Tuesday, April 30, 2013

Steve Keen on the Instability at the Heart of Capitalism

Steve Keen has written two articles here on the issue of stability in modern capitalism:
Steve Keen, “Instability may not be Optional,” Business Spectator, 23 April, 2013.

Steve Keen, “When Stability goes Belly Up,” Business Spectator, 29 April, 2013.
At the rotten heart of neoclassical economics (even the New Keynesian models) is the notion that, if only prices and wages were flexible enough, the economy would converge back to full employment equilibrium. Neoclassical economics thinks self-correction and a type of stability is a real world trait of market economies, but it is a false view.

I think Geoffrey M. Hodgson also makes an insightful observation about neoclassical economics:
“It really concedes too much to neoclassical theory to suggest that it has an adequate theoretical foundation upon which to build any pro- (or anti-) market policy. Neoclassical theory is essentially neither pro-market nor anti-market, because it has no adequate theory of markets at all. Instead of associating it with markets, it would be more accurate to say that neoclassical theory was blind to real markets, and consequently to their virtues or vices.” (Hodgson 2000: 321).
Finally, I am rather more optimistic than Keen is about the role of financial regulation in overcoming the dangers posed by financial systems.

Hodgson, Geoffrey M. 2000. “What Is the Essence of Institutional Economics?,” Journal of Economic Issues 34.2: 317–329.

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