Krugman Apologises!

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Sorry, that was a belated April Fool's joke. He hasn't, of course—though there has been an apology of sorts from Nick Rowe, which is duly noted and accepted.

The best Krugman could manage is the following update to his original diatribe "Oh My, Steve Keen Edition“:

Update update: Ah, so Keen didn’t mean DSGE — a term that refers only to New Key­ne­sian mod­els — when he said DSGE; he meant New Clas­si­cal, which he some­how regards as the under­ly­ing prin­ci­ples for mod­els that aren’t New Clas­si­cal at all. OK. Any­way, enough of that. I’m all for lis­ten­ing to heretics when they offer insights I can use, but I’m not find­ing that at all in this con­ver­sa­tion, just word games and con­tin­ual insis­tence that the mem­bers of the sect have insights denied to us lesser mor­tals. Time to move on.

Gee, thanks Paul. So I’m play­ing word games, am I—and you’re not? Let’s take a closer look.

Click here for this post inPDF

Mark­ing Krugman

Paul, your com­pre­hen­sion of my piece failed on at least two counts.

Fig­ure 1: Krugman’s Last Word

Firstly, in the excerpt you quote, I refer to “under­ly­ing prin­ci­ples to the DSGE mod­els that now dom­i­nate Neo­clas­si­cal macro­eco­nom­ics”. Some­how you read that as being a state­ment about “about New Key­ne­sian mod­els”.

No it wasn’t Paul: I was refer­ring to the gen­eral class of post-IS-LM neo­clas­si­cal mod­els, which includes the “Fresh­wa­ter” New Clas­si­cal mod­els about which you have made such a song and dance in the past—contrasting their unre­al­ity and con­ser­vatism with your real­is­tic pro­gres­sive­ness. Remem­ber “Fresh­wa­ter Rage”, “How did Econ­o­mists get it so wrong?” or “Dis­agree­ment among econ­o­mists”? You might dis­like them Paul, but they’re your Neo­clas­si­cal cousins, and it was their “pure” the­ory, which forms the foun­da­tion for your NK mod­els, to which I referred in that excerpt.

Yes, I know that Mark Thoma claimed in a Tweet that New Clas­si­cal mod­els weren’t DSGE models—and that by impli­ca­tion, DSGE was reserved for NK mod­els exclu­sively and there­fore my Fail grade was wrong. I’ll get to that later.

Sec­ondly, directly below the sec­tion you quote, I con­tin­ued as follows:

If that were actu­ally the real world, then not only would there not be a cri­sis now, there would never have been a Great Depres­sion either—and reces­sions would sim­ply be minor sta­tis­ti­cally unpre­dictable but inevitable events when the major­ity of shocks hit­ting the econ­omy were neg­a­tive, and they would rapidly be resolved by adjust­ments to rel­a­tive prices (wages included, of course).

So econ­o­mists like Krugman—who describe them­selves as “New Keynesians”—have tweaked the base case to derive mod­els that “ape” real-world data, with “sticky” prices rather than per­fectly flex­i­ble ones, “fric­tions” that slow down quan­tity adjust­ments, and imper­fect com­pe­ti­tion to gen­er­ate less-than-optimal social outcomes.

This is Ptole­maic Eco­nom­ics: take a model that is utterly unlike the real world, and which in its pure form can’t pos­si­bly fit real world data, and then add “imper­fec­tions” so that it can appear to do so.

So Paul, not only did I dis­tin­guish between NC mod­els and NK ones, I even men­tioned you by name in that sec­tion as some­one who has added imper­fect com­pe­ti­tion, sticky prices and so on to that base NC model. And yet you implied that I was a moron who didn’t even know that NK mod­els include imper­fect com­pe­ti­tion, sticky prices and so on—and you won­der why you got a Fail?

