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Transcript of Kapeller - Pluralist and heterodox economics
Jakob Kapeller University Duisburg-Essen & Johannes Kepler University Linz
Chair for Socioeconomics
www.jakob-kapeller.org | www.icae.at | www.heterodoxnews.com
Galway, 14-16 March 2017
Pluralist and heterodox economics: Conceptual clarification and exemplary applications
Jakob Kapeller
Agenda
• Pluralist economics? • Three major reasons / motivations for pluralism in economics
• Heterodox economics? • The emergence of heterodox economics
• Pure opposition or coherent research program?
• Mainstream, Heterodoxy and Pluralism
• Pluralist heterodoxy: Exemplary applications • Operationalizing pluralism
• ‚Integration’: Minsky-Veblen Cycles as a pluralist take on the crisis
• ‚Diversification‘: A peek on European Disintegration
2
pluralist economics?
Jakob Kapeller
“Popper, Objective Knowledge, p. 266
Whenever a theory appears to you as the only possible one, take this as a sign that you have neither understood the theory nor the problem which it was intended to solve.
pluralism, fallibilism and the certainty of knowledge
4
Jakob Kapeller
“Albert (1991): Treatise on critical reason,Translation JK
all certainties of knowledge are manufactured and, as such, worthless for the assessment of reality“
pluralism, fallibilism and the certainty of knowledge
5
Jakob Kapeller
“Robbins (1932): An Essay on the Nature and Significance of Economic Science, p. 1
The efforts of economists during the last hundred and fifty years have resulted in the establishment of a body of generalisations whose substantial accuracy and importance are open to question only by the ignorant or the perverse.“
pluralism, fallibilism and the certainty of knowledge: economics as counterfactual case?
6
Jakob Kapeller
“Kurt W. Rothschild (1999): To Push and to be Pushed, 5
[A] plurality of paradigms in economics and in social sciences in general is not only an obvious fact but also a necessary and desirable phenomenon in a very complex and continually changing subject.“
pluralism and the complexity of social phenomena
7
Jakob Kapeller
pluralism and the complexity of social phenomena
• The empirical justification: reality is messy and diverse.
• Social phenomena are multifaceted, diverse and constantly changing, which allows or
even affords taking a variety of perspectives on a given subject.
• Different theories are possible more like maps for diverse tasks (driving a car, navigating
a ship, hiking...), i.e. serving different purposes (Giere 1999)
• Why ‚reality is messy?‘ — different angles on problem + low power of tests to weed out
true theories
8
Jakob Kapeller
pluralism and the complexity of social phenomena
• The empirical justification: reality is messy and diverse.
• Social phenomena are multifaceted, diverse and constantly changing, which allows or
even affords taking a variety of perspectives on a given subject.
• Different theories are possible more like maps for diverse tasks (driving a car, navigating
a ship, hiking...), i.e. serving different purposes (Giere 1999)
• Why ‚reality is messy?‘ — different angles on problem + low power of tests to weed out
true theories
8
Jakob Kapeller
pluralism and the complexity of social phenomena
• The empirical justification: reality is messy and diverse.
• Social phenomena are multifaceted, diverse and constantly changing, which allows or
even affords taking a variety of perspectives on a given subject.
• Different theories are possible more like maps for diverse tasks (driving a car, navigating
a ship, hiking...), i.e. serving different purposes (Giere 1999)
• Why ‚reality is messy?‘ — different angles on problem + low power of tests to weed out
true theories
8
• Different Theories are then not necessarily
always antagonistic, but may also be
complementary or neutral to each other.
Jakob Kapeller9
P
Jakob Kapeller9
P
Jakob Kapeller9
P
Jakob Kapeller9
P
Increase in Economic Inequality
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Technological Change: returns on human capital
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Technological Change: returns on human capital
Increasing Hierarchy in Labour Markets: working poor vs.
manager bonus
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Technological Change: returns on human capital
Increasing Hierarchy in Labour Markets: working poor vs.
manager bonus
Macroeconomics: decrease in demand
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Technological Change: returns on human capital
Increasing Hierarchy in Labour Markets: working poor vs.
manager bonus
Macroeconomics: decrease in demand
Health: more poverty - worse state of health
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Technological Change: returns on human capital
Increasing Hierarchy in Labour Markets: working poor vs.
manager bonus
Macroeconomics: decrease in demand
Health: more poverty - worse state of health
Politics: more power for business elites.
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Technological Change: returns on human capital
Increasing Hierarchy in Labour Markets: working poor vs.
manager bonus
Macroeconomics: decrease in demand
Health: more poverty - worse state of health
Politics: more power for business elites.
Happiness: decrease or stagnation in
spite of growth
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Technological Change: returns on human capital
Increasing Hierarchy in Labour Markets: working poor vs.
manager bonus
Macroeconomics: decrease in demand
Health: more poverty - worse state of health
Politics: more power for business elites.
Happiness: decrease or stagnation in
spite of growth
Financial markets: increase in speculation and
bad loans
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Technological Change: returns on human capital
Increasing Hierarchy in Labour Markets: working poor vs.
manager bonus
Macroeconomics: decrease in demand
Health: more poverty - worse state of health
Politics: more power for business elites.
Happiness: decrease or stagnation in
spite of growth
Financial markets: increase in speculation and
bad loans
Keynes
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Technological Change: returns on human capital
Increasing Hierarchy in Labour Markets: working poor vs.
manager bonus
Macroeconomics: decrease in demand
Health: more poverty - worse state of health
Politics: more power for business elites.
Happiness: decrease or stagnation in
spite of growth
Financial markets: increase in speculation and
bad loans
Keynes
Evolutionary Economics
Jakob Kapeller9
P
Increase in Economic Inequality
Tax Policy: decrease of top marginal tax rates
Globalization: more freedom for capital-flows
Power: weaker unions
Technological Change: returns on human capital
Increasing Hierarchy in Labour Markets: working poor vs.
manager bonus
Macroeconomics: decrease in demand
Health: more poverty - worse state of health
Politics: more power for business elites.
Happiness: decrease or stagnation in
spite of growth
Financial markets: increase in speculation and
bad loans
Keynes
Evolutionary Economics
Neoclassical
Jakob Kapeller
“Albert 1991, 61, translation JK
…monism of theories [...] can easily have the consequence of using facts only for the illustration or backup of the predominant theory, and interpreting them in a compliant way.”
pluralism, openness and the appraisal of theories
10
Jakob Kapeller
Does science need pluralism?
• Three major reason for pluralism in science and economics:
• (1) Fallibilism: As there is no certainty a perfect theory, which can never be improved or
replaced by a superior alternative, can never be found. Diversity in ideas is crucial for
avoiding dogmatism.
• (2) Social phenomena are complex and multi-faceted, which might require a diversity
of perspectives to adequately understand and address a given problem or phenomenon.
Theories are only „partial theories“ (Rothschild).
• (3) Practical requirements in theory-appraisal: openness vs. prejudice in theory-testing.
Without theoretical alternatives falsification is impossible (as falsification requires the
corroboration of an alternative theory - no falsification without alternative!)
11
heterodox economics a short history
Jakob Kapeller
Paradigms in economics: a rough view
13
Dobusch, Leonhard und Kapeller, Jakob: „Heterodox United vs. Mainstream City? - Sketching a Framework for Interested Pluralism in Economics“ Journal of Economic Issues, 46(4): 1035-1057.
Jakob Kapeller
“Paul Davidson’s personal recollection of one reviewer of a failed NSF grant in 1980; cited according to King (2003, 134)
It is true that Davidson has a very good track record and surprisingly good publications, but he marches to a different drummer. If he is marching to a different drummer, if his music is different, then he ought to get his own money and not use ours.“
Path-dependent paradigmatic patterns in economics
14
Jakob Kapeller
Path-dependent paradigmatic patterns in economics
15
Jakob Kapeller
Path-dependent paradigmatic patterns in economics
15
Journal of Economic Issues, 1969
Jakob Kapeller
Path-dependent paradigmatic patterns in economics
15
Journal of Economic Issues, 1969
Review of Radical Political Economics, 1969
Jakob Kapeller
Path-dependent paradigmatic patterns in economics
15
Journal of Economic Issues, 1969
Review of Radical Political Economics, 1969
Cambridge Journal of Economics, 1977
Jakob Kapeller
Path-dependent paradigmatic patterns in economics
15
Journal of Economic Issues, 1969
Review of Radical Political Economics, 1969
Cambridge Journal of Economics, 1977
Journal of Post-Keynesian Economics, 1978
Jakob Kapeller
Path-dependent paradigmatic patterns in economics
15
Journal of Economic Issues, 1969
Review of Radical Political Economics, 1969
Cambridge Journal of Economics, 1977
Journal of Post-Keynesian Economics, 1978
Ecological Economics, 1989
Jakob Kapeller
“
Rothschild (2008), Apropos Keynesianer, 25,Translation JK
The confrontation heterodoxy vs. mainstreams emerges from the current state of contemporary economics, which is characterized by a strong preference for neoclassical approaches and assumptions. Such a research orientation is fostered by economic teaching and plays a decisive role for career-prospects in academia. This lopsidedness affects all non-neoclassical and critical approaches, which explains and justifies the emergence of a ‚heterodoxy‘ in economics.“
Path-dependent paradigmatic patterns in economics
16
Jakob Kapeller
Heterodox economics in the rear-mirror
17
Jakob Kapeller
Heterodox economics in the rear-mirror
17
since the middle of the 90ies: umbrella-term for alternatives to the standard economic approach.
heterodox economics opposition or coherence?
