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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  • TruthIs­ThereIs­NoTruth

    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.

  • Steve Hum­mel

    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

  • Bhaskara II

    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

  • Steve Hum­mel

    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.

  • Steve Hum­mel

    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

  • Robin North­cott

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

  • Steve Hum­mel

    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”.

  • Steve Hum­mel

    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.


    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