Home > The Economics Profession > Oh dear, oh dear, Krugman gets it so wrong, so wrong, on the state of macroeconomics

Oh dear, oh dear, Krugman gets it so wrong, so wrong, on the state of macroeconomics

from Lars Syll

Back in 1938 Keynes wrote in a letter to Harrod:

Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time. The object of a model is to segregate the semi-permanent or relatively constant factors from those which are transitory or fluctuating so as to develop a logical way of thinking about the latter, and of understanding the time sequences to which they give rise in particular cases … Good economists are scarce because the gift for using “vigilant observation” to choose good models, although it does not require a highly specialised intellectual technique, appears to be a very rare one.

I came to think of this passage when I read “sort of New Keynesian” economist Paul Krugman’s blog yesterday. Krugman weighs in on the ongoing discussion on the state of macro, arguing that even though he and other “sort of New Keynesian” macroeconomists use the same “equipment” as RBC-New-Classical-freshwater macroeconomists, he resents the allegation that they are a fortiori sharing the the same endeavour. Krugman writes

The real test came when the financial crisis struck, and pretty much to a man freshwater economists not only argued against fiscal stimulus — which is a defensible position — but insisted that there was no possible way to justify stimulus, that such ideas had been refuted and that “nobody” believed in them anymore … I’m not saying that the [“New Keynesian”] NK approach is necessarily right; but it’s a serious intellectual effort, undertaken by people who thought they were part of an open professional dialogue. Oh, and there’s a lot of evidence for the price stickiness that is central to NK models; again, maybe it doesn’t mean what the theorists think, but surely that evidence ought to be part of any discussion.

Here we get a view that all macroeconomists more or less share the same (mainstream neoclassical) basic theory and “techniques”, so when we discuss and argue it’s only about which special assumptions we choose to make (sticky wages or not). But people like Hyman Minsky, Michal Kalecki, Sidney Weintraub, Johan Åkerman, Gunnar Myrdal, Paul Davidson, Axel Leijonhufvud – and yours truly – do not share any theory or models with Real Business Cycle theorists and ”sort of New Keynesians” like Greg Mankiw or Paul Krugman.

It’s nice to see that Krugman explicitly acknowledges what I have argued for many years now – “New Keynesian” macroeconomic models are at heart based on the modelling strategy of RBC and DSGE – representative agents, rational expectations, equilibrium and all that. And yes, they do have some minor idiosyncracies like “menu costs,” ”price rigidities” and “sticky wages.” But the differencies are not really that fundamental. The basic model assumptions are the same.

Talking of Krugman, this really shouldn’t come as a surprise. In 1996 Krugman was invited to speak to the European Association for Evolutionary Political Economy. So here – right from the horse’s mouth – I quote from the speech (emphasis added):

I like to think that I am more open-minded about alternative approaches to economics than most, but I am basically a maximization-and-equilibrium kind of guy. Indeed, I am quite fanatical about defending the relevance of standard economic models in many situations …

I may have more sympathy for standard economics than most of you. My criticisms are those of someone who loves the field and has seen that affection repaid. I don’t know if that makes me morally better or worse than someone who criticizes from outside, but anyway it makes me different …

To me, it seems that what we know as economics is the study of those phenomena that can be understood as emerging from the interactions among intelligent, self-interested individuals … Personally, I consider myself a proud neoclassicist. By this I clearly don’t mean that I believe in perfect competition all the way. What I mean is that I prefer, when I can, to make sense of the world using models in which individuals maximize and the interaction of these individuals can be summarized by some concept of equilibrium. The reason I like that kind of model is not that I believe it to be literally true, but that I am intensely aware of the power of maximization-and-equilibrium to organize one’s thinking …

If anything, this shows what a gross misnomer “New Keynesianism” is. The macroeconomic modelling strategy of people like Greg Mankiw and Paul Krugman has a lot to do with Robert Lucas and Thomas Sargent – and very little, or next to nothing, to do with the founder of macroeconomics, John Maynard Keynes. “New Keynesian” macroeconomic models build on Real Business Cycle foundations, regularly assuming representative actors, rational expectations, market clearing and equilibrium. But if we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypothesis of causally relevant mechanisms or regularities can be bridged, are obviously non-justifiable. Macroeconomic theorists – regardless of being New Monetarist, New Classical or ”New Keynesian” – ought to do some ontological reflection and heed Keynes’ warnings on using thought-models in economics:

The object of our analysis is, not to provide a machine, or method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organized and orderly method of thinking out particular problems; and, after we have reached a provisional conclusion by isolating the complicating factors one by one, we then have to go back on ourselves and allow, as well as we can, for the probable interactions of the factors amongst themselves. This is the nature of economic thinking. Any other way of applying our formal principles of thought (without which, however, we shall be lost in the wood) will lead us into error.

