Archive

Stock flow consistent macroeconomic models suffer from the lack of a coherent estimation method due to the complicated nature of the modeling process.

The Great Recession seems to be a natural experiment for macroeconomics showing the inadequacy of the predominant theoretical framework — the New Neoclassical Synthesis — grounded on the DSGE model.

Background paper for a presentation to the Seattle University School of Law Berle IV Symposiun, “The Future of Financial/Securities Markets,” London June 14-15, 2012.

This paper tracks the development of sectoral saving and borrowing in the US economy over the past 50 years.

Revised text of a presentation at the Conference on Microfoundations for Modern Macroeconomics, Columbia University, November 2010. I would like to thank Amar Bhidé, Roman Frydman, and Andy Haldane for helpful comments, and the Institute for New Economic Thinking for research support.

John Kay’s thought-provoking essay The Map is Not the Territory: An Essay on the State of Economics argues that economists have been led astray by excessive reliance on formal models derived from assumptions that bear too little similarity to the world we live in.

A poem seems to be an almost perfect metaphor for the modern corporate world.

The University of Chicago is well-known for as the place where a famous group of economists, including Milton Friedman, Georges Stigler, Gary Becker, among others, developed a method for analyzing economic facts based on Marshallian price theory, a vision of the evolution of macroeconomic aggregates called monetarism, and an approach to individual liberties and the role of the state known as (neo)liberalism.

In a show of good faith between two rising economic powers, China and Brazil have agreed to a bilateral currency swap.

While German economic policy makers continue to cling to neoclassical economic approaches, an increasing number of prominent economic figures are starting to accept the failure of orthodox theories to address the current crisis and are expressing the need to rethink fundamental economic concepts.

What is the purpose of America’s universities today?

I always think of Adam Smith when I hear the term ‘division of labour’ - but I’m being cured of this by reading a bit more about Britains late 18th century in Jenny Uglow’s The Lunar Men.

One country poses an existential threat to Europe – and it is not Greece, Italy or Spain.

World Bank President Robert Zoellick is growing frustrated with the lack of urgency on the part of Europe’s leaders in responding to the financial crisis in the euro zone.

At the heart of the Eurocrisis lies a vicious circle where once there was a virtuous one.

Leijonhufvud has questioned the flawed fundamentals of economics. And he has explored the spread of contagion in undermining the web of contracts that are the basis for capitalism.

After the recent election brought a center-right coalition to power, what’s next in the Greek crisis? Are we finally in the clear? Not so fast, Greek economist Yanis Varoufakis says. Varoufakis explains the real outcome we can except after Greek voters’ “contradictory verdict,” where 55% voted for anti-bailout parties yet a pro-bailout government resulted due to the nature of Greece’s electoral system.

Have you ever heard the old adage about the danger of allowing foxes to guard the henhouse? Apparently the New York Fed hasn’t.

Germany should not pay for the bankruptcy of Europe, at least according Hans-Werner Sinn, head of the Ifo Institute for Economic Research at the University of Munich.

“Spain is now heading down the same path that bankrupted Ireland,” INET grantee Stephen Kinsella of the University of Limerick and Mark Blyth of Brown University warn on the Harvard Business Review’s blog.

“Spain is now heading down the same path that bankrupted Ireland,” INET grantee Stephen Kinsella of the University of Limerick and Mark Blyth of Brown University warn on the Harvard Business Review’s blog.

What is the role of Germany in Europe?

In a recent post I wrote: “I am sure it will not take long before Journal of the History of Economic Thought (Cambridge Uni. Press) makes that list [Thompson Reuters, Social Science Citation Index].”

Chicago School founder Frank H. Knight had some prescient observations in the early 20th century.

The refrain for some time now has been that the economy will decide the upcoming U.S. election. But Joe Stiglitz offers some much needed focus to this discussion.

Today the world lost one of its leading economic lights, as Nobel laureate Elinor Ostrom passed away at the age of 78.

Last Friday, philosophers from the University of Leiden hosted the symposium ‘Between Science and History,’ in an attempt to figure out what the differences are between practicing scientists’ use of history and historians use of history.

“A chronic trend of this sort would indicate that the yuan was now overvalued versus the dollar,”

Since September 2011, the Swiss National Bank has held a floor of 1.20 francs per euro.

It’s crunch time in Europe.

Inequality isn’t just a problem for the 99%.

Ivan Moscati is one of the most exciting voices in the historiography of decision theory.