Oh all right, yes I’ll con­sider Thoma’s argu­ment. I see that’s what you’re claim­ing in your attempt to weasel out of an apology:

so Keen didn’t mean DSGE — a term that refers only to New Key­ne­sian mod­els — when he said DSGE

Fig­ure 2: Thoma’s Tweet

So you and Thoma believe that DSGE mod­els exclu­sively refer to NK mod­els? Frankly I think that’s like a wrin­kled pea claim­ing that it’s unre­lated to a smooth one: they’re still both peas. And the Wikipedia entry on DSGE mod­els—which I’m sure has been checked over pretty care­fully by fans of Neo­clas­si­cal economics—makes no such dis­tinc­tion. In fact, it treats RBC/NC and NK as schools of DSGE mod­el­ling, pre­cisely as I do:

Schools of DSGE modeling

At present two com­pet­ing schools of thought form the bulk of DSGE mod­el­ing.[1]

Real busi­ness cycle (RBC) the­ory builds on the neo­clas­si­cal growth model, under the assump­tion of flex­i­ble prices, to study how real shocks to the econ­omy might cause busi­ness cycle fluc­tu­a­tions. The paper of Kyd­land and Prescott (1982) is often con­sid­ered the start­ing point of RBC the­ory and of DSGE mod­el­ing in gen­eral.[2] The RBC point of view is sur­veyed in Coo­ley (1995).

New-Keynesian DSGE mod­els build on a struc­ture sim­i­lar to RBC mod­els, but instead assume that prices are set by monop­o­lis­ti­cally com­pet­i­tive firms, and can­not be instan­ta­neously and cost­lessly adjusted. The paper that first intro­duced this frame­work was Rotem­berg and Wood­ford (1997). Intro­duc­tory and advanced text­book pre­sen­ta­tions are given by Galí (2008) and Wood­ford (2003). Mon­e­tary pol­icy impli­ca­tions are sur­veyed byClar­idaGalí, and Gertler (1999).” (Wikipedia Entry)

So I won’t accept Thoma’s excuse for your behaviour—and nor do some of his own fol­low­ers, judg­ing by his sub­se­quent Tweets.

Fig­ure 3: Thoma’s sub­se­quent Tweets

You should also read that Wikipedia entry, by the way—it includes some crit­i­cisms of DSGE mod­el­ling by your senior Robert Solow that you clearly haven’t paid atten­tion to (Robert M. Solow, 2003, 2001, 2008). I know you don’t like read­ing what other peo­ple write—“I Don’t Care” I think you said—but that’s why you make mis­takes like the one you’ve made here. Since I know from your past form that my advice here is prob­a­bly falling on deaf ears, here’s Solow as quoted in the crit­i­cal sec­tion of the Wikipedia entry. At least read that; I’ll wait:


The United States Con­gress hosted hear­ings on macro­eco­nomic mod­el­ing meth­ods on July 20, 2010, to inves­ti­gate why macro­econ­o­mists failed to fore­see the Finan­cial cri­sis of 2007–2010Robert Solow blasted DSGE mod­els cur­rently in use:

I do not think that the cur­rently pop­u­lar DSGE mod­els pass the smell test. They take it for granted that the whole econ­omy can be thought about as if it were a sin­gle, con­sis­tent per­son or dynasty car­ry­ing out a ratio­nally designed, long-term plan, occa­sion­ally dis­turbed by unex­pected shocks, but adapt­ing to them in a ratio­nal, con­sis­tent way… The pro­tag­o­nists of this idea make a claim to respectabil­ity by assert­ing that it is founded on what we know about micro­eco­nomic behav­ior, but I think that this claim is gen­er­ally phony. The advo­cates no doubt believe what they say, but they seem to have stopped sniff­ing or to have lost their sense of smell alto­gether.’ (Solow’s state­ment to Con­gress, July 2010)

Now stop com­plain­ing about the mark: frankly, get­ting a fail for this essay is the least of your wor­ries. You seem to have alien­ated a large part of your peer group by this behaviour—who are you going to have lunch with after this per­for­mance? Butta­fuc­cin­who (yes, his nick­name sounds rude, but at present you’re in no posi­tion to accuse some­body else of rude­ness), for exam­ple, seems unlikely to ever want to play ball with you again:

I’m cer­tainly not in a posi­tion to deter­mine who’s right and wrong, and frankly don’t really care, but did you even read Keen’s post? Two para­graphs below the part you excerpted: “So econ­o­mists like Krugman—who describe them­selves as “New Keynesians”—have tweaked the base case to derive mod­els that “ape” real-world data, with “sticky” prices rather than per­fectly flex­i­ble ones, “fric­tions” that slow down quan­tity adjust­ments, and imper­fect com­pe­ti­tion to gen­er­ate less-than-optimal social outcomes.”

