Is it time to reassess the very concept of money?

[ks.234]

You are doing that weird gaslighting thing again, so I'm done on this topic.

If that is aimed at me I am not gaslighting at all. Merely pointing out that Labour’s fiscal rules are political choices, not inescapable laws of science or nature. Something other people have identified and something I thought you agreed with?

To describe exploring a topic in a civilised manner with reference to evidence and research as “gaslighting” is itself weird.

 

[matthewr]

If that is aimed at me I am not gaslighting at all.

I can't speak for anyone else, but for me you do this thing where you parse my comments very closely, take a highly unfavourable interpretation and infer some outlandish conclusion and then argue with that point rather than what I said. Or at least what I think I said which is why it feels gaslight-y.

So I end up reading replies where it makes me feel like I was being a twat which is obviously not much fun. It also means I have to draft my replies to you like a legal document to try to avoid more misinterpretations and my natural reply gets edited down to a much shorter, simpler post with as narrow a scope as possible. So I don't even get to reply in my natural written voice. At best we end up with a stilted conversation where the point being made has to be surrounded with caveats and explanations.

This is a consistent effect that has been happening for years. I try to be patient so the conversation can progress but eventually it always reverts to this and I give up. This reversion compounds the gaslighting effect as it feels like we are getting somewhere and then suddenly I am the Pope bent on some heretic burning and you are Copernicus.

All of which is not meant to be a critique or complaint and I certainly don't think you have any malicious intent or anything like that, but rather just an honest explanation of what it feels like to engage with you on this issue.

 

[ks.234]

I can't speak for anyone else, but for me you do this thing where you parse my comments very closely, take a highly unfavourable interpretation and infer some outlandish conclusion and then argue with that point rather than what I said. Or at least what I think I said which is why it feels gaslight-y.

So I end up reading replies where it makes me feel like I was being a twat which is obviously not much fun. It also means I have to draft my replies to you like a legal document to try to avoid more misinterpretations and my natural reply gets edited down to a much shorter, simpler post with as narrow a scope as possible. So I don't even get to reply in my natural written voice. At best we end up with a stilted conversation where the point being made has to be surrounded with caveats and explanations.

This is a consistent effect that has been happening for years. I try to be patient so the conversation can progress but eventually it always reverts to this and I give up. This reversion compounds the gaslighting effect as it feels like we are getting somewhere and then suddenly I am the Pope bent on some heretic burning and you are Copernicus.

All of which is not meant to be a critique or complaint and I certainly don't think you have any malicious intent or anything like that, but rather just an honest explanation of what it feels like to engage with you on this issue.

I apologise if you feel I have been gaslighting you, I genuinely do not think I have done so and I have in the past said that I consider you to be very far from a twat.

When I first came across the basic ideas of how modern money works I personally found it highly counter intuitive and difficult to wrap my head around. I read your posts with interest and respect and went to them as learning tools. In that process there were a number of things you said which appeared contradictory and I have tried to drill into those apparent differences/contradictions/questions.

Part of that is the contradiction between what really governs and constrains spending and the politically choices being made to govern and constrain spending because of expediency. The contradiction is between spending your way out of recession and austerity.

I am merely trying to explore those apparent contradictions, they worry away in a small part of my mind, I did not mean to offend.

 

[IanW]

The problem I have with MMT is I am not qualified to have that discussion because I am not a post-doc level economist which is where that discussion belongs. Because it's not s discussion about fiscal policy and government spending it's a conversation about whether the mainstream, economic view -- some flavour of post-Keynesian can be replaced by a radical, theory with a very small number of proponents. Remember as well that hugely expansive, New Keynesian fiscal space and monetary policy is conventional wisdom not just in post-doc departments but *in every single central bank*.

To me advocating for MMT is like having a view on different understandings of Quantum Mechanics: I have views cos I read a lot of popular science but I am not going to tip up to a symposium and start telling Sean Carroll, say, that Many Worlds is wrong and he needs to switch to the Zitterbewegung Interpretation. You can't just chose one over the other because it suits your political objectives you have to be able to read the papers and do the maths.

That doesn't mean the subject should not be discussed but more that it's impossible for it to be discussed without it either sounding like nonsense or ending up in a "So free hospitals?", "No, not, Free Hospitals that's not what I said" conversation.

The other problem with this is that this conversation has been happening online since the GFC which is almost 20 years ago now. And it just never goes anywhere and in fact just goes around in circles. Peak MMT was AOC mentioning it in a committee and it's dropped out of the mainstream political discussion since then. Also in practical terms the difference in fiscal space between post-Keynesian and MMT is less than you think. Case in point being COVID -- we had no problem expanding fiscal space to accommodate that but that's very different to doing it as part of normal business.

