Home > Keynes, Minsky, revere award, The Economics Profession > Keen, New Economic Thinking and “The Deluded Discipline of Economics”

Keen, New Economic Thinking and “The Deluded Discipline of Economics”

The Institute for New Economic Thinking has announced that it has given Steve Keen, winner of the Revere Award, a grant of $125,000 to turn his money-based model of the macro-economy – which draws on the theories of  Hyman Minsky and John Maynard Keynes – into a computer program for students and economists. 

Keen says the program will make it easy to develop “dynamic” models of the economy that incorporate money and debt – something that orthodox models do not do.

[About] 99 per cent of economic models assume money doesn’t exist. They assume you live in a barter system … That’s why they didn’t see the financial crisis coming,” he said. “I’ve worked to find if I can build a truly monetary model of capitalism … [and] this is probably the only dynamic monetary model ever produced.

The point of Keen’s program will be to encourage economists to build models that account for the volatile nature of money.  The program will be given to students for free.

Meanwhile in London on Tuesday 4th October, Steve Keen will take part in an evening of debate, The Deluded Discipline of Economics,  at University College London  with Mehdi Hasan and Ann Pettifor. The details are here: http://www.primeeconomics.org/?page_id=668

  1. Mike Meeropol
    September 26, 2011 at 3:57 pm

    Could someone please let those of us in either Asia or the AMericas know if the debate will be streamed or available in text form.

  2. Ken Zimmerman
    September 27, 2011 at 12:28 am

    Just what economists and economics students need, another computer model to play with! Read my lips — teach them to do ethnography. Let them learn from the players who actually build economies, in all their messiness and various states of function and dysfunction. But I’ve concluded computer models are a cultural thing for economists – like learning and living any other way of life.

  3. Dave Taylor
    September 27, 2011 at 9:14 am

    Ken, there is a world of difference between computerising the mathematicial description of a hypothetical set of functions to see IF it works realistically, and understanding that the model is the program itself: the information directing the active transformational and error-correcting logic of the computer. It is a working model of HOW one understands the[economic] system achieves what one is taking to be its aims, which can be examined to get a feel for what has been happening when it doesn’t. The model itself is modelled in its specification, the visual relational language of systems analysis showing more clearly how the bits fit together and which operations are happening together.

    Such a model is only as good and intelligible as the language it is written in, which is why the scientific programming language Algol68 was developed. This forced scientists to define not just the entities of the system they are modelling, but how data from them is being interpreted (e.g. as decimal numbers), ensuring that how the mathematical operations are going to be performed has been defined for entities so interpreted. (http://www.fh-jena.de/~kleine/history/languages/Algol68R-UserGuide.pdf).

    It would be interesting to know how Steve Keen understands the issues here.

  4. Alice
    September 27, 2011 at 11:09 am

    Im seriously concerned about this model seeing as it was Soros who donated the money. When will Wall St stop playing with economists to develop yet more models that tell them how to design derivatives so they can make even more leveraged money?

    That is what I fear – we really dont need another smart money model.

  5. September 27, 2011 at 4:39 pm

    Ken Zimmerman: “teach them to do ethnography ”

    Would you suggest that climate scientists only study solar radiation and ignore ocean currents? Yeah: ethnography is a great input; but it’s not the be-all or a magic bullet.

    Keen’s is first working, available model I know of that goes after economies in a way anything like the dynamic models that climatologists use. (Can you imagine if climate scientists were using the ridiculous static “equilibrium” models that economists toy around with? Is a rainy day in “equilibrium”? A sunny day?)

    There’s Doyne Farmer and Rob Axtell’s work at Santa Fe Institute (also sponsored in part by INET), but as of 2010 they “wanted to explore the feasibility of constructing an immense agent-based model,” and as of September 16 they “are working to create the model.”

  6. Dave Taylor
    September 27, 2011 at 8:14 pm

    Steve @ #5: ethnography does have the advantage over climatology of modelling the behaviour of pre-structured actors rather than that of reactive fluids. When the pre-structured actors have learned to use pre-structured paths, Maxwell’s statistical view of a gas [http://www-das.uwyo.edu/~zwang/4100/Physical_Meteorology1.html] reduces to a macroscopic view as simple as the electric circuits used to communicate information, be that one phone call or the content of the internet [http://en.wikipedia.org/wiki/Maxwell’s_equations#Table_of_.27microscopic.27_equations]:

    “In 1884 [Heaviside, somewwhat later than Menger, Walras and Jevons] recast Maxwell’s mathematical analysis from its original cumbersome form (they had already been recast as quaternions) to its modern vector terminology, thereby reducing twelve of the original twenty equations in twenty unknowns down to the four differential equations in two unknowns we now know as Maxwell’s equations”.