For those of us who have not forgotten the history of our discipline, and not bought the freshwater nursery tale of Lucas et consortes that Keynes was not “serious thinking,” we can easily see that there exists a macroeconomic tradition inspired by Keynes – a tradition that has absolutely nothing to do with any New Synthesis or “New Keynesianism” to do. Its ultimate building-block is the perception of genuine uncertainty and that people often “simply do not know.” Real actors can’t know everything and their acts and decisions are not simply possible to sum or aggregate without the economist risking to succumb to “the fallacy of composition”.

Instead of basing macroeconomics on unreal and unwarranted generalizations of microeconomic behaviour and relations, it is far better to accept the ontological fact that the future to a large extent is uncertain, and rather conduct macroeconomics on this fact of reality.

The real macroeconomic challenge is to accept uncertainty and still try to explain why economic transactions take place – instead of simply conjuring the problem away by assuming uncertainty to be reducible to stochastic risk. That is scientific cheating. And it has been going on for too long now.

The Keynes-inspired building-blocks are there. But it is admittedly a long way to go before the whole construction is in place. But the sooner we are intellectually honest and ready to admit that “modern” neoclassical macroeconomics – “New Keynesian” or not – has come to way’s end – the sooner we can redirect are aspirations and knowledge in more fruitful endeavours.

Building models based on an “equipment” that assumes the equivalent of portraying people as being green and coming from Mars is not a sound foundation. There has to be better ways to optimize are time and scientific endeavours than spending hours and hours working through or constructing irrelevant “New Keynesian” RBC and DSGE macroeconomic models. I would rather recommend macroeconomists reallocating their time and endeavours into constructing better, real and relevant macroeconomic models – models that really help us to explain and understand reality.

  1. sergio
    December 23, 2012 at 3:35 pm

    I think we should rethink the use of the word “wrong” in economics. In my opinion such word should be banned from using. Economics is a debatable field. It is not a science. Therefore no one can say for sure what is correct, true or what is wrong. Of course if view on reality is dogmatized by one dominated theory than word wrong can be used in relation to that dogma. But! That is not what economics should be. I personally has experience, when I had debate with my professor, and instead of personal arguments he used textbook of Mankiw, and he was saying to me “you are wrong, wrong, wrong”. The only his argument was textbook of Mankiw. But who are Mankiw or others? Why should their textbooks be a standard for “correct”. Economics reached its limits in explaining reality. The reality in mainstream economics is limited by a textbook of Mankiw. And it does not want to go beyond. Well, this is not economics, then This textbooknomics, mankiwnomics, capitalismonomics. Economics teachers teach what Mankiw wrote. But Mankiw’s textbooks has many editions. Of course he should correct our views on reality, but does this mean that previous editions were in fact “wrong”?
    This means that as professor says to students that they are wrong, the same can be said about author of textbook or theory. However, if student is penalized for being wrong by having bad grades, but professors would never say sorry, that their indeed wrong theories brought disaster to real people.
    Instead of using word “wrong” lets use words as illogical, not-realistic, inconsistent.
    Lets dogmatic mainstream neoclassicals use this word. At least time proved that they are wrong, completely wrong.

    • Paul Schächterle
      January 6, 2013 at 3:43 pm

      I would argue to the contrary. IMHO the word “unrealistic” is a weasel word. If an assumption is counterfactual it should be called “false” not “unrealistic”.

      There are simplifying assumptions which are not a perfect description a of the real world but are a reasonable approximation to the real world. You might call those assumptions “unrealistic”. In fact neoclassical economists generally see their assumptions as simplifying assumptions, so they have no problem to admit that their assumptions are “unrealistic”. Still they consider them useful.

      The are, however, assumption that are simply counterfactual. They can not be seen as a reasonable simplification. A model built on such assumptions would not provide a simple view of reality but a model that does not represent the real world at all.

      So for every assumption used in an economic model there should be a discussion whether the assumption is a reasonable simplification or a misrepresentation of reality. In the latter case it should be called a false assumption. Equally models based on false assumptions should be called false models.

  2. December 23, 2012 at 4:28 pm

    You say:
    «such word (‘wrong’) should be banned from using. Economics is a debatable field. It is not a science.»
    If being debatable is the reason why Economics should not be considered a science, than Quantum Mechanics is not a science!…..

    • Glenn
      January 4, 2013 at 4:29 pm

      Quantum Mechanics delivers repeatable results, time, after time, after time with invariance. Economics does not. People see to that.

