Dear colleagues, having solved all technical problems, I think we can start with this first
introductory workshop to this conference.
Before I introduce our first lecture, let me say a few words to welcome you,
especially after the financial and economic crisis we had to face within the last years.
I think we have to raise a question.
The king is that, long live the king.
Has this crisis changed anything here and in economics?
And there are a lot of ways to answer these questions.
What I want to show you is a survey I did a few years ago with some post Keynesian economists
and compare that with the situation after the crisis.
Can we see any changes caused by this crisis with an economic theory or is everything the same as before?
And I think that heterodox economics has a lot to say to explain the crisis,
to say about or to deal with the causes of the crisis,
and therefore it might be interesting to hear what Keynesian and other heterodox economists have to say.
Especially when we deal with some of their ideas or some of our ideas like imbalances,
like uncertainty and inequality, what I think is very important to explain what are the causes
and the consequences of the crisis within the last years.
Okay, why do I want to show you the results of this survey or it's a very small survey?
I think because it can shed some light on the influence of heterodox economics
and the influence such ideas, ideas of heterodox economists can have on the mainstream.
And one of the questions of this survey of 2007 was how heterodox is the mainstream?
And as you can see there are some pessimistic answers and some optimistic answers.
On the pessimistic side there was in 2007 Paul Davidson who answered how heterodox is the main thing,
and not had the results at all.
And Fred Lee assisted him in concerning politics or policy options.
He said, I do not really care what mainstream economics propose, since I would like to do away with capitalism,
I review their policies as relatively homogeneous.
There are others, and I want to draw your attention to one quote by Philip Anthony O'Hara.
Many themes in the mainstream do follow parallel general problems to the heterodox,
but usually without the theory of the heterodox.
And I think this is a very important point because the mainstream was always able to include
some heterodox ideas, but at the same time not including the theoretical foundations of these theories.
And coming to the last two points, one by Philip Erestes and the other by Giuseppe Fontana,
Philip Erestes will be one of our lecturers today, and they are more optimistic here.
Philip says, there are open-minded economists in both camps that tend to understand economics of the other side,
and Giuseppe says, I'm optimistic that things are slowly changing.
Okay, things are slowly changing, is this really true?
What is today's picture?
Some thoughts here.
I was thinking about some candidates for change or indicators of change,
so is there really something changing within the last years after the crisis or caused by the crisis?
And here are some candidates.
So coming to theory, I would say that most of the general equilibrium models like the ESGE models are right now under pressure.
They weren't really able to explain why there was so a rare downswing of the economy.
Second, there are some other theories developing, mainly behavioral economics,
trying to find a new behavioral foundation of microeconomics and then derived from that macroeconomics.
And I think this might be an interesting development within economics, within mainstream economics.
On the other hand, I'm not really aware of post Keynesian or Keynesian models
that became really important for international organizations, for governments, for academia,
to explain within the mainstream the crisis.
There are some people like Paul Krugman and so on, that's true,
but I cannot really see that the pure Keynesian models are applied here within the mainstream.
The picture is a little bit different when they are coming to politics or the policy programs of the last few years.
Especially in Germany, we had some stabilization programs, fiscal programs that helped a lot to overcome the crisis.
And surely there are a lot of ideas to re-regulate, to reform financial markets.
The idea of re-regulated financial markets as a driver of economic growth is seriously flawed, I guess.
But the question here is, what will be the end of this?
Will we really see a re-regulation of financial markets or is this only words?
There are also some discussions on global imbalances.
As you might know, Germany is a country with high current account surplus.
There are other countries with high current account deficits, which causes a lot of trouble.
And within the European Union there are some discussions on this, which may solve it or not.
I'm not too optimistic here, I have to say.
Within academia and educational institutions, here I listed the IMF with Olivier Blanchard.
This might be a new position within the discussion and it might be helpful for...
...more heterodox ideas, but within Germany, within the think tanks of Germany, within academia in Germany,
and within the educational institutions within Germany, I cannot see much change here concerning ideas and models within economics.
So, having said that, what can we do?
If we say we are more or less heterodox economists or we are interested in different models, different from the mainstream,
what can we do to influence politics, to develop further theoretical ideas based on heterodox economics?
And what I can offer you is, in a way, this workshop and this conference,
in other words, the idea of a network.
The strengths of weak ties, as Mark Granovetter, who is a sociologist once in 1973, I guess, wrote,
and triggered by this with this seminal paper, a huge discussion on network activities and social networks.
So, this is really the strength of weak ties to build a network, to live a network, to work together, to doing research together,
and this is what I can offer here by this introductory workshop and the conference as a whole.
And how does such a network work?
So, we have a network here, the network is organizing this conference and workshop,
and let me say a few words about this network and about the activities of this network.
So, it was founded in 1996 as a German Forschungs-Netzberg macroeconomy on micropolitik,
which means research network macroeconomics and macroeconomic policies,
and therefore the abbreviation FMM is derived from the German term,
which always wanted to be a platform for discussions about macroeconomic theory,
as well as a forum for economic policy debates and exchange of ideas.
So, there is no formal membership, and therefore you are all, if you would like to, a member of this network,
so being here is more or less joining this network.
And we had in the past a lot of conferences starting in 1970, in the beginning there were only,
or not only, so there were 35 persons more or less German speaking all,
later Philip Orestes joined as the first English speaking participant,
and nowadays at this conference we will have up to 270 people within the network
and participating in this conference, and now it's more or less fully internationalized from all over the world.
And I wanted to stress one point, which might be interesting, referring to my first words,
that already in 2007 we had a conference on finance-led capitalism
and about the dangers of deregulated financial markets,
and we had some analysis that might be still helpful to analyze this crisis and the consequences of it.
