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:

Incor­po­rat­ing energy into pro­duc­tion func­tions

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In my last post on my Debt­watch blog, I fin­ished by say­ing that the Phys­iocrats were the only School of eco­nom­ics to prop­erly con­sider the role of energy in pro­duc­tion. They ascribed it solely to agri­cul­ture exploit­ing the free energy of the Sun, and specif­i­cally to land, which absorbed this free energy and stored it in agri­cul­tural prod­ucts. As Richard Can­til­lon put it in 1730:

The Land is the Source or Mat­ter from whence all Wealth is pro­duced. The Labour of man is the Form which pro­duces it: and Wealth in itself is noth­ing but the Main­te­nance, Con­ve­nien­cies, and Super­fluities of Life. (Can­til­lon, Essai sur la Nature du Com­merce in Général (Essay on the Nature of Trade in Gen­eral)

BBC Hardtalk on reform­ing eco­nom­ics

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This inter­view, which was just recorded today, will go to air tomor­row. The broad­cast details are:

BBC News Chan­nel: 02.30 BST, 04.30 BST and 20.30 BST Tues­day 16th August 2016, and 00.30 BST Wednes­day 17th August 2016


And from the 04.30 TX it will then be avail­able within the UK on BBC iPlayer for one year.

BBC World News Chan­nel: 03.30 GMT; 08.30 GMT; 14.30 GMT and 19.30 GMT Tues­day 16th August 2016

It will also go out at numer­ous times­lots on Fri­day on the BBC World Ser­vice.

The need for plu­ral­ism in eco­nom­ics

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For decades, main­stream econ­o­mists have reacted to crit­i­cism of their method­ol­ogy mainly by dis­miss­ing it, rather than engag­ing with it. And the cus­tom­ary form that dis­missal has taken is to argue that crit­ics and pur­vey­ors of alter­na­tive approaches to eco­nom­ics sim­ply aren’t capa­ble of under­stand­ing the math­e­mat­ics the main­stream uses. The lat­est instal­ment of this slant on non-main­stream eco­nomic the­ory appeared in Noah Smith’s col­umn in Bloomberg View: “Eco­nom­ics With­out Math Is Trendy, But It Doesn’t Add Up”.

Fig­ure 1: Noah’s tweet announc­ing his blog post

Inequal­ity, Debt and Credit Stag­na­tion

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This was my keynote speech at the French Asso­ci­a­tion for Polit­i­cal Econ­omy (AFEP) annual con­fer­ence in Mul­house, France (the other keynote was given–in French–by my good friend Marc Lavoie, who is now based at the Uni­ver­sity de Paris 13). In this pre­sen­ta­tion, I:

What next after Brexit?

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A cliché—“Expect the Unexpected”—has hap­pened. As I noted in “The Divi­sive Brexit Vote”, though I favoured Brexit, I took the opin­ion polls at face value, and expected that Britain as a whole would vote to remain in the EU. Instead, in the largest elec­toral turnout in twenty years, the UK voted 52:48 in favour of leav­ing the EU.

I’ll leave a post-mortem of the vote itself for later; the main inter­est now is what will hap­pen because of it. Many pun­dits from the Cen­ter, Left and Right opposed Brexit in the belief that eco­nomic Armaged­don for Britain and the globe would flow from it; we’ll now see how real­is­tic their fears were. I regard them as seri­ously overblown, for a num­ber of rea­sons.

The Divi­sive Vote Over Brexit

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Andrew Watt has writ­ten a pas­sion­ate cri­tique of my sup­port for Brexit (“Pro­gres­sive econ­o­mists should sup­port Remain not Brexit – a response to Steve Keen”), and it high­lights a key fea­ture of this pecu­liar ref­er­en­dum: peo­ple who nor­mally find them­selves on the same side in most eco­nomic and polit­i­cal debates have been divided by this ref­er­en­dum.

Andrew com­ments that he broadly agrees with my eco­nomic analy­sis on most issues, but vehe­mently opposes me here. Like­wise, good friends like the het­ero­dox econ­o­mist Geof­frey Hogdg­son; Ann Pet­ti­for, who led the suc­cess­ful Jubilee 2000 cam­paign to can­cel the debt of the world’s poor­est nations; and Yanis Varo­ufakis, who knows a thing or two about the EU, all strongly sup­port Remain.

There has to be a bet­ter way

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Note: This was published as my last column on Business Spectator on April 6th, but it’s now gone missing after News Ltd merged BS with its own in-house stable and changed all the URLs. Given the election and Elizabeth Farrelly’s excellent thought piece in the Sydney Morning Herald “The great tragedy of Malcolm Turnbull”, I thought it was a good time to revive it.

One of the dis­ad­van­tages of grow­ing up is find­ing in your old age that peo­ple you never took seri­ously in your youth are now run­ning your coun­try.

CERN Dis­cov­ers New Par­ti­cle Called The FERIR

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CERN has just announced the dis­cov­ery of a new par­ti­cle, called the “FERIR”.

This is not a fun­da­men­tal par­ti­cle of mat­ter like the Higgs Boson, but an inven­tion of econ­o­mists. CERN in this instance stands not for the famous par­ti­cle accel­er­a­tor strad­dling the French and Swiss bor­ders, but for an eco­nomic research lab at MIT—whose ini­tials are coin­ci­den­tally the same as those of its far more famous cousin.

Despite its rel­a­tive anonymity, MIT’s CERN is far more impor­tant than its phys­i­cal name­sake. The lat­ter merely informs us about the fun­da­men­tal nature of the uni­verse. MIT’s CERN, on the other hand, shapes our lives today, because the dis­cov­er­ies it makes dra­mat­i­cally affect eco­nomic pol­icy.

Zom­bies-To-Be and the Walk­ing Dead of Debt

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Using the dynam­ics of credit–which most other econ­o­mists ignore–I explain why Japan, the USA and UK are among the “Walk­ing Dead of Debt” and why China, Canada, Aus­tralia and South Korea are on their way to join­ing the Debt Zom­bies. This pre­sen­ta­tion is based on work I’m doing for a new 25000 word book for Polity Press enti­tled “Can we avoid another finan­cial cri­sis?”, which should be pub­lished later this year.