A new organisation called NEKS (for “New Economic Knowledge Services”, see www.neks.ltd) is holding its inaugural conference on the economics of infrastructure In Westminster on Tuesday January 24th, and you should attend.
Why NEKS, and why Infrastructure? The economic importance of infrastructure is obvious, but the actual performance of infrastructure often differs radically from what is predicted when it is being planned. Three forms of delusion make many infrastructure projects far less beneficial than expected by their proponents: the complexity of execution is underestimated, the benefits are overestimated, and benefits are also calculated poorly using dodgy economic theory.
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.
I’ve had some tough interviews over the years (such as the BBC HARDtalk! interview earlier this year with Stephen Sackur), but I’d have to credit the student interviewers at the University of Amsterdam’s Room for Discussion event with giving me the toughest, well-informed grilling my ideas have had in public. I’m following up later today with a keynote speech at the Dutch Rethinking Economics event tonight, and I’ll post that here later this week.
Apparently it’s the fifth anniversary of the day I gave this talk, to the Occupy movement in Sydney, in Martin Place, right outside the offices of the Reserve Bank of Australia. The day after, the site was shut down by the police. It seems I was jinxed, because the same thing happened in New York, the day after I simply dropped off a couple of copies of my book Debunking Economics. The speech holds up pretty well, though I’ve developed my technical arguments a lot since then.
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:
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”.
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.
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