Olivier Blanchard, Equilibrium, Complexity, And The Future Of Macroeconomics

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I have observed and appre­ci­at­ed Olivi­er Blanchard’s intel­lec­tu­al jour­ney over the last decade. It began in August 2008, with what must be regard­ed as one of the worst-timed papers in the his­to­ry of eco­nom­ics. In a sur­vey of macro­eco­nom­ics enti­tled “The State of Macro”, he con­clud­ed, one year after the finan­cial cri­sis began, that “The state of Macro is good” (Blan­chard, 2008). How­ev­er, Blan­chard did not remain locked into that posi­tion, and he had the rare intel­lec­tu­al courage to say so in pub­lic and in aca­d­e­m­ic papers. His most recent post, before the one I am respond­ing to today (“Fur­ther Thoughts on DSGE Mod­els: What we agree on and what we do not”), stat­ed that, far from the state of macro being good:

There are many rea­sons to dis­like cur­rent DSGE mod­els. First: They are based on unap­peal­ing assump­tions. Not just sim­pli­fy­ing assump­tions, as any mod­el must, but assump­tions pro­found­ly at odds with what we know about con­sumers and firms. (Blan­chard, “Do DSGE Mod­els Have a Future?”, August 2016)

I have com­ment­ed on sev­er­al of Olivier’s papers on the progress between “The State of Macro” and “Do DSGE Mod­els Have a Future?”, and he ref­er­ences one of my com­ments (“The need for plu­ral­ism in eco­nom­ics”) in this most recent piece (as well as oth­ers by  Narayana Kocher­lako­taSimon Wren-LewisPaul RomerAnton KorinekPaul Krug­manNoah SmithRoger Farmer, and Brad Delong). So he includes me in his sum­ma­ry of the dis­cus­sion, and this neces­si­tates a reply because—while again I appre­ci­ate his engagement—I dis­agree with his sum­ma­ry from its very first point.

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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.