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Discussion Of Steve Keen’s AS-AD Curves And A Suggestion For A New Stock-Flow Equilibrium Approach

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Dear Phil,There’s a segment in the Hitchhikers Guide to the Galaxy where Arthur Dent orders a tea from a hyper-intelligent dispensing machine, and gets given something that is almost, but not quite, completely unlike tea.This post almost, but not quite, completely misrepresents my approach to economics. No offense taken, but if you’re going to write a blog post with my name in the title, at least read the relevant paper next time.I think That particular line comes from a lead up to my Economics E-journal paper (aspects of which, especially not using double entry bookkeeping, I am now critical of) in which I was trying to explain how monetary profits were possible when much of the Circuit literature asserted they were not - in a stock-flow confusion. I needed a pricing equation for that and

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Dear Phil,

There’s a segment in the Hitchhikers Guide to the Galaxy where Arthur Dent orders a tea from a hyper-intelligent dispensing machine, and gets given something that is almost, but not quite, completely unlike tea.

This post almost, but not quite, completely misrepresents my approach to economics. No offense taken, but if you’re going to write a blog post with my name in the title, at least read the relevant paper next time.

I think That particular line comes from a lead up to my Economics E-journal paper (aspects of which, especially not using double entry bookkeeping, I am now critical of) in which I was trying to explain how monetary profits were possible when much of the Circuit literature asserted they were not - in a stock-flow confusion. I needed a pricing equation for that and its was derived from that statement.

It then turned out to be identical to Kalecki’s pricing equation. And if you did know my work then you’d realize that I immediately put it into a differential equation as a dynamic first order time lag condition, and that while this converged to equilibrium in the simple linear model in “solving the paradox of monetary profits", in a fuller dynamic model convergence to equilibrium does not happen.

I don’t often find myself agreeing with Ramanan, but here I do: it’s the dynamic statement that matters, and curves don’t cut it. You won’t find a single static diagram in any of my models, let alone an AS-AD diagram.

If you do want to check my arguments at all, this paper is a better starting point - though thanks to Matheus Grasselli, I’m now aware of errors in the final model there that I am now working on:

http://onlinelibrary.wiley.com/store/10.1111/1475-4932.12016/asset/ecor12016.pdf?v=1&t=ho1wxgjm&s=6b656ef88f95ff4a165e7ed35db6650ce7fd544f

I’ll finish on my opening point. One of the reasons economics has become the dogs breakfast that it is today is because of poor scholarship.

Hicks’s original IS-LM is a good instance; though Krugman is correct that passages in Keynes can be interpreted in this way, PKs should know that IS-LM was actually Hicks’s “bread economy" model that pre-dated his exposure to Keynes.

Let’s not repeat those errors of poor scholarship ourselves. We’ll never “fix the economists" if we do.

Cheers, Steve Keen

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