Jakob Kapeller
“
Dequech (2007-8), JPKE, p. 301
One can define heterodox economics negatively, in opposition either to the orthodoxy or to the mainstream. The first alternative is based on intellectual criteria (the divergence from at least some of the main orthodox ideas), and the second on sociological ones (lesser prestige and influence). […] Another possibility would be to define heterodox economics positively, as an intellectual category that is not defined exclusively in opposition to orthodox. When applying this positive concept historically, the result may be an empty set.“
Heterodoxy as pure opposition?
19
Jakob Kapeller
“
Heterodox Economics Newsletter:What is heterodox economics?http://heterodoxnews.com/HEN/home.html
Heterodox Economics is an umbrella term covering various strands of economic thought as well as a series of interdisciplinary research fields. While heterodox economics is internally highly diversified, most heterodox economists agree on certain conceptual definitions (e.g. doing economics is to study the process of social provisioning in a broad sense), theoretical foundations (e.g. the role of uncertainty in economic action or the importance of the principles of effective demand and endogenous money) and a common epistemological framework, that takes the form of pluralist engagement.
Heterodoxy as a coherent research program?
20
Jakob Kapeller
A pre-analytic vision of heterodoxy
• Mainstream: Scarce means - competing ends
• Methodological individualism, rationality, equilibrium (Lagrange-Opt…)
• Heterodoxy: ?
21
Jakob Kapeller
A pre-analytic vision of heterodoxy
• Mainstream: Scarce means - competing ends
• Methodological individualism, rationality, equilibrium (Lagrange-Opt…)
• Heterodoxy: ?
21
• 1. basic question: How do men organize their livelihood/societies organize their provisioning process?
Jakob Kapeller
A pre-analytic vision of heterodoxy
• Mainstream: Scarce means - competing ends
• Methodological individualism, rationality, equilibrium (Lagrange-Opt…)
• Heterodoxy: ?
21
• 1. basic question: How do men organize their livelihood/societies organize their provisioning process?
Jakob Kapeller
A pre-analytic vision of heterodoxy
• Mainstream: Scarce means - competing ends
• Methodological individualism, rationality, equilibrium (Lagrange-Opt…)
• Heterodoxy: ?
21
• 1. basic question: How do men organize their livelihood/societies organize their provisioning process?
• 2. ontology: bottom-up & top-down matter!
Jakob Kapeller
A pre-analytic vision of heterodoxy
• Mainstream: Scarce means - competing ends
• Methodological individualism, rationality, equilibrium (Lagrange-Opt…)
• Heterodoxy: ?
21
• 1. basic question: How do men organize their livelihood/societies organize their provisioning process?
• 2. ontology: bottom-up & top-down matter!
Jakob Kapeller
A pre-analytic vision of heterodoxy
22
Jakob Kapeller
A pre-analytic vision of heterodoxy
22
• 3. the ‚embedded‘ economy: Society and economy are intertwined and mutually dependend — the same holds for the economic sciences!
Jakob Kapeller
A pre-analytic vision of heterodoxy
22
• 3. the ‚embedded‘ economy: Society and economy are intertwined and mutually dependend — the same holds for the economic sciences!
Society
Economy Science
Jakob Kapeller
A pre-analytic vision of heterodoxy
22
• 3. the ‚embedded‘ economy: Society and economy are intertwined and mutually dependend — the same holds for the economic sciences!
• 4. economic development: … is driven by interconnected individuals - connections can be understood as trust, contracts, dependencies or circular flows.
Society
Economy Science
Jakob Kapeller
A pre-analytic vision of heterodoxy
22
• 3. the ‚embedded‘ economy: Society and economy are intertwined and mutually dependend — the same holds for the economic sciences!
• 4. economic development: … is driven by interconnected individuals - connections can be understood as trust, contracts, dependencies or circular flows.
Firms Households
Financial Sector
Aggregate Income
Consumption
Saving Investment
1000
750
250 250
∑= 1000
Society
Economy Science
Jakob Kapeller
A pre-analytic vision of heterodoxy
22
• 3. the ‚embedded‘ economy: Society and economy are intertwined and mutually dependend — the same holds for the economic sciences!
• 4. economic development: … is driven by interconnected individuals - connections can be understood as trust, contracts, dependencies or circular flows.
• 5. inequality: … as a core explanatory variable; not only as a residual.
Firms Households
Financial Sector
Aggregate Income
Consumption
Saving Investment
1000
750
250 250
∑= 1000
Society
Economy Science
Jakob Kapeller
A pre-analytic vision of heterodoxy
22
• 3. the ‚embedded‘ economy: Society and economy are intertwined and mutually dependend — the same holds for the economic sciences!
• 4. economic development: … is driven by interconnected individuals - connections can be understood as trust, contracts, dependencies or circular flows.
• 5. inequality: … as a core explanatory variable; not only as a residual.
Firms Households
Financial Sector
Aggregate Income
Consumption
Saving Investment
1000
750
250 250
∑= 1000
Society
Economy Science
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream Heterodoxy
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Economy as… independent of society. embedded in society.
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Economy as… independent of society. embedded in society.
Capitalism as… steady-state. inherently instable.
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Economy as… independent of society. embedded in society.
Capitalism as… steady-state. inherently instable.
Markets as… Price-equilibriation Arena of power and forum for ideas
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Economy as… independent of society. embedded in society.
Capitalism as… steady-state. inherently instable.
Markets as… Price-equilibriation Arena of power and forum for ideas
Market outcomes… are supply-determined. are demand-determined.
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Economy as… independent of society. embedded in society.
Capitalism as… steady-state. inherently instable.
Markets as… Price-equilibriation Arena of power and forum for ideas
Market outcomes… are supply-determined. are demand-determined.
Financial sector… as an intermediary. as driving force (stakeholder & rents!).
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Economy as… independent of society. embedded in society.
Capitalism as… steady-state. inherently instable.
Markets as… Price-equilibriation Arena of power and forum for ideas
Market outcomes… are supply-determined. are demand-determined.
Financial sector… as an intermediary. as driving force (stakeholder & rents!).
Free trade as… Extension of production possibilities. Race for the best location & path-dep.
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Economy as… independent of society. embedded in society.
Capitalism as… steady-state. inherently instable.
Markets as… Price-equilibriation Arena of power and forum for ideas
Market outcomes… are supply-determined. are demand-determined.
Financial sector… as an intermediary. as driving force (stakeholder & rents!).
Free trade as… Extension of production possibilities. Race for the best location & path-dep.
Preferences as… exogenous. endogenous.
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Economy as… independent of society. embedded in society.
Capitalism as… steady-state. inherently instable.
Markets as… Price-equilibriation Arena of power and forum for ideas
Market outcomes… are supply-determined. are demand-determined.
Financial sector… as an intermediary. as driving force (stakeholder & rents!).
Free trade as… Extension of production possibilities. Race for the best location & path-dep.
Preferences as… exogenous. endogenous.
Reason? purely instrumental. virtue-based and instrumental.
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Economy as… independent of society. embedded in society.
Capitalism as… steady-state. inherently instable.
Markets as… Price-equilibriation Arena of power and forum for ideas
Market outcomes… are supply-determined. are demand-determined.
Financial sector… as an intermediary. as driving force (stakeholder & rents!).
Free trade as… Extension of production possibilities. Race for the best location & path-dep.
Preferences as… exogenous. endogenous.
Reason? purely instrumental. virtue-based and instrumental.
Action? Opportunistic. Context-dependend! (rules, habits, cooperation, reciprocity, identity).
Jakob Kapeller
Heterodoxy vs. Mainstream Conceptual cornerstones on the textbook level
23
Mainstream HeterodoxyEconomy as… problem of allocation. problem of provisioning.
Economy as… independent of society. embedded in society.
Capitalism as… steady-state. inherently instable.
Markets as… Price-equilibriation Arena of power and forum for ideas
Market outcomes… are supply-determined. are demand-determined.
Financial sector… as an intermediary. as driving force (stakeholder & rents!).
Free trade as… Extension of production possibilities. Race for the best location & path-dep.
Preferences as… exogenous. endogenous.
Reason? purely instrumental. virtue-based and instrumental.
Action? Opportunistic. Context-dependend! (rules, habits, cooperation, reciprocity, identity).
Aims? Maximization Satisficing / Well-being (Eudämonia).
heterodox economics interaction with the mainstream?
