Wednesday, June 8, 2016

An Economic Upset

I have been paying attention to Steve Keen lately. He's got a youtube channel with a lot of lectures up, and a book called Debunking Economics. He seems to be much more left wing than I am, but his insights into what's wrong with economics have little do with ideology, and a lot to do with logic and mathematics.

I'm still trying to consider how much I need to change my view points. I was already appreciative and understood the Austrian school's criticism of neoclassical mathematics; Keen comes at this from the other side- essentially he's a much better mathematician than most economists. The neoclassicals have been applying the wrong sort of maths, and assuming away large portions of reality in order to come up with the models they have, whereas Keen was looking to model the economy dynamically.

In one of Keens lectures, he mentions that he had not realized the implications of double entry bookkeeping. He started modeling with single entry and switched over to double for some reason- probably because banks use double entry and he wanted his modelling to be based in reality. It sounds a lot like the sort of happenstance that makes for real science, whereas the fakers usually have a story about how they really knew it all from the beginning.

Anyway, his big takeaway is that private debt is the real elephant sitting on the economy, and I am inclined to agree with him because it actually does seem logical from my n of 1, and, well, logic. As a consumer, if I have reached the point where I have debt and need to pay it off, I drop my consumption levels and budget. My demand for goods is lower.

It also makes sense to realize that, once an entrepreneur is in debt, the debt repayment takes up a portion of his revenues not available for his personal demand, and also not available to hire workers. People with paychecks tend to buy more stuff than people who don't, so it follows that all this debt contributes to less demand.

I must say, already, the neoclassicals in my feed reader are looking dumb. A lot of Keen's critiques of neoclassical economics is simple- essentially, they get the math wrong. So they will make declarative statements that don't actually have any basis in reality- and I am talking about libertarian ones. Now, one or two of them have already given away the fact that, as libertarian as they may be, they are members of the academic tribe above all else, by giving the ridiculous notion that Trump could possibly be worse than any of the lot who got into the race. This is, of course, laughable.

But at this point, all neoclassicals need to read Keen, abstain from merely calling him a leftist (he is, but that isn't important right now), and then walk over to the math department and get one of the professors there to walk them through the math, until it sticks. Here's one of Keen's lectures:

Thanks to Vox Day for recommending Keen.

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