Steve keen
I had prepared a set of slides on "Can we avoid another financial crisis?", but with an audience exclusively of economics students at Sheffield University today, and pressed for time, I "went rogue", and challenged the limited nature of the "education" they get in economics today.
Gee it felt good! I've endured seeing rubbish portrayed as reason in economics for 45 years now, and I've hardly been silent about it of course. But I really cut loose tonight.
46 years ago, I was doing what these students are doing today: challenging what they are being taught as not merely inadequate for actually understanding the economy, but dangerously misleading about how this complex, evolving system actually behaves.
I know a lot more about all of those factors now than I did then, and economics has superficially changed a lot too since 1971, when I turned from being a Believer to being a critic. But beneath its modern veneer there is an even more extreme, Ptolemy-like vision of an inherently stable system, with "shocks" to explain its deviations from equilibrium, and "frictions" to explain their length, than I railed against at Sydney University five decades ago. It's deferents and epicycles by other names.
As a way to understand the economy, equilibrium methods are, as Keynes once said, "blither", both historically and technically. No-one in their right mind could imagine that the economy was in equilibrium--or merely displaced from it by an exogenous shock"--a decade ago. Yet economists continue to not merely defend, but champion, an equilibrium-focused methodology.
There is simply no excuse for that today. The century when using equilibrium-fixated methods to describe a dynamic, evolutionary system could be excused ended in the 1970s, when system dynamics and complex systems analysis were developed.
It's far past the time that economists should have adopted the modern methods that engineers, meteorologists and mathematicians have designed for handling complex, far-from-equilibrium systems. But they never will, if left to their own devices. They need the cattle prods of student discontent, and of public ridicule. I encouraged the students to keep giving their lecturers hell since, to take the gist of Keynes's frequently misquoted and misunderstood statement on "the long run":
"Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again."
Don't abuse mathematics by calling what mainstream economists do "mathematical" either! Their methods are superficially reminiscent of mathematics, but a better description is mythematics. The world deserves better.
Keen is right the simplistic mechanistic thinking of the Enlightenment is now beginning to lose its appeal as increasing insight into the complexity of life and the universe becomes apparent.
ReplyDelete""Can we avoid another financial crisis?"
ReplyDeleteThe financial system is a REGULATED system, it there is a problem, you have to examine the REGULATORY process...
"this complex, evolving system actually behaves."
Its not an "evolving" system its REGULATED... more objectification/anthropormorphism from a second rate intellect here who has "the economy behaving!"...
Economists are not the A-Team...
Tell Keen to explain what is happening within this REGULATED system without using metaphors or objectifications or anthropormorphism or mind-reading.... just use the standard terminology of the Accounting and Finance sciences ONLY...
Keen is like a Svengali to morons....
ReplyDeleteOh boy, he's one of my heroes.
DeleteCalling bullshit on Matt (again). Financial concerns are largely self-regulated, under-regulated and unregulated. Then there are loopholes (intentionally built in) and lack of enforcement (also by intent, largely through under-funding). So regulations don't mean a whole lot. Kind of like the 55 mph speed limit.
ReplyDelete“increasing insight into the complexity of life and the universe becomes apparent.“
ReplyDeleteWhat the F does any of that have to do with morons thinking “banks lend out the deposits!”????
If they were self regulating they would never have a “financial crisis”...
ReplyDeleteHow is it when govt intervenes to directly modify the asset composition of REGULATED depository assets its then “self regulated!”
ReplyDelete??????
This comment has been removed by the author.
ReplyDeleteArticulating ideas by using metaphors and anthropomorphic language was his attempt at humor, I think. Those tools are most effective when people have no prior knowledge of your arcane topic but these are econ undergrads. They needed to be entertained.
ReplyDeleteKeen understands how to determine causality, knows how to perform basic cross correlations and rudimentary analysis. Better than 80% of economists!
I looked at his software but can't say I understand his circuit model well enough to criticize it.
@ Matt
ReplyDelete"If they were self regulating they would never have a “financial crisis”... "
It is precisely because they were largely self-regulating that there was a financial crisis (thanks largely to deregulation signed by Clinton [twice] and Bush).
Greenspan Concedes Error on Regulation
http://www.nytimes.com/2008/10/24/business/economy/24panel.html
Warren: Bank self-regulation "wrong and dangerous"
https://www.cbsnews.com/news/warren-bank-self-regulation-wrong-and-dangerous/
It's an revolving door. The bankers get in government and change the law, then go back to the banking sector and make s lot of money. They go backwards and forwards changing regulations willy nilly.