Jakob Kapeller
Heterodoxy, mainstream and pluralism
25
97.15%'
47.58%'
2.85%'
52.42%'
0.00%'
20.00%'
40.00%'
60.00%'
80.00%'
100.00%'
120.00%'
in'top'13'orthodox' in'top'13'heterodox'
Interparadigma,c.Discourse.in.Economics.(198982008).
percentage'of'cita<ons'from'top'13'orthodox'journals' percentage'of'cita<ons'from'top'13'heterodox'journals'
Jakob Kapeller
Heterodoxy, mainstream and pluralism A control group
26
97.15%'91.09%'
2.85%'8.91%'
0.00%'
20.00%'
40.00%'
60.00%'
80.00%'
100.00%'
120.00%'
top'13'orthodox'and'top13'heterodox' top'13'orthodox'and'control'group'
Interparadigma,c.Discourse.in.Economics.(198982008):.Adding.a.control.group.
percentage'of'cita>ons'from'top'13'orthodox'journals' percentage'of'cita>ons'from'other'group'
Jakob Kapeller
Heterodoxy, mainstream and pluralism After the crisis
27
97.61%'
24.58%'
2.39%'
74.42%'
0.00%'
20.00%'
40.00%'
60.00%'
80.00%'
100.00%'
120.00%'
in'top'13'orthodox' in'top'13'heterodox'
Interparadigma,c.Discourse.in.Economics.(200982013).
percentage'of'cita<ons'from'top'13'orthodox'journals' percentage'of'cita<ons'from'top'13'heterodox'journals'
Jakob Kapeller
Heterodoxy, mainstream and pluralism A large-scale sample
28
98.30%
69.08%
1.70%
30.92%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
orthodoxjournals(>350.000papers} heterodoxjournals(>50.000papers)
Interparadigma,cDiscourseinEconomics(1969-2013):Analyzingalarge-scalesample
percentageofcitaDonsfromorthodoxjournals(>2.1McitaDons)
percentageofcitaDonsfromheterodoxjournals(>180.000citaDons)
Jakob Kapeller
Heterodoxy, mainstream and pluralism A different view on our large-scale sample
29
Jakob Kapeller
What does mainstream economics think about heterodox economics?
30
Jakob Kapeller
What does mainstream economics think about heterodox economics?
30
My honest answer to that question was that they don’t think about it. For the most part, the mainstream is unaware of the existence of an ‘outside-the-mainstream’ heterodoxy.”
“(Colander 2010, 47)
Pluralism in heterodox economics
Jakob Kapeller
Operationalizing pluralism
32
Leonhard Dobusch is a junior professor of organization theory in the Department of Management at Freie Universitaet
Berlin. Jakob Kapeller is a research fellow in the Department of Philosophy and Theory of Science at the University of
Linz. The authors would like to thank Volker Gadenne, John King, and Marc Lavoie for their comments and their
support. 1035
©2012, Journal of Economic Issues / Association for Evolutionary Economics
JOURNAL OF ECONOMIC ISSUES Vol. XLV I No. 4 December 2012 DOI 10.2753/JEI0021-3624460410
Heterodox United vs. Mainstream City? Sketching a Framework for Interested Pluralism in Economics
Leonhard Dobusch and Jakob Kapeller
Abstract: Pluralism is a key term in the current discourse in heterodox economics, emphasizing the need for greater theoretical integration and institutional cooperation of different economic traditions. However, both the nature of pluralism and the concrete role ascribed to pluralist thinking for the development of economics have been somewhat contested, pointing to a lack of (widely agreed) conceptual foundations. This paper addresses this conceptual gap by proposing a framework for interested pluralism as a guideline for organizing heterodox economic research, in particular, as well as economic debates, in general. In essence, interested pluralism suggests replacing the traditionally invoked demarcation criteria between different economic traditions by a set of rather ecumenical pluralist principles, whose concrete implications for economic research we discuss. Keywords: heterodox economics, paradigms, pluralism, sociology of economics JEL Classification Codes: A14, B40, B50
[A] plurality of paradigms in economics and in social sciences in general is not only an obvious fact but also a necessary and desirable phenomenon in a very complex and continually changing subject. … Depending on circumstances and the problem to be tackled, different approaches, or a combination of them, have to be used in order to be able to get nearer to the far-away “truth.”
— K.W. Rothschild (1999, 5)
The rise of the neoclassical paradigm to unprecedented dominance in economic thought has been matched by the parallel growth of literature on economic pluralism, mostly put forward by schools of economic thought, which have found themselves increasingly marginalized. In the introduction to their recent, edited volume, Economic
Jakob Kapeller
Operationalizing pluralism
32
Leonhard Dobusch is a junior professor of organization theory in the Department of Management at Freie Universitaet
Berlin. Jakob Kapeller is a research fellow in the Department of Philosophy and Theory of Science at the University of
Linz. The authors would like to thank Volker Gadenne, John King, and Marc Lavoie for their comments and their
support. 1035
©2012, Journal of Economic Issues / Association for Evolutionary Economics
JOURNAL OF ECONOMIC ISSUES Vol. XLV I No. 4 December 2012 DOI 10.2753/JEI0021-3624460410
Heterodox United vs. Mainstream City? Sketching a Framework for Interested Pluralism in Economics
Leonhard Dobusch and Jakob Kapeller
Abstract: Pluralism is a key term in the current discourse in heterodox economics, emphasizing the need for greater theoretical integration and institutional cooperation of different economic traditions. However, both the nature of pluralism and the concrete role ascribed to pluralist thinking for the development of economics have been somewhat contested, pointing to a lack of (widely agreed) conceptual foundations. This paper addresses this conceptual gap by proposing a framework for interested pluralism as a guideline for organizing heterodox economic research, in particular, as well as economic debates, in general. In essence, interested pluralism suggests replacing the traditionally invoked demarcation criteria between different economic traditions by a set of rather ecumenical pluralist principles, whose concrete implications for economic research we discuss. Keywords: heterodox economics, paradigms, pluralism, sociology of economics JEL Classification Codes: A14, B40, B50
[A] plurality of paradigms in economics and in social sciences in general is not only an obvious fact but also a necessary and desirable phenomenon in a very complex and continually changing subject. … Depending on circumstances and the problem to be tackled, different approaches, or a combination of them, have to be used in order to be able to get nearer to the far-away “truth.”
— K.W. Rothschild (1999, 5)
The rise of the neoclassical paradigm to unprecedented dominance in economic thought has been matched by the parallel growth of literature on economic pluralism, mostly put forward by schools of economic thought, which have found themselves increasingly marginalized. In the introduction to their recent, edited volume, Economic
1050
Leonhard Dobusch and Jakob Kapeller
understanding. Here, again, a “Colanderian” approach of searching for a discourse on the level of economic policy (Colander et al. 2010, 406) might prove more fruitful (and also more “pluralist”) than the “classical” approach of invoking fundamental theoretical debates.
Practicing Pluralism: Integration, Diversification, Comparison, and Exchange
While “disinterested pluralism,” or “plurality,” implies fragmented, divergent
approaches, we can associate “interested pluralism” with the integration of different schools of thought (Bigo and Neru 2008). But what does a quest for integration entail for research practice, in general, and individual researchers, in particular? Since we have developed our concept of a “pluralist paradigm” from an empirically descriptive perspective, this question has implications beyond the normative. The viability of any framework for interested pluralism also depends on its ability to inform the practical conduct of individuals and groups researching within the economic discipline, thereby taking into account existing institutional restrictions for more (interested) pluralism. We first discuss implications on a general level and then turn to concrete examples from the heterodox economics discourse, where differences and similarities between various traditions are relatively well documented. However, in theory, the same arguments also apply to other dissenting traditions or economists.
In light of Frederic Lee’s (2010, 19) stance that pluralism implies “engagement across different heterodox approaches,” we argue that this engagement would be most productively realized at the level of theoretical statements, dealing with distinct empirical phenomena. Instead of comparing paradigms at an abstract level, this approach allows for the comparison of theories, as well as the continuation of empirical work, on real-world economic problems. Essentially, we advocate the systematic comparison of theoretical statements from different heterodox traditions, resulting in different research practices (see Table 4). This would allow pluralist practices to be interpreted as complementary research strategies, whose orientation depends on the relationships between different theoretical statements stemming from distinct schools of economic thought.
Table 4. Strategies for Comparing Theoretical Statements of Different Economic Paradigms
# Comparison between theoretical statements
Pluralist research practices / strategies
(1) ! Identical (a) Integration
(2) # Convergent
(3) %% Compatible (b) Division of labor
(4) O O Neutral (c) Diversification
(5) # Divergent (d) Test of conflicting hypotheses
(6) ! Contradictory
Jakob Kapeller
Operationalizing pluralism
32
Leonhard Dobusch is a junior professor of organization theory in the Department of Management at Freie Universitaet
Berlin. Jakob Kapeller is a research fellow in the Department of Philosophy and Theory of Science at the University of
Linz. The authors would like to thank Volker Gadenne, John King, and Marc Lavoie for their comments and their
support. 1035
©2012, Journal of Economic Issues / Association for Evolutionary Economics
JOURNAL OF ECONOMIC ISSUES Vol. XLV I No. 4 December 2012 DOI 10.2753/JEI0021-3624460410
Heterodox United vs. Mainstream City? Sketching a Framework for Interested Pluralism in Economics
Leonhard Dobusch and Jakob Kapeller
Abstract: Pluralism is a key term in the current discourse in heterodox economics, emphasizing the need for greater theoretical integration and institutional cooperation of different economic traditions. However, both the nature of pluralism and the concrete role ascribed to pluralist thinking for the development of economics have been somewhat contested, pointing to a lack of (widely agreed) conceptual foundations. This paper addresses this conceptual gap by proposing a framework for interested pluralism as a guideline for organizing heterodox economic research, in particular, as well as economic debates, in general. In essence, interested pluralism suggests replacing the traditionally invoked demarcation criteria between different economic traditions by a set of rather ecumenical pluralist principles, whose concrete implications for economic research we discuss. Keywords: heterodox economics, paradigms, pluralism, sociology of economics JEL Classification Codes: A14, B40, B50
[A] plurality of paradigms in economics and in social sciences in general is not only an obvious fact but also a necessary and desirable phenomenon in a very complex and continually changing subject. … Depending on circumstances and the problem to be tackled, different approaches, or a combination of them, have to be used in order to be able to get nearer to the far-away “truth.”