But what happens if we had done a bunch of MMT to fix the NHS in 2019 and then COVID had hit in 2020? Are there no constraints? Some constraints? Ok can I see the maths then? What if I take the maths and set up a committee and have them and a wide range of technically qualified people to oversee and comment on my use of fiscal policy? What if I call that a fiscal rule?

Ultimately for me I always come down to the fact that we won the lottery in life and live in one of the biggest economies on the planet and enjoy a very high standard of living. Do you want to risk that by doing a massive experiment based on essentially a radical, minority academic view?

MatthewR,

Thanks for the detailed reply. It gives me a better understanding of how you see all this and why you prefer not to engage.

I fully understand the need for maths models of systems, as that is my area of expertise in motorsports. Overall I find Economics pretty disappointing in this area, where it seems that there are some rough rules, e.g. inflation is reduced by increasing interest rates, but no data is presented to support this.

The status quo seems to be okay to the majority and so it continues, with the onus of proof, as it always is with new approaches, to prove beyond reasonable doubt that the new system would work better. And currently that does not seem to be possible.

 

[matthewr]

I fully understand the need for maths models of systems, as that is my area of expertise in motorsports. Overall I find Economics pretty disappointing in this area, where it seems that there are some rough rules, e.g. inflation is reduced by increasing interest rates, but no data is presented to support this.

The status quo seems to be okay to the majority and so it continues, with the onus of proof, as it always is with new approaches, to prove beyond reasonable doubt that the new system would work better. And currently that does not seem to be possible.

A loose (very loose) analogy might be if someone had come along in the early 60s and argued for next year's car to ditch the big wing and instead use side skirts and a funny shaped underfloor. Everyone would have thought they were if not mad then at least indulging in a highly speculative idea. Until Colin Chapman does enough wind tunnel work to support making a car and then makes a car which starts winning by 0.5s a lap and the rest is history.

The big difference is that in economics you cannot do the equivalent of an experiment in a wind tunnel and just like how building a radical car was do-able in the 60s the stakes and costs are so high now that it would be more or less impossible to try.

And, if we push this sketchy analogy further, there has long been a problem in economics of linking microeconomics (e.g. looking at what people spend, the effects of price competition, etc. where there is plenty of good modelling and maths) to macro (interest rates, inflation, growth, etc. at the very large scale level of a large economy) but nobody has ever worked it out. Indeed quite the opposite -- an awful lot of bad economic ideas came from the research in these areas which dominated teaching and research from the oil crisis through to third wave/neoliberal economics which is why economics and policy all kind of got stuck until the GFC came along and reminded everyone what we have worked out in the 1930s.

In aerodynamics terms this would be like trying to do your fancy CFD modelling but the only data you can collect is by doing random air pressure sampling at a limited set of points around the car and then trying to work out from that the high level forces aggregate forces like downforce, drag, etc. and then trying to predict if this will increase or decrease laptimes while at the same time nobody has any idea of how tires work beyond simplistic ideas like "more grip is good", "rain effects grip", "grip degrades over time". Although everyone is pretty sure that however tires work is probably an order of magnitude more significant than the aerodynamics part.

So a very loose analogy but I think one that kind of works if we remember that my competitive racing career peaked at GT4 cars in Assetto Corsa and all races had to be held at Brands Hatch, Snetterton or Oulton Park as it those were the only circuits I was any good at.

The other thing that is different here is that in Macro there is no equivalent of the wind tunnel where you can do a test that you can be confident transfers to actual lap time changes before you get to actual testing of the cars. Or at least reasonably confident (sorry Toto). So instead economists have to reply on natural experiments when unusual things happen -- the great depression, the oil crisis, the GFC, Brexit, Covid, the last 50 years in Japan, etc. These are normally rare but the fact that we have had so many to choose from since 2008 is at least some part of the reason why Macro has actually moved on in recent years.

And this has very much filtered through to policy most famously in the US where Biden avoided a hard landing and recession by central banks and governments working more closely to keep monetary and fiscal policy in step and to make more use of fiscal space when extreme situations demand it. In fact that cycle of massive externality => huge economic shock => expansion of monetary and fiscal polity => no recession is kind of the very thing economists and politicians had always dreamed of being able to do and can be called if not a miracle then certainly very unusual. Which is not to say that this is now "solved" but only that it did work at least once and every other time the car went into a tree somewhere around the back side of the circuit.

