The BIS calls for a revolution in economics

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In the last four decades, there have been only a handful of central bank and Treasury papers that I thought genuinely added to human knowledge. The economic-oriented departments within governments have in general been even more dominated by neoclassical orthodoxy than academic departments – and for good, bureaucratic reasons.

If, by some accident, a non-neoclassical economist gets tenure at a university, then generally speaking, the university is stuck with him or her. The only way to get rid of him is to either drub up a misconduct charge, or to shut the entire department down. So academic economics departments have a core of dissidents within them, and even at the most conservative of institutions – since every now and then a neoclassical economist will spontaneously transmute into a critic (as American economist and economist growth theorist Robert Solow has done since 2000 with his increasingly vehement attacks on DSGE modelling – see for instance his 2003 speech Dumb and Dumber in Macroeconomics).

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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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21 Responses to The BIS calls for a revolution in economics

  1. Chris Bell says:

    The Busi­ness Spec­ta­tor web­site is very annoy­ing! I can’t read the arti­cle until I’ve reg­is­tered and I can’t get past the reg­is­ter page since it doesn’t like the for­mat of my post­code. Can you post your arti­cles some­where that doesn’t require reg­is­tra­tion? Best way to get your mes­sage out to as many peo­ple as pos­si­ble I’d imagine

  2. Steve Keen says:

    Hi Chris,

    I’ve asked Busi­ness Spec­ta­tor to see what the prob­lem is with your post­code. I expect it’s been set up for Aus­tralian post­codes but not UK ones.

    For rea­sons I’ll explain shortly, I will con­tinue to post blog entries via Busi­ness Spectator.

  3. Peter Bretscher says:

    Busi­ness Spec­ta­tor: No login needed from Switzerland.

  4. Mary-Ellen Large says:

    @Chris Bell. I just put in an Aus­tralian post­code. They are four num­bers — http://en.wikipedia.org/wiki/Postcodes_in_Australia

  5. Chuck Lindeberg says:

    Hi Steve,
    When do you expect your “Min­sky” Kick­starter project will go live? The last time I checked, which was a few min­utes ago, it was still listed as a draft.
    Chuck

  6. Chris Bell says:

    Thanks Mary-Ellen, I was in a bit of a hurry and got frus­trated. A les­son for any soft­ware devel­op­ers out there (and I’m one of them), don’t try to be too clever with your validation!

  7. Janne Haarni says:

    Great stuff. It would be inter­est­ing to hear your take on pro­duc­tiv­ity and its rela­tion to GDP growth. I have a strange feel­ing that a lot of the talk I hear about our need to raise the pro­duc­tiv­ity of the work­force is some­how misguided.

  8. Steve Hummel says:

    Eco­nom­ics and money sys­tems don’t need a rev­o­lu­tion, they REQUIRE an evolution.

  9. mahaish says:

    under endoge­nous money, im not sure what cen­tral banks can do to avoid cri­sis any­way, despite what kind of econ­o­mists work in them.

    remem­ber all they do is assett swap at a tar­get price.

    they impact on liq­uid­ity and prot­fo­lio com­po­si­tion, but thats it.

    basel and other regs puts con­straints on bank bal­ance sheet lever­ag­ing theoretically,

    but as we have seen these rep­re­sent no con­straint at all when profit seek­ing opps are involved. more lever­age equals more profit in a ris­ing market.

    trea­sury is a dif­fer­ent ket­tle of fish, since they can effect the net assett posi­tion of the pri­vate sector.

    in oz, im inclined to think we have very prac­ti­cal peo­ple work­ing at treasury.

    they advised the gov­ern­ment to go early and go big in terms of stim­u­lus, which in hind­sight was the right call.

