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.”
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/
