What economics does is to convert open systems into closed systems by excluding ‘moves’ which would render the system unstable. Dictators ‘freeze the frame’ by order: economists do it by ‘modelling.’ They model the world as a giant computer network in which every possible move has been programmed, and anything outside the frame excluded by assumption … Economists are seduced by the thought that, because humans are part of nature, their code can be cracked just like that of physical objects. But even those who hold out this hope admit that humans are uniquely complicated. This makes social systems for all practical purposes almost infinitely complex.
How GFC 2007 Tore the Veil of Money
In 2007–08, money stopped behaving like a neutral “veil” and reappeared as the thing that actually moves the world: refinancing capacity, collateral chains, margin calls, forced sales, bank runs, and—at the end of the chain—the state as guarantor of the monetary system.
For students who had just absorbed Econ 101, the crisis was cognitive dissonance in real time. They had been taught a “real economy” of barter-like exchange, with money appended as a convenience. Then the world announced, loudly, that the economy is not a barter system with a cash register added. It is a monetary system first—organized around claims, liquidity, hierarchy, and power.
That rupture provides an opening: a doorway from the moneyless orthodoxy to a world of heterodox economic models.
Before anything else, two propositions—offered explicitly as a minimal basis for heterodox coordination, not as a final taxonomy:
Proposition 1: Heterodoxy needs an alternative to Econ 101.
Critique alone does not reproduce a tradition. Undergraduate teaching does. Many have argued that Samuelson’s textbook shaped the field of Economics in the 20th century.
Proposition 2: The simplest common core is: reject the neutrality of money.
Put money back into economics, then follow the money trail to power.
There are many heterodox schools, and they do not agree on everything. But if we cannot coordinate even on a practical teaching core, we will continue producing a brilliant cacophony—and losing the undergraduate mindshare that determines what the discipline becomes next. read more
“What turned out to be the big breakthrough was the use of growth theory to study business cycle fluctuations … based on micro theory reasoning, dynamic economic theory was viewed as being useless in understanding business cycle fluctuations. This view arose because, cyclically, leisure and consumption moved in opposite directions. Being that these goods are both normal goods and there is little cyclical movement in their relative price, micro reasoning leads to the conclusion that leisure should move procyclically when in fact it moves strongly countercyclically. Another fact is that labor productivity is a procyclical variable; this runs counter to the prediction of micro theory that it should be countercyclical, given the aggregate labor input to production. Micro reasoning leads to the incorrect conclusion that these aggregate observations violated the law of diminishing returns. In order to use growth theory to study business cycle fluctuations, the investment-consumption decision and the labor-leisure decision must be endogenized. Kydland and Prescott (1982) introduced an aggregate household to accomplish this. We restricted attention to the household utility function for which the model economies had a balanced growth path, and this balanced growth path displayed the growth facts. With this extension, growth theory and business cycle theory were integrated. It turned out that the predictions of dynamic aggregate theory were consistent with the business cycle facts that ran counter to the conclusion of those using microeconomic reasoning.”
Real-World Economics Review Blog 
Recent Comments