Keen vs. Krugman cage match: Will there be a round 2?

RT interviews Steve Keen!

The interview proper is from 4:19-19:10 — if you skip the blog war background and the boxing animation (!) at the beginning.

Keen throws down one money quote after another, but I like this one. To the neo-classicals:

Hey, your models didn’t predict the financial crisis, we can ignore your models.

This one’s good too:

[Y]ou can’t model the economy without including the role of banks, debt, and money. And Krugman’s part of the economic establishment, which for thirty or forty years has got away with arguing that you can model a capitalist economy as if it had no banks in it, no money, and no debt… You just don’t have a model of capitalism if you don’t include those components.

Ouch! Will Krugman have the stones to sit down at the glass table?

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

80 comments

    1. EH

      I think it might be more that to the trained eye, the gaps between the dominant model(s) and reality can be exploited for profit. I wouldn’t say the gaps are intentional, just a “Map vs. Territory” problem, a simulacrum.

      1. EH

        And really, what Krugman appears to be doing by discounting the role of banks et al is to expand that gap of exploitation, to widen the gap between the model and reality (as long as you can keep people convinced that the model is at all relevant). “Pay no attention to the players behind the curtain.”

    2. MyLessThanPrimeBeef

      True.

      Talking about which model could have predicted the financial crisis REALLY, REALLY misses the point.

      In fact, many people predicted it without any models. Taxi-drivers in New York, for example. Just common sense and intuition.

      1. We Need To Know When The Grenade Will Explode!

        Once they finish modeling the world economy correctly, – around year 3000 methinks – and advise the world it needs to stop changing now, next they will fake the data to make the model look stable.

        Then Minsky 200 comes along and points out that stability leads to complacency and instability, and suggests adding a Pulse Width Modulated Singularity Minsky Moment Rise And Decay Generator to the model and works out the math for it.

        This is all more complicated than we may think!

      2. Birch

        MLTBP: I think the point was more that a model in which the financial crises could not have happened is an irrelevant model. It doesn’t matter that the model didn’t predict the crises, rather that it made the event out to be impossible; not even a distant possibility. Since the event did happen, the model is junk.

  1. readerOfTeaLeaves

    How many neoclassicals does it take to model an economy with no banks in it, no money, and no debt? Hundreds, apparently.

    I can’t wait till they tell us all how many angels can dance on the head of a pin: no doubt one of them can come up with a derivative equation that can model the speed of the angels’ wings, into the bargain.

  2. Middle Seaman

    The whole thing has crossed into surrealism. That’s absolutely ridiculous. Even in geometry there were different realities: the Euclidean one and Riemannian one. Banking is an amorphous entity with different perfectives and different functions. Try to hide your biases; Krugman is not the bad guy.

    Children go to bed!

    1. YankeeFrank

      Actually, I would argue that Krugman and his Rubinite sponsors are our worst enemies. They provide many of the theoretical underpinnings for our current lemon socialist/crony capitalist system. Krugman, as far as I recall, has still refused to utter the words “fraud” or “crime” in relation to the misdeeds of our bankster overlords.

      To say that debt can be “modeled out”, or banks can be ignored, in our understanding of the financial system is exactly how the devil gets in.

      And, Krugman’s support for nafta and globalization generally provided cover from “the left” for Clinton and the DLC gutting the already weak principles of the democratic party and selling the workers of the US down the river.

      Krugman’s answer to our problems is the typical limousine liberal response, and it amounts to pretty much the same thing as the republican response: charity for the “losers” in our economy. The main difference is who should provide it, the government or private donors.

      Sure Krugman wants “money drops”, but insists the current system is sustainable if we just do that. He in no way calls for real reform of finance, banking or industrial policy. But that is because he’s spent his career pushing the policies we now live under. His history boxes him in, and he doesn’t have the integrity to admit his errors. Of course, if he did, his entire career would be shown as one massive error with horrendous moral culpability for untold suffering.

      So yes, Krugman is the enemy. The idea that he is an ally just shows us how far from any real solutions this nation is; which is why we’re going to have another, much more massive and destructive, collapse before the ideas discussed on NC and the other truly progressive sites get the airing and support they deserve.

      1. different clue

        I am glad to see that I am not the only person who hasn’t forgotten or forgiven Krugman his support for economic treason (Free Trade) against America.

      2. Max424

        “Krugman, as far as I recall, has still refused to utter the words “fraud” or “crime” in relation to the misdeeds of our bankster overlords.”

        I believe you’re right.

        Krugman has used words like plutocracy and kleptocracy on a few –rare/vague– occasions, and I think he once harkened back to FDR and tossed out the words, “economic royalists.” But “fraud” and “crime?” No, I don’t recall him ever using those two dandies.

        For a “world class” economist to discount the role of fraud and crime in our unbelievably fraudulent and crime riddled economy, would the same as me, as a pool player, deciding that pool balls play no significant role on a pool table.

