Excellent lecture, Steve, I really enjoy the fruits of your labour. As an electronics engineer and used to rigorous logic, common sense, and mathematical reality I could not understand -- for years -- the bizarre rationalizing and floobydust flung around by mainstream economists. I was convinced for a long time that economics really was the "dismal science". And then, last year, I stumbled on to an interview of yourself and the rest is history. But just prior to that revelation, I bought the Kindle version of a book written by Benoit Mandelbrot called "The (Mis)Behavior of Markets". Yes, he of fractal fame. Anyway, what I did not know was that Professor Mandelbrot had been active for many years in trying to understand the price movements of commodities and stocks. Everyone assumed the price movements were linear but it didn't look that way to Mandelbrot, a mathematician by training. The book details his gradual discovery that price movements are clusters of fractal movements and definitely not linear. The thought that was occurring to me while watching your lecture was that, like fractal math in which complexity is built up from a few simple equations that repeat endlessly and interact with each other, you are also showing the same thing for the dynamics of economic behaviour. I wish you much success on your software program Minsky which I have downloaded and will continue to monitor its progress with delight. Kudos to you, sir!!
I can't thank you enough for all your hard work Steve, you inspired me to do a degree in economics and got me through it. If I ever see you im getting you a beer
Prof Keen, may I ask if you have attempted models with your Minksy software using the @27:30 two-price level analysis? Also, the Phillips curve is about _private sector_ employment, so misses the full employment option should _government_ get their collective heads together and run a job guarantee policy (no inflation bias since it's counter-cyclical and a base wage, not a top end wage pressure). Hence the *Phillips Manifold* is not even 4D it is probably at least a 6-dimensional manifold: $w, \dot{w}, L, \dot{P}_C, \dot{P}_M$, (rates of change of consumer prices (P_C) and import prices (P_M) too) with a 6th independent variable W_J setting the base price level, which would be the job guarantee wage, and dP/dt having a component dW_J/dt that might be an impulse function (once a year change) (normally dW_J/dt would be zero if government keeps the JG wage constant, which they probably should _not_ if dP_M/dt rises, but they could if they were still austerity merchants). When I run a Minsky model I do not lump all employment $L$ as a single aggregate, I have two, L_{private} and L_{public} and the distinction is _all important_ since I can $L_{private} + L_{public} = N$ (full employment) with dP/dt = 0 (approx.). So we only get a Phillips curve (1D bastardization) if we seek to push $L_{private} = N$. I have not considered your two-prices analysis though, that'd be interesting to model.
Yes it's far more complicated than the caricature Neoclassicals use. I haven't--just absence of time as usual. My basic idea is to make that a demand-driven price system with credit being the main source of demand. I have modelled government spending of course, right from my 1995 paper, but I've focused on the pure private sector version since. With Minsky and the cash-flow analysis it allows, it is relatively easy to incorporate both credit and fiat money and demand creation now.
How does this model explain situations like what's happening in the US now, where the federal government is running a perpetual 1-3T deficit, is currently in debt roughly 33T, and private debt is 88T? Any thoughts on this phenomenon?
I would not sya that's the worst offence. Calling rate of change of debt "credit" is so outside conventional word usage it's not an advancement. Credit is the opposite of debt, both are stocks, like positive charge and negative charge in physics. We do not call an electron an "anti-positive" charged particle, though we could (we close to that when calling positrons anti-electrons). And we do not call an electric current anti-charge. If it were up to me to write the dictionary, I'd first leave out aardvark, in classic Blackadder tradition (would not be a genius otherwise) and for _rate of change of credit_ = − _rate of change of debt_ I would have a completely Blackadder-ish word like currocity or credlocity or richpedity.
Awesome PK lecture! But @22:20 damn! I purchased the John Blatt e-book, it had been OCR transcribed to a different format (under friggin DRM) and had typographic errors every g'damn paragraph, so f-ing amatuer. It was so annoying I just wrote the wrote the whole book out in LaTeX. Email me (achrononmaster at gmail) if you want the source. Prof.Keen... can you put the link to the scanned version in the YT notes, so I can check a few typos?
