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More debate about who predicted the Great Recession, and lessons learned

9 April 2014

Summary:  The comments on the FM website often have Socratic dialogues, clashing views in the search of truth. Yesterday we had one at the intersection of several of our long-standing themes: debt, deflation, economic theory, making forecasts, and the credibility of experts. Participating was the distinguished economist Steve Keen, discussing if he “predicted” the Great Recession. This is what the Internet could be, if we worked at it.

Raphael: Plato & Aristotle

Group picture taken during the debate (Raphael’s “The School of Athens” (1510)

All the perplexities, confusions, and distresses in America arise, not from defects in their constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation.
— John Adams, letter to Thomas Jefferson, 25 August 1787True then; true today.

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Contents

  1. A dialogue with Keen
  2. About Steve Keen
  3. Paul Krugman looks at Keen’s work
  4. For More Information

(1)  A dialogue with Keen

The opening act: Looking back at claims to have predicted the Great Recession, 8 April 2014

Many economists and financial experts claim to have predicted the Great Recession. That’s important, since these are the people we should be listening to. Oddly, they seldom quote or cite what must be their greatest accomplishment. Let’s look at one such claim, by Steve Keen.

Steve Keen replies (he provided URL’s; I’ve added full citations and sometimes abstracts).


Good grief Maximus,

Why are you even looking at journal papers or book chapters for proof of calling the crisis before it happened? That’s an inherently straw man critique of such claims: have you never heard of publication lags?

My 1995 paper, for example, was written in 1992, and accepted for publication in 1993–and then took two years to turn up in print in the Journal of Post Keynesian Economics.

At worst you should be looking for working papers or monographs, and at best media articles and interviews–because if you think (as I did from December 2005) that a really serious crisis was coming, you don’t bother with the academic production mill with its refereeing and editorial delays. You go for the mainstream media (and of course blogs).

BTW I chose to use Dirk’s Vox paper rather than the work on which it was based because that was an immediate URL rather than link to a PDF as with the paper. If you had checked that –- which you should have, given the claims you’re making here –- then you would have seen this link:  Keen, S. (2006). “The Lily and the Pond“. Interview reported by the Evans {Ed: sic, s/b Evatt} Foundations, 12 December 2006.

The is the story behind Australia’s private debt. It has been growing more than 4% faster than our GDP for 53 years. … It is 147.1% now. If the rate of growth doesn’t slow down, it will crack 150% of GDP by March 2007, and it will exceed 160% of GDP by the end of 2007. We simply can’t keep borrowing at that rate. We have to not merely stop the rise in debt, but reverse it.

Unfortunately, long before we manage to do so, the economy will be in a recession. … So when will this recession begin? On current data, the domestic economy may already be in one.

That’s far from the first such warning I gave of the causes and severity of the crisis I expected (with a focus on Australia since that’s where I live). Here are a few other links for you:

(a) Keen, S. (2006). “The Lily and the Pond“. Interview reported by the Evans {Ed: sic, s/b Evatt} Foundations, 12 December 2006.

The is the story behind Australia’s private debt. It has been growing more than 4% faster than our GDP for 53 years. … It is 147.1% now. If the rate of growth doesn’t slow down, it will crack 150% of GDP by March 2007, and it will exceed 160% of GDP by the end of 2007. We simply can’t keep borrowing at that rate. We have to not merely stop the rise in debt, but reverse it.

Unfortunately, long before we manage to do so, the economy will be in a recession. … So when will this recession begin? On current data, the domestic economy may already be in one.

(b) Why deflation is really possible“, Paul Amery, MoneyWeek, 7 February 2008

(c) Boom in Australia goes bust as global slowdown hits“, USA Today, 28 December 2008

The financial crisis is hitting debt-laden Australians hard. “We’re headed for a recession for the same reason the USA is in one now — the bursting of a debt-financed speculative bubble” … Keen predicts the downturn will unfold a bit differently than it did in the USA, where problems began in the housing market and spread to the broader economy. “We’re likely to go into the macro crisis first as debt growth plummets; then a housing crisis as the newly unemployed are unable to maintain their mortgages; and finally a credit crunch where the banks’ solvency doesn’t look so hot anymore.”

