Monetary Realism from the Bank of England

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A cou­ple of weeks ago I took a swipe at Bank of Eng­land over a speech by its Gov­er­nor Mark Car­ney that was unre­al­is­tic about the dan­gers of a bloated finan­cial sec­tor (Godzilla is good for you? March 3). Today I’m doing the oppo­site: I’m doff­ing my cap to the researchers at Thread­nee­dle Street for a new paper “Money cre­ation in the mod­ern econ­omy,” which gives a truly real­is­tic expla­na­tion of how money is cre­ated, why this really mat­ters, and why vir­tu­ally every­thing that eco­nomic text­books say about money is wrong.

Minsky users please update

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The penul­ti­mate Win­dows ver­sion of Min­sky (released a few days ago) inad­ver­tently installed an old ker­nel with a very low exe­cu­tion speed. This has been fixed in the lat­est ver­sion. If you down­loaded a few days ago and now find that mod­els run very slowly, please down­load the lat­est ver­sion today (it has the same name: Minsky.1.D32). If you down­loaded before then, the exe­cu­tion speed will be fine, but a few bugs have also been fixed in this release: see Tick­ets for the details (from my per­spec­tive, the main bug was a fail­ure to pass LaTeX for­mat­ting codes between God­ley Tables).

Australia’s RBA is asleep at the wheel

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Last week I satirised Australia’s out­moded belief that the rate of inter­est can be used to fine tune the econ­omy. This belief was ensconced in the so-called “Tay­lor Rule”, which accu­rately described what cen­tral banks tended to do until the eco­nomic cri­sis hit in 2007. That rule saw the infla­tion rate and the unem­ploy­ment rate as the two key eco­nomic indi­ca­tors, and the inter­est rate as the key mech­a­nism needed to achieve an accept­able bal­ance between them.

Mostly Harmless

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Dou­glas Adams’ bril­liant comic farce The Hitchhiker’s Guide to the Galaxy describes Earth as resid­ing in sec­tor ZZ9 Plural Z Alpha, one of “the uncharted back­wa­ters of the unfash­ion­able end of the West­ern Spi­ral Arm of the Galaxy” and being inhab­ited by “ape-descended life forms” who “are so amaz­ingly prim­i­tive that they still think dig­i­tal watches are a pretty neat idea”.

Modeling Financial Instability

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This paper will be pub­lished in a forth­com­ing book on the cri­sis edited by Malliaris, Shaw and She­frin. In what fol­lows, I derive a cor­rected for­mula for the role of the change in debt in aggre­gate demand, which is that ex-post aggre­gate demand equals ex-ante income plus the cir­cu­la­tion of new debt, where the lat­ter term is the veloc­ity of money times the ex-post cre­ation of new debt.

Economists are almost always wrong about economics, despite what they may think

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That ver­bose title is almost the reverse of a quin­tes­sen­tially arro­gant state­ment of eco­nomic supremacy pub­lished in the UK’s Daily Tele­graph - on the edi­to­r­ial page of the busi­ness sec­tion — by Andrew Lil­ico. Enti­tled “Econ­o­mists are nearly always right about things, despite what you may think in the print edi­tion, its con­tent and tone encap­su­lated every­thing about eco­nomic the­ory, and econ­o­mists’ blind belief in it, that led me to write Debunk­ing Eco­nom­ics over a decade ago.