Huh? “extended IS-LM (with endogenous money)”??? Paul has of course exposited on and promoted IS-LM many times in the past. But “with endogenous money”? Normally this is something he has derided. In the past, his perspective has been “IS-LM with Loanable Funds”, not “with Endogenous Money”.Steve Keen's Debtwatch
“IS-LM (with endogenous money)”
Steve Keen
6 comments:
Good catch by Keen. I was thinking myself about the irony (lack of self-awareness) in Krugman's post complimenting others for recognizing that problems with their models.
In my opinion, IS-LM is a complete and utter waste of time, right up there with Market Monetarism. But Krugman is sticking with it (with endogeneity)...
Yeah, I noticed that too this morning. I looked back over some of the old Krugman posts but couldn't find another reference.
Steve Keen's results are a direct consequence of his assumption that spending by "patient" entities is simply a function of their holding of money balances, i.e. claims on banks. This is why he finds that credit creation by non-banks has no effect as it does not add to the stock of claims on banks. It's hardly surprising that he finds common ground with monetarists like Nick Rowe.
Steve Keen's results are a direct consequence of his assumption that spending by "patient" entities is simply a function of their holding of money balances, i.e. claims on banks. This is why he finds that credit creation by non-banks has no effect as it does not add to the stock of claims on banks.
If that's true (I say "if" only to acknowledge my lack of firsthand familiarity with the particulars of Keen's work so I'm taking the secondhand quote at face value here), it would seem to suggest Keen doesn't think shadow banking has any effect, which would be a really strange belief.
Am I misreading something there?
It is my understanding of his position that he would not think that shadow banking had much effect because it doesn't create "money". See, for example, this
http://www.businessspectator.com.au/article/2013/9/3/global-news/tobins-lesson-logic-and-banks
where he says the same about lending by "Savings & Loans".
And, yes, I think it's a strange belief, too.
"It is my understanding of his position that he would not think that shadow banking had much effect because it doesn't create "money"
No, it doesn't. What it does is create a dynamic whereby existing money is shifted from one group to another group…ie from the 99% unsuspecting rubes that think they can "win" in a rigged game to the sharks at the top that have access to timely information and arbitrage to turn our losses into their gains.
It is an ex-post reduction of income we have already earned. So they are going back in time and stealing our income.
We won't notice until we can't buy food, for which they will gladly lend us the money to buy.
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