What utter self-serving drivel, Brad Delong!

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I can scarcely believe what Brad Delong has dared to publish on Project Syndicate today:

We economists who are steeped in economic and financial history – and aware of the history of economic thought concerning financial crises and their effects – have reason to be proud of our analyses over the past five years. We understood where we were heading, because we knew where we had been.

In particular, we understood that the rapid run-up of house prices, coupled with the extension of leverage, posed macroeconomic dangers. We recognized that large bubble-driven losses in assets held by leveraged financial institutions would cause a panicked flight to safety, and that preventing a deep depression required active official intervention as a lender of last resort….

So the big lesson is simple: trust those who work in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger. That means trusting economists like Paul Krugman, Paul Romer, Gary Gorton, Carmen Reinhart, Ken Rogoff, Raghuram Rajan, Larry Summers, Barry Eichengreen, Olivier Blanchard, and their peers. Just as they got the recent past right, so they are the ones most likely to get the distribution of possible futures right.

What utter hubris and drivel!

Where to begin? For starters, “the last five years” includes June 2007–just before the commencement of the financial crisis. But this time, people like Wynne Godley, Ann Pettifors, Randall Wray, Nouriel Roubini, Dean Baker, Peter Schiff and I had spent years warning that a huge crisis was coming, and had a variety of debt-based explanations as to why it was inevitable. By then, Godley, Wray and I and many other Post Keynesian economists had spent decades imbibing and developing the work of Hyman Minsky.

To my knowledge, of Delong’s motley crew, only Raghuram Rajan was in print with any warnings of an imminent crisis before it began. Blanchard deserves to win an award for one of the world’s worst-timed papers when in August 12, 2008–one year after the crisis began–he published a working paper which crowed that “the state of macro is good“. Krugman, who Delong crowns as first amongst equals in those working “in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger” first read Minsky in May 2009–and noted that he didn’t really see what all the fuss was about:

So I’m actually reading Hyman Minsky’s magnum opus, here in Seoul. … I have to say that the Platonic ideal of Minsky is a lot better than the reality.

There’s a deep insight in there; both the concept of financial fragility and his insight, way ahead of anyone else, that as the memory of the Depression faded the system was in fact becoming more fragile. But that insight takes up part of Chapter 9. The rest is a long slog through turgid writing, Kaleckian income distribution theory (which I don’t think has anything to do with the fundamental point), and more.

To be fair, it took me several decades before I learned to appreciate Keynes in the original. Maybe a reread will make me see the depths of Minsky’s insight across the board. Or maybe not.

This was hardly amazing to those of us who had started to read Minsky a bit earlier than 2009–such as me for example (I first read Minsky’s real magnum opus, John Maynard Keynes, in 1987). Those of us with a bit more exposure to Minsky knew that Stabilizing an Unstable Economy was not Minsky’s best book–and I commented on Krugman’s blog that he should put it aside and read Can “It” Happen Again? when he got back from Seoul.

The only excuse for the cant Delong has spewed forth today is that, as with Krugman and others in the self-described “New Keynesian” camp, he perceives himself as being at the left end of the economic spectrum, with the only competition being from the far right represented by the purist Chicago version of Neoclassical economics. Since the Neoclassical left supports deficit spending during a Depression, while the right supports austerity, to Delong it’s game over, and the Neoclassical left is right.

The reality is that there is an entire other dimension of economists who have known for decades that both extremes of the Neoclassical economic axis were neither left nor right, but plain bloody wrong. We also knew that our criticisms of the Neoclassicals had no chance of being listened to by the public until a major crisis hit, and we also expected that this crisis would do nothing to alter their own beliefs. Delong’s delusional mutterings today confirm it.

I sometimes get accused of being harsh when I argue that economics will only progress from the delusion of Neoclassical economics into a more empirically based and realistic discipline the way that Max Planck observed that physics made the move from Maxwell to Einstein: “one funeral at a time“. I doubt that I’ll cop that criticism any more after Brad’s effort today.

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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99 Responses to What utter self-serving drivel, Brad Delong!

  1. Steve Hummel says:

    “economics is a moral and not a natural science?”

    That seems accurate to me…..although it can at least begin to approach a science by rigorously aligning its thinking and policies with wisdom. Even science will pass away before Wisdom, and the power of BOTH wisdom AND science is greater than one or the other.

  2. Steve Hummel says:

    Wisdom IS the appropriate base for BOTH economic theory AND its policies.