(d) To intervene or not to intervene“, ABC (Australia), 3 November 2008

(e) Holding tight: can Australia ride the storm?“, The Age, 11 October 2008

“I think the comparison (with the Great Depression) is valid and the prognosis is extremely bleak,” suggested Sydney academic Steve Keen this week. … And Steve Keen, a University of Western Sydney lecturer, holds dire views. He has long warned of Australians’ “unsustainable debt addiction”. His latest musings put it this way: “We are not in a Great Depression — not yet anyway — but a key pre-condition for one has developed right under the noses of central banks: excessive private debt.

(f) Economics Meltdown 101“, Reporter: Steve Keen, The Age, sometime in 2008 {Similar content to the (e) article}

(g) Australia facing debt-driven depression“, ABC (Australia), 3 February 2009

The world is facing a “full-blown depression” and Australia needs to drastically rethink its attitude to debt if it is to climb out of its current economic trap, says leading economist Steve Keen.


Prof Keen,

I used that link because it was what you cited. It does not disprove your claim, but does not support it either (as you claimed). Also, as I noted, this shows the crash in US stock and residential home prices — so this is not a case of publication lag.

All that out of the way, thank you for these cites! I looked for an article or blog posts by you following up on your predictions, but could not find it (perhaps limitations of Google, or of my searching skills). I suggest that you write one. Good predictions are too rare to go undocumented, especially amidst all the chaff.

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Debunking Economics

On the FM website past predictions are listed and tracked — the hits and the misses.

I will review these and post an update, and (depending on the results), a follow-up post. Thank you for your prompt comment, especially valuable from one of your prominence.


Keen replies:

You’re welcome Fabius. It is probably worth a post now, since now that the crisis is passing. See

  1. Why the US can’t escape Minsky, 2 April 2014, and
  2. Closing the door on the GFC, Business Spectator, 10 March 2014

{T}his kind of inverse scepticism is actually helping to cement the dominance of the Neoclassical orthodoxy post the crisis they certainly didn’t see coming.


Prof Keen,

(I)  My guess is that the next few years will provide a definitive test for current economic theories, of a magnitude not seen since the 1930s. I have written scores of posts about this, but am unable to even speculate about what lies beyond that transitional period. You are better equipped to write about that, however tentatively. It probably would find a large audience.

(II)  I’ve gone over these (I also added full citation info to your comment). The fall into two groups. Neither supports your claim of predicting the crash.

(1) The first 2 articles were written before the crash, warning in general terms about the dangers of too much debt. These were common as dirt. I’ve written many. Here’s my first: Death of the post-WWII geopolitical regime – death by debt, 8 January 2008. Here are others.

These 2 articles are IMO not predictions of the 2008-2009 downturn. There are unspecific in terms of time, nor do they describe the specific features that turned a commonplace recession into the great recession: especially the collapse of the banks — perhaps the most surprising event.

(2) The other articles were written during or after the crash, more or less commonplace analysis. A few predictions; some correct, some wrong.

A few more comments about the references you gave:

  • (b) The only reference to Keen is to show a graph of long-term debt/gdp growth from his website.
  • (c) This was only partially correct; Australia did not have a housing crisis {not yet}.
  • (d)  This makes no predictions.
  • (g) This one is quite wrong, predicting a depression — written near the trough of the downturn.

Keen replies:

If they were all I had, I might agree with you; and if your warnings had a model of debt deflation like the one below, I might put your calls on equal footing–as you do in your next comment.

Finance and economic breakdown: modelling Minsky’s Financial Instability Hypothesis“, Journal of Post Keynesian Economics, 1995

You’re being a very literal foot-soldier, General, and a lazy one at that. I’ll leave you to your ruminations.


Prof Keen,

(1)  “if your warnings had a model of debt deflation like the one below”

That’s a valid point. As an economist, your warnings of debt were based on your expert analysis. Whereas mine were based on citations of economists’ work (examples about deflation here and here). We’re not on the same level. On the other hand, a prediction is a prediction.

(2)  “You’re being a very literal foot-soldier, General, and a lazy one at that. I’ll leave you to your ruminations.”

(a) Considering the detailed analysis I’ve given to your citations, that seems quite an odd insult.

(b) Insults aside, citing articles written after the crash as evidence of prediction. What can you intend by this? If that is “being a very literal foot-soldier”, then I plead guilty as charged.

