Sunday, September 09, 2012

Keen attempts a purge


"He knew that you could trust no one. No one. Ever. Not your wife. Not your brother. Not your oldest comrade. No one. Ever."
- Andre Marty, in For Whom the Bell Tolls

The Communist movement in early 20th century Europe became famous for its atmosphere of insane paranoia, unrelenting suspicion, and constant ideological purges. The above quote is from a novel, but the man who thinks it was a real historical figure, whose paranoiac purges killed 500 of his allies in the Spanish Civil War. I suppose it was unsurprising that the left lost that war.

Since 2009, the macroeconomics profession has been embroiled in another sort of war. At stake is not just the direction of policy, but the entire future of the discipline. The insurgency has been led by Paul Krugman, a Nobel Prize winner, Princeton professor, and New York Times pundit, and by other eminent economists like Brad DeLong whose accomplishments (in my opinion) are only slightly less august. I say "led" not because Krugman et al. were the first to poke holes in modern macro - that was mostly done in the 1990s and involved many other brilliant people - but because it was the prestige of Krugman, DeLong, and others that gave this revolution public credibility, that made the intelligent, news-reading public sit up and say "Hmm, maybe something is deeply wrong with macroeconomics!"

Steve Keen is a "post-Keynesian" economist who works in Australia. His work, although I have only read a bit of it, is largely about debt, and why debt behaves differently than it does in most mainstream macro models (an idea to which I am very sympathetic!). In public, Keen has been highly critical of neoclassical macro, and supportive of a return to the ideas of Depression-era thinkers like Keynes and Minsky; he writes a blog, and also attends INET (I actually met him last year, though I only spoke to him very briefly).

One would think that Keen would be a natural ally of Krugman and DeLong. However, one would be wrong. In fact, Keen recently unleashed a tirade against DeLong:
I can scarcely believe what Brad Delong has dared to publish on Project Syndicate today... 
[P]eople like Wynne Godley, Ann Pettifors, Randall Wray, Nouriel Roubini, Dean Baker, Peter Schiff and I had spent years warning that a huge crisis was coming, and had a variety of debt-based explanations as to why it was inevitable... 
To my knowledge, of Delong’s motley crew [of economists who saw the potential for a crash], only Raghuram Rajan was in print with any warnings of an imminent crisis before it began...Krugman, who Delong crowns as first amongst equals in those working “in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger” first read Minsky in May 2009–and noted that he didn’t really see what all the fuss was about... 
The only excuse for the cant Delong has spewed forth today is that, as with Krugman and others in the self-described “New Keynesian” camp, he perceives himself as being at the left end of the economic spectrum, with the only competition being from the far right represented by the purist Chicago version of Neoclassical economics. Since the Neoclassical left supports deficit spending during a Depression, while the right supports austerity, to Delong it’s game over, and the Neoclassical left is right. 
The reality is that there is an entire other dimension of economists who have known for decades that both extremes of the Neoclassical economic axis were neither left nor right, but plain bloody wrong. We also knew that our criticisms of the Neoclassicals had no chance of being listened to by the public until a major crisis hit, and we also expected that this crisis would do nothing to alter their own beliefs. Delong’s delusional mutterings today confirm it.
Wow. With friends like these, who needs enemas?

I find Keen's rant completely unacceptable. And not just because it's uncivil, rude, and largely free of substantive content. No, the reason I find it unacceptable is that this sort of ideological purge is the kind of thing that loses revolutions.

Keen's tirade can be boiled down to the following: "I got things right long before Krugman and DeLong, so I'm the pure Keynesian; these other guys are posers." By this logic, no one can join a revolution unless they were part of it from the beginning. 

DeLong and Krugman were not part of the revolution at the beginning. DeLong, in particular, has made this abundantly clear, along with the reasons for his change of mind, in an essay called "What Have We Unlearned From Our Great Recession?":
My role here is the role of the person who starts the Alcoholics Anonymous meetings. 
My name is Brad DeLong. 
I am a Rubinite, a Greenspanist, a neoliberal, a neoclassical economist. 
I stand here repentant. 
I take my task to be a serious person and to set out all the things I believed in three or four years ago that now appear to be wrong.
When I read this essay, I was amazed. I can't think of anyone else who writes things like this. Most economists - indeed, most people of any stripe - first stake out a position, and then defend it to the death. If they change their ideas, they try to pretend that they had these ideas all along and had never been wrong. Proving that they are Wise Sages is more important than actually searching for the right answers. Brad DeLong is different.

(Update: And you know what else? Before the crisis, the real state of things was probably not as clear to an impartial, rational observer. It could well be that an honest, open-minded, smart person would have seen the potential for a crisis before '08, but not been certain that a crisis was overwhelmingly likely...but I digress...)

(Update: And while we're at it, I should point out that Brad DeLong is totally exaggerating the degree to which he was wrong before the 2008 crisis. In the late 80s and early 90s, along with Larry Summers, Andrei Shleifer, and Robert Waldmann, DeLong invented "noise trader models" of financial markets, which present one of the first coherent, mathematical alternatives to efficient-market theory. So DeLong was attacking the neoclassical paradigm successfully, in mainstream economics and finance journals, decades before the Crisis of 2008.)

But this is not enough for Steve Keen. He demands that the revolution be led by the people who were in on it first. He seems interested more in jockeying for prestige within the revolutionary movement than in actually seeing that movement succeed. Because by shooting DeLong and Krugman in the back, Keen is attempting to discredit (and succeeding in alienating) two of his most potent allies. Without the support of leading figures like Krugman and DeLong, the anti-neoclassical revolution, right as it may be, will remained confined in the public's mind to the realm of fringe movements and cranks. (Also, frankly, exiling Krugman and DeLong would deprive the post-Keynesian movement of much-needed intellectual firepower; whatever their past mistakes, these guys are very very intelligent).

Here's the bottom line: You can bask in the hipster underground street cred of being a "heterodox" outsider, or you can actually change the world. I am on board with the anti-neoclassical revolution (as you can verify here, here, here, here, herehere, here, here, etc.), but I am not going to take Steve Keen seriously if he is mainly interested in purging the ranks of his own comrades. First you win the revolution, then you jockey for position. Get it straight.

Update: Steve Keen drops by in the comments section. Excerpts:
Firstly Noah, I'm interested in achieving a dialogue. My rudeness was a deliberate tactic since Neoclassical economists have ignored seventy years of attempts to critically engage with them by Post Keynesians.
Well, it is true that being rude (and then being nicer later) is an efficacious and perfectly legitimate way of getting noticed. Still, I feel like the effect of saying things like "self-serving drivel" is just going to have the effect of starting a permanent feud...
Now if you, Krugman, deLong, etc are actually willing to listen to what Post Keynesians like me are arguing (Mark Thoma already appears to be open to dialogue), then let's organise a joint seminar where we can set out both our differences and our similarities.
This idea I like a lot. I felt that INET had some flavor of this. YES. There should be this sort of interchange!
And thanks for the laugh about me leading a purge. I suggest you look around you: how many Post Keynesians are in your economics department? How many Post Keynesian subjects are there in its curriculum. The purge happened long ago when non-Neoclassical topics were driven out of the teaching canon--ask Phillip Mirowski at Notre Dame what a real purge feels like.
Well sure. But a purge of the revolutionary movement is still a purge. Calling Krugman and DeLong "neoclassical" is like when Ludwig von Mises called Milton Friedman a Communist. It just dilutes the power of the term. Krugman has been bashing DSGE in the New York Times for years now. He's called the Rational Expectations revolution a failure. DeLong has less of a bully pulpit but says much the same. If they are "neoclassicals" I'm a Scientologist!

137 comments:

  1. DeLong and Krugman see the light, but they're still in the tunnel. They have still to end up with their neoclassical legacy.

    Hoping 2 see post-Keynesians and left-ring new Keynesians unit.

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  2. Brad DeLong:

    We economists who are steeped in economic and financial history – and aware of the history of economic thought concerning financial crises and their effects – have reason to be proud of our analyses over the past five years. We understood where we were heading, because we knew where we had been.

    In particular, we understood that the rapid run-up of house prices, coupled with the extension of leverage, posed macroeconomic dangers. We recognized that large bubble-driven losses in assets held by leveraged financial institutions would cause a panicked flight to safety, and that preventing a deep depression required active official intervention as a lender of last resort….

    So the big lesson is simple: trust those who work in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger. That means trusting economists like Paul Krugman, Paul Romer, Gary Gorton, Carmen Reinhart, Ken Rogoff, Raghuram Rajan, Larry Summers, Barry Eichengreen, Olivier Blanchard, and their peers. Just as they got the recent past right, so they are the ones most likely to get the distribution of possible futures right.