Steven Shapin is visiting the UK. For those unfamiliar with the history and sociology of science, he is one of the giants of the field.

FT Alphaville uses a Lord of the Rings metaphor to describe the state of global currencies.

Stephen Kinsella has some advice for economists: “Sometimes, all you need is a nutter in a balloon to change your perspective. And perspective is everything.”

If proof were needed of the maxim that the road to hell is paved with good intentions, the economic crisis in Europe provides it

My attempt at a double riddle. “I find familiar faces only in unfamiliar places. Who am I? And whom are the faces?” The answer to the first is, I am an academic, to the second, my conference buddies.

Below is a revised version of a talk I gave at the New School University, at a conference to launch Lance Taylor’s latest book. The date of the event was April 28, 2011, more than a year ago, and the delay in revision was entirely my fault—overcommitment and pressing deadlines on many fronts. Sorry about that.

The Collapse of Free Market Macroeconomics

Will China correct this imbalance by allowing the RMB to appreciate? Or will it dump dollars onto forex markets?

INET Executive Director Robert Johnson delivered a keynote address at the OECD Forum in Paristoday.

Who does the economist serve: powerful interests or society?

Mathematician Michael Edesess has a dose of reality for economists.

What’s wrong with our economic recovery?

Attendees at the book party were treated to an assortment of wine, sushi, and intriguing conversation on the rooftop of Schiffrin’s parents’ Upper West Side apartment.

We investigate the effects of government spending on U.S. economic activity using a threshold version of a structural vector autoregressive model.

“While it’s incredibly difficult to get a regulatory reform passed, it’s far easier – and more profitable to politicians – to kill it.

Being the smartest guys in the room doesn’t prevent you from making bad decisions.

Here is a talk I gave recently at Wake Forest University.

Our usual problem in history (of economics) is a lack of information.

Human beings aren’t mechanical. And mechanistic economic theories can’t account for uncertainty or political instability and individual creativity.

The topic of this session of the INET conference is a question: does the effectiveness of fiscal policy in stabilizing an economy depend on the underlying economic context in which the policy is implemented?

The paper deals with the mysterious persistence of the Chicago approach as the main analytical engine driving antitrust enforcement in the US.

In conversation recently, I was called upon to defend the claim that banks are in the business of creating and destroying private money.

The Washington Consensus is dead.

When Paul Krugman paints John Maynard Keynes as a pioneering critic of dominant free-market economics, he exaggerates wildly, both about the rigidity of orthodoxy and about the pioneering character of Keynes’ critique.

New economic thinking is no passing fad. The movement for new economic thinking is here to stay - with broad-based, worldwide support from undergraduate and graduate students as well as both young and established professors and Nobel laureates.

how economics students have begun to push back against the stale ideas that were proven wrong during the recent financial crisis.

I don’t seem to be able to fully grasp Mark Blaug’s distinction between a relativist and an absolutist approach to the history of economics – first introduced in Economic Theory in Retrospect (1962) – and that is a source of much frustration.

The Huffington Post spotlights the INET financial instability video, produced by Four Corners Media, accompanied by an extensive written introduction fromINET Executive Director Robert Johnson.

Like many economists, I have enjoyed Axel Leijonhufvud’s “Life among the Econ” and nodded appreciatively when he described the social classifications of the Econ as “Grads, Adults and Elders” and chuckled when the young grad tries to impress the elders of the ‘dept’ through adept ‘modl’ building; so when the man himself was holding a glass of champagne and chatting with me at the INET conference, I had to ask how he got that paper started.

Paper revised for the Institute’s Plenary Conference in Berlin

The text below is the comment I offered on Mr. Soros’ opening speech at INET’s Berlin Conference April 12, 2012. The text of Mr. Soros’ own speech is here. Video of the entire session is below—my bit starts at 55:00.

INET Berlin 2012 - back home again. On stage, it’s been a huge amount of claims, assertions, and arguments about what went wrong, about what exactly happened, about why this time was different, about what will certainly happen, and about what remains deeply uncertain, about what “we” shall do about it, about what “we” could do better.

Financial stability, or the lack thereof.

The title of the conference, “Paradigm Lost,” is an obvious combination of two references.

The ongoing eurozone crisis has prompted many to argue that monetary union withoutfiscal union was bound to fail.

Leading thinkers from outside the developed countries look to the future, spotlighting the pitfalls and opportunities thatawait us.