(c) That your defense so quickly descends to insults tells us more about you than I.

This is a nice example of a Socratic dialogue (without the booze), cutting through the chaff to the truth. Thank you for participating.


Fabius,

{Y}ou are making a very big call: that I didn’t predict (or warn of) the crisis, when I spent basically my entire life from December 2005 on doing precisely that. There are numerous entries posts on my website that you could have consulted, including documents such as:

Expert opinion, 22 December 2005 — Summary:

I have been asked to provide my expert opinion “as to the consequences or potential impact of the lending typified in Loan 5 on the {Australian} economy generally”. In summary my opinion is …

Deeper in Debt“, Center for Policy Development, 13 December 2007

Australians have an unsustainable debt addiction, which will be hard to kick, and painful to recover from. A new report by CPD fellow Steve Keen has found that in just 18 months time we may be spending as much of the national income on interest payments as we were in 1990 – when interest rates were at 17%.

Australia’s level of irresponsible lending isn’t as high as that which brought on the US subprime crisis, but because our debt to GDP ratio is growing so much faster the impact of any slowdown will be more severe here – and the pain will be much more widely spread.

In ‘Deeper in Debt: Australia’s addiction to borrowed money‘, Steve explains the dynamics of Australia’s debt addiction in clear and accessible language. The paper outlines the probable economic consequences of the end of the debt binge, offers advice on how to cope with the debt hangover, and proposes reforms to prevent it happening again.

You can also see reports on the likelihood of a crisis published by me in PDF form as “Steve Keen’s Debtwatch” since November 2006 by going to this page.

Is it amazing that after all the work I have put in, I get exasperated with people dismissing it on the basis of reading one or two blog posts?


Prof Keen,

(a)  “you are making a very big call – that I didn’t predict (or warn of) the crisis …”

I believe we have a misunderstanding here. Let’s replay the tape.

First, I quote your claim:

One economist often cited as predicting the crisis is Steve Keen (retired Prof Economics, U Western Sydney.). He often makes this claim, most recently (and unusually mildly): Back in the Olde Days, before the global finan­cial cri­sis, when I was one of a hand­ful rais­ing the alarm …”

I examine the article you cite as evidence:  “‘No one saw this coming’ – or did they?“, Dirk Bezemer (Asst Prof Economic, U Groningen), Vox, 30 September 2009 (see the full paper here).

I draw a conclusion from that evidence:

But this was written after the crash (see the figure 9.11, showing the crash in US stock and housing prices).  It’s not evidence that Keen predicted the recession, in any form.

You provide additional supporting evidence,

I examine the new evidence, and draw what seems to be a logical conclusion — You gave two kinds of citation:

(1)  These {group 1} are IMO not predictions of the 2008-2009 downturn. There are unspecific in terms of time, nor do they describe the specific features that turned a commonplace recession into the great recession: especially the collapse of the banks — perhaps the most surprising event.

(2)  The other articles were written during or after the crash, more or less commonplace analysis. A few predictions; some correct, some wrong.

As a social scientist, who understands precise use of language, you must see that your assertion is incorrect. I do not make the global claim you attribute to me: “you are making a very big call – that I didn’t predict (or warn of) the crisis …”.  I examine specific evidence you give as supporting evidence, and draw a conclusion about that evidence.

(b)  “There are numerous entries posts on my website that you could have consulted”

As a scientist you understand the nature of claims, and that your statement is methodologically unreasonable. It’s not my job to search your website to find evidence for your claims when your own offered evidence is insufficient.

(c)  “I get exasperated with people dismissing it on the basis of reading one or two blog posts?”

I get exasperated when people offer material as evidence that is not apropos, and even more so when their defense is to insult me. But let’s get over these petty things and search for common truths.

(d)  Here is my guess at what’s happening here.

You have made substantial contributions to macroeconomic theory regarding the role of debt. That’s a judgement I’m not competent to make, but it seems likely. And the handling of debt is, IMO, the core issue in the paradigm crisis afflicting economics today. As I wrote in October 2008 about the causes of the collapse:

(f)  The Thomas Kuhn-type paradigm crisis in Keynesian economics, by which the world economies have been steered for fifty years.  The aggregate debt level of an economy is not a significant variable {in mainstream economic theory}; attempts to integrate into orthodox theory by radical Keynesians (e.g., Hyman Minsky) were unsuccessful.  Sometime after 2000 we reached and broke though the edge of the “operating envelope” of Keynesian theory.  We ran like Wile E. Coyote off the cliff and beyond — a few exhilarating years — and now we fall.

