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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  • Steve Hum­mel

    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.

  • Steve Hum­mel

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

  • Ed Beau­gard

    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.

  • 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.

  • imper­ma­nence

    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.

  • RickW

    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.

  • Steve Hum­mel

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

  • 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.

  • Steve Hum­mel

    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.

  • imper­ma­nence

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

    Take good care.

  • Steve Hum­mel


  • mahaish

    hi war­ren,

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

    lets see how things stack up then 😉


  • Ed Beau­gard


    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.

  • mahaish

    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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  • @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.

  • Another ‘push­ing on a string’ curve

  • Geoff Davies

    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

  • 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.

  • Steve Hum­mel


    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.

  • Steve Hum­mel

    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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