Albeit the majority of the profession either ignores Minskyís Financial Instability Hypothesis (FIH) or considers it plainly wrong, at least since the mid-80’s a few influential economists —who have certainly not embraced any unorthodoxcredo —have grown more receptive to this idea and eager to incorporate it in their models, even if diluted and sometimes disguised in order to make it more palatable to the conventional “representative” macroeconomist

I am supposed to speak about Complexity Economics and the issues this theoretical approach is able to illuminate. Defined as such, it appears as if I should discuss methodology and I am reminded of Paul Krugman’s quote: “It is said that those who can, do, while those who cannot, discuss methodology”. So, having a discussion centered on methodology may give the impression that the panelists in this session are unable to make scientific progress.

Elephant seals have got too big for their beaches. A large specimen might weigh over 8000 lbs (3700 kg).Their size has a simple evolutionary explanation. Large males fight for the right to mate with a whole beach full of females. For elephant seals it is, quite literally, winner-takes-all. And the key to winning is simple – size.

We have grown accustomed to regulating financial markets based on imagined, not real markets. Real markets are shaped by and co-evolve with institutional arrangements within two fundamental constraints: Imperfect knowledge and the threat of illiquidity.

The financial sector can support growth but it can also cause crisis. The present crisis has exposedgaps in economists’ understanding of this dual potential.

In the seemingly never-ending aftermath to the economic crisis that began in 2007, there is little disagreement that financial markets are characterized by instability rather than stability.

Many feel that due to its size and scale the financial system has become a burden on society rather than a servant to it. What are the key elements of a productive financial sector?

Complexity economics represents a different vision of the economic process and has the capacity to illuminate different systems of behavior.

Read how did the second day of the Berlin conference go

Mark Thoma has picked up on a significant aspect of this year’s INET annual conference

The Institute for New Economic Thinking (INET) today announced a significant infusion of funding that over the coming years will make the organization self-sustaining and enable INET to dramatically expand its global reach, scale, and scope.

I think I am on the track of what ‘New Economics’ is, and one could roughly sum up two days of presentations in two diagrams:

Lunch was just interrupted Bill Janeway standing up to announce that this morning he decided to give $25m to INET and the board will fund-raise this up to $100m over ten years, but then George Soros added $50m in unconditional funding for INET.

Taking a long‐run view from economic history, I make three points about instability in financial markets. First, I argue that economic historians have a relatively good understanding of the proximate causes of financial crises.

“Natural rate theory” has dominated interpretations of economic trends and policy prescriptions over many decades. European-type welfare state institution were claimed to cause a compressed wage distribution that distorts otherwise well functioning labor markets.

Many models of economic growth exclude materials from the production function. Growing environmental pressures and resource prices suggest that this may be increasingly inappropriate.

The topic of this session of the INET conference is a question: does the effectiveness of fiscal policy in stabilizing an economy depend on the underlying economic context in which the policy is implemented?

The present paradox, as ecological economist Bill Rees is fond of putting it, is simple yet profoundly troubling: “The ecologically necessary is politically infeasible, but the politically feasible is ecologically irrelevant.”

The effectiveness of fiscal stimulus in promoting economic recovery appears to depend upon many factors.

What creates instability in financial markets? How does the weight of debt, the structure of expectations, or radical uncertainty contribute to instability?

Inequality has been growing and destabilizing confidence in many countries in recent years.

Evidence of climate change is widely accepted by scientists.

Three major crises are confronting the world. The first is the increasing and uneven burden of humans on the biosphere, and the observation that we have already surpassed the ‘safe operating space’ for humanity with respect to three planetary boundaries: climate change, the nitrogen cycle and biodiversity loss.

The path to better understanding the economy requires treating the economy as the complex system that it really is. We need more realistic behavioral models, but even more important, we need to capture the most important components of the economy and their most important interactions, and make realistic models of institutions.

In 1803 Louis Poinsot, a French physicist, wrote a book of great success, Elements de Statique, which was destined to have practical and social influences unimaginable to the same author.

In the last few years the impact of income distribution on macroeconomic dynamics has received growing academic attention.

How can we distribute growth globally when the developed world needs growth to emerge from debt overhangs and inequality between nations is still quite formidable?

Long periods of unequal incomes spur borrowing from the rich, increasing the risk of major economic crises

Higher income inequality in developed countries is associated with higher domestic and foreign indebtedness

Does greater inequality produce more fragile economic dynamics? Does concentration of wealth and income make societies more prone to crisis? If so, why?

Soros’s remarks about the 2008 crash