  3. Ed Beaugard says:

    Hi Steve,

    Thanks for reposting my comment. I seem to have lost my response to you so I’ll try to keep it brief.

    1). I still believe, perhaps wrongly, that maths should play a very limited role in economics. I agree that it’s a great check on consistency or logic of a model, but that doesn’t get into a model’s assumptions. A very bad neo-classical model’s logic may be impeccable, but that doesn’t mean it’s not completely useless. Yes, the models you’ve been developing can go into crisis, but that doesn’t “prove” that they’re correct. It’s quite striking that they do model the GFC, and it recommends them highly, but again it is not a proof of their validity, in my opinion.

    I only worry away at this(maths in economics) like a dog gnawing a bone because I believe it was one of the things that allowed Samuelson, Cochrane and other miserable wretches to destroy economics over the last 40 years.

    2). I used to think you were too harsh on DeLong and Krugman. For what it’s worth, I don’t believe that now. Your comment about how the Keynesian revolution was derailed in the 1930s was very acute. We simply can’t let the neos get away with that again in regard to Minsky. So you were absolutely right to attack DeLong in the way you did and I hope you continue. As much as I like Krugman, I don’t believe he’ll ever change, that is, admit that the PKs have been right all along.

  4. Hi Warren Raftshol,
    In St Louis, if I get a pay rise and my landlord increases my rent to match it – and I have to pay it, then it sounds to me like St Louis has a serious lack of competition going on : If there is an general increase in the amount of money consumers have and that does not get translated into an increase in the amount of things they buy, or a change in lifestyle, so my wife can afford to stay at home and look after the children – like our parents generation used to be able to afford to do – or we now can afford to buy Virgin Olive Oil etc – but just gets translated into a grim increase in prices then something is amiss in St Louis If more money means just more inflation for the same old tired inadequate de-natured products, then don’t blame the money supply.

  5. impermanence says:

    “You DO live up to your moniker.”

    Like it or not, we all do.

    “Your pessimism and “skin of your teeth” minimalist skepticism is really just the other end of my affirmation.”

    You see me as pessimistic but I am anything but. Pessimism is the reason people seek hope.

    “I suggest you connect your end up with mine to close the circle and give yourself a breather from hell.”

    Many people see reality as hell, but I choose to see reality as reality, no judgement, just living life moment by moment.

    Steve H., if you study history, you will find that no matter the circumstances, there is no out-running the human condition. Those who constantly seek the higher ground, will find that eventually, they reach the end of the trail, the peak of mountain, with only air to step up-on.

    “Where shall I go from here,” cries the seeker whose path to the stars is no longer marked by one white stripe or two. Who will tell me how to think, what to think, and for how long?”

    Steve H., sooner or later, you are going to have to go it alone and leave the intellectual non-sense behind.

  6. RickW says:

    Maths can ILLUSTRATE or CLARIFY economic ideas, it cannot tell us what’s a good theory or bad theory.
    Wasn’t this one of Keynes’ fundamental insights? That economics is a moral and not a natural science?
    Ed Beaugard
    End Quote
    The test of a good theory and mathematical model based on it is its predictive capability in projecting and testing possible outcomes. Give or take a year or two Steve Keen has been able to predict accurately the unfolding of the debt/deflation state of the world economy. His insights has underpinned personal financial decisions that has kept my savings/investments growing over the last three years.

    I have a good understanding of the relatively simple maths used in ‘Minsky’ having done applied maths at tertiary level. On the other hand I dismissed economics as nonsense after being told to regurgitate the obviously wrong drivel I was taught in a post graduate economics course if I wanted a pass. Debunking Economics took me back to those fruitless debates with economic lecturers and Steve’s modeling has restored my faith in at least his brand of economics.

    I appreciate the limitations of Minsky and can see opportunities to refine it, which I know he is working on. He has been inclusive notably getting the accounting standards sorted and evidence based relationships. I can appreciate the delight he gets when the model produces a non intuitive outcome that support empirical evidence. I can also appreciate Steve’s frustration when critics take cheap shots without taking the time to understand the basis of Minsky.

    What is clear from the debate with Krugman and this brief encounter with Delong is that these fellows lack the grace to admit their errors so they are beyond learning. They are closer to religious fanatics than scientists. So if the brand of economics you follow is religion based then the theory can never be wrong and is always good. On the other hand if the theory is based on science and maths it is good when it accurately predicts an outcome but it will always have limitations and opportunity to refine.

