Saturday, May 7, 2011

Steve Keen Takes Paul Krugman To Task

Steve Keen debunks Paul Krugman's attempt to model Minsky using mainstream modeling.

Though I applaud Paul Krugman for being probably the first neoclassical economist to attempt to model Minsky after decades of ignoring him, the model he is using embodies everything that is bad in neoclassical economics.

This reflects poorly not so much on Krugman – who has done the best he can with the neoclassical toolset to model what he thinks Minsky said – but on the toolset itself, which is utterly inappropriate for understanding the economy in which we actually live....


Detroit Dan said...

Thanks for sharing. Keen makes a good point and it's something that's been bugging me lately. MMT, to me, is straightforward and intuitive (once you get past the initial counterintuitivity). Discussing MMT in terms of the standard New Keynesian model is usually a waste of time and energy.

As John Harvey said here,

As a rule of thumb, I think the person who has laid out the initial argument should get the courtesy of having the subsequent discussion built around what they have said.

Here we have Keen criticizing Krugman, which I agree with, but the subsequent discussion was not productive because the criticisms were too general and all over the place.

Steve Waldman has done the best job of commenting on MMT from the perspective of someone who is not a true believer. He initiated that discussion on MMT terms. Nick Rowe, however, seemed determined to continue the discussion on his own New Keynesian terms, and that's where I lost interest.

Detroit Dan said...

I should add that Nick took his perspective to his own blog and had a productive discussion there with some MMT advocates and sympathizers...

Matt Franko said...

I have a hard time reading Keen also.

I dont know if spending time on Krugman is worth anything. Look at some of the commentators (or more) who are so to speak recent "proselytes" of MMT: JKH, winterspeak, Ramanan, Tom, you, crucible, Harrison, beo, many more... these are all smart, many PhD type economics people who have some objectivity in them and have looked at this and it makes sense and theyre basically in support of the MMT framework: why can they get it and Krugman cant (Seignorage?? Whaaat?) Is Krugman stupid ? (dont answer that!)

I think with Krugman you have to know whether he makes more with his Conscience of a Liberal NYT thing or his economist at Princeton thing. Based on what I see it is probably the former.

So MMT takes a direct shot at much of the current orthodoxy that provides political cover for the Wall Street corporate welfare types of political favoritism. These Wall St/Financial firms are the main constituents of the New York Times and are the base of the economy of much of the NYC area in general.

Krugman (& Stiglitz at Vanity Fair btw) cant come out in full fledged support of a framework that takes down the orthodoxy. He's permanently conflicted, intellectually corrupted until he retires from his job at the NYT.

He has been and will continue to be part of the problem unless he can get past this.


Detroit Dan said...

I heard Stiglitz on NPR this morning. He was making good points from the MMT perspective. I think he's closer to the MMT viewpoint that Krugman and Robert Reich...