Organizationally, this network is supported by the IMK,
and IMK is a Macroeconomic Policy Institute, which is based or located in Düsseldorf
and is part of the Hans Böckler Foundation, which is also co-funding or funding these conferences,
and I myself am a member of this IMK Institute.
If you would like to have more information, I would refer you to the homepage of the network
or just write an email to fmm.böckler.de.
Okay, let me turn to some of the activities of this network.
I already mentioned the conferences, and for you it might be especially interesting to see that we have a graduate student session,
so I would refer you to the graduate student session tomorrow.
Maybe you are already one of the presenters there.
If not, so please think of presenting your MIA thesis, your PhD project,
your research paper or whatever in this graduate student session.
I really would like to encourage you to do that.
There's more what the network does.
We have a book series.
Normally the conference, after the conference, we issue papers of the conference within the book
and also as a special issue of journal, newsletter, thematic working groups and so on.
But also here, more important for you might be the summer school we introduced two years before.
So this summer school, covering eight days of lectures and work together, might be interesting for you
and might be a good thing to participate in.
And in a way, this introductory workshop is the small version or the core version of this summer school,
so you will find all the topics we have today will be also covered by the summer school next year
and I say later on a few words on the summer school and what we are doing there.
No, I say this right now, so here are some impressions from the summer school.
As you can see, it's really hard work.
We had a lot of discussions, we had a lot of good lectures.
Normally the structure of the summer schools is that each day starts with a lecture.
Afterwards we have a student study group to discuss what was in the lecture
and afterwards one or two academic papers, research papers that focus also on the topics of the morning's lecture.
And on the top right you see there is always one panel discussion at the summer school discussing economic policy topics
that are relevant at the time of the summer school.
Here this panel discussion was on, I think, financial markets.
Both summer schools covered several topics like methodology, like development of Keynesian thinking,
also money, credit and finance. We had one lecture on distribution and growth,
surely one about the labor market and unemployment and in general economic policies in Europe.
But there was not only hard work. I can show you there was also some fun.
We had a cultural program, some boat trip we had on the left here.
You have to participate in a play at the last day, so you have to be very creative at the summer school.
And on the right side, the house with a guy in chains, I think this is not the location of the summer school.
This is Berlin from the boat.
It is a combination of good lecturers and some fun, so I think it is a good idea if you want to apply.
If you want to apply, so save the day.
Next summer school will be from 31st July to 7th August next year.
And we have some confirmed lecturers already, you might know from Australia, John E. King,
who wrote a good book about Keynesian thought and a lot more.
And we have Malcolm Sawyer talking about economic policies in Europe,
as well as Engelbert Stockhammer, who will give a lecture today as well.
And Eckhart Hein from Berlin.
So if you want to apply, we will send out a call for application in December
and the deadline will be beginning of March and information on acceptance mid-April.
So what I should add is that there is a small fee, 250 euros at maximum for this summer school,
but I can assure you it costs the foundation to finance it a lot more,
so its costs per person are more or less 1,000 euros or more.
So 250 is not much for this summer school.
So now I'm running a little bit out of time, so let me say a few words about this workshop.
And as I said, it's more or less a small version of this summer school.
So we combine our best lecturers from the summer school today, three of them.
And Mark, the next lecturer, will talk about method and history.
Afterwards, Philipp Erestes will compare new Keynesian and other Keynesian thoughts, post Keynesian.
And Engelbert will give you an impression of some theoretical building blocks of post Keynesian thought on distribution, inflation and employment.
Yes, and I would like to introduce my first lecturer today, which is Mark Lavois, sitting here over there.
And I know that he is at least very good within three fields of research and something else.
He is a good sportsman, I know, and he is also very firm in what is now called stock flow consistent models.
But now he will talk about history and method or methodology of post Keynesian economics.
Thank you very much, Mark, for being here. The floor is open.
Thank you.
Well, thank you very much. There are a few people here who I already know.
So they have heard me before. I hope I don't have the topic.
So I'm supposed to talk about the mythos and the history of post Keynesian economics.
And what I will be saying will be, in fact, you can find the part of it in the book that I wrote in France during 2004.
That book that I created is called Introduction to Post Keynesian Economics, which is this.
And the, it will also be related to a chapter that I have in the book, edited by Engeo Burtz of Canada.
I think it's called The Title of Rich is Among the Guides in Scenes in Macroeconomic and Economic Policy.
And that's the picture of the book.
So it's coming out, I guess, to the next slide.
Okay. So that's the outline of my presentation.
I did not realize that some people were listening so far away. Can you read this part?
Okay, you're liking it because I couldn't.
All right, so I'll say a few things about the history of post Keynesian economics.
I'll then make a comparison between, well, I will be linking post Keynesian economics to heterodox economics at large.
So I will be comparing heterodox economics and orthodox economics for the mainstream.
Then I will then try to compare post Keynesian economics to the other heterodox schools or show what are the key features of post Keynesian economics.
I'll go briefly over the different sub schools of post Keynesian economics.
And then I'll be talking about the current research that is going on by post Keynesian economists.
I'll be talking for about maybe 17 minutes, so 65 minutes, so you'll have time for questions.
But if you're really keen on asking something right away, you can always lift your hand and ask the question.
All right, so the history of post Keynesian economics.
Well, this to me are the main phases of post Keynesian economics.
So one could say it all starts with kids, 1930 or 1936.
And then in the 60s, in the 70s, there is suddenly post Keynesians realize that what they're doing is different from what other economists are doing, especially in the United States.
So that's the capital controversies.
There's also the arrival of monetarism that becomes popular.
So that generates also a response by post Keynesians.