      • January 5, 2013 at 2:13 pm

        Let me repeat «If being debatable»… I was under the impression that there were debates aplenty within the discipline of Quantum Mechanics… And Newtonian mechanics also delivers «repeatable results», time after time…

  3. Bruce E. Woych
    December 23, 2012 at 5:44 pm

    Evidence Based theory: LOOTING

    Evidence based models: asymmetrical information
    …the American Economic Review and the Review of Economic Studies rejected the paper for “triviality,” while the reviewers for Journal of Political Economy rejected it as incorrect, arguing that if this paper was correct, then no goods could be traded. Only on the 4th attempt did the paper get published in Quarterly Journal of Economics.[2] Today, the paper is one of the most-cited papers in modern economic theory (more than 8,530 citations in academic papers as of May 2011),[3] and has profoundly influenced economic thinking in virtually every field of economics, from industrial organisation and public finance to macroeconomics and contract theory.

    In the 19thth century inductive methods were prevalent and in the 20th century the early days were still comprehensive at authentic empirically based projections of theories, which then were subject to empirically based validations of deductive corollaries and potent correlates for inferential extensions (ideally pending validity, verifications & proofs). The “purebred” mathematical models (especially made favorable by monetary metrics and contemporary computational binary code processing) established ground in the name of perfect science and a near “cult” of pure deductive doctrine towards dogma. But deduction from previous theories is very much subject to what you mention: Thought Models in economics. Deductive methods from preconceived theory has driven people like Krugman to create an arena of circular thinking and a circus of pseudo-polemics (if not false dialectics and pseudo-science itself). Deduction is only as good as its premise. And “classical versions” of economic premises are empty self serving promises: that’s ALL.

    The contemporary matrix needs empirically derived coordinates from critical observations that withstand hypothetical testing and verification. If Universities are factories of fiction, The Fresh Water and Salt Water schools would be recognized as canned fish.

    If we were to actually look at influences that had direct evidence bases to their thought streams, we would see that models are tested in real time not in forced time output and selective attention / retention. It should not repetitively and ritually sound out a haunting
    Friedman ghost stating try try again; no try harder…errors repeated intentionally and even more intensely in a blind trust. Trial and error would prevail in models; as it should in real life situations.

    Polanyi wrote “The breakdown of the international gold standard was the invisible link between disintegration of world economy since the turn of the century and the transformation of a whole civilization in the thirties….”
    “The true nature of the international system under which we were living was not realized until it failed.”
    [The Great Transformation: the political and economic origins of our time. 1944
    Karl Polanyi}
    “Saltwater” “freshwater” delusions are false gold; the lexicon is artificial & distorted; the conclusions self serving equivocations…and their token standards are that of professional myopia under political class…not some authentically classical authoritative “truth”. Like Krugman claiming any heir to Keynes, their appeal to such authority is not warranted.

    The real truth is that we can not even assess real models because there is a concerted effort to hide the truth; and that concerted effort is facilitated and/or led by these two
    power based ‘schools’ of finance…and all the economy with all its features that can be subsequently “DEDUCED” from that perspective of survival standards. And while they adjust this and reapply it in scope and reductive scale; we are supposed to sit back and accept the poverty in the formula…and the austerity side of the policies in the Big FiX!

  4. Bruce E. Woych
    December 23, 2012 at 5:59 pm


    “The neoliberal assault. “Classical economic liberalism” is the term used to describe the profit system in its youthful heyday. Translated, this means that industrial robber barons and bankers did what they damn well pleased, without regulation. This model was reborn in the 1980s as neoliberalism.”

    The essence of neoliberalism is removing all limits on what big business can do to maximize profits; it’s more or less synonymous with so-called free trade.

    Resistance spreads worldwide to raids on public wealth
    Monica Hill
    February 2010

    “Privatization is key. The root strategies of neoliberalism are contracting out public-sector jobs and selling off government agencies that produce goods and provide services. Since Ronald Reagan’s election as president in 1980, every U.S. administration has privatized as much as it could get away with.
    Reagan attempted to privatize the U.S. Post Office, Amtrak railroad, the federal prison system, and more. Bush Sr. contracted out 9,000 jobs during the Persian Gulf war. Bill Clinton got rid of nearly 380,000 non-military federal jobs, in addition to gutting welfare.
    Bush Jr. tried to privatize Social Security, and succeeded in taking away the collective bargaining rights of airport screeners and workers at the Justice Department and Department of Homeland Security. He and Barack Obama have broken all records with the number of mercenaries they have sent in place of soldiers to fight Washington’s wars. Now corporate CEOs are salivating at the prospect of privatizing public schools, hospitals, and mental health clinics, energy utilities, additional prisons, and immigrant detention centers.

    also @

  5. BC
    December 23, 2012 at 7:22 pm






    Economics claims as a fundamental premise that the ecological system on which all life and human subsistence and (un)economic exchange is based is a sub-set of “the economy”. False.