Is there a four-letter word for some­one crit­i­cizes another per­son in a very pub­lic forum with­out read­ing what they’ve writ­ten? Or would a seven-letter word fit bet­ter? (Butta­fuc­cin­who)

No, that isn’t all. I believe your gang calls itself “New Key­ne­sian”, doesn’t it?

Well I am going to ban you from using that term in future: find another one.

Why? Well, for starters, the Post Key­ne­sian gang claims that you’re den­i­grat­ing their gang by claim­ing to be related to them, when you’re not. And I’ve done a bit of Tal­mu­dic research and found that they’re right: the SLIME model you use—what? Oh, sorry, yes I meant IS-LM, my apologies—anyway, the IS-LM model wasn’t devel­oped by Keynes at all.

Yes, I know you know it was devel­oped by Hicks, but it wasn’t as an inter­pre­ta­tion of Keynes—it was a “Wal­rasian” model devel­oped before Hicks had read Keynes at all. Look, Hicks says so right here:

that model was already in my mind before I wrote even the first of my papers on Keynes.’ (John Hicks, 1981, p. 140; empha­sis added)

And he also traces the model to Wal­ras, not Keynes

the idea of the IS-LM dia­gram came to me as a result of the work I had been doing on three-way exchange, con­ceived in a Wal­rasian man­ner. I had already found a way of rep­re­sent­ing three-way exchange on a two-dimensional dia­gram (to appear in due course in chap­ter 5 of Value and Cap­i­tal). As it appears there, it is a piece of sta­t­ics; but it was essen­tial to my approach (as already appears in “Wages and Inter­est: the Dynamic Prob­lem”) that sta­tic analy­sis of this sort could be car­ried over to “dynam­ics” by rede­f­i­n­i­tion of terms. So it was nat­ural for me to think that a sim­i­lar device could be used for the Keynes the­ory.’ (Hicks 1981, p. 141–142)

So at best,you’re a Hick­sian econ­o­mist. But actu­ally, even that won’t do, because Hicks dis­owned IS-LM in that same paper, on the basis that macro­eco­nom­ics can’t be mod­elled as an equi­lib­rium process:

I accord­ingly con­clude that the only way in which IS-LM analy­sis use­fully survives—as any­thing more than a class­room gad­get, to be super­seded, later on, by some­thing better—is in appli­ca­tion to a par­tic­u­lar kind of causal analy­sis, where the use of equi­lib­rium meth­ods, even a dras­tic use of equi­lib­rium meth­ods, is not inappropriate…

When one turns to ques­tions of pol­icy … the use of equi­lib­rium meth­ods is still more sus­pect. … There can be no change of pol­icy if every­thing is to go on as expected—if the econ­omy is to remain in what (how­ever approx­i­mately) may be regarded as its exist­ing equi­lib­rium. It may be hoped that, after the change in pol­icy, the econ­omy will some­how, at some time in the future, set­tle into what may be regarded, in the same sense, as a new equi­lib­rium; but there must nec­es­sar­ily be a stage before that equi­lib­rium is reached. There must always be a prob­lem of tra­verse. For the study of a tra­verse, one has to have recourse to sequen­tial meth­ods of one kind or another.’ (Hicks 1981, p. 152–153)

So I think you could call your­self some­thing like “Old Hick­sians”; that would be OK. Or maybe “New Wal­rasians” when you do that DSGE thing.

Yes, I know you don’t like either of those names. But, to coin a phrase, “I Don’t Care”.


Hicks, John. 1981. “Is-Lm: An Expla­na­tion.” Jour­nal of Post Key­ne­sian Eco­nom­ics, 3(2), 139–54.