    In short, if Steve Keen is, like the equilibrists, still modelling monetary economics on Maxwell’s microscopic equations, I’m almost as disappointed as Alice, #4. We don’t need to know what the economic climate is going throw at us: we need to know what needs to be done, what is worth doing and what is better not done; how to share both the work and the opportunity; how to localise misuse of monetary information; and how to correct collateral damage quickly. And if this is ever to happen quickly enough, we need a practical model simple enough for a child to grasp, not blinding with misguided science.

    • Alice
      September 28, 2011 at 9:31 am

      Dave, The reason I am disappoointed is because I smell a rat. We all know by now how academics have to contribute to unis funds by way of research grants but my question is “Is Soros telling Keen what to do or is Keen seriously thinking another bloody money market model including some deviant excluded value is going to solve the problem?”

      I dont mistrust either Soros or Keen (they are both smart in different ways) BUT the fact is the world and genuine production does not revolve around the proiteering abilities of major finance players (therefore I trust neither of them with their new money models). Evemn Soros must realise this…but then he is Soros who once made billions on a single play against the UK governemnt.

      Come on now…his model of reflexivity may be better than anything in the econ world to describe how markets respond but does it do the people and the majority justice? For whom does the best model toll?

      Because – if it doesnt work for most…it wont work in the long run even for Soros.
      We are facing a major loss of confidence in many financial markets…and cant say I blame people who want to take their money out.

  7. September 27, 2011 at 10:17 pm

    Infinite gratitude to One & All. This thread just made me realize that “economics”may not recognize the difference between a money system and a manipulated (rigged) global casino based on a fractional reserve banking scheme using fiat currencies with floating values (no real or natural/pure value), sustained by a transnational financialist elite (the biggest virtual predators, i.e., Market Makers/rule changers). Money is and always was an abstraction of barter, and otherwise is an unsustainable social disease that sooner or later afflicts culture with all the symptoms we all see ruining the world. The 2 core principles of a valid money system are equity and convenience, fair exchange and easy usefulness. Therefore, the administrators and/or trustees of money must be trustworthy and fair; not selfish, greedy, devious, uncaring sociopaths or ecocidal maniacs. Making currency a volatile commodity subject to manipulation by clever elitists and their dupes invalidates the money system. Being constantly duped and cheated is neither fair nor equitable, and never knowing what anything is worth from one moment to the next, or whether anything will be affordable for anyone but the rulers of The System is convenient only for the exploiters of the sheeple. Thomas Jefferson knew this and warned everyone what would happen if it ever came to this. So, should we call my thesis Jeffersonian Economics? Surely Mr. Jefferson was not the first to understand the principles of money and the nature of financial sociopaths. There is an ancient Arabic saying about the master/owner of money and the servant/slave of money. So, maybe we should call it Primal Economics or theoretical economics or Realistics? Whatever, the situation reminds me of an intuitive flash that viable economics must be a branch of holontology, the science of being/reality as a whole. Clearly, studying the most complicated process in the world without a holistic approach based on comprehensive understanding of all the basic causes & major factors (especially systematic disinformation, corruption & manipulation) there can be no valid results. Right? Hey, maybe we should call it Post-Delusional Economics.

    • Larry
      September 28, 2011 at 4:14 pm

      Historically, money is not derived from barter. This is a mistake. My problem with these models is to what extent they incorporate any intensionality within the system. This could include, but need not, Soros’s own ideas on reflexivity.

  8. Dave Taylor
    September 28, 2011 at 9:30 am

    Thank you, Michael. The only points I would want to add is that viable economics must take also take account of (1) how people can get into positions where they can disinform, corrupt and manipulate on a world-wide scale, i.e. the evolution of politicians from war-lords to the dupes of Nietzschian would-be emperors with their heads below the parapet. (2) Any science, including holontology, includes the reality of inadequate communication, language and instrumentation, hence the point of developing the Algol68 language and SSADM systems analysis I keep on about.

    The language of money hasn’t changed, but its meaning has – from gold to gold-plated (guilt?) to the shameless lie of presenting a mere cypher as “gold-equivalent”. As has its purpose: the means of cooperation (“being of one mind”) now inspiring competition (“divide and rule”).

