Steve Keen's Debtwatch

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.”

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.