          1. diptherio

            The “fraud” PK is talking about here is the “affinity fraud” whereby banksters try to convince the working class that they have more in common with them (the bankers) than with the OWS “hippies.” He’s discussing political spin tactics and encouraging Occupy to lay off the drum circles (what a square!), he is in no way calling out the Wall Street Cretins on their illegal activities. He is not calling for prosecution.

          2. Max424

            Need a better link. That one supports my argument.

            Note: “Affinity fraud” has nothing to do with the type of fraud I’m talking about. I’m talking fraud, as in, high crimes (in many cases, treasonous crimes), committed by thousands of financial insiders (at ALL levels), again tens of millions of American citizens, defrauding them out of many trillions of dollars.

            The housing bubble was probably not the “worst” crime in human history, but it certainly is a leading candidate for the most widespread –in terms of sheer numbers.

            As a result of this event, tens of thousands of criminals, at least, remain at large in this country; and while they remain at large, their leading elements spend their time, running our economy.*

            *Or, that could read, ruining our economy, depending on your perspective, depending on whether you are one of them, or not.

      3. squiggleslash

        Why would he use the word “fraud” or “crime”? Economics is not about justice, it’s about the flow of trade. As soon as you start using those terms you’re veering way off topic. And if it’s moral condemnation of the actions of the banksters you’re after, Krugman’s dished out more than enough of that.

        Personally, I find the whole thing somewhat ridiculous. All Krugman’s argued – AND HE’S RIGHT – is that ordinary, non-central, banks don’t make the decisions that change the amount of money in the system any more than any other entity. Regular banks are constrained both by monetary demand, and by the policy decisions of the central banks. If he was WRONG, and the people who’ve argued on NC that “Oh banks can create money, therefore, ergo, they can invent limitless money (see the problem yet?), therefore they are policy setters” were right, then how come banks are going bankrupt left and right? Either the banks have severe constraints on the amount of money creation they can do, or they don’t. In many ways regular corporations have less constraints upon them when it comes to money creation than banks.

        The fact Krugman may have misunderstood Keen doesn’t change the fact that he’s 100% right. It’s also a little pathetic that people here are pretending the entire debate was OK until Krugman misunderstood one paragraph of Keen’s at which point he threw a tizzy, when in fact it was Krugman who was misrepresented from the beginning, starting with the nonsense that Krugman was claiming banks never create money.

        Finally, Krugman may be a respected economist, but that’s not the same as a mainstream one. New Keynesian economics may be growing in reputation within economic circles, but political and media circles still refuse to take it seriously, and Krugman’s usually a punching bag for those who make the decisions, rather than someone they listen to.

        1. amanasleep

          Banks are going bankrupt because their lending is capital contrained, and because the foundation of their recognized capital positions (mortgage and MBS market) have deteriorated rapidly.

          Before that, banks were massively expanding lending in the economy, based on:

          1. Housing bubble.
          2. MBS.
          3. CDS hedging.
          4. Ratings which rubber stamped the valuations which supported the massively overvalued positions.
          5. Deregulation of leverage (capital) constraints.

          Just because banks create money doesn’t mean they can’t go out of business.

          1. Ms G

            From the non-financier/economist sidelines here.

            Isn’t the point here that the banks that de facto failed under the weight of their speculative bets with other people’s money did NOT fail (even though their capital requirements, reserves, whatever, were negative)? These banks were TBTF and were propped (and are being propped) up by our government. The ones that are “Failing right and left” are the “too little to be propped” ones, presumably.

            So what we really have is a system of “success” or “failure” (of banks) that depends on the whim of government/regulators as to whether or not they are allowed to fail. It seems to have exactly zero to do with “constraints” like reserves, capital requirements, etc.

            Am I missing something? This is not a rhetorical question, by the way.

            The ones that

          2. Binky Bear

            But the point is still there-if banks can just create endless money and they never have to show their stash of assets/deposits/reserves because they can create limitless money, then they can never be insolvent-just go back to the money machine! Right? So all those examples are irrelevant.

            That’s what some people are wondering. IF banks aren’t constrained by their deposits/assets/reserves and they can create limitless money then how can they be limited? Why don’t I have my own bank in which I can endlessly twirl papers around to appear solvent?

          3. F. Beard

            Why don’t I have my own bank in which I can endlessly twirl papers around to appear solvent? Binky Bear

            The problem for banks is other banks. If Bank A lends me $10,000 of new credit suppose I spend that money with a guy whose account is at Bank B? Bank B then is owed $10,000 by Bank A. However, Bank A might be owed $10,000 lent into existence by Bank B so there is no net debt yet $20,000 dollars has been created from nothing!

        2. Z

          Banks can’t create limitless money. They create money by loaning money … by giving credit … so they are limited by the demand for loans.

          At least that’s the way that I understand it. If someone differs in their understanding, let me know where I’m wrong about that.

          Z

          1. Z

            But that doesn’t mean that they can’t create more than enough money through loaning to create a huge, unhealthy credit bubble … which they did. And when their lax credit standards and reckless lending caught up to them, leading to huge losses when people defaulted on those loans, they blew up when they couldn’t find enough people to continue to loan to in order to keep the whole ponzi-like scheme afloat.