    Re my sympathising with Alice at #5, if Steve Keen is following Keynes, he ought to be wandering into information science and psychology, but it seems “The point of Keen’s program will be to encourage economists to build models that account for the volatile nature of money”. So steam-age economics ends up with the steam evaporating into thin air when it has done its job – or when the pressure is built up so much the boiler bursts! So what? Information-age economics ought to be starting with the circulation of money authorising economic functioning, how the system normally continues to function despite usury turning its header tank (the stock exchange banking system) into a black hole, and whether the necessary authorisations are or can be conveyed without the use of recycleable money: love of the appearances of it having long been recognised as “the root of all evil”. Not that Soros’s INET was interested in my lone voice crying in the wilderness.

    • Alice
      September 28, 2011 at 10:20 am

      I think Steve Keen has wandered off into the arms of all that money and what does anyone care that he develops another money market model…except George Soros (and should we paint it up as something pretty? Like how briliant that Soros gives money to Keen? Does this make Keen brilliant or a brilliant servant…sorry George but he is naturally suspect…he is still wealthy after the crash)..

      But then Im really cynical by now. There have been a lot of economists sell out in the past forty years and mostly they sell out to …not engineers, not physicists, not builders, not manufacturers, not real producers…no, they sold out to bankers and others in the financial markets. Could all those ecpnomists who actually have a job in the producing commercial sector please raise your hands ? (yes I am cynical)

      I hope this Keen offer.. isnt another case of a bright economist to fall to a kindly bank offer.

  9. Dave Taylor
    September 28, 2011 at 1:39 pm

    Alice et al, let me make it quite clear that, from what I have seen of his work, I wouldn’t think Steve Keen corruptible; nor for that matter, given his comments after deliberately devaluing the GB £, that George Soros is corrupt and not seriously interested in New Economic Thinking. What we are discussing, after all, is “the deluded discipline of economics”. I’m arging that Steve hasn’t escaped the cause of the delusion, and George hasn’t either, for to run his organisation he has hired economists and other academics, who economise by considering qualifications rather than the quality of an argument.

    It seems to me, Alice, the situation of Soros is like that of the ministers of Britain’s recent New Labour government, who now recognise mistakes caused by Servile Servants briefing the one misleadingly in just four lines of text, and another by withholding the information that a £4 billion project was £6 billion overspent. (There are many cases of agents being less principled than the principal: the ‘royal’ murder of Thomas a Beckett and the Highland clearances in Scotland come qickly to my mind). As for Steve Keen, well I’m lucky, I’ve [still?] got a pension, but he’s got work to do, and has needed to raise money to cover his team’s working expenses.

    • Larry
      September 28, 2011 at 4:16 pm

      Steve is one of the few raising funds directly via his web site. Whether that is a good thing or not, I don’t know.

    • Alice
      September 29, 2011 at 9:38 am

      Dave – Its not that I think either Steve Keen or Soros for that matter are corruptible (but lets make no mistake in thinking that Soros is entrepreneurial in the old fashioned sense of the word..after all he doesnt really “make” anything and is at the end of the day…a profiteering banker..a speculator..perhaps not a real producer albeit very very successful at what he does do)..
      But having said that, I think Soros an intelligent person when it comes to understanding the markets and what really makes them tick…his theory of reflexivity, seems to me a much better explainer of markets than so much that came out of Fama and Friedman’s Chicago school. At least in his theory…Soros demonstrates a deeper understanding and perhaps one that comes from his experience…but it some ways Soros takes us, with this theory, not somewhere new but somewhere old…back to the old Keynesian animal spirits.

      It is rational man that Soros kills, it was rational man that Keynes hadnt even met killed nonetheless, but reflexivity and animal spirits have much in common and as for rational man and what came out of Chicago..well to my mind its just a fallacious nonsense (and Soros, to his credit rails against modern economic theory and has been much maigned in his attempts to expose it). Unfortunately much of modern economics is built on these very shaky assumptions.

      As for Keen..I have the same sentiments…yes not curruptible…BUT…I still ask what good is another (even better) money market model exceot to a speculator like Soros?

      Will it do the ordinary man on the street any good at all? Its not corruption but who will it serve?