  10. mahaish says:

    steve can cor­rect me on this,

    but the jury is out on whether ris­ing cen­tral bank inter­est rates con­strain bank bal­ance sheet lever­ag­ing in a ris­ing market.

    all they can con­trol is the price , not the size of the banks bal­ance sheet.

    i’ll be astounded if they ever know what the price should be ;)

  11. Derek R says:

    Agreed, Mahaish. I think that the best way to keep bank bal­ance sheets from get­ting out of con­trol is with a bank asset tax levied monthly on loans that use land as col­lat­eral. If the rate was set cor­rectly that should incen­tivise banks to lend money to indus­try for the finance of cap­i­tal goods rather than to house pur­chasers for mort­gages. You could say that it would favour Schum­peter­ian finance over Minskyan.

  12. Steve Keen says:

    Hi Chuck,

    It will go live on Jan­u­ary 28th (New York time). Jet­lag, mov­ing house, Xmas and the non­sense with UWS way­laid start­ing ear­lier, and I heard from The Econ­o­mist that a print arti­cle men­tion­ing Min­sky was still going to be published–the blog post was a bonus.

    The 28th is the day I get back from six days in Mel­bourne watch­ing The Aus­tralian Open. I’m using the time in between then and now to dras­ti­cally improve the videos accom­pa­ny­ing the campaign.

  13. Steve Keen says:

    Glad to hear that Chris!

  14. DrewRiskManager says:

    Hi Steve, did you see this paper?

    The “Math­e­mat­i­cal Equa­tion” Of Asset Bubbles

    QUIET BUBBLES
    Har­ri­son Hong
    David Sraer
    Work­ing Paper 18547

    http://papers.nber.org/tmp/15523-w18547.pdf

  15. Ales Praprotnik says:

    No login needed for read­ers from Slove­nia (EU) either!

  16. John Watson says:

    Steve, as i under­stand it, Mark Car­ney will retain his posi­tion as head of BIS even after he takes over from Merv King in Lon­don. so, is this not a pos­i­tive step for­ward? Would he not of read what the BIS cur­rently pub­lishes and hope­fully be in sync with that? What caught my atten­tion a while back was his use of “The Global Min­sky Moment” com­ment a while back. While I don‘t have the grey mat­ter or edu­ca­tion to put it all together, it seems to me to have the gov­er­nor of the Bank of Eng­land to have writ­ten the fol­low­ing is very encour­ag­ing
    http://www.bankofcanada.ca/2011/12/speeches/growth-in-the-age-of-deleveraging/

  17. JKH says:

    wrong link to the Borio paper there, Steve

    (397 Lane rather than 395 Borio)

  18. Jack Cribb says:

    Hi DrewRiskMan­ager (and oth­ers inter­ested), Your link to “Quiet Bub­bles” should be
    http://www.nber.org/papers/w18547
    Jack Cribb

  19. Attitude_Check says:

    http://www.ft.com/intl/cms/s/0/c070a7b4-559d-11e2-bbd1-00144feab49a.html#axzz2HGNbHioH

    Inter­est­ing Oped in the FT on credit bub­bles and mod­ern economist’s fail­ure to under­stand finan­cial credit as a major eco­nomic sys­tem driver.

  20. Derek R says:

    That’s a highly encour­ag­ing speech from Mark Car­ney, Mr Wat­son. He has gone up in my esti­ma­tion. Thanks for draw­ing it to our attention.

  21. Dean Ashby says:

    When I was study­ing busi­ness, my cur­ricu­lum requires me to study eco­nom­ics, and have been deal­ing with it even in my self stor­age com­pany. Indeed, peo­ple will mis­took it that when you are an entre­pre­neur, you would only have to deal with busi­ness con­cepts, and the like, but there are also ele­ments in eco­nom­ics that come into play. I have also heard the same about tenures of pro­fes­sors, but that is not the point. We are man­ag­ing our own busi­ness and we employ hun­dreds of employ­ees that we could not mon­i­tor. We only have one pair of eyes, and one body to mon­i­tor our com­pany, let alone the kind of com­pany that I have with a few stor­age facil­i­ties sites. We just have to trust them on what they do, and if they are not per­form­ing well and up to our expec­ta­tions, then we bet­ter have a very good, tan­gi­ble and objec­tive rea­son that we are putting them on a dis­ci­pli­nary action. I believe that we need to give sec­ond chances.

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