— K.W. Rothschild (1999, 5)
The rise of the neoclassical paradigm to unprecedented dominance in economic thought has been matched by the parallel growth of literature on economic pluralism, mostly put forward by schools of economic thought, which have found themselves increasingly marginalized. In the introduction to their recent, edited volume, Economic
1050
Leonhard Dobusch and Jakob Kapeller
understanding. Here, again, a “Colanderian” approach of searching for a discourse on the level of economic policy (Colander et al. 2010, 406) might prove more fruitful (and also more “pluralist”) than the “classical” approach of invoking fundamental theoretical debates.
Practicing Pluralism: Integration, Diversification, Comparison, and Exchange
While “disinterested pluralism,” or “plurality,” implies fragmented, divergent
approaches, we can associate “interested pluralism” with the integration of different schools of thought (Bigo and Neru 2008). But what does a quest for integration entail for research practice, in general, and individual researchers, in particular? Since we have developed our concept of a “pluralist paradigm” from an empirically descriptive perspective, this question has implications beyond the normative. The viability of any framework for interested pluralism also depends on its ability to inform the practical conduct of individuals and groups researching within the economic discipline, thereby taking into account existing institutional restrictions for more (interested) pluralism. We first discuss implications on a general level and then turn to concrete examples from the heterodox economics discourse, where differences and similarities between various traditions are relatively well documented. However, in theory, the same arguments also apply to other dissenting traditions or economists.
In light of Frederic Lee’s (2010, 19) stance that pluralism implies “engagement across different heterodox approaches,” we argue that this engagement would be most productively realized at the level of theoretical statements, dealing with distinct empirical phenomena. Instead of comparing paradigms at an abstract level, this approach allows for the comparison of theories, as well as the continuation of empirical work, on real-world economic problems. Essentially, we advocate the systematic comparison of theoretical statements from different heterodox traditions, resulting in different research practices (see Table 4). This would allow pluralist practices to be interpreted as complementary research strategies, whose orientation depends on the relationships between different theoretical statements stemming from distinct schools of economic thought.
Table 4. Strategies for Comparing Theoretical Statements of Different Economic Paradigms
# Comparison between theoretical statements
Pluralist research practices / strategies
(1) ! Identical (a) Integration
(2) # Convergent
(3) %% Compatible (b) Division of labor
(4) O O Neutral (c) Diversification
(5) # Divergent (d) Test of conflicting hypotheses
(6) ! Contradictory
„irreversibility of action“ (uncertainty, non-ergodicitiy) as a prominent concept in evolutionary, post-Keynesian, logical or Austrian thought.
Jakob Kapeller
Operationalizing pluralism
32
Leonhard Dobusch is a junior professor of organization theory in the Department of Management at Freie Universitaet
Berlin. Jakob Kapeller is a research fellow in the Department of Philosophy and Theory of Science at the University of
Linz. The authors would like to thank Volker Gadenne, John King, and Marc Lavoie for their comments and their
support. 1035
©2012, Journal of Economic Issues / Association for Evolutionary Economics
JOURNAL OF ECONOMIC ISSUES Vol. XLV I No. 4 December 2012 DOI 10.2753/JEI0021-3624460410
Heterodox United vs. Mainstream City? Sketching a Framework for Interested Pluralism in Economics
Leonhard Dobusch and Jakob Kapeller
Abstract: Pluralism is a key term in the current discourse in heterodox economics, emphasizing the need for greater theoretical integration and institutional cooperation of different economic traditions. However, both the nature of pluralism and the concrete role ascribed to pluralist thinking for the development of economics have been somewhat contested, pointing to a lack of (widely agreed) conceptual foundations. This paper addresses this conceptual gap by proposing a framework for interested pluralism as a guideline for organizing heterodox economic research, in particular, as well as economic debates, in general. In essence, interested pluralism suggests replacing the traditionally invoked demarcation criteria between different economic traditions by a set of rather ecumenical pluralist principles, whose concrete implications for economic research we discuss. Keywords: heterodox economics, paradigms, pluralism, sociology of economics JEL Classification Codes: A14, B40, B50
[A] plurality of paradigms in economics and in social sciences in general is not only an obvious fact but also a necessary and desirable phenomenon in a very complex and continually changing subject. … Depending on circumstances and the problem to be tackled, different approaches, or a combination of them, have to be used in order to be able to get nearer to the far-away “truth.”
— K.W. Rothschild (1999, 5)
The rise of the neoclassical paradigm to unprecedented dominance in economic thought has been matched by the parallel growth of literature on economic pluralism, mostly put forward by schools of economic thought, which have found themselves increasingly marginalized. In the introduction to their recent, edited volume, Economic
1050
Leonhard Dobusch and Jakob Kapeller
understanding. Here, again, a “Colanderian” approach of searching for a discourse on the level of economic policy (Colander et al. 2010, 406) might prove more fruitful (and also more “pluralist”) than the “classical” approach of invoking fundamental theoretical debates.
Practicing Pluralism: Integration, Diversification, Comparison, and Exchange
While “disinterested pluralism,” or “plurality,” implies fragmented, divergent
approaches, we can associate “interested pluralism” with the integration of different schools of thought (Bigo and Neru 2008). But what does a quest for integration entail for research practice, in general, and individual researchers, in particular? Since we have developed our concept of a “pluralist paradigm” from an empirically descriptive perspective, this question has implications beyond the normative. The viability of any framework for interested pluralism also depends on its ability to inform the practical conduct of individuals and groups researching within the economic discipline, thereby taking into account existing institutional restrictions for more (interested) pluralism. We first discuss implications on a general level and then turn to concrete examples from the heterodox economics discourse, where differences and similarities between various traditions are relatively well documented. However, in theory, the same arguments also apply to other dissenting traditions or economists.
In light of Frederic Lee’s (2010, 19) stance that pluralism implies “engagement across different heterodox approaches,” we argue that this engagement would be most productively realized at the level of theoretical statements, dealing with distinct empirical phenomena. Instead of comparing paradigms at an abstract level, this approach allows for the comparison of theories, as well as the continuation of empirical work, on real-world economic problems. Essentially, we advocate the systematic comparison of theoretical statements from different heterodox traditions, resulting in different research practices (see Table 4). This would allow pluralist practices to be interpreted as complementary research strategies, whose orientation depends on the relationships between different theoretical statements stemming from distinct schools of economic thought.
Table 4. Strategies for Comparing Theoretical Statements of Different Economic Paradigms
# Comparison between theoretical statements
Pluralist research practices / strategies
(1) ! Identical (a) Integration
(2) # Convergent
(3) %% Compatible (b) Division of labor
(4) O O Neutral (c) Diversification
(5) # Divergent (d) Test of conflicting hypotheses
(6) ! Contradictory
„irreversibility of action“ (uncertainty, non-ergodicitiy) as a prominent concept in evolutionary, post-Keynesian, logical or Austrian thought.
„consumer theory“ emergence of consumer preferences (Veblen) vs. impact of changing preferences on the business cycle (Keynes)
Jakob Kapeller
Operationalizing pluralism
32
Leonhard Dobusch is a junior professor of organization theory in the Department of Management at Freie Universitaet
Berlin. Jakob Kapeller is a research fellow in the Department of Philosophy and Theory of Science at the University of
Linz. The authors would like to thank Volker Gadenne, John King, and Marc Lavoie for their comments and their
support. 1035
©2012, Journal of Economic Issues / Association for Evolutionary Economics
JOURNAL OF ECONOMIC ISSUES Vol. XLV I No. 4 December 2012 DOI 10.2753/JEI0021-3624460410
Heterodox United vs. Mainstream City? Sketching a Framework for Interested Pluralism in Economics
Leonhard Dobusch and Jakob Kapeller
Abstract: Pluralism is a key term in the current discourse in heterodox economics, emphasizing the need for greater theoretical integration and institutional cooperation of different economic traditions. However, both the nature of pluralism and the concrete role ascribed to pluralist thinking for the development of economics have been somewhat contested, pointing to a lack of (widely agreed) conceptual foundations. This paper addresses this conceptual gap by proposing a framework for interested pluralism as a guideline for organizing heterodox economic research, in particular, as well as economic debates, in general. In essence, interested pluralism suggests replacing the traditionally invoked demarcation criteria between different economic traditions by a set of rather ecumenical pluralist principles, whose concrete implications for economic research we discuss. Keywords: heterodox economics, paradigms, pluralism, sociology of economics JEL Classification Codes: A14, B40, B50
[A] plurality of paradigms in economics and in social sciences in general is not only an obvious fact but also a necessary and desirable phenomenon in a very complex and continually changing subject. … Depending on circumstances and the problem to be tackled, different approaches, or a combination of them, have to be used in order to be able to get nearer to the far-away “truth.”
