My new podcast episode is out

Steve Keen — Economists Prove That Capitalism Is Unnecessary

Actually they’ve done no such thing. But they do effectively assume that it’s unnecessary all the time...

Hayek’s main target here were socialists who believed that a complex economy could be centrally planned—thus doing away with markets institutionally. But he also criticized his mainstream rivals for assuming the existence of all-seeing, all-knowing “economic agents” to overcome mathematical problems in their equilibrium-obsessed models of the economy. Here he was actually in agreement with his great rival Keynes, since they both said that the only way equilibrium could be achieved would be if people’s expectations about the future were both shared and correct.…

Forbes
Economists Prove That Capitalism Is Unnecessary

Steve Keen | 

Matias Vernengo — Keynes on Socialism

Keeper quote. Another good quote in the first comment. Important for understanding the MMT project of resolving the trifecta of growth, employment and price level through functional finance, the sectoral balance approach, and SFC macro modeling rather than a mechanical model like New Keynesians' DSGE and monetary policy.

Naked Keynesianism
Keynes on Socialism
Matias Vernengo | Associate Professor of Economics, Bucknell University

Ramanan — Interest Rate, Growth And Debt Sustainability

John Maynard Keynes’ biggest disservice to the profession is to not start with the open economy.

Of course, this is not only due to Keynes, although as the founder of macroeconomics, he can be claimed that he started it. Most macroeconomists still begin with focus on the nation since macro is based on national accounts.

I have been saying for some time, along with Ramanan and others, that economists need to start focusing chiefly on the global economy as a closed economy, that is, a complex system with entangled webs of elements and relationships in overlapping groups, and a vast network with many nodes. Nation state play an important part in this, of course, and since the time of Keynes, so do international institutions developed subsequently. In addition, owing to advances in communications and transportation technology, the world is "shrinking" and becoming more integrated, with interdependence rising. The combined role of the social, political and economic is also being increasingly recognized as institutions play a greater part, with the result that those who control these institutions set the institutional arrangements that become socially, politically and economically influential if not determinative.

The balance of payment issues to which Ramanan has been pointing for some time is just one of many issues and issue types that need to be taken in account, just in economics. There are many others, as we are becoming woefully aware through the advent of climate change and the threat of pandemics, for instance.

The closest thing to a comprehensive view that I can think of historically is Bucky Fuller's World Game (I've adjusted the paragraphing for easier reading here).

In the 1960's Buckminster Fuller proposed a “great logistics game” and “world peace game” (later shortened to simply, the “World Game”) that was intended to be a tool that would facilitate a comprehensive, anticipatory, design science approach to the problems of the world. The use of “world” in the title obviously refers to Fuller's global perspective and his contention that we now need a systems approach that deals with the world as a whole, and not a piece meal approach that tackles our problems in what he called a “local focus hocus pocus” manner.

The entire world is now the relevant unit of analysis, not the city, state or nation. For this reason, World Game programming generally used Fuller's Dymaxion Map for the plotting of resources, trends, and scenarios essential for playing. We are, in Fuller's words, onboard Spaceship Earth, and the illogic of 200 nation state admirals all trying to steer the spaceship in different directions is made clear through the metaphor - as well in Fuller's more caustic assessment of nation states as “blood clots” in the world's global metabolism.

The logic for the use of the word “game” in the title is even more instructive. It says a lot about Fuller's approach to governance and social problem solving. Obviously intended as a very serious tool, Fuller choose to call his vision a “game” because he wanted it seen as something that was accessible to everyone, not just the elite few in the power structure who thought they were running the show. In this sense, it was one of Fuller's more profoundly subversive visions.

Fuller wanted a tool that would be accessible to everyone, whose findings would be widely disseminated to the masses through a free press, and which would, through this ground-swell of public vetting and acceptance of solutions to society's problems, ultimately force the political process to move in the direction that the values, imagination and problem solving skills of those playing the democratically open world game dictated. It was a view of the political process that some might think naive, if they only saw the world for what it was when Fuller was proposing his idea (the 1960s) - minus personal computers and the Internet.