    Who started the position-jockeying?

    Brad DeLong — in filling his list of economists we should listen to with neoclassicists and neoliberals (some more than others, cough Larry Summers cough cough cough) who were the very people whose work the crash of 2008 damaged.

    Meanwhile the people working in the tradition of Hyman Minsky — the people Keen listed — are ignored. Keen's model — which predicted the crisis — is ignored. No — we should ignore Godley, Wray and Keen who predicted the crisis and trust Larry Summers who contributed to the crisis!

    Do you see why Keen was annoyed?

    Brad DeLong showed a good deal of intellectual honesty with his "stand here repentant speech", and a good deal less intellectual honesty with his Project Syndicate piece that Keen responded to.

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    1. I enjoy and admire much of Brad's work (both academically and within the blogosphere), but can anyone tell me how I am supposed to square these two passages?

      I take my task to be a serious person and to set out all the things I believed in three or four years ago that now appear to be wrong.

      vs

      We economists who are steeped in economic and financial history[...] have reason to be proud of our analyses over the past five years. We understood where we were heading, because we knew where we had been.

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    2. blah blah blah blah blah

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    3. why bother writing a post like this if you're not willing to actually respond to a level headed and completely on-point responder like Aziz?

      "but but but but they are my FRIENDS"

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    4. why bother writing a post like this if you're not willing to actually respond to a level headed and completely on-point responder like Aziz?

      Because I just spent literally all morning arguing with Aziz about the gold standard?

      FINE. OK. FINE.

      Who started the position-jockeying?

      Keen, because DeLong's comments were aimed at the conservative establishment, and were not an attempt to marginalize or supersede people like Keen.

      Brad DeLong — in filling his list of economists we should listen to with neoclassicists and neoliberals (some more than others, cough Larry Summers cough cough cough) who were the very people whose work the crash of 2008 damaged.

      But you should see this in terms of the academic conflicts of the 90s. The people DeLong named were arguing against a set of people (the Chicago and Minnesota people) who said crises were impossible, and when presented with the writings of people like Keen, simply responded "Those dumbasses don't know any math and are just waving their hands." DeLong, and the people he named, used math to rebut the claims of the true neoclassicals back in the 90s. No, they did not change the econ profession enough to anticipate the crisis; hence Brad's "mea culpa" post. But they deserve credit for what they did, not denunciations. Put this in perspective.

      Meanwhile the people working in the tradition of Hyman Minsky — the people Keen listed — are ignored. Keen's model — which predicted the crisis — is ignored. No — we should ignore Godley, Wray and Keen who predicted the crisis and trust Larry Summers who contributed to the crisis!

      I can see why Keen is annoyed. But the proper response is to say "Hey, we were here too, and we got ignored because we were excluded from academic circles!" Not the venom that Keen spewed.

      "but but but but they are my FRIENDS"

      Are you kidding, Ro? Of all the people on DeLong's list, the only one I've even met or spoken with is DeLong himself. Whereas Steve Keen is involved with INET, which I also am (to a lesser degree since I'm not famous enough yet).

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    5. Fair responses, but I think DeLong is making a mistake not holding up Steve Keen, and the Post-Keynesians as the jewel in the crown of any argument against the Chicago people. I agree with DeLong when it comes to denouncing those equilibria people who actually believed all the rational expectations bullshit. I wish DeLong and Krugman ("left-neoclassicists") would push even further away from them, because as Krugman himself notes, there are still some similarities in methodology: http://krugman.blogs.nytimes.com/2012/08/28/neo-fights-slightly-wonkish-and-vague/

      Finally, I do not endorse and have never endorsed the reimposition of a gold standard. Just so we're clear, yo. :)

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    6. Fair responses, but I think DeLong is making a mistake not holding up Steve Keen, and the Post-Keynesians as the jewel in the crown of any argument against the Chicago people.

      Maybe so, but I think everyone is making a mistake in not holding up me, Robert Waldmann, and Cosma Shalizi as the jewel in the crown of all arguments against the Chicago people! I mean, the main strength of the Chicago guys is that they can point to anyone who doesn't accept our methodology and say "Look, we're doing real science because we have math, you're just waving your hands and doing easy reduced-form regressions and spouting vague verbiage and name-dropping Keynes and Minsky, DURR HURR HURR!" And the response of DeLong, Summers, etc. etc. was to play the Chicago game and show how even within that framework, nothing the Chicago guys was saying actually worked. But the response of me, Waldmann, and Shalizi has been to say "No, Chicago guys, what you are doing may look science-y, but it is not science at all, and your supposedly fancy math is really just simple stuff done in an inelegant and kludgey way! Your models don't work, so you have no room to criticize anyone!"

      OK rant over.

      I wish DeLong and Krugman ("left-neoclassicists") would push even further away from them, because as Krugman himself notes, there are still some similarities in methodology

      OK, fine. Maybe so! BUT, is this difference worth the kind of vicious purge that Keen attempted?

      Finally, I do not endorse and have never endorsed the reimposition of a gold standard. Just so we're clear, yo. :)

      Heh.

      Gold-related post is coming, Aziz! FLEE! HIDE! REPENT!

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    7. ...by "our methodology", btw, I meant the Chicago guys'. Not mine.

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    8. Thoroughly appreciate the engagement, which i find far more substantive than original response. (by the way, the friends line was an attempt at comedic interpretation of your "blah blah blah" comment, which looked non-responsive. Apologies and withdrawn.)

      It appears you're suggesting DeLong is justified in quoting people who "work in the tradition of Minsky" because they did good work in the 90s? By all means, give those people credit for fighting the good fight (which is admittedly more messy the further you get from the pure academy) - completely reasonably. But that's not what was done in that article. It specifically said they work in a Minsky tradition - How does that view fit with the fact that (as Keen notes) Krugman himself only started reading Minsky's "magnum opus" in 2009?

      As for the appropriate response being to point out academic exclusion - after a decade or two of being ignored by everyone, and THEN being excluded from that list (and later, DeLongs extended list), how reasonable is it to expect Keen to politely tap DeLong on the shoulder and say "um, Brad, you may have, ah, missed Minsky's top dissertation student and one of the only people in the world to have developed a Minsky-based Macro-model from your list. Cheers, mate."

      p.s. Keen does use math! quite a lot actually. Maybe you could put him on the reading list alongside the MMTers? :p

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    9. Long-time reader of Cosma here: could you point us to his recent smitings of Chicago people?

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    10. Britonomist7:42 PM

      I don't understand why you would get angry or vitriolic over rational expectations or equilibrium, that debate is PURELY ACADEMIC, it doesn't have policy implications. By that I mean: you don't need to get rid of either to argue for the problems of unsustainable leveraged asset bubbles and the dangers of crony-capitalist inadequately supervised finance. RE is just a convenient modelling device, it's a contentious issue with arguments for both sides but again this problem is purely academic.

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    11. Ro: Looks like you and Evan and ivansml down below need to have a little chat...

      Mike: How about...
      http://cscs.umich.edu/~crshalizi/weblog/627.html
      http://cscs.umich.edu/~crshalizi/weblog/518.html
      http://cscs.umich.edu/~crshalizi/weblog/711.html
      http://cscs.umich.edu/~crshalizi/weblog/000007.html

      BTW I should have included Quiggin in the list with me, Waldmann, and Shalizi. Maybe at the top of the list. Horrific oversight by me.

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    12. Britonomist: I agree we should never get angry or vitriolic. But RE is not just a convenient modeling device.

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    13. aaaaa8:24 PM

      You can debate over its convenience, but it is a modelling device...

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  3. DeLong is rather unique in that respect and quite refreshing. Here is a suggestion both might see as useful. Have the Fed buy a dozen or two $1T platinum coins from Treasury. We would eliminate a lot of debt that Keen worries about, eliminate the debt limit confrontations, and have some truly stimulative policy.

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  4. Anonymous4:20 PM

    "[P]eople like Wynne Godley, Ann Pettifors, Randall Wray, Nouriel Roubini, Dean Baker, Peter Schiff and I had spent years warning that a huge crisis was coming, and had a variety of debt-based explanations as to why it was inevitable... "

    One of these names is not like the others. If you are looking for a movement away from neoclassical models why would you have Peter Schiff in a list of people who have different and refreshing models?

    I think Keen's issues is that Krugman and Delong get a lot more press then he could ever hope to achieve, even though they may have been a little more late to the game. But change will often solidify from those elite's who change their opinions while in postions of influence and power.

