A Macroeconomics Debate at Cambridge

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I gave the talk below to the Cam­bridge Soci­ety for Eco­nom­ic Plu­ral­ism yes­ter­day. This stu­dent-formed soci­ety is attempt­ing to open eco­nom­ics to debate–something which, despite the enor­mous schisms that exist with­in eco­nom­ics, is in prac­tice sad­ly lack­ing.

Econ­o­mists of one school of thought (such as the Neo­clas­si­cal) don’t lis­ten to or debate with those from oth­ers (such as the Post Key­ne­sian or Austrian)-as you can see from Cochrane’s dis­mis­sive remarks about non-Neo­clas­si­cal eco­nom­ics in the Play­boy arti­cle on eco­nom­ics. Even with­in schools (such as the Neo­clas­si­cal), dif­fer­ent fac­tions bare­ly com­mu­ni­cate with each oth­er-as you can see by perus­ing some of the “Fresh­wa­ter, New Clas­si­cal” ver­sus “Salt­wa­ter, Old Hick­sian” (whoops, sor­ry, they think they’re “New Key­ne­sians”) blog entries.

As well as invit­ing me to present on the Post Key­ne­sian alter­na­tive macro­eco­nom­ics that I’m devel­op­ing, they invit­ed Pon­tus Ren­dahl to pro­vide a response from a more Neo­clas­si­cal point of view (he described his approach as “Metero­dox”, which was a rather clever phrase). Pon­tus’s response is linked here.

There were some points at which we were at cross-purposes–for instance, what he describes as my mod­el was in fact Min­sky’s mod­el from 1963, and it there­fore pre-dates by almost two decades the Lucas “Cash in Advance” mod­el he lat­er describes as pre-dat­ing me (so rather than me being “nice but not nov­el” in rela­tion to a 1982 paper from Lucas, Lucas was “nice but not nov­el” in rela­tion to a 1963 paper by Min­sky); I  use dif­fer­en­tial equa­tion nota­tion for debt when work­ing at the aggre­gate lev­el and delta nota­tion when con­sid­er­ing a sin­gle trans­ac­tion for tech­ni­cal rea­sons relat­ed to the aggre­ga­tion of dis­crete asyn­chro­nous events, and so on.

But that’s OK: Pon­tus had­n’t encoun­tered my work pri­or to accept­ing the stu­den­t’s invi­ta­tion to speak, and no-one can be expect­ed to get com­plete­ly on top of an alter­na­tive per­spec­tive at first try. What I appre­ci­ate is that he did engage, and I hope we’ll keep doing so occa­sion­al­ly from now on.

I’m sor­ry that I don’t have the time to edit the audio below–it starts with about 3 min­utes of crowd noise (there were about 100 peo­ple in the audi­ence). So please just skip about 3 min­utes in where you’ll hear the intro­duc­tion, and then my talk fol­lowed by Pon­tus’s, and final­ly the dis­cus­sion.

Steve Keen’s Debt­watch Pod­cast

There was quite a bit of heat direct­ed Pon­tus’s way from some of the old­er aca­d­e­m­ic staff in the audi­ence who were involved in the inter­nal bat­tles that trans­formed Cam­bridge UK from a bas­tion of crit­i­cism of Neo­clas­si­cal eco­nom­ics into a Neo­clas­si­cal strong­hold. Since Pon­tus only arrived at Cam­bridge in the last few years, this was all news to him, and he was jus­ti­fi­ably rather tak­en aback.

Young mem­bers of the eco­nom­ic com­mu­ni­ty can’t be expect­ed to know this his­to­ry, iron­i­cal­ly because of one of the com­mon com­plaints that I and oth­er het­ero­dox econ­o­mists make about eco­nom­ics edu­ca­tion today: it lacks any ref­er­ence to eco­nom­ic his­to­ry or the his­to­ry of eco­nom­ic thought. But that’s the fault of the exist­ing teach­ers, not of new entrants into the pro­fes­sion. It’s there­fore lit­tle won­der that young Neo­clas­si­cals first encounter the hos­til­i­ty old­er non-Neo­clas­si­cal econ­o­mists feel, they can believe that het­ero­dox econ­o­mists are attempt­ing a purge, when in fact they’re react­ing to a Neo­clas­si­cal purge that began in the 1970s and end­ed before most of them were born.

I’d rather for­get those old con­flicts and focus instead on the need to reform eco­nom­ics today, by acknowl­edg­ing its empir­i­cal fail­ures and by embrac­ing the com­plex sys­tems approach that has tran­scend­ed equi­lib­ri­um think­ing in so many oth­er dis­ci­plines.