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jsp
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12-28-2009, 09:28 AM

What Keen has stressed is that the economy is a very dynamic system, not a static one. He criticizes the economists who view the economy as almost always in equilibrium, when it most certainly isn't. Therefore, differential equations (or system dynamics) should be the tool used to model such a dynamic system, and he ridicules the economists who have such a sparse knowledge of the mathematical tools that nearly all engineers have learned/used at some time or another.

Here's a little snippet from his blog that highlight what he feels as the "three neoclassical myths" of mainstream economics...

Quote:
...Just three key neoclassical myths suffice to explain why they do not understand the dynamics of our credit driven society. They believe that:

(1) The nominal money supply doesn’t affect real economic output;

(2) The private sector is rational while the government sector is not; and

(3) That they can model the economy as if it is in equilibrium.

The first myth means that they ignore money and debt in their mathematical models: most neoclassical models are in “real” terms and completely omit both money and debt. So since debt doesn’t even turn up in their models, they are unaware of its influence (even though their statistical units do a very good job of recording the actual level of debt).

The second myth means that they are quite willing to obsess about government debt, but they implicitly believe that private debt has been incurred for sensible reasons so that it can’t cause any problems.

The third myth means that they ignore evidence that indicates that the economy is very far removed from equilibrium, and they misunderstand the effect of crucial variables in the disequilibrium environment in which we actually live.
http://www.debtdeflation.com/blogs/2...lling-the-gfc/

Last edited by jsp; 12-28-2009 at 09:31 AM.
  
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