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  5. Brad actually responded to Keen, quite hilariously:

    http://delong.typepad.com/sdj/2012/07/steven-keen-is-one-very-unhappy-camper.html

    In general I find Keen to be astonishingly rude who is determined to burn all the bridges he can.

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    1. Brad Delong is astonishingly rude. Keen is mentally unbalanced.

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    2. I was very disappointed when Keen blew his chance to explain his views to Krugman. Too busy playing Jeremiah and insulting the 'orthodox' to actually respect the fact that there might be real issues with how Keen's model might integrate with more conventional methods.

      It shouldn't have been a dialog carried out in public blog posts. A chalkboard conversation in Krugman's office would have been far preferable. Even so, I suspect Keen would need a sympathetic 'orthodox' economist present as a translator.

      As far as I can make out, the key sticking point was that 'money/credit' is somehow more 'special' in Keen's framework than DSGE or other conventional modeling tools can handle. And Keen has been completely unable to articulate the difference in a way that sticks to the math-modeling *point* rather than spining into a rant about the metaphysics of banking and money creation.

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  6. Dude, it is "poseur" with a "u"!

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    1. Anonymous8:56 PM

      A perfect example of this Mitchell and Webb sketch. http://www.youtube.com/watch?v=1WBBO5h14xc

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  7. Britonomist4:46 PM

    Forgot to say, I also find Brad to be rude sometimes too.

    Also, 'hipster' is quite a surprisingly accurate word. A hipster is defined as a contranian obsessively opposed to anything mainstream, while desperate to solidify certain ideas as theirs first with others who now share the same idea simply being posers who should be ignored. That describes a lot (though thankfully not all) of heterodox economists.

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  8. Britonomist5:08 PM

    (Update: And you know what else? Before the crisis, the real state of things was probably not as clear to an impartial, rational observer. It could well be that an honest, open-minded, smart person would have seen the potential for a crisis before '08, but not been certain that a crisis was overwhelmingly likely...)

    This is a good point, the problem is that the financial system is (or was at the time) extremely opaque, nothing about it was obvious. People WERE concerned about the large increase in house prices, however the prevailing view was that the bursting of the bubble would have minor effects (probably because unaware of how terribly exposed bank balance sheets were), or that there was no bubble (because some cointegration tests seemed to show that prices were explained by fundamentals, but actually this was because they weren't using a good measure of house prices, remember Case-Shiller wasn't always the main house price index). The only people who REALLY predicted it were financial insiders, the vast majority of economists do not or did not scrutinize bank balance sheets for a living.

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  9. Great photo by the way.

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    1. Check the name of the photo. Points if you get the reference. ;)

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    2. I could not pick up a name for the photo. I assumed that it is a reference to General Nguyễn Ngọc Loan summarily executing Nguyễn Văn Lém during the Tet offensive. The guys in the photo went to some trouble staging it including the guy off to the viewer's left.

      It was one of the most influential photos of the Vietnam War era. The most influential photo (IMHO) was Mary Vecchio crying over the body of Jeffrey Miller at Kent State. It was one thing for a Vietnamese General to execute a Viet Cong in the street. It was another thing entirely for the National Guard to murder unarmed students on a college campus in broad daylight in the United State.

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    3. Try opening the photo in a new tab and saving the image...

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    4. zrichellez12:12 PM

      Everyone loves an Easter Egg...from The Hobbit . Thorin speaking to Bilbo asking for forgiveness.

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    5. Try opening the photo in a new tab and saving the image...

      Thanks. I tried that and it came up "the kindly west". Since the original was a Vietnamese police general shooting a Vietnamese insurgent I don't get the significance of that name.

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    6. Zrichellez wins!

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    7. Where did the image come from?

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  10. Steve Keen is a kook. For some evidence, read his 2006 paper in Physica A ("Profit maximization, industry structure, and competition"). There is so much wrong with that paper, it is hard to know where to start. Paul Anglin published a response in Physica A in 2008 (more fun can be had if you try to work through the sloppy thinking on your own first).

    As I'm a micro, rather than macro, economist I can't really comment on the validity of his macro work. But, given the quality of his micro work, my expectations are extremely low.

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    1. ivansml6:36 PM

      This. I actually tried to follow his arguments, and indeed, it was fun, if your idea of fun is reading ludicrous claims about "refuting" theory of the firm by someone who clearly doesn't understand concept of Nash equilibrium. His book "Debunking economics" is of similar quality.

      As for his macro work, I looked at his 1995 paper ("Finance and economic breakdown"), for which he is sometimes credited as having predicted the crises. It's a highly stylized modification of Goodwin model that consists basically of a bunch of vaguely motivated differential equations, with bunch of even less motivated nonlinear functional forms. Anyway, the main point, as far as I could understand, is that for some parameters and initial conditions, trajectories may diverge to zero employment, zero output and infinite debt, which is supposed to be "the breakdown". Fair enough, but claiming that this is a prediction of crisis is a big stretch.

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    2. What exactly do you two object to? The fact that the conditions required to go from an individual to aggregate demand curve are incredibly restrictive? Sraffa's critique of diminishing marginal returns and the subsequent empirical evidence that shows he is right? Being against Friedman's ascientific perspective?

      So much of what Keen claims is actually known by economists but swept under the rug.

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    3. ivansml9:58 AM

      I object to sloppy and false critiques, which are taken as truth by many (not necessarily yourself) only because they support their ideological prejudices against (scare quotes) "neoliberal" economics.

      I already commented on Keen's Physica A paper on your blog. Keen's critique of aggregate demand confuses Gorman conditions for existence of representative consumer and weaker conditions (like gross substitutability) for aggregate demand to satisfy weak axiom of revealed preference (a difference he might know if he actually read MWG textbook instead of mining it for selective quotes). And while we're at it, he ignores the distinction economists make between "market demand" in partial equilibrium (where wealth effects are deliberately ignored by assumption) with "aggregate demand" in general equilibrium, pretending that his criticisms apply to both. And that's just one of the first chapters. Sorry, I have better things to do than do this for every chapter.

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    4. The MWG textbook quote is wrong, I agree.

      But gross substitutability is not that weak a condition. And I was under the impression that wealth effects cannot be ignored if you have more than one consumer?

      All in all, Keen has made some mistakes (unnecessarily, I might add, as I believe the thrust of his critique survives anyway). But you seem to be saying that economists have successfully assumed all the problems away - well, of course they have!

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    5. ivansml11:47 AM

      Ignoring wealth effects will be reasonable in some problems, e.g. when studying one small market, and unreasonable in others (in your preferred terminology, it's a domain assumption). That's not the same thing as "assuming away".

      Or, as someone has already mentioned here, does the fact that Keen's models use aggregate capital mean that he's "assuming away" all the problems with aggregation and his work should be summarily dismissed?

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    6. You made some fair points there, I asked Keen and he says he doesn't use the marginal product and disaggregates in multisectoral models.

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    7. Bros, dnt u realise that Keen is an "effing genius mathematician", commpueter programmer, physicist, engineer, hitsorian and world famous economist who discovered "difrential equations" and introduced them into economics so that we can finally "see into the future"?

      U r probably only economists nd not bloggers with backgrounds in physics & engineering, so its not your fault rlly.

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  11. Noah, if you are interested in toning down the venom and bitchiness of these kinds of academic status wars, then I don't see how it really helps to contribute such an angry, emotional post about an exchange that occurred back in June.

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    1. Did you just hit me with "I know you are but what am I"???

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  12. Anonymous6:50 PM

    No need for a purge of any type of economist. They just need to understand complexity theory rather than trying to shoehorn reality into equilibrium analysis. Until they do, this pointless intramural sniping is just a distraction.

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  13. "I find Keen's rant completely unacceptable. And not just because it's uncivil, rude, and largely free of substantive content."

    As opposed to the typical responses from Krugman and Delong towards people they disagree with?

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    1. DeLong is often mean ("stupidest man alive" etc.). But he makes it about the issues. And it's more of a teasing sort of mean than what Keen is doing. But my real point is, mean or not, Keen shouldn't be starting bitter fights with his natural allies, even if some disagreements exist.

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    2. Anonymous4:03 AM

      Macro models of virtually every orthodox theoretical stripe failed to predict the coming, severity, and course of the Great Recession.

      Is it not time to ask if the basic economic propositions we learned from in our economic textbooks are true, and if so, to ask again what it really means to assert that they are true?

      Is the paradox of thrift true?