    Moreover, economics considers the effects of the growth of cumulative compounding interest claims in perpetuity from debt on wages, GDP, and resources as insignificant, if not irrelevant. False.

    Thus, theories, models, and debates that derive from these fallacious fundamental premises are invalid.

    Therefore, economics is invalid.

    However, war is imperial politics by other means. Imperial politics is economics. The business of empire is war and plunder of resources and labor product. War is good business. Ergo, war is plunder is business is politics is economics.

    Economists are the priestly caste of empire who devise fallacious theories and models to rationalize policies in support of imperial war and plunder of resources and labor product.

    • Bruce E. Woych
      December 23, 2012 at 7:33 pm

      BRAVO BC ! THE research links are appreciated.
      I have an interest in what you are presented from my work on the History of Ideas: I hope you find it useful.


      “Homo economicus, or Economic human, is the concept in some economic theories of humans as rational and narrowly self-interested actors who have the ability to make judgments towards their subjectively defined ends. This theory stands in contrast to the concept of Homo reciprocans, which states that human beings are primarily motivated by the desire to be cooperative, and improve their environment
      Homo economicus bases his choices on a consideration of his own personal “utility function”.
      Consequently, the “homo economicus” assumptions have been criticized not only by economists on the basis of logical arguments, but also on empirical grounds by cross-cultural comparison. Economic anthropologists such as Marshall Sahlins,[8] Karl Polanyi,[9] Marcel Mauss[10] or Maurice Godelier[11] have demonstrated that in traditional societies, choices people make regarding production and exchange of goods follow patterns of reciprocity which differ sharply from what the “homo economicus” model postulates”
      (from: http://en.wikipedia.org/wiki/Homo_economicus)

      Economics and Ecology are both of the same genesis but it was strikingly distinctive at the origins of its divergence from within it’s root basis not its prefix. The critical distinction between “logos” and “nomos” should not be underestimated. They are phenomenologically distinctive philosophically, despite the fact that cognitively we seek to unify them from such birthing methods from “Oikos” as “household”, but perhaps we should even take heed at the arrogance of considering ecological foundations as a manageable economic household in the first place. From predispositions of chaos and harmony in a cosmic order of consciousness and existence to primal nature in contradistinction to civilization; natural to positive laws, organismic vitalism and emergence through mechanistic-physics and atomistic disintegration…we have captured the world in “nomos” terms and economy measures the pot of gold at the end of that rainbow. The dichotomy between ecology and economics must take a position among the other dichotomies in the history of Western thought and ideas such as brain / mind ; nature / culture ; primitive / civilized ; being / spirit ; and others.

      But what we have missed is that 17th and 18th Century classical “economia” has become a mechanical form of static and dynamic “input-output” while Homo Sapien Sapiens transform their core identity in the measure of themselves via a newly devised self-reflection from a their “homegound” in history…as a self made existence. Positive and progressive laws of order transpose providence and civitas from pastoral nature to industrial conversion in a cosmopolitan reality of transactional cosmology. Homo centric- eccentricity in historicism lends itself willingly to an equasive homo faber;… the maker of tools and beings in history separate from the beast, separate from the “primitive” savage and from debased Nature itself. History becomes the metaphysics of existence and economics is the household and industrial warehouse of its making. A Proud existence; led and limited only by its own self reliance and survival;.and production. Man against men in history becoming a “product” of time and a product of his own making and keeping.
      Mixed with the arrogance of Romanized “will” and metaphysics of superiority and the distortions of superman soon arising with the industrial capacity of clockworks and steam engine and the identity of this independent entity is tantamount to a demigod; if only in his own measure and image making. Writ larger by the accomplishments of collective forces of assemblage and technological (logos…technos… nomos…) transforming and even transgressing toward its transcendent historical apex. A pinnacle of grand design with self determined pastoral domains controlling Nature itself under foot, plow and the forces of physics… quantifying the self serving monetary base of society itself. Mankind not only transcending nature but transforming it at will and to do his bidding at conversion and for every imaginable consumption. Mind over matter and only money matters.

