Steve Keen says there’s a “conspiracy against post-keynesian” economics. As if the evil neoclassicals have all gotten together to team up on the poor little post-keynesians. This is nonsense. I’ll tell you why.
The post-Keynesians, a school which Monetary Realism is highly sympathetic towards, are one of the more disorganized schools around. When I was talking to Noah Smith the other day on Twitter he didn’t even know that MMT and PKE are not necessarily the same thing. Like most people, he just bunched them all in there together. This confusion derives from the lack of organization in the PKE schools. Most people don’t even know what PKE is. They just hear “post-KEYNESIAN economics” and assume it’s some sort of big government ideology to ruin the world with government spending. That’s totally wrong of course, but the message hasn’t been changed because PKers haven’t communicated it to the world properly.
The reality is that PKE is based on understanding the foundation of operational reality and recognizing the importance of the actual institutional structures that exist within a monetary system (that involves understanding the government institutions within the monetary system, the endogeneity of money within the banking system, etc). As you know with MR, we start by understanding what is and not what can be. We don’t inject ideology and policy into our work because it’s all rooted in understanding how the world actually is. So we base our work in real-world realities such as:
- Double entry bookkeeping.
- Understanding sectoral balances and the flow of funds in the system.
- Accounting identities based on an operational understanding.
- Banks matter in an economic model because they issue most money.
- Understanding reserve accounting.
- The money multiplier is a myth because banks aren’t reserve constrained.
- Government taxing and spending is a redistribution of bank money.
- We have a government that’s highly involved in the economy.
- The private sector dominates economic activity.
The problem is, PKers don’t emphasize this enough. From the standpoint of the crisis, PKers killed it because of this superior operational understanding. We knew that the expansion of QE wouldn’t cause hyperinflation. We knew that the USA wasn’t going to suffer from a Greek crisis. We knew that Europe was screwed. We knew the stimulus wasn’t nearly as “stimulative” as most presumed. We knew interest rates weren’t going to rise. We knew corporate profits were going to boom due to the government’s deficit. These weren’t small predictions. They were epic predictions. Predictions that should have validated PK thinking. Instead, they’ve been lost in a void of mangled communications.
The big problem is, PKers can be extremely ideological. In fact, I’d argue that it’s the ideologues in some PK schools who turn so many people away from PKE due to their bad attitudes, defensiveness and “I know everything, you are an idiot” approach. It’s really unfortunate, because the PK school has a huge amount to offer. But it’s been poisoned by ideologues and the extremely powerful operational message has been drowned out by people claiming to have predicted the crisis while selling some self serving message or policy approach that is a non-starter. And we’re all worse off for it.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.