— K.W. Rothschild (1999, 5)
The rise of the neoclassical paradigm to unprecedented dominance in economic thought has been matched by the parallel growth of literature on economic pluralism, mostly put forward by schools of economic thought, which have found themselves increasingly marginalized. In the introduction to their recent, edited volume, Economic
1050
Leonhard Dobusch and Jakob Kapeller
understanding. Here, again, a “Colanderian” approach of searching for a discourse on the level of economic policy (Colander et al. 2010, 406) might prove more fruitful (and also more “pluralist”) than the “classical” approach of invoking fundamental theoretical debates.
Practicing Pluralism: Integration, Diversification, Comparison, and Exchange
While “disinterested pluralism,” or “plurality,” implies fragmented, divergent
approaches, we can associate “interested pluralism” with the integration of different schools of thought (Bigo and Neru 2008). But what does a quest for integration entail for research practice, in general, and individual researchers, in particular? Since we have developed our concept of a “pluralist paradigm” from an empirically descriptive perspective, this question has implications beyond the normative. The viability of any framework for interested pluralism also depends on its ability to inform the practical conduct of individuals and groups researching within the economic discipline, thereby taking into account existing institutional restrictions for more (interested) pluralism. We first discuss implications on a general level and then turn to concrete examples from the heterodox economics discourse, where differences and similarities between various traditions are relatively well documented. However, in theory, the same arguments also apply to other dissenting traditions or economists.
In light of Frederic Lee’s (2010, 19) stance that pluralism implies “engagement across different heterodox approaches,” we argue that this engagement would be most productively realized at the level of theoretical statements, dealing with distinct empirical phenomena. Instead of comparing paradigms at an abstract level, this approach allows for the comparison of theories, as well as the continuation of empirical work, on real-world economic problems. Essentially, we advocate the systematic comparison of theoretical statements from different heterodox traditions, resulting in different research practices (see Table 4). This would allow pluralist practices to be interpreted as complementary research strategies, whose orientation depends on the relationships between different theoretical statements stemming from distinct schools of economic thought.
Table 4. Strategies for Comparing Theoretical Statements of Different Economic Paradigms
# Comparison between theoretical statements
Pluralist research practices / strategies
(1) ! Identical (a) Integration
(2) # Convergent
(3) %% Compatible (b) Division of labor
(4) O O Neutral (c) Diversification
(5) # Divergent (d) Test of conflicting hypotheses
(6) ! Contradictory
„irreversibility of action“ (uncertainty, non-ergodicitiy) as a prominent concept in evolutionary, post-Keynesian, logical or Austrian thought.
„evolutionary modeling“ applied to Keynesian ideas (e.g. Goodwin 1967, Keen 1995)
„consumer theory“ emergence of consumer preferences (Veblen) vs. impact of changing preferences on the business cycle (Keynes)
Jakob Kapeller
Operationalizing pluralism
32
Leonhard Dobusch is a junior professor of organization theory in the Department of Management at Freie Universitaet
Berlin. Jakob Kapeller is a research fellow in the Department of Philosophy and Theory of Science at the University of
Linz. The authors would like to thank Volker Gadenne, John King, and Marc Lavoie for their comments and their
support. 1035
©2012, Journal of Economic Issues / Association for Evolutionary Economics
JOURNAL OF ECONOMIC ISSUES Vol. XLV I No. 4 December 2012 DOI 10.2753/JEI0021-3624460410
Heterodox United vs. Mainstream City? Sketching a Framework for Interested Pluralism in Economics
Leonhard Dobusch and Jakob Kapeller
Abstract: Pluralism is a key term in the current discourse in heterodox economics, emphasizing the need for greater theoretical integration and institutional cooperation of different economic traditions. However, both the nature of pluralism and the concrete role ascribed to pluralist thinking for the development of economics have been somewhat contested, pointing to a lack of (widely agreed) conceptual foundations. This paper addresses this conceptual gap by proposing a framework for interested pluralism as a guideline for organizing heterodox economic research, in particular, as well as economic debates, in general. In essence, interested pluralism suggests replacing the traditionally invoked demarcation criteria between different economic traditions by a set of rather ecumenical pluralist principles, whose concrete implications for economic research we discuss. Keywords: heterodox economics, paradigms, pluralism, sociology of economics JEL Classification Codes: A14, B40, B50
[A] plurality of paradigms in economics and in social sciences in general is not only an obvious fact but also a necessary and desirable phenomenon in a very complex and continually changing subject. … Depending on circumstances and the problem to be tackled, different approaches, or a combination of them, have to be used in order to be able to get nearer to the far-away “truth.”
— K.W. Rothschild (1999, 5)
The rise of the neoclassical paradigm to unprecedented dominance in economic thought has been matched by the parallel growth of literature on economic pluralism, mostly put forward by schools of economic thought, which have found themselves increasingly marginalized. In the introduction to their recent, edited volume, Economic
1050
Leonhard Dobusch and Jakob Kapeller
understanding. Here, again, a “Colanderian” approach of searching for a discourse on the level of economic policy (Colander et al. 2010, 406) might prove more fruitful (and also more “pluralist”) than the “classical” approach of invoking fundamental theoretical debates.
Practicing Pluralism: Integration, Diversification, Comparison, and Exchange
While “disinterested pluralism,” or “plurality,” implies fragmented, divergent
approaches, we can associate “interested pluralism” with the integration of different schools of thought (Bigo and Neru 2008). But what does a quest for integration entail for research practice, in general, and individual researchers, in particular? Since we have developed our concept of a “pluralist paradigm” from an empirically descriptive perspective, this question has implications beyond the normative. The viability of any framework for interested pluralism also depends on its ability to inform the practical conduct of individuals and groups researching within the economic discipline, thereby taking into account existing institutional restrictions for more (interested) pluralism. We first discuss implications on a general level and then turn to concrete examples from the heterodox economics discourse, where differences and similarities between various traditions are relatively well documented. However, in theory, the same arguments also apply to other dissenting traditions or economists.
In light of Frederic Lee’s (2010, 19) stance that pluralism implies “engagement across different heterodox approaches,” we argue that this engagement would be most productively realized at the level of theoretical statements, dealing with distinct empirical phenomena. Instead of comparing paradigms at an abstract level, this approach allows for the comparison of theories, as well as the continuation of empirical work, on real-world economic problems. Essentially, we advocate the systematic comparison of theoretical statements from different heterodox traditions, resulting in different research practices (see Table 4). This would allow pluralist practices to be interpreted as complementary research strategies, whose orientation depends on the relationships between different theoretical statements stemming from distinct schools of economic thought.
Table 4. Strategies for Comparing Theoretical Statements of Different Economic Paradigms
# Comparison between theoretical statements
Pluralist research practices / strategies
(1) ! Identical (a) Integration
(2) # Convergent
(3) %% Compatible (b) Division of labor
(4) O O Neutral (c) Diversification
(5) # Divergent (d) Test of conflicting hypotheses
(6) ! Contradictory
„irreversibility of action“ (uncertainty, non-ergodicitiy) as a prominent concept in evolutionary, post-Keynesian, logical or Austrian thought.
„monetary theory“ neoclassical vs. post-Keynesian theory: should central banks target money supply or interest rates?
„evolutionary modeling“ applied to Keynesian ideas (e.g. Goodwin 1967, Keen 1995)
„consumer theory“ emergence of consumer preferences (Veblen) vs. impact of changing preferences on the business cycle (Keynes)
Jakob Kapeller
Examples for pluralist research practices
33
Jakob Kapeller
Examples for pluralist research practices
33
Jakob Kapeller
Examples for pluralist research practices
33
Jakob Kapeller
Integration: Minsky-Veblen Cycles
34
Journal of Post Keynesian Economics / Summer 2014, Vol. 36, No. 4 781© 2014 M.E. Sharpe, Inc. All rights reserved. Permissions: www.copyright.com
ISSN 0160–3477 (print) / ISSN 1557–7821 (online)DOI: 10.2753/PKE0160-3477360409
JAKOB KAPELLER AND BERNHARD SCHÜTZ
Debt, boom, bust: a theory of Minsky–Veblen cycles
Abstract: This article reflects on the economic development leading to the recent crisis and interprets this development as a series of events within a Minsky–Veblen cycle. To illustrate this claim we introduce conspicuous con-sumption concerns, as described by Veblen, into a stock-flow-consistent post Keynesian model and demonstrate that, under these conditions, a decrease in income equality leads to a corresponding increase in debt-financed consump-tion demand. Here Minskian dynamics come into play: if perceived economic stability causes banks’ margins of safety to decrease sufficiently, increased credit demand is accommodated by credit supply giving rise to a debt-financed consumption boom. As the solvency of households decreases and interest rates move up, banks reduce lending, triggering household bankruptcies and, finally, a recession. What follows is a stable period of consolidation, where past debts are repaid, financial stability is regained and conspicuous consumption motives may gradually take over again. We illustrate this approach to the current crisis and its explanatory validity by extending our stock-flow-consistent model into a dynamic simulation.