All of which brings me to today's news that Ben Bernanke just came along all Colin Chapman like to visit the Bank of England and while not quite saying "All your models are shit" said we think there can be some improvements especially compared to our models which are very much not shit:

Bank of England forecasts undermined by out-of-date methods, report finds

Former US Fed boss Ben Bernanke criticises failure to admit mistakes and change course

www.theguardian.com

PS I did briefly try to make a point about MMT being the fan car of this analogy although I think that weird walrus nose thing Williams did at one point is perhaps a better example

 

[ks.234]

Just wait: politicians will be shaking the magic money tree very soon​

Posted on April 15 2024

The situation in the Middle East looks to be very volatile. Israel's attack on an Iranian embassy has given rise to an almost inevitable counter attack. No one's actions are justified, let alone proportionate. I condemn the aggression on all sides: there are always better ways to solve disputes. No one knows what will happen next, barring one thing that is.

What I can guarantee is that whatever the cost of military action might be, the money to pay for it will be found.

The magic money tree at the Bank of England will be shaken in the short term, as it can always be.

In the longer term, more bonds will be issued.

So-called government debt will increase.

And all because payment will have been made for military action undertaken at ministerial behest for which Parliament will never be asked to give sanction.

In the short term, no taxes will rise and no other spending commitments will change.
Later, that might alter because the increased debt will be used as yet another excuse to impose austerity by those always looking to find one, even though the cost will already have been paid for and the debt need never be repaid.

So why note all this? Simply because what it proves are three things.

First, spending not only can, but always does precede taxation.

Second, spending capacity can always be found whenever it suits a politician to find it.

Third, there is no reason why such costs need suppress other spending.

They are exceptional, but also affordable: if there were not the capacity to actually undertake the military activity then the cost could not have been incurred.

So what's the point of saying all this? It is simply to point out that the scale of government spending, and what it is spent on, is always a matter of political choice, but that the capacity to fund the choices made can always be created if the ability to undertake the chosen activity it is to be spent on actually exists.

 

[Cav]

Just wait: politicians will be shaking the magic money tree very soon​

Posted on April 15 2024

The situation in the Middle East looks to be very volatile. Israel's attack on an Iranian embassy has given rise to an almost inevitable counter attack. No one's actions are justified, let alone proportionate. I condemn the aggression on all sides: there are always better ways to solve disputes. No one knows what will happen next, barring one thing that is.

What I can guarantee is that whatever the cost of military action might be, the money to pay for it will be found.

The magic money tree at the Bank of England will be shaken in the short term, as it can always be.

In the longer term, more bonds will be issued.

So-called government debt will increase.

And all because payment will have been made for military action undertaken at ministerial behest for which Parliament will never be asked to give sanction.

In the short term, no taxes will rise and no other spending commitments will change.
Later, that might alter because the increased debt will be used as yet another excuse to impose austerity by those always looking to find one, even though the cost will already have been paid for and the debt need never be repaid.

So why note all this? Simply because what it proves are three things.

First, spending not only can, but always does precede taxation.

Second, spending capacity can always be found whenever it suits a politician to find it.

Third, there is no reason why such costs need suppress other spending.

They are exceptional, but also affordable: if there were not the capacity to actually undertake the military activity then the cost could not have been incurred.

So what's the point of saying all this? It is simply to point out that the scale of government spending, and what it is spent on, is always a matter of political choice, but that the capacity to fund the choices made can always be created if the ability to undertake the chosen activity it is to be spent on actually exists.

Your last paragraph says what most everyone on the MMT threads have said many times.

 

[IanW]

A loose (very loose) analogy might be if someone had come along in the early 60s and argued for next year's car to ditch the big wing and instead use side skirts and a funny shaped underfloor. Everyone would have thought they were if not mad then at least indulging in a highly speculative idea. Until Colin Chapman does enough wind tunnel work to support making a car and then makes a car which starts winning by 0.5s a lap and the rest is history.

The big difference is that in economics you cannot do the equivalent of an experiment in a wind tunnel and just like how building a radical car was do-able in the 60s the stakes and costs are so high now that it would be more or less impossible to try.

And, if we push this sketchy analogy further, there has long been a problem in economics of linking microeconomics (e.g. looking at what people spend, the effects of price competition, etc. where there is plenty of good modelling and maths) to macro (interest rates, inflation, growth, etc. at the very large scale level of a large economy) but nobody has ever worked it out. Indeed quite the opposite -- an awful lot of bad economic ideas came from the research in these areas which dominated teaching and research from the oil crisis through to third wave/neoliberal economics which is why economics and policy all kind of got stuck until the GFC came along and reminded everyone what we have worked out in the 1930s.

