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

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.

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 .

Neoliberal economics is wrong. Far too much, philosophical-first principle reasoning and not enough science.

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.

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?

Curmudgeon, the reason we stopped targeting money supply back in the early 80s was not because it wasn't useful, just that it was impossible. Money, or credit, can be created by just about anyone, including retailers, service providers etc.

In fact, I created some credit the other day when I allowed a client some time to pay.

While governments could control M1 because they printed the bills, the rest tended to be more and more beyond their control.

So we tended towards using interest rates to control the economy and as money supply does tend to shrink when you are in a recession,this gave a de facto level of control over money not available by direct controls.

GrahamY - okay, good point.. not useless so much as difficult to control. Certainly changes in money supply would be linked to economic change but I'm still not sure that changes in money supply, given the lags in monitoring it, told us anything much we didn't know about the economy at the time..

However, as you note and certainly a point that I should have made earlier, the emphasis now is on shifting around interest rates, not because its a good lever to control the economy but becaue its one that they can use..

Graham Young,"Money or credit can be just about be created by anyone..." This is not true.New money to equal in creases in our productivity can only be created by the banking system.The loan sharks in the financial system have to get their money from banks.They cannot create it from nothing themselves

Now in this time of money shortage ( which by the way is an anomoly when considering the US Fed has created $15 trillion for bailouts + wars and also $ 16 trillion in off balance sheet transactions from nothing,for their scams since 2008)that is destroying our real economies.

Worthless money,the oil which is the medium of exchange has been made more important than real productivity.That is the crux of our dilemma.

People here are saying put your money with Credit Unions and boycott the banks.This will put us in more debt since there will be less deposits with the banks hence their fractional reserve ratio will be lower.Thus our system will have to borrow from OS banks who just create more micky mouse debt money for us.Forget Credit Unions unless they get the power of money creation.Put your money with the smaller Aust Banks and slowly initiate change.

In 1911 with the initiation of the Commonwealth Bank,for the first 11 yrs of its inception,it had the power to create a lot of our money for increases in GDP.By 1922 the private banks had stolen that role.

Ron Paul wants precious metals to once again back our currencies but Bill Still is correct when he says,it does not matter what backs your currency,but who controls the quantity.

It is the people through a proper constitution that should have ownership and control of their currency,since new money represents the wealth of all society,not a self appointed,chosen few.

Arjay - sorry but Graham Young was right. Perhaps without realising it you've wandered into one of the old battlefields of monetary theory. The credit he extended to a client counts as the creation of money.. However, the problems we have at the moment have little to do with the supply of money as such. Its part of the old-fashioned boom-and-bust of markets. The problem with this one was that it was severe enough for everyone to go down at the same time, and it exposed a long standing problem in Europe and that dragged it out..

Monetariasts would have a lot of trouble reconciling their theories with events but, please note, there is now talk that the worst has past and we are coming out of this rather gloomy time..

Curmudgeon,while finance companies and credit unions are agents of money distribution,they themselves are not allowed to use the fractional reserve system to create new money themselves.They have to get it all from the banks or if they have depositors loan out their money.

Do you understand that point I'm making?

I'm sorry Graham, but I don't see that the total amount of money is affected in any way by a bill being paid next week instead of this week.
The only way the total money supply can be increased is if you charged interest on that bill, or if you used your customer's IOU as collateral for another loan, which money in turn you loaned to another customer -keeping of course a small fraction back...

If a govt ; prints money for a reason of shortage, and not for added wealth. At some time that same amount of money has to be destroyed, or else you have a false economy. right.maybe.

579,

Funny monied False economy?

No! We use the funny money to buy strategic goods and services from poor countries. That means we are in effect stealing from them and they love us for it because they think its free trade.

The net result is that the rich get richer, the printed money gains its proper value and poor nations become our slaves.

Ah slavery! That's the way it has been since great-great grandpappy's day and that's the way we like it. And remember dopey Lincoln tried to change that economic EQUILIBRIUM by freeing slaves and look what happened to him!

Beware be warned!

Newt Gingridge.