Key words: financial instability, inequality, business cycle, stock-flow consistency, Minsky, Veblen.
JEL classifications: B52, D11, E12, E20, G01.
If one were asked by an educated layperson about the best way to under-stand the “current crisis,” which has already evolved from a financial or private debt crisis to a sovereign debt crisis, we claim that one legitimate answer would be the following: first, read Thorstein Veblen’s seminal book The Theory of the Leisure Class (especially chapters 4–5), and pay
Jakob Kapeller is an assistant professor in the Department of Philosophy and Theory of Science at the University of Linz. Bernhard Schütz is an assistant professor in the Department of Economics at the University of Linz. For helpful comments, the authors would like to thank Michael Landesmann, Martin Riese, Thomas Palley, Engelbert Stockhammer, and Octavio Fernández-Amador. Furthermore, we are greatly indebted to Miriam Rehm, who started us off on Minsky, and Stefan Steinerberger,whose patient advice guided us through our first steps in Mathematica. Remaining errors are ours.
Jakob Kapeller
“(Veblen 1970[1899], p. 80)
People try to „live up to the conventional standard of decency in the amount and grade of goods consumed.”
Veblen: the social mediation of consumption
35
Jakob Kapeller
“Minsky (Stabilizing an Unstable Economy, 1986/2008), p. 256
Banking is not money lending; to lend, a money lender must have money. The fundamental banking activity is accepting, that is, guaranteeing that some party is creditworthy.“
Minsky: The fragility of banking „stability breeds instability“
36
Jakob Kapeller
Minsky-Veblen Cycles
37
Debt, Boom, Bust: A Theory of Minsky-Veblen Cycles
Jakob KapellerUniversity of Linz
Department of Philosophy and Theory of Science
Bernhard SchützUniversity of Linz
Department of Economics
The basic story
The research questions
1.) Can the recent crisis be interpreted as a part of a larger cycle?2.) Is it possible to create such cycles in a post-Keynesian, stock-flow consistent framework?3.) If yes, what assumptions are sufficient to acquire such a result?
Out
put
Debt
Expansion Compression
Panic
Consolidation
Framework and main assumptions
stock-flow-consistent closed economy model with no state
a Minskyian financial sector, where banks become more confident in stable periods and get more anxious in volatile periods
two classes (workers and capitalists)
two types of workers, where type 2 workers lose income relative to type 1 workers, which gives rise to conspicuous consumption motives that increase the demand for consumer credit and boost aggregate demand
The answer
Expansion
Compression
Panic
Consolidation
A simulation model based on these specs delivers the following cyclical behavior of aggregate output...
...which is accompanied by the expected debt-output cycle (the amount of dots indicates the duration of the respective phase).
Out
put
Debt
7.5
8.0
8.5
9.0
108 110 112 114 116 118
Expansion Compression
Panic
Consolidation 7.5
8.0
8.5
9.0
13.0 13.5 14.0 14.5 15.0 15.5
Out
put
Debt / Output
Expansion
Compression
Panic
Consolidation
Detailed simulation results88 Scenario 1: Baseline Case Scenario 2: Inequality and contraction Scenario 3: Inequality and expansion
200
100
6
8
4
2
100 200 300 400
GDP Cw1 Cw2 Cc I
YDw2 Profits Banks Profits Firms
Mw2 Mc Mw1 Bank Equity
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
-200
400
200
YDw2 Profits Banks Profits Firms
100 200 300 400
YDw2 Profits Banks Profits Firms
100 200 300 4000.5
1.0
1.5
1
2
3
4
-1
100 200 300 400
GDP Cw1 Cw2 Cc I
6
8
4
2
6
8
4
2
10
100 200 300 400
GDP Cw1 Cw2 Cc I
Scenario 4a: Minsky-Veblen Cycles - Speculative Dynamics
Scenario 4b: Minsky-Veblen Cycles - Ponzi Dynamics
Scenario 4c: Minsky-Veblen Cycles - Hedge Dynamics
GDP Cw1 Cw2 Cc I
YDw2 Profits B. Profits F. Safety Margin
Mw2 Mc Mw1 Bank Equity
interest rate
GDP Cw1 Cw2 Cc I GDP Cw1 Cw2 Cc I
Mw2 Mc Mw1 Bank Equity Mw2 Mc Mw1 Bank Equity
YDw2 Profits B. Profits F. Safety Margin YDw2 Profits B. Profits F. Safety Margin
interest rate
interest rate
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
-1
1
2
3
100 200 300 400
-1.0
1.0
2.0
3.0
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 40020
40
60
80
100
100200 300 40020
-20
100
100 200 300 400
80
20
100
60
40
100 200 300 400
0.052
0.046
0.054
0.050
0.048
0.056
0.058
100 200 300 400
0.052
0.046
0.050
0.048
100 200 300 400
0.048
0.045
0.049
0.047
0.046
0.050
40
60
80
GDP Cw1 Cw2 Cc I
100 200 300 400
6
8
4
2
• stock-flow consistent model
• Two classes: Some share of workers
loses income.
• Emulation: Losers try to keep up with
other workers/their old living standard -
Credit-Demand!
• Minskyian banks: economic stability -
increase in risk-taking: Credit-Supply!
basic idea
Jakob Kapeller
Minsky-Veblen Cycles
37
Debt, Boom, Bust: A Theory of Minsky-Veblen Cycles
Jakob KapellerUniversity of Linz
Department of Philosophy and Theory of Science
Bernhard SchützUniversity of Linz
Department of Economics
The basic story
The research questions
1.) Can the recent crisis be interpreted as a part of a larger cycle?2.) Is it possible to create such cycles in a post-Keynesian, stock-flow consistent framework?3.) If yes, what assumptions are sufficient to acquire such a result?
Out
put
Debt
Expansion Compression
Panic
Consolidation
Framework and main assumptions
stock-flow-consistent closed economy model with no state
a Minskyian financial sector, where banks become more confident in stable periods and get more anxious in volatile periods
two classes (workers and capitalists)
two types of workers, where type 2 workers lose income relative to type 1 workers, which gives rise to conspicuous consumption motives that increase the demand for consumer credit and boost aggregate demand
The answer
Expansion
Compression
Panic
Consolidation
A simulation model based on these specs delivers the following cyclical behavior of aggregate output...
...which is accompanied by the expected debt-output cycle (the amount of dots indicates the duration of the respective phase).
Out
put
Debt
7.5
8.0
8.5
9.0
108 110 112 114 116 118
Expansion Compression
Panic
Consolidation 7.5
8.0
8.5
9.0
13.0 13.5 14.0 14.5 15.0 15.5
Out
put
Debt / Output
Expansion
Compression
Panic
Consolidation
Detailed simulation results88 Scenario 1: Baseline Case Scenario 2: Inequality and contraction Scenario 3: Inequality and expansion
200
100
6
8
4
2
100 200 300 400
GDP Cw1 Cw2 Cc I
YDw2 Profits Banks Profits Firms
Mw2 Mc Mw1 Bank Equity
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
-200
400
200
YDw2 Profits Banks Profits Firms
100 200 300 400
YDw2 Profits Banks Profits Firms
100 200 300 4000.5
1.0
1.5
1
2
3
4
-1
100 200 300 400
GDP Cw1 Cw2 Cc I
6
8
4
2
6
8
4
2
10
100 200 300 400
GDP Cw1 Cw2 Cc I
Scenario 4a: Minsky-Veblen Cycles - Speculative Dynamics
Scenario 4b: Minsky-Veblen Cycles - Ponzi Dynamics
Scenario 4c: Minsky-Veblen Cycles - Hedge Dynamics
GDP Cw1 Cw2 Cc I
YDw2 Profits B. Profits F. Safety Margin
Mw2 Mc Mw1 Bank Equity
interest rate
GDP Cw1 Cw2 Cc I GDP Cw1 Cw2 Cc I
Mw2 Mc Mw1 Bank Equity Mw2 Mc Mw1 Bank Equity
YDw2 Profits B. Profits F. Safety Margin YDw2 Profits B. Profits F. Safety Margin
interest rate
interest rate
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
-1
1
2
3
100 200 300 400
-1.0
1.0
2.0
3.0
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 40020
40
60
80
100
100200 300 40020
-20
100
100 200 300 400
80
20
100
60
40
100 200 300 400
0.052
0.046
0.054
0.050
0.048
0.056
0.058
100 200 300 400
0.052
0.046
0.050
0.048
100 200 300 400
0.048
0.045
0.049
0.047
0.046
0.050
40
60
80
GDP Cw1 Cw2 Cc I
100 200 300 400
6
8
4
2
• stock-flow consistent model
• Two classes: Some share of workers
loses income.
• Emulation: Losers try to keep up with
other workers/their old living standard -
Credit-Demand!
• Minskyian banks: economic stability -
increase in risk-taking: Credit-Supply!
basic idea
Debt, Boom, Bust: A Theory of Minsky-Veblen Cycles
Jakob KapellerUniversity of Linz
Department of Philosophy and Theory of Science
Bernhard SchützUniversity of Linz
Department of Economics
The basic story
The research questions
1.) Can the recent crisis be interpreted as a part of a larger cycle?2.) Is it possible to create such cycles in a post-Keynesian, stock-flow consistent framework?3.) If yes, what assumptions are sufficient to acquire such a result?
