Comments on RWER issue no. 67

Issue no. 67, 9 May 2014

Download the whole issue here

 In this issue:

Loanable funds vs. endogenous money: Krugman is wrong, Keen is right                                2
Egmont Kakarot-Handtke     download pdf

Why DSGE analysis cannot accurately model financial-real sector interaction             17
Piet-Hein van Eeghen     download pdf

Evaluating the costs of growth                                                                                    41
Asad Zaman     download pdf

Climate change, carbon trading and societal self-defence                                                         52
Max Koch     download pdf

Supply and demand models – the impact of framing                                                                67
Stuart Birks    download pdf

Excess capital and the rise of inverted fascism: an historical approach                                   78
John Robinson     download pdf

What is the nature of George Soros’ INET?                                                                               90
Norbert Haering       download pdf

Public debt crises in Latin American and Europe: A comparative analysis                               97
Oscar Ugarteche      download pdf

Reconciling homo-economicus with the biological evolution of homo-sapiens                       117
Taddese Mezgebo      download pdf

Ordinal utility and the traditional theory of consumer demand: response to Barzilai                130
Donald Katzner   download pdf

Book review essays 

The capitalist algorithm: Reflections on Robert Harris’ The Fear Index                                             137
Jonathan Nitzan and Shimshon Bichler     download pdf

The accidental controversialist: deeper reflections on Thomas Piketty’s Capital                           143
Thomas I. Palley     download pdf


  1. paul davidson
    May 13, 2014 at 3:12 pm

    Lord Robert Skidelsky was the initial chair of the UK committee to reinvent the economic curriculum in 2010. The 2013 UK curriculum report to HM Treasury was by an entirely different chair and committee

    What ever happened to Skidelsky’s committee’s work?. It is an interesting tale best explained by Lord Skidelsky.

  2. Miguel Bedolla
    May 13, 2014 at 4:52 pm

    About the Mezgebo article.

    It is intriguing, but did you also consider what perhaps could be the other pole to the elastic biological foundation, from which humans emerge, a spiritual foundation which orders what emerges?

    • Taddese Mezgebo
      May 16, 2014 at 10:40 am

      @Miguel Bedolla I am not sure if I understand you, can you make it more clear.

      • Miguel Bedolla
        May 20, 2014 at 3:49 pm

        Let me try. What emerges from the elastic biological foundation has order.

        The order cannot be explained unless you also affirm that there is another foundation, different from the biological, which orders what emerges and confers to it the probability to survive.

        Biology, rather, physics, chemistry, biology, and so on, work from the bottom up, whereas order, or the ordering spirit works from the top down.

        This has been discussed by Voegelin in one of the articles in his “Anamneses” and it is compatible with Lonergan’s notion of Emergent Probability, Probability of Survival, Emergence and Correspondence.

        Let me know if I cleared things up. Sent from my iPad


    • Geoff Davies
      May 21, 2014 at 1:34 am

      Miguel, the science of complexity shows how order can emerge from the bottom up.

      • Taddese Mezgebo
        May 21, 2014 at 11:23 am

        thank you Miguel Bedolla for making it clear for me. I do think there is institutional evolution that explains evolution of culture. Still it is intuition but I do think cultural evolution has to find proper balance between institution of harmony (which define the value and morality for long term common expectation), institution reciprocity (which define dynamic incentive structure of organization) and coercive institutions (which make enforcement by third party possible). Take for example market which is good at developing reciprocity and coercive supporting structures but is also destroying the harmony side of the society (as forcefully is advocated by Stieglitz in recent days). I am working on it and still I can not be sure if I gate the idea right.

        However I do think cultural evolution is bottom up where institutions like DNA are selected while their phenotype is organization of different sort. However I do think I have to read about complex design raised by Geoff Davies and top down ideas you stated above. Thanks for introducing me to those new ideas that I have to read about.

  3. Kihano
    May 14, 2014 at 8:39 am

    “What is the nature of George Soros’ INET?”
    When i first browsed the pages of the web site of the INET i immediately named it “Institute of disguising the old thinking under a new form”. The world needs completely new paradigm, not old things with just polished surface.

