If the econ­o­my does in fact recov­er from the Glob­al Finan­cial Cri­sis—with­out pri­vate debt lev­els once again ris­ing rel­a­tive to GDP—then my approach to eco­nom­ics will be proven wrong.

But this won’t prove con­ven­tion­al neo­clas­si­cal eco­nom­ic the­o­ry right, because, for very dif­fer­ent rea­sons to those that I put for­ward, mod­ern neo­clas­si­cal eco­nom­ics argues that the gov­ern­ment pol­i­cy to improve the econ­o­my is inef­fec­tive. The suc­cess of a gov­ern­ment res­cue would thus con­tra­dict neo­clas­si­cal eco­nom­ics just as much—or maybe even more—than it would con­tra­dict my analy­sis.

A new blog mem­ber asked “Why do you use Math­cad?” in response to my most recent post about using some of the funds donat­ed by vis­i­tors to the blog to help fund my research.

It’s a very good tech­ni­cal ques­tion, and one that deserves more than just a reply to the com­ment. So I’ll try to explain why here.

I build dynam­ic mod­els of the econ­o­my using sys­tems of ordi­nary dif­fer­en­tial equa­tions. There are many pro­grams that sup­port this these days, from pub­lic domain pro­grams like Scilab to com­mer­cial giants like Math­e­mat­i­ca and Math­cad. I’ve tried most of them, and I’ve stuck with Math­cad for two rea­sons:

Thank you to the rough­ly 170 indi­vid­u­als who have made dona­tions to date via the “Donate” wid­get on the right hand side of the blog.

Dona­tions have totalled A$7,730, of which about $800 has been for Michael Hud­son’s talk in Syd­ney (on Fri­day Octo­ber 23rd at Cus­toms House, Syd­ney at 6pm).

I have just made the first pur­chase using those funds, of a Dell Stu­dio 17 inch lap­top that I will use while research­ing with my sys­tems engi­neer­ing col­league Trond Andresen in Europe lat­er this year.

There will be a din­ner with Michael Hud­son and his wife after the talk at Cus­toms House on Fri­day Octo­ber 23rd at a restau­rant called Young Alfred, which is also in Cus­toms House. The din­ner will start at 8pm.

If you’d like to be part of the book­ing, please let me know via an email to me at debunk­ing (at) gmail dot com (spelt out this way to min­imise the addi­tion to the already ridicu­lous amount of spam I receive!).

I’m happy to admit that I underestimated how strongly governments would respond to this financial crisis. Dramatic reductions in interest rates, huge fiscal stimuli and—in the USA and UK—expansion of government-created money, have all had a positive impact on the economy and asset markets (both shares and houses).

In his recent essay, Aus­tralian Prime Min­is­ter Kevin Rudd esti­mat­ed that the res­cues were the equiv­a­lent of rough­ly 18 per­cent of glob­al GDP over a 3 year peri­od, which is an unprece­dent­ed lev­el of expen­di­ture by gov­ern­ments.

Eichen­green and O’Rourke’s com­par­i­son of today to the Great Depres­sion gives the most bal­anced assess­ment of how effec­tive these poli­cies have been at the glob­al lev­el.

Ross Git­tins has writ­ten a very good overview of the fail­ings of neo­clas­si­cal eco­nom­ics in today’s Syd­ney Morn­ing Her­ald:

Self-right­ing mar­kets and oth­er shib­bo­leths

The arti­cle men­tions the Dahlem Report, but does­n’t pro­vide a link to it. For those who would like to read it, here it is.

I also wrote a post on the Dahlem Report short­ly after it was writ­ten, and helped pub­li­cise it by plac­ing it on my blog. Giv­en that its tone was in some ways even more dis­mis­sive of con­ven­tion­al eco­nom­ics than I am, the title for this post was obvi­ous:

I delayed pub­lish­ing this on the blog because I thought it was worth sub­mit­ting it to a news­pa­per for first pub­li­ca­tion on the anniver­sary of the Lehman Broth­ers col­lapse. That has occurred: a slight­ly edit­ed ver­sion of this post (for rea­sons only of length, I has­ten to add!) is in today’s Syd­ney Morn­ing Her­ald (page 4 of the print ver­sion), WA Today, and prob­a­bly sev­er­al oth­er news­pa­pers in the Fair­fax chain.

You have just come from your annu­al med­ical check­up, where your doc­tor assures you that you are in robust health.

Michael’s vis­it is being organ­ised by Pros­per Aus­tralia, and they have asked me to link to their page detail­ing the tour and his speak­ing engage­ments while in Aus­tralia. It’s quite a good page, with some well cho­sen links to some of Michael’s research:

Pros­per Aus­tralia: Pro­fes­sor Michael Hud­son Tour­ing Octo­ber

The fund-rais­ing wid­get has so far raised A$305, which is pret­ty good–thanks to all those who have donat­ed so far. More dona­tions of course are wel­come: it would be good to hit the A$1,000 mark if at all pos­si­ble, which will fund Michael’s hotel accom­mo­da­tion while in Syd­ney and make a con­tri­bu­tion to the air­fares for him­self and his wife.

“Green shoots” are appear­ing everywhere—just read the news­pa­pers, and you can be assured that we’ve turned the cor­ner. Bar the lat­est rise in US unemployment—up 0.3% to 9.7%, after falling 0.1% the pre­vi­ous month—there’s noth­ing but good news as far as the eye can see.

Unless, that is, you take a look at a wider range of data, as eco­nom­ic his­to­ri­ans Bar­ry Eichen­green and Kevin O’Rourke have been doing in their series  “A Tale of Two Depres­sions”.