Written by John Lounsbury
There has been an interesting week of exchanges regarding the role of money and banking in the macroeconomy. It started with a Steve Keen essay (appeared on GEI Analysis) about a long-ignored economist named Hyman Minsky who spent his career developing views of the economy as moving through states of disequilibrium. Keen criticized the inability of economists and Krugman in particular to foresee the financial crisis, which he (Keen) claims is a direct consequence of the main stream economists to include asset values, finance and debt in their models that treat the economy as progressing through a series of states of equilibrium disturbed by perturbations and shocks. Krugman responded with a critical review of Keen’s statements on his New York Times Blog and the debate was joined. The Minsky article and other links are listed at the end of this post.
Late last week Steve Keen was interviewed on RT in which he summarized what he sees the essence of the debate:
Before this exchange started Krugman presented a lecture at MIT entitled: “The Economic Meltdown: What Have We Learned, if Anything?” That lecture is presented below:
Listen to both videos to form your own opinion about the elements of the debate.
From my perspective, the two videos have totally different points of focus. Keen is trying to learn about the cause of the financial crisis while the Krugman lecture, contrary to the title, spends most of the time talking about how to deal with the symptoms remaining after the crash. So comparing the two videos does not further the debate to any great extent, but does offer some insight about why there has been such poor communication in the debate so far. The two protagonists are focusing on differ objectives.
Unfortunately, so far it does not appear that Krugman has yet moved away from the type of focus that he discusses in the MIT lecture. His last words in the exchange with Keen are that the debate is over. This observer thinks it has not actually started.