The playing field was not to be so much as leveled, or expanded, but the good 'ol boy political process was to subverted out of existence by a process that brings Thomas Jefferson into the twentieth century. In order to have this kind of power, the game needed to have the kind of information and tools for manipulating that information that empowers. It needed a comprehensive database that would provide the players of the world game with better data than their politically elected or appointed counterparts.

They needed an inventory of the world's vital statistics--where everything was and in what quantities and qualities, from minerals to manufactured goods and services, to humans and their unmet needs as well as capabilities. They also needed an information source that monitored the current state of the world, bringing vital news into the “game room” live.

None of this existed when Fuller began talking about a world game. And then something funny happened on the way to the twenty-first century: CNN, personal computers, CD ROMS, the Internet and worldwide web, supercomputer power on personal computers and reams of data about the world, its resources, problems and potential solutions started to bubble to the surface and transform the world and the way we communicate, do business, research and govern.

The World Game that Fuller envisioned was to be a place where individuals or teams of people came and competed, or cooperated, to:

“Make the world work, for 100% of humanity, in the shortest possible time, through spontaneous cooperation, without ecological offense or the disadvantage of anyone.”

Economist Kenneth Boulding proposed something similar as his emphasis shifted from focus on economics to general systems theory, of which he was a co-founder. The title of his book, The World as a Total System, is indicative of this, but as a committed Quaker, Boulding was, like Fuller, committed to world peace and distributed prosperity as an end-in-view. Another of his books is Human Betterment, for example. Conflict resolution was also high on his list. He was under no utopian illusions. But he believed that humans hold their destiny in their hands collectively as a species, if they would take ahold of it.

Foundationally, the quest comes back to the enduring question of ethics and social & political philosophy that was first proposed in the West by the Ancient Greeks — What is a good life in a good society? In order to deal with this comprehensively in an integrated fashion, all disciplines need to be brought to bear in a open and ongoing debate over the future of humanity as a species.

There's a saying, "Don't sweat the small stuff." But that does not mean that apparently small stuff can be overlooked. As Aquinas said at the outset of De ente et essentia, paraphrasing Aristotle, "A small mistake in the beginning is a big one in the end, according to the Philosopher in the first book of On the Heavens and the Earth."

The Case For Concerted Action
Interest Rate, Growth And Debt Sustainability

Ramanan

Billionaire says Americans have to "set their sights lower"

Jeff Greene is a guy who displays the typical arrogance of the rich. He's a billionaire speculator who lives in a $200 million mansion in Beverly Hills. He made his money shorting subprime back in the crash. (Now there’s a really useful occupation that adds a lot to society.)

He says that the real problem that Americans have is that their expectations are too high. They need to set their sights lower. (Not his of course.)

Too high? Set their sights lower?

Is this guy a pompous ass or what? There’s forty million people on food stamps and half of Americans who have no net worth at all and people need to set their sights lower?

He goes on. He says, while tech is a big job killer the real nemesis for prosperity-desiring Americans is the trend toward equalization of wages, globally. Apparently in his mind it’s all convergence to the bottom and not the other way around?

History would prove him wrong on both counts. Technological advances have always spurred massive creation. Did he ever hear of Henry Ford? Furthermore, wage trends always tended to converge from low to high, not other way around.

The reason we have declining or static wages has been due to policies specifically designed to make that happen. It’s called Neoliberalism and it’s been in place for the last 40 years. Deregulation, “free trade,” the elevation of markets, profits and capital over labor, the environment, common sense and everything else. That’s the reason  it’s happening. Policy has shut the door on prosperty for all but a few and only policy can reverse it. 

