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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  • Terry Barker

    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.

  • Clint Ballinger

    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

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