  4. robert r locke
    May 14, 2014 at 9:50 am

    : ‘Move over West, Asia is here’ in China Daily, claiming that the West has forgotten how it became wealthy and has, and needs to relearn the reasons for her former success from Asia. China Daily quotes Dean Kishore Mahbubani in Singapore,

    “This is a Western financial crisis,” he says, “because the problems are the results of Western leaders’ failure to understand that they faced a new competition.”
    “Asian societies are doing well (today) because they understood and absorbed the main pillars of Western wisdom, … But Western societies are gradually walking away from these pillars.” (China Daily, 2010, p.9)

    John Robinson, sorry but the “crisis” today is not global but Western. Your analytical model must take that into consideration.…

  5. Marshall Feldman
    May 14, 2014 at 1:38 pm

    Several of the equations in the article by Kakarot-Handke are garbled, starting with (4). At first I thought this was due to Firefox’s internal pdf viewer, but I also managed to download the article and view it in Acrobat. It seems the superscripts got screwed up because they’re illegible.

  6. Achilles
    May 16, 2014 at 4:49 pm

    On the article by Kakarot-Handke:

    It is not clear how the two hypothesis (Keen vs Krugman) can be tested under the setup stated in the paper unless one makes the assumption of a fixed rho_E.

    Let me explain. Let us assume–as the authors do–that there is no distributed profit.
    Then the entire development of Section 3 boils down to the following equation:

    Delta M_Hs + Delta M_Hd =Y-C=Y(1-rho_E)

    In other words the sum of deposits of savers plus the overdrafts of dissavers equals
    the left-hand side (over the given period).

    The authors now classify Krugman’s position as one where the two terms on the right-hand side are highly dependent, while Keen’s position as one where the two terms on the right-hand side are independently moving.

    Such hypothesis cannot be tested in the absence of any knowledge about how the
    right-hand side evolves. The authors make the additional assumption that
    rho_E =1 which makes the right-hand side 0. Under this additional assumption, one can
    observe empirical data for the two terms Delta M_Hs and Delta M_Hd and arrive to a conclusion about the validity of Krugman’s or Keen’s hypothesis.

    But how can such assumption be made? on what grounds is rho_E equal to 1?
    (the exact value of rho_E does not matter; what matters is that we have empirical evidence about the term on the right-hand side).

    To put it differently, Figure 4 can be the result of VERY DEPENDENT processes
    Delta M_Hs and Delta M_Hd (the dependence of which is described by equation (*)
    with a time-varying right-hand side)

  7. Geoff Davies
    May 18, 2014 at 6:52 am

    Nitzan and Bichler-
    Thanks for an instructive article. Quite a few fundamental insights, and devoid of academese.
    I have conceived of corporations as out-of-control automatons of human creation, but you and Harris are right: the whole competitive market mechanism is on autopilot. That’s why it is so astonishingly amoral/immoral, for example routinely exploiting children. No other species on the planet does that. I also especially liked “capitalism is not a collection of identical atoms, but a complex hierarchy of power”. The reference to Mumford’s The Myth of the Machine, is also very valuable, I didn’t know about it. The highlighting of the role of fear is spot on. Putting a deeper layer under my own critique – .
    Thanks again.

    • May 18, 2014 at 4:11 pm

      The notion of capital as a megamachine is developed in our 2009 book ‘Capital as Power: A Study of Order and Creorder’, pp. 263-272 (free PDF:

    • Geoff Davies
      May 19, 2014 at 1:15 am

      Thanks Jonathan. I’ll have a look.

  8. Miguel Bedolla
    May 21, 2014 at 5:14 am

    Yes, I know.

    But are complexity and order the same thing?

    And how about a complexity of complexities.

    Just think about the way in which the human body is structured, and how a living human interacts with everything around it, a complexity of complexities interacting with a large number of complexities of complexities in an orderly manner.

    • taddese mezgebo
      September 7, 2016 at 9:56 am

      Hi sorry I am late but there is order beyond biology. This comes from nature of institutional balance. Institutions can be grouped in to three. One is reciprocity (those which determine exchange which is market, gift exchange and soon), second is coercive institutions (those which demand use of force soft or hard to deal with moral hazard problem) and third is morality or moral base of society and this determines the interaction space in general by creating common expectation. There is strength and weakness of each of those institutions and there is limit to human nature which creates data generating process in path dependent manner. Yes there will be complexity of institutional structure and organization; but still there is basic dynamics we can study using those three pillars. Say moral base is slow to change which generates advantage and disadvantage. It been years since I work on it, but human history can be re-study from this prospective and you can see things better. Do I gate you now?

  9. Dantey
    June 1, 2014 at 2:16 pm

    Any comments on Asad Zaman’s paper? Whether capitalism is the way to go for the next century or so?