      The drift is that human beings believe without a second thought that the resources are merely the clay of creation itself and that economics and wealth is creation itself. Of course the new financial section, as we now know, are the gods, and production is just another day of creation . People believe, or more correctly, they never doubt that economic man produces at will…produces and transforms according to the demands of a progressive civilization in the transfiguration of time and being into history and all else is essentially recreation and collateral damages. There are no real constraints that are truly impassable. Steady state and sustainability are external terms that spoil the process. Today everything is convertible to some monetary value scale and econometrics has become the conduit to power transfers within the scope of social forces and the market matrix that make things happen. Money is the universal solvent and basically converts the sum total of global forces to a numerical grid. Economics has become the hand maiden to that grid. But the truly ecological science to that economic delusion is that we have been progressively destroying the balances of the natural earth and converting it …or better stated…consuming it….without a memory or conscience about it. Input and output has become monetized ignorance in a process of mass self-stimulation and gratification. And as the process heats up so does our zero sum game and displacement of the waste to the farthest corners of the earth away from the cause. the myth of economics is that it creates wealth. The truth of the matter is that Economics creates a mechanism of displacement in the creation of waste.
      Given that mild caveat, I would recommend the systems of knowledge approach attending to a sustainable ecological concept of deliberation that appears to be initiating some mental imagery back to homo sapien sapien’s ideas…at MIT…check out their site: Perhaps there can be a redeeming aspiration for this beast we call economics!

      Global System for Sustainable Development – http://gssd.mit.edu/


  6. December 24, 2012 at 2:33 am

    Keynes’s general theory demonstrated in his chapter on “Changes in Wages” that flexibility of wages will not automatically restore full employment . [For proof read my book JOHN MAYNARD KEYNES in Macmilla’s series “Great Thinkers in Economics”.]

    Keynes made an entrepreneurial economy dependent on money contracts so that “liquidity” became essential — where liquidity means the ability to meet all possible known [transactions motive] and even unknown [remember precautionary motive] future contractual commitments.

    Savings would always take the form of buying liquid assets — i.e., money or other (financial) assets that can be readily converted into money. And in his chapter on the “Essential Properites” of money and other liquid assets — Keynes specifies that such assets have a zero elasticity of production and a zero eleasticity of substitution between liquid assets and real assets.

    If the elasticity of production is zero then when people take their earned income (earned by producing goods and services) and save a portion of it in the for of some liquid asset, then this savings is a new demand for liquid assets — but since the elasticity of production is zero for all liquid assets, then labor can not be hired by entrepreneurs to produce more money to meet this new demand . In other words, this elasticity of production means that money does not grow on trees and therefore entrtepreneurs can not hire workers to harvest money trees!!

    Thus Savings in the form of the demand for liquidity leads to unemployment — which can be offset only if other decision makers are spending in excess of their income to offset the depressing effect of Savings.

    • Bruce E. Woych
      December 24, 2012 at 4:50 pm

      Paul: this is the type of input that really does have meaningful repercussions. i DON’T MUDDLE with reading the present “as if” it were identical to the present, but I also critically look to history for models of explanation (as opposed to forward looking speculations on theoretical prosperity & cures). In addition, I won’t quibble about the precise categorical definition (or hierarchies) of what you term “entrepreneurs” since I will take that as honest “investors” and not scheming- predatory “speculators” …{as a given} but taking it from there, I would like you to expound upon the implications of a financial class system currently (forget Keynes…but not the learning tree of the model you present…) under this specific consideration that you concisely attributed to the previous causal chain of events: (You state)

      ” but since the elasticity of production is zero for all liquid assets, then labor can not be hired by entrepreneurs to produce more money to meet this new demand . In other words, this elasticity of production means that money does not grow on trees;….”

      Having said that, and under the guiding reflection of the baseline of labor/infrastructural (bottom-up) liquidity model you critically assess; how does the opposite top -down model work (AKA: Derivative driven and fiat expansion) in a top heavy system that sees unemployment as an exploitation opportunity (cheap labor)…but produces nothing and literally threatens to collapse the foundations of the economy under a “monetary easing”
      float over a currency deflation scenario. The emphasis is that liquidity (alone) produces nothing and the liquidity in the present economy is in Financial sectors; while stagnation (at best) threatens the infrastructure and “austerity” policies promise a diminishing return for the (scarce) dollar unit in growing poverty stricken (bankrupt) demographics.

      In my personal history “entrepreneurs” emerged out of labor sectors…they were products of NEEDS, Wantes and desires…wishes (in that order). Today we have a Luxury liner class set of money managing second generation Harvard to Yale MBAs that game the system and churn over the monetary numbers in a process of self preservation of class privileged status quo…liqiuidity producing NOTHING. In my personal world, people who are well healed constantly gripe that they can’t hire people despite the high unemployment numbers and they blame government supports…but the wages they expect to put out are totally exploitative and to a person they all admit that they hold power over the labor market because the people are so desperate at job-survival rates.

      How would you assess the present in light of the fact that the situational context has almost reversed since the time you are evaluating. Or put more precisely, Knowing Keynes (as you must …having authored a book on his work…) how would KEYNES EVALUATE THE VERY GROUNDWORKS & CLOCKWORKS OF THE IMMEDIATE PRESENT?