I am no macroeconomic theoretician, but we have been saying similar things during the past few years.

To gain support for your theory you are claiming to have predicted the great recession. Evaluating such things is subjective, but the materials you have shown in my opinion don’t justify such a claim — except in the sense that thousands of people have predicted a bad end to the debt supercycle (to use the term coined by Hamilton Bolton and Tony Boeckh of Bank Credit Analyst).

It’s an understandable impulse to claim predictions as evidence. It’s one I often have as well. Certainly the events of 2007 – now provide ample supporting evidence for your theory, without the need to make perhaps over-reaching claims which distract attention from you more serious insights.

(e)  I’ll make one more guess, a wild guess: you might be frustrated that your work — and the work of others like yourself — has been and is being ignored by Australia’s policy-makers while Australia’s real estate bubble grows.

Welcome, brother. It’s a feeling I well understand. We’ll make some room for you on the pew. You can tell us your stories about the land down under. Our tales of madness in America will, I expect, top yours.


Keen replies:

On that “welcome brother” comment I can only agree. The capacity of the mainstream to hang on to their ignorance is incredible.


Prof Keen,

This is where Kuhn is helpful. He says that paradigms cannot be disproven, only replaced. That’s a slow process, even when there is a relatively clear replacement available. Kuhn quotes Max Planck’s grim insight:

“A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”

This process can be accelerated by external pressure, such as the Great Depression provided to economics. We might come to that point again.


Keen replies:

To start where I agree, the serious insights and alternative theory matter more than the prediction–and I’m not claiming to be Nostradamus, but to have an alternative theory of capitalism which (as it happens) did enable me to predict that a crisis was inevitable, and the causal factor behind when it would begin–when the rate of growth of private debt slowed–but not the timing of that event.

… I did integrate private debt into non-orthodox theory – that was the core of my 1995 paper – and my warnings of a crisis were based on the dynamics of private debt. A concise statement about that argument (using Australian data) before the crisis is below:

“So how do I jus­tify the stance of a Cas­san­dra? Because things can’t con­tinue as nor­mal, when nor­mal involves an unsus­tain­able trend in debt. At some point, there has to be a break–though tim­ing when that break will occur is next to impos­si­ble, espe­cially so when it depends in part on indi­vid­ual deci­sions to borrow.

How­ever, it is pos­si­ble to quan­tify the min­i­mum impact that the end of the unsus­tain­able might have on the econ­omy: what would hap­pen to aggre­gate spend­ing if pri­vate debt grew no faster than GDP?

Aggre­gate spending – on both com­modi­ties and assets – is the sum of incomes plus the increase in debt. Using GDP as the mea­sure of income, this was $1,001 bil­lion in the last cal­en­dar year. Over the same period, pri­vate debt increased by $202 bil­lion. Aggre­gate spend­ing was thus approx­i­mately $1,200 bil­lion. Pri­vate debt grew by 14.9% in the last year, ver­sus a 7.4% growth in nom­i­nal GDP.

If both pri­vate debt and nom­i­nal GDP were to grow at the same rate as GDP last year, then GDP next year would be $1,075 bil­lion, while debt would rise by $115 bil­lion. Aggre­gate spend­ing would thus be $1,190 billion – or $10 bil­lion less than spend­ing this cal­en­dar year.” (Booming on Borrowed Money, 30 April 2007)

The reason this stuff matters however is that mainstream theory is using the charge that “no-one saw this coming” to support their leaning that “no-one could have seen this coming” – ie that crises like this are unpredictable. That in turn supports the continued dominance of the mainstream. That would do society a great disservice.


Steve Keen

(2)  About Steve Keen

Keen is a retired Associate Professor of Economics and Finance at University of Western Sydney (or retired Professor?). From the Institute for New Economic Thinking:

He has over 70 academic publications on topics as diverse as financial instability, the money creation process, mathematical flaws in the conventional model of supply and demand, flaws in Marxian economics, the application of physics to economics, Islamic finance, and the role of chaos and complexity theory in economics. His work has been translated into Chinese, German and Russian. … his pioneering work on modeling debt-deflation resulted in him winning the Revere Award from the Real World Economics Review for being the economist whose work is most likely to prevent a future financial crisis.