In aerodynamics terms this would be like trying to do your fancy CFD modelling but the only data you can collect is by doing random air pressure sampling at a limited set of points around the car and then trying to work out from that the high level forces aggregate forces like downforce, drag, etc. and then trying to predict if this will increase or decrease laptimes while at the same time nobody has any idea of how tires work beyond simplistic ideas like "more grip is good", "rain effects grip", "grip degrades over time". Although everyone is pretty sure that however tires work is probably an order of magnitude more significant than the aerodynamics part.

So a very loose analogy but I think one that kind of works if we remember that my competitive racing career peaked at GT4 cars in Assetto Corsa and all races had to be held at Brands Hatch, Snetterton or Oulton Park as it those were the only circuits I was any good at.

The other thing that is different here is that in Macro there is no equivalent of the wind tunnel where you can do a test that you can be confident transfers to actual lap time changes before you get to actual testing of the cars. Or at least reasonably confident (sorry Toto). So instead economists have to reply on natural experiments when unusual things happen -- the great depression, the oil crisis, the GFC, Brexit, Covid, the last 50 years in Japan, etc. These are normally rare but the fact that we have had so many to choose from since 2008 is at least some part of the reason why Macro has actually moved on in recent years.

And this has very much filtered through to policy most famously in the US where Biden avoided a hard landing and recession by central banks and governments working more closely to keep monetary and fiscal policy in step and to make more use of fiscal space when extreme situations demand it. In fact that cycle of massive externality => huge economic shock => expansion of monetary and fiscal polity => no recession is kind of the very thing economists and politicians had always dreamed of being able to do and can be called if not a miracle then certainly very unusual. Which is not to say that this is now "solved" but only that it did work at least once and every other time the car went into a tree somewhere around the back side of the circuit.

All of which brings me to today's news that Ben Bernanke just came along all Colin Chapman like to visit the Bank of England and while not quite saying "All your models are shit" said we think there can be some improvements especially compared to our models which are very much not shit:

Bank of England forecasts undermined by out-of-date methods, report finds

Former US Fed boss Ben Bernanke criticises failure to admit mistakes and change course

www.theguardian.com

PS I did briefly try to make a point about MMT being the fan car of this analogy although I think that weird walrus nose thing Williams did at one point is perhaps a better example

Thanks for going through a series of analogies. I can see that there is a lot of data available at the macro level but it is extremely difficult / impossible to set up experiments to gather the required data to make more accurate models. Gradually use of data driven statistical models will become more common and maybe more will be learnt that way.

The maths modellers in any case should be reviewing their models and how well they perform in terms of accuracy reliability and consistency as this area clearly does need to improve, and the difficulty should just mean that it takes longer, as governments and banks do need to do better.

 

[ks.234]

Your last paragraph says what most everyone on the MMT threads have said many times.

Not my paragraph and also a reference to something Keynes said not much less than a hundred years ago, so not MMT but an age old truth. We know it’s true because it was the principle on which the Welfare State was built all those years ago.

That an economic narrative that sustains and justifies austerity and privatisation of our Welfare State is still believed despite decades of abject failure and the ever growing decline and increasing inequality is very much the problem that the article at the start of this thread asks us to question.

 

[laughingboy]

The maths modellers in any case should be reviewing their models and how well they perform in terms of accuracy reliability and consistency as this area clearly does need to improve, and the difficulty should just mean that it takes longer, as governments and banks do need to do better.

There are efforts to update the economic models that central banks use. Economists are arguing over the merits of Representative Agent New Keynesian, Heterogenous Agent New Keynesian or Two Agent New Keynesian models - RANK, HANK and TANK respectively (at this rate, it is only a matter of time before an American economist coins an acronym that is offensive to Brits). And Ben Bernanke said at the weekend (Reuters) that the Bank of England needs to update its platform, which is basically a New Keynesian DSGE model (described in detail here).

I can see what he means. For instance, the Bank of England paper above says at point 4.2.3: 'The model includes two types of households'. Er, say that again slowly, will you? Because I thought you said that when it comes to private domestic demand, you've decided that there are only two types of households.

Nice three-line Euler equation you've got there, fellas, it's just a shame the inputs dismiss all manner of social complexity.