      Thank you very much for your stimulating input!
      Regards: Bruce

      • Bruce E. Woych
        December 24, 2012 at 4:54 pm

        Sorry about the second line: Obviously that should be: “PAST”

        I DON’T MUDDLE with reading the PAST “AS IF” it were IDENTICAL to the present, but I do also critically look to history for models of explanation…
        (emphasis added…)

      • Bruce E. Woych
        December 24, 2012 at 5:26 pm

        Of relatively contemporary interest:

        Poland—Concluding Statement of the 2010 Article IV Consultation
        Warsaw, March 15, 2010

        Poland has weathered the global crisis well compared to other European countries.

    • Bruce E. Woych
      December 24, 2012 at 5:33 pm

      John Maynard Keynes and International Relations: Economic Paths to War and Peace,’ by Donald Markwell
      October 23, 2009 |
      (my comment at that time is relevant here):

      This is a very intelligent presentation of a profile in history that begs to be repeated. Both Polanyi and Keynes were first and formost accurate observers of their world. Their theories were built upon measure and methods that calibrated the dynamics of insight and foresight into predictable outcome. Unlike retrospective measures that can play with teleological and tautology to appear complete, these theorists were engaged in orchestrating corrections.
      Modern theorists since the 50s have been still fighting a reactionary cold war. Their ideological foundations are threatened by applications of practical solution if they don’t fit the theories themselves. Even now it becomes a process of applying Keynes as if it were a “Brand” over oppositional (cold war “free” world) schools of theory which typically involve pure bred monetarianism.

      If you are adjusting the real world to your theories, something in the real world is going to break (if you have the political economic power to impose it). If you adjust the theories to the real world, something in the theories are going to break (if you have the poitical economic will to oppose it).

      Times have certainly changed in both scale and scope but also in temporal and spatial dimensions which have intensified and accelerated the geopolitical arena for both better and worse potentials. Communication does permit resolutions but the intensity of flare ups and chronic regional violence is barely reported as economic factors. Class structure has dramatically changed and new levels of highly skilled labor, technocrats and service exchange economies have altered the playing field in critical ways. It would be fascinating to imagine what Polanyi would say about the global network, and hear Keynes project how it orchestrates itself. We have the model, but contentions and interests are blinding us into a lock step set of pretentions and contentions that we tend to defend as postures of laissez faire or status quo without even defining what that means. I don’t think Keynes would have had any of it.

      I found the statement …”That is, there is a “moral hazard” problem connected with a policy that keeps nominal wages from falling” very compelling as a sample model of inversion. In yesterday’s economy this refered to a manual labor level of wages. Today, this applies more truthfully to the top executives of the pecking order and the “bonus” world of financial rewards and their posse of self-exulted elites. The age of privitized “Central Planning” has arrived; and the statement of record seems to be L’Marche, C’est Moi.

  7. sergio
    December 24, 2012 at 7:13 am


    Please read this very sad story how innocent “scientists” brought misery and disaster to real people.
    If you knew about it earlier, then 2008 probably would not happen. Why should we allow these criminals teach their destructive theories in universities?

    • Bruce E. Woych
      December 24, 2012 at 5:18 pm

      Sergio: The “freshwater” and “saltwater” University brain-trust were responsible for this dramatic exploitation process, but the same model can be interpolated to assess what is going on globally and in a more sophisticated and complex way to our own domestic economy as well; stay on it …you are right on!
      Why the U.S. Has Launched a New Financial World War — and How the Rest of the World Will Fight Back
      By Michael Hudson, CounterPunch
      Posted on October 12, 2010