Greene departs from other, typically pompous rich brethren when he says that the rich should pay more taxes. However, I’m sure he says that knowing that he’ll never have to worry about that because his “kind” have bought the system and they’re not about to let that happen. So he can feign being a magnanimous good guy when he’s really just a pompous ass.

Resetting expectations lower is nothing more than accepting a form of imprisonment.

This guy is proof that Keynes was right when he said “Let’s euthanize the rentiers.”

Lars P. Syll — The dilemma of probability theory (wonkish)

This importantly also means that if you cannot show that data satisfies all the conditions of the probabilistic nomological machine, then the statistical inferences used – and a fortiori neoclassical economics – lack sound foundations!

The dilemma of probability theory (wonkish)
Lars P. Syll | Professor, Malmo University

Lars P. Syll — Simon Wren-Lewis on rational expectations — so wrong, so wrong

The real macroeconomic challenge is to accept uncertainty and still try to explain why economic transactions take place – instead of simply conjuring the problem away by assuming rational expectations and treating uncertainty as if it was possible to reduce it to stochastic risk. That is scientific cheating. And it has been going on for too long now.

Simon Wren-Lewis on rational expectations — so wrong, so wrong

Lars P. Syll | Professor, Malmö University

See also Micro vs Macro, which is a longer and more detained (wonkish).

Magpie — Keynes and Hayek: Yin and Yang

Keynes and the Fabian "social democrats" (as Commenter 2 would have) were indeed elitists. Commenter 2 is right on that. Paul Samuelson, for instance, also said that Keynes (like Bertrand Russell) "was an elitist exponent of the middle classes" (see here)

In that sense, Keynes and the Fabian socialists were no different from "Hayek et al".

Whatever differences Hayek and Keynes had in a number of areas (and I am not implying these differences were unimportant), they both shared something fundamental: a belief that there is a natural order to society, a social hierarchy.

It just so happens that in said hierarchy, they and their peers were at the top; and the rest of us at the bottom. For them, that's how things are and that's how they should be.

Theirs is a hard job, but someone's got to do it...

Magpie's Asymmetric Warfare
Keynes and Hayek: Yin and Yang
Magpie

Alan Nasser — The Economics of Over-Ripe Capitalism

Must-read for creating "the new meme" and the narrative in which it is embedded. And, yes, it is in Keynes. Nothing new to invent.

CounterPunch
The Economics of Over-Ripe Capitalism
Alan Nasser | Professor emeritus of Political Economy and Philosophy at The Evergreen State College. This article is adapted from his book, The “New Normal”: Persistent Austerity, Declining Democracy and the Globalization of Resistance, to be published by Pluto Press later this year or early next.
(h/t Kevin Fathi via email)

Some debt terrorists won't go quietly

Everyone knows austerity and the debt fears that drove the doctrine are total junk economics.

It's just a matter of time before the whole thing is abandoned and we enter a new economic age of enlightenment led by policies that have been espoused by this blog and MMT for years.

Some zombies refuse to die, however. You can find them at Cluelesshedge.

Lars P. Syll — The state of modern macroeconomics – indescribable misery

Lars explains in some detail what is wrong with dominant neoclassical approach to macroeconomics and what needs to be done. It really comes down to Paul Davidson's criticism of assuming ergodicity in modeling a non-ergodic environment, which is akin to trying to sledgehammer a round peg into a square hole.

Unlike physical systems, social systems operate in terms of feedback and so the future does not necessarily resemble the past in a predictable way, no matter how sophisticated the statistical analysis — as Keynes pointed out decades ago in his criticism of econometrics. Economies, being people-based hence reflexive, are organic rather than mechanistic, so mechanistic modeling does not apply. Methodological atomism is a dead-end.

Lars P. Syll's Blog

The state of modern macroeconomics – indescribable misery

Lars P. Syll | Professor of Social Studies and Associate professor of Economic History at Malmö University

Macroeconomics is not a pure science. It is a policy science, or better, an aspect of poli sci, to the degree it can be called a science. It is also normative in addition to positive, in that it is concerned with policy issues to the degree that government is involved, which in modern economies is in a huge way. As such it is a part of policy studies in general and need to be approached as such.