 

[matthewr]

There are efforts to update the economic models that central banks use. Economists are arguing over the merits of Representative Agent New Keynesian, Heterogenous Agent New Keynesian or Two Agent New Keynesian models - RANK, HANK and TANK respectively (at this rate, it is only a matter of time before an American economist coins an acronym that is offensive to Brits). And Ben Bernanke said at the weekend (Reuters) that the Bank of England needs to update its platform, which is basically a New Keynesian DSGE model (described in detail here).

I can see what he means. For instance, the Bank of England paper above says at point 4.2.3: 'The model includes two types of households'. Er, say that again slowly, will you? Because I thought you said that when it comes to private domestic demand, you've decided that there are only two types of households.

Nice three-line Euler equation you've got there, fellas, it's just a shame the inputs dismiss all manner of social complexity.

He was mostly criticising the infrastructure as much as the model itself though, right? As in they need way more low, level time-series data and they have to fix that if they want a model like the US one that uses non-structural aspects together with DSGE aspects. Also all that stuff about how fan charts are so 2006 seemed more aimed at how the bank communicates its forecasts and thinking than modelling per se.

As regards types of households in the model this is always going to be a small number if only from a practicality and complexity point of view, no?

 

[laughingboy]

He was mostly criticising the infrastructure as much as the model itself though, right? As in they need way more low, level time-series data and they have to fix that if they want a model like the US one that uses non-structural aspects together with DSGE aspects. Also all that stuff about how fan charts are so 2006 seemed more aimed at how the bank communicates its forecasts and thinking than modelling per se.

At Part 2, here, Bernanke basically says that no-one relies on COMPASS anymore, because it is unreliable, so everyone does their own thing and these results are consolidated somehow. I've no expertise in these sort of things, but it sounds like a mess:

As reliance on COMPASS has diminished, Bank staff have increasingly depended on a suite of sectoral and purely statistical models, modified by human judgements, for constructing the baseline forecast. For example, a disaggregated semi-structural model is used to assess the domestic economic effects of changes in interest rates, asset prices and credit spreads.footnote [8] This model predicts the responses of households, corporations, and banks to changes in asset prices and yields, allowing for a more disaggregated and granular analysis than could be done using COMPASS alone. This supplementary sectoral model can be used for analysing the effects of unconventional monetary policies (such as asset purchases) as well as of more standard policies.

Although incorporating diverse sources of information and analysis should in principle improve forecast accuracy, the process of putting the various inputs to the forecast together has become increasingly complex and consumes a high fraction of staff energy and attention. Steps that ideally would be executed automatically are instead done manually. The high priority assigned to producing the current forecast in time for the next policy meeting reduces the staff time available for longer-term projects, including improving the data and software infrastructure and the maintenance and development of forecasting models and methods.

As to your other point, I can see why the mathematicians want to flatten the real world by supposing that there are only 'constrained/unconstrained' households, but it seems unbalanced to have massive simplifications in the inputs while retaining comparative complexity in the processing - but perhaps that's because I never learnt the maths! There's a risk that the complex calculations confer trust (Look! arrived at scientifically!) that the inputs don't deserve.

 

[matthewr]

At Part 2, here, Bernanke basically says that no-one relies on COMPASS anymore, because it is unreliable, so everyone does their own thing and these results are consolidated somehow. I've no expertise in these sort of things, but it sounds like a mess:

As to your other point, I can see why the mathematicians want to flatten the real world by supposing that there are only 'constrained/unconstrained' households, but it seems unbalanced to have massive simplifications in the inputs while retaining comparative complexity in the processing - but perhaps that's because I never learnt the maths! There's a risk that the complex calculations confer trust (Look! arrived at scientifically!) that the inputs don't deserve.

As I understand it COMPASS is a NK DSGE model. Which is a big step up from the Neoliberal model that came before it which itself replaced the very short lived monetarist model used very briefly under Thatcher.

Benanke's point as I understands it, is that DSGE is fine as far as it goes but also needs to include "post structural" models like the one used by the Fed. But those extra bits are based on the collection of a lot more low level, microeconomics data so the BoE needs to update and improve all of that so it has the data to support more modern models.

The thing about the number of households is, I think, not about the inputs and data but how many things you model in the, er, model. The more agents you have then a) it gets more complicated and harder to do and requires more and better data as these are like adding more degrees of freedom / dimensions to the model which is non-trivial. Also the advice gets more complicated to deliver in a way which makes sense to people, which is why the projections always had that "average household" problem.

