Econintersect: Global Economic Intersection contributor and well known Australian economist Steve Keen is using the funding platform Kickstarter to raise funds to support his multivariate macroeconomic model development. Keen has named the model project Minsky, in honor of the 20th century economist Hyman Minsky who studied economic instability.
Generic process flow diagram showing feedback loops and interactions of variables.
Note: This is a generic engineering process flow diagram, shown for illustration to those who are not familiar. It is not a diagram used by Steve Keen.
Minsky’s work was largely ignored during his lifetime (1919-1996) but he is now considered a member of the group of the most deserving economists to have not won a Nobel Prize. (Nobel prizes are not awarded posthumously.) The financial collapse in the fall of 2008 is now widely referred to as a “Minsky moment.”
However a small number of economists, Keen among them, believe that the dynamic analysis view of the economy held by Minsky forms the basis for a continuity of economic reality. These economists think we are always in a Minsky moment, flowing through economic time, and seldom in a state of economic equilibrium which has been the hallmark of classical, neoclassical and neoliberal thinking of mainstream economics.
For an example, last summer Michel Pettis posted an article at GEI Opinion entitled “Forget the Minsky Moment; Could It Be a Minsky Century?“
In the following video from his Kickstarter page Steve Keen gives a brief overview of the Minsky program and the further development that is required:
Keen is looking for funding for his research because it must be pursued outside of the normal venue and support system of a university. After many years of bringing the international attention to the University of West Sydney for his economics research, last fall the school announced it was removing the economics curriculum from its offerings and was terminating all faculty. The university has since relented but is only keeping a core curriculum to support a limited business school program, not enough for a bachelor’s level major.
Keen has chosen to continue his research and at least for now, it will be outside of a university setting. That is why he has made an appeal for backers through a Kickstarter appeal.
Notes about this work: Some may wonder why Keen’s research is so unique. For years economists have done dynamic modeling using a technique described as DSGE (Dynamic Stochastic General Equilibrium). DSGE is just another version of the theory that economic activity exists in equilibrium conditions (except for rare cases where things “blow up” in such ways that “no one could see it coming”).
The word dynamic exists in DSGE because these models consist of a set of equilibrium conditions that are strung together in time. The results of such models create the illusion of a moving image, just as the showing of movie frames in rapid succession create the impression of a motion picture.
Keen goes in an entirely different direction. He starts with a set of operational functions which algebraically represent the actions of economic variables. He goes a step beyond much of previous modeling for four reasons:
- The functions are non-linear – ie, they include interactive “cross terms” between the variables;
- Money, debt and financial operations are explicitly included variables;
- variables are expressed as functions of time; and
- models are evaluated using mathematical tools that have advanced the practice of engineering design such as those that convert operational flow diagrams into operational functions.
The model he has been developing (and will finish with the first $50,000 raised) he has named “Minsky.” This is described in the video shown earlier. Ten more videos are available at Keen’s blog, Debtwatch.
Kickstarter has raised nearly the $50,000 needed to fund the completion of Minsky.
Keen has an objective of raising $1 million to fund development of models that will advance far beyond the original Minsky. These models will keep expanding the economic function universe included in models, expand into more and more complicated cross term interactions and all the while create models that “flow” in time by including time as a mathematically independent variable.
This work has already shown that there are situations where the amount of debt is less important than the rate of change of debt (velocity – first derivative with respect to time) or how fast debt is growing or shrinking. Even further, his work indicates that an even more fundamental factor in economic growth is related to the second derivative of debt with respect to time. This is the acceleration of debt, or the rate of change of the rate of change. Debt may still be growing but if the rate of growth is slowing down (acceleration is negative) Keen’s work indicates that is a condition for economic growth, even as debt increases.
This work is of fundamental importance for policy decisions. It is obvious to Econintersect that there is no awareness of this work in policy making circles anywhere in the world. Or, if there is awareness, it is being ignored. Since we can link to a Steve Keen presentation given to a U.S. congressional committee in December 2012, Econintersect thinks “ignored” is probably the best term to use.
Econintersect recommends anyone who can to please help Steve Keen raise his first million dollars by making a donation at Kickstarter. Perhaps some foundation will see this, investigate and help support this research in a bigger way.
Sources: All embedded as links.