The Neoclassical conspiracy against Post Keynesian Economics

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Paul Krugman recently posted on predictions of the crisis before it happened, in a piece entitled “Non-prophet Economics”. It had a set of propositions about how one should evaluate such claims with which I completely and utterly agree. I’ll quote it in its entirety, because it’s an eminently suitable starting point for evaluating whether a prediction was in fact made:

“So as I see it, we should first of all be evaluating models, not individuals; obviously we need people to interpret those entrails models, but we’re looking for the right economic framework, not the dismal Nostradamus.

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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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9 Responses to The Neoclassical conspiracy against Post Keynesian Economics

  1. TruthIsThereIsNoTruth says:

    Another way to put it, don’t judge the model from the prediction. Several times I’ve mentioned on this blog that the predictions don’t validate or invalidate the model, because the model is not meant to be predictive, unless it was explicitly a predictive model, which neither model in question is.

    So it is quite inevatible that with an order of probability subject only to the number of possibilities, the predictions will be incorrect and as such it is inevitably self defeating to be leveraging the correctness of a theoretical model based on the author’s subjective point of view.

  2. Steve Hummel says:

    The model is not reality. I’ll affirm that. Although, if you model the most basic reality of the system accurately and completely, and then utilize mechanisms that actually handle the problem accurately and completely modeled, there might be no essential difference….and you WILL have solved the most basic problem. For instance:

    P = In < Pr

    Production equals total INDIVIDUAL incomes are less than total PRICES

    Equate that…without going into or through Commerce/Production…first

  3. Bhaskara II says:

    There is a great interview of Professor Steve Keen. In the beginning he talks about the beginnings of his journey to Debunking Economics. Very interesting.

    Great interview Professor Keen.

    TalkingStickTV – Steve Keen – Debunking Economics

  4. Steve Hummel says:

    Yes that is an excellent interview. If we’d change income equals wages plus the change in the level of debt to income plus citizen’s dividend the economy would be so much more stable. After all the best way to reduce the overweening power of the Banks is to reduce/mostly take away their biggest market…consumer borrowing. That would set both the individual and the system free in fact instead of only in theory. Banks could get back to fulfilling their proper role which would be being the intermediaries for the traditional industrial economy, individuals would be free from the millennial scarcity that technology has largely eliminated because they would have a continuously adequate supply of credit to purchase despite the fact that technology has taken much of the jobs away and will continue to do so at an ever increasing rate, technological innovation, freed from the burden of job creation, would also then be free to pursue efficiencies which would actually eventually reduce resource usage, taxation could be reduced by Distributive economic and monetary systems, prices could actually continually fall due to the same technological efficiencies and Finance wouldn’t have to continually cook up wigged out schemes for profit in order to plug the hole in purchasing power their own continuously accumulating product, debt in the form of loans, enforces. All this because we are smart enough to broaden the paradigms and purposes for which CONSUMER credit is granted from work for pay and production only to monetary Grace and consumption…as well.

  5. Steve Hummel says:

    By the way good to hear that the majority of Australians are agnostics. A study of consciousness itself reveals that the top of the natural hierarchy of awareness levels from top to bottom goes:

    Know-Serenity of beingness assoc. with the traditional/natural experiences of God namely Faith, Hope, Love and Grace or their cultural equivalents

    Not Know or Un-Know – cultivated….the state of agnosticism

    Philosophy- The contemplation of ideas, their meanings and their experiences

    Mathematics- The Not Know/Unknow harmonic of philosophy

    Science- The reductionistic counterpart to philosophy

    Faith In- A reliance upon and clinging to dogmas whether of a religious, political, economic or personal nature

  6. Robin Northcott says:

    Care to make a prediction about China Steve?
    Interesting to see how a command economy deals with this problem.

  7. Steve Hummel says:

    Velocity is really nothing more than the phenomenon of the continual injection of money into the system in the forms of ONLY loans to businesses ONLY, and the moment that this continual injection slows or stops the economy goes into a recession or depression.

    All you have to do to avoid this is add a dividend paradigm to the two current consumer financial paradigms of work for pay and loan ONLY. Doing this robustly stabilizes the consumer economy for both the individual and businesses while simultaneously reducing both the need for and the actual creation of loans for consumers, hence reducing the build up of private debt.

    The commercial financial paradigm need not be changed as it generates growth and so tends to maintain an equilibrium. (Although the monies created as loans must need be INITIALLY created interest free…as correctly suggested by MMT.)

    Financialization of the economy must be avoided and finance in general very closely regulated, with vices like CDS, MBS, CDO etc. either banned or not allowed to be created via leverage, but only with one’s “hard earned cash”.

  8. Steve Hummel says:

    As I have said repeatedly here velocity is false and irrelevant as currently perceived because money re-circulating must remain within the context of a business wherein the cost accounting conventions continuously apply and result in a scarcity of individual incomes in ratio to total costs….all of which must go into price, again by cost accounting convention.

  9. says:

    Hi Guys,
    Peter Swanson here.
    Can’t the argument be ended by the following question.
    If the economy can be modeled without banks and money why was the first thing the governments did is give all the “money” to the banks when the shit hit the fan.
    But hey if the money that does not exist be given to the banks that do not exist no problems.
    Steve email me at

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