            Z

          2. Z

            This is probably a huge oversimplification, but basically the money coming in through loan payments wasn’t covering the losses that eventually had to be realized on the loans that were defaulted on which led to these banks blowing up. There were other factors involved, but that dynamic definitely played a big role in it.

            Z

        3. UnlearningEcon

          squiggleslash: your comment was a great example of someone who has no idea what they are talking about. You haven’t even read the debate properly.

          ‘Why would he use the word “fraud” or “crime”? Economics is not about justice, it’s about the flow of trade. As soon as you start using those terms you’re veering way off topic. And if it’s moral condemnation of the actions of the banksters you’re after, Krugman’s dished out more than enough of that.’

          Fraud is inextricably relevant to studying the flow of trade; it is an asymmetry of information. Akerlof won the (non-)nobel prize for studying that, so it is quite obviously deemed relevant by the mainstream.

          ‘Personally, I find the whole thing somewhat ridiculous. All Krugman’s argued – AND HE’S RIGHT – is that ordinary, non-central, banks don’t make the decisions that change the amount of money in the system any more than any other entity.’

          Yep they do. When they create a new loan purchasing power is introduced. This is empirically verified, get annoyed about it all you want.

          ‘and the people who’ve argued on NC that “Oh banks can create money, therefore, ergo, they can invent limitless money (see the problem yet?)’

          Straw man. We merely asserted that they are not constrained by reserves but rather by capital, risk and interest rates.

          ‘therefore they are policy setters” were right, then how come banks are going bankrupt left and right?’

          Banks create debt. If the debt is not paid back they go bankrupt. Pretty simple stuff, really.

          ‘The fact Krugman may have misunderstood Keen doesn’t change the fact that he’s 100% right. It’s also a little pathetic that people here are pretending the entire debate was OK until Krugman misunderstood one paragraph of Keen’s at which point he threw a tizzy, when in fact it was Krugman who was misrepresented from the beginning, starting with the nonsense that Krugman was claiming banks never create money.’

          (1) Nobody said the debate was going fine, but Krugman made it so much worse by being either negligent or disingenuous with his arguments.

          (2) Here’s Krugman in his first post:

          ‘Keen then goes on to assert that lending is, by definition (at least as I understand it), an addition to aggregate demand. I guess I don’t get that at all. If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand.’

          So yes, he did claim that. He backpedaled in later posts – hey, just like you!

          ‘Finally, Krugman may be a respected economist, but that’s not the same as a mainstream one. New Keynesian economics may be growing in reputation within economic circles, but political and media circles still refuse to take it seriously, and Krugman’s usually a punching bag for those who make the decisions, rather than someone they listen to.’

          He’s mainstream – he still uses standard neoclassical stuff such as utility maximising agents, methodological equilibration and individualism, demand-supply, DSGE, he mostly supports free trade, etc.

          As YankeeFrank details above, he is a part of the establishment and probably more dangerous than the lunatics on the right, because he at least sounds reasonable.

          If you want to feel great about the impenetrable obscurity of your empirically falsified discipline, go and argue with somewhere else. Your goalpost moving and clear ignorance won’t cut it here.

    2. Attitude_Check

      As a mathmetician and physicist, there is only one geometry that models the real world. There are many different geometric abstractions useful to solve various problems. But if you want to solve real world geometry problems you have to use a form of geometry that is at least consistent with the real world.

      1. James Cole

        That’s an oversimplification. For 99.9% of the population in 99.9% of cases, Newtonian physics is good enough, even though we know it is technically wrong to not take into account relativity.

        1. Attitude_Check

          The statement I made is true for Newtonian mechanics also. A simple example is the simplification of 3D into 2D of a Mercator projection map. e shortest distance in 3D is NOT a straight line. It is true there are complicated ways to make a 2D map “work” but with bad geometry, LOTs of extra rules must be applied — and even then it is still an approximation. This is broadly what Steve Keen is arguing about. The oversimplified models of standard economic theory result in a loss of conceptual visualization of reality, and actually require all kinds of “fixes” and still are not that accurate.

  3. Hugh

    The Krugman-Keen debate has done a service in that it has shined a bright light on the arrogance, unreality, the charlatanism really, of mainstream economics. Modern economics is nothing more than a propaganda tool of our kleptocratic elites. Its purpose is to give intellectual cover to their looting.

    But I would note again economists like Keen, and many others, including Bill Black continue to either reject or dance around the notion of kleptocracy, and this along with wealth inequality and class war define our times. So what we have is a spectrum of misdirection and dishonesty. The neoclassicals and Austrians confuse and obfuscate for the more conservative and libertarian segments of the population. The Krugmans, for the Democrats. And Keen, Black, et al for the progressives.

    Until we get economists putting kleptocracy, wealth inequality, and class war front and center, all we are going to get is expert misdirection conforming to our various political bents.

