Pluralism in Economics Paper
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  • 1. Pedagogical Approaches to Theories of Endogenous versus Exogenous Money: Pluralism in Action? Pluralism in economics: rethinking the teaching of economics, October 18, 2008, City University, London. Stephen Kinsella Dept. Economics, University of Limerick. stephen.kinsella@ul.ie www.stephenkinsella.net October 18, 2008 Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 1 / 17
  • 2. Today 1 Problem 2 Example: Two Approaches to Money 3 For discussion: Is there a middle way? 4 Conclusion Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 2 / 17
  • 3. You’re Out There... Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 3 / 17
  • 4. Why should I learn this? Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 4 / 17
  • 5. Cons of Teaching PKE Time Confusion Learner Uncertainty/Lack of Background Knowledge Compare & Contrast Leaves some students behind Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 5 / 17
  • 6. Cons of Teaching PKE Time Confusion Learner Uncertainty/Lack of Background Knowledge Compare & Contrast Leaves some students behind Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 5 / 17
  • 7. Cons of Teaching PKE Time Confusion Learner Uncertainty/Lack of Background Knowledge Compare & Contrast Leaves some students behind Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 5 / 17
  • 8. Cons of Teaching PKE Time Confusion Learner Uncertainty/Lack of Background Knowledge Compare & Contrast Leaves some students behind Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 5 / 17
  • 9. Q: When is the cost of Pluralism too high? Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 6 / 17
  • 10. A: When Overlaps don’t exist, don’t opt for pluralism, cost too high Semantic Proximity, e.g. Unemployment Definitional Proximity: U = L/(E + L) Empirical Proximity EG: Existence of Unemployment Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 7 / 17
  • 11. A: When Overlaps don’t exist, don’t opt for pluralism, cost too high Semantic Proximity, e.g. Unemployment Definitional Proximity: U = L/(E + L) Empirical Proximity EG: Existence of Unemployment Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 7 / 17
  • 12. A: When Overlaps don’t exist, don’t opt for pluralism, cost too high Semantic Proximity, e.g. Unemployment Definitional Proximity: U = L/(E + L) Empirical Proximity EG: Existence of Unemployment Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 7 / 17
  • 13. A: When Overlaps don’t exist, don’t opt for pluralism, cost too high Semantic Proximity, e.g. Unemployment Definitional Proximity: U = L/(E + L) Empirical Proximity EG: Existence of Unemployment Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 7 / 17
  • 14. Non Trivial Matter Samuelson (1997, pg. 7) . . . words may be treacherous because we do not react in a neutral manner to them. Thus a man who approves of a government program to ration housing will call it a program of “social planning,” while an unsympathetic opponent will describe the same activity as “totalitarian bureaucratic regimentation.” Who can object to the former, and who could condone the latter? Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 8 / 17
  • 15. Two Approaches Stock Flow Consistent Macro Models: Godley and Lavoie (2006) Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 9 / 17
  • 16. SFC Treatment of Money There is a gap in (historical) time between production and sales which generates a systemic need for finance; bank money is endogenously determined by the flow of credit and; total real income must be considered to be divided into three parts – that received by entrepreneurs, that received by labour, and that received by banks. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 10 / 17
  • 17. SFC Treatment of Money There is a gap in (historical) time between production and sales which generates a systemic need for finance; bank money is endogenously determined by the flow of credit and; total real income must be considered to be divided into three parts – that received by entrepreneurs, that received by labour, and that received by banks. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 10 / 17
  • 18. SFC Treatment of Money There is a gap in (historical) time between production and sales which generates a systemic need for finance; bank money is endogenously determined by the flow of credit and; total real income must be considered to be divided into three parts – that received by entrepreneurs, that received by labour, and that received by banks. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 10 / 17
  • 19. SFC Treatment of Money Pedagogy Modeled using differential equations Simulated in Eviews Perturbation analysis gives policy recommendations/comparisons Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 11 / 17
  • 20. SFC Treatment of Money Pedagogy Modeled using differential equations Simulated in Eviews Perturbation analysis gives policy recommendations/comparisons Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 11 / 17
  • 21. SFC Treatment of Money Pedagogy Modeled using differential equations Simulated in Eviews Perturbation analysis gives policy recommendations/comparisons Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 11 / 17
