The speed with which a few useful modifications can be done to a a model in Minsky reminds me of the old “don’t try this at home” saying. I’d love to race someone adding the same concepts in a program like Vensim, Stella or even Vissim!
One of the defining features of neoclassical economics is the belief that macroeconomic analysis has to be not merely compatible with, but derivable from, microeconomic analysis. The development of economic theory has been driven far more by this belief than by the desire to make the theory compatible with the observed behaviour of the economy.
This ‘reductionist’ aspect of economics – the attempt to reduce the higher level topic of macroeconomics to an applied version of the lower level topic of microeconomics – is at odds with the last 50 years of genuine sciences, where complexity has ruled the roost, for reasons that were eloquently put by Physics Nobel Laureate Philip Anderson in a highly readable paper entitled “More Is Different”.
One of the advantages of being overseas right now is that it takes less effort to avoid listening to the insipid discourse that passes for political debate during this Australian election. As Kevin Rudd and Tony Abbott compete over who can be more obnoxious to refugees, I find myself pining for the days of sensible and humane policies under Malcolm Fraser. As politicians make themselves the butt of their own unintentional suppository jokes, I pine for someone who could deliver a killer line against his opponent, rather than against himself: Paul Keating.
I was delighted to see, in Paul Krugman’s post – ‘What Janet Yellen – And Everyone Else – Got Wrong’ – that he now identifies ‘the debt overhang’ as the reason this economic downturn has persisted for so long.
The best explanation, I think, lies in the debt overhang. For the most part, even those who correctly diagnosed a housing bubble failed to notice or at least to acknowledge the importance of the sharp rise in household debt that accompanied the bubble. And I would argue that this debt overhang has held back spending even though financial markets are operating more or less normally again. In short, getting the bubble right, while no small thing, wasn’t enough; Yellen (and many other people, myself included) underestimated the fragility of the financial system, but also the importance of household debt.
Dr. Russell Standish and I have been working on Minsky now for almost two years now–ever since we received the $125K from INET’s Spring 2011 grant round: Russell as builder (coding in C++ and Tcl/Tk) and me as architect (playing with each release, spotting bugs and suggesting features). It’s been a part-time endeavor: Russell, as a contract programmer, has to keep more than one iron in the fire, while I have a fair few balls in the air myself. Russell has put in about 2000 hours of coding over that time, and we still have funds to support about another 250 hours after the successful Kickstarter campaign earlier this year.
The latest “Petty” version of Minsky finally qualifies as a 1.0 release: there are enough system dynamic and user-interface features in it to declare it a stable release. We’ll modify it to remove any bugs that are identified–and I just spotted one intermittent one involving wiring (see https://sourceforge.net/p/minsky/tickets/324/)–but otherwise this will remain a stable release, with no new features to be added.
From now on, new features will be added in the “Mun” development fork.
You can download the PC version from here:
https://sourceforge.net/projects/minsky/files/latest/download
The Mac version is available here:
https://sourceforge.net/projects/minsky/files/Mac%20Binaries/
Another election is on in Australia, and the topic du jour – the political topic du century it seems – is that, horror of horrors, the government’s budget next year will be in deficit to the tune of $30 billion! It’s a scandal! Our debt is ballooning! And it’s all Labor’s fault! Why, all you have to do is look at the responsible Howard period – falling debt – and compare it to the irresponsible Labor period – rising debt – and you know who to vote for, don’t you?
Figure 1: From the responsible Howard to the irresponsible Rudd?
Well there’s a rose in the fisted glove
And eagle flies with the dove
And if you can’t be with the one you love honey
Love the one you’re with
(Stephen Stills 1970)
As I noted in the previous post, I’m working with the Governor’s Woods Foundation to produce a comprehensive data set on private debt for its Debt-Economics project (see www.debt-economics.org). As part of that, last week I realized that the Flow of Funds data on financial sector debt wasn’t what I had hoped it was, and I had to revise down my estimates of the US private debt to GDP ratio from 1952 till today. That revision implied that today’s “Peak Debt” level was lower than that of the Great Depression.
I haven’t had much luck with ISPs recently! One had a total hardware crash that wiped my entire blog out–fortunately a supporter was able to reconstruct it (at a cost of many grey hairs!). I then moved to another… who had a serious systemic outage for several days.
In the process, my Amazon AWS service went AWOL, making it impossible for me (or anyone else) to log on to the site. The latter problem has been fixed; the former is being addressed by another supporter (who hasn’t as yet acquired as many grey hairs!).
This is the third article in a three-part series on the self-destruction of neoclassical economic theory. See part one here and part two here.
To say that the long self-destruction of the academic economic tradition was given a final push towards the cliff by the global financial crisis paints a pretty bleak picture of the future of the dismal science. But I can also see some rays of sunshine.
The first is to look outside the Academy, to formal economic bodies – to central banks and Treasuries in particular. In the past, these bodies uncritically reproduced whatever was the latest fad in academic economics (witness the rapid shift from IS-LM and AS-AD models to DSGE models when academic economists proclaimed that the former fell victim to the Lucas Critique).