      Does building two roads from London to York, when one will do, create jobs or destroy them by halving the productive yield (transportation cost savings) from infrastructure spending and by stranding half the amount spent, which could have been spent on something else, in a permanently unproductive use?

      When your model tells you to spend money preparing for an alien invasion isn't time to question your model?

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  14. Krugman thought so little of Minsky that he wrote a whole book inspired by him.

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    1. Krugman thought so much of Minsky he wrote this: "my basic reaction to discussions about What Minsky Really Meant — and, similarly, to discussions about What Keynes Really Meant — is, I Don’t Care". See here: http://krugman.blogs.nytimes.com/2012/03/27/minksy-and-methodology-wonkish/

      Now, he may not necessarily be wrong, but, in all fairness, how can one who wrote this be described as someone working in the tradition of Hyman Minsky? Or, put another way, doesn't Steve Keen (for all his, regrettably, strong language) have a better claim to that title?

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  15. Is there a valid definition of "neoclassical economics" that one would like to offer other than "the economics taught at most schools"? I prefer to know who I am stoning and why.

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    1. Anonymous10:14 AM

      Here's a definition of neoclassical economics.

      http://www.paecon.net/PAEReview/issue38/ArnspergerVaroufakis38.htm

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    2. Thanks Anonymous,

      I have seen this before. I have no problem with anyone who offers a better alternative to the three axioms. But this is not what many post-Keynesians do. Unlike institutionalists, post-Keynsians continue to use individuals (banks, borrowers, etc.) as a starting point of their analysis. The only difference is that they impose different ad hoc assumptions on individual behavior. I fail to see a difference.

      They also attack equilibrium, but I am not sure what this means. Are general equilibrium models that involve a matching function, in which case the labor market is never in equilibrium in the traditional sense, bad because some other market is in equilibrium? Should we never model any market as being in equilibrium? By the say, some post-Keynesian models have notions of equilibrum without admitting it. They talk about steady-state flows, but after examining the relationships in detail it is clear that the steady-state is achieved through a price adjustment.

      So it seems to me that, in the everyday use of the word, the definition is
      neoclassical economics = bad

      Delete
    3. Anonymous8:12 PM

      Working with banks, workers, firms isn't starting from individuals, those are aggregates. For example, an individual working for a firm investing in a firm would earn both wages and profits and would therefore be included in both workers and firms. What you're modelling is the behaviour of aggregates.

      I do believe starting to model from equilibrium is badly misleading, since a complex dynamic system (which is definitely what a real world economy is) will never be in equilibrium. I happen to think that if want to model a dynamic system, you have to build a dynamic model... The fact that economics didn't catch up with dynamics while mathematicians and engineers developped those techniques a while ago is a consequence of the 3rd axiom.

      Delete
    4. ivansml6:50 AM

      re:Anonymous
      Public service announcement - definition of (competitive) equilibrium in economics is _different_ from the one used in physical sciences. While for physicists equilibrium means static state (like pendulum in a state of rest), for economists it merely means that people choose their most preferred action (given prices), and their actions are mutually compatible (markets clear). In a dynamical model, equilibrium will be typically described by a system of differential or difference equations (derived from underlying assumptions about preferences, technologies, etc.), and that system can in principle even exhibit cycles or chaos, yet it would still be an equilibrium model. And believe me, economists are just as capable of using differential equations as anyone else.

      Delete
    5. Anonymous7:40 AM

      It's a bit like saying I'm as good any professionnal hockey player because I played hockey when I was young and I watch it on TV. A lot of economists seem to think they know dynamics... until they try to build a dynamic model.

      Equilibrium is not a steady state in any science unless you reach absolute zero. It usually mean you've reached the maximum level of entropia. Assuming cleared market or homothetic preferences is basically a way to assume the system reached is maximum level of entropia, and this equilibrium will then be disturbed by an exogenous imput. In a dynamic model, it means all rates of change are zero.

      Delete
    6. ivansml8:18 AM

      Once again, more slowly: economists have their own definition of what they mean by equilibrium, and it definitely doesn't imply that "all rates of change are zero". Neither it implies that exogenous shocks "disturb" equilibrium - in a DSGE model, the whole joint stochastic process of all variables, both exogenous and endogenous, _is_ an equilibrium. You throwing around words from physics doesn't change a single thing. If you want to criticize economics and actually be taken seriously, you should understand how economists define their terms.

      Delete
    7. Anonymous10:51 AM

      Look, you clearly doesn't have any clue about what equilibrium means in physics, you think it's a static state. How can you claim it's different from the definition of economics? It's the very same concept, on which dynamics provide a deeper insight. The laws of thermodynamics is a mathematical concept who simply apply everywhere. Using static methods is the equivalent of having all rates of change at zero, even if you don't see it.

      If you want to model a crisis in a DSGE model, you have to use exogenous shocks which will divert the model away from his current equilibrium to reach another equilibrium. That's the only way you can do it because once you've reached the maximum level of entropia, it can't go down since it always increase. Therefore, the equilibrium can only be disturbed by an exogenous factor.

      Taking the time to understand those concept with a positive attitude would be much more productive. We live in a dynamic system and people who know dynamics pointing out problems in static economic models doesn't do it because they are ignorant.

      Delete
    8. ivansml11:22 AM

      Yes, statistical physics equilibrium is different from Newtonian mechanics equilibrium. I'm not physicist, so frankly I don't care. Neither of those is the same as competitive equilibrium in economics, which is what we are discussing, this being economic blog and all. Last time I checked, physicists had no monopoly on word "equilibrium".

      In DSGE model, agents know that there are exogenous shocks, take this into account and condition their decisions on current and expected future values of shocks. All the time, their choices maximize their expected utility. All the time, markets clear. All the fluctuations are outcomes of equilibrium, not deviations from it.

      Even if we forget stochastic shocks, deterministic equilibrium trajectories may be chaotic (a fact which those ignorant dynamics-challenged economists discovered almost three decades ago). So no, in such models rates of change will not be zero, and thus by your own definition they're not static.

      Delete
    9. "Working with banks, workers, firms isn't starting from individuals."

      Well, many neoclassical models also don't go deeper than the firm. As for equilibrium, haven't you heard of an "equilibrium level of unemployment"?

      Delete
  16. 1.Keen's style aside, he makes a point that I've heard a few other heterodox economics (MMTers and Post Keynesians) say down here in Australia: they read, and are familiar with, the neoclassical canon but neoclassicists have no interest in heterodox work.

    2. 138 Years of Economic History Show that It's Excessive PRIVATE Debt Which Causes Depressions:http://www.zerohedge.com/contributed/2012-09-09/138-years-economic-history-show-its-excessive-private-debt-which-causes-depre

    ReplyDelete
    Replies
    1. Alex, your first point is misleading. While they do read mainstream economics, they misunderstand it and misrepresent it in their own work. See the comments from me and ivansml above.

      Delete
  17. I got a slight whiff of the "People's Front of Judea" (as lampooned by Monty Python in The Life of Brian) from Keen on Saturday at a seminar of his that I went to. I asked a fairly obvious question about the extent to which the Social Credit movement was a useful case study for pushing Keen's suggested solutions, given they had basically the same kind of policy at many points. He really didn't seem to want to have anything to do with that, other than to say that he had refuted the theories of Major Douglas and there is a real danger of zealots in a political movement that is based on unsound principles.

    This is perfectly true, but I do have to wonder what it is that Keen hopes to achieve in reaching directly out to an audience ignorant of economics, other than to mobilize people to do something. A lay audience (of which I am one) has the obvious conundrum - why should I treat Keen any differently to Social Credit cranks, considering they propose mostly the same solutions? Even if someone were convinced, aren't they just going to end up tarred as cranks themselves? Someone like me can only understand Keen's views at the most general level. Dynamic modeling is not even taught at universities until post-graduate years, so critically appraising such models is really the work of specialists.

    Also, I only really mentioned Social Credit because Keen is very keen on economic history as an important reality check on economic theory. There's nearly a century of history of a movement that is attempting to push Keen-esque policy to look at in Social Credit. I can't think of any case study more relevant than that, and wanted to know if Keen had considered the angles, what to avoid, etc. The only angle he told me about is that Douglas was wrong, and therefore his movement was full of cranks.

    I'm not really going to judge this. Keen doesn't want to back any theory other than his own, fair enough. And he is an academic, a group famously obsessed with getting the theory right and having no real clue about organizing/mobilizing people (Noam Chomsky openly admits this about himself). There's good sense to the idea that truth itself is the most important thing, and doing things for the wrong reasons, even the right things, will not end up well. Even if the only thing Keen achieves from a lifetime of lecture tours is that it becomes widely understood and accepted that unregulated debt can dominate an economy, and should therefore be controlled, he will have done something good.

