Who needs mainstream friends when you have enemies like these?

Steve Keen is on top form in his latest Forbes column.

He thinks that when it’s pointed out to Munchau who says ‘their [mainstream macro economists’] system of equations is linear’ that it is very often not, that this is a ‘smokescreen to justify a copout.’  Steve.  Read some of the few thousand papers now on nonlinear models in the mainstream.  What kind of ‘copout’ is that?

This is standard fare from Steve.  He makes his living out of ‘debunking’ a discipline he doesn’t read or know much about.  Either that, or, if he does read it, he calculates that no-one will call him out.  We know this must be true because, at various points, he has said that modern macro ignores money, ignores banks;  that you can’t publish in top journals unless you use rational expectations.  [See my post on his ridiculous contribution to a recent radio program in the UK].

I also don’t get why you have to read anything into the different messages coming from Blanchard, DeLong, Krugman or myself.  The mainstream does not speak with one voice.  Why should it?  There are fights all the time.

DeLong and Krugman think you can and should get along fine without nonlinearities. Krugman’s latest offers an argument that is a version of occam’s razor.

I don’t agree, but, since I know that they are extremely clever, and both have lots of prior experience, I’m inclined to lodge their advice somewhere on a post it in case one day I find myself completely lost in nonlinear Matlab code.

Blanchard makes the following point.  We should aspire to stabilising the economy.  [Surely one can’t argue with that.]  And if we succeed [we might not, but if], and assuming it’s not done perfectly, but just quite well, then the small movements left over will be described well enough with a linear model.  He’s not saying we definitely will be able to bring this about.  Just that we might be able to.  And, if we can, he states a result in words from function approximation, which again is unarguable.  [With the caveat that this small range should not cross over some crucial point of inflection/attraction/repulsion… ]

My advice to Steve is to stop writing, and start reading.  It’s never too late.


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8 Responses to Who needs mainstream friends when you have enemies like these?

  1. Luis Enrique says:

    One point that gets lost is that (I think) when you talk about non-linear models you are talking about systems that would remain in equilibrium (even if there may be more than one) if unperturbed, whereas Keen is talking about non-linear systems that exhibit deterministic cycles, chaos and all that (as in: http://www.jstor.org/stable/1907905 ). So he and his mainstream interlocutors are constantly talking past each other.

    • Luis Enrique says:

      p.s. and he is even wrong there, just less so. Mainstream econ toyed with that stuff up til around the eighties, I have a fair few papers of the deterministic cycles variety on file

      here is a paper by Rosser (which I think got published in JEDC) on one part of that history: http://philpapers.org/rec/ROSTRA-2

      • Tony Yates says:

        I don’t think he wants to make the critique that narrow. But you are right. And there was the benhabib edited book.

      • Daniel Davies says:

        [Mainstream econ toyed with that stuff up til around the eighties]

        why did it stop? (not having a go or anything, just wondering)

  2. Luis Enrique says:

    I am really not qualified to answer. I asked these questions to my PhD supervisor a long time back when I was keen on them (somebody not a million miles from Tony, who also talked me out of studying computable agent-based models too) and from what I can remember his response boiled down to they just weren’t found to be very useful. If you want a model in which crashes or fluctuations occur, you can easily get it. But what data did that fit (does the economy really behave like one of those Steve Keen papers – I think it was concluded no – here are lots of papers about that )? What policy questions did it address? I am aware this is not a good answer.

    but at Tony’s prompting above I had a look at Benhabib’s page, who was writing these models in the eighties, and lo and behold from 2015 Chaos and Banking, and there are many other endogenous cycles papers appearing, so perhaps all the attention now being paid to financial crashes will lead to all this stuff being resurrected. If it does, well that’s another way in which Keen will look prescient, in addition to him being obsessed with credit growth long before the mainstream (see here got on the case)

  3. GM says:

    ‘We should aspire to stabilising the economy. [Surely one can’t argue with that.]’
    Oh look, everything that is wrong in the world encapsulated in just one sentence.
    7 billion people cannot be ‘stabilised’.

  4. Blissex says:

    «We should aspire to stabilising the economy. [Surely one can’t argue with that.] «»

    From a Minsky-like or a Schumpeter-like point that is both impossible and a very bad idea, because the *supply-side* of the economy benefits from “creative destruction” and mellonian-style liquidation to “purge the rottenness” of failures and larceny and bubbles is periodically needed, to clean up what JK Galbraith called “the bezzle”.

    The greatest invention for economic progress has been *bankruptcy*, the elimination of at least the worst performing companies. It is a better invention than industrial production,than competitive markets, than capitalism, than social democracy, …

    A much better aim would be is to stabilize not *the economy* but *median or lower individual consumption*, the ability for anybody to have a modest but decent standard of living even during a period in which mellonian liquidation purges failures and frauds.

    That is liquidate bad companies but support median people who are usually just pushed around by events. There is little point applying selection of the fittest to those who don’t control their economic lives, and a lot of advantage is applying it to businesses who are those that are much more enabled to compete. And providing stability to *individual* living standards means that failed businessmen and their employees don’t necessarily lose everything, encouraging them to try more often, to be more innovative.

    Instead talk of “stabilising the economy” is usually spin for the aim of the Rubin wing of the Democratic party and of the Republicans to do the opposite: trillions of central bank and treasury subsidies for bankrupt failures and frauds and their managers and traders, and “deal with it” for the little people.

    • Blissex says:

      Of course countercyclical support for *individuals* is politically impossible, as it requires stabilisation both ways:pushing uop savings and down consumption on the rising part of the cycle, and viceversa during the falling part of the cycle. Otherwise like illusory “great moderation” stabilisation only during the falling part requires ever greater debt.

      But it is also politically impossible because many people want pro-cyclical policy, in part because business elites incomes benefit from volatility as they are on a ratchet, in part because many pigheaded voters have exceptionally high discount rates, and love too much pro-cyclical policy during the rising part of the cycle.

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