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Minsky: Extending System Dynamics to easily handle financial flows Steve Keen Kingston University London IDEAeconomics Minsky Open Source System Dynamics.

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Presentation on theme: "Minsky: Extending System Dynamics to easily handle financial flows Steve Keen Kingston University London IDEAeconomics Minsky Open Source System Dynamics."— Presentation transcript:

1 Minsky: Extending System Dynamics to easily handle financial flows Steve Keen Kingston University London IDEAeconomics Minsky Open Source System Dynamics

2 A trivia quiz: What’s the shortest book ever written ?… No, it’s not “The Wit and Wisdom of George W. Bush” It’s “What economists know about system dynamics” What’s the source of my evidence? – –Twitter of course…

3 “What do the “wires” do?” An early Christmas present in 2012 from Noah Smith –Influential young economist/blogger (on Bloomberg View)Bloomberg View On December , he tweeted:

4 “What do the “wires” do?” I threw down the gauntlet: The war began…

5 “What do the “wires” do?” I invited him to make the first strike… Then his first salvo landed… Oh dear; “What do the “wires” do”??? Clearly: – –Had no idea of the existence of Vensim, Simulink, Stella, Vissim, etc.VensimSimulinkStellaVissim – –Seemed to think I’d invented the idea of flowcharts for equations – –And that the “wires” had embedded time lags in them…

6 “What do the “wires” do?” Economic debate summary: “If you’re in a hole, keep right on digging…”

7 “What do the “wires” do?” It ended politely… Exchange illustrates how ignorant economists are of system dynamics Used by only a handful of non-mainstream economists – –Mike Radzicki, David WheatMike RadzickiDavid Wheat – –and some system dynamics experts interested in economics Trond Andresen But otherwise no penetration, despite Forrester’s ambitionsForrester’s ambitions One good reason for this – –unlike above ignorance is how poorly standard SD paradigm handles monetary flows…

8 Modelling money flows Consider absolutely simplest monetary system –Fixed stock of money –Firms hire workers, produce output, sell it –Workers paid wages, spend them –Bankers paid interest, spend that As a flowchart: Clutter because all flows must be recorded twice…

9 Modelling money flows Possibility of error since flow term pairs must have opposing signs… Where’s the error? Should be a minus block Flowchart paradigm unsuitable for double-entry nature of financial flows Worse when multiple banks needed—require 4 entries for every flow

10 Modelling money flows I realized financial equations could be generated by table interface So I invented “Godley Tables” (named in honor of Wynne Godley)Wynne Godley US$128,000 funding from INET to start developing MinksyINET Another $80,000 raised on KickstarterKickstarter Named in honor of Hyman Minsky Hyman Minsky Some private donations too including from “Ending Over- Lending” sponsorEnding Over- Lending

11 Modelling money flows Same basic monetary model as before, using Minsky’s “Godley Table” Easy to read – –For example, flow of wages… Mistakes captured by “row sum = 0” rule

12 Modelling money flows Paradigm supports multiple inter-related Godley Tables:

13 Modelling money flows Illustration of Minsky’s power: comparing mainstream economic fantasy to reality Mainstream economists ignore banks on fantasy that banks are just intermediaries between savers and borrowers Says a somewhat more influential economist… Modelling Krugman’s vision of banking in Minsky: – –“Patient” Consumer sector lends to “Impatient” Investment sector – –Bank charges intermediation fee for arranging loan – –Both sectors hire workers, produce output, sell to each other, workers, bankers…

14 Why do mainstream economists ignore private debt? Loanable Funds model: debt irrelevant Real world: debt critical

15 Other novel features of Minsky Direct entry of entities & operators onto canvas Support for text formatting, symbols and Greek (using LaTeX)LaTeX LaTeX output (& Matlab)

16 The future—if we get funding! Only 2500 hours programming time (in C++, Tcl/Tk) so far By brilliant programmer Dr Russell StandishDr Russell Standish –PhD in Physics; Specialty complex systems Ex-Director High Performance Computing Unit, University of New South Wales Now freelance contractor Many rough edges: poor grouping at present, incomplete shortcut keys Future development plans (dependent on funding) – –Clone multiple sector model from single sectoral Auto-generate physical & monetary input-output linkages – –Clone multiple countries from single economy model Auto-generate international trade & financial linkages – –Import country Input-Output & Flow of Funds Data – –Nonlinear parameter estimation of model parameters from data – –Auto-generate model from Flow of Funds & IO data Will apply for ESRC & other funding support: You can help…

17 Developing Minsky Donate via Paypal on my blog: Download from SourceForge: Join our beta-testers Help drag economists into the 21 st century… – –From the 19 th, which they haven’t yet realized is over!


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