Here is a slightly edited response in an email exchange with Roger Erickson yesterday that speaks to this:

Roger: "How do you get people to explore their options? Clarity of purpose first! Then any and all methods become coincidental, rather than ideological. The same message is enshrined today in OBT&E. However, if left to name only, every named effort is always in danger of becoming it's own form of religion - rather than retaining it's function."

In my view, this requires a meta-disciplinary approach to policy studies. The departmental model of the university is in the way of this. It results in the compartmentalism of knowledge, with the result that knowledge workers end up working in closets instead of forums.

This is being realized in the area of consciousness studies, where a new field is emerging and attracting the whole range of scholars from the sciences, humanities and arts. Realization of the need for this unified approach came about for several reasons.

First, consciousness is foundational to experience, hence our awareness of self and world. It is also involved in our personal and social construction of the "world," which is not merely given but structured, for instance, in accordance with the prevailing cultural worldview as colored by subcultural affiliations and personal tendencies.

Secondly, the so-called hard problem of consciousness is reconciling quantity and quality in a comprehensive explanation. How color is perceived as qualitative based on quantifiably measurable differences in wave frequency and interference is a simple instance of this as yet unexplained conundrum. Science is essentially quantitative in its approach to a fundamentally qualitative world. Hence, the question arises as to whether a scientific explanation of consciousness is even possible when it is the field on which quantity and quality meet.

So the two major issues are the nature of consciousness and how it works in relation to a subject as a "person" and the object(s) for the subject as "reality." The problems involved in explaining consciousness are far from resolved but now there are a lot of very smart people working together on potential solutions. 

On thing is quite certain. Consciousness involves complexity and therefore emergence. It is fundamentally non-ergodic even though "rational." "Rational" cannot be equated with "ergodic" unless one is willing to hold also that consciousness is inherently non-rational, which is anti-humanistic. Most scientists are humanists, so that is not palatable to them. This dilemma is quite comparable to the state of most orthodox economists, which they "solve" by positing a rational representative agent.

A similar approach to the current approach to consciousness studies is needed to policy studies, in that many similar issues arise with respect to how consciousness manifests in various societies and the ways in which individuals contribute to manifesting social phenomena, where both consciousness and context are determinative. The challenge lies in capturing the relevant information and using it to its full potential for social optimization. Presently, there are a number of different fields that are concerned with aspects of this but there is little if any integration.

At present, policy is determined by policy wonks well versed in poli sci and history, academic economists using assumption-based models, business people applying business principles to government, and politicians interested in the next election, where the criterion is fundraising ability. These people are mostly working at cross purposes, and they are neither listening to heterodox opinion in their own fields, nor acquiring information and advice from other relevant fields like sociology. Moreover, there is no reconciliation of monetary economics with the rest of policy studies.

Economist Kenneth Boulding is an interesting example. Working from the Forties into the Eighties to develop an integrated approach that also brought in monetary economics, he quickly realized that he was going to make no headway in the economics profession, so he went his own way and co-founded General Systems Theory.

"Systems theory studies the structure and properties of systems in terms of relationships, from which new properties of wholes emerge. It was established as a science by Ludwig von Bertalanffy, Anatol Rapoport, Kenneth E. Boulding, William Ross Ashby, Margaret Mead, Gregory Bateson and others in the 1950's. Systems theory, in its transdisciplinary role, brings together theoretical principles and concepts from ontology, philosophy of science, physics, biology and engineering. Applications are found in numerous fields including geography, sociology, political science, organizational theory, management, psychotherapy and economics amongst others." — Bertalanffy's General Systems Theory by Gregory Mitchell

General Systems Theory is being applied in psychology and consciousness studies, where Boulding is well recognized. How many economists have even heard of him? Interestingly, through Randy has and has written on his work.

