Category Archives: Debtwatch

An IMF work­ing paper has received a lot of atten­tion recent­ly – and not for the usu­al rea­sons. Where­as the IMF is usu­al­ly crit­i­cised for being dog­mat­ic about free mar­ket eco­nom­ics and effec­tive­ly behold­en to the banks, this paper is being both praised and crit­i­cised for want­i­ng to rad­i­cal­ly reform them.

This clear­ly isn’t offi­cial IMF pol­i­cy, but the fact that it has been released by the IMF is note­wor­thy, and the paper deserves care­ful atten­tion. It is an enor­mous paper, not just in length (56 pages of text) but also in the range of top­ics cov­ered, and it will take at least three posts to do it jus­tice. In this one, I’ll focus on its analy­sis of today’s mon­e­tary sys­tem.

By Philip Soos

Recent­ly, Aus­tralian prop­er­ty ana­lyst Ter­ry Ryder, in an arti­cle on Prop­er­ty Observ­er, voiced com­plaints about hous­ing bub­ble advo­cates. His issue is “wait­ing for some­one who sub­scribes to the bub­ble the­o­ry to actu­al­ly define it. So far, nobody has. The term implies that some­thing has been over-inflat­ed and will burst.” Of course, Steve Keen has already done so in his volu­mi­nous and crit­i­cal work reach­ing back for over a decade.

If you were told the fol­low­ing graph showed two indi­ca­tors of Australia’s eco­nom­ic health, and one of them had to be addressed urgent­ly, which one would you expect politi­cians and econ­o­mists to try to bring under con­trol first?

If you picked the blue line, you’ve obvi­ous­ly not a politi­cian. The blue is the ratio of pri­vate debt to GDP in Aus­tralia; the red line is the ratio of gov­ern­ment debt to GDP (debt to the bank­ing sec­tor only; both series come from RBA table D02). The red line is the one that both sides of pol­i­tics in Can­ber­ra are obsessed about; the blue one they both ignore.

I’m not the only econ­o­mist cam­paign­ing to bring about a new, empir­i­cal, real­is­tic economics–far from it. In fact there is an asso­ci­a­tion ded­i­cat­ed to this end with over 10,000 sub­scribers: the World Eco­nom­ics Asso­ci­a­tion.

As is often the case, the for­ma­tion and man­age­ment of the WEA has rest­ed on the shoul­ders of one per­son: Edward Full­brook, the UK-based schol­ar who kept the PAECON move­ment alive after its birth with the French stu­dent “Protest Against Autis­tic Eco­nom­ics” revolt back in 2000. With­out his ener­gy and com­mit­ment, that spark lit by the French stu­dents might have petered out. Thanks to Ed’s efforts, the WEA is flour­ish­ing, and has almost as many mem­bers of the Amer­i­can Eco­nom­ic Asso­ci­a­tion. The WEA’s pur­pose is:

Three Busi­ness Spec­ta­tor read­ers con­tact­ed me direct­ly about one top­ic last week – bank mon­ey cre­ation, and how bank reserves work. Fol­low­ing an old jour­nal­ism adage that three direct enquiries about a top­ic from the pub­lic means that everybody’s inter­est­ed in it, I’m div­ing into wonkdom to answer their queries in detail here. Ignore this post if the adage isn’t true for you, but if it is and you haven’t yet had your morn­ing Java, now’s the time for that stroll to the barista.

To read the rest of this post, click here

This is the sec­ond of two con­tributed pieces by Paul Ormerod, the author of Pos­i­tive Link­ing and, as I not­ed in my last post, in my opin­ion the most effec­tive devel­op­er of mul­ti-agent mod­els of the econ­o­my.

 Did Econ­o­mists Go Mad? Net­works and the Eco­nom­ic Cri­sis

The con­duct of eco­nom­ic pol­i­cy mak­ing over the ten to fif­teen years pri­or to the finan­cial cri­sis of 2008–9 exem­pli­fies the fun­da­men­tal prob­lems of the con­ven­tion­al mind­set of eco­nom­ics. At the time, it seemed as though clever pol­i­cy mak­ers devis­ing clever rules and reg­u­la­tions to set the right incen­tives, to which eco­nom­i­cal­ly ratio­nal agents would respond appro­pri­ate­ly, had indeed solved key prob­lems of macro­eco­nom­ic man­age­ment. Eco­nom­ic growth in the West was strong and steady, and both unem­ploy­ment and infla­tion every­where remained low.