Out
put
Debt
Expansion Compression
Panic
Consolidation
Framework and main assumptions
stock-flow-consistent closed economy model with no state
a Minskyian financial sector, where banks become more confident in stable periods and get more anxious in volatile periods
two classes (workers and capitalists)
two types of workers, where type 2 workers lose income relative to type 1 workers, which gives rise to conspicuous consumption motives that increase the demand for consumer credit and boost aggregate demand
The answer
Expansion
Compression
Panic
Consolidation
A simulation model based on these specs delivers the following cyclical behavior of aggregate output...
...which is accompanied by the expected debt-output cycle (the amount of dots indicates the duration of the respective phase).
Out
put
Debt
7.5
8.0
8.5
9.0
108 110 112 114 116 118
Expansion Compression
Panic
Consolidation 7.5
8.0
8.5
9.0
13.0 13.5 14.0 14.5 15.0 15.5
Out
put
Debt / Output
Expansion
Compression
Panic
Consolidation
Detailed simulation results88 Scenario 1: Baseline Case Scenario 2: Inequality and contraction Scenario 3: Inequality and expansion
200
100
6
8
4
2
100 200 300 400
GDP Cw1 Cw2 Cc I
YDw2 Profits Banks Profits Firms
Mw2 Mc Mw1 Bank Equity
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
-200
400
200
YDw2 Profits Banks Profits Firms
100 200 300 400
YDw2 Profits Banks Profits Firms
100 200 300 4000.5
1.0
1.5
1
2
3
4
-1
100 200 300 400
GDP Cw1 Cw2 Cc I
6
8
4
2
6
8
4
2
10
100 200 300 400
GDP Cw1 Cw2 Cc I
Scenario 4a: Minsky-Veblen Cycles - Speculative Dynamics
Scenario 4b: Minsky-Veblen Cycles - Ponzi Dynamics
Scenario 4c: Minsky-Veblen Cycles - Hedge Dynamics
GDP Cw1 Cw2 Cc I
YDw2 Profits B. Profits F. Safety Margin
Mw2 Mc Mw1 Bank Equity
interest rate
GDP Cw1 Cw2 Cc I GDP Cw1 Cw2 Cc I
Mw2 Mc Mw1 Bank Equity Mw2 Mc Mw1 Bank Equity
YDw2 Profits B. Profits F. Safety Margin YDw2 Profits B. Profits F. Safety Margin
interest rate
interest rate
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
-1
1
2
3
100 200 300 400
-1.0
1.0
2.0
3.0
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 40020
40
60
80
100
100200 300 40020
-20
100
100 200 300 400
80
20
100
60
40
100 200 300 400
0.052
0.046
0.054
0.050
0.048
0.056
0.058
100 200 300 400
0.052
0.046
0.050
0.048
100 200 300 400
0.048
0.045
0.049
0.047
0.046
0.050
40
60
80
GDP Cw1 Cw2 Cc I
100 200 300 400
6
8
4
2
simulation results
Jakob Kapeller
Minsky-Veblen Cycles: Results
38
Debt, Boom, Bust: A Theory of Minsky-Veblen Cycles
Jakob KapellerUniversity of Linz
Department of Philosophy and Theory of Science
Bernhard SchützUniversity of Linz
Department of Economics
The basic story
The research questions
1.) Can the recent crisis be interpreted as a part of a larger cycle?2.) Is it possible to create such cycles in a post-Keynesian, stock-flow consistent framework?3.) If yes, what assumptions are sufficient to acquire such a result?
Out
put
Debt
Expansion Compression
Panic
Consolidation
Framework and main assumptions
stock-flow-consistent closed economy model with no state
a Minskyian financial sector, where banks become more confident in stable periods and get more anxious in volatile periods
two classes (workers and capitalists)
two types of workers, where type 2 workers lose income relative to type 1 workers, which gives rise to conspicuous consumption motives that increase the demand for consumer credit and boost aggregate demand
The answer
Expansion
Compression
Panic
Consolidation
A simulation model based on these specs delivers the following cyclical behavior of aggregate output...
...which is accompanied by the expected debt-output cycle (the amount of dots indicates the duration of the respective phase).
Out
put
Debt
7.5
8.0
8.5
9.0
108 110 112 114 116 118
Expansion Compression
Panic
Consolidation 7.5
8.0
8.5
9.0
13.0 13.5 14.0 14.5 15.0 15.5
Out
put
Debt / Output
Expansion
Compression
Panic
Consolidation
Detailed simulation results88 Scenario 1: Baseline Case Scenario 2: Inequality and contraction Scenario 3: Inequality and expansion
200
100
6
8
4
2
100 200 300 400
GDP Cw1 Cw2 Cc I
YDw2 Profits Banks Profits Firms
Mw2 Mc Mw1 Bank Equity
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
-200
400
200
YDw2 Profits Banks Profits Firms
100 200 300 400
YDw2 Profits Banks Profits Firms
100 200 300 4000.5
1.0
1.5
1
2
3
4
-1
100 200 300 400
GDP Cw1 Cw2 Cc I
6
8
4
2
6
8
4
2
10
100 200 300 400
GDP Cw1 Cw2 Cc I
Scenario 4a: Minsky-Veblen Cycles - Speculative Dynamics
Scenario 4b: Minsky-Veblen Cycles - Ponzi Dynamics
Scenario 4c: Minsky-Veblen Cycles - Hedge Dynamics
GDP Cw1 Cw2 Cc I
YDw2 Profits B. Profits F. Safety Margin
Mw2 Mc Mw1 Bank Equity
interest rate
GDP Cw1 Cw2 Cc I GDP Cw1 Cw2 Cc I
Mw2 Mc Mw1 Bank Equity Mw2 Mc Mw1 Bank Equity
YDw2 Profits B. Profits F. Safety Margin YDw2 Profits B. Profits F. Safety Margin
interest rate
interest rate
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
-1
1
2
3
100 200 300 400
-1.0
1.0
2.0
3.0
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 40020
40
60
80
100
100200 300 40020
-20
100
100 200 300 400
80
20
100
60
40
100 200 300 400
0.052
0.046
0.054
0.050
0.048
0.056
0.058
100 200 300 400
0.052
0.046
0.050
0.048
100 200 300 400
0.048
0.045
0.049
0.047
0.046
0.050
40
60
80
GDP Cw1 Cw2 Cc I
100 200 300 400
6
8
4
2
Jakob Kapeller
Minsky-Veblen Cycles: Results
38
Debt, Boom, Bust: A Theory of Minsky-Veblen Cycles
Jakob KapellerUniversity of Linz
Department of Philosophy and Theory of Science
Bernhard SchützUniversity of Linz
Department of Economics
The basic story
The research questions
1.) Can the recent crisis be interpreted as a part of a larger cycle?2.) Is it possible to create such cycles in a post-Keynesian, stock-flow consistent framework?3.) If yes, what assumptions are sufficient to acquire such a result?
Out
put
Debt
Expansion Compression
Panic
Consolidation
Framework and main assumptions
stock-flow-consistent closed economy model with no state
a Minskyian financial sector, where banks become more confident in stable periods and get more anxious in volatile periods
two classes (workers and capitalists)
two types of workers, where type 2 workers lose income relative to type 1 workers, which gives rise to conspicuous consumption motives that increase the demand for consumer credit and boost aggregate demand
The answer
Expansion
Compression
Panic
Consolidation
A simulation model based on these specs delivers the following cyclical behavior of aggregate output...
...which is accompanied by the expected debt-output cycle (the amount of dots indicates the duration of the respective phase).
Out
put
Debt
7.5
8.0
8.5
9.0
108 110 112 114 116 118
Expansion Compression
Panic
Consolidation 7.5
8.0
8.5
9.0
13.0 13.5 14.0 14.5 15.0 15.5
Out
put
Debt / Output
Expansion
Compression
Panic
Consolidation
Detailed simulation results88 Scenario 1: Baseline Case Scenario 2: Inequality and contraction Scenario 3: Inequality and expansion
200
100
6
8
4
2
100 200 300 400
GDP Cw1 Cw2 Cc I
YDw2 Profits Banks Profits Firms
Mw2 Mc Mw1 Bank Equity
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
-200
400
200
YDw2 Profits Banks Profits Firms
100 200 300 400
YDw2 Profits Banks Profits Firms
100 200 300 4000.5
1.0
1.5
1
2
3
4
-1
100 200 300 400
GDP Cw1 Cw2 Cc I
6
8
4
2
6
8
4
2
10
100 200 300 400
GDP Cw1 Cw2 Cc I
Scenario 4a: Minsky-Veblen Cycles - Speculative Dynamics
Scenario 4b: Minsky-Veblen Cycles - Ponzi Dynamics
Scenario 4c: Minsky-Veblen Cycles - Hedge Dynamics
GDP Cw1 Cw2 Cc I
YDw2 Profits B. Profits F. Safety Margin
Mw2 Mc Mw1 Bank Equity
interest rate
GDP Cw1 Cw2 Cc I GDP Cw1 Cw2 Cc I
Mw2 Mc Mw1 Bank Equity Mw2 Mc Mw1 Bank Equity
YDw2 Profits B. Profits F. Safety Margin YDw2 Profits B. Profits F. Safety Margin
interest rate
interest rate
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
-1
1
2
3
100 200 300 400
-1.0
1.0
2.0
3.0
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 40020
40
60
80
100
100200 300 40020
-20
100
100 200 300 400
80
20
100
60
40
100 200 300 400
0.052
0.046
0.054
0.050
0.048
0.056
0.058
100 200 300 400
0.052
0.046
0.050
0.048
100 200 300 400
0.048
0.045
0.049
0.047
0.046
0.050
40
60
80
GDP Cw1 Cw2 Cc I
100 200 300 400
6
8
4
2
Debt, Boom, Bust: A Theory of Minsky-Veblen Cycles
Jakob KapellerUniversity of Linz
Department of Philosophy and Theory of Science
Bernhard SchützUniversity of Linz
Department of Economics
The basic story
The research questions
1.) Can the recent crisis be interpreted as a part of a larger cycle?2.) Is it possible to create such cycles in a post-Keynesian, stock-flow consistent framework?3.) If yes, what assumptions are sufficient to acquire such a result?
