The Sydney Morning Herald ran a story and video on my simulation model “Minsky” today:
It’s time to put money into the equation, says professor
This link to the video on the SMH website is below:
http://media.smh.com.au/system/ipad/new-economics-2614470.html
For the convenience of overseas readers, I’ve reproduced the story and the video below
It’s time to put money into the equation, says professor
(Story by Gareth Hutchens)
THE global financial crisis, the latest episode of which boiled over last week, did more than destroy wealth and jobs, or embarrass the rating agencies.
It exposed the malaise within the economics profession and the deep flaws in its orthodox theories.
George Soros, the billionaire financier and philanthropist, was among those who joined the search for new ideas.
Mr Soros funded a new organisation called the Institute for New Economic Thinking which for the past two years has handed out millions of dollars in grants, funding research projects that look at economics in fresh ways.
This month, the institute gave more than $125,000 to an Australian. (However I’m neither the only nor the first Australian to get an INET Grant: Leanne Ussher, who is now an Assistant Professor of Economics at Queens College, City University of New York, received a grant in INET’s first round to study of how distress and growth propagate through the real economy via a network of inter-firm trade credit)
Steve Keen, Associate Professor of Economics and Finance at the University of Western Sydney, has won a grant to turn his money-based model of the macro-economy — which draws on the theories of economists such as Hyman Minsky and John Maynard Keynes — into a computer program for students and economists.
INET grant recipients already include Barry Eichengreen, a professor of economics at the University of California, Berkeley, and Doyne Farmer, a physicist and professor at the Santa Fe Institute.
Professor Eichengreen is using the grant to “ramp up” production of economists with an understanding of history who can contribute to public policy debates. Professor Farmer plans to build a “computational model” of the financial crisis.
Professor Keen says his program will make it easy to develop “dynamic” models of the economy that incorporate money and debt — something that orthodox models do not do.
“[About] 99 per cent of economic models assume money doesn’t exist. They assume you live in a barter system … That’s why they didn’t see the financial crisis coming,” he said.
“I’ve worked to find if I can build a truly monetary model of capitalism … [and] this is probably the only dynamic monetary model ever produced.”
Professor Keen says the public would be stunned to learn that most economists use models that ignore money.
“You must have the monetary dynamics of capitalism properly incorporated to understand capitalism properly, so my model starts with banks’ loans and goes from there.”
The point of the program will be to encourage economists to build economic models that account for the volatile nature of money, Professor Keen says.
The program will be given to students free.
Last year, Professor Keen had to walk from Canberra to Mount Kosciuszko after losing a bet with Rory Robertson, the then interest rate strategist for Macquarie Bank.
Professor Keen had bet in 2008 that Australian house prices would lose 40 per cent in value in the aftermath of the financial crisis.