Then we can my colleague, you separate from Tana talks about the romantic age that occurred in the 70s and 1980s.
Well, I'll explain what that was.
Then in the 1990s, it was the age of uncertainty.
We'll see what that means.
And I would say that now over the last 10 years, we are in the age of policies.
So that's the different focus that we have had over time.
OK, for me, a lot of what post Keynesians talk about started already with the book, The Treaties on Money, that was published in 1930.
Post Keynesians also made presentations in front of a committee in England in 1929.
And so he made some parables that very closely resemble what post Keynesians talk about right now.
It doesn't start exactly with the general theory in 1936 in my view.
It starts about six years later.
Other economists at that time were also preoccupied with the fact that employment, that we were not always at full employment,
that this was not only because there were mistakes being done with respect to expectations and so on.
And these economists brought in important ideas at about the same time.
So you had Mikhail Kalevsky, who was a Polish economist, talked about the principle of increasing risk in 1937,
which is obviously something important now with the financial crisis.
He talked about the positive role of real wages on employment.
So the higher the real wage, the better for employment.
This was already discussed in 1939.
And then he had a theory of profits in 1942, which has also some relevance for what we talked about today with respect to the role of fiscal policy.
His argument was that, well, if the government has a higher deficit, then it generates larger profits for the private sector.
And then this calendar in 1934, in an article that, in fact, I discovered just a few years ago,
talks about multiple equilibria, the instability of equilibria, and the notion of path dependence,
all these things which are very important to us were discussed by Kalevsky in 1934 at a time where one could not say,
or would not say, that he was in the Keynesian branch.
So, okay, so that's more or less the beginning.
I personally consider that if you want to start reading on post-
games and economics, that a good book to start with is the book The Accumulation of Capital,
which was published by John Robinson in 1956.
Many times, I used to teach microeconomics second year or fourth year,
and on many occasions, I thought, okay, this is the textbook that I am going to impose on my students.
I never dared to do it, but I think it's a great read.
I mean, basically, the idea was to apply Keynesian ideas to the long run and not only to the short run.
And as I say, at that time, I guess John Robinson was starting to become aware that the kind of theories that were discussed at Cambridge at that time were different from those that one could find, say, in the United States.
There's a researcher in, I think it's in Holland, who has argued that the capital controversies that occurred in the 60s and the early 1970s,
that these controversies were key in constructing the post Keynesian identity.
Post Keynesians, again, as I said, realizing that what they were doing was different from what was being done in mainstream economics.
So, one, well, these started with this article by John Robinson and the book by Strafa.
So, what are those capital controversies?
Well, basically, they show that the real return on capital, or even the real wage of labor, is not an index of scarcity.
So, there is not necessarily an inverse relationship between the rate of return on capital and the capital to labor ratio.
Whereas in neoclassical economics, there has to be this inverse relationship.
So, these controversies put in jeopardy the production function based on substitution.
So, that was the theoretical part of the controversy.
And then there was an empirical part of the controversy.
Anwar Sheikh, who is an economist at the New School in New York, more on the Marxist side,
published a paper in 1974 where he showed that all these empirical work that seems to say,
oh, neoclassical production functions work very well.
And that, in fact, they work very well because they are reproducing the national accounts.
And not because they indeed do describe correctly the true economy.
And more recently, there has been another paper by John McCombie, who is at Cambridge University,
published in 2001, where he showed that when you are doing these regressions,
trying to find the, when you are trying to estimate elasticities of factors of production
by doing regressions using neoclassical production functions,
that in fact what you are really finding are not estimates of these elasticities of production,
but in fact what you are really doing is estimating wage shares and profit shares.
So I once made a long presentation at my department to my colleagues, showing this to them,
and the reaction of my colleagues was, well, okay, you have been convincing, but what else can we do?
We will keep doing it.
Even if we know, I mean, what this shows is that these estimates are wrong, completely wrong.
They claim to be estimating, say, the elasticity of labor, the Russian elasticity of labor, but in fact they don't.
Still part of history, there was a response to terrorism.
Milton Friedman was considered to be some people completely in left field who didn't know what he was talking about,
but then suddenly he became highly popular in the late 1960s and 1970s.
And so whereas everybody thought that the quantity theory of money was completely dead, then suddenly it reappeared.
So the response to militarism was to argue that, well, money is endogenous, it doesn't fall out from helicopters,
that central banks control shorter rates of interest and not the supply of money,
that the causality between inflation and the supply of money was reversed, was going the other way from the one described by the monetarist,
and also that the causality between reserves of banks and the central bank and bank deposits was also reversed.
In fact, I think that what really distinguishes the schools of thought is not so much the, well, it's not so much the empirical facts that can be observed,
the stylized facts that can be observed, but what is really the crucial thing in economics is causality.
I think that's where schools of thought propose each other most.
And then the other argument was that central bank open market operations are mostly defensive.
Central banks try to stabilize interest rates, as we, in fact, we have seen over the last three years.
Okay, a key article was the, another key article, I think, that's worth reading, is the article by Alfred Eichter and Ann Trigel,
who were two American post-Keynesians that they published in the Journal of Economic Literature in 1975.
So, I think it was a key moment because post-Keynesian economics was getting excessive recognition in the Journal of Economic Literature,
and also because, in my view, they were summarizing pretty well, still today, I mean, the main views of post-Keynesians.
So, for instance, this concern with history and time, the fact that we were in a world of fundamental uncertainty in complete information,
the fact that we are in a world of constant marginal costs and oligopolies, not in a world of perfect competition,
a world in a monetized production economy, where saving adjusts to investment is not the opposite.
And also this concern with realism.
So, at least to me, that was a very important paper.