    This may sound harsh. It is harsh, but it is also necessary to say. Kleptocracy, wealth inequality, and class war are our reality. Yet virtually no economist, and yes, I know pretty much all of the usual suspects who get trotted out in these discussions, discuss these issues and really incorporate them into their thinking and theories in a thoroughgoing way. It is amazing that after the housing bust in 2007, the meltdown in 2008, and everything that has happened since, that even the “good” economists refuse to recognize or study kleptocracy.

    If you want yet another analogy, it is like a physician who refuses to treat a malignant cancer, or even admit that the patient has one, but instead confines him/herself to advice as to how the patient can acquire a healthier lifestyle. It is at once good advice and totally irrelevant, even malpractice.

    1. psychohistorian

      Hugh said: “Kleptocracy, wealth inequality, and class war are our reality.”

      I agree but would argue them in the reverse order.

      The class structure based on inheritance and accumulated private ownership of property cause the inequality that is kept in place and extended by the kleptocracy.

      1. different clue

        Whatever the order, they all deserve study for “know-thy-enemy” reasons.

        And perhaps a few million well-self-educated lay citizen-thinkers can craft some kind of social/economic and cultural resistance and obstruction to the Kleptons even without the help of Klepton-front economists.

    2. j.grmwd

      I don’t disagree with this, but are you making the perfect the enemy of the good? The discipline of macroeconomics doesn’t seem to me to be a natural venue for addressing the issue of institutional corruption.

      1. patricia

        j.grmwd: Any study that involves humans, if it wants to be genuinely functional, must take account of issues of corruption. Or call it failure, if you wish. Any study that doesn’t is either ignorant of human nature or suffering the profound arrogance that assumes it is perfect(able). Hence, non-functional.

        Also, maybe you could find another serviceable maxim, something other than much-abused “making the perfect…”. When I see it, I am instantly disinclined to read anything further. And I doubt I’m the only one who feels that way.

      2. JTFaraday

        What goes by the name “MMT” is kleptocracy. Why would people who run around promoting it want to suddenly start calling it by its proper name?

        The other side of “MMT,” the so-called “anti-austerity” fiscal side including the (minimum wage, no less) “job guarantee” is just the mechanism by which the MMT-ers sell kleptocracy to progressives and propose to keep the disenfranchised and impoverished bound and gagged and off the streets.

        Which has to be an all time new low in the annals of academic self promotion, leaving our garden variety poseurs and herders of D-Party sheep like Krugman, Jacob Hacker of Obamacare infamy, and the ubiquitous Robert Reich thoroughly out-classed.

        “macroeconomics doesn’t seem to me to be a natural venue for addressing the issue of institutional corruption.”

        Well, in that case, Keen et al don’t really have a viable “macroeconomic model of the economy” either then, do they? Because it’s definitely affecting the economy, not to mention the failed states…

        1. SR6719

          +10

          And in order to keep the growing numbers of disenfranchised off the the streets, perhaps the “anti-austerity” side will come to include soup kitchens with free (though limited) access to online gaming, whereby virtual buildings, homes and memorials can be defaced or even destroyed.

  4. mmckinl

    “And Krugman’s part of the economic establishment, which for thirty or forty years has got away with arguing that you can model a capitalist economy as if it had no banks in it, no money, and no debt… ”

    And therein lies the complete dismantling of the Krugmanite/ neoclassical legacy … And the death knell for private bank fractional reserve banking in a finite world. Leveraged debt, promises of payments of principal and interest in the future can not and will not be met in a no/negative growth world.

  5. skippy

    Who’s time machine is the best ride…. ummmm.

    Skippy…. look deep in the the crystal ball and all will become clear!

  6. charles 2

    As Gandhi said :

    “First they ignore you, then they laugh at you, then they fight you, then you win.”

    It looks like we are at the transition between “laugh at you” and “fight you”. Things are progressing…

    1. F. Beard

      Things are progressing… charles 2

      Agree.

      The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks. Lord Acton

  7. Bernd

    This link might be interesting:
    https://www.ftd.de/politik/konjunktur/:wirtschaftsweiser-im-interview-bofinger-geisselt-mickymaus-modelle-der-oekonomen/70019094.html

    A member of the german council of economic advisors, Peter Bofinger( http://en.wikipedia.org/wiki/Peter_Bofinger ), essentially siding with Keen and calling Krugmans approach a “Mickey-Mouse” model [of banking], in the german version of the FT.

    Here´s the key passage:

    “FTD Sie werfen Ihren Kollegen vor, dass es ihnen nicht gelingt umzudenken. Gibt es bei Ihnen auch Dinge, die Sie heute anders sehen?
    Bofinger Ja. Was ich vor der Krise völlig unterschätzt habe, ist, welche gefährliche Rolle die Finanzwirtschaft für die Realwirtschaft spielen kann. Banken bestimmen mit ihrer Kreditvergabe entscheidend darüber, wie hoch Investitionen sind und wo sie vorgenommen werden.
    FTD Kommt das in den Lehrbüchern gar nicht vor?
    Bofinger In den Modellen agieren die Banken als reine Vermittler, die Ersparnisse einsammeln und sie als Kredite wieder zurück in die Wirtschaft geben. Diese Mickymaus-Modelle sind völlig realitätsfern. Der Finanzsektor braucht keine Einlagen um Kredite zu vergeben, in den Jahren vor der Krise konnten Banken nahezu grenzenlos Kredite aus dem Nichts schaffen. Daran wäre das Finanzsystem fast zusammengebrochen. Diese aktive Rolle der Banken hat bis heute weder Eingang in die Lehrbücher noch in die geldpolitische Strategie der Europäischen Zentralbank gefunden.”