    That said, some kinds of reform might never happen if there isn't a real movement behind them. So I'm not at all convinced of the wisdom of turf wars over the exact point of truth, amongst a bunch of people who are effectively in the same ball park on most of their policy ideas.

    Disclaimer: I am not a member of SC, nor have I ever been, and since they are all but non-existent now, I doubt it is likely I will ever be. I am simply interested in looking at how their movement went, since it was born in similar economic times to these (if we believe Keen). We could, for instance, see demographic clues as to the kind of people likely to actually vote for this kind of policy. We can look at the big failure of the elected group in Alberta to actually bring about any of their policy.

    ReplyDelete
  18. Anonymous5:16 AM

    midterms economics 101

    keen b
    delong d
    krugman f
    rogoff and reinhart c
    rajan c
    summers f
    romer d
    eichengreen c
    blanchard c
    gorton d

    ReplyDelete
  19. Now that I'm back in Australia, I'll try posting a comment again.

    Firstly Noah, I'm interested in achieving a dialogue. My rudeness was a deliberate tactic since Neoclassical economists have ignored seventy years of attempts to critically engage with them by Post Keynesians.

    The last Neoclassical to really engage in debate was Robert Solow during the Cambridge Controversies, and to his credit, he's trying to engage again now--he has joined the editorial board of the newly established Journal of Keynesian Economics, which is edited by Louis-Philippe Rochon?

    Why is Solow re-engaging? I guess it could be because he's given up on trying to get Neoclassicals--by which I mean everyone from Cochrane to Krugman--to consider his criticisms of DSGE modeling. If you don't know that he has been criticising, then search for "Dumb and Dumber in Macroeconomics" to get started.

    Now if you, Krugman, deLong, etc are actually willing to listen to what Post Keynesians like me are arguing (Mark Thoma already appears to be open to dialogue), then let's organise a joint seminar where we can set out both our differences and our similarities.

    And thanks for the laugh about me leading a purge. I suggest you look around you: how many Post Keynesians are in your economics department? How many Post Keynesian subjects are there in its curriculum. The purge happened long ago when non-Neoclassical topics were driven out of the teaching canon--ask Phillip Mirowski at Notre Dame what a real purge feels like.

    Andrew Lainton does a nice job of profiling where we agree with New Keynesians by the way:

    http://t.co/BijKXaYb

    But there are many, many substantial differences in analysis which you should acquaint yourself with.

    Cheers, Steve Keen

    ReplyDelete
    Replies
    1. "then let's organise a joint seminar where we can set out both our differences and our similarities."

      With all due respect, after you've insulted them, ridiculed them endlessly, described the courses they teach as 'degenerative', and so on.. you really expect them to welcome you with open arms with fruitful dialogue? You don't expect them to reciprocate by dismissing you as a hyperbolic crank in their minds? I think you're in need of a reality check.

      Delete
    2. I think the people who are in need of a reality check are, by definition, the neoclassicists whose models failed to predict 2008.

      Delete
    3. So your definition is that anyone who failed to predict 2008 is a neoclassicist? Plenty of heterodox economists will be unhappy to find out that they are neoclassicists.

      Delete
    4. Nice logic there.

      Of course lots of heterodox economists failed to predict 2008. Point is, Steve Keen, succeeded. People who want to make good predictions in the future from all backgrounds should be looking at what he did right. If left-neoclassicists (or anyone else — Austrians, Marxists, Chicagoans, etc) want to ignore him because of his tone or rhetoric then it is their loss.

      Delete
    5. No, what you, and Keen, are saying is that anyone who did not predict the crisis should have their theory disregarded. This includes much more than neoclassicist. And, by the way, a lot of Austrians predicted the crisis, in fact Ron Paul could see it coming all the way from the 1980s. So, I guess we are all Austrians now.

      Delete
    6. This is how empiricism/positivism works. If a theory makes successful predictions then we keep it and investigate it further. If it does not make successful predictions we discard it and look for a new theory.

      And there are Austrians and Austrians. A lot of Austrians threw away their credibility in seeing the crisis by then claiming rates were going to spike and massive inflation was imminent due to money printing post-QE. Only a very select few Austrians avoided this trap, most of whom were followers of Menger not Mises (e.g. Antal Fekete, Sandeep Jaitly).

      Delete
    7. No, positivism works by comparing predictions to a set of data, not to a signle datum. It also requires that the theory is explicit about which the dependent variable is, which the explanatory variables are, and the quantitative relationship between them; it is not meant to assess Nostradamian-like prophecies.

      Delete
    8. My rudeness was a deliberate tactic since Neoclassical economists have ignored seventy years of attempts to critically engage with them by Post Keynesians.

      Then you are full on crazy.


      Delete
    9. CA — the fact that you're comparing Keen's prediction to Nostradamus suggests that you haven't read much Steve Keen. Keen has a full theoretical framework:

      http://www.debtdeflation.com/blogs/wp-content/uploads/papers/JEBO_2672.pdf

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    10. Aziz,

      the paper you cited is a non-answer. First, all the paper says is that oscilations are possible. There is no quantitative prediction that one could use to forecast when the next crises is going to happen. Is there any parameter-value in his model corresponding to a real-life metric that Keen used to predict that a crisis is eminent? Moreover, a year-old paper by Zipperer and Scott in the Journal of Post-Keynesian Economics (2011, volume 34) finds that the data are not favorable to the Goodwin model that Keen likes (particularly the constancy of the utilization rate).

      Finally, if what defines neoclassical economics are the three axioms in Arnsperger and Varoyfakis then I fail to see how Keen's work is not neoclassical. It certainly follows methodological individualism (Axiom 1), and while no equilibrium is imposed, prices respond to demand conditions (Axiom 3). It does violate Axiom 2 as there is no optimization, but then again so do new-Keynesian models (labed by post-Keynesians as neoclassical) when they impose adaptive expectations.

      Delete
    11. By the way, should I point out that a main issue of post-Keynesians with neoclassical economists, the one debated in the Cambridge controversy, has disapeared? Post-Keynesians now use models that include the construct of aggregate capital.

      Delete
    12. Krugman:

      So, what is neoclassical economics? There’s a historical definition, having to do with the “marginal revolution” of the late 19th century and all that, but what I think we mean in practice is economics based on maximization-with-equilibrium. We imagine an economy consisting of rational, self-interested players, and suppose that economic outcomes reflect a situation in which each player is doing the best he, she, or it can given the actions of all the other players. If nobody has market power, this comes down to the textbook picture of perfectly competitive markets with all the marginal whatevers equal.

      Some economists really really believe that life is like this — and they have a significant impact on our discourse. But the rest of us are well aware that this is nothing but a metaphor; nonetheless, most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point or baseline, which is then modified — but not too much — in the direction of realism.

      This is, not to put too fine a point on it, very much true of Keynesian economics as practiced (leave aside discussions of What Keynes Really Meant and whether we’re all apostates). New Keynesian models are intertemporal maximization modified with sticky prices and a few other deviations (such as balance-sheet constraints). Even IS-LM loosely appeals to maximization arguments to derive the slopes of the curves, while analyzing outcomes by comparing equilibria.


      Maximisation with equilibrium. That's a very good rough definition, and in my very small experience of Keen's models (and I am not a professional economist but a kid with a very strong interest in economics) Keen's models are non-maximising and non-equilibrium-based.

      But I can't speak for Keen, so I think you should put your point to him himself.

      Delete
    13. Well, if this is the definition then why are new-Keynesian models neoclassical, when they impose adaptive expectations (which are not optimal) or various forms of a-priori stickiness? What about models with matching frictions where the labor market is never in equilibrium (in the traditional sense)? Isn't the mark-up in post-Keynesian models the result of profit-seeking behavior by the firms? And to say that money is endogenous isn't equivalent to a loanable funds frameowork with a step-wise perfectly elastic supply curve, so that credit is driven by demand up to a certain level? Any model that starts with how self-interested individuals behave in a capitalist economy will have some explicit or implicit notion of optimization somewhere, and will have to take into account demand and supply conditions.

      Delete
    14. I see "neoclassical" as a two-dimensional manifold, converging to a singularity at the Prescott RBC model. The basis vectors are 1) methodology (similarity to DSGE) and 2) assumptions (similarity to frictionless rational representative-agent Robinson Crusoe economy).

      Delete
    15. Anonymous5:49 AM

      Aren't you talking about "new classicals" ?