Okay, then we move on to the Romantic Age.
It's called the Romantic Age by Giuseppe Fontana because this is the time where post-Keynesians are trying to make some synthesis of their ideas.
So, it was believed that it was possible to make a synthesis.
So, between the 1970s up to about 1994, there were lots of books.
All these names here with the dates are books that were written by various post-Keynesians or people close to post-Keynesianism like Lance Taylor.
And that, as I said, were trying to put together all these different ideas, heterodox ideas that had been expressed by people close to the post-Keynesian school.
I had my own in 1992, but there was the Guide to Post-Keynesian Economics published by Eichner.
Philip Aristes had his own synthesis also in 1990.
So, I would say it was the main focus, but a lot of people were trying to go for this synthesis.
At the same time, post-Keynesians were getting organized from an institutional point of view.
First, just explain to you that this conference is organized by an institution.
So, you do need institutions to, I mean, ideas just don't go through by chance.
You also need people to come up with ideas and theories, but you also need other people or the same people to organize.
Those who are generating those ideas.
So, in 1977, the Cambridge Journal of Economics was created by a bunch of people who were then young scholars.
And the idea was to have the journal in the tradition of Marx, Keynes, Kalesky, John Robinson, and Kaldor.
And then, almost at the same time, another journal, the Journal of Post-Keynesian Economics, was created based, again, on the ideas of similar, approximately the same people.
Including John Tieneszkalław Minsky, who has become highly popular recently.
And then, other journals got created. Summer schools got organized.
There was a summer school in Italy every year from approximately 1980 to 1990.
Then, there was one in Knoxville, where Paul Davidson was.
Then, one at University of Missouri, Kansas City.
Then, you have the one in Berlin.
And there was one this year at the Levy Institute.
All these things are important.
Then, there was a network that was created when internet arrived in the mid-1990s.
And now, we have newsletters, blogs, mini-blogs, and now there's plenty of conferences.
All these things are very important for the organization of the school.
We found that it's a little bit difficult to move forward.
The age of uncertainty.
Well, in the 1990s, there was a change of focus, I would say.
Starting with the late 1980s, 1990s, there was a lot of work on the notion of fundamental uncertainty.
People went back to look at the collective writings of John Minsky.
There was a lot of work on methodology, on the philosophical underpinnings of post-Kinson theory.
And a lot of work on the history of economic thought.
A few people at that time, myself included, got a little bit worried about this tendency.
It was a feeling that maybe there was too much work around methodology.
But luckily, in a sense, things changed at the end of the 1990s, 2000s.
When one was going to conferences, one could notice that there was less emphasis on methodology.
There were a lot more papers on economic policy.
A lot more papers using econometrics or other empirical methods.
I think this is the stage at which we are.
The funny thing is that I'm realizing that I'm criticizing.
I'm saying there's too much methodology studies in post-Kinson economics and economics at large,
but then I realize I'm doing a lot of myself.
Okay, part two.
Now what I want to do is emphasize the fact that post-Kinson economics is part of a larger group of schools of thought,
which we can call heterodox schools.
And then these heterodox schools have a lot in common.
So that post-Kinson should relate not only to mainstream economics or orthodox economics, neoclassical economics,
but also to these other heterodox schools.
So what does heterodox, orthodox mean?
Well, orthodox paradigm is basically the dominant school, the mainstream, or neoclassical economics,
we can call it as we want.
And then on the other side, heterodox school, sometimes it's called non-autodox schools,
or a few people have used the word cross-classical school or paradigm.
Malcolm Sawyer has used the word radical political economy,
and also another word that has been used is a revival of political economy.
So to me all these words more or less mean the same thing.
There's a little bit of discussion going on right now saying that neoclassical economics is changing,
apparently for the better, we are told,
and that in fact we must carefully distinguish between, say, the mainstream, which is what we can find in textbooks,
and the more sophisticated orthodox analysis.
So I've made this little graph here, where on the one hand you have the heterodoxy, so that's us,
and then on the other hand the orthodoxy.
And the orthodoxy itself, so that's everything which is in green,
can itself be subdivided into at least two parts, on the one hand the mainstream, so technical economics,
and on the other hand what we can call dissenters among the orthodoxy.
So dissenters among the orthodoxy you can think of the work of people like Krugman or Stiglitz or Ackerlof,
but even Milton Friedman in the 60s or 50s would have been considered as a dissenter
from inside the orthodoxy, so things, you know, at some time you can be in the mainstream,
like Milton Friedman was in the mainstream in the 70s and 80s, but he was a dissenter in the 1950s.
Some people say that this is where the really smart neoclassical economists are,
so Verlander calls that the edge, the cutting edge of orthodox research,
so I have put it as a very small band here.
Okay, so post-knees and economists are heterodox economists, but they're also part of the dissenters,
but on the heterodox side of the dissenters.
Well, okay, that's just to say that if we look at macroeconomics we can say that, well, we've got the neoclassical school,
all these people are influenced by Keynes, you have the old Keynesians, the militarists,
so this was in the 70s, 60s, 70s, and then they got replaced by the new classicals and the new Keynesians,
and now today we can say that the new Keynesians and the new classicals have joined forces
and have become the new consensus, and then on the other side you have the heterodox authors,
so we have post-Kensians who are basically related to Cambridge Keynesians,
and then you have another group of macroeconomists who are influenced both by Keynes and by the Marxist,
and those are basically what we call today the radicals or the neo-radicals,
and I would put in there the French regulation school, which is kind of halfway between the Marxist and the post-Kensians.
There are plenty of heterodox schools, so post-Kensians are just one of them.
I would say that our forte is on the macroeconomic side.
