A Macroeconomics Debate at Cambridge

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I gave the talk below to the Cambridge Society for Economic Pluralism yesterday. This student-formed society is attempting to open economics to debate--something which, despite the enormous schisms that exist within economics, is in practice sadly lacking.

Economists of one school of thought (such as the Neoclassical) don't listen to or debate with those from others (such as the Post Keynesian or Austrian)-as you can see from Cochrane's dismissive remarks about non-Neoclassical economics in the Playboy article on economics. Even within schools (such as the Neoclassical), different factions barely communicate with each other-as you can see by perusing some of the "Fresh­wa­ter, New Clas­si­cal” ver­sus “Salt­wa­ter, Old Hick­sian” (whoops, sorry, they think they’re “New Key­ne­sians”) blog entries.

As well as invit­ing me to present on the Post Key­ne­sian alter­na­tive macro­eco­nom­ics that I’m devel­op­ing, they invited Pon­tus Ren­dahl to pro­vide a response from a more Neo­clas­si­cal point of view (he described his approach as “Metero­dox”, which was a rather clever phrase). Pontus’s response is linked here.

There were some points at which we were at cross-purposes–for instance, what he describes as my model was in fact Minsky’s model from 1963, and it there­fore pre-dates by almost two decades the Lucas “Cash in Advance” model he later describes as pre-dating me (so rather than me being “nice but not novel” in rela­tion to a 1982 paper from Lucas, Lucas was “nice but not novel” in rela­tion to a 1963 paper by Min­sky); I  use dif­fer­en­tial equa­tion nota­tion for debt when work­ing at the aggre­gate level and delta nota­tion when con­sid­er­ing a sin­gle trans­ac­tion for tech­ni­cal rea­sons related to the aggre­ga­tion of dis­crete asyn­chro­nous events, and so on.

But that’s OK: Pon­tus hadn’t encoun­tered my work prior to accept­ing the student’s invi­ta­tion to speak, and no-one can be expected to get com­pletely on top of an alter­na­tive per­spec­tive at first try. What I appre­ci­ate is that he did engage, and I hope we’ll keep doing so occa­sion­ally from now on.

I’m sorry that I don’t have the time to edit the audio below–it starts with about 3 min­utes of crowd noise (there were about 100 peo­ple in the audi­ence). So please just skip about 3 min­utes in where you’ll hear the intro­duc­tion, and then my talk fol­lowed by Pontus’s, and finally the discussion.

Steve Keen’s Debt­watch Podcast


There was quite a bit of heat directed Pontus’s way from some of the older aca­d­e­mic staff in the audi­ence who were involved in the inter­nal bat­tles that trans­formed Cam­bridge UK from a bas­tion of crit­i­cism of Neo­clas­si­cal eco­nom­ics into a Neo­clas­si­cal strong­hold. Since Pon­tus only arrived at Cam­bridge in the last few years, this was all news to him, and he was jus­ti­fi­ably rather taken aback.

Young mem­bers of the eco­nomic com­mu­nity can’t be expected to know this his­tory, iron­i­cally because of one of the com­mon com­plaints that I and other het­ero­dox econ­o­mists make about eco­nom­ics edu­ca­tion today: it lacks any ref­er­ence to eco­nomic his­tory or the his­tory of eco­nomic thought. But that’s the fault of the exist­ing teach­ers, not of new entrants into the pro­fes­sion. It’s there­fore lit­tle won­der that young Neo­clas­si­cals first encounter the hos­til­ity older non-Neoclassical econ­o­mists feel, they can believe that het­ero­dox econ­o­mists are attempt­ing a purge, when in fact they’re react­ing to a Neo­clas­si­cal purge that began in the 1970s and ended before most of them were born.

I’d rather for­get those old con­flicts and focus instead on the need to reform eco­nom­ics today, by acknowl­edg­ing its empir­i­cal fail­ures and by embrac­ing the com­plex sys­tems approach that has tran­scended equi­lib­rium think­ing in so many other disciplines.

About Steve Keen

I am a professional economist 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 debts accumulated in Australia, and our very low rate of inflation.
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28 Responses to A Macroeconomics Debate at Cambridge

  1. Terry Barker says:

    As one “of the older aca­d­e­mic staff in the audi­ence who were involved in the inter­nal bat­tles that trans­formed Cam­bridge UK from a bas­tion of crit­i­cism of Neo­clas­si­cal eco­nom­ics into a Neo­clas­si­cal strong­hold”, I appre­ci­ated your vig­or­ous attack on neo­clas­si­cal dogma. I had given up even hav­ing a debate with my col­leagues in Cambridge.

    I sym­pa­thise with your approach in crit­i­cis­ing the dogma, although I would be even more openly crit­i­cal, e.g. of Pon­tus, in accus­ing them of cling­ing to the­o­ries just because of their invest­ment in the cal­cu­lus and their wish to climb the pro­fes­sional eco­nom­ics lad­der. I have devel­oped (since 1976 with col­leagues in Cam­bridge) dynamic sim­u­la­tion mul­ti­sec­toral mod­els of the UK, Euro­pean and global economies, designed to track the observed per­for­mance of the economies over time (for bet­ter or worse!).

    I do take issue with the res­olutely aggre­gate eco­nom­ics of both the Key­ne­sians and the Post-Keynesians, since impor­tant eco­nomic effects take place at the dis­ag­gre­gate (e.g. indus­trial) lev­els that affect the aggre­gates. And I also embrace applied econo­met­rics (which was rejected by the Key­ne­sians and most Post Key­ne­sian and by Keynes in his famous inter­change with Tin­ber­gen) as a means of bring­ing data to bear on the­ory, oth­er­wise we could make up any­thing we like and cloth it with sta­tis­tics, as the CGE mod­ellers do when they use one year’s data to project 100 years into the future.

    Intrin­sic and cen­tral to these ideas is a the­ory of money which is more com­pre­hen­sive and bet­ter grounded than ear­lier the­o­ries and I believe it pro­vides a bet­ter expla­na­tion for the post 2007 finan­cial cri­sis and what to do about it. How­ever I am not con­vinced that com­plex­ity the­ory can help us very much, apart from empha­sis­ing our uncer­tainty about expla­na­tions and outcomes.

  2. Clint Ballinger says:

    I am very much inter­ested in MMT, Post Key­ne­sian and Full Reserve Bank­ing. I have been a long time reader of Keen, and before that, of Fisher. I am try­ing to help under­stand how these views relate and help edu­cate the gen­eral pub­lic here http://open.salon.com/blog/clintballinger/2012/12/17/post_keynesianism_mmt_100_reserves_project_question_1
    (I would love or any pro MMT and / or pro Chicago Plan /Full Reserve Bank­ing peo­ple to help out in posts or comments.)

    Prof. Keen, I have been try­ing to pro­mote the Min­sky project and its kick­starter where I can. And I am glad you were speak­ing at Cam­bridge, I was there for doc­toral stud­ies for a num­ber of years, miss it at times.
    Clint Ballinger

  3. Pingback: Debunking Economics, Part XVIII: Response to Criticisms (2/2) « Unlearning Economics

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