    • Bruce E. Woych
      December 25, 2012 at 9:55 pm

      It is about time that some fundamental realities were exposed as to the actual scope of this global crisis. A good deal of the forecasts and second guessing is essentially arguing scale. The global dimensions of this context have some historic as well as synchronized foundations. The global economies have had successions of crisis over a few decades. Asia, Japan, Argentina, Brazil, Mexico and the fiasco of Russian “perestoika” are all a global sequence that has spiraled and grown to blow-back on to the grand scheme of recycling debt. The artificial designation of “emergent” economies is a pretext of unrealized potentials to systems that are staged and ranked as “developing” (as if the ultimate process will come up to some on par standard with the loci of power in the capitalized world order. Fat chance! It seems incredulous to think that these sequences have not been studied and simulated as models; especially so because they have acted like financial industrial systems milked by both internal and external privileged elites. The contemporary perspectives on “cronie capitalism” grow out of the experiences from both sides of this manipulation machine. Convergent reality nearly guarantees that the expansion, intensification and acceleration of this global dynamic would reiterate itself both horizontally and vertically. Given the factors of global resource / demographic pressures and stresses coincidental with this capital amplification: the process becomes exponential. The only question we have here, is as to who might benefit from pushing all the buttons at once and letting the system run totally unregulated? The political economy of corporate portfolios are inbred between private wealth executives and government positions of control. There is a fiendish complexity to these intricacies. Petrodollars have been recycled over global expansions with asset acquisitions and leveraged control. Sand does not constitute a gold standard. In the meantime we have had more than 30 years of “Chicago School” ideology. The entanglements of deeply entrenched vested interests are now essentially institutionalized as self-preservation in the “new debt economy” created over the past decade. Chicago School ideology is tantamount to software for political and economic capture. Of course this becomes free market global capture by extension and authority of cold war economic license TO USE ECONOMICS AS A WEAPON OF CHOICE initiated by NSC-68 http://en.wikipedia.org/wiki/NSC-68.

  8. Bruce E. Woych
    December 24, 2012 at 5:47 pm

    As Models go, the Triffin dilemma is an international concern in currency and trading exchanges. If I am right then the triffin dilemma can be interpolated as a systemic failure between the international based financial (path dependent) sector, and our domestic economy …AS IF…we were dealing with two foreign countries. consider this excerpt, and check out the implications I suggest in a two tier system that now exists in the US economy:

    source: http://en.wikipedia.org/wiki/Triffin_dilemma

    “In the wake of the Financial crisis of 2007-2008, the governor of the People’s Bank of China explicitly named the Triffin Dilemma as the root cause of the economic disorder, in a speech titled Reform the International Monetary System. Zhou Xiaochuan’s speech of 29 March 2009 proposed strengthening existing global currency controls, through the IMF. [1] [2]

    This would involve a gradual move away from the US dollar as a reserve currency, and towards the use of SDRs (IMF Special Drawing Rights) as a global reserve currency.

    Dr Zhou argued that part of the reason for the original Bretton Woods system breaking down was the refusal to adopt Keynes’s Bancor which would have been a special international currency to be used instead of the dollar.

    American economists such as Brad Delong have agreed that on almost every point where Keynes was overruled by the Americans during the Bretton Woods negotiations, he was later proved correct by events”

    source: http://en.wikipedia.org/wiki/Triffin_dilemma w

    Bruce E. Woych

    • paul davidson
      December 24, 2012 at 6:51 pm

      you may be interested in knowing that DR. Zhou spoke out after Henry Liu snd I published an aerticle in the Asian Times about the need to go back to some form of the Bretton Woods “Keynes Plan” such as I advocated in my many books and writings — an International Monetary Clearing Union with its IMCU accounting units as the international currency.

      Henry, who is an unofficial advisor to the Chinese government, also took this proposal to the Chinese government and Central bsank — and the result was the suggestion made by the Chinese Central Bank.

      I have been advocating such a proposal at least since the 1980s but no one appears to be listening. Now that once we go over the fiscal cliff, people may recognize that we are subtly engaged in an exchange rate depreciation war to export one’s unemployment — under the nicer name of “making your industries more competitive”– maybe we will get back to discussing my IMCU proposal– a proposal, which unlike Keynes’s Plan, does not require a supranational centrl band. [[We have evidence that the Euro Central Bank exoistene merely hampers things rather than improving things.]

      • Bruce E. Woych
        December 25, 2012 at 2:56 am

        Paul: This might come under the title of “Heads UP” and Since you appear to have the right links in your background, I would like to mention to you of some suspicious interest that our Golden Boys are targeting (fresh game) in the world of victims: One of which is,

        Which appears as a free market repeat of Greece at the onset. The Vultures are getting ready to feed!

        The “others” are now being called the “NEXT ELEVEN” selected and designated as such by Goldman Sachs (which has a very openly ominous sound to it)…. more here,

        Please consider the weight of this carefully, Thanks!

      • Bruce E. Woych
        December 25, 2012 at 3:17 am

        Philippines faces middle-income trap
        Business and Society
        May 30, 2011, 12:29am
        MANILA, Philippines — The Asian Development Bank (ADB) just published an extremely valuable document entitled Asia 2050: Realizing the Asian Century. From a first reading of this very well researched study, I came out with two major conclusions.

      • Alberto Zuleta
        December 26, 2012 at 1:39 pm

        The problem is simply. We are under the power of big banks. The real economy is almost gone. The inequality is every day bigger and the politicians don’t care about that.

