This is the second part in a two-part series. To read the first part, click here.
In my article yesterday I showed how Paul Krugman had used the views of a young James Tobin to dismiss the relevance of banks to macroeconomics – even though those views were later drastically revised by James Tobin himself. The contrast between the theories advanced by the young James Tobin and Tobin the Elder were stark, and a salutary lesson in the benefits of always remaining open-minded to new information. But the question remains, which Tobin should you believe?
I suggest you believe neither, but consider simple logic, and also consider which perspective makes sense of the empirical data. On both fronts, the ‘banks don’t matter’ view is a total loser – as Tobin the Elder came to appreciate.
Read the remainder of this post here. I also recommend reading Nick Rowe's post "What Steve Keen is maybe trying to say“, which is the first concerted (and very accurate) attempt to put my endogenous money approach in a form that Neoclassically trained economists can understand. This could be the start of a real dialogue in economics.