Sunday, May 31, 2015

IDEA — Consensus Falls Toward Keen's View

When IDEA published Steve Keen’s 2015 Global Economic Outlook in January, its predictions were well outside the consensus. Today, only five months later, the gap has substantially closed, without revising the outlook. Indeed, we witnessed a remarkable revision to the consensus Q1 US GDP forecasts, when they came down dramatically in April, after the quarter had closed, forecasting the past. 
Serious trouble in China, stagnation in Europe, weakening US data – none of it conclusive in terms of timing, but the pattern is ever more clear. Prof. Keen’s assessment is built on a model of the economy which recognizes the centrality of private debt and the change in private debt. The model integrates money, credit and banking and utilizes non-linear dynamics to simplify a complex system. In each of these ways it is unique among its peers.....
Consensus Falls Toward Keen's View


db68 said...

Keen is awesome!

Roger Erickson said...

Keen is over complicating the simple rule of biology: a 2-stage optimization is used by growing aggregates.

1) Keep the components alive.
2) Grow the system.

Living organisms have been doing this for 4.5 billion years on planet earth, WITHOUT inventing non-linear dynamic equations. It's always faster to BE the dynamic calculation, through practice.

Non-linear dynamic equations are useful primarily for QUICKLY modeling outcomes in CONTROLLABLE PROJECTS, such as construction. Such equations can never guide aggregate evolution simply because they never know the emerging variables soon enough to do the calculation usefully.

So use Keen's approach for local, constrained-project planning (e.g., personal investing) ... but do NOT try using it to formally calculate Policy. Policy needs to be far more agile, and ad hoc.

Trial and error still works best, precisely because we always face unavoidable pressure to make rapid decisions based upon insufficient data.

Social species solved that by simply using Automatic Stabilizers to drag all explorers along once unpredictable new adaptive paths are found. Scavenging and preserving (internal) diversity falls out simply, from the two-stage optimization strategy listed.

There are simpler ways to practice cultural coordination.