  10. September 29, 2011 at 10:59 am

    Thanks all. Good to see some courageous dialogue getting down to earth — as much as possible in a fantasy world gone totally bonkers & worse with ecocidal maniacs running the show. Anyway, though there are disagreements about the origin of money — which SV’s refutation of Menger and his History of Money put down to rest in pieces, finally — as far as the nitty gritty of life in the real world is concerned (for people who don’t need rarified jargon to discuss the very simple basics, money is basically used as an abstraction of barter. If you want to stretch it into a more exotic abstraction interleaved with layers of social theory & faux econonomics gibberish based on the likes of Mengerism, so be it. Still, wampum or a US $20 coin (of legal tender) or a nonprofit US Silver Certificate or any other media that you don’t eat, wear, build or hunt with all happen to be used as means of exchange (money). I’m not a specialist in modern economics theory, but if the basis is in doubt and that problem is largely ignored, then the discipline is not just deluded or autistic it is lost. When the essentiality of ethics is actually ignored (and/or trivialized & dismissed) by a vast majority of the “researchers” of a field that has the unique distinction of being the only one with a history indivisibly wed to the history of corruption, then you seem to have an endeavor with something like stage 7 cancer all through the body of the poor beast. Maybe it’s time for the few good cells to slough themselves off into an honest enterprise with a viable prognosis. Dave, while I appreciate your rigorous approach to the logical issues & semiotic logistics, if the paradigm is woefully inadequate & the semantics a Mad Hatter’s delight, the mechanical fix is irrelevant. Schizophrenics don’t need an electrician or a visit to the Geek Squad. In the beginning of my [early] 2008 paper, Global Emergency Medicine (now the first half of The Economics of Compassion, in progress), I pointed out the similarities of cancer and AIDS to the symptoms of civilization’s psychosocial illness. In fact, I’ve been using the analogy since the early 90s. Since conventional economics is a creature of a corrupt society and, to a lesser extent of culture, populated mostly by participants of the society who directly or indirectly support most if not all of the infectious vectors, then how could economics not be infected? Far from condemning, I mean to foster hope & courage & compassionate action. There are and have been miracle cures, even of people who were almost totally dysfunctional & nearly dead (of AIDS “complications”). We humans are a miraculously resilient species. But, as with cancer or severe addiction, denial is not the way to the cure, it is one of the early symptoms of fearing the truth. Now, I have done my best to make my case in the Greenbook, presenting alternatives, proposed solutions & options, thanks to a very gifted mentor (and some independent follow-up work). I hope that you trust me to give you full credit for any helpful criticisms & improvements to that work. From the beginning, I saw our our interdependent multiple global crises as requiring a massive, well orchestrated, multi-disciplinary team to devise and implement a solution. Since, facing the roaring silence of the majority non-response (or is it another indication of pandemic PTSD or TSS?), I’ve been mostly steadily lurching toward a more comprehensive expansion that reads more like a story that offers light at the end of the long, long tunnel from the start (so as not to deepen the shock & despair), but I’m sure that your feedback and/or contributions will be of great help. Thanks again & best of fortune [sic], etc…

  11. Dave Taylor
    September 30, 2011 at 12:07 am

    MH @ “Dave, while I appreciate your rigorous approach to the logical issues & semiotic logistics …”.

    I wonder if you do, Michael? I’ve never suggested there is a mechanical fix, because the economic problem is people (including economists) reacting not to mechanical force but automatically (and differently) to lies, threats and the half-baked ideas which develop using half-baked language. The Mad Hatter is the human race, and the advice to would-be doctors still holds: “Physician, heal thyself”. It already is a massive multi-disciplinary team, but it is not well orchestrated because the players aren’t aware they need to learn to read music, listen to each other and allow other instruments to time-share the lead.

    It doesn’t actually need a massive team to write satisfying music, just a few with an ear for a good tune who have an adequate musical notation and understand both the theory and practice of harmonising, rhythm and time-sharing. My concern re Steve Keen’s project is that it seems to propose writing orchestral pieces in plain-song notation for random noise generators: not even for players of diverse instruments. Even I can do better than that, though my harmonisation is pretty rudimentary.

    In “How Economics Forgot History” (Ch.18,2001,Routledge), Geoff Hodgson says related things about ‘the myth of the universal market’, as to how: “Remarkably, … the market is not often defined in economics. It is taken for granted”. But what we take for granted is its historical meaning, not the narrower contractual concept which applies now, nor the fact that it is primarily a concept, not a “thing”.

  12. Ken Zimmerman
    October 1, 2011 at 5:03 am

    Hodgson is wrong. Markets are things! They’re just not things with a universal and fixed essence. In fact, they have no essence. They become what they are through interactions with other players, including economists. But also including seller, buyers, technology, government, religion, forecasting, mathematics, corporations, etc. So you see when you say a market does this or that, to understand what’s being said you really need to look into the history of the market that’s supposedly acting. Afterall there is no universal market.

  13. Dave Taylor
    October 1, 2011 at 10:09 am

    Ken, I was paraphrasing Hodgson, so if anyone is wrong it is me or you. I would argue it is a reference to the concept of a place or other communications nexus where trading activities occur. A concept is not a thing, although it is embodied in things. Maybe you just don’t have the concept of a reference to concepts? (Provision for it as a MODE of interpretation is what made Algol68 different).

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