DeleteAnyhow, in the 2008 crash, a lot of them should have gone to prison for their fraudulent activities but they got away scot free. Why, because they control the government.
ICYMI
ReplyDeleteWhere advanced Heterodoxy — represented by Steve Keen — took the wrong turn
http://axecorg.blogspot.de/2016/04/where-advanced-heterodoxy-represented.html
Keenonomics, aggregate demand/change of debt, and some misleading critique
http://axecorg.blogspot.de/2015/06/keenonomics-aggregate-demandchange-of.html
Throw them out! Orthodox and heterodox economists are unfit for science
http://axecorg.blogspot.de/2017/12/throw-them-out-orthodox-and-heterodox.html
#Economics #FailedScience #FakeScience #CargoCultScience #BogusScience #ScientificIncompetence #MicroFoundations #MacroEconomics #OrthodoxEconomics #HeterodoxEconomics #Pluralism #PoliticalEconomics #ParadigmShift #Science #Macrofoundations #Axiomatization
So you're saying, Egmont, that your economic system would also work in socialist economies where the government supplies the health care and the National Insurance schemes.
DeleteI'm all for capitalism and private enterprise, but I just prefer a mixed economy. Also, can your equations take onboard regulations that protect workers from exploitation? And trade unions should have their powers restored too.
Trade unions help get wages up and this helps the economy because workers spend their money into the economy which is good for businesses and especially local small businesses.
What do you say about neoliberalism where the mega rich store their wealth into tax havens while shifting the taxes onto everyone else, like sales tax rises, VAT. The taxes are too high because the elite want us to pay for their war machine to keep their empire going, but they don't want to pay anything towards it themselves.
Oh ok now we are going to start to rely upon a clarinet player and a diversity hire for guidance on regulatory theory and regulatory analysis... good idea...
ReplyDelete"Orthodox and heterodox economists are unfit for science"
Yes this is the main problem... they have never been trained.... wrong people in the wrong jobs.. its not just banking regulation you see it everywhere...
Matt: "If they were self regulating they would never have a “financial crisis”..."
ReplyDeleteWow! And this from the guy who's always calling rightwing libertarians "idiots". Why are they idiots when you agree with them on self-regulation? For all Matt's absurd comments about any number of topics, I took him to be an absolutely first rate mind on banking and monetary operations. But this comment about self-regulation being a panacea for crises is breathtaking.
Clarinet player? How many times has this been disproved? Why intentionally lie? Can no one have a hobby? Greenspan was "educated" to the highest standards in economics, yet Matt refuses to call him a trained economist but a clarinet player. If you carry on like this, readers of this blog will make the appropriate conclusions about your veracity and standards.
If they were self-regulating they would just monitor their asset levels and then just add assets and capital in regulatory proportion as they saw as appropriate for business prospects... if assets ran above target then they would add capital to allow for further grwoth in asset levels and if assets fell below target they would add capital to bring the ratio back to target...
ReplyDeleteFact is they are NOT un-regulated and NOT self-regulated so therefore you have to examine the regulatory process if you see "crisis" occurring from time to time...
If there is a "crisis" in a regulated system, you HAVE TO examine the regulatory process to identify the causes of the "crisis"...
Like if there is a meltdown at a nuclear power plant, nobody there trying to figure out what happened would be examining what goes on in a solar panel... they would be examining the regulated operations of the nuclear plant...
Neither Greenspan or Warren are qualified to be working in the area they are working...
Kaivey
ReplyDeleteYou say “So you’re saying, Egmont, that your economic system would also work in socialist economies where the government supplies the health care and the National Insurance schemes.”
No, I am saying that Steve Keen’s approach is faulty and therefore NO alternative to orthodox economics. The essential point is that Steve Keen’s profit theory is false. See
Debunking Squared
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=%202357902
It should be obvious that an economist who does not know the Profit Law is a laughing stock just like somebody who calls himself an engineer and does not know the Law of the Lever.
Egmont Kakarot-Handtke
Do you know what, Egmont, I'm going to ask him. He has his own blog and as he is now crowdfunded he might be easier to contact than he used to be.
ReplyDeleteKaivey
ReplyDeleteSteve Keen is busy with “Debunking Mainstream economics: equilibrium barter models for a far-from-equilibrium monetary economy.”