So the groundwork has already been done in systems theory and monetary economics and the foundation laid. No the question is how the superstructure gets built on that foundation, considering the powerful interests heavily vested in the status quo and therefore aligned against change, especially holistic change that runs counter to privilege and favoring special interests. Here is where issues of power come in. See, for instance, Michael Perelman, "The Power of Economics and the Economics of Power," and The Power Elite by C. Wright Mills.

I would be pessimistic about change in the face of these obstacles if were not for the vise that is tightening, one face of which is looming resource shortage as the emerging world comes on line and the opposing face is the increasing pace and attendant consequences of global warming. Given the fragility of the financial system due to lack of understanding of monetary economics and rampant corruption, this trend could be greatly exacerbated. Humanity is at make or break it moment, and a whole lot of younger people globally realize this, and see their futures hanging in balance. So there is reason to hope that sense will prevail and humanity will pick up the tools that it has already developed and are available.

Andrea Terzi — Olli Rehn and ‘distinguished’ economists

Andrea Terzi schools European Commissioner for Economic and Monetary Affairs Olli Rehn on saving and the paradox of thrift. Another case of a prominent economist either unaware of Keynes or ignoring him.

Mepoc
Olli Rehn and ‘distinguished’ economists
Andrea Terzi | Professor of Economics at Franklin College and he is the coordinator of the Mecpoc project that promotes and encourages education and research in new concepts and methods of economic policy analysis

Dirk Ehnts — In the long run we are all – what?!

I welcome the fact that the European institutions start to incorporate Keynes and his ideas into their speeches and policies (see Mr Rehn’s recent comments), but I have yet to read a single sentence in which someone from the troika makes sense of Keynes and his ideas. Until now, it all comes down to: “see, we are Keynesians, too, so there is no alternative.” The Spanish newspaper EL PAIS calls it smearing Keynes(ianism). And Europe continues to fall apart because its policy elite has lost its ability to discuss and evaluate ideas.

econoblog101
In the long run we are all – what?!
Dirk Ehnts | Berlin School for Economics and Law

Lord Keynes — World GDP versus Total Value of Financial Asset Market Exchanges

Any economic theory that ignores this type of spending and its sector of the economy (i.e., the secondary financial asset markets) is deeply flawed and liable to be missing something fundamental about modern market economies....

This type of spending is also a fundamental reason why Say’s law is one of the most ridiculous ideas ever formulated by economists. 

Social Democracy for the 21st Century
World GDP versus Total Value of Financial Asset Market Exchanges
Lord Keynes

Bill Mitchell — Keynes and the Classics Parts 8 and 9

While I usually use Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray, today I am departing from that practice (deadlines looming) and devoting the next two days to textbook writing. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog approach.

I am currently working on Chapter 11 which opens like this: 

Chapter 11

11.1 Introduction and Aims

In Chapter 10, we discussed issues relating to labour market measurement. In this Chapter we will focus on theoretical concepts that underpin the measurement of economic activity in the labour market and the broader economy.
The Chapter has five main aims:

• To explain why mass unemployment arises and how it can be resolved.
• To develop the concept of full employment.
• To consider the relationship between unemployment and inflation – the so-called Phillips Curve.
• To develop a buffer stock framework for macroeconomic management (full employment and price stability) and compare and contrast the use of unemployment and employment as buffer stocks in this context.
• To more fully explore the concept of a Job Guarantee (employment buffer stock) approach to macroeconomic management.