Solow, Robert M. 2003. “Dumb and Dumber in Macro­eco­nom­ics,” Festschrift for Joe Stiglitz. Colum­bia University:

____. 2001. “From Neo­clas­si­cal Growth The­ory to New Clas­si­cal Macro­eco­nom­ics,” J. H. Drèze, Advances in Macro­eco­nomic The­ory. New York: Palgrave,

____. 2008. “The State of Macro­eco­nom­ics.” The Jour­nal of Eco­nomic Per­spec­tives, 22(1), 243–46.



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.
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127 Responses to Krugman Apologises!

  1. NeilW says:

    Kam­bridge Kon­tro­versy — round 2

    Sec­onds out.

  2. alainton says:

    Good luck at LSE tonight — sorry will miss live broad­cast as speak­ing at another event. Though frankly get­ting pissed with a bunch of Lon­don cre­ative types at Cany Ash, beats hav­ing to be in the same space as the neo-con lse econ­o­mists like Tim Leu­nig and Henry Over­man any day.

    Alas will fall on deaf ears — Krug­mans final word seems to be ‘talk to the hand’ ‘show me the money, show me the money’

  3. Bhaskara II says:

    Every­thing reminds Mil­ton Fried­man of the money sup­ply. Every­thing reminds me of sex, but I try to keep it out of my papers.”

    –Robert Solow Quoted in you Wiki Link.

  4. Bhaskara II says:

    Would you please include the ques­tion and answers in the videos. In addi­tion to your talks, the ques­tions and answer parts are also very interesting.

  5. Frank says:

    I won­der why sud­denly all the cog­ni­tive load and [neg­a­tive] atten­tion in the run up to these pre­sen­ta­tions at INET and LSE?

    Frankly, these debates are a waste of time. Until the likes of Krug­man et al actu­ally do some obvi­ous things, such as:
    a) Con­sult the evi­dence
    b) Ask risk man­age­ment and cred­its man­age­ment chiefs at com­mer­cial banks exactly what affects their deci­sion making

    it’s all dogma. You can sit and debate until your blue in the face, but what’s the point?

  6. Steve Hummel says:

    The­ory IS impor­tant. If you never stop uti­liz­ing flawed the­ory you’re off course from the get gat. Of course my main com­plaint is that econ­o­mists fail to con­sult the under­ly­ing phi­los­o­phy of the sci­ence itself which has lead to sev­eral cen­turies of Human­ity serv­ing the eco­nomic sys­tem. If they would real­ize that the truest and most pri­mary pur­pose of the eco­nomic sys­tem was to facil­i­tate the meet­ing of goods and ser­vices with con­sumers instead of profit or work.….we’d be well on our way toward revers­ing that relationship.

  7. RickW says:


    Just to let you know you have another viewer.

    I am con­fi­dent that Steve’s Min­sky model will pro­vide nec­es­sary insight on the best levers to tweak in an eco­nomic sys­tem that has debt-based money.

    I am grad­u­ally get­ting an under­stand­ing of what is wrong with the cur­rent reserve bank sys­tem and I can appre­ci­ate the frus­tra­tion that Steve has in get­ting other econ­o­mists under­stand his work.

    Reserve banks, focused on employ­ment and prices, have been obliv­i­ous to ris­ing pri­vate debt. Its con­tri­bu­tion to demand, par­tic­u­larly on the soft tar­get of hous­ing, has hid­den struc­tural flaws in devel­oped economies that will take decades to rec­tify. Finan­cial­i­sa­tion of the US econ­omy is suck­ing the life out of it. Coun­tries in Europe have given sov­er­eignty to the banks — it is a dis­as­ter slowly unfolding.

    Steve should be flooded with sup­port to get Min­sky up and run­ning to include all key sec­tors in the tan­gi­ble econ­omy. Then maybe expand to the intan­gi­ble so that too is not a desta­bil­is­ing factor.

    As adverse as Steve’s insights can be for some it has been lib­er­at­ing for me because they give clear under­stand­ing of how things are unfold­ing. His insights are based in sci­en­tific method not unreal assumptions.

    You would think the least inquis­i­tive econ­o­mist would be delv­ing deeply into Steve’s work to grasp how he could be so accu­rate with his fore­cast­ing of debt­de­fla­tion. The con­so­la­tion for me in all of this is my poor mark in Eco­nom­ics 101 in my busi­ness degree. The wishy/washy “maths” did not gel with an engi­neer so I just regur­gi­tated what was wanted to pass. So to find an econ­o­mist using the math­e­mat­i­cal pre­ci­sion needed for the task is refresh­ing. In due course many more will recog­nise what Steve has achieved.