Other details:

  1. His website: Steve Keen’s Debtwatch
  2. His book: Debunking Economics – The Naked Emperor Dethroned? (2011 edition)
  3. His Wikipedia entry
  4. Economist Steve Keen loses housing bet against Rory Robertson“, 3 November 2009 — “The bet was that house prices would tank by 40%.”
  5. His university attacks him for standing up for his students, 29 January 2013

(3)  Paul Krugman duels with Keen

A debate well-worth reading.

  1. Misunderstanding IS-LM (Wonkish and Unimportant)“, Paul Krugman, NY Times, 19 March 2012
  2. Minsky and Methodology (Wonkish)“, Paul Krugman, NY Times, 27 March 2012
  3. Banking Mysticism“, Paul Krugman, NY Times, 27 March 2012 — Second part here.
  4. The Case of Keen“, J. W Mason (Asst Professor Economics, Roosevelt U in Chicago), 1 April 2012
  5. Things I Should Not Be Wasting Time On, Paul Krugman, NY Times, 2 April 2012
  6. Oh, my. Steve Keen edition“, Paul Krugman, NY Times, 2 April 2012
  7. Krugman “Knocked out of Neoclassical Orbit by Steve Keen’s Meteoric Rise!”; Lauren Lyster interviews Keen on Russia Today, 5 April 2012
  8. Explaining Richard Koo to Paul Krugman“, Steve Keen, Debtwatch, 24 June 2013

(4)  For More Information

The other Socratic dialogue with an economist: Ed Dolan discusses Modern Monetary Theory

Posts about debt deflation:

  1. Debt – the core problem of this financial crisis, which also explains how we got in this mess, 22 October 2008
  2. A situation report about the global economy, as the flames break thru the firewalls, 26 January 2009
  3. Inflation or Deflation? Nobody knows what path will we take., 21 July 2009
  4. Economic theory as a guiding light for government action in this crisis, 10 March 2009
  5. Fetters of the mind blind us so that we cannot see a solution to this crisis, 1 April 2009
  6. A lesson from the Weimar Republic about balancing the budget, 10 February 2010
  7. All about deflation, the quiet killer of modern economies, 19 July 2010

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9 Comments leave one →
  1. 9 April 2014 2:37 pm

    Accurate predictions in the social sciences are difficult

    Note that home prices in Australia have skyrocketed even more since Keen lost this bet in 2009. The likely eventual crash will be ugly, but Keen has been predicting this for too many years for the eventual crash to constitute a successful prediction in any operationally useful sense.

    Economist Steve Keen loses housing bet against Rory Robertson“, 3 November 2009 — “The bet was that house prices would tank by 40%.”

    AN ECONOMIST known as the “Merchant of Gloom” will have to walk from Canberra to the top of Australia’s highest mountain after losing a bet about the resiliency of Australian house prices.

    Last November, University of Western Sydney associate professor of economics and finance Steve Keen made a high-profile bet with Macquarie Group interest rate strategist Rory Robertson.

    The bet was that house prices would tank by 40%.

    The loser of the bet would have to make the more than 200km trek from Canberra to the top of Mount Kosciuszko wearing a T-shirt that says “I was hopelessly wrong on house prices! Ask me how.”

    House prices are now at an all-time new high, Mr Robertson said in a statement. …

    Steve Keen's T-shirt

    Like

  2. 10 April 2014 12:57 am

    Firstly I completely concede on house prices–as I said in a recent column, I got the causal mechanism right (acceleration of mortgage debt) but the direction wrong (because Australia didn’t delever as the USA did, and mortgage debt is now accelerating rapidly again). And I didn’t consider the impact of low rates driving up speculation, non-resident buyers, and a stupid government policy that let’s superannuation funds take levered bets on house prices and call it saving for retirement.

    But I’m mainly writing to suggest a change of tack for you Maximus. Whether I called the crisis to anyone’s satisfaction is less relevant than the “did economic theory assist” question. Clearly it did not. As I’ve argued regularly, it took an economics degree NOT to see this crisis coming, because many people fretted about the level and rate of growth of private debt. Only Neoclassical economists, “informed” by the fallacious Loanable a Funds view of money, regarded the growth of private debt as irrelevant.