NOTE:
The Keynes and Classics series so far is:

• Keynes and the Classics – Part 1 – explains how the Classical system conceived of labour supply and demand and how these come together to define the equilibrium level of the real wage and employment.
• Keynes and the Classics – Part 2 – explains how the labour market determines the level of employment and real wage, which in turn, via the production function set the real level of output.
• Keynes and the Classics – Part 3 – tied the previous conceptual development into the denial that there could be aggregate demand failures (Say’s Law), introduced the loanable funds market and discussed the pre-Keynesian critique (Marx) of the Classical full employment model.\
• Keynes and the Classics – Part 4 – which began Keynes’ critique of Classical employment theory.
• Keynes and the Classics – Part 5 – continues the critique of Classical employment theory.
• Keynes and the Classics Part 6 – considers Keynes’ critique of the Classical Theory of Interest.
• Keynes and the Classics Part 7 – introduces the preliminary concepts in developing a macroeconomic theory of labour demand. 

Today I complete the conceptualisation of a macroeconomic labour demand curve.

11.16 The macroeconomic demand curve for labour

MATERIAL HERE FROM LAST WEEK … THE FOLLOWING SECTION IS WHERE I REACHED LAST TIME AND IS SLIGHTLY RE-WRITTEN TO BETTER DEVELOP THE ARGUMENT.

Money wage changes and shifts in effective demand

Bill Mitchell — billy blog
Keynes and the Classics Part 8
Bill Mitchell


Today I complete the conceptualisation of a macroeconomic labour demand curve and go onto more modern interpretations of Keynes and the General Theory.

11.16 The macroeconomic demand curve for labour

Keynes and the Classics Part 9

Stephen Ewald — History does rhyme …

Look after the unemployment, and the Budget will look after itself.— John Maynard Keynes

GIGO
History does rhyme …
Stephen Ewald

James K. Galbraith — Keynes, Einstein, and Scientific Revolution

Following up on yesterday's Galbraith post.

The American Prospect (December 19, 2001)
Keynes, Einstein, and Scientific Revolution
James K. Galbraith | Lloyd M. Bentsen Jr. Chair in government-business relations at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, a senior scholar of the Levy Economics Institute, and chair of the Board of Economists for Peace and Security

"Orthodox" Economics is 80 Years out of Date! And Useless.

commentary by Roger Erickson

Keynes vs. Hayek on BBC Radio 4

John Maynard Keynes and Friedrich Hayek are regarded as two of the twentieth century’s greatest economists. Modern day followers came together at the London School of Economics to debate the ideas of their intellectual heroes. 

Weepin' Buddha on a frictionless incline! Economics is 80 years out of date!

Do physicists get together and rehash Bohr/Einsteign/Schroedinger discussions?

Do construction firms stage imagined discussions between outdated engineers?

Weepin Laozi, Imhotep & Wotan! This is appalling. Can't economics departments acknowledge that actual operations already moved on - 80 years ago, and have continued moving FURTHER on ever since?

We need an Operations Religion just to help economists worship at the Mirror of Obsolescence, so they can recognize it sooner.  Further, we should insist on establishing operational shrines at the LSE and Harvard Department of Economics, specifically to counter the black holes for operational relevance which are manifesting there.  Surely the LSE and HDE must be considered dangerous leaks in the Bozone Layer?

Note to acolytes of imagined academic heroes. You do NOT own operational reality. Get over it. It moved on via many added layers of orthogonal, operational dimensions, while you were still arguing over which obsolete tangent to follow into oblivion.

It's beyond pathetic or irrelevant. It's suicidal. Suicide via Luddite Credentials, in a race to extinction. The BBC should have also invited the acolytes of Kevorkian to the discussion. That would have at least made it educational for new students, as a warning example.

Steve Keen — The Euro as the SDR of Europe?

Steve proposes a novel way out of the euro crisis.

Read it at Steve Keen's Debtwatch
The Euro as the SDR of Europe?
Steve Keen

Lars Syll — Oh dear, oh dear, Wren-Lewis gets it so wrong – again!

Axel Leijonhufvud the first “New Keynesian”? No way! This is so wrong, so wrong.

Read it at Lars P. Syll's Blog
Oh dear, oh dear, Wren-Lewis gets it so wrong – again!
Lars P. Syll | Professor, Malmo University