    1. Susan the other

      Is he saying that the financiers don’t need a reason/excuse to simply forgive the debt because they created it out of nothing in the first place. Nothing to nothing. Or am I just reading what I think?

      1. Bernd

        Im afraid, that´s not quite what he said. Let me try to translate that short passage:

        (FTD = Financial Times Deutschland, german version of the FT)


        FTD: Your reproach to your colleagues that they fail to adjust there thinking to the new reality[post financial crisis]. Are there any aspects that you[personally] see in a different light today?

        Bofinger:Yes. What I completely underestimated prior to the crisis is what a dangerous role the financial sector can play in terms of what the real economy is concerned. Banks, through the extention of loans, control how high the level of investment is and where[in which areas/sectors] investments takes place.

        FTD: Is that aspect not covered at all in the [economic] textbooks?

        Bofinger: In the models[covered in textbooks] banks act purely as intermediaries, they collect savings and then hand them back to the economy in the form of loans. These Mickey-Mouse models are far removed from reality{I´m not sure this translates well, the gist of “Mickymaus-Modelle” is: fantasy models}.
        The financial sector does not need deposits to extend loans, over the years prior to the crisis the banks where able to create loans out of nothing[/out of thin air]. Due to that the financial system almost broke down. The active role that banks play has neither been included in textbooks up to today, nor is it taken into account by the ECB when formulating monetary strategy[/policy]. ”

        The interesting part is, that Prof. Bofinger is no “heretic”, but one of the most renouned New Keynsian economists in Germany, serving on Germany´s council of economic advisors since 2004.
        Yet he seems to agree with Keen on the important role that banks play, as well as on the fact that loans are created out of “thin air”, whilst refering to Krugmans loanable funds approach as a Mickey-Mouse model.

  8. George999x

    My two cents.

    You guys should do a post on all the excellent and foresighted things Krugman has tried to explain to the US public – he was talking about the 1% many, many years ago,

    I have a massive chip on my shoulder as I’ve faced very serious professional problems by calling BS on neocloassical economics, in academic and practitioner roles both in financial regulation and international development/foreign aid.

    Further, Krugman has both an intellectual and a manners/ego problem (to put it mildly), both demonstrated all too clearly here (you’ve rightly called him out many times before, e.g on commodities speculation). I’ve long since noticed that he’s one of the very few columnists who edits comments, deleting most of those that are unfavourable to him despite them majority being highly sycophantic.

    But that aside, you can see from the tone of the comments here that you’re one step away from leading your own version of the tea-party. The rhetoric is too much, and you’ve made too little reference to all of the good work that Krugman does in his columns (if not his text books).

    1. b.

      I agree with this. Krugman is Yet Another Progressive Hero – somebody expected to be perfect, and to fix the world so that we don’t have to. Nobody can live up to that. Even a Great Man like MLK has flaws. It is a textbook example of the Progressive Fallacy to expect an economist (and Nobel Laureat) with sleeve protectors over his fists to Save Us. Obama is a Nobel Laureat – to get this level of elite approval and recognition, your self-imposed limits have to have been demonstrated beyond establishment doubt.

      Krugman is also the quintessential modern liberal – willing to take the risk of taking something resembling a stand from a distance during Bush, yet unable to hit the same level of principled objection regarding Obama. Why should he serve us better than all the others? This nation was not founded on service, but on accountability, checks and balances in the hands of the citizens.

      That said, Keen’s main point is a simple one, and he should have made it again in the “last minute”: Our economic models have failed the 99%, and continue to fail. They need to be replaced, adding more hacks [individuals or sleights of hand] is not going to help. Why should you care? Did you loose money since 2007?

      1. Walter Wit Man

        Krugman chose the role of progressive oracle. He didn’t back into this against his wishes.

        And he is misleading people. Intentionally.

        I totally disagree with the two of you above, now is the time to root out sneaky complicity like this. It’s time to call out those that enable evil. Paul and his noble democrats are perfect examples of the banality of evil.

  9. David Lewis

    Krugman does not delete critical comments — just read through them sometimes.

    And I’ve made a number of “provocative” comments myself — especially prodding him to actually explain why most “mainstream” economists, the Very Serious People, keep getting things wrong. Trouble is, that requires a really radical perspective, basically “follow the money”, and Krugman is simply not radical enough to acknowledge that. Just look how long it took him to come around to any critique of the neo-liberal, Shock Doctrine shenanigans behind everything since the “crisis.