  7. Steve Hummel says:

    The bete noires of interest or the FED or the money supply all miss the mark.

  8. DeLong got phone calls from James Galbraith and Mark Thoma, too (he didn’t mention Nouriel Roubini or Peter Schiff, nor did he mention George the Electrician who spelled out the entire collapse scenario back on 2005 without any prompting from me!).

    Not mentioning Robert Prechter or James Grant doesn’t count b/c both have been predicting financial collapse for the past 25 years or so.

    This is funny: (from DeLong’s article): “The third surprise, however, may be the most interesting. Back in March 2009, the Nobel laureate Robert Lucas confidently predicted that the US economy would be back to normal within three years. A normal US economy has a short-term nominal interest rate of 4%. Since the ten-year US Treasury bond rate tends to be one percentage point above the average of expected future short-term interest rates over the next decade, even the expectation of five years of deep depression and near-zero short-term interest rates should not push the 10-Year Treasury rate below 3%.”

    Robert Lucas predicted zilch: why is it the markets always jump after announcements like Friday’s in Brussels? B/c analysts keep thinking the recession is just that, another cyclical inventory contraction that can be solved with more artificial demand.

    Sorry folks, this is an energy crisis in credit drag, there is no end to it. Austerity comes from holes in the ground, what is ending is industrialization itself.

    There is nothing to be done, more or less stimulus, even quadrillion$ of it won’t accomplish anything but hasten the inevitable bankruptcies.

    What is underway is ‘conservation by other means’ Europe is in the process of becoming car-free. Get yourselves ready, it’s all coming to a suburb near you.

  9. Steve Hummel says:

    “Where shall I go from here,” cries the seeker whose path to the stars is no longer marked by one white stripe or two. Who will tell me how to think, what to think, and for how long?”

    Who’s still seeking?

    It’s just like I said, you’re on the other side of the bar magnet from me while looking at the same “data”. The only difference is the attitude…..and that is a considerable difference. I’ve chosen to visit your side when the situation briefly calls for it, but I’m not going to make a lifestyle or a philosophy about it. There’s too much for me to experience and do in the process of Life.

  10. impermanence says:

    Steve H., I’ve enjoyed our conversation and look forward to furthering our understanding of each other.

    Take good care.

  11. Steve Hummel says:


  12. mahaish says:

    hi warren,

    please post the graph showing movements in the monetary base and the inflation rate.

    lets see how things stack up then 😉


  13. Ed Beaugard says:


    “On the other hand if the theory is based on science and maths it is good when it accurately predicts an outcome…”

    But this is where you disagree with Keynes in my opinion. As far as I know, Keynes believed that economics is not natural science, cannot be based in natural science, has nothing to do with natural science.
    Economics is a moral science, and mathematics has no application besides illustrating economic ideas. Economic models must be coherent, and math is a great way to check on this, but no model can generate “counter-intuitive insights” that are not already there in the economic assumptions that make up the model, it is impossible for that happen.
    Even the neo-classical DSGE model had accurate predictions MOST OF THE TIME(I believe), but that doesn’t mean that the DSGE model isn’t complete and utter rubbish.
    I always feel like a bit of a troll whenever I get into these discussions, but if I didn’t think it was so very important, I wouldn’t bother.
    Just to be clear, I’m not questioning economic modeling using whatever sophisticated mathematics one wants, but it’s important, in my opinion to be clear that the math doesn’t prove anything, that the model doesn’t generate economic insights on its own, so to speak, that aren’t already there in the premises of the model.
    This means that, and I might be wrong(sorry Steve) that complexity theory, systems engineering, etc. have no application within economics. Complexity theory, systems engineering don’t SAY anything “extra” besides the economics, no matter what model one’s using.
    Well, that’s all I’ve got to say for now.

    Ed B.

  14. mahaish says:

    “Robert Lucas predicted zilch: why is it the markets always jump after announcements like Friday’s in Brussels? B/c analysts keep thinking the recession is just that, another cyclical inventory contraction that can be solved with more artificial demand”

    well it can steve from virginia, it really depends on whose balance sheet the government debt ends up in.

    you guys and the europeans are obsessed by the size of the public debt, where as in this country we have been running budget deficits of 4% of gdp and beyond for the last few years, and hence low unemployment and economic growth.

    too much has been left to the fed to fix, and its a problem it really cant fix since the fed has knowhere to go, running zirp(zero interest policy).

    its a demand side problem now , since everything that can be done in terms of pricing supply has been done by the fed.

    get rid of the debt ceiling and the no overdraft provisions that treasury operates under, and start spending on the poor perhaps.

