This is the brief talk I gave at a conference celebrating 25 years of the Critical Realist seminar series at Cambridge University. Critical realists argue against the use of mathematics in economics; I argue here that it’s the abuse of mathematics by Neoclassical economists–who practice what I have dubbed “Mythematics” rather than Mathematics–and that some phenomena are uncovered by mathematical logic that can’t be discovered by verbal logic alone. I give the example of my own model of Minsky’s Financial Instability Hypothesis, which revealed the possibility of a “Great Moderation” preceding a “Great Recession” before either event had happened.
There was a time when most educated people knew that the Earth was the center of the universe. There was a sophisticated “Geocentric” model, known as the “Ptolemaic system”, that predicted to very high accuracy the observed movement of all the objects in the Heavens, as they purportedly orbited the Earth on perfect crystalline spheres. 500 years ago, anyone who proposed an alternative model—in which the Sun was the center and the Earth was just another planet orbiting it—was derided as a heretic and a madman.
This is a talk I gave to undergraduate students at Cartanega University in Colombia last week, comparing the insistence on equilibrium modelling by economists to the bad habit of smoking.
In this post I consider the economy in general: I’ll cover asset markets in particular in the next column, but you’ll need to understand today’s post to comprehend the stock and property market dynamics at play. Having said that, the Shanghai Index fell another 7.5% on Tuesday, after losing 8.5% on Monday, and is now down over 45% from its peak—so I’ll try to write the stock-market-specific post by tomorrow. In this post I’ll show, very simply, why a slowdown in the rate of growth of private debt will cause a crisis, if both the level and the rate of change of debt are high at the time of the slowdown.
I’ve just taken part in a live studio debate about China’s crash on France 24. Much to my amazement, the segment is already up on their website–I’ve barely had time to walk home from their London studio. Please click on the links to watch (it’s in Flash format so I can’t embed it here):
As I noted in last week’s post “Is This The Great Crash Of China?”, the previous crash of China’s stock market in 2007 lacked the two essential pre-requisites for a genuine crisis: private debt was only about 100% of GDP, and it had been relatively constant for the previous decade. This bust however is the real deal, because unlike the 2007-08 crash, the essential ingredients of excessive private debt and excessive growth in that debt are well and truly in place.
China’s second stock market crash will be its first fully fledged economic crisis
China has achieved a remarkable transformation in the last 30 years—something that you can only fully appreciate if, like me, you visited China before that transformation began. In 1981/82, I took a group of Australian journalists on a tour of China on behalf of the Australia-China Council. The key purpose was to take part in a seminar with Chinese journalists under the auspices of the “All-China Journalists Association”. Given the unfortunate acronym by our Chinese hosts of SAPS—for the “Sino-Australian Press Seminar”—it was the first seminar between Chinese journalists and those of any other nation.
For the next two days, I’m taking part in a peculiarly British institution (and I’m starting to realize just how many peculiar British institutions there are) called “Clearing”. This is where Universities towards the bottom of the status pecking order here in the UK offer places to students who didn’t get good enough marks to get into Universities towards the top of the pecking order.
I’ve just put A$10,000 of my own money towards improving Minsky, the Open Source program I have designed to enable economists to create dynamic and monetary models of the economy. If you support the work I’m doing to help economics escape its 19th century equilibrium fetish, please consider also making a donation to Minsky’s development via Dr Russell Standish’s PayPal account (or via direct debit, using the account details you’ll find below):
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