Aus­tralia and the Uni­ver­si­ty of West­ern Syd­ney have been very good to me for the last 20 years. I have been able to devel­op a unique mon­e­tary dynam­ic approach to eco­nom­ics “under the radar” out here, with the sup­port of four con­sec­u­tive Heads of School who have favored a plu­ral­ist approach to eco­nom­ics.

But it may be time for a change. Did you see the blog post I put up just this week about need­ing an Aus­tralian Indus­try Part­ner for an appli­ca­tion to the Aus­tralian Research Coun­cil for a Link­age Grant?:

Aus­tralian Indus­try Part­ner need­ed

This is the first of two guest pieces by Paul Ormerod, the author of “Pos­i­tive Link­ing” (Ama­zon USA; Ama­zon UK) and sev­er­al oth­er impor­tant books on non-equi­lib­ri­um eco­nom­ics.

Paul and I have been research col­leagues and friends for over a decade now, and I regard him as the fore­most expo­nent of mul­ti-agent and net­work eco­nom­ics today. As reg­u­lar read­ers will know, I pre­fer a “tops down” approach to eco­nom­ics over the mul­ti-agent approach, main­ly because the phe­nom­e­non of emer­gence is a sig­nif­i­cant con­cep­tu­al bar­ri­er between the “macro” sys­tems we wish to describe and the “micro” behav­iour of the indi­vid­ual enti­ties that com­prise the sys­tem. Paul has a flair for being able to devel­op mod­els that pen­e­trate that bar­ri­er suc­cess­ful­ly. I par­tic­u­lar­ly like the mod­el in this paper on com­pe­ti­tion and mar­ket struc­ture, and I use it in my own lec­tures as an exam­ple of how com­pe­ti­tion should be mod­elled by econ­o­mists, in con­trast to the Neo­clas­si­cal myths of per­fect & imper­fect com­pe­ti­tion and oli­gop­oly.

As some read­ers will know, I am devel­op­ing a dynam­ic macro­eco­nom­ic mod­el­ing tool–code-named “Minsky”–with the help of an INET Grant. The grant of US$128,000 has allowed me to hire Dr Rus­sell Stan­dish to devel­op the pro­gram. Rus­sell is a long-time research col­lab­o­ra­tor of mine who was the Direc­tor of UNSW’s High Per­for­mance Com­put­ing Cen­tre before it was dis­con­tin­ued. He is now a vis­it­ing Pro­fes­sor of Math­e­mat­ics at UNSW and a free­lance pro­gram­mer spe­cial­is­ing in high-per­for­mance numer­i­cal pro­gram­ming.

This grant has pur­chased rough­ly 1,000 hours of Rus­sel­l’s time, and with about half that grant expend­ed, we now have a func­tion­al if very ear­ly pro­to­type of the pro­gram which can be down­loaded from here on our Source­forge site.

When­ev­er I fear that my well of inspi­ra­tion for this blog might run dry, my neo­clas­si­cal mates rush to the res­cue with some price­less pearl of wis­dom that sim­ply demands a rejoin­der. They are the Abbotts to my Costel­lo (and I’m not talk­ing Aus­tralian pol­i­tics here – though the Tony and Julia show reached tru­ly great heights with Gillard’s recent bril­liant ora­to­ry on misog­y­ny).

Today’s help­ing hand was a com­ment from French econ­o­mist Olivi­er Blan­chard. He qual­i­fies as a ser­i­al offend­er on the com­ic state­ments front, since when wear­ing the hat of found­ing edi­tor of the Amer­i­can Eco­nom­ic Review: Macro­eco­nom­ics, he uttered the now immor­tal line that “the state of macro [eco­nom­ic the­o­ry] is good” – one year and six days after the finan­cial cri­sis began.

He was the chief econ­o­mist for the IMF pri­or to that gig, and he sub­se­quent­ly returned to the IMF, where he now has the curi­ous title of “eco­nom­ic coun­sel­lor” (now there’s anoth­er poten­tial gag, but I digress).
While deliv­er­ing the bale­ful news in the lat­est IMF World Eco­nom­ic Out­look that the glob­al econ­o­my is slow­ing, Olivi­er not­ed that:

“In most coun­tries, fis­cal con­sol­i­da­tion is pro­ceed­ing accord­ing to plan.”

“Accord­ing to plan?” Well, yes, if the plan is to inspire the rise of fas­cist dic­ta­tor­ships in south­ern Europe, I sup­pose you could say that.