    1. Walter Wit Man

      I think I’ve had comments censored. I’ve given up commenting there, but the few times I did comment it literally took days to approve my comment. Maybe the ones I thought got censored were finally approved by Paul days later (or whatever intern he has check the comments).

      And I know my comment was approved well after other comments made around the same time were approved so I can only guess that I was censored because of my point of view conflicted with Paul’s.

      1. Matt

        To add injury to insult it seems to me Krugman’s blog has gone behind the NYTIMEs paywall which just shrank to 10 free looks per month.

      2. George999x

        Interesting debate folks.

        Just to add, for the sake of clarity, i can only talk about my own experience (and this was some time ago too). I’ve definitely had comments not published. I stopped attempting to post after a very small number of attempts, and this was some years ago. Just my experience.

        1. Ron T

          I routinely post comments there that are very critical of Krugman, to the point of being aggressive. They always get published.

  10. steelhead23

    While I am a fan of Keen’s, I do not think the errors of neo-classical economists had much of a role in the financial crisis. The heart of the crisis is two-chambered. The first chamber was the Fed’s low-interest policy that blew the debt bubble. The second chamber was fraud, driven by profit maximization and perverse incentive structures in Wall Street compensation packages. Continuing the heart analogy, where the atria basically prime the pump for the ventricles, I tend to see the Fed’s easy money policies as the atrium and fraud as the ventricle. That is, this heated debate is interesting but ignores the elephant in the room: fraud.

    1. Stone

      “The first chamber was the Fed’s low-interest policy that blew the debt bubble.”

      Nonsense. Finance grew relative to the real economy when interest rates were low, it grew massively when they were high. Look at the percentage of profits that go to finance now vs. the, say, the late 60’s. Ask yourself, what is finance’s product? Debt. The financialization of the economy, and the fact that finance has weighted down every sector of the economy with debt, is the reason we are in such horrible shape. Throw in de-industrialization, the stagnation in wages for most of the country, the explosion in wealth and incone inequality, a rise of rentier/monopoly interests who have been handed over government’s resources and assets (like Chicago with the parking meeters) and you have this sorry state we are in.

      The economy will not turn around unless you have a debt write down (which will come at the expense of Wall Street and banks). It simply won’t. The neoliberal policies we have seen to try and turn the economy around are simply making a bad situation worse. It also won’t get tons better unless we scrap other parts of the neoclassical playbook. Our problems are cosmetic, like interest rates or fraud. We have fundamental problems that won’t be fixed by neoclassical economics.

    2. UnlearningEcon

      Here are a few reasons neoclassical economics contributed towards the crisis:

      – Neoclassical economics tends to assume perfect information in its core models, leaving fraud largely unexplored.

      – The inner workings of firm are not explored at all, despite being vastly relevant to how the crisis materialised.

      – Private debt is mostly ignored as a macroeconomic wash. Not ignoring it was how Keen saw the crisis coming.

  11. Michael

    …wow.

    Keen comes off as an unbelievable douche in this clip. If I were Krugman, I’d brush him off as a crank, and I’d be right to.

    1. Lambert Strether Post author

      “Douche” is such a subjective term, isn’t it? For my money, if any, taking a quote out of context, building a strawman on it, and then declaring “I win!” (“this conversation is closed,” IRRC) verges quite closely on douchedom, douchebagger, Douche of URL, or whatever the term might be the existential condition of being a douche. Could be the work of a blogger, but not the work of a scholar. It’s a sadness!

    2. Stone

      I would brush him off too, because if you don’t brush him off you have to actually deal with what he is saying. Better to try and pretend that people who smash your argument into tiny little pieces are “cranks”. That is what neo-classical economists do, right? They build their arguments on unrealistic/absurd assumptions, their policies fail horribly the world over and when people who called it right come out and say so they dismiss them. When the neoclassical economists make a huge mistake, like engaging these well versed critics in a debate and lose, then folks will point out that the “cranks” are arrogant or whatever. I, personally, appreciate Keen’s use of Sraffa methodology. Sraffa also destroyed the arguments of neoclassical economists, in the early 60’s, and few neoclassical economists today, if any, know exactly what he said. He was a “crank” too.

  12. Paul

    Dear Yves,

    I know it is none of my business telling you what material to put up on your blog (yes I realize you haven’t specifically authored most of the posts), but as a regular readers I wanted to let you know that there are already thousands of places I can go to read Krugman-bashing 24 hours a day. This is just getting silly now imo.

    1. Lambert Strether Post author

      Winners don’t have to take quotes out of context.

      Nor do the representatives of paradigms that are full of win.

      “Silly”? YMMV, and, apparently, does.

    2. Stone

      There are a million and one ways to critique someone. Not all critiques are equal. Keynes has been critiqued far more. Marx and Hayek too. If you put yourself out there and your ideas ARE flawed expect to be critiqued. Not every critique will be equally valid though. Stop with the pathetic boot licking.