  8. Endless says:

    Wood and trees! The gen­eral con­sen­sus on the feed­back under Krugman’s post seemed to be that he was in fact in error. The dam­age had been done.

    In the end, Krug­man refers to you as a heretic, which is of course is fair accu­sa­tion, for in his eyes we are talk­ing reli­gion not sci­ence (how­ever, loosely described). Facts ain’t going to help him shift faith…

    Not sure you carry the masses with this lat­est post, apart from some aca­d­e­mic point scor­ing. You had a wide audi­ence there for a while thanks to Krug­man, be a shame to turn them off.

  9. alainton says:

    An aside now the row is over, and irre­spec­tive of the mer­its of the case

    Argu­ing on the inter­net is like Boris John­son and Ken Liv­ing­stone being stuck in a lift together — there is no place to hide — and four let­ters words come freely.

    Believe it or not there is some­thing called ‘polite­ness the­ory’ and it was even invented by a cou­ple of aussie anthropologists.

    Its all about ensur­ing you argue the logic of the case with­out ensur­ing that your pro­tag­o­nist does not loose face and dam­age social relations..

    The clas­sic exam­ple is the Ricardo Malthus cor­re­spon­dence — peo­ple have writ­ten long trea­tises on the log­i­cal struc­ture of polite argu­ment in this epic cor­re­spon­dence (though of course snail mail meant that the­o­ret­i­cal argu­ments took a decade). At one point Ricardo wrote to Malthus on a din­ner in Here­ford where Joseph Hume Mp (who Ricardo con­sid­ered a loud drunken bore) was to be pre­sented with a hogshead of cider — rather than express­ing this directly how­ever
    ’I hope every­thing will be con­ducted in an orderly and peace­able man­ner. I have a great aver­sion to a row. ’

    Less than a decade ear­lier resolv­ing rows through pis­tols at dawn was com­mon, even for prime min­is­ters. The incred­i­ble polite­ness of this Jane Austin Age was a reac­tion against the blood­thirsty and wild regency period when whole estates were lost bet­ting on races of bee­tles and din­ner par­ties could become bac­ci­na­lian orgies last­ing a week.

    Eti­quette arose to serve this pur­pose (as well as because of snobby fash­ion) and Here­ford Hall today is where the Eti­quette school used in ‘lad­dette to lady’ (on the tele now) is based.

    Of course Krug­man would have in effect said, hey I cant be both­ered to open the let­ter, so here’s a rude post­card back on what I thinks inside — but you get the point.

  10. Steve Hummel says:

    His­tory is replete with heretics ensconced in pan­theons. What we need in eco­nom­ics and money sys­tems, besides and even more than sci­ence is not reli­gion, but spir­i­tu­al­ity. We need that in every­thing in a joy­ous and thor­ough­go­ing way in fact.

    A wise man once said that the inten­tion to be right is the strongest force in the uni­verse, and that is why even though it might be a momen­tar­ily nec­es­sary thing to address the Krug­mans, the Gary Norths or their social­ist coun­ter­parts its ulti­mately non-productive because it only makes the adage that Steve cor­rectly espouses that “sci­ences advance one funeral at a time” more of an iron law. Bet­ter to fuse eco­nomic sci­ence and spir­i­tu­al­ity (not reli­gion) and take that mes­sage to the peo­ple with whom it might actu­ally resonate.…like the mass of indi­vid­u­als who are still the effect of uncon­scious slav­ery even amidst sup­posed plenty.

    I’ll end this lit­tle vignette with the hereti­cal dec­la­ra­tion that the quan­tity the­ory of money and the veloc­ity of its “cir­cu­la­tion” is a myth so far as monies directed at retail sale are con­cerned. So all you have to do to pos­i­tively change the con­sumer finan­cial par­a­digm from account­ing con­ven­tion scarcity to sufficiency/abundance is man­date an appro­pri­ate amount of indi­vid­ual finance toward that freely cho­sen end and reduce those prices again to the indi­vid­ual with a sta­tis­ti­cally valid discount/equivalent rebate to retail­ers and freemov­ing eco­nomic free­dom will begin to sprout up all over. How do you best effect both indi­vid­ual eco­nomic secu­rity and reduce the power of TBTF finan­cial enti­ties? Put can­cellable money in the hands of individuals.

