Teach­ing Eco­nom­ics the Plu­ral­ist Way

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This is a talk I gave in Ams­ter­dam to launch the Ams­ter­dam Rethink­ing Eco­nom­ics cri­tique of the cur­rent state of eco­nom­ics “edu­ca­tion” in the Nether­lands. The text of my slides is repro­duced below.

–Read the orig­i­nal sources—journals & books—not text­books

  • Let experts teach maths & com­put­ing, not econ­o­mists
  • Facts exist & are not the­ory-neu­tral

–Rules of account­ing ver­sus Money Mul­ti­plier

–Great Depres­sion Soup Kitchens ver­sus RBC “vol­un­tary unem­ploy­ment” myths

–Decline of Soviet Union ver­sus Marx­ist faith in social­ism

  • Learn Eco­nomic His­tory & His­tory of Eco­nom­ics
  • Learn mod­ern “com­plex sys­tems” approach to dynam­ics from math­e­mati­cians (see www.ChaosBook.org)
  • Learn com­put­ing & multi-agent mod­el­ling from com­puter sci­en­tists
  • Look at the “Clio­dy­nam­ics” approach to his­tory

–Arguably doing what econ­o­mists should always have be doing

  • Use the Web for aca­d­e­mic free­dom where Uni­ver­si­ties sup­press it
  • Teach Hon­estly
  • Eco­nom­ics text­books have “air­brushed” eco­nomic the­ory
  • Teach Hon­estly
  • Absur­di­ties like “Ricar­dian Equiv­a­lence” look rea­son­able in text­books
  • Teach Hon­estly
  • Look more dubi­ous when you read orig­i­nal arti­cle:
  • Sup­pose now [i.e., “pre­tend”] that house­holds’ demands for goods depend on the expected present value of taxes
  • I shall dis­cuss five major the­o­ret­i­cal objec­tions that have been raised against the Ricar­dian con­clu­sions.
  • The first is that peo­ple do not live for­ever, and hence do not care about taxes that are levied after their death…
  • The argu­ment fails if the typ­i­cal per­son is already giv­ing to his or her chil­dren out of altru­ism…
  • The main idea is that a net­work of inter­gen­er­a­tional trans­fers makes the typ­i­cal per­son a part of an extended fam­ily that goes on indef­i­nitely.
  • In this set­ting, house­holds cap­i­tal­ize the entire array of expected future taxes, and thereby plan effec­tively with an infi­nite hori­zon.”
  • Teach Hon­estly
  • Does it take an Aus­tralian to tell you that that’s bull­shit?
  • Did you realise that when you stud­ied “Ricar­dian Equiv­a­lence” in Macro?
  • Major issues in Neo­clas­si­cism ignored or sugar-coated in text­books

–“Cam­bridge Con­tro­ver­sies” over nature of cap­i­tal

  • Not men­tioned (or imply won by Neo­clas­si­cals)

–Son­nen­schein-Man­tel-Debreu The­o­rem

  • Not men­tioned, or treated as “Spe­cial con­di­tions” under which mar­ket demand curve can be derived
  • Rather than “proof by con­tra­dic­tion” that mar­ket demand curve can’t be derived from aggre­gat­ing indi­vid­u­als

–Empir­i­cal data that firms do not have ris­ing mar­ginal cost

  • Com­pletely ignored by text­books
  • Child­ish “lemon­ade stand” exam­ples of fac­to­ries rather than con­tra­dic­tory real-world data
  • But other schools aren’t saints either…
  • Teach Hon­estly
  • Marx­ists just as bad

–Still invent­ing excuses to keep Labor The­ory of Value alive

  • It’s wrong. Get over it; or…
  • At least teach that some peo­ple think it’s wrong even if you don’t
  • Admit short­com­ings

–Post Key­ne­sians

  • Are weak on eco­log­i­cal issues
  • Have yet to develop a com­pletely coher­ent method­ol­ogy
  • Admit strengths in oth­ers

–Post Key­ne­sians can admire Aus­tri­ans on uncer­tainty, expec­ta­tions, entre­pre­neur­ship

–While crit­i­cis­ing them on mon­e­tary account­ing & undue faith in equi­lib­rium

  • Above all…
  • Teach Hon­estly
  • Teach that econ­o­mists have the right to dis­agree with each other

–No School is per­fect; All can learn from each other to some degree

  • Our approach at Kingston:

–Intro­duc­tory course Becom­ing an Econ­o­mist starts with

  • Why Econ­o­mists Dis­agree”

–Lec­tures cov­er­ing method­ol­ogy & major schools

  • Neo­clas­si­cal
  • Aus­trian
  • Post Key­ne­sian

–Empha­sis on the ques­tions that define each school

  • Each ques­tion valid in its own right
  • Each sets school to con­sider some issues, ignore oth­ers