      Delete
    16. Yes he is!

      Delete
    17. See this is "buzzword inflation" in action...

      Delete
    18. Anonymous1:56 PM

      Those words simply means different things, as a kitchenware and a fork doesn't have the same meaning.

      Delete
    19. Those words simply means different things, as a kitchenware and a fork doesn't have the same meaning.

      FAIL

      Delete
    20. Forks are a subset.

      Delete
    21. Anonymous4:02 PM

      fail??? Let me explain than, new classical and new keynesian are subsets of neoclassical economics.

      And Krugman seem to understand this since he consider himself as a proud neoclassical.

      http://larspsyll.wordpress.com/2012/09/11/paul-krugman-is-a-neoclassical-economist-and-noah-smith-a-scientologist/

      Delete
    22. It's like 10 thousand spoons, when all you need is a knife...

      Delete
    23. Anonymous5:20 PM

      Noah, I'm not trying to be insulting, I'm just pointing out that new keynesians and new classicals are part of neoclassical economics and I don't think this is controversial. Maybe you should just take some time to calm down, you seem to be upset when you shoudn't.

      Delete
  20. Anonymous7:36 AM

    genauer says:
    I think for predicting the global house price bubble to burst we have "The Economist" on file in Summer 2005.

    And for predicting the crash of the US consumer binge, we have Warren Brussee 2005 "The Second Great Depression, 2007 - 2020", based on US and japanese Data until 2003, before the US house price bubble really developed.

    This is a very clear and specific statement.

    (Mentally) Institutionalized US Economists did just some vague general rants, if at all.

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  21. On update II heh indeed. I know Brad DeLong, I've worked with Brad DeLong. Brad DeLong is a friend of mine and professor Brad DeLong is no neoclassical economist. He has a flair for the dramatic, so he is inclined to stress the fact that, while he predicted a crisis, he predicted the wrong crisis (interest rates way up from unsustainable deficits not house prices way down from bubble).

    ReplyDelete
    Replies
    1. But he is a Recovering NeoKeynesian, Robert.

      (Old economist joke: How do you take a position diametrically opposed to an Economic School? Add "Neo" to the front of the name of that School.)

      Delete
  22. DeLong clearly lied and rewrote history and obfuscate in the post Keen criticized (not mentioning *any* real Minskyite while claiming some people who didn't read Minsky until 2009 were Minsky followers? Puhleeze). Keen colled him out. This is what Brad DeLong and Krugman do each time some sweetwater neoclassical tries to rewrite history. Maybe Keen was rude but facts are facts. Since when stating the facts is a thread to orthodox economics? Wait...

    ReplyDelete
  23. Noah, if you want to be a proponent of a fair play, before attacking Keen and defending DeLong, you should first aknowledge and praise the work of Keen. That would be real fair play. And you know what - once you and others do exactly that - recognize what Keen has done - Steve would stop fierce attacks (by the way, Krugman was not too gentle with Keen in their brief exchange).

    ReplyDelete
    Replies
    1. Anonymous2:41 PM

      The problem with Keen is that he is too much in love with himself. You can see this in the way he writes about things he wrote. Of course, so is Krugman, except he has done enough to almost deserve it.

      Delete
  24. Anonymous2:38 PM

    I didn't happen to see Krugman being particularly heavy-handed on Keen from his post... I'm sure we've all seen Krugman be more forthright. His post seemed rather innocuous and one that invited discourse. Just a perspective.

    ReplyDelete
    Replies
    1. His first post was fine but he got worse as the debate progressed. Here is my summary of it if you need all the links:

      http://unlearningeconomics.wordpress.com/2012/04/03/the-keenkrugman-debate-a-summary/

      Delete
  25. I'm not going to provide the links, but I called the crisis more precisely than any of those listed. Steve Keen can comment, but I think he (accurately) views me as not following his ideas on debt as fully as he would like, although I am no neoclassical and have emphasized Minsky all the way.

    I know that Steve likes to be provocative, but I think he is more open-minded than he sometimes sounds, as he admits here. I will also note that those saying he has no math. He does, even if some do not like what goes into it.

    I am also willing to think that DeLong in particular has moved a long way from more standard views, if he was ever fully into them. What is curious is how some of the old DeLong-Shleifer-Summers-Waldman gang went more neoclassical after their early 90s work, particularly Summers and particularly when he was doing policy work. He can be held partly responsible for a lot of the trouble that has happened.

    ReplyDelete
    Replies
    1. Anonymous6:18 PM

      "I know that Steve likes to be provocative, but I think he is more open-minded than he sometimes sounds, as he admits here."

      Hmm. You know, the behaviour pattern of insult/abuse first and charming when called on it is also what one sees in a bully. Do you really feel that Steve's treatment of others, including but not limited to Krugman and DeLong, is acceptable? Note that this is a separate question from Noah's question of whether it is effective.

      Delete
  26. >I know that Steve likes to be provocative, but I think he is more open-minded than he sometimes sounds, as he admits here.

    Yes, those attitudes are not mutually exclusive. Steve's often mentioned that he thinks Neoclassical economics is a degenerating research program, using Lakatos' famous model of scientific progress. But Keen's actual style is more like that of Popper (who taught Lakatos - Lakatos always said his theory was just building on Popper), in making "bold claims", and placing great weight on predictive value of theories. I've got a LOT of time for this idea, which places a very high value on diversity of scientific theories, rather than a highly conservative middle line being scientifically progressive. Keen's ideas may be outliers amongst professional economists, but it is always the outliers that are pushing back the curtain of ignorance. It's not the zebra in the middle of the herd, safely away from predators and mishaps, who finds the new food sources for the herd, or alerts the group to impending dangers. Those zebras are the bold ones, and if they have a pugnacious nature, that is simply in the nature of their position in the herd.

    Of course, a lot of these zebras come a-cropper, get lost, eaten, caught in bushfires, etc. But they really are the ones you want to pay attention to, if you want to know the potential futures for the herd.

    I like Keen, he's a dude.

    ReplyDelete
  27. Thanks Barkley, and Ben--and quite a few others.

    The thing I find most hilarious about the debate here is that I'm being accused (by some) of having originated sectarian behaviour in economics.

    The sectarian behaviour--by which I mean excluding people from academic economic institutions because they follow a different economic theory--began long ago. The outcome now is that there are only a handful of non-Neoclassical economists in academic economics departments, and those departments teach almost exclusively Neoclassical subjects. Only at a handful of institutions in the USA--The New School, UMKC, UMass Amherst--are there non-Neoclassical subjects.

    Oh, and by Neoclassical I mean precisely as Krugman defines it in the quote in this discussion. Non-Neoclassical means not using methodological individualism, not modeling optimizing behavior, working out of equilibrium, in a range of ways (literally from Austrian to Marxian).

    So I am responding to that purge, but in a very different way that my predecessors have done: rudely, and deliberately so. As Barkley notes, I prefer being open-minded. But to have an open-minded discussion, the other side of the discussion has to admit that you exist.

    Neoclassical economists have behaved as if Post Keynesian (and Marxian and Austrian) economists do not exist. They have conducted a vigorous debate with each other, but ignored the rest of us. I decided some time ago that the best way to not be ignored was to practice "No More Mr Nice Guy". And obviously that tactic has worked.

    So now that I have your attention--attention you have not given to numerous predecessors and colleagues of mine thus far--I'm willing to drop the rudeness and begin the dialogue that should have been happening for the last fifty years. Your move.

    Cheers, Steve Keen

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    Replies
    1. Not up to me to engage in a thorough discussion with you, professor, since I'm not an economist (and, I suspect, if I were, I might well be on your side; must read this book of yours) but, in all fairness, don't you think that in order to have a fruitful dialogue, apart from dropping the rudeness, you might also need to acknowledge that there might be at least something that is "good" in "neoclassical" economics, and, if so, point it out for us less well educated? I might need to read your work more (and I will try to do so) but, at the moments, all that seems to be coming across is in the line of "neoclassical economists know nothing", "they're too wrapped up in their fallacies" etc. etc. Well, if that's all you've got to say about those people, it is very difficult to have a meaningful conversation with them.

      Delete
    2. Well, Steve, I hear you about getting attention. But Brad DeLong is the wrong target. Of all economists in the mainstream (and Brad is only barely in the mainstream), he is the most likely to give heterodox economists a fair hearing. Attention can be just as easily gotten by attacking people who actually deserve to be attacked! (Though I think the word "drivel" should be avoided no matter who is being criticized, since Americans may react more strongly to this word than Australians.)