    Ban obvi­ous spec­u­la­tive finan­cial stu­pidi­ties, reg­u­late with dif­fer­en­tial equa­tions the rest of purely finan­cial enter­prise and encour­age inno­v­a­tive invest­ment in tech­nolo­gies that will make pro­duc­tion more efficient.…and let the good times roll.

  11. cyrusp says:

    it’s all dogma. You can sit and debate until your blue in the face, but what’s the point?”

    Krugman’s mind won’t change, you can’t teach an old dog new tricks.

    But the next gen­er­a­tion of econ­o­mists read­ing this will be open to new ideas.

  12. mahaish says:

    kill them kind­ness, polite­ness and the facts alainton,

    and if that fails , run them over 😉

  13. koonyeow says:

    Title: Finally, Steve In The Much Awaited Armani And RayBan

    We need this debate, in hon­our of Galileo, who was put under house arrest.

  14. Iñaki Aldasoro says:

    It seems that Prof. Krug­man is post­ing at an increas­ing rate on unre­lated top­ics in the last hours in order to send his con­tro­ver­sial posts into obliv­ion as soon as possible.

  15. Pingback: Steve Keen en Paul Krugman botsen | MRWONKISH.NL

  16. alainton says:

    Alan Blinder at above which could almost be a response to why Krugman’s teach­able moment should be taught as is.

    Our teach­ing about mon­e­tary pol­icy must be com­pletely revamped. Specif­i­cally, stu­dents must now learn some­thing about “uncon­ven­tional” mon­e­tary policies.

    Remem­ber “con­ven­tional” mon­e­tary pol­icy? The Fed­eral Reserve short­ens reces­sions by cre­at­ing more bank reserves (“print­ing money”), which fuels a mul­ti­ple expan­sion of the money sup­ply and credit because banks don’t want to hold excess reserves. So they get rid of them mak­ing more loans and deposits, which also low­ers short-term inter­est rates. Com­pare that to cur­rent real­ity: Banks are con­tent to hold over $1.6 tril­lion in excess reserves, short-term inter­est rates are stuck near zero, and Fed pol­icy often works on long-term inter­est rates instead. No, this is not your father’s mon­e­tary pol­icy, and the old ways of teach­ing about it sim­ply won’t do.’

  17. alainton says:

    And Taleb sug­gests a career move for PK

    we would have great jumps in knowl­edge if we avoided teach­ing these mod­els, and replaced them with any­thing, even gar­den­ing classes.’

  18. alainton says:

    Wolf­son Prize short­list where are the neo-classical economists?

    This was a prize for the worlds ‘best and bright­est econ­o­mists’ on a coun­try could orderly exit the euro­zone with­out trig­ger­ing a global chain of defaults.

    1 sub­mis­sion by an engi­neer – Cather­ine Dobbs
    1 by two math­e­mati­cians
    1 by the worlds lead­ing expert on cur­rency hedg­ing – an econ­o­mist
    2 by global macro firms – one of which is run by an his­to­rian not a trained economist.

    Of those Roger Boo­tle in 2003 pre­dicted the Finan­cial crash on the same basis as most of the oth­ers who did such as Keen, Hud­son and Magnus

    From a 2003 review
    Pub­lisher: Nicholas Brealey Pub­lish­ing (2003), ISBN: 1857882822
    “Money for Noth­ing” is a some­what con­tro­ver­sial book writ­ten by the (Lon­don) City econ­o­mist Roger Boo­tle. The author is a well known doom­sayer who reg­u­larly hits the head­lines with pre­dic­tions of impend­ing defla­tion and hous­ing price crashes, never mind stock mar­ket crashes.
    I’ve never taken seri­ously any econ­o­mist spout­ing opin­ions on the real estate mar­ket (always dra­matic, always wrong – wit­ness the numer­ous press arti­cles and par­rot­ing real estate agents), let alone about deflation.’