I think that all these schools, well, the Sraffins are in a sense part of the post-Kensians,
but you have the circuitists, the Berlin School of Military Economics, Marxist, radical structuralists,
the French regulation school, the institutionists, social economics, humanistic economics,
subjectarian economics, feminist economics, ecological economics, all these have heterodox ideas,
they would all be in the heterodox box, and then the strong part of the post-Kensians is mainly on the macroeconomic side.
Any of these schools around here don't really have a macroeconomic barrier, they focus more on the micro side.
So it's just to say that there's plenty of heterodox schools, it's just that they don't have the dominance of neoclassical economics.
So what do all these schools have in common?
I mean, in my view, they have many things in common, although it's not always apparent.
Let me just give you a short anecdote.
I was asked about 20 years ago, I was asked to make a presentation at the Department of Philosophy in the Montreal University,
in a group of philosophers of science, I was asked to summarize or to explain what post-Kensian economics was.
So I wrote a big working paper about 40 pages, made the presentation, everything went well, and so on.
And then after the presentation, I was asked to summarize in four pages, what I had written in four pages for the Bolton of this group of philosophers of science.
So I didn't know, I mean, how can I do such a thing? Then I realized, well, in a sense, maybe it's easier to explain the difference between heterodox economics and orthodox economics.
And I came up with this distinction, in fact, with the first four items, then the fifth one I added more recently.
So in my opinion, those are the main differences when we look at the presupposition.
So even before we start the analysis, these are the differences between the heterodox schools and the orthodox schools.
So there's this insistence by heterodox on the realism of the assumptions.
Whereas assumptions have to be realistic, whereas only, as we know, on the mainstream side, what's important is to be able to predict.
The fact that what you predict is completely wrong is not important, but you have to be able to make predictions.
And this is what my colleagues said when I talked to them about these Cambridge controversies.
The focus of the orthodox school is always on the individual, so that's a crucial part of their method, whereas it is not in the case of heterodox economics.
Also, a third important presupposition is about rationality in the orthodox school.
One has to start with a fully rational individual, and in fact, at least in macroeconomics, one always starts with an optimizing agent.
If you don't have that, then according to our orthodox colleagues, you're not doing macroeconomics.
Whereas in the case of heterodox schools, all you want is some kind of reasonable rationality.
And then the economic core of the analysis, well, for an heterodox school, it's mostly based on income effects.
It starts with production, it is concerned with growth, whereas with neoclassical or orthodox schools, it usually starts with an exchange economy.
The focus of the analysis is scarcity, and everything is based on substitution effects.
Income effects are discussed, but they are usually assumed to be much smaller than the substitution effects.
And then finally, I came to this more recently, it seems to me that the orthodox schools are usually highly optimistic about the functioning of free markets,
whereas the heterodox are usually not as optimistic, so markets have to be regulated, they have to be tamed.
Okay, I'll skip this because I see I'm starting to run a little bit to talk for already 30 minutes.
So to me, those are the big differences between all heterodox schools on the one hand, and orthodox, the mainstream or neoclassical economics on the other hand.
And then the question that one may ask is, well, what's different about postkins and economics?
How is the postkins in school any different from these other heterodox schools like the Marxist or the institutionist?
So this is what I want to talk about now. So I say here the presuppositions of postkins and economics, or if you want the key characteristics of postkins and economics.
In my view, by the way, these presuppositions of heterodox schools at large, every first and every methodologist has a different opinion,
but basically what I said I have found in other words discussing this.
Okay, postkins in school. Well, of course, the general five presuppositions that I mentioned, you can also find this in postkins and economics, of course, because we are part of the heterodox paradigm.
So realism, holism, or horianism, reasonable rationality, production, the fact that postkins are usually believed that markets in some way have to be tamed.
All these things are in postkins and economics.
I'll give a few examples of this holism. In postkins and economics, we have all these macroeconomic paradoxes. I'll show a few of them to you in a minute.
The fact that markets have to be tamed, well, this is particularly important for postkinsians because at least there's a certain number of postkinsians who believe that there is this tendency towards instability, especially financial markets.
And this idea that, well, in general there's a tendency towards disequilibrium instead of equilibrium.
Right, the market forces do not lead to equilibrium. Often they lead to disequilibrium.
One example is the labor market. If there were no institutions in the labor market like trade unions and so on, then some postkinsian models show that we would always be getting more and more away from full employment rather than getting towards full employment.
So this idea is completely different from what a neoclassical economist would argue. And as I mentioned, of course, you have the idea about financial instability.
So basically what we're saying is that there are some people who believe that there is a tendency towards equilibrium and others who believe they oppose it.
And Keynes already in 1934 was arguing exactly the same thing. He was saying in 1934, on the one side are those who believe that the existing economic system is, in the long run, a self-adjusting system.
Though with creaks and groans and jerks and interrupted by time lags, outside interference and mistakes, I think that's pretty fair to say that this is basically the new Keynesian view.
I think that that resembles very much the modern Keynesian, the new Keynesians that Philip Aristes is going to talk about after me.
On the other side of the gulf are those that reject the idea that the existing economic system is, in any significant sense, self-adjusting.
So I think that's pretty fair to say that that's basically the point of view of post Keynesians, or at least most post Keynesians.
Okay, I said I would mention a few of these macroeconomic paradoxes that post Keynesians have underlined.
So there's one that everybody has heard about, the paradox of thrift that was put forward by Keynes.
So the idea that if you have a higher saving rate, it will lead to reduced output, so that in the end, the total amount of saving is no higher than before you increase the propensity to save.
So that's a very well-known paradox. But there are other macroeconomic paradoxes which post Keynesians have put forward, which are less known.
