INET and my Minsky model

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The Syd­ney Morn­ing Her­ald ran a sto­ry and video on my sim­u­la­tion mod­el “Min­sky” today:

It’s time to put mon­ey into the equa­tion, says pro­fes­sor

This link to the video on the SMH web­site is below:

For the con­ve­nience of over­seas read­ers, I’ve repro­duced the sto­ry and the video below

It’s time to put money into the equation, says professor

(Sto­ry by Gareth Hutchens)

THE glob­al finan­cial cri­sis, the lat­est episode of which boiled over last week, did more than destroy wealth and jobs, or embar­rass the rat­ing agen­cies.

It exposed the malaise with­in the eco­nom­ics pro­fes­sion and the deep flaws in its ortho­dox the­o­ries.

George Soros, the bil­lion­aire financier and phil­an­thropist, was among those who joined the search for new ideas.

Mr Soros fund­ed a new organ­i­sa­tion called the Insti­tute for New Eco­nom­ic Think­ing which for the past two years has hand­ed out mil­lions of dol­lars in grants, fund­ing research projects that look at eco­nom­ics in fresh ways.

This month, the insti­tute gave more than $125,000 to an Aus­tralian. (How­ev­er I’m nei­ther the only nor the first Aus­tralian to get an INET Grant: Leanne Ussh­er, who is now an  Assis­tant Pro­fes­sor of Eco­nom­ics at Queens Col­lege, City Uni­ver­si­ty of New York, received a grant in INET’s first round to study of how dis­tress and growth prop­a­gate through the real econ­o­my via a net­work of inter-firm trade cred­it)

Steve Keen, Asso­ciate Pro­fes­sor of Eco­nom­ics and Finance at the Uni­ver­si­ty of West­ern Syd­ney, has won a grant to turn his mon­ey-based mod­el of the macro-econ­o­my — which draws on the the­o­ries of econ­o­mists such as Hyman Min­sky and John May­nard Keynes — into a com­put­er pro­gram for stu­dents and econ­o­mists.

INET grant recip­i­ents already include Bar­ry Eichen­green, a pro­fes­sor of eco­nom­ics at the Uni­ver­si­ty of Cal­i­for­nia, Berke­ley, and Doyne Farmer, a physi­cist and pro­fes­sor at the San­ta Fe Insti­tute.

Pro­fes­sor Eichen­green is using the grant to “ramp up” pro­duc­tion of econ­o­mists with an under­stand­ing of his­to­ry who can con­tribute to pub­lic pol­i­cy debates. Pro­fes­sor Farmer plans to build a “com­pu­ta­tion­al mod­el” of the finan­cial cri­sis.

Pro­fes­sor Keen says his pro­gram will make it easy to devel­op “dynam­ic” mod­els of the econ­o­my that incor­po­rate mon­ey and debt — some­thing that ortho­dox mod­els do not do.

[About] 99 per cent of eco­nom­ic mod­els assume mon­ey does­n’t exist. They assume you live in a barter sys­tem … That’s why they did­n’t see the finan­cial cri­sis com­ing,” he said.

I’ve worked to find if I can build a tru­ly mon­e­tary mod­el of cap­i­tal­ism … [and] this is prob­a­bly the only dynam­ic mon­e­tary mod­el ever pro­duced.”

Pro­fes­sor Keen says the pub­lic would be stunned to learn that most econ­o­mists use mod­els that ignore mon­ey.

You must have the mon­e­tary dynam­ics of cap­i­tal­ism prop­er­ly incor­po­rat­ed to under­stand cap­i­tal­ism prop­er­ly, so my mod­el starts with banks’ loans and goes from there.”

The point of the pro­gram will be to encour­age econ­o­mists to build eco­nom­ic mod­els that account for the volatile nature of mon­ey, Pro­fes­sor Keen says.

The pro­gram will be giv­en to stu­dents free.

Last year, Pro­fes­sor Keen had to walk from Can­ber­ra to Mount Kosciuszko after los­ing a bet with Rory Robert­son, the then inter­est rate strate­gist for Mac­quar­ie Bank.

Pro­fes­sor Keen had bet in 2008 that Aus­tralian house prices would lose 40 per cent in val­ue in the after­math of the finan­cial cri­sis.

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.