Category Archives: Debtwatch

My pre­vi­ous post on house price data from the BIS (How to spot a hous­ing bub­ble before it bursts, Octo­ber 15) scotched one part of the ‘No Bub­ble Dow­nun­der’ case: Aus­tralia is one of four coun­tries where house prices are more than twice as high as they were in real terms in 1985 (see Fig­ure 1).

Fig­ure 1: The Bub­ble Con­tenders

Any­one who has been moti­vat­ed to read eco­nom­ics for the very first time by the eco­nom­ic cri­sis that began in 2007 should have real­ized at least one thing: that com­mu­ni­ca­tion between econ­o­mists resem­bles the Tow­er of Babel after the con­found­ing of tongues. Econ­o­mists who speak in one tongue hear what those in anoth­er say, but com­plete­ly fail to under­stand it—and then shout back some­thing that is just as incom­pre­hen­si­ble to the oth­ers’ ears.

I would love to be in the audi­ence watch­ing the body lan­guage at this year’s “Nobel” cer­e­mo­ny for eco­nom­ics. Robert Shiller, who is far too polite a per­son to make it obvi­ous, will nonethe­less at least fid­get as he lis­tens to Eugene Fama’s speech, since Fama con­tin­ues to dis­pute that bub­bles in asset prices can even be defined. Shiller, in con­trast, first came to pub­lic promi­nence with his warn­ings in the ear­ly 2000s that the stock and hous­ing mar­kets in the States were dis­play­ing signs of “irra­tional exu­ber­ance”.

After a bub­ble has burst, no one denies that it exist­ed. But before it does, the pop­u­lar refrain is that though bub­bles exist­ed else­where in the world, “there’s no bub­ble here”. So hous­ing bub­bles are admit­ted to have exist­ed in Japan, the USA, Spain and Ire­land – because they’ve already burst.

But the rest of the world – and espe­cial­ly Aus­tralia – is dif­fer­ent. House prices in Aus­tralia, the UK, and every­where in between where they are still ris­ing, are jus­ti­fied by … (fill in your favourite fun­da­men­tal rea­sons here) and are not in any way man­i­fes­ta­tions of bub­bles.

This is a set of 5 lec­tures that I deliv­ered last week in Quito, Ecuador, at FLACSO–the Latin Amer­i­can Fac­ul­ty of Social Sci­ences. In future years I hope to expand this into two com­plete courses–one on the his­to­ry and devel­op­ment of eco­nom­ics from a dis­e­qui­lib­ri­um per­spec­tive, and the oth­er on dynam­ic mon­e­tary mod­el­ing in eco­nom­ics using Min­sky, the Open Source sys­tem dynam­ics pro­gram that I have devel­oped with the help of a grant from INET.

The Aus­tralian Busi­ness Deans Coun­cil has just released its new rank­ing of the qual­i­ty of aca­d­e­m­ic jour­nals in eco­nom­ics. This list­ing in turn is used to rank the qual­i­ty of aca­d­e­m­ic research.

A pub­li­ca­tion in a top-ranked A* jour­nal earns seri­ous rev­enue for the uni­ver­si­ty where an aca­d­e­m­ic is employed, and seri­ous brown­ie points for the aca­d­e­m­ic in terms of career and pro­mo­tion prospects. A pub­li­ca­tion in a B‑graded jour­nal is worth much less; a C‑graded is effec­tive­ly “thanks for try­ing”. The many ungrad­ed jour­nals are ignored com­plete­ly. So the rank­ings are a big deal for aca­d­e­mics, and they strong­ly affect the direc­tion of research by econ­o­mists.

Kevin Rudd came to pow­er for the first time on Decem­ber 3rd 2007, just a few months after the glob­al finan­cial cri­sis com­menced, and some time before its sever­i­ty was tru­ly appre­ci­at­ed by the polit­i­cal class­es of any nation. On Sep­tem­ber 7, he lost office for the last time.

The first elec­tion he won was a bad one to win, not because he was blamed for the calami­ty of the GFC itself of course, but because his entire term was dom­i­nat­ed by react­ing to it.

As reg­u­lar read­ers here know, the main rea­son for devel­op­ing Min­sky was to make it pos­si­ble to build mon­e­tary mod­els of the econ­o­my. But it is also a pret­ty good tool for doing stan­dard sys­tem dynam­ics mod­el­ing too, and in these two videos I show a range of famous chaot­ic oscil­la­tors mod­eled in Min­sky:

Youtube Video  of the four mod­els

Build­ing the Lorenz mod­el in Min­sky

Here are the source files if you’s like to run them your­self on your own, but first down­load the lat­est ver­sion of Min­sky from here PC (or Mac).

This is the sec­ond part in a two-part series. To read the first part, click here.

In my arti­cle yes­ter­day I showed how Paul Krug­man had used the views of a young James Tobin to dis­miss the rel­e­vance of banks to macro­eco­nom­ics – even though those views were lat­er dras­ti­cal­ly revised by James Tobin him­self. The con­trast between the the­o­ries advanced by the young James Tobin and Tobin the Elder were stark, and a salu­tary les­son in the ben­e­fits of always remain­ing open-mind­ed to new infor­ma­tion. But the ques­tion remains, which Tobin should you believe?

Read­ers with long mem­o­ries will recall Paul Krug­man describ­ing inter­est in the his­to­ry of eco­nom­ic thought as “Tal­mu­dic schol­ar­ship” (see fig­ure 1), and dis­miss­ing it with an emphat­ic “I Don’t Care”.

“So, first of all, my basic reac­tion to dis­cus­sions about What Min­sky Real­ly Meant – and, sim­i­lar­ly, to dis­cus­sions about What Keynes Real­ly Meant – is, I Don’t Care,” Krug­man said in 2012. “I mean, intel­lec­tu­al his­to­ry is a fine endeav­or. But for work­ing econ­o­mists the rea­son to read old books is for insight, not author­i­ty; if some­thing Keynes or Min­sky said helps crys­tallise an idea in your mind – and there’s a lot of that in both mens’ writ­ing – that’s real­ly good, but if where you take the idea is very dif­fer­ent from what the great man said some­where else in his book, so what? This is eco­nom­ics, not Tal­mu­dic schol­ar­ship.”