So, for instance, the paradox of costs brought forward by Kelitsky, who argues that if you have higher real wages, this may lead, maybe not always, but this may lead to a higher profit rate for firms taken as a whole.
So in the macro sense. The paradox of public deficits also brought in by Kelitsky, that if governments have higher deficits, this should lead to higher profits for the private corporate sector.
The paradox of debt, which is quite relevant, I think, today, which comes from Steindl, who was an economist born in Austria and who was a follower of Kelitsky.
And so he argued that efforts to de-leverage by firms might lead, in fact, to higher leverage ratios.
So as firms were trying to have less debt, they may end up with more debt. And I would say that this paradox probably also applies to the public sector right now.
The paradox of tranquility, which has been emphasized a lot recently, that's an idea of Hyman Minsky.
So the key sentence that he had in one of his papers is, stability is destabilizing.
If we have a run of successful years where everything seems to work pretty well, this, in fact, is likely to lead to instability because people will become too optimistic.
The paradox of liquidity, which has been emphasized in a book by Nes Vettelova, who is a researcher in the UK, is also relevant to what has occurred recently, efforts to become more liquid, transform liquid assets into a liquid one.
This is exactly what we observed during the financial crisis.
And finally, the paradox of risk by this guy here, this American, Wojni Lauer, who was a big fan, who is an economist who worked in the financial sector.
And 30 years ago, I wrote a couple of papers inspired by Minsky. And the point he was making 30 years ago, not five years ago or two years ago, but 30 years ago, was that the fact that one could cover risk,
the fact that one could find instruments that would allow a company, a financial bank to cover from risk, would lead to more risk overall.
And I think, in the case of trade default swaps, the famous CVS, that everybody discovered a couple of years ago, that we discovered a couple of years ago, but that were well known to people in finance.
I think that's a good example, where every bank thought, or every financial institution thought that they were covered, but in fact, they were not at all, from a macro point of view.
So, these are the paradoxes that we emphasize in post-kins and economics.
Okay, perhaps the two most important, okay, now I'm trying to differentiate post-kins and economics from the rest of heterodox economics.
So, what are the two key characteristics of post-kins and economics?
In the book, in my book, I have identified those two things here.
The first one is the relevance of the principal effective demand, and the second one is the importance of time, the fact that time cannot be reversed.
So, I think, personally, I think those are the two key ideas, but of course, other post-kins may have a different hierarchy of important key characteristics of post-kins and economics, but that's no way I see it.
Just last week, I was listening to the presentation on the internet, I was listening to a presentation by Mark Hayes, who is the post-engine in charge of the post-engine study group in England.
And he made a presentation at Cambridge University on this topic, what's the difference, what is the post-engine difference, and the two key features he had were the same as the two I am identifying here.
So, at least you have two post-engine to agree on this.
So, the principal effective demand, basically saying that what is important is aggregate demand, that not always, but generally speaking, the aggregate supply will adjust to aggregate demand.
And this is certainly, I mean, a lot of people would accept that in the short run, for the short run, but very, well, but not so many would agree for the long run.
And so, I would say that this is the key feature of post-engine economics in the sense that we believe that we have demand-led economies not only in the short run, but also in the long run.
I mean, I've had many discussions about this with some of my Marxist friends, and for sure they agree on the short run, but usually they disagree about the long run.
They still have a kind of supply-led economy in the long run.
For them, in the long run, what determines how fast the economy grows is basically the saving rate and the normal rate of profit.
For them, those are, you know, so it's these two supply-side variables.
For post-engine economists, it's the opposite. It's really, it is the demand which is the most important factor.
It is true, but sometimes, for some economies, it may be that there are capacity constraints.
This is recognized by Kaliski and John Robinson. So, I mean, I'm generalizing here. It's not always true, but most of the time it will be.
And what this means is that investment decisions are independent from the intertemporal decisions which are being taken by households, their saving decisions.
So, that, I think, is, I mean, whatever model, I mean, most macroeconomic models that we have in post-engine economics are really built on this.
The other feature is the importance of time. Post- engines are very much concerned about how we move from one position to the other.
So, just assume that there's going to be some jump allowing you to reach the new equilibrium.
But the argument is, if we're talking about a system and we are saying, oh, there's the possibility, if we change this or that parameter, that we will reach this new equilibrium,
then there's got to be a story of how we move or some formalization of how we move from the first equilibrium or the first position to the new position.
And that's very important. So, this is called the traverse. How do we move? How do we transition from one position to a new one?
And for post-Kinsons, this is very important. Kaletsky used to say that the long run is the consequence of a series of a short run.
So, there is no long run trend which is out there. Neoclassical economists would say there's a long run trend determined by the natural rate of growth, determined by the rate of growth of technical progress.
The rate of growth of the labor force. But for post-Kinsons, no. The long run can only be explained by the evolution of all these short runs.
It's not given. Another concept which is important is that of path dependence.
So, again, the final equilibrium that you may reach is not determined from the start. Where you will end up may be influenced by what happens during the transition.
So, this is called path dependence. It's a concept which is also introduced by some neoclassical economists.
But I would argue that for them, it is self-destructive. I mean, it contradicts the rest of neoclassical economics.
Whereas for post-Kinsons, it's a natural path, the notion of path dependence or a hysterisis is something which is natural to us.
One of the consequences is that, well, if you believe in all this, then you have to be very careful in tracking financial stocks through time.
Because the values taken by these financial stocks will have an influence on the point that you will reach at the end of your traverse.
Okay. Now, post-Kinsons also put the focus on other key features. I call them auxiliary features.
And here, some post-Kinsons may slightly disagree, but anyway, so those are what I consider to be the auxiliary features.
