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The Forum > Article Comments > The future of economics > Comments

The future of economics : Comments

By Steve Keen, published 1/2/2012

Neo-classical economics is wrong to think that economies exist in equilibrium.

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While having acquired a minor in economics many years ago in my Uni days and having a life long interest in economic theories I have not noticed the demise of M1,M2 and M3 from contemporary economic thought. Did I miss something?

Equilibrium in economics is a basic tenet that is constantly being upended by political irrational thought that some pressure group needs to be more equal than another group. Once this assertion is codified into some law or political executive mandate a new equilibrium is sought by the economic community and sometimes this will trigger another political thought sponsored by another pressure group that once again upends the equilibrium. So, round and round it goes with the economy never quite reaching equilibrium.

The equilibrium can also be disturbed by natural or manmade forces such as weather or war. And as long as the political forces don’t jump to irrational thoughts (such as “now is the time to make a different pressure group more equal” or to paraphrase Rahm Emanual (former Obama chief of staff)– never let a good crisis go to waste) equilibrium can be reestablished within a reasonable amount of time due to the natural economic flows
Posted by Bruce, Wednesday, 1 February 2012 8:19:10 AM
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Economic modeling generally considers all economic activity in monetary terms without considering its effect on society. Thus an increase in auto accidents will contribute to economic activity. Medical treatment, automobile repair, manufacturing of replacement parts etc. all contribute to the gross national product as do manufacture, marketing and use of military equipment. Curtailing of militarisation and cutting down on the rate of automobile accidents will result in unemployment and the civil unrest and crime which results from unemployment. Economic planning and modelling must be integrated with value judgments as to what constitutes a better society.
Posted by david f, Wednesday, 1 February 2012 8:38:29 AM
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Without trying to model economic disequilibrium, one can easily find conditions under which the assumption of equilibrium leads to a contradiction. Those conditions are all too realistic. Fortunately, they are also easy to avoid: http://www.grputland.com/2011/12/how-tax-causes-financial-crises-and.html .
Posted by grputland, Wednesday, 1 February 2012 9:43:47 AM
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Neoliberal economics is wrong. Far too much, philosophical-first principle reasoning and not enough science.
Posted by mac, Wednesday, 1 February 2012 9:50:21 AM
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The first poster, Bruce, is right. Economists use to track changes in money supply - which is very much about money and debt - and use to have elaborate systems for doing so, despite what Dr Keen says. But they gave it away as mostly useless. Now, no no-one talks about money supply.

My understanding is that Dr Keen has a somewhat different take to the old monetary theories, with his emphasis being on debt. But he doesn't say so in the article. In fact, its difficult to know what he means as he's not specific about what he thinks is wrong, or how to fix it. The article is too general to be of much use.
Posted by Curmudgeon, Wednesday, 1 February 2012 10:23:52 AM
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So even if we work out a better economics, how do we get past the vested interests to have it recognised as such?
We have real estate industry hiring economists to justify why house inflation is "a Good Thing", oil industry hiring economists to prove why tax concessions for highly profitable, but essential business is "a Good Thing", auto industry subsidies, etc...
The fashionable and vocal economists are big on "small government" and "rational" economics yet seem to dive into middle class welfare, corporate welfare, and privatisation of monopolies (where market forces have no chance of optimisation) with abandon.
Also, why are basic identities common to all the mathematical models (minimising profits to maximise utility, creative destruction) unrecognised...it seems that unpalatable parts of theory are OK to just leave on the plate.
As another poster said: When a car crashes the economy is boosted: There is no "good industry" and "bad industry", just money circulating which is "economic activity" which is a "Good Thing". This is obviously nuts ("yay! An oil spill, more economic activity!")...so who and how is the "goodness" of profit assigned? Are beer profits good or bad? What about anti-cancer drugs and vaccines?. Who decides what is "productive" and what is "bad" or just parasitic?
This is another, and more important reason for corporations to get less of the profit pie and for individuals to get more. (ie. reverse the big changes of the last decade in wealth distribution) That way no central body "decides" which industry should be supported as it comes naturally from individuals decisions as to where they invest their wages. Not only is this better for growth, but more compatible with democracy.
Steve has tackled the precious myth of the finance industry and shown it to be self serving BS. Who will tackle the other myths and make economics resemble an independent discipline instead of a bunch of ranting sycophants?
Posted by Ozandy, Wednesday, 1 February 2012 10:51:22 AM
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