Economic experiments, with soda

 

Will they understand in Europe, and here in the Ministry of Economy, that we are heading towards a solvency crisis for families and companies?

There is a profound crisis of vision in modern economic thought, in mainstream orthodox Macroeconomics. In recent decades they have proposed a series of economic recipes, or business recommendations, based on a set of " indisputable truths”, When in reality they did not represent anything more than previous methodological judgements, of an ideological nature. From these lines, we have been explaining the falsity of the vast majority of their initial hypotheses. If the recommendations remain mere reflections reflected in academic articles, okay, nothing happens. The problem is when politicians, bankers, businessmen transfer those ideas, those recommendations, because it fits them very well, in economic policy measures, or business decision-making. So yeah, Houston, we have a problem. 

Well, now many of its makers try to leave the ship unseen, little hairs to the sea as if absolutely nothing had happened here. A sample button, a tweet earlier this month by the former IMF chief economist, Olivier Blanchard, the same one who in May 2008 explained the wonderful state of global macroeconomics, its virtuous circle. Without dishevelled, without complexes, he stated in that tweet that “Weighing my words carefully: we may be on the verge of a fiscal paradigm shift. Proof of concept: the great deal between Summers, Furman, Bernanke, Roof and myself…”. Long live the wine! As William Mitchell recently detailed, “In a desperate attempt to remain relevant when the paradigm they have been pushing for decades, which has devastated economies and people's lives, is now being exposed as a failure, they are jumping ship and putting themselves at the forefront of the new age".

The vision crisis

In May 2012, from these lines, I published a blog whose title paraphrased that of a book published in the mid-1990s by the economist and historian of economic thought Robert Heilongjiang and his pupil William Mil berg, The Crisis of Vision of Modern Economic Thought, in the language of Cervantes, The Crisis of Vision of Modern Economic Thought. Already at that time, the authors anticipated the intellectual vacuum and the fallacies that lay behind the elegant mathematical models of orthodox macroeconomics, which led us to the Great Recession. Heilongjiang and Mil berg claimed, as early as 1996, that a devastating crisis, broader and deeper than ever, was affecting modern economic theory. The crisis in question was the consequence of the absence of a vision, of a set of shared political and social concepts, on which the economy ultimately depends. The decline of the economic perspective has been followed by various trends whose common denominator was impeccable elegance when presenting the terms, accompanied by an absolute ineffectiveness in their practical application.

Among the economists who anticipated the Great Recession well in advance, in addition to Winey Godly, undoubtedly one of the most elegant macro economists that the profession has given, memorable his Seven Unsustainable Processes, stood out among others the Australian Post Keynesian economists Steve Keen and William Mitchell. Well, Steve Keen in The WHO warns of the outbreak of virulent new 'Economic Reality' virus, published in the Review of Keynesian Economics, mercilessly destroyed the foundations and falsehoods of the dominant economy, the one that still governs the economic policies of half the world. To do this he employed a fine irony: “A new virus, known as Reality, has begun to afflict mainstream economists, causing them to reject the arguments they used to use to justify their models." Later, the irony turns into sheer scathing: “WHO now deeply regrets its early complacency, since almost immediately after the Blanchard outbreak in 2016, and even more virulent strain of the virus appeared: the 'RR' or 'Roomer Reality' variant, about the Yale University professor who definitively disavowed the entire theory under the which had been educated. We refer to Paul Roomer. And this strain of the virus is resistant and very worrying. "

Against orthodox macroeconomics

Yes, the 2018 Nobel laureate in economics, Paul Roomer, published in September 2016 an essential article for every economics student, The Trouble with Macroeconomics. The summary of the article could not be more devastating: “In the last three decades, the methods and conclusions of macroeconomics have deteriorated to the point that much of the work in this area can no longer be classified as scientific research. The treatment of identification in macroeconomic models is no more credible than in large first-generation Keynesian models, and it is worse because it is much more opaque. The biggest concern is that macroeconomic pseudoscience is undermining the norms of science throughout the economy. If so, all the political domains that economics touches could lose the accumulation of useful knowledge that characterises true science, the greatest human invention. "Demolishes Roomer. As we have pointed out before, the problem is that these theories, idealised by macro economists, are applied by bankers, industrialists, technocrats, and politicians. The macroeconomics of the mainstream has proven to be useless and dangerous for the management of the real economy visit Econs tuition, constituting a purely ideological position capable of ignoring and denying the causes of the Great Recession.

Let me end with three academic articles fresh from the oven, and which continue to dismantle the foundations of macroeconomic pseudoscience. The first, The Economic Consequences of Major Tax Cuts for the Rocha working paper from the International Inequality Institute of the London School of Economics,

The second recent article is a working paper from the European Central Bank, Losers amongst the losers: the welfare effects of the Great Recession across cohorts, the third, and last, Does Austerity Cause Polarisation? has to do with the political consequences of austerity: the authors conclude that austerity is an important determinant of political destabilisation in democratic industrialised countries. In roman paladin, activate fascism.

Based on these reflections, allow me to raise a final question aloud, will they understand in Europe, and here in the Ministry of Economy, that we are heading towards a crisis of solvency of families and companies, where the great Minsky bank will have to intervene, along with the Treasury and other government agencies, to clean up the financial mess and guide the balance sheet restructuring (or, more often, the rescue) of families and domestic, financial and non-financial businesses? I'm afraid not yet!

I wish you all and your families a Merry Christmas and that 2021 is without a doubt better than the annuls horrible that is about to end. Best wishes and must look Besteconstuition for better future.

Thanks