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The Macrofoundations of Macroeconomics

Summary:
The Neoclassical desire for sound foundations for macroeconomics was a laudable objective, but their attempt to base macroeconomics on microeconomics was fatally flawed. You can’t derive a higher level analysis from a lower level one, and Neoclassical micro itself is a series of myths. Instead, macroeconomics can be derived directly and easily from macroeconomic definitions. ...

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The Neoclassical desire for sound foundations for macroeconomics was a laudable objective, but their attempt to base macroeconomics on microeconomics was fatally flawed. You can’t derive a higher level analysis from a lower level one, and Neoclassical micro itself is a series of myths.



Instead, macroeconomics can be derived directly and easily from macroeconomic definitions. The resulting model is Minsky’s “Financial Instability Hypothesis”, and it explains many facets of the real world that still befuddle Neoclassical economists: the “Great Moderation” before the “Great Recession”, the rise in inequality, the rise of private debt to unprecedented levels.



As well as deriving macroeconomics directly from macroeconomic definitions, we can make economics consistent with the Laws of Thermodynamics.



This is a talk I gave to Masters students in Hungary on November 22nd 2019.



Steve Keen
Steve Keen (born 28 March 1953) is an Australian-born, British-based economist and author. He considers himself a post-Keynesian, criticising neoclassical economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking about economics include John Maynard Keynes, Karl Marx, Hyman Minsky, Piero Sraffa, Augusto Graziani, Joseph Alois Schumpeter, Thorstein Veblen, and François Quesnay.

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