Facts mat­ter too:

  • Some facts sup­port some schools, under­mine oth­ers…
  • Teach when econ­o­mists are fac­tu­ally wrong
  • Neo­clas­si­cal “Loan­able Funds”, “Money mul­ti­plier” mod­els of money:

–Bank of Eng­land “Money cre­ation in the mod­ern econ­omy

  • Money cre­ation in prac­tice dif­fers from some pop­u­lar mis­con­cep­tions
  • banks do not act sim­ply as inter­me­di­aries,

–lend­ing out deposits that savers place with them…

  • nor do they ‘mul­ti­ply up’ cen­tral bank money to cre­ate new loans…”
  • Teach when econ­o­mists are fac­tu­ally wrong
  • Actual cost struc­tures of real firms:

–Alan Blinder, Ask­ing About Prices (1998)

  • Teach Why Econ­o­mists Dis­agree
  • Answers to “Which School asks which ques­tion?” should be obvi­ous to expe­ri­enced stu­dents
  • But novel for school stu­dents who think there is only “eco­nom­ics”:

“Can the econ­omy equate demand and sup­ply in every mar­ket?”

“How does inno­va­tion & change occur in cap­i­tal­ism?”

“How did cap­i­tal­ism evolve, and will it turn into some­thing else?”

“What caused the Great Depres­sion, and can it hap­pen again?”

“How does the econ­omy pro­duce more out­puts than inputs, and what are the impacts of this on the envi­ron­ment?”

“How do real peo­ple behave in eco­nomic sit­u­a­tions?”

“How do rela­tions between the sexes affect eco­nom­ics?”

“Can we under­stand the econ­omy using tools from physics?”

  • Major issue for school stu­dents is they’ve only learnt “eco­nom­ics”, “physics”, “maths”, “his­tory”
  • Ques­tion of “how should one do eco­nom­ics (& physics, etc) not asked
  • I intro­duce the issue of method­ol­ogy by the exam­ple of astron­omy…
  • Teach Why Econ­o­mists Dis­agree
  • How can two peo­ple look at the same thing and see it so dif­fer­ently?
  • Devel­op­ing a new real­is­tic eco­nom­ics
  • Par­al­lel course “Cap­i­tal­ism” cov­ers

–Eco­nomic His­tory

–His­tory of Eco­nomic Thought

  • Both as “live” sub­jects

–Fukuyama’s report of the “End of His­tory” was greatly exag­ger­ated

–Eco­nom­ics under­go­ing rapid evo­lu­tion right now

  • From Lucas “cen­tral prob­lem of depres­sion pre­ven­tion has been solved, for all prac­ti­cal pur­poses, and has in fact been solved for many decades.” (2003)
  • To Kocher­lakota “we sim­ply do not have a set­tled suc­cess­ful the­ory of the macro­econ­omy.
  • The choices made 25–40 years ago … should not be treated as writ­ten in stone or even in pen.
  • By doing so, we are chok­ing off paths for under­stand­ing the macro­econ­omy.” (2016)
  • Devel­op­ing a new real­is­tic eco­nom­ics
  • Sub­se­quent courses (Eco­nomic Mod­el­ling, Macro)

–Teach Neo­clas­si­cal vs Post Key­ne­sian views of Macro

–Intro­duce essen­tial tech­niques for gen­uine dynam­ics

  • Basics of dynamic sys­tems

–Includ­ing sta­bil­ity & insta­bil­ity of lin­ear & non­lin­ear sys­tems

  • Sys­tem dynam­ics
  • Clio­dy­nam­ics
  • Essen­tials of multi-agent mod­el­ling
  • New foun­da­tion degree in Eco­nom­ics & Com­put­ing start­ing in 2018

–Half com­put­ing & half eco­nom­ics over 3 years

  • More com­put­ing in early years, more eco­nom­ics later years

Econ­o­mists are not com­pe­tent to teach basics of com­put­ing

  • Just as not com­pe­tent to teach the basics of math­e­mat­ics
  • Courses not enough

–Can’t cover all of lit­er­a­ture and sup­port areas in 24 semes­ter units

  • Really inter­ested stu­dents need to read out­side courses as well
  • Exis­ten­tial chal­lenges
  • Via­bil­ity of non-main­stream eco­nom­ics always ten­u­ous

–Sup­pressed at lead­ing uni­ver­si­ties (Oxford, Cam­bridge, Prince­ton)

–Sur­vives at low-ranked uni­ver­si­ties (Kingston, UMKC)

  • Poorer fund­ing, less aca­d­e­mic free­dom, more bureau­crazy

–Vul­ner­a­ble to “mar­ket reforms” of edu­ca­tion

  • Aus­tralian gov­ern­ment removal of “caps” on stu­dent num­bers led to clo­sure of eco­nom­ics at UWS