  10. Joseph Glynn
    June 4, 2014 at 1:59 am

    Max Koch’s ‘Climate Change, Carbon Trading and Societal Self Defense’ gets a good grip on a tough problem . After studying CC policy and emission trading for a dissertation in 2007/8. I graduated depressed by the sophistry and cunning of emissions trading and by the scale of the deception and orchestration of policy failure,
    For such ‘state of the art’, vastly ineffective, inefficient and genocide/aly inequitable policy instruments I do believe we can thank… opaque, ‘too big to fail’, and publicly unaccountable governance institutions, lawyers, lobbyists, financiers and traders and their political apparatchiks.

  11. Stuart Birks
    June 12, 2014 at 8:39 am

    I have received this helpful comment on my paper from Paul Hare: “I would add to your interesting supply and demand paper some observations about the institutional underpinnings of S&D analysis – to do with property rights, contract, modes of payment, trust, etc. We normally take all this sort of thing totally for granted. But we shouldn’t, really.”

  12. Newtownian
    June 20, 2014 at 4:53 am

    Max Koch

    Thanks for your great article on why Carbon trading is bollocks. It would be good if you could have also discussed the alternatives further especially Pigouvian taxes.

    In regards to Pigouvian taxes – I was unfamiliar with the term but very familiar with the concept from ‘Environmental Levies’ where I live. They were attached to council rates and water bills and were very useful in developing science/understanding of the local environmental problems about 20 years ago. However they rapidly turned into political pork barrels and an emergency slush fund for consolidated revenue.

    The problem was the one of what do you do with all this money. Honey draws flies and plague rats (consultants) and this surely did especially the labour hire companies who supplied insecure project labour. Governments will always try and pick winners so before going Pigouvian I think there is a need to solve this moral hazard type issue. Its something scientists don’t think much about when they propose climate mitigation measures.

  13. June 26, 2014 at 9:33 am

    Conspiracy theories have the same defect as neoclassical theory – simplification of social reality. Even if the financial oligarchy actually try to do this, it won’t work out. Second, for George Soros is more important to make INET a new economic theories cradle. It’s more significant to be associated with these theories for centuries.

    • June 26, 2014 at 9:42 am

      This comment on “George Soros’ INET…” by Norbert Haering

  14. Jan
    January 5, 2015 at 10:05 am

    On Koch’s account of emission trading and its weaknesses: It remains nevertheless unclear on which evidence base the following conclusion is drawn, given that no parallel examination of real world implementation of other regulatory mechanisms has been conducted: “Hence, compared to its regulatory alternatives – direct regulation and Pigouvian taxes – carbon trading systems are the least best solution”.

  15. January 13, 2016 at 7:15 pm

    Several of the equations in the article by Kakarot-Handke are garbled, starting with (4). At first I thought this was due to Firefox’s internal pdf viewer, but I also managed to download the article and view it in Acrobat. It seems the superscripts got screwed up because they’re illegible.

  16. September 7, 2016 at 9:58 pm

    I agree with the tripartite classification that you put forth, yet it worries me. It seems that we always classify everything into threes: Ancient, Medieval and Modern History, or Oratores, Bellatores and Laboratores, and so on. Is there something that we could call “The Tyranny of the Number 3” at work when we classify things?

    • Taddese
      September 8, 2016 at 11:11 am

      Not sure about that but I try to find historical dynamics and I found myself in space I can not understand. Then I start to see we can classify them in to three, that is it (but when I read most social sciences specially economics, anthropology and sociology these classifications are were they are approaching and few actually state them as such —-if you go historically you can also find similar framework in classic writers of middle age). Means this is what I know and the science seem to go that way. But if you take evolution of civilization, there are two independent theory which work in different areas. There is no one unified theory. One says powerful people organize civilization and another says religion crated by crafty people create it. They are shallow theory because their understanding of history is bad and their knowledge about human nature and evolution of knowledge is very none sense. But this framework can unite both of them in to one unified theory which can explain raise of civilization every where.

  17. September 8, 2016 at 6:46 pm

    I have the feeling the “The Tyranny of the Number 3” is built into Indoeuropean languages, in the same way as the tendency to reduce time to place, for instance: in American English people say “at this point in time.” And think about it: does time really have discrete points? Well, no, it has moments and duration, but people still use the expression to mean “at this moment.”

  18. taddese mezgebo
    September 12, 2016 at 1:34 pm

    So push it, who knows you may find something, and I have no idea about it. Tnx for the comment though.

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