1. Minsky: Extending System Dynamics to easily handle financial flows Steve Keen Kingston University London IDEAeconomics Minsky Open Source System Dynamics www.debtdeflation.com/blogs

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 17 2012, 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!