Instability may not be optional (1)

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Syd­ney Morn­ing Her­ald com­men­ta­tor Gareth Hutchens com­ment­ed that the Rogoff and Rein­hart affair shows how slow econ­o­mists are to realise that their data may be dodgy, but to my mind that is insignif­i­cant com­pared to how slow they are to realise that their the­o­ries are dodgi­er still.

A defin­ing fea­ture of main­stream eco­nom­ic mod­el­ling is the belief that the econ­o­my is sta­ble: giv­en any dis­tur­bance, it will ulti­mate­ly return to a state of tran­quil growth. Main­stream­ers argue over how fast this will hap­pen: Chicago/Freshwater /New Clas­si­cals argue it adjusts instant­ly, while Saltwalter/New Key­ne­sians say it will take time because of ‘fric­tions’ in the economy’s adjust­ment process­es. But they both take the innate sta­bil­i­ty of the econ­o­my for grant­ed, and this belief is hard-cod­ed into their math­e­mat­i­cal mod­els
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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.