The older I get, the more cynical I become about government intervention in the economy.
That statement might appear to be either a recantation of everything I’ve ever argued, or a sign of the usual tale of left-wingers moving to the right, and right-wingers to the left, as life experience tempers youthful exuberance. It’s neither (well, okay, maybe it’s a bit of the latter), because my developing position reflects the complexities of a mixed economy.
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.
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.
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?:
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.
