One thing that has surprised me is how little push-back there has been against mainstream economics since the financial crisis. There’s been considerable debate about the problems in mainstream macro, but there hasn’t been much progress in terms of changing the economic models that failed to predict the financial crisis and understand how to resolve it. What’s even more baffling is that many Post-Keynesian economists not only predicted the financial crisis and the Euro crisis, but they also made countless accurate predictions about how the post-crisis period would unfold. If you used a model like the one I use you knew the following:
- The European monetary system has a structural flaw in its design that renders Europe an unworkable currency union – The Euro Crisis & the Greatest Prediction of the last 20 years.
- Household deleveraging would result in a high probability of low inflation – Inflation, What Inflation, 2010
- Deficit spending would not “crowd out” the private sector and drive up interest rates because the mainstream concept of the money multiplier and the loanable funds theory are wrong in a world of endogenous money – the Myth of the Money Multiplier, 2010.
- You know that fiat money isn’t a “scam” and that there was a high probability of bubbles in both gold and silver – Why There is a High Probability of an Irrational Bubble in Gold, 2010 & Silver Displays Some Bubble Characteristics, 2011
- That Bill Gross was wrong to ask “who will buy the bonds”? – Who Will Buy the Bonds, March 2011
- That the “bond bubble” was a pure myth – The Myth of the Bond Bubble, August 2010
- That the fears over a solvency crisis in the USA were wrong – Why the USA isn’t Going Bankrupt, September 2012
- That Mitt Romney was wrong to claim a bond auction might soon fail in the USA – About the Coming Failed Bond Auction Mitt Romney Predicts, September 2012
- That the worry about “bond vigilantes” was wrong – American Bond Vigilantes, Asleep at the Wheel, July 2011
- That Hyperinflation wasn’t going to result from QE – Hyperinflation: It’s More Than a Monetary Phenomenon, March 2011
- That the declining deficit in the USA in 2013 wasn’t bearish – Did 2013 Prove That Fiscal Stimulus Doesn’t Work?
These were big time predictions. And my framework, while not entirely Post-Keynesian Economics, is closer to PKE than it is to anything else. I doubt there is another school of economics that would have produced such wide ranging accurate predictions. But the ideas don’t seem to be catching on all that much. Yes, there was some good news over the weekend that Stephanie Kelton (a MMT Post-Keynesian Economist) will be the minority Chief Economist on the Senate Budget Committee. But I still don’t see the right people taking PKE seriously. And it’s clear that mainstream economists view PKE supporters as outsiders looking in. It’s a very frustrating state of affairs. And one that doesn’t give me a good deal of hope about the state of future policy.