    3. patricia

      But it’s research, Paul. The sheer number shows how many people are completely fed-up with the current run of economics. The intensity and persistence show how long it’s been since anyone other than the current runners have been allowed into the conversation. That it appears on NC shows it is an important issue.

      And the subject is more valuable than, say, adverts for tampons and toothpastes which most of us have spent more time on, over our years, than this topic.

      So stop wriggling and reading, if it makes you uncomfortable. I hear there’s a new improved Preparation H. Check your tv.

    4. Paul

      The 3 of you are hilarious. You assume that I am some Krugman acolyte and that reading about this makes me “uncomfortable”. I think Krugman was wrong. However that point has been beaten to death in the other posts on this topic on this blog and on others. This post brings nothing new to the conversation at all imo. It is more about “winning” as evidenced by Lambert’s comment about how Krugman clearly is not a “winner” because he quoted Keen out of context. So please spare me the lecture. Sue me if I prefer some new discussion instead of witnessing a glorified pissing contest.

  13. Schofield

    Neo-Classical economics increasingly seems to amount to a denial that the human race can throw up individuals dedicated to a form of free-riding we might call Bankstering. This being the concerted effort to get government and non-government sectors to take up as much interest bearing debt as possible as Michael Hudson has so aptly described it.

  14. BudinPA

    John Regan’s comment earlier shows that he has his finger on the pulse of the central issue. “Rule of Law first…then the economy” Despite the esoteric debate between Keen & Krugman, both seem to miss that you can’t have a virtuous economy without “Rule of Law”. The greatest deterrent to crime will always be the certainty of punishment.

  15. Cynthia

    Thinking back, Current TV paid Keith Olbermann a huge amount of money and they didn’t have any left over for a studio that could actually handle the load. The damn lights went out during a broadcast — when was the last time that has happened other than during a tornado or some other natural disaster. The next day he appeared in the dark with a candle. And they evidently never got it fixed because the lights were still out the day he was fired.

    From this I gather that the US doesn’t have a single news media outlet — including but not limited to the likes of Current TV and Democracy Now — that’s got enough money to serve as an effective counterweight to establishment news media types like CNN and Fox. Which is why we as Americans are having to look elsewhere, ironically to Russia, to provide us with political and economic news that counters all the propaganda and outright lies being peddled by America’s lamestream media.

    RT, for instance, has enough money to effectively do this. You can see this in the way Lauren Lyster lets Steve Keen debunk the hell out of Paul Krugman and his deeply flawed neoclassical view of macroeconomics. — something that would never be aired by the likes of CNN or Fox News:

    And looking at Lauren Lyster of RT’s “Capital Account”, or even Alyona Minkovski of RT’s “The Alyona Show” for that matter, perhaps Putin was speaking the truth when he said something about why Russia doesn’t have a gayness problem. According to him, there are so many beautiful women in Russia that no Russian man in his right mind would choose to be gay. ;~)

    1. Binky Bear

      That’a an embarassing bit of bigotry to spew out there at the end, considering that Putin has been putting gay rights activitsts as well as economic activists in the new improved gulag 3.0 for abuse and torture.
      Only a sucker would think that because communism (in name only) has fallen that Russia is somehow providing objective news for the benefit of the world. The definitive oligarchs of today, the new jack oligarchs, are in Russia and are supported by American and European oligarchs and envied for the brash neo-feudalism they have established under Putin.

      1. patricia

        Yah. Putin suffers badly from a complete lack of imagination. Thus it doesn’t occur to him that admiring a beautiful woman has nothing to do with sexuality for those who are not sexually attracted to women. Thus he can’t see beyond his own little ego and the system of oligarchy in which it thrives.

        It’s a measurable mental disability, I’m sure. I think Russia should thank him for his service, rotate his ill-gotten gains back into whatever remains of honest government, and assign him a modest stipend in the smallest dacha along the Black Sea. I hear that some of them have good barbed wire fences and plenty of surveillance cameras.

  16. Susan the other

    My comment got lost in the ether. This was it: That surely Krugman understands that growth and debt are two sides of the same coin. Yet his models missed the Great Crisis. Keen, in 1994, predicted it – and he knew the debt-growth connection too. So for 15 years Krugman failed to warn of exponential debt levels which could not be matched by growth, levels which created ever more irrational lending behavior by the banks due to diminishing returns.

  17. Very Serious Sam

    I’m sure Krugman understands perfectly well the role of banks, debt, and money. Unfortunately, his ego is apparently permanently high on steroids. So he rather aggressively dismisses any idea, no matter how brilliant, which is not in line with his IS-LM dogmata.

    However, all modeling attempts of all the brilliant scholars are in vain, since they do not and can not take into account the unlimited variance of irrationality and chance of reality. This is true from Marx to Keynes and beyond.