    And Johna­then Tep­pler seems to hold firmly post-Keynesian views on debt and money. which you can find in his well known book Endgame. He qual­i­fi­ca­tion is as an His­to­rian not an economist.

    So in short not one neo­con econ­o­mist amongst them, no one who would have got a phd at fresh­wa­ter or salt­wa­ter these days – part from per­haps Neil Record who is dif­fi­cult to clas­sify as he is an expert in a spe­cial­ist field out­side the main­stream that he largely invented.

    It would seem that this is the week that we can call as the end of the begin­ning of the end for neo-con econ­o­mists. They cant model the real world and they have noth­ing to say about the most press­ing eco­nomic pol­icy issue of today – the euro­zone crisis.

    I was think­ing the DGSE argu­ment above was all about seman­tics, how­ever think­ing again DGSE’rs had noth­ing to say, as they could not model global debt and coun­ter­party chains. At the point of a global cri­sis (euro­zone debt) which as Cather­ine Dobb’s won­der­ful entry shows could be ‘seven times big­ger than Lehman’ they quite lit­er­ally had noth­ing of value to say.

    Of course im no fan of Lord Wolf­son, he is a fre­quent fig­ure of fun on my web­site, and he surely would have wanted lots of Aus­trian entries (none on short­list) — but the judges were bal­anced — unlike Lord Wolf­son and the short­list is telling.

    If you want a laugh though read Neil Records pro­posal for a secret Ger­man plot to force a coun­try out — writ­ing a script for Wolf­gang Schäu­ble — the cats out of the bag now.

  19. NeilW says:

    They all seem to boil down to ‘dump the Euro on Sat­ur­day, shut the banks on Mon­day and have it straight­ened out by Tuesday’.

    It’s then all down to who is dump­ing whom.

  20. Steve Hummel says:

    They all seem to boil down to ‘dump the Euro on Sat­ur­day, shut the banks on Mon­day and have it straight­ened out by Tuesday’.

    It’s then all down to who is dump­ing whom.”

    Or they could do Hummel’s simul­ta­ne­ous bailout of the Banks AND the indi­vid­ual I posted awhile back, and just put the spec­u­la­tive con­trol per­cent­ages I have alluded to or Steve’s jubilee shares etc.devices. That would get this cri­sis solved pronto. Of course the finan­cial authorities/Banks would lose the biggest­mar­ket they have.….…but what price free­dom, right?

  21. barrythompson says:


    Mark Thoma on DSGE mod­els need­ing improvement/competition:
    “But to be use­ful in a cri­sis like we just had the mod­els have to be amended to bet­ter con­nect the real and finan­cial sec­tors — the con­nec­tion between break­downs in finan­cial inter­me­di­a­tion and the real econ­omy needs to be improved — and peo­ple are work­ing hard to try to solve problems.”

    Mean­while, Nick Rowe and Scott Full­wiler seem to be hav­ing a very civil dis­cus­sion that has made progress:

  22. ChicagoSchoolPhysicist says:

    It was fas­ci­nat­ing to read Paul Krugman’s reply (only today because I was away from net for a cou­ple of days). I started to read Paul Krug­man about 10–12 years ago but there were always ques­tions that were unan­swered. for exam­ple, how can the cen­tral bank “tar­get” a cer­tain infla­tion just by stat­ing it? I even bought a used Eco­nom­ics tex­book (Lipsey, Steiner, Purvis, Courant) that I sim­ply could not under­stand. The only econ­o­mist that I can actu­ally fol­low (and I wish in a future book Steve would boldly put the equa­tions in cen­ter stage, not in words) is Steve. I can actu­ally read papers from many sci­ences and fol­low the line of thought and the results, only eco­nom­ics seemed like witch­craft to me before read­ing Steve. Paul does not real­ize, but being men­tioned in a paper by Steve is a com­pli­ment. Steve shows Paul that Paul tries to think dif­fer­ent, but Paul does it in a “within the frame­work way” that is not “doing it”. Any­way, the data and the time will show who is right and who is wrong and my money is on the empir­i­cal approach.

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