–Pre­lim­i­nary enrol­ment went from 120 to 16 in one year

–Sim­i­lar pol­icy in the UK in 2015

  • Halved Kingston’s Human­i­ties intake across the board
  • TEF “Teach­ing Eval­u­a­tion Frame­work” next year will com­pound the dam­age with insti­tu­tional “Gold, Sil­ver, Bronze” Medals for an entire University’s teach­ing staff
  • Pro-plu­ral­ist unis (Kingston, Green­wich, etc.) likely to receive Bronze awards, pro-main­stream (Oxbridge) Gold
  • Bureau­cra­zies who dreamed this up deserve Lead Medals
  • Exis­ten­tial chal­lenges
  • Ranks lowly in research stud­ies given Neo­clas­si­cal gate­keep­ing on “lead­ing” jour­nals
  • Blanchard’s recent calls for broader approaches in jour­nals wel­come:

–“It has to become less impe­ri­al­is­tic. Or, per­haps more fairly, the pro­fes­sion (and again, this is a note to the edi­tors of the major jour­nals) must real­ize that dif­fer­ent model types are needed for dif­fer­ent tasks.” (“Do DSGE Mod­els Have a Future?”)

  • But main­stream jour­nals still highly resis­tant to non-par­a­digm papers

–2013 debate with AER Macro edi­tor after reject­ing “mod­el­ling Great Mod­er­a­tion & Reces­sion” paper with­out ref­er­ee­ing:

  • But what if they get more infor­ma­tion about the future? How would that change things?”
  • Main­stream jour­nals will con­tinue to exclude non-par­a­digm papers

–Makes pro­mo­tion dif­fi­cult for non-Neo­clas­si­cal econ­o­mists

  • Uni­ver­si­ties & fund­ing bod­ies remain hos­tile to plu­ral­ism
  • So pres­sure for change from stu­dents, pub­lic, still vital
  • For more…
  • My next book Can we avoid another finan­cial cri­sis?

–Com­ing out in April/May 2017

–Short: just 25000 words; Non-tech­ni­cal expla­na­tions of

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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  • paulie95

    Steve, I think that for the bub­ble and debt to pop. You need to tell peo­ple the truth. You need to tell peo­ple how com­mer­cial banks essen­tially cre­ate money out of noth­ing, and then receive an enor­mous profit in the form of inter­est. How for the banks, more debt means that they can increase these prof­its, so these banks increase their lend­ing with the knowl­edge that they will be bailed out if they run into trou­ble. How these banks are incen­tivised to lend out as much money as they phys­i­cally can. 

    If you tell peo­ple these facts, I’m con­fi­dent that this debt and prop­erty price spec­u­la­tion will quickly come to an end.

  • The bub­ble will pop regard­less of what I say, but rais­ing aware­ness? That seems to involve more then sim­ply let­ting the truth be known bm

  • paulie95

    To put it sim­ply. Tell the pub­lic how the bank­ing process oper­ates. How com­mer­cial banks through the process of credit cre­ate money in our sys­tem. If peo­ple are aware, there likely to think twice before going into sig­nif­i­cant lev­els of debt. I mean, econ­o­mists and many work­ing within the banks know what actu­ally hap­pens. How money sup­ply, through the process of lend­ing, has increased expo­nen­tially in recent years.

  • paulie95

    *I mean, econ­o­mists and many work­ing within the banks don’t know what actu­ally hap­pens. How money sup­ply, through the process of lend­ing, has increased expo­nen­tially in recent years and how the major­ity of that newly cre­ated cap­i­tal has been added to Syd­ney and Mel­bourne prop­erty prices.

  • nick­ekahn

    Dear Prof. Keen,

    I teach inter­me­di­ate micro, and sadly I’m expected to cover the stan­dard neo­clas­si­cal non­sense. While I men­tion to my stu­dents why there are prob­lems with much of what they are learn­ing (e.g. SMD) I’ve always strug­gled to find suit­able non­tech­ni­cal read­ings to assign. Would you hap­pen to have any sug­ges­tions? Thanks!

  • nick­ekahn

    Aside from “debunk­ing eco­nom­ics”, of course 😉

  • whutchin

    Steve, I’ve only recently begun to fol­low your work, but I find it very insight­ful and rel­e­vant. I have one ques­tion for you if have a moment — not explic­itly related to this video.

    In terms of endoge­nous money cre­ation, do you dis­tin­guish between the chan­nels of bank lend­ing and mar­ket lend­ing? I know you observe total pri­vate debt, which builds from both sources. The lat­ter chan­nel seems to fol­low the tra­di­tional posit that finan­cial insti­tu­tions act as inter­me­di­aries. Bond mar­kets, if any­thing, cre­ate secu­ri­ties, which can be uti­lized as money in some ways, how­ever.

  • Akash sharma