The always excellent JKH has written a nice post on Steve Keen’s latest QE model in a blog post titled The Accounting Quest of Steve Keen.
JKH has a nice way of summarizing what mainstream macroeconomics is all about:
The neo-classical concepts of exogenous money and the money multiplier and loanable funds and ISLM and supply/demand equilibrium are part of the fog within which mainstream has constructed some economic imagery that is in fundamental conflict with the facts of accounting logic and real world financial measurement.
The post has nice things to say about flow of funds so you may want to read generally.
Coincidentally Steve Keen is trending in Twitter for other reasons. Noah Smith seems to have concluded that Post-Keynesianism is a giant hoax.
Here is a tweet from him:
“MMT” and “Post-Keynesian” = giant hoaxes. If you fell for one of these hoaxes, just remember that people fall for Scientology too.
— Noah Smith (@Noahpinion) May 30, 2013
Scott Fullwiler has a nice way to describe Smith:
Lars Syll has a nice post quoting Jamie Galbraith on the status of the profession. Go Read.
Paul Krugman has a follow up blog post Non-Prophet Economics putting down Keen’s achievements. But Krugman is clueless about how money works and his post is a silly defense of his models.
Krugman is a part of the problem is my view.
Here is Krugman – clueless about how banks work: Here is Randy Wray quoting Krugman. Krugman says:
the self-proclaimed true Minskyites view banks as institutions that are somehow outside the rules that apply to the rest of the economy, as having unique powers for good and/or evil… First of all, any individual bank does, in fact, have to lend out the money it receives in deposits. Bank loan officers can’t just issue checks out of thin air; like employees of any financial intermediary, they must buy assets with funds they have on hand. I hope this isn’t controversial, although given what usually happens when we discuss banks, I assume that even this proposition will spur outrage… Yes, a loan normally gets deposited in another bank — but the recipient of the loan can and sometimes does quickly withdraw the funds, not as a check, but in currency. And currency is in limited supply — with the limit set by Fed decisions. So there is in fact no automatic process by which an increase in bank loans produces a sufficient rise in deposits to back those loans, and a key limiting factor in the size of bank balance sheets is the amount of monetary base the Fed creates — even if banks hold no reserves…
So Krugman is clueless about money creation on which he pontificates everyday.
Here is another Keen article from today in which he quotes Justin Wolfers’ poking fun.
It shouldn’t be forgotten of course that the economists Robert Pollin and Co who spotted errors in Reinhart and Rogoff’s paper promoting world-wide fiscal contraction by faking a 90% threshold are themselves a mix of Post-Keynesianism and other heterodox schools as per this Washington Post article Inside the offbeat economics department that debunked Reinhart-Rogoff.
Go for it Steve Keen. Whatever criticism you are taking – including from me – beat ’em.
I like this Tweet by Ann Pettifor:
— Ann Pettifor (@AnnPettifor) May 31, 2013