and crisis, which he described as well-established themes in economic theory with obvious contemporary relevance. Traditionally, models for studying economic systems are articulated in diagrams and equations. Since the early 1990s, however, the multi-agent systems (MAS) or agent-based modeling approach has provided an alternative framework, albeit still in its infancy, for studying economies. The use of computer programs for modeling opens up limitless opportunities for study in this field. However, the more complicated the model, he noted, the more difficult it can be to interpret the output.

His presentation introduced the audience to a MAS model of real and financial sector interaction in which heterogeneous firms depend on the financial sector for the intermediation and money creation necessary to facilitate their investment spending. Investment spending, in turn, drives growth and profitability in the real sector, which affects the sentiment of heterogeneous “traders” in the financial sector and hence their willingness to finance investment and buy financial assets. Setterfield ran the computer model, projecting constantly flashing lights of economic activity on a large screen, to show the model tracking the creation of demand, productive capacity, and financial wealth in the economy.

The MAS model and related research Setterfield and Gibson have developed, with which Trinity students have assisted, permits study of the effects of different financial network structures and monetary regimes on the performance and resilience of the economy – i.e., its capacity for growth, and its propensity to encounter crisis.

Although Setterfield’s presentation was of special interest to professionals and research students in the fields of macroeconomics and monetary economics–particularly those with an interest in the Post Keynesian approach to analyzing these fields–he went out of his way to present his talk in such a way that beginners could understand the research project in broad strokes.

The important research question involved, said Setterfield, is how do real and financial forces combine to affect performance and resilience?  The ultimate conclusion, he shared, is that [troubled economies] “can emerge, but not necessarily from the size and connectedness of financial firms. Firm conduct, not financial market structure, undermines economic performance and this should be the focus for policy makers.”  A key takeaway, he noted, was that stand-alone models of the real or financial sectors can be misleading. It is important to integrate both sectors to successfully study growth and crises. 

The Maloney Family Distinguished Professorship of Economics Fund was endowed in 2008 by gifts from Leslie Warner-Maloney and Kevin J. Maloney, Trinity Class of 1979, supporting Maloney Distinguished Professors and their focus on teaching and research on topics of global economic significance. Maloney is senior managing director at Gottex Fund Management, one of the largest independent alternative asset managers in the world.  He received his B.A. at Trinity College in economics, and received his M.A. and Ph.D. in finance and economics from Washington University. He served as a professor of finance and economics at the Amos Tuck School of Business at Dartmouth College from 1983 through 1995, before joining the private sector. Maloney served Trinity College as a member of its Board of Fellows 2005-2011 and currently serves as a Trustee. The Maloneys own Savaria Dance Studio in Norwood, MA, where Warner-Maloney is president. They reside in Westwood, MA, and have three children: Shannon (Maloney) Redmon, Laura Maloney, and Erik Maloney. 

The inaugural lecture was attended by The Maloneys and two of their children, Laura and Erik, as well as President James F. Jones, Jr., Dean of Faculty Rena Fraden, Trinity administrators, faculty, and students, and members of the general public. Fraden, who praised Setterfield’s “prodigious research,” in introductory remarks, described him as the College’s “go-to-guy on how we got into the Great Recession—and how we might get out of it.”

The Maloney Family Distinguished Professorship of Economics is one of 14 new endowed faculty chairs/professorships established during Trinity’s six-year Cornerstone and Legacy Campaigns, which closed June 30, 2012. The College will continue to build support for endowed faculty chairs/professorships, which make it possible for Trinity to recruit and retain exceptional faculty members.

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