So, fundamental uncertainty is certainly something which is very important for post-Kinsons and economists.
A monetary production economy, the fact that we cannot just start from a barter economy and then believe that we can move on to a production economy with money.
We have to start from an economy where money is already there to start with. So, we call that also a monetized production economy.
Alternative microeconomics, I have not talked very much about microeconomics, but post-Kinsons have different beliefs about what is the shape of the cost curves.
That, you know, for instance, we believe that marginal costs are generally constant, at least up to capacity.
And this means that unit costs are usually falling. So, if you increase production, the unit costs are not increasing. They are falling.
So, this has implications for what you believe are the causes of inflation and so on.
Many of my colleagues in methodology would argue that one feature of post-Kinsons is that because they see the world as something being complex, that you need different methods and different theories to explain the real world.
And so, post-Kinsons have a diversity of methods. They have just one.
And finally, there is this belief here that institutions make a difference. The fiscal policy of the government will have an impact on real output.
The monetary policy will have an impact not only on prices and inflation, but also on real output.
And institutions at large can improve the economy. So, the government can improve the economy as well.
Okay. So, all that I have said is there.
Okay.
Now, there are different strands of post-Kinsons. I mean, despite the fact that post-Kinsons are not as numerous as neoclassical economists,
one can, for analytical purposes, subdivide the post-Kinsons school because some post-Kinsons are more concerned with uncertainty.
Others are more concerned with income distribution. And so, we can subdivide this research program into different kinds of post-Kinsons.
It's a little bit like the neoclassicals also can be subdivided. You know, you have the natural economics, you have the new Keynesians, the new classicals.
You have people concerned with the so-called real business cycle, neoclassical people. So, it's a little bit the same in post-Kinsons economics.
So, here I will try, I will make these distinctions. Perhaps this will help those of you who want to go through, you know, read all kinds of different post-Kinsons works.
The most famous way to divide post-Kinsons is the one that has been proposed by Hamuda, Uma Hamuda, and Jeffrey Harcourt in 1988.
And so, they subdivided the post-Kinsons into three strands. The first one is the so-called fundamentalist strand, sometimes called the American post-Kinsons or Marshallian post-Kinsons.
It's called American because many of these come from the United States. So, the better known were Sidney Wanchoff and Paul Davidson, who were the creators of the Journal of Post-Kinsons Economics.
And you can add to that Minsky Shackle could be put into this category. And then the second category are the Kaleskians.
And here I've put a few names. So, they are kind of following the transition of Kaleski. And the third category would be the Sravyans, people who have been inspired by the work of Sravya and all these controversies about the meaning of capital and so on.
A little problem with the way their topology is that some of the better known post-Kinsons, they didn't know where to put them. So, I thought it was a little problem of that topology as far as I could see it.
Yeah, by the way, recently in that paper that I prepared for the book that I was talking about at the very beginning, I figured, well, one can have, in fact, five categories.
So, the first three are identical to the one proposed by Hamouda and Harcourt, and then I've added two. So, the fundamental Kinsons are mostly concerned with issues related to money, liquidity, liquidity preference, fundamental uncertainty.
So, these are the kind of things they discuss about methodology. The Kaleskians are concerned with issues related to pricing, economic growth, business cycles, employment, the determination of profits.
I've put a few names under. I never put someone who is younger than me. The Sravyans are usually concerned with relative prices, issues related to the determination of the normal rate of profit.
There's a discussion among post-Kinsons whether Sravyans should be kicked out of the post-Kinsons school or whether they should be kept in the post-Kinsons school, and in December there is this Srava conference in Rome, and this is exactly the topic that I will be discussing.
The title of the paper is, Should Sravyans Get Kicked Out of the Post-Kinsons School? And the Srava conference. I've decided to give a positive answer. I said, no, no, they shouldn't be kicked out.
So, personally, I do believe that there is a tight relationship between what the Sravyans do and what the other post-Kinsons do, and so to me there is no doubt that they are part of the post-Kinsons school.
It's just that their focus is on relative prices. So, of course, if you're doing accurate economics, you're not going to focus on relative prices, but their other ideas are very much consistent with those of the other post-Kinsons.
In my opinion, we can add those two subcategories. We have the institutionalists, for instance, Fred Lee. I've put Philip Irestis in there. Maybe he would not be very happy about that. I don't know.
But, you know, these people are concerned with the institutions, with the banking system, perhaps with the role of the government in the economy.
And I did put it in, but Galbraith would be there. Galbraith wrote the first article in the Journal of Post-Kins and Economics written by Galbraith.
And then I would have another category called the Caldorians. I would put my co-writer here, who unfortunately passed away a few months ago, Wayne Godley.
And people like Anthony Thirlwall and John Nakambe. So those are people who are very much concerned with the international economy, the balance of payments, problem, and productivity.
So those are the Caldorians. And then you have all kinds of people like Ed Nell, Amitabha Dodge, Randy Ray, myself, younger post-Kinsons that, you know, that can't be put in any of these categories that are in many of them.
And I would say that I hope this is the way to go in the future.
Okay, Post-Kinsons and Economics and Economic Policy. So that's the last part of my presentation. So I have about five, well, maybe ten minutes to talk about.
First, I'll start with a negative side. I don't like to do that. I don't like to define a school of thought as saying, well, those are the things that you must not do or that you must not believe.
However, there is some usefulness in talking about it this way. So I think that all these theoretical constructs or theoretical beliefs are indeed rejected by either all post-Kinsons or most post-Kinsons.
So we reject the view of the existence of a natural rate of unemployment or a unique NIRU or a supply-side determined NIRU.