Although personally I don't think this is that important outside of how they do the maths and in the public realm I would talk entirely in (relatively) simple the IS/LM terms because the important point was policy got away from that especially in response to the GFC.

 

[ks.234]

At Part 2, here, Bernanke basically says that no-one relies on COMPASS anymore, because it is unreliable, so everyone does their own thing and these results are consolidated somehow. I've no expertise in these sort of things, but it sounds like a mess:

As to your other point, I can see why the mathematicians want to flatten the real world by supposing that there are only 'constrained/unconstrained' households, but it seems unbalanced to have massive simplifications in the inputs while retaining comparative complexity in the processing - but perhaps that's because I never learnt the maths! There's a risk that the complex calculations confer trust (Look! arrived at scientifically!) that the inputs don't deserve.

Is this the same Bernanke who said in 2004 that the era of “the great modernisation” had arrived and that any future recessions would be mild and financial fluctuations would be attenuated?

 

[laughingboy]

Is this the same Bernanke who said in 2004 that the era of “the great modernisation” had arrived and that any future recessions would be mild and financial fluctuations would be attenuated?

Yes, but let's not be too dismissive, because (from here):

In an interview with 60 Minutes, former Federal Reserve Chair Ben Bernanke (2009), was asked where the money the Fed lends would come from. “It’s not tax money,” Bernanke said, “The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have at the Fed.”

I mean, he's talking about bank reserves, but he's clearly not a million miles from MMT because he is also on record as saying (Wikipedia):

The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.

 

[ks.234]

Yes, but let's not be too dismissive, because (from here):

I mean, he's talking about bank reserves, but he's clearly not a million miles from MMT because he is also on record as saying (Wikipedia):

Yes, indeed.

Also, even that famous leftie Alan Greenspan says “there is nothing to prevent the federal government from creating as much money as it wants”

 

[Sue Pertwee-Tyr]

Indeed. The problem is the word 'wants' in that sentence.

These are political decisions. Sometimes they are valid - indiscriminate hosing around of free money would not be consequence-free, and governments have to be cognizant of the sort of repercussions that will arise if they get too carried away. But politics seems unable to grasp that there's an awful lot of unused headroom before we're anywhere near that point. Probably at least an order of magnitude, possibly more.

 

[ks.234]

Indeed. The problem is the word 'wants' in that sentence.

These are political decisions. Sometimes they are valid - indiscriminate hosing around of free money would not be consequence-free, and governments have to be cognizant of the sort of repercussions that will arise if they get too carried away. But politics seems unable to grasp that there's an awful lot of unused headroom before we're anywhere near that point. Probably at least an order of magnitude, possibly more.

we should be careful about using the narrative of hosing money around, this is the narrative that is used to defend spending cuts. The long standing truth is that whatever we can do, we can afford to do.

 

[ks.234]

At Part 2, here, Bernanke basically says that no-one relies on COMPASS anymore, because it is unreliable, so everyone does their own thing and these results are consolidated somehow. I've no expertise in these sort of things, but it sounds like a mess:

As to your other point, I can see why the mathematicians want to flatten the real world by supposing that there are only 'constrained/unconstrained' households, but it seems unbalanced to have massive simplifications in the inputs while retaining comparative complexity in the processing - but perhaps that's because I never learnt the maths! There's a risk that the complex calculations confer trust (Look! arrived at scientifically!) that the inputs don't deserve.

Ive just been listening to Why Minsky Matters with Steve Keen and others. Minsky seems to think that ever more complex mathematical models are part of the problem in that they try to create stability, whereas stability itself is destabilising.

What good are these technical models when they failed to predict 2008 and have presided over austerity, privatisation and public spending cuts?

John Hicks, the inventor of one of the most famous models, said his own model was a “gadget” and needs replacing.

 

[laughingboy]

Ive just been listening to Why Minsky Matters with Steve Keen and others. Minsky seems to think that ever more complex mathematical models are part of the problem in that they try to create stability, whereas stability itself is destabilising.

What good are these technical models when they failed to predict 2008 and have presided over austerity, privatisation and public spending cuts?

John Hicks, the inventor of one of the most famous models, said his own model was a “gadget” and needs replacing.

I don't know the answer to this. To my mind, models are inescapable - anyone who thinks about economics develops some theory of how it works; some use mathematics to set out this theory and some do it via concepts or words. Each approach carries a different kind of risk of being wrong. I'm just surprised that the mathematically-inclined at the BoE are not endlessly tinkering, striving for ever more complex mathematical models with more and more variables, in the vain hope of approaching reality.