Last week, INET and the Fields Institute brought together economists and mathematicians in Toronto. The results were certainly interesting... with several economists paying their homage to Wynne Godley, including Stephanie Kelton, Marc Lavoie, Peter Skott and Randall Wray. It was interesting to see these economists play the same stage. Some speakers felt that bad economics had tainted mathematics: fewer believed the reverse.
I am drawn to Wynne Godley’s models: at least, those versions influenced by Minsky. Naively, perhaps, I was hoping that a new paradigm would emerge from the ashes of the 2008 crisis. Far from it... put two economists together and you get more than two theories... like politics, economics is messy and confrontational. At this conference, the data were sometimes assumed and the theories were more often debated.
There were some contrarians. Perry Mehrling made an eloquent plea for better data on the stocks and flows, something that would surely reinvigorate deductive and descriptive economics. Alan Kirman called for models that explain crises and inequality, rather than such awkward complications being exogenous. The questions were direct: what if the far right interpret MMT as a reason for states to abandon the Euro or, even, their credible commitment? As I write this, I wonder about the symmetry to Perry’s liquidity put at the Fed: countries, like India, where the central bank has placed a liquidity call and speculators are making ‘carry trade’ profits.
There was even a model that confirmed Keynes’ insight that 'there is no limit to the amount of bank-money which the banks can safely create, provided that they move forward in step' (John Maynard Keynes, 1930) . Sometimes, this emphasis on banking left me wondering if the model had lost sight of the instability… with banking assets taking precedence in crises and equity holders absorbing the losses. Stability is not destabilizing, if you have a central bank behind you.
Of the more empirical papers, Didier Sornette gave an excellent presentation that showed few bubbles are preceded by volatility. The relatively simple maths suggested that leasehold assets have a safety valve built-in. Yet the politics are very different if the leaseholder is the Duke of Westminster, or the Chinese government. Either way, if you were to 'deflate the bubble’ by playing with the terms of the lease would you simply turn a financial bubble into political turmoil?
Sadly, not every presenter showed their love of math as simply as Edward Frenkel had the week before. Some of the pleas seemed unnecessary... why would I want to calculate inflation using dynamic field theory? My love, and hatred, of math is because numbers are also social... we irrationally fear Friday 13th, and in the UK we stick doggedly to the penny long after it has any monetary value.
As Matheus Grasselli told me, so eloquently, the Plano Real was essentially social and synthetic, but was able to calm hyperinflation in Brazil by giving an alternative unit of account. Sometimes the simplest maths can improve lives.