Kansas City, Here I Come

I am getting ready for the UMKC Post-Keynesian Conference this week, and I might not be publishing anything for a week or two. I just wanted to comment briefly on what I hope to accomplish there.

Although I should be knuckling down and finishing my upcoming book on money, I have started thinking about my next project.

If we are undertaking a research programme, we need to ask ourselves (at least) two questions:

1. What are we hoping to accomplish?
2. Do we expect that the methodology we are following will allow us to accomplish that goal?

The cleanest short-term analytical objective is to get a better description of the business cycle. (I will eventually write a book on inflation, but that is a later step.) The question is -- can post-Keynesian theory get us there? My feeling is that is true, but I will only be able to convince myself of this if I can make the case in book form.

(Although business cycle analysis is obviously of interest to fixed income analysts, it also touches upon other concerns on might have about the economy. Under Functional Finance, the "constraints" upon fiscal policy are defined in terms of the effect on inflation; hence, we need to have an idea of what those limits are. Meanwhile, inflation is empirically tied to the business cycle.) 

Why post-Keynesian economics? I am a free agent; there is nothing forcing me to follow any particular school of thought. The short answer is that the alternatives appear worse. Mainstream economists wish to project the belief that mainstream economics can explain the business cycle, but as I discussed at length in Interest Rate Cycles, mainstream theory is reliant upon non-falsifiable circular logic. For example, growth is slow because the "natural rate of interest" is negative -- while the methodology that is used to calculate the natural rate of interest is negative because growth has been slow.

Although it is welcome to see civil discussion between mainstream macro and the post-Keynesian community (the articles I linked to here provide examples), advances in theory are only going to come from ignoring mainstream macro. The belief that mainstream macro is vibrant and that by incorporating some frictions or things like a financial sector is still not going to deal with the non-falsifiable core of the theory -- which is going to dominate the theoretical innovations added. The trickier question is to what extent post-Keynesian theory is itself falsifiable.

This implies a strategy for what I need to concentrate on at this conference: what are the post-Keynesian views on the business cycle (keeping in mind that there are multiple schools of though within post-Keynesian economics), and what sort of predictions can they be used to make? (And since I expect to talk to some of my readers at the conference, that is what I should be asking you about.)

(c) Brian Romanchuk 2016