      • December 26, 2012 at 6:21 pm

        Quote Noble Prize Laureate Frederick Soddy,
        “It was recognized in Athens and Sparta ten
        centuries before the birth of Christ that one
        of the most vital prerogatives of the State was
        the sole right to issue money. How curious that
        the unique quality of this prerogative is only now
        being re-discovered. The” money-power ” which
        has been able to overshadow ostensibly responsible
        government, is not the power of the merely ultra-
        rich, but is nothing more nor less than a new
        technique designed to create and destroy money
        by adding and withdrawing figures in bank ledgers,
        without the slightest concern for the interests of
        the community or the real role that money ought
        to perform therein.

        The more profound students of money and,
        more recently, a very few historians have realized
        the enormous significance of this money power
        or technique, and its key position in shaping the
        course of world events through the ages. … It is con-
        cerned less with the details of particular schemes
        of monetary reform that have been advocated
        than with the general principles to which, in the
        author’s opinion, every monetary system must at
        long last conform, if it is to fulfil its proper role
        as the distributive mechanism of society. To allow
        it to become a source of revenue to private issuers
        is to create, first, a secret and illicit arm of the
        government and, last, a rival power strong enough
        ultimately to overthrow all other forms of
        government. ”
        “Justaluckyfool”(Google Account),” Until we take back the power of this Sovereignty
        ‘the sole right to issue money.’ and use that “money power” to benefit the people, we shall not overcome servitude”.

      • December 26, 2012 at 6:28 pm

        Oophs, written in 1926,1933.
        How about that, a guy that says, “Money now is the Nothing that you get for SOMETHING in order to get ANYTHING.”
        Simple, yet we are presently writing tons of literature about , “What is money?”

      • Bruce E. Woych
        December 31, 2012 at 4:24 pm

        Philippines being “STALKED” by Liberalization
        & “Free-marketeering”
        Media Propaganda

        PH should open up more to foreign investments — former econ managers
        Published on Nov 29, 2012

  9. Bruce E. Woych
    December 24, 2012 at 8:31 pm

    Thanks for this Paul,…an odd position to be in since so many paths are attached to the dollar peg…(I often wonder if the Yen and the Eurodollar weren’t insidiously attacked because of it…) but you can place yourself in the company of Keynes as to being ignored on its merits!

    I filed this article as an interesting and concise summary from an intelligent objective observer back in 2009: I hope that serves you in the future as well.

    Regards: Bruce

    The TRIFFIN DILEMMA essentially points to a inverse contradiction between international flow and domestic stability:

    Global imbalances and the Triffin dilemma | Analysis & Opinion |
    Jan 13, 2009 … The whole concept of a single reserve currency (the dollar) and a principal reserve asset (US Treasury bonds) is set to undergo a profound …
    blogs.reuters.com/…/global-imbalances-and-the-triffin-dilemma/ – Cached – Similar
    http://blogs.reuters.com/great-debate/2009/01/13/global-imbalances-and-the-triffin-dilemma/ (main article)
    You may enjoy browsing here as well; and others may also get an interest to look into the
    arena of global scope & scale indexed by counter-intuitive corrections and hanging
    by a Peg !

    Enjoy the New Year!


  10. Davidt
    December 26, 2012 at 4:20 am

    When laws and regulations are not applicable to those giving politicians campaign “donations” there is no market only criminal activity.

    There is no model that takes into consideration the magnitude of this corruption and the unpredictability of present and future impacts of these ongoing holidays law and Governance.

    Bookmakers do not payoff when a game is fixed, why are economists and political scientist so slow to learn there is no model for or future in tying ones profession to criminal activity. The government attorneys have this problem also.

    Call this a fixed game and move away from defending the crooks or be tarred with the crimes your models and exchuses try to white wash!

  11. Bruce E. Woych
    December 30, 2012 at 6:06 pm

    for Lars Syll: The Fable of The Bees: or, Private Vices, Public Benefits is essentially a fallacy of composition. See:
    http://en.wikipedia.org/wiki/The_Fable_of_the_Bees (of interest…)

    “The poem suggests many key principles of economic thought, including division of labor and the invisible hand, seventy years before these were more thoroughly elucidated by Adam Smith.[2] John Maynard Keynes cited Mandeville to show it was “no new thing … to ascribe the evils of unemployment to … the insufficiency of the propensity to consume”,[3] a condition also known as the paradox of thrift, and central to his own theory of effective demand.”
    “The poem had appeared in 1705 and was intended as a commentary on England as Mandeville saw it. Keynes describes the poem as setting forth “the appalling plight of a prosperous community in which all the citizens suddenly take it into their heads to abandon luxurious living, and the State to cut down armanents, in the interests of Saving”.[6]”

  12. Bruce E. Woych
    December 31, 2012 at 10:29 pm

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