We reject the loadable funds theory. We reject the existence of a single natural rate of interest. We reject the crowding out argument except for the possibility of a psychological crowding out, meaning that if the government has a large deficit, it may get some people who don't know Post-Kinsons and Economics, it may get them worried about the future.
And then because of that, investment may decrease. So it's a purely psychological effect, not a financial effect. Of course, we don't believe it says law. We don't believe that inflation is a military phenomenon.
We don't believe that aggregate employment is determined in the labor market. It's determined in the overall product market. We don't believe that higher saving will lead to higher investment.
There's a lot of confusion about this in neoclassical economics. We don't believe that the current debt constraint is similar to the household constraint. It's not similar to the household income constraint or debt constraint.
We certainly don't believe in the Efficient Market Hypothesis, whatever is formed. We certainly don't believe that unemployment is only due to sticky prices, which is essentially the new kingdom view.
We certainly don't believe also that bank reserves cause bank deposits or bank credits. And we don't believe that unit costs have the standard view shape. We also reject that.
So what defines Keynesians? Well, I've listed a series of things here. Again, not all of my post Keynesians calling may agree with me.
So we believe in the existence of involuntary unemployment, in contrast to several neoclassical economists who don't believe that such a thing does exist. We believe in the principle of effective demand and the paradox of thrift, the existence of an independent investment function.
Well, here is something maybe a bit controversial. Capitalism is the best system, but it needs to be tamed. I think that's essentially that was the position of kings in the 1930s.
And I think it still represents the post Keynesian view.
That markets and financial markets are inherently unstable. We need fiscal counter-cyclical policies. We need some capital movement impediments.
Perhaps managed exchange rates, maybe not for all countries, but certainly for some countries. And these are, okay, I've mentioned these things before.
So while the dangers of wage and price deflection, post Keynesians, we're always concerned about that, but we have discovered that central bankers are also concerned about that now.
So in that sense, we may say that some central bankers are post Keynesians.
So current research, what are post Keynesians working on right now? I've split it into the real side and the money side.
Certainly we can say that there's a lot of work on the determinants of real investment. For instance, Steve Fazzari is very well known by those working on, empirical work on investment.
Most people think that he is a new Keynesian, but in fact he is a post Keynesian. There's no doubt about that.
The balance of payment constraints of growth, there's plenty of articles on that that have been written. The demand-land determinants of the natural real growth, there's some work being done.
A lot of work being done right now on whether our economies are wage-led or profit-led. That's an important topic among post Keynesians.
The impact of real wage increases on productivity. Lots of our studies have shown that the impact is usually positive.
So increasing real wages will not only increase aggregate demand, it will also increase labor productivity.
The impact of changes in income distribution on the financial crisis and the relevance of fiscal policy.
Even when fiscal policy was completely forgotten by our mainstream colleagues, some post Keynesians were still pushing for it before the financial crisis.
Current research on the monetary side. Well, I'm involved in this part. It's the so-called stock flow coherent approach.
It's trying to integrate simultaneously the real side, all these flows of real income production with the financial side, which means all these financial assets and liabilities and flow of funds which occur in the economy.
Of course, there always was a lot of work on financial instability and now the focus is more on instability on the side of the household because of the financial crisis.
Before the crisis, along with the Marxists, post Keynesians got interested in Gilbert in particular with the issue of financialization, the importance that the financial sector was taking in the 1990s, both at the micro and macro level.
Of course, we're involved in research about looking for alternatives to inflation targeting. Central banks are maintained with inflation targeting, but for some time now we've been trying to see what else the central bank could be targeting.
There's this branch of post Keynesian economics called the new chart list. They spent a lot of time trying to see the interdependence between monetary policy, fiscal policy, how all of this is related to our payment system, to the clearing and settlement system in the economy.
It's more institutional work, but I think it's very important. Public debt, public deficit, exchange rate arrangements, just like the neoclassical economists, post Keynesians don't agree between themselves on what is the best exchange rate regime, whether it should be fixed exchange rates or flexible exchange rates.
And then there is this thing here, what is called the fundamental identity, which is the relationship between the financial savings of the private sector plus the financial savings of the public sector, which means the public surplus.
The sum of these two things must be equal to the current account balance. So this identity has been always underlined by some post Keynesians, in particular my co-writer, Wayne Godley, and now it's an identity which is very much used to try to understand global imbalances in the world and to understand the implications.
For instance, in England, if the government decides to cut public expenditures and attempt to reduce the government deficit, what are the implications for the other balances of the economy?
So one can show whether a strategy is consistent or not with this fundamental identity.
Okay, conclusion. So this is the last slide. Well, for sure, the financial crisis has shown that as Torsten was saying, you know, mainstream economics has not been very good in explaining the financial crisis.
So we should certainly look for alternatives and post Keynesian economics is well placed for that. But then we have questions which we have asked ourselves recently, should post Keynesian economists try to engage more with our neoclassical or mainstream colleagues?
Should we care about the kind of work that they do? Or on the other side, should we try to engage more with the other heterodox schools? So there are debates about what direction we should take. Of course, every individual is free to do what he or she wants.
The question is just, you know, what will the majority of us do? And finally, a question which I think is pressing, which is difficult to resolve. I mean, there's a lot of concern among young people, young economists about the future of our planet and the environment.
And then there is this tension between what the ecological economists want, you know, they would like to have an economy where there's very little growth, zero growth, or little growth, so as to protect the environment and save our resources.
And on the other hand, you have the post Keynesians who usually want our economies to grow as fast as possible so that there is a high level of employment. And so how can we resolve this tension between those two groups of heterodox economists who have basically the same presuppositions
but who are looking at it from a quite different angle? Okay, I'll stop here.