Mainstream economics needs NO repetitive debunking. It is dead since 140+ years and everyone with two brain cells got it by now. The point is to move on: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)
Heterodoxy in general and Steve Keen, in particular, have failed on this score.#1, #2
Egmont Kakarot-Handtke
#1 The stupidity of Heterodoxy is the life insurance of Orthodoxy
http://axecorg.blogspot.de/2017/04/the-stupidity-of-heterodoxy-is-life.html
#2 Economics: communication without content
http://axecorg.blogspot.de/2018/02/economics-communication-without-content.html
Hi Egmont,
DeleteWhat do you think of Sweden's failure of privatising schools. It seems that Milton Friedman hadn't factored into his theories that schools would cheat, or that policing privatised schools would make them two to three times more expensive.
In the book, The Private Abuse of the Public Interest: Market Myths and Policy Muddles, LD Brown and Lawrence Jacobs, say how the market works well for simple things where the price is easy for people to see that it is correct, but for complicated things like health care and schooling people can easily be conned. In this case it is better to have a government pay professionals to go through the small print and negotiate the best deal for the public. They can also get a very good price because they are buying in bulk. Milton Friedman didn't figure any of this on his theories, have you?
Simple things like consumer goods and food, like cans of beans and cars, etc. Millions of people got ripped off by the pensions industry. Most of private pensions are not very good.
Delete'“increasing insight into the complexity of life and the universe becomes apparent.“
ReplyDeleteWhat the F does any of that have to do with morons thinking “banks lend out the deposits!”????'
It fucking means Franko that the notion economies self-equilibrate like a steam engine system with a governor is now increasingly seen as simple-minded. Got it!
Economists: political trolls since 200+ years
ReplyDeleteComment on Kalvey on ‘Steve Keen ― Debunking Mainstream economics: equilibrium barter models for a far-from-equilibrium monetary economy’
When an economist talks in these days about barter models and equilibrium you know immediately that he is not right in his head. This is the actual state of economics: provably false
• profit theory, since 200+ years,
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S/IS-LM), since 80+ years.
So, the only interesting question for every economist is how to get out of the self-created proto-scientific black hole. Obviously, economists have done a bad job. More specifically, both orthodox and heterodox economists have messed up science because they were too much occupied with political agenda pushing.
Imagine, 150 years ago some physicists and engineers were given the task to build a machine that can fly. But instead of figuring out the laws of aerodynamics and thermodynamics and to find suitable materials they discuss whether it is better to fly eastwards or westwards and whether tomato juice or coffee should be served during the flight. No question, these folks would not have gotten anything off the ground until this day.
Just the same with economists. They have not figured out the laws that govern the monetary economy but they had a lot to say about political issues like liberty, democracy, capitalism, and communism. Until this day, they have no clue how the price- and profit-mechanism works. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.
And Steve Keen is still debunking barter and equilibrium models ― how sick is this?#1
Note that politics and science are spheres that run on entirely different principles and have therefore to be kept strictly apart. Political issues are discussed in the political sphere and are ultimately decided by the legitimate sovereign. The economist qua scientist has not more to say in the political sphere than any other citizen. All the more so, as he has not done is scientific homework and figured out how the economy works. Until this day, economic policy guidance has NO sound scientific foundations but is plucked out of the thin air of political populism.
What is called political economics is a flagrant abuse of the prestige and authority of science for agenda pushing. Make no mistake, anybody is entitled to push any agenda. But to push a political agenda in the bluff package of science is the worst fraud of all.
You ask: “What do you think of Sweden’s failure of privatising schools. It seems that Milton Friedman hadn’t factored into his theories that schools would cheat, or that policing privatized schools would make them two to three times more expensive.”
I think that this is the alone the business of the Swedish people to discuss and to decide. And if the Swedish people are smart the last thing they would do is to follow incompetent scientists and brain-dead agenda pushers like Milton Friedman.#2
Needless to emphasize that Steve Keen and you have also to be counted among the trolls.
Egmont Kakarot-Handtke
#1 Economics: communication without content
https://axecorg.blogspot.de/2018/02/economics-communication-without-content.html
#2 For details of the big picture see cross-references Failed/Fake Scientists
http://axecorg.blogspot.de/2015/11/failedfake-scientists-cross-references.html
Steve Keen predicted the 2008 crash, did your mathematics and theories indicate that a crash was eminent then, Egmont?
DeleteKevin
A broken clock is correct twice a day...
ReplyDeleteKaivey
ReplyDeleteScience does NOT predict the future (only charlatans do)
https://axecorg.blogspot.de/2016/08/science-does-not-predict-future.html
Egmont Kakarot-Handtke