  • 22. Two Approaches DSGE Approach: Barro (2007) Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 12 / 17
  • 23. DSGE Treatment of Money Y = A × F (κK , L), (1) Money instantaneously created & destroyed =⇒ A “social contrivance” or medium of exchange Households maxmise consumption C subject to constraints on investment, ∆K , production, summarised in the production function relation, and depreciation, δK : C + ∆K = A × F (K , L) − δK Smooth pedagogical transition between micro & macro explanations of income and substitution effects, etc. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
  • 24. DSGE Treatment of Money Y = A × F (κK , L), (1) Money instantaneously created & destroyed =⇒ A “social contrivance” or medium of exchange Households maxmise consumption C subject to constraints on investment, ∆K , production, summarised in the production function relation, and depreciation, δK : C + ∆K = A × F (K , L) − δK Smooth pedagogical transition between micro & macro explanations of income and substitution effects, etc. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
  • 25. DSGE Treatment of Money Y = A × F (κK , L), (1) Money instantaneously created & destroyed =⇒ A “social contrivance” or medium of exchange Households maxmise consumption C subject to constraints on investment, ∆K , production, summarised in the production function relation, and depreciation, δK : C + ∆K = A × F (K , L) − δK Smooth pedagogical transition between micro & macro explanations of income and substitution effects, etc. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
  • 26. DSGE Treatment of Money Y = A × F (κK , L), (1) Money instantaneously created & destroyed =⇒ A “social contrivance” or medium of exchange Households maxmise consumption C subject to constraints on investment, ∆K , production, summarised in the production function relation, and depreciation, δK : C + ∆K = A × F (K , L) − δK Smooth pedagogical transition between micro & macro explanations of income and substitution effects, etc. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
  • 27. DSGE Treatment of Money Y = A × F (κK , L), (1) Money instantaneously created & destroyed =⇒ A “social contrivance” or medium of exchange Households maxmise consumption C subject to constraints on investment, ∆K , production, summarised in the production function relation, and depreciation, δK : C + ∆K = A × F (K , L) − δK Smooth pedagogical transition between micro & macro explanations of income and substitution effects, etc. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
  • 28. DSGE Treatment of Money Y = A × F (κK , L), (1) Money instantaneously created & destroyed =⇒ A “social contrivance” or medium of exchange Households maxmise consumption C subject to constraints on investment, ∆K , production, summarised in the production function relation, and depreciation, δK : C + ∆K = A × F (K , L) − δK Smooth pedagogical transition between micro & macro explanations of income and substitution effects, etc. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
  • 29. DSGE Treatment of Money Pedagogy Usual Textbook graphical analysis Light calculus Data fitting Policy prescriptions from model fitting Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 14 / 17
  • 30. DSGE Treatment of Money Pedagogy Usual Textbook graphical analysis Light calculus Data fitting Policy prescriptions from model fitting Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 14 / 17
  • 31. DSGE Treatment of Money Pedagogy Usual Textbook graphical analysis Light calculus Data fitting Policy prescriptions from model fitting Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 14 / 17
  • 32. Is there a middle way? Yes. Explore common problem statements differing solution concepts in comparative setting EG The Multiplier, Unemployment, Growth, Consumption, etc. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 15 / 17
  • 33. Is there a middle way? Yes. Explore common problem statements differing solution concepts in comparative setting EG The Multiplier, Unemployment, Growth, Consumption, etc. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 15 / 17
  • 34. Is there a middle way? Yes. Explore common problem statements differing solution concepts in comparative setting EG The Multiplier, Unemployment, Growth, Consumption, etc. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 15 / 17
  • 35. Conclusion: Only opt for pluralism when sufficient overlaps exist. Otherwise, world of pain. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 16 / 17
  • 36. References Robert J. Barro. Macroeconomics: A Modern Approach. South-Western College Pub., 1st edition, 2007. URL http://www.amazon.com/ Macroeconomics-Approach-Robert-J-Barro/dp/0324178107/ref= pd bbs sr 1?ie=UTF8&s=books&qid=1198791536&sr=1-1. Wynne Godley and Marc Lavoie. Monetary Economics An Integrated Approach to Credit, Money, Income, Production and Wealth. Palgrave-Macmillan, 2006. URL http: //www.palgrave.com/products/Catalogue.aspx?is=0230500552. Paul Samuelson. Economics: The Original 1948 Edition. McGraw Hill/Irwin, 1997. Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 17 / 17