    So I think that’s a better question than the one you posed — and you could also approach it in a “truth table” manner: scoring 1 for a “generally true” proposition and 0 for a generally false one.

    Starting with the key proposition here: “Economic theory had an explanation of how crisis could occur”. Score 0 for Neoclsssical theory and 1 for anyone following Minsky — since that was his organising principle. Also score 1 for Austrians, since they have one too (which blames the Fed for keeping rates below the “natural rate”, but it’s still a theory).

    And so on.

    Like

  3. doug p permalink
    10 April 2014 1:21 pm

    WOW,

    That is an excellent conversation and worth sharing.

    I wonder what the followers of von MIses, Rothbard etc. will take from it?

    My personal opinion is that you can predict an event, but it is almost impossible to predict the timing. The crisis only occurs when the players change their perceptions, or their operating strategy . And the timing of that can only be predicted after the change has begun and is observable

    .

    Like

  4. 10 April 2014 6:43 pm

    I’ve followed Steve Keen’s work for many years now. One important realization I came to is worth mentioning. I initially thought a good analogy was that Keen was a dynamic modeler while neoclassicals like Krugman were not. So one was using a static equilibrium model as one applies to a bridge for example. In that view, it seemed reasonable to me that a lot could be learned and asserted from a static model. For example static models will tell us the loading on each element in a structure like a bridge. It will tell us how close the bridge is to failure by estimating the design cushion for each component. I thought Keen was complaining that once a component snaps, the static model is useless and one needed a dynamic model to explain events occurring after the static failure. This was very wrong on my part.

    If I may be so bold, what Keen is saying is the macro economy is not static like a bridge. Not even close. It is more like a merry go round. The forces acting to destroy or destabilize such a system are inherently dynamic themselves. Moreover, the pertinent questions as to the safety and stability of the system are largely behavioral. What are the consequences if all riders run to one side of the wheel?

    I hope this clarifies the essence of the debate. Main stream economics rejects the notion that the economy cannot be viewed as a static equilibrium system. To them the economy is like a bridge and as long as it doesn’t break under load it will return to a safe and secure configuration once the dangerous loads are removed. Any dangerous loads are themselves viewed as externalities; oil shocks, technology advances, wars and the like. Dangerous loadings cannot in their view derive from behaviors inside the system itself. Since we have a bridge not a merry go round we need never ask about dynamic interactions between elements of the dynamic system. This is why they fail to predict crisis in the broadest sense.

    Like

    • 11 April 2014 12:26 am

      Peter,

      “If I may be so bold, what Keen is saying is the macro economy is not static like a bridge.

      “…Main stream economics rejects the notion that the economy cannot be viewed as a static equilibrium system. To them the economy is like a bridge and as long as it doesn’t break under load it will return to a safe and secure configuration once the dangerous loads are removed.”

      Can you provide a supporting citation for that awesomely bizarre assertion? That is, an economist who states that belief as his or her own.

      Like

  5. 11 April 2014 3:07 am

    IS-LM is a static equilibrium model. It is predicated on the notion of Loanable Funds, that for every loan there is a saver who provides the necessary capital to fund the loan. These in combination form the essential underpinnings of current macroeconomic orthodoxy. They are both wrong IMO. Krugman would not argue the first point and once he sees where the wind is blowing I believe he will soften his stand on loanable funds. (Indeed he already has).
    Keen has done a good job reviewing the dialectic on the use of static equilibrium models in any context of disequilibrium. Keen has also done a good job of noting the shifting winds regarding the loanable funds assumption. He recently tweeted a top ten list of links showing this shifting dynamic.
    I think you are alluding to the common practice of using IS-LM results to pontificate about the future variance of macro variables. This practice has been derided by the father of IS-LM himself as a rank and unjustified over reach. This kind of pseudo quasi meta dynamics near equilibrium is intellectually bankrupt. If one tried this nonsense in a Physics forum he’d be laughed out of the field. Again Keen has done a good job reviewing all this.
    The fact that use of muddled reasoning promoting macroeconomic mumbo jumbo is a commonplace in this sorry field of endeavor of mainstream economics changes nothing FM. The links already provided combined with a follow of Steve Keen on Twitter is more than enough thread for you to pull on if you care to do so.
    Free. Your. Mind.