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  16. @Damien,mahaish,

    I sometimes get drawn into discussions that are a little over my head. I was only making the point that money is not demand, in a linear sense. Or more precisely, that money is demand in only a much less than linear sense.

  17. Another ‘pushing on a string’ curve

  18. Geoff Davies says:

    Ed Beaugard, RickW,

    Ed raises the questions of whether mathematics is useful and whether models can be “proven” (yes, and no).

    Here’s the beginning of a post I just put on my own web site addressing these issues.

    Whether economics can be a science, and whether mathematics has a place in economics or economic science, seem to be vexed questions among heterodox economists. Having been a natural scientist for over four decades and thought hard about the nature of science and the place of mathematical models within it, I would hope to offer some clarification on these issues. After discussion, this post will be put in a permanent page.

    This will be a summary. A longer discussion is given in my essay and chapter Is the Neoclassical Theory Scientific?

    It is useful to break the process of science into two stages, each with two parts. Stage one is the perception of a pattern (or regularity or relationship) in our observations of the world, and the formulation of a description of that pattern. Stage two is the deduction of further implications of the pattern, and comparison of those implications with further observations of the world.

    Stage 1(a). The perception of a pattern is not a logical or rational process, it is a process of perception or cognition. It is the creative part of science. For example, I might notice that a man and a dog walk past my house most days, and walk back a little while later.

    Stage 1(b). The description of a perceived pattern constitutes a hypothesis. My hypothesis is that the man takes his dog for a run in the nearby park every afternoon.

    Stage 2(a). An implication of my hypothesis is that if I were to look in the park after the man and dog pass my house then I should see the dog running in the park.

    Stage 2(b). I can make a new observation to see if it is consistent with my hypothesis. I go to the park and see the dog chasing a stick thrown by the man. The new observation is consistent with my hypothesis. I conclude that my hypothesis is supported by the new observation.

    I do not conclude that my hypothesis is proven. It is possible there is another explanation for what I have observed. For example it may be the man is going to the nearby bar for a drink, and only incidentally threw a stick for the dog when I happened to be watching.

    Continued at

  19. mannfm11 says:

    I have read different spins. Minsky mentioned fixing this mess, but I believe we are well beyond that kind of fix. I see some swipes taken at Prechter, but Prechter knew what was coming, as it was a matter of time. Seems the mainstream, banker educated economists are clueless, as their remedies are more of the hair of the dog that bit them. To even mention Summers as anything but a connected tag along opportunist stuns me.

    Here is a good 8 years of it is coming and how it happened, Doug Noland’s Credit Bubble Bulletin. http://www.safehaven.com/author/2/doug-noland

    A spin I read on Irving Fisher, who Steve likes to mention, is that Fishers real intent was to spot what caused the debt deflation and stop it. Not the fueling of another bubble, but the stopping of the bubble before it starts. What we are doing in blowing another bubble, piling bad debt upon bad debt. Paper money has no value other than to pay debt. Europe plays jokes from day to day, pretending the bankrupts can create paper to bail themselves out. It will be necessary to go back to gold, not gold backed currency, as currency is always a bank note, but gold, if the current solutions are continued. Otherwise we have a situation where trade either breaks down or we are ruled under a one world, extractive banker dictatorship as being seen created in Europe and the EC as we watch.

  20. Steve Hummel says:


    We are not too far along to rectify the situation. The alternative to collapse or gold (sorry but shrug) is a modern debt jubilee as Steve has spoken of. It can be done so everyone benefits and the power of Finance is downsized somewhat. All you do is utilize the creditary nature of the monetary system. Gold basically ignores the 800 lb. gorilla of Finance and would snatch defeat from the mouth of victory IMO.

    By the way I am BFWR. Its good to see some Mish posters over here on Steve Keen’s forum.

  21. Steve Hummel says:

    Science and metaphysics are probably just the two ends of a bar magnet. An actual continuum whose apparent duality is the illusion. The exterior viewpoint from afar, not unlike how string theory, the 11 dimensional universe and giant membranes colliding can explain the Big Bang.

    Makes sense to me. So in other words deciphering every swirl and pool of the monetary and economic systems is likely no more important than aligning those systems with our most highly evolve experiences, and possibly less so because the act of aligning the two will expand our perspective and understanding of the BOTH/AND nature of the actual universe.

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