We must have different versions! I find the ebook version (www.taylorfrancis.com/books/edit/10.4324/9781315496290/dynamic-economic-systems-john-blatt) excellent--no mistakes in any of the equations (though they're not stored in a copyable format--you just get a mangle of text). Bit if you've done it in LaTeX, yes I'm definitely interested! I'll email you now. And thanks!
Thank you very much for your lectures, sir. Unfortunately in my country the economical discourse is dominated by Mises' pupils and monetarists and when someone wants to learn anything about economy, they can find mostly texts and videos by so called austrian school. Critical paradigms actually don't exist in the public discussion.
Interesting approach to trying to synthesise the capitalist system into what appears to be a simple matrix of self cancelling terms (closed system?). I'm not an economist but am a keen (excuse the pun....sure you have heard it many times, sorry) follower of markets so here is a question. How would large scale (systemic) bank debt default factor into your zero sum money creation model of capitalism. Your model seemed to factor in interest/rate of repayment of debt but not defaults which is where the bankers seem to find themselves (now) when the complex system spirals into a node of unstable equilibrium. The mechanism they seem to be using is the creation of more money which is multiplied/leveraged up about 10x to make loans to special purpose vehicles to absorb the defaults (ring fencing large losses in the system and casting them into the future). I'm not exactly sure of the mechanism by which the central bank leverages up the money to make these loans to the SPVs but it would appear that it is happening as the quoted multiplier factor of 10 came directly from the horses mouth (ie the current chair of the NY Fed, Powell). Can you please comment on above and also what happens to money when you get slippage in markets? Intuitively slippage would seem to destroy wealth/asset values/money? that once existed, even if that wealth was created out of thin air, ie does slippage remove money from the system or does it just discretely reduce the value of assets in a step change way, ie in terms of money is market slippage neutral to the money supply? Defaults and slippage in markets are the antithesis of equilibrium. In experimental physics they would represent step changes in a variable that is being measured. Any insight into these questions would be appreciated.
Hi ProfSteveKeen. Have you ever thought about incorporating some form of technology monetary deflation into the modelling? Since in say the Minsky model realistically workers share of income might go down as technology improves and increasing spending power of money means they need less to get by at a certain level, that would allow capitalist profits as a whole to stay positive to a point and those profits would be the "investment" that is used to borrow against from banks until technology slows down and workers can't be squeezed further. The profits of the capitalists and bankers would go to zero in such an environment.It would have some level of implications for loanable funds modelling i would think as well as real world.
I am definitely not an economist but there is a question regarding credit I have never understood. When I loan a friend money I need to have the money in my possession to loan it and yet when I go to a bank they can give me credit without having the physical money means to lend it. How can they make credit when there is no cash or something of value they own backing it? This is probably a silly question but I just do not get it. I think this is part of the trash the world economy is in trouble regarding personal debt.
It's because money is effectively a bank's promise to pay: an IOU. You can issue IOUs too, which your friends might accept, but third parties who don't know you won't. If you issue an IOU, it's a liability to you and an asset to the person who accepts it. If those IOUs traded freely in the economy, you would effectively be a bank. But they don't, because you're not. This is amplified today by government backing of banks: you can insist on cashing in your bank-issued IOU (these days, the electronic record of your bank deposit account) in government-issued notes, which trade at face value everywhere in a well-functioning economy.
One might observe the core similarities present in their works. Keynes might have read the complete body of economic literature (as Marks did) and reach similar conclusions; or he could have read Grundrisse and not cite Marks as a reference. Which of these is the best explanation given the then political climate?
But a lot of this sounds Marxist adjacent. Im not saying that in an inflammatory way I think its cool. It sounds like the economic discourse in mainstream China
@@Gaiafreak6969 depends which post Keynesian you speak to. Joan Robinson later in her career and micael kaleski had a massive appreciation for Marx and his theory of history. Straffa had an appreciation of all classical economics including Marx but rejected a number of his core concepts. So long story short robinsonians and kaleckians appreciate Marx, Straffians have respect for the tradition Marx emerges out of and more Keynesian fundamentalists are more critical of Marx. Geoffrey Harcourt has written a lot of excellent work on the history of post keynesian thought particularly the book the structure of post keynesian economics is filled with a lot of rich detail.
@profstevekeen do you have a manifesto anywhere? Id like to know more about the extent of private/public sector in your "ideal" economy. I believe you support capitalism if it is regulated, I would also like to know how you square support of capitalism when there are externalities which are not "paid for" and in many cases not of the same value as money. I really like your work whenever I have read it but would like to know more about policies you support aside from a debt jubilee, and I believe somewhere you said to get rid of 90% or speculation. Thanks for all the hard work Steve, all the best
@46:28 Bernanke's argument is perfectly fine .... as a _reductio ad absurdem_ proof _against_ Neoclassical/NK theory. IF (neoclass. is correct) THEN pure redistribution should have no effect. & credit does have a huge effect (great recessions) => ok boomer, thus neoclass. is false by _modus tollens._
All of these models are based upon currency as debt! What about an economic model that involved nations being able to issue their own debt free currency? In my understanding the boom/bust cycle is not an inevitability of capitalism but a result of inflating or constraining the currency supply. We live in a world where a cartel of bankers control the currency supply of nations and can intentionally create boom/busts to suit their own agenda. Any economic reform policy must involve ending this power of the international banking cartel.
for example the correlation between credit and unemployment that you discussed. Couldn't you also frame it as a relationship between unemployment and the contraction of the currency supply? Who is responsible for the contraction of the currency supply?... ding ding ding
'This “equilibrium” graph (Figure 3) and the ideas behind it have been re-iterated so many times in the past half-century that many observes assume they represent one of the few firmly proven facts in economics. Not at all. There is no empirical evidence whatsoever that demand equals supply in any market and that, indeed, markets work in the way this story narrates. We know this by simply paying attention to the details of the narrative presented. The innocuous assumptions briefly mentioned at the outset are in fact necessary joint conditions in order for the result of equilibrium to be obtained. There are at least eight of these result-critical necessary assumptions: Firstly, all market participants have to have “perfect information”, aware of all existing information (thus not needing lecture rooms, books, television or the internet to gather information in a time-consuming manner; there are no lawyers, consultants or estate agents in the economy). Secondly, there are markets trading everything (and their grandmother). Thirdly, all markets are characterized by millions of small firms that compete fiercely so that there are no profits at all in the corporate sector (and certainly there are no oligopolies or monopolies; computer software is produced by so many firms, one hardly knows what operating system to choose…). Fourthly, prices change all the time, even during the course of each day, to reflect changed circumstances (no labels are to be found on the wares offered in supermarkets as a result, except in LCD-form). Fifthly, there are no transaction costs (it costs no petrol to drive to the supermarket, stock brokers charge no commission, estate agents work for free - actually, don’t exist, due to perfect information!). Sixthly, everyone has an infinite amount of time and lives infinitely long lives. Seventhly, market participants are solely interested in increasing their own material benefit and do not care for others (so there are no babies, human reproduction has stopped - since babies have all died of neglect; this is where the eternal life of the grown-ups helps). Eighthly, nobody can be influenced by others in any way (so trillion-dollar advertising industry does not exist, just like the legal services and estate agent industries). It is only in this theoretical dreamworld defined by this conflagration of wholly unrealistic assumptions that markets can be expected to clear, delivering equilibrium and rendering prices the important variable in the economy - including the price of money as the key variable in the macroeconomy. This is the origin of the idea that interest rates are the key variable driving the economy: it is the price of money that determines economic outcomes, since quantities fall into place.' professorwerner.org/shifting-from-central-planning-to-a-decentralised-economy-do-we-need-central-banks/ “The focus on equilibrium and prices is due to the hypothetico-axiomatic method, a.k.a. the deductive methodology. The axioms are postulated that people are individualistic and focus on maximising their own satisfaction (named ‘utility’, in honour of Jeremy Bentham, the first economist to argue for the legalisation of the then banned practice of charging interest; Bentham, 1787). Next, a number of assumptions are made: perfect and symmetric information, complete markets, perfect competition, zero transaction costs, no time constraints, fully flexible and instantaneously adjusting prices. McCloskey (1983) has argued that economics has been using mathematical rhetoric to enhance the impression of operating scientifically. Equilibrium will not obtain, if only one of the axioms and assumptions fails to hold. But their accuracy is not tested. Yet, one can estimate the probability of obtaining equilibrium. Despite the claims to rigour, the pervasive equilibrium argument and focus on prices reveal a weak grasp of probability mathematics: Since for partial equilibrium in any market, at least the above eight conditions have to be met, if one generously assumed each condition is more likely to hold than not - corresponding to a probability higher than 50%, for instance, 55% - then the probability of equilibrium equals the joint probability of all conditions, which is 0.55 to the power of 8: less than 1%. As the probability of each of the eight conditions being an accurate representation of reality is likely significantly lower than 55% (most having a probability approaching zero themselves), it is apparent that the probability of partial equilibrium in any one market approaches zero (Werner, 2014b). For equilibrium in all markets, these very low probabilities have to be multiplied by each other many times. So we know a priori that partial, let alone general equilibrium cannot be expected in reality. Equilibrium is a theoretical construct unlikely to be observed in practice. This demonstrates that reality is instead characterised by rationed markets. These are not determined by prices, but quantities: In disequilibrium, the short side principle applies: whichever quantity of supply and demand is smaller can be transacted, and the short side has the power to pick and choose with whom to trade (not rarely abusing this market power by extracting ‘rents’, see Werner, 2005).1 Without equilibrium, quantities become more important than prices.” www.sciencedirect.com/science/article/pii/S0921800916307510#bb0295
Excellent Lecture! Dr. Keen is the renaissance man of economics!
Excellent lecture, Steve, I really enjoy the fruits of your labour. As an electronics engineer and used to rigorous logic, common sense, and mathematical reality I could not understand -- for years -- the bizarre rationalizing and floobydust flung around by mainstream economists. I was convinced for a long time that economics really was the "dismal science". And then, last year, I stumbled on to an interview of yourself and the rest is history. But just prior to that revelation, I bought the Kindle version of a book written by Benoit Mandelbrot called "The (Mis)Behavior of Markets". Yes, he of fractal fame. Anyway, what I did not know was that Professor Mandelbrot had been active for many years in trying to understand the price movements of commodities and stocks. Everyone assumed the price movements were linear but it didn't look that way to Mandelbrot, a mathematician by training. The book details his gradual discovery that price movements are clusters of fractal movements and definitely not linear. The thought that was occurring to me while watching your lecture was that, like fractal math in which complexity is built up from a few simple equations that repeat endlessly and interact with each other, you are also showing the same thing for the dynamics of economic behaviour. I wish you much success on your software program Minsky which I have downloaded and will continue to monitor its progress with delight. Kudos to you, sir!!
I can't thank you enough for all your hard work Steve, you inspired me to do a degree in economics and got me through it. If I ever see you im getting you a beer
Really good.
Is the "The Elgar Companion to Post Keynesian Economics" a good book to get into post keynesians economics?
Prof Keen, may I ask if you have attempted models with your Minksy software using the @27:30 two-price level analysis? Also, the Phillips curve is about _private sector_ employment, so misses the full employment option should _government_ get their collective heads together and run a job guarantee policy (no inflation bias since it's counter-cyclical and a base wage, not a top end wage pressure). Hence the *Phillips Manifold* is not even 4D it is probably at least a 6-dimensional manifold: $w, \dot{w}, L, \dot{P}_C, \dot{P}_M$, (rates of change of consumer prices (P_C) and import prices (P_M) too) with a 6th independent variable W_J setting the base price level, which would be the job guarantee wage, and dP/dt having a component dW_J/dt that might be an impulse function (once a year change) (normally dW_J/dt would be zero if government keeps the JG wage constant, which they probably should _not_ if dP_M/dt rises, but they could if they were still austerity merchants). When I run a Minsky model I do not lump all employment $L$ as a single aggregate, I have two, L_{private} and L_{public} and the distinction is _all important_ since I can $L_{private} + L_{public} = N$ (full employment) with dP/dt = 0 (approx.). So we only get a Phillips curve (1D bastardization) if we seek to push $L_{private} = N$.
I have not considered your two-prices analysis though, that'd be interesting to model.
Yes it's far more complicated than the caricature Neoclassicals use.
I haven't--just absence of time as usual. My basic idea is to make that a demand-driven price system with credit being the main source of demand. I have modelled government spending of course, right from my 1995 paper, but I've focused on the pure private sector version since. With Minsky and the cash-flow analysis it allows, it is relatively easy to incorporate both credit and fiat money and demand creation now.
How does this model explain situations like what's happening in the US now, where the federal government is running a perpetual 1-3T deficit, is currently in debt roughly 33T, and private debt is 88T? Any thoughts on this phenomenon?
Great lecture, as always. A note: there's no cow dung involved in Rasta hair-dos. Bizarre moment in an otherwise top-notch presentation
Oh shit... Someone told me that once... Clearly a shit-stirrer rather than someone who knew. Oh well, I'll drop that reference in future!
I would not sya that's the worst offence. Calling rate of change of debt "credit" is so outside conventional word usage it's not an advancement. Credit is the opposite of debt, both are stocks, like positive charge and negative charge in physics. We do not call an electron an "anti-positive" charged particle, though we could (we close to that when calling positrons anti-electrons). And we do not call an electric current anti-charge. If it were up to me to write the dictionary, I'd first leave out aardvark, in classic Blackadder tradition (would not be a genius otherwise) and for _rate of change of credit_ = − _rate of change of debt_ I would have a completely Blackadder-ish word like currocity or credlocity or richpedity.
Awesome PK lecture! But @22:20 damn! I purchased the John Blatt e-book, it had been OCR transcribed to a different format (under friggin DRM) and had typographic errors every g'damn paragraph, so f-ing amatuer. It was so annoying I just wrote the wrote the whole book out in LaTeX. Email me (achrononmaster at gmail) if you want the source. Prof.Keen... can you put the link to the scanned version in the YT notes, so I can check a few typos?
We must have different versions! I find the ebook version (www.taylorfrancis.com/books/edit/10.4324/9781315496290/dynamic-economic-systems-john-blatt) excellent--no mistakes in any of the equations (though they're not stored in a copyable format--you just get a mangle of text).
Bit if you've done it in LaTeX, yes I'm definitely interested! I'll email you now. And thanks!
thanks, Professor! greetings from Chile!
Thank you very much for your lectures, sir. Unfortunately in my country the economical discourse is dominated by Mises' pupils and monetarists and when someone wants to learn anything about economy, they can find mostly texts and videos by so called austrian school. Critical paradigms actually don't exist in the public discussion.
sounds like your country knows economics 🤝🏿
Interesting approach to trying to synthesise the capitalist system into what appears to be a simple matrix of self cancelling terms (closed system?). I'm not an economist but am a keen (excuse the pun....sure you have heard it many times, sorry) follower of markets so here is a question. How would large scale (systemic) bank debt default factor into your zero sum money creation model of capitalism. Your model seemed to factor in interest/rate of repayment of debt but not defaults which is where the bankers seem to find themselves (now) when the complex system spirals into a node of unstable equilibrium. The mechanism they seem to be using is the creation of more money which is multiplied/leveraged up about 10x to make loans to special purpose vehicles to absorb the defaults (ring fencing large losses in the system and casting them into the future). I'm not exactly sure of the mechanism by which the central bank leverages up the money to make these loans to the SPVs but it would appear that it is happening as the quoted multiplier factor of 10 came directly from the horses mouth (ie the current chair of the NY Fed, Powell). Can you please comment on above and also what happens to money when you get slippage in markets? Intuitively slippage would seem to destroy wealth/asset values/money? that once existed, even if that wealth was created out of thin air, ie does slippage remove money from the system or does it just discretely reduce the value of assets in a step change way, ie in terms of money is market slippage neutral to the money supply? Defaults and slippage in markets are the antithesis of equilibrium. In experimental physics they would represent step changes in a variable that is being measured. Any insight into these questions would be appreciated.
Hi ProfSteveKeen. Have you ever thought about incorporating some form of technology monetary deflation into the modelling? Since in say the Minsky model realistically workers share of income might go down as technology improves and increasing spending power of money means they need less to get by at a certain level, that would allow capitalist profits as a whole to stay positive to a point and those profits would be the "investment" that is used to borrow against from banks until technology slows down and workers can't be squeezed further. The profits of the capitalists and bankers would go to zero in such an environment.It would have some level of implications for loanable funds modelling i would think as well as real world.
I am definitely not an economist but there is a question regarding credit I have never understood. When I loan a friend money I need to have the money in my possession to loan it and yet when I go to a bank they can give me credit without having the physical money means to lend it. How can they make credit when there is no cash or something of value they own backing it? This is probably a silly question but I just do not get it. I think this is part of the trash the world economy is in trouble regarding personal debt.
It's because money is effectively a bank's promise to pay: an IOU. You can issue IOUs too, which your friends might accept, but third parties who don't know you won't. If you issue an IOU, it's a liability to you and an asset to the person who accepts it. If those IOUs traded freely in the economy, you would effectively be a bank. But they don't, because you're not.
This is amplified today by government backing of banks: you can insist on cashing in your bank-issued IOU (these days, the electronic record of your bank deposit account) in government-issued notes, which trade at face value everywhere in a well-functioning economy.
I'm so confused, is post keynesianism a synthesis of keynes and marx?
No. It's the evolution of Keynes actual work as opposed to trying to shoehorn Keynes into monetarism like the self-styled New Keynesians
Post Keybesianism is actual Keybesianism. Mainstream "keynesianism" is watered down neoclassical nonsense
One might observe the core similarities present in their works. Keynes might have read the complete body of economic literature (as Marks did) and reach similar conclusions; or he could have read Grundrisse and not cite Marks as a reference. Which of these is the best explanation given the then political climate?
But a lot of this sounds Marxist adjacent. Im not saying that in an inflammatory way I think its cool. It sounds like the economic discourse in mainstream China
@@Gaiafreak6969 depends which post Keynesian you speak to. Joan Robinson later in her career and micael kaleski had a massive appreciation for Marx and his theory of history. Straffa had an appreciation of all classical economics including Marx but rejected a number of his core concepts.
So long story short robinsonians and kaleckians appreciate Marx, Straffians have respect for the tradition Marx emerges out of and more Keynesian fundamentalists are more critical of Marx.
Geoffrey Harcourt has written a lot of excellent work on the history of post keynesian thought particularly the book the structure of post keynesian economics is filled with a lot of rich detail.
love and greetings from Azerbaijan...
@profstevekeen do you have a manifesto anywhere? Id like to know more about the extent of private/public sector in your "ideal" economy. I believe you support capitalism if it is regulated, I would also like to know how you square support of capitalism when there are externalities which are not "paid for" and in many cases not of the same value as money. I really like your work whenever I have read it but would like to know more about policies you support aside from a debt jubilee, and I believe somewhere you said to get rid of 90% or speculation. Thanks for all the hard work Steve, all the best
It's found here: www.debtdeflation.com/blogs/manifesto/
Thanks
1:19:08
Thank you so much
@46:28 Bernanke's argument is perfectly fine .... as a _reductio ad absurdem_ proof _against_ Neoclassical/NK theory.
IF (neoclass. is correct) THEN pure redistribution should have no effect. & credit does have a huge effect (great recessions) => ok boomer, thus neoclass. is false by _modus tollens._
Excellent :)
52:00
18:00
All of these models are based upon currency as debt! What about an economic model that involved nations being able to issue their own debt free currency? In my understanding the boom/bust cycle is not an inevitability of capitalism but a result of inflating or constraining the currency supply. We live in a world where a cartel of bankers control the currency supply of nations and can intentionally create boom/busts to suit their own agenda. Any economic reform policy must involve ending this power of the international banking cartel.
for example the correlation between credit and unemployment that you discussed. Couldn't you also frame it as a relationship between unemployment and the contraction of the currency supply? Who is responsible for the contraction of the currency supply?... ding ding ding
currency is debt, you can´t issue debt free currency,
this guy gets it
This is by no means an introduction
'This “equilibrium” graph (Figure 3) and the ideas behind it have been re-iterated so many times in the past half-century that many observes assume they represent one of the few firmly proven facts in economics. Not at all. There is no empirical evidence whatsoever that demand equals supply in any market and that, indeed, markets work in the way this story narrates.
We know this by simply paying attention to the details of the narrative presented. The innocuous assumptions briefly mentioned at the outset are in fact necessary joint conditions in order for the result of equilibrium to be obtained. There are at least eight of these result-critical necessary assumptions: Firstly, all market participants have to have “perfect information”, aware of all existing information (thus not needing lecture rooms, books, television or the internet to gather information in a time-consuming manner; there are no lawyers, consultants or estate agents in the economy). Secondly, there are markets trading everything (and their grandmother). Thirdly, all markets are characterized by millions of small firms that compete fiercely so that there are no profits at all in the corporate sector (and certainly there are no oligopolies or monopolies; computer software is produced by so many firms, one hardly knows what operating system to choose…). Fourthly, prices change all the time, even during the course of each day, to reflect changed circumstances (no labels are to be found on the wares offered in supermarkets as a result, except in LCD-form). Fifthly, there are no transaction costs (it costs no petrol to drive to the supermarket, stock brokers charge no commission, estate agents work for free - actually, don’t exist, due to perfect information!). Sixthly, everyone has an infinite amount of time and lives infinitely long lives. Seventhly, market participants are solely interested in increasing their own material benefit and do not care for others (so there are no babies, human reproduction has stopped - since babies have all died of neglect; this is where the eternal life of the grown-ups helps). Eighthly, nobody can be influenced by others in any way (so trillion-dollar advertising industry does not exist, just like the legal services and estate agent industries).
It is only in this theoretical dreamworld defined by this conflagration of wholly unrealistic assumptions that markets can be expected to clear, delivering equilibrium and rendering prices the important variable in the economy - including the price of money as the key variable in the macroeconomy. This is the origin of the idea that interest rates are the key variable driving the economy: it is the price of money that determines economic outcomes, since quantities fall into place.'
professorwerner.org/shifting-from-central-planning-to-a-decentralised-economy-do-we-need-central-banks/
“The focus on equilibrium and prices is due to the hypothetico-axiomatic method, a.k.a. the deductive methodology. The axioms are postulated that people are individualistic and focus on maximising their own satisfaction (named ‘utility’, in honour of Jeremy Bentham, the first economist to argue for the legalisation of the then banned practice of charging interest; Bentham, 1787). Next, a number of assumptions are made: perfect and symmetric information, complete markets, perfect competition, zero transaction costs, no time constraints, fully flexible and instantaneously adjusting prices. McCloskey (1983) has argued that economics has been using mathematical rhetoric to enhance the impression of operating scientifically. Equilibrium will not obtain, if only one of the axioms and assumptions fails to hold. But their accuracy is not tested. Yet, one can estimate the probability of obtaining equilibrium.
Despite the claims to rigour, the pervasive equilibrium argument and focus on prices reveal a weak grasp of probability mathematics: Since for partial equilibrium in any market, at least the above eight conditions have to be met, if one generously assumed each condition is more likely to hold than not - corresponding to a probability higher than 50%, for instance, 55% - then the probability of equilibrium equals the joint probability of all conditions, which is 0.55 to the power of 8: less than 1%. As the probability of each of the eight conditions being an accurate representation of reality is likely significantly lower than 55% (most having a probability approaching zero themselves), it is apparent that the probability of partial equilibrium in any one market approaches zero (Werner, 2014b). For equilibrium in all markets, these very low probabilities have to be multiplied by each other many times. So we know a priori that partial, let alone general equilibrium cannot be expected in reality. Equilibrium is a theoretical construct unlikely to be observed in practice. This demonstrates that reality is instead characterised by rationed markets. These are not determined by prices, but quantities: In disequilibrium, the short side principle applies: whichever quantity of supply and demand is smaller can be transacted, and the short side has the power to pick and choose with whom to trade (not rarely abusing this market power by extracting ‘rents’, see Werner, 2005).1
Without equilibrium, quantities become more important than prices.”
www.sciencedirect.com/science/article/pii/S0921800916307510#bb0295
bro u are holding out on too much knowledge, you have to do more videos like this....