    Like

    • 11 April 2014 3:52 am

      Peter,

      When someone asks for citations supporting your assertion, they don’t want you to just make stuff up. When that is in fact your reply, the logical assumption is that this is a waste of time.

      Like

  6. OldSkeptic_2 permalink
    21 April 2014 9:07 am

    This has been great to read and a good discussion all around (plaudits handed out) . As a long time follower of Keen’s work (and I think I was the first to mention him when the GFC hit FM from memory) it still amazes me that dynamic modelling is not the core of modern economics, from a technical sense, however I understand why not from a political sense.

    Moreover the role of the finance industry both as an enabler and a destructor is still constantly ignored. The ideology (or as I call it idiotology) that private debt has no meaning (as it is magically and against all known facts, matched by deposits) is… stupid.

    Keynes was famously skeptical of mathematical modelling of the economy, despite his degree was based on probability theory (so he was no slouch in that area). Rather it was at the time the maths and the computing power to utilise it was not available (as he knew). Sadly too many of the later followers constrained the dynamicism of the economy into the computable models of the time (in the 50s,60s, etc). Thus the theory effectively died, killed by its own followers.

    This left an opening for the, what we now call the neo-liberal economists but really, using the old terms, could be more accurately called the ‘reactionaries’.

    The Rise of the Neo-Liberals

    The neo-liberal (front man Friedman) was (and this is where I disgree with Steve and have told him so on several occasions) fundamentally a political ideology, a reactionary one opposed to the changes in the old, pre WW2 economic and social orders. At the core we all have political economies, the choice between all the infinite possibilities is a political one.

    This was made clear in Friedman’s TV series. I remember watching it on the BBC all that time ago and being horrified as to what he was proposing. With the uncluttered mind of youth it was easy to see that he was pushing propaganda for a particular economic and social order … the one we have now basically. The biggest give away was his admiration of Hong Kong at that time, British dictatorship, economically dominated by a few oligarchs and corporations with no social net (health etc) for people living 5 to a room, but all working real hard…. ‘The Market’.

    His (and his kind) ran into Chile after the overthrow of the Allende Govt (which was genuine experiment in a new form of economy and Govt, see Stafford Beer’s work) and their actions there showed their true colours.

    Of course they have gotten worse over time as corporations, oligarchs, etc realised that this ideoology suited them real fine, so using pocket change, they fund them to push their line of their desired political economy.

    So their work overall is basically propaganda, hence things like “cheating on (eg) the stock market is impossible because the Market God is always right”. This is clear nonsense, humans are humans if there is a way to cheat then they will….But neo-liberal ‘economists’ (and all those think tanks) publish endless screeds of nonsense ‘proving’ this is impossible.

    Including this, which doesn’t even pass the ‘laugh test': that investing humans can see into the future perfectly and see all the possibilities and deal with it, therefore no one can cheat, since everyone else has foreseen that and already, now, adjusted for it so the cheaters lose’. That is an accurate depiction (and compression) of the ideology behind allowing financial criminal behaviour. Pages of (dodgy, very, very dodgy) math to back it up of course…..

    Obviously the human race are all Time Lords (well the ‘Good’ ones are) ……..

    Neo-Liberal Political Economic Core Value

    At it’s core is a quite simple ideology, the catch cry of monopolists, oligarchs, landed gentry, rentiers, et al, through all time.

    “Those who have wealth are Good (work harder, more intelligent, better genetically, et al) therefore they deserve more.

    They are Good because they have wealth, which you can have only if you are Good.

    Those who don’t have wealth are Bad (lazy, stupid, genetically inferior, etc) and deserve less. because they are Bad.

    Because if they get something that means the Good person doesn’t, so you are stealing from those Good people”.

    How often have you heard that line under different disguises?

    That ideology won in the late 70’s/early 80s (no surprises, in the US and UK first, two of the most reactionary countries around) and just about all the western Govts have been implementing it as fast as they politically can ever since.

    So we now have today, which is the Oligarch paradise. And they wont stop, until they hang from the lampposts that is, why should they? Everything in most places, led by the US, that they do is good for them, the ‘little, and Bad, people’ don’t count (re that paper I sent you recently). Well until the ‘lamppost’ thing happens.

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