Out
put
Debt
Expansion Compression
Panic
Consolidation
Framework and main assumptions
stock-flow-consistent closed economy model with no state
a Minskyian financial sector, where banks become more confident in stable periods and get more anxious in volatile periods
two classes (workers and capitalists)
two types of workers, where type 2 workers lose income relative to type 1 workers, which gives rise to conspicuous consumption motives that increase the demand for consumer credit and boost aggregate demand
The answer
Expansion
Compression
Panic
Consolidation
A simulation model based on these specs delivers the following cyclical behavior of aggregate output...
...which is accompanied by the expected debt-output cycle (the amount of dots indicates the duration of the respective phase).
Out
put
Debt
7.5
8.0
8.5
9.0
108 110 112 114 116 118
Expansion Compression
Panic
Consolidation 7.5
8.0
8.5
9.0
13.0 13.5 14.0 14.5 15.0 15.5
Out
put
Debt / Output
Expansion
Compression
Panic
Consolidation
Detailed simulation results88 Scenario 1: Baseline Case Scenario 2: Inequality and contraction Scenario 3: Inequality and expansion
200
100
6
8
4
2
100 200 300 400
GDP Cw1 Cw2 Cc I
YDw2 Profits Banks Profits Firms
Mw2 Mc Mw1 Bank Equity
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
-200
400
200
YDw2 Profits Banks Profits Firms
100 200 300 400
YDw2 Profits Banks Profits Firms
100 200 300 4000.5
1.0
1.5
1
2
3
4
-1
100 200 300 400
GDP Cw1 Cw2 Cc I
6
8
4
2
6
8
4
2
10
100 200 300 400
GDP Cw1 Cw2 Cc I
Scenario 4a: Minsky-Veblen Cycles - Speculative Dynamics
Scenario 4b: Minsky-Veblen Cycles - Ponzi Dynamics
Scenario 4c: Minsky-Veblen Cycles - Hedge Dynamics
GDP Cw1 Cw2 Cc I
YDw2 Profits B. Profits F. Safety Margin
Mw2 Mc Mw1 Bank Equity
interest rate
GDP Cw1 Cw2 Cc I GDP Cw1 Cw2 Cc I
Mw2 Mc Mw1 Bank Equity Mw2 Mc Mw1 Bank Equity
YDw2 Profits B. Profits F. Safety Margin YDw2 Profits B. Profits F. Safety Margin
interest rate
interest rate
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
-1
1
2
3
100 200 300 400
-1.0
1.0
2.0
3.0
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 40020
40
60
80
100
100200 300 40020
-20
100
100 200 300 400
80
20
100
60
40
100 200 300 400
0.052
0.046
0.054
0.050
0.048
0.056
0.058
100 200 300 400
0.052
0.046
0.050
0.048
100 200 300 400
0.048
0.045
0.049
0.047
0.046
0.050
40
60
80
GDP Cw1 Cw2 Cc I
100 200 300 400
6
8
4
2
Jakob Kapeller
Diversification: Path-Dependency in Europe Typical trajectories (Debt-NAIRU) and the role of the crisis
39
Total debt/GDP: sum of public debt/GDP (AMECO data) and private sector debt/GDP (OECD data)
Jakob Kapeller
Diversification: Path-Dependency in Europe Typical trajectories (Debt-NAIRU) and the role of the crisis
40
Total debt/GDP: sum of public debt/GDP (AMECO data) and private sector debt/GDP (OECD data)
Debt, Boom, Bust: A Theory of Minsky-Veblen Cycles
Jakob KapellerUniversity of Linz
Department of Philosophy and Theory of Science
Bernhard SchützUniversity of Linz
Department of Economics
The basic story
The research questions
1.) Can the recent crisis be interpreted as a part of a larger cycle?2.) Is it possible to create such cycles in a post-Keynesian, stock-flow consistent framework?3.) If yes, what assumptions are sufficient to acquire such a result?
Out
put
Debt
Expansion Compression
Panic
Consolidation
Framework and main assumptions
stock-flow-consistent closed economy model with no state
a Minskyian financial sector, where banks become more confident in stable periods and get more anxious in volatile periods
two classes (workers and capitalists)
two types of workers, where type 2 workers lose income relative to type 1 workers, which gives rise to conspicuous consumption motives that increase the demand for consumer credit and boost aggregate demand
The answer
Expansion
Compression
Panic
Consolidation
A simulation model based on these specs delivers the following cyclical behavior of aggregate output...
...which is accompanied by the expected debt-output cycle (the amount of dots indicates the duration of the respective phase).
Out
put
Debt
7.5
8.0
8.5
9.0
108 110 112 114 116 118
Expansion Compression
Panic
Consolidation 7.5
8.0
8.5
9.0
13.0 13.5 14.0 14.5 15.0 15.5
Out
put
Debt / Output
Expansion
Compression
Panic
Consolidation
Detailed simulation results
88 Scenario 1: Baseline Case Scenario 2: Inequality and contraction Scenario 3: Inequality and expansion
200
100
6
8
4
2
100 200 300 400
GDP Cw1 Cw2 Cc I
YDw2 Profits Banks Profits Firms
Mw2 Mc Mw1 Bank Equity
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
20
40
60
80
100
Mw2 Mc Mw1 Bank Equity
100 200 300 400
-200
400
200
YDw2 Profits Banks Profits Firms
100 200 300 400
YDw2 Profits Banks Profits Firms
100 200 300 4000.5
1.0
1.5
1
2
3
4
-1
100 200 300 400
GDP Cw1 Cw2 Cc I
6
8
4
2
6
8
4
2
10
100 200 300 400
GDP Cw1 Cw2 Cc I
Scenario 4a: Minsky-Veblen Cycles - Speculative Dynamics
Scenario 4b: Minsky-Veblen Cycles - Ponzi Dynamics
Scenario 4c: Minsky-Veblen Cycles - Hedge Dynamics
GDP Cw1 Cw2 Cc I
YDw2 Profits B. Profits F. Safety Margin
Mw2 Mc Mw1 Bank Equity
interest rate
GDP Cw1 Cw2 Cc I GDP Cw1 Cw2 Cc I
Mw2 Mc Mw1 Bank Equity Mw2 Mc Mw1 Bank Equity
YDw2 Profits B. Profits F. Safety Margin YDw2 Profits B. Profits F. Safety Margin
interest rate
interest rate
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
6
8
4
2
100 200 300 400
-1
1
2
3
100 200 300 400
-1.0
1.0
2.0
3.0
100 200 300 400
0.5
1.0
1.5
2.0
100 200 300 40020
40
60
80
100
100200 300 40020
-20
100
100 200 300 400
80
20
100
60
40
100 200 300 400
0.052
0.046
0.054
0.050
0.048
0.056
0.058
100 200 300 400
0.052
0.046
0.050
0.048
100 200 300 400
0.048
0.045
0.049
0.047
0.046
0.050
40
60
80
GDP Cw1 Cw2 Cc I
100 200 300 400
6
8
4
2
Jakob Kapeller
Diversification: Path-Dependency in Europe Keynesian Macro + complexity-inspired visualization
41
Jakob Kapeller
Diversification: Path-Dependency in Europe Keynesian Macro + complexity-inspired visualization
41
highly financialized countries
Jakob Kapeller
Diversification: Path-Dependency in Europe Keynesian Macro + complexity-inspired visualization
41
highly financialized countries
path of hope
Jakob Kapeller
Diversification: Path-Dependency in Europe Keynesian Macro + complexity-inspired visualization
41
highly financialized countries
path of hope
valley of d
espair
Jakob Kapeller
Conclusion
• Pluralist approach leads to new contributions/perspectives
• Integration of different traditions: New Perspectives!
• pluralism ≠ anything goes.
• Obvious example in complexity econ: Keynes-Schumpeter models (e.g. Dosi et al.)
• Pluralist economics in practice: the new heterodoxy?
• Post-Keynesianism + Old Institutionalism ➝ Minsky-Veblen Cycles
• + complexity economics ➝ Polarization in Europe
• (+ economic sociology ➝ Performativity! Role of models in policy-making!)
• (+ heterodox trade theory ➝ path-dependency in supply-side structures!)
• … [many more things]
42
Many thanks for your attention!