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 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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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.
    Cheers,
    Clint Ballinger

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

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