1. Introduction
The Debate mainly took place in the American Economic Review and the Economic Journal. Articles are listed below in date order for each journal separately.
Contributors to the ‘Great Debate’ comprised eminent and senior academic economists. They criticised macroeconomics from various complementary angles4. Macro is not fatally flawed in just one respect. It has numerous fundamental flaws; each individually fatal5.
These permanent fatal deficiencies in macroeconomic policy formulation, regulation, monitoring and assumptions etc are, in combination, the real causes of the present economic and financial crisis. They include the following.
Over time these attributes have (with other deficiencies) inflicted severe stress on large segments of the US public ('Main Street'), through credit card, mortgage and other debt, (lack of) health insurance, unemployment experience and fears, cost and other pressures on incomes, etc. Those combined pressures, in conjunction with macro’s lack of predictive and regulatory capacities etc, led directly to the crisis7.
This interface, which does not and cannot exist in macroeconomics, is an essential requirement of effective modern policy.
This illustrates the fact that macro is far beyond its use-by date, which was the mid-1950s.
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Apparent absence from public policy and regulation etc of modern system-oriented techniques for activity and resource control, tactical and strategic planning, budgeting, coordination and accountability etc.
These techniques are in widespread use in other fields. They are urgently needed in the economic and financial policy areas, and in the financial sector. Control, planning and regulation in 'system' terms are synonymous with effective and efficient modern operations (and policy).
Although policy-makers and regulators etc properly belong in future time, they currently have no access to that realm. Enforced absence of modern predictive, 'what if', system-wide analytical, and other capacities (in policy and regulatory agencies and financial institutions) meant that all concerned were caught flat-footed when the final straw for the crisis landed. Policy-makers and regulators have been improvising on the run ever since, without modern decision support. The lack is apparent.
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Inability to handle the high levels of disaggregated and dynamic complexity that must be effectively and efficiently addressed, if successful policy is to be delivered.
Maths-stats modeling approaches cannot handle this complexity. That is
why effective alternative techniques were developed in the early 1950s. The orthodoxy has excluded these techniques from policy for the past fifty years, on ideological grounds. Consequences of this and other deficiencies are now being experienced8.
The tone of comments and criticisms in the Debate reflected awareness, concerns and unease about a range of perceived serious deficiencies, and their implications for the science. Only a few commentators were blunt enough to refer to macro’s demise. None proposed a replacement for macro9.
A third process began shortly after WW2 and was largely complete by the mid-1950s10. The macroeconomic and econometric communities employed brilliantly-successful blitzkrieg and panzer tactics in seizing monopoly control of the international ‘economics industry’11. This control persists to the present day; some half century later12.
A fourth process should also be noted. This comprised development of a new branch of management science, now known as system dynamics13. SD provides techniques of causal simulation modeling. Principal uses of SD for complex managed systems14 include, inter alia:
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Activity and resource control.
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Tactical and strategic planning.
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Accountability and coordination.
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Budgeting.
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Avoidance and evasion of corporate income taxation.
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Major civil litigation.
SD, which is modern decision support, can successfully address real-life system and dynamic complexity: something that macroeconomics and econometrics have never been able to do. Crucially, SD can also provide
However, SD has been entirely excluded from economic and financial policy from the outset by the macroeconomic orthodoxy18.
The overall implication of the Debate, and of later revelations, is that macro cannot be repaired. It must be replaced. Until that happens macro and its cohorts are a major threat to public welfare19.
2. Selected journal articles
American Economic Review
Machlup, F, ‘Theories of the Firm: Marginalist, Behavioral, Managerial’, 57, March 1967, 1-33.
Galbraith, John K, ‘Economics in the Industrial State: Science and Sedative (Economics as a System of Belief)’, 60, May 1970, 469-84.
Leontief, Wassily, ‘Theoretical Assumptions and Nonobserved Facts’, 61, March 1971, 1-7.
Barro, Robert J and Grossman, Herschel I, ‘A General Disequilibrium Model of Income and Employment’, 61, March 1971, 82-93.
Tobin, James, ‘Inflation and Unemployment’, 62, March 1972, 1-18.
Gurley J G, ‘Have Fiscal and Monetary Policies Failed?’, 62, Papers & Proceedings, May 1972, 19-23.
Samuelson, Paul A, ‘Maximum Principles in Analytical Economics’, 62, June 1972, 249-262.
Galbraith, John K, ‘Power and the Useful Economist’, 63, March 1973, 1-11.
Heller W W, ‘What’s Right with Economics?’ 65, March 1975, 1-26.
Economic Journal
Prest, A R, ‘Sense and Nonsense in Budgetary Policy’, 78, March 1968, 1-18.
Cyert, R M and George, K D, ‘Competition, Growth and Efficiency’, 79, March 1969, 23-41.
Fores, M J, ‘No More General Theories?’, 79, March 1969, 11-22.
Cairncross, Alec, ‘Economic Forecasting’, 79, December 1969, 797-812.
Silberston, Aubrey, ‘Price Behaviour of Firms‘, 80, September 1970, 511-582.
Loasby, Brian J, ‘Hypothesis and Paradigm in the Theory of the Firm’, 81, December 1971, 863-885.
Phelps Brown, E H, ‘The Underdevelopment of Economics’, 82, March 1972, 1-10.
Worswick, G D N, ‘Is Progress in Economic Science Possible?’, 82, March 1972, 73-86.
Marris, Robin, ‘Why Economics Needs a Theory of the Firm’, 82, March 1972 (Supplement), 320-352.
Kaