Simplifying Complexity The dynamics of financial instability
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Dec 9, 2024 
Steve Keen, an accomplished economist and Honorary Professor at University College London, delves into the failures of neoclassical economics versus post-Keynesian thought. He emphasizes how complexity science and chaos theory can illuminate economic cycles of booms and busts. Keen critiques the flawed aggregation in neoclassical models and argues for integrating private debt into frameworks. He champions multi-agent modeling and government intervention in financial systems to foster stability and prevent crises, making a compelling case for rethinking economic dynamics.
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Post-Keynesian Economics: Pragmatism and Empiricism
- Post-Keynesian economics, diverging from mainstream thought after Keynes, emphasizes pragmatism and empirical data.
- It acknowledges uncertainty, uses realistic production functions, and focuses on the role of money, unlike neoclassical macroeconomics.
Deriving Macroeconomics from Macro Definitions
- Steve Keen argues against deriving macroeconomics solely from microeconomics, citing the example of biology not being derivable from organic chemistry.
- He proposes deriving macroeconomics from macroeconomic definitions, similar to how biology observes and theorizes based on observations.
Minsky's Financial Instability Hypothesis
- Minsky's financial instability hypothesis posits that capitalist booms lead to unsustainable debt levels, causing busts.
- Keen derives this from definitions like employment rate, wage share, and private debt ratio, highlighting the cyclical nature of financial instability.