  18. adam

    This debate is all heat and no light. Yes, Krugman did himself and Keen a disservice with his last post on the matter but was he responding to a sharp but substance-free rhetorical jab: that Krugman’s Ptolemy and Keen is Copernicus. While perfectly its valid to point out that, just like Ptolemy’s epicycles, Neo-Keynesian models adds complexity to ameliorate the simple unrealistic assumptions of classical economics, it’s a rhetorical point that’s pretty empty in meaning: Most predictive models are exactly like that, e.g. climate models keep getting more and more complicated as they get more accurate. Doesn’t mean its wrong unless you can come up with a simpler model to explain the weather just as well or more accurately. Keen hasn’t done that for me at least — when I try to assess who model is better i find its comes down to whose assumptions are more realistic and i get lost in details about how banks behave — e.g. are banker’s behavior endogenous to the models, are the current central banks settlement methods historically contingent or inevitable?
    It turns into a technical debate which i just dont have the time or interest to pursue and not the grand refutation of neoclassical economics that Keen promises.

    Keen’s invocation of Ptolemy brought to mind Kuhn’s Structure of Scientific Revolutions and how this exchange is a great example of his central thesis that shifts to new models don’t happen when the old guard carefully examines the evidence and engage in earnest, open dialog with proponents of the new model but rather that they dig into their ideological (“incommensurate”) heels until a new generation comes along and replaces them.

    We can watch this dynamic unfold in real-time in this debate as the rhetoric heats up and turns in a proxy for broad ideological debate about banks and debt and whether Krugman is unfair and how culpable he is; then finally as fodder for a self-professed propaganda channels like RT.

    And in the context of crude ideological positioning I have some sympathy for Krugman apathy toward Keen’s theory even though I broadly agree with Keen’s critique of neoclassical economics. Because even though he’s coming from the Left his focus on debt provides support to the Austrian right (e.g. see a blogger on Zero Hedge referring to him as a “neo-Hayekian superhero”) and more broadly to the fetishization of debt that is perhaps the primary political cudgel being used to dismantle the modern welfare state on both sides of the Atlantic.

    1. F. Beard

      his focus on debt provides support to the Austrian right Adam

      The Austrians very much believe in usury and hence debt. What they object to is the banks bypassing savers via endogenous money creation. They also object to exogenous money creation by government which is why they favor a gold standard.

    2. Daniel de Paris

      “the fetishization of debt that is perhaps the primary political cudgel being used to dismantle the modern welfare state on both sides of the Atlantic.”

      I take it here that debt is considered central to a modern welfare state by many of you on this blog. Money out thin air as a conduct to welfare on the left side. No better than money printing as a driver to tax-free wars on the republican one!

      This is just plain wrong on both sides. ANd more akin to late antique Rome practices than proper welfare. Just pay attention to the physical state of a lot of US citizens. Is that “welfare”?

      Northern Europe handling of social matters will be proven correct. Like it or not. And debt is an arch-enemy of any kind of properly handled “social democracy”.

      Gerhard Schröder will be proven correct as a left-winger. Is current Germany a welfare black hole? Certainly not.

      http://en.wikipedia.org/wiki/Agenda_2010

      A proper social democracy à l’allemande is what the US is in need of not another EA intellectual justification for their current set of insane monetary debt tax policies.

      One pointer on a decent advocate of a decent handling of social and monetary issues:

      http://en.wikipedia.org/wiki/Wilhelm_R%C3%B6pke

      Sorry, ain’t US. Ain’t French by the way!

      1. Adam

        I was referring to “debt” as an ideological tool not the impact of dept itself. Specifically the strategy of raising fears about public sector debt to justify slashing Mediacare, breaking pension agreement, laying off workers, privatization, etc. You could also make a broader argument, like David Graeber does, that the privileging of certain societal obligations as debt is historically a (the?) primary way ownership classes exerts control.

        AFAICT your comment is an example of exactly what I’m referring: comparing Germany’s “sound” fiscal policy to the US’s “insane monetary debt tax policies”. When in fact Germany exported a vast bubble to the European periphery through its low interest/no inflation regime and now the German public’s deep seated fear of debt and inflation is providing political cover for inflicting terrible, unnecessary pain on those countries.

    3. UnlearningEcon

      ‘Keen hasn’t done that for me at least — when I try to assess who model is better i find its comes down to whose assumptions are more realistic and i get lost in details about how banks behave’

      Then you really haven’t read much of Keen’s work. His model is a fairly simple circuit model: banks create debt, lend to households, firms, workers work for wages, money flows around the economy. The level of private debt must accelerate so the money lent must be used for productive purposes.

      ‘It turns into a technical debate which i just dont have the time or interest to pursue and not the grand refutation of neoclassical economics that Keen promises.’

      This makes no sense. The grand refutation of neoclassical economics is, by definition, a technical debate.

  19. SH

    If bottom up modelling does not work because equilibrium does not exist, then the problem is either equilibrium or bottom up modelling or both. Keen discounts both. I think that is presumptuous.

    If I were smart, I would try and defend bottom up modelling by introducing path dependency. If you kill equilibrium and introduce many possible outcomes, then you can get to a bottom up model that may describe real world outcomes that does not necessarily depend on a finite ultimate solution like equilibrium.

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