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This is a post in at least 4 parts; for part 1, click this link to the Busi­ness Spec­ta­tor arti­cle.

There are only 10 days left to help Kick­start Min­sky! Help us reach our stretch goals:

$100,000

About 1400 hours of total pro­gram­ming time will enable Rus­sell to com­plete the “Mun” release, which will focus on improv­ing the graph­ics and pre­sen­ta­tion aspects of the pro­gram.

Nathan will also be able to devel­op a ver­sion of Min­sky for iPad and Android Tablets.

$250,000

With twice as much as the orig­i­nal INET Grant, we should be able to com­plete stage 2 of Min­sky—the “Ques­nay” release named in hon­or of the per­son I regard as the world’s first dynam­ic econ­o­mist, Fran­cois Ques­nay—in which the plat­form could sup­port the con­struc­tion of mul­ti-bank mod­el of the finan­cial sec­tor, and a mul­ti-com­mod­i­ty mod­el of pro­duc­tion.

Krugman doesn’t understand IS-LM–Part 1

Krug­man describes him­self as a “sor­ta-kin­da New Key­ne­sian”, and explains in his book End This Depres­sion NOW! that New Key­ne­sian macro­eco­nom­ics evolved in reac­tion to the fail­ure of the new clas­si­cal approach to “explain the basic facts of reces­sions”.

His “sor­ta-kin­da” qual­i­fi­ca­tion is because both New Key­ne­sian and new clas­si­cal mod­els are derived from apply­ing assump­tions about the behav­iour of indi­vid­u­als and mar­kets at the lev­el of the macro­econ­o­my, and he has a healthy scep­ti­cism about these assump­tions:

This is one aspect of Krug­man that I gen­uine­ly applaud: the aware­ness that mod­els aren’t real­i­ty. At best they are rep­re­sen­ta­tions of real­i­ty, but some neo­clas­si­cals show an amaz­ing capac­i­ty to believe that their mod­els are real­i­ty – as in this piece by French econ­o­mist Gilles Saint-Paul which the blog Unlearn­ing Eco­nom­ics deserved­ly flogged recent­ly – in a way that leads to tru­ly delu­sion­al think­ing about the real world.

Of course, we need mod­els to think about the econ­o­my in the first instance, because it is such a com­plex enti­ty. Even those who deride mod­el­ling in eco­nom­ics are using a mod­el when they talk about the econ­o­my – it’s just a ver­bal (or even unar­tic­u­lat­ed) one, as opposed to an aca­d­e­m­ic con­struct.

One might hope that expe­ri­ence and exper­i­men­ta­tion over time would weed out unre­al­is­tic mod­els in eco­nom­ics, but that hasn’t hap­pened. In many ways, the mod­els that dom­i­nate eco­nom­ics today are less real­is­tic than those which pre­vailed as much as sev­en­ty years ago.

Krug­man alludes to this by his ref­er­ence to “Old Key­ne­sian ideas” above. In par­tic­u­lar, he cham­pi­ons John Hicks’ IS-LM mod­el as an expla­na­tion of our eco­nom­ic cri­sis today.

This mod­el, first pub­lished in 1937, seeks to explain the rela­tion­ship between inter­est rates on one hand and real out­put in goods and ser­vices and mon­ey mar­kets, on the oth­er.

Click here to read the rest of this arti­cle