      As for myself, I'm now in a business school teaching finance and doing experiments, and not really doing much macro at all. But I'm definitely interested in what you're doing, since I have always thought that private debt was the key to understanding big recessions and financial crises.

      Delete
  28. "Only at a handful of institutions in the USA--The New School, UMKC, UMass Amherst--are there non-Neoclassical subjects."

    That's total crap. In my 'very mainstream' department some of the most popular courses for students are things like are behavioural/experimental economics, econometrics & applied empirical work and economic history among others. Are they neoclassical? Furthermore, in many cases in the more advanced micro/game theory/contract courses you might find things that diverge significantly from standard equilibrium analysis.

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  29. New Keynesian is neoclassical. It relies on the 3 pronged core that Varoufakis and Arnsperger outline (someone else linked to it above). It assumes banks are intermediaries. It uses 1 or two representative agents. It also uses other familiar assumptions.

    ReplyDelete
  30. FYI the DSGE definition of equilibrium ivansml offers still has many problems - all agents maximise continually, market clearing. These are simply violated in the real world, and once you abandon Friedman's perspective this invalidates the model entirely.

    ReplyDelete
  31. Steve Keen is Australian, and Australian norms of discourse are different from US ones. This is a nation whose parliament has an explicit rule that you can be as rude as you like. I'm British and I find US discourse rather precious. If I was Australian, well...

    ReplyDelete
    Replies
    1. It's true, but I didn't want to say it. Living in Japan, I can't tell you how many times I met an Australian in a bar and thought he was challenging me to a fight, when actually he was just being chummy.

      Delete
  32. I appologize to Noah for abusing his hospitality, but it is a mystery to me how Keen can claim that post-Keynesians reject methodological individualism. It seems to me that their starting point is, in fact, the behavior of individual firms or consumers. They just don't model it explicitly.

    Now, I actually like their insights, and I think many should be incorporated in economic theory. In fact, Minsky's insight that the Fed cannot target interest rates and monetary aggregates at the same time is pretty standard in every monetary textbook. I just don't see them as being as distinct as they like to pretent. Old institutionalists are, and so are complexity theorists who use agent-based models. The first because they try to explain societal outcomes independently of the choices of individuals, and the second because they replace optimization with an alternative decision-making process that involves local search and adjustment rules. Post-Keynesians do neither. They make verbal reference to individual behavior, and then posit aggregate relationships that supposedly are consistent with their verbal explanations. But is this true? We don't know because they skip those steps. Now, this is not always bad. New-Keynsians have at times imposed ad-hoc rules (adaptive expectations, price-stickiness, etc.) based on verbal explanations. But they also worked on showing mathematically that such rules can result from fully or boundedly rational behavior, thus further strengthened their thesis. Post Keynesians don't bother. Having a different way of getting from A to D, like complexity theorists, makes you a distinct school. Not even trying to show how you got from A to D does not. It simply makes you a lazy economist.

    As for the predictive success of the models, if, like Noah, one blasts RBC models for setting the bar too low by trying to loosely match second moments then what can one say about Keen's claim that his model is better because it simply exhibits some desirable qualitative properties? While the model has math, which parameter corresponds to a real-life metric whose value one could plug in the model and decide that we are on the verge of a great recession? Unless the model can do that then his predictions were based on speculation, and cannot be considered a success of his theory. Most of us knew that debt levels and home prices where too high, what we lacked was a model that could quantify the magnitude of their correction and its impact on the economy. I think Keen's model has some interesting features, but it cannot do that either.

    ReplyDelete
    Replies
    1. As for the predictive success of the models, if, like Noah, one blasts RBC models for setting the bar too low by trying to loosely match second moments then what can one say about Keen's claim that his model is better because it simply exhibits some desirable qualitative properties?

      To pass the Noah Test of Rightness, a model needs to either A) make good unconditional out-of-sample predictions (forecasts), B) make good conditional out-of-sample predictions, or C) have its microfoundations verified by credible empirical work.

      Qualitative predictions about outcomes can be perfectly OK for (B), but only if they quantitatively specify the conditions under which the qualitative outcome is predicted to occur.

      Delete
  33. Alex Gheg has a new consumer theory that makes more accurate predictions and allows the measurements of previously hidden thoughts, which means we can measure utility growth. Quantity, quality, variety and convenience in one equation. http://www.youtube.com/watch?v=u6tFLGpcOpE

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  34. While I hope the Fed starts doing Nominal GDP targeting, it's not clear to me that if they had been doing it since the Clinton dot.com bubble pop, that it would have avoided the house price bubble.

    As for Krugman and DeLong's continued desire to do fiscal stimulus, I fail to see how 10 or 100 cronyism Solyndra investment stimulus failures would be of long term benefit.
    Tax cuts, on the other hand, do help stimulate. Of course, only about half the workers pay income taxes now, so tax cuts don't help them directly so much.

    I favor tax cut stimulus AND reduced gov't employee costs -- thru more half-time work for the gov't.

    Please try to find any Krugman or DeLong calls for LESS gov't in the 2003-2006 Bush boom years. The lack of reducing gov't in the FANTASTIC times, just about invalidates the counter-cyclical argument of increased gov't in recession, reduce it during growth. Instead, we've seen a lot of increase gov't spending during growth (problems exist! we need to help! we can afford it) AND increase gov't spending during recession (even if it's a waste!).
    Bah.

    DeLong mentions how we survived Long Term Capital Management. Well, there was a bailout to "save the system". That was the kind of moral hazard lesson all the big bankers learned -- the gov't will bail them out.
    To save the "financial system" -- whose main purpose in big banks is to move lots of money one way or another and take a tiny percentage of it... even tho it's not clear how such movements help new businesses get lower cost loans.


    Tight money is when new businesses get turned down for loans. This is not yet tracked sufficiently, nor publicized enough. But when that's the case, there won't be as much growth.
    "Saving the financial system" with TARP and other junk, failed to provide the loans the non-financial, productive system, needs.

    As long as Krugman & DeLong advocate active gov't interventions, those who want to avoid the moral hazard problems will continue to oppose the Big Gov't spenders (so much smarter than anybody else).

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    1. Fiscal Keynesianism does not require smaller government during boom times - it requires SURPLUSES or smaller deficits. The ltcm bailout did not use taxpayer funds.

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  35. Not sure about the Spanish Civil War analogy. You seem to be casting the loyalists as revolutionaries, which doesn't seem logical. Isn't loyalty to an existing regime the opposite of revolution?

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  36. ...and I just noticed your update. Doesn't DeLong call himself a neoclassical sometimes? And the Old Keynesians, back when they were the mainstream, touted the "neoclassical synthesis" in which micro was neoclassical and macro was Keynesian and you kind of agreed not to talk about microfoundations so that the macro and micro people could get along. You may be confusing the terms "neoclassical" and "New Classical," the latter of which refers specifically to the Lucas school. "Neoclassical macro" is not, in my experience, a well-defined term, and could quite reasonably be used to refer to various categories that include any of various species of Keynesians.

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  37. From what I've seen of Keen I think he may be right on some things theoretically.

    No doubt even Krugman still considers himself a neoclassical of some sort.

    You can have the discussion of whether that is in some sense an impediment

    However, politically, I largely agree with your "circular firing squad" analogy.

    I'll never have anything but good things to say about Krugman because as you point out, what he does is so valuable as he's so visible in the establishment.

    Personally,, I have to admit part of my love for Krugman is that he's a reliable Democrat. I know some will have a problem with such naked partisanship but like Thaddeus Stevens said "Principles indeed! Betray your prinicples and stand beside your party!"

    Hey, my blog is called Diary of a Repubican Hater after all

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  38. Anonymous9:22 AM

    For all the talk of Steve Keen predicting the U.S. crisis, I'd say he's mostly famous in Australia for losing a bet that Australian house prices would decline by 40% or something. Not even close.

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    1. Presumably the Australian housing boom is different because aggregate demand continues to be supported by mineral exports to China (how much longer?). Not that Keen hasn't blown that pesky little 'timing' thing. Predictions are (still) hard, especially about the future (apocryphal Yogi Berra quote).

      Was the guy he bet with really right? Or just luckier?

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    2. Well it's a flat out lie, he bet that house prices where going to fall in the long term (10-15 years) 40%, and fall over the short term, which is what the lie is based on, because house prices did rise for 2 years after the crisis started, but this was because the Australian Government threw millions of dollars at first home buyers, prices have now receded 10% over the the last two years, so the bet is well on track.

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  39. I don't think the author of this piece is even familiar with the debates. For example, writing this:

    "Krugman has been bashing DSGE in the New York Times for years now. He's called the Rational Expectations revolution a failure. DeLong has less of a bully pulpit but says much the same. If they are "neoclassicals" I'm a Scientologist!"

    indicates that the author is either a scientologist or is unfamiliar with the divergence between the neoclassical-Keynesian school -- Paul Samuelson, Robert Solow et al -- and the Post-Keynesians -- Joan Robinson, Nicky Kaldor et al -- that was present already when Hicks put forward his ISLM. Neoclassical-Keynesians (that is, equilibrium theorists who justify intervention based on wage-price rigidities) have always been seen as neoclassicals by the Post-Keynesians and they always will be. Their main characteristics, much like the author of this blog, is that they are deeply invested in equilibrium theorising based on the principles of marginalism and no matter how much they are shown that this approach is incoherent and unrealistic they cling to it until they are cold and dead.

    The Post-Keynesians have years of experience dealing with their evasions, their ignorance and their sophistries and they should not be blamed for their skeptical attitude. If it weren't for the global meltdown and Keens "tactless rudeness" you wouldn't even be talking to them. You'd be chalking them up as "mathematically unsophisticated cranks" or some other such nonsense.

    On another note: science is not politics, so your appeal to the Civil War in Spain is, frankly, asinine. It's the equivalent of saying: "Hey, duders, we're all on the same side here. Stimulus 2012! Stimulus 2012!" That's a load of rubbish. When push comes to shove the heterodox and the neoclassical-Keynesians will all vote for the government that seeks stimulus and reregulation. But that doesn't mean we're all brothers-in-arms. The Post-Keynesians (rightly) view the New Keynesians as being closer to the New Classicals than to the Post-Keynesians. Just because the politics of the NKs and the PKs is similar does not mean that their approach to the science is similar. It's not. So, groupthink appeals based on wartime sentiment are not going to hold sway.

    Finally, the PKs have tried to engage with the likes of Krugman -- over endogenous money for example. He called them mystics (even though Krugman has NO idea about how banking works and, frankly, doesn't care because of his myopic models). There are a few that do engage without coming across as arrogant elitists -- like Nick Rowe -- but even then the debate soon breaks down when the mainstreamer begins to realises that what is at stake is the entire marginalist research program. The simple fact is that, as the past 60 years have taught us, minds are unlikely to change. If the NKs want to be buddies to the PKs they should, in the interest of fairness and intellectual openness, try to ensure that they have a platform for their voices to be heard by students and the general public. Beyond that, I wouldn't expect much to come from debate or discussion -- it never has in the past, and in the 1960s the mainstream was far more open to listening.

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    1. Endogenous money is an equilibrium relationship with a perfectly elastic supply. You can call it anything you like to pretend that your models do not entail equilibrium, but this does not change the substance.

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    2. Well that's a plain load of garbage. Endogenous money is more like a monopoly. The supply price is set in stone, unlimited quantities are offered and demand adjusts. It is not an "equilibrium" relationship because supply and demand do not adjust through market processes, as the supply-price is exogenously set by a monopoly issuer (the central bank). To call this an "equilibrium" relationship is pretty silly. It's just a variable flow dependent upon demand.

      The day when neoclassicals begin to understand that every stable relationship under the sun doesn't entail an "equilibrium" is the day this earth will look a little less darker. The day when they cease speaking in equilibrium terms and start taking strictly about stocks and flows is the day they will cease to be neoclassicals.

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    3. I can reverse your accusations and accuse you of not understanding what equilibrium means. Not to mention that you do not even understand your own (PK) literature.

      In your own models supply is determined not by the Fed but by banks through intermediation. There is no monopoly at the final stage! And the Fed is not a monopolist in the typical sense. It doesn't maximize profit. It is much more appropriate to view the Fed as a resourse available to banks at a constant (your assumption that I do not agree with) marginal cost. This gives rise to a perfectly elastic supply curve, so that the quantity is determined fully by demand. Behind all your fancy terminology (the true garbage) this is what your theory comes down to.

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    4. I forgot to mention the final point. Why are you so afraid of using the language most other economists are using? I suspect it is because in reality you do not want too many people scrutinizing your models and uncovering their flaws.

      For example, is the "supply price" set in stone? Well, what rule is the Fed following? Moreover, is the cost of discount loans simly the discount rate, or are there other hidden costs (e.g., fear of borrowing too often from the discount window)? In fact, if that's the case why do banks even accept deposits? How does the difference in the cost of core funds vs. purchased funds vs. discount loans come into play?

      If the marginal cost of accessing funds is rising rather than being constant your "flows" method of modeling loses its appeal. But an upward sloping supply curve can capture both your limiting case as well as other cases. It seems that you are turning Keynes on his head and advocating for the special case instead of a more general theory.

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  40. One more thing. Look here:

    "Calling Krugman and DeLong "neoclassical" is like when Ludwig von Mises called Milton Friedman a Communist."

    Once again you're mixing up politics and science as if the two are interchangeable. They are not and to equate them, I would say, casts serious doubt on what motivates economists. Again, the disagreements between the PKs and the NKs is NOT political. This is not like Friedman and Von Mises. Von Mises was clearly a political extremist who thought that economics should reflect a certain type of political ideology and his problems with Friedman flowed from his political "impurity".

    PKs have no gripes about NK's political leaning. Personally, I don't see politics as being related to economics at all. A Post-Keynesian could easily engineer policies that would promote full employment but engineer the economy so that income was distributed to the top earners. This would not be a very pleasant use of the theories, but it could be done.

    So, I'll shout it from the rooftops: THIS IS NOT, AND WILL NOT EVER BE, A POLITICAL DEBATE.

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  41. The way that Krugman, DeLong and you have been trolling the economics discipline for years now, you'd think that other econ trolls like Keen would be appreciative--but no, they actually hate your guts.

    This is because you didn't recognise years ago how right they were about everything and how they always have been. It's not enough to have saed that DSGE is bad and unchill, you need to have said it in exactly the same way as PKers--and have given tthem mad cred for coming up with the idea that all economists are idiots.

    Like all post Keynesians, Steve Keen is an "effing genius" who can "see into the future" (srs) and Krugman is just some overpaid blogger who doesn't understand Minsky or Keynes and gets way more buzz than he deserves.

    You guys totally deserve each other and I hope you're very happy in ur new life together.

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    Replies
    1. Philip Pilkington4:29 PM

      Krugman et al are the Family Guy of trolling economics. The gags aren't funny and the plots are inconsistent.

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    2. Anonymous4:51 PM

      no u

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  42. Lol, thats a gr8 jk Philip Pilkington!

    Ur a PKE 2, so u understand differential equations as well--not like Krugman nd DeLong, who r effin sellout fruads who pretend to b into Minsky nd Keynes 2 appear "deep" & "well edgy" to the rest of the lamestream econ-blogosphere, whist also making mad $$$ frm their contacts w the Obma admin and not giving n e love to PKE, even tho we all now PKE predicted the criiss.

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    Replies
    1. Um...you know there's no character limitation in these comments, right? ;)

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    2. Philip Pilkington6:50 PM

      Oh dear, what works for 4chan fails heavy on the econ blogs. Pity. And no, I don't do differential equations. Math modelling is pretty superfluous IMO. It's like a Sudoku puzzle or something.

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    3. ur just tryin to shut dwn the PKE buzz bc u dont realise that PKE PROVED ECONOMICS WRONG using "chaos" "dynamic models" nd "Steve Keen".

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    4. Philip Pilkington7:21 PM

      PKE proved that you don't exist, but in order to even begin to understand that you'd have to become a dynamic model.

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    5. Anonymous2:20 PM

      Maybe Noah should have made religion his metaphor?

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  43. I don't think Keen is much lacking recognition in the profession. After all, look at all the pissing going on here. Plus I've read his book even though I've only taken basic economics. So his reach is already gone far beyond the profession.

    Anywho. Argue on. It's fun to watch.

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    1. Anonymous6:07 PM

      It's still not enough for him.

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  44. chris3:52 PM

    This nicely illustrates the kind of identity politics that makes economics such a crap science. Noah displays very little (any?) knowledge of the issues or history between post-keynesians and neoclassicals and yet this in no way prevents him from joining in along tribal lines. I'm not trying to pick on Noah, as chauvinism like this appears to be the norm and not the exception in the field. I'm just commenting on the intellectual standards of junior high school kids. Are economist even capable of doing better than this? Is there any reason for non-economists to continue to pay attention?

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  45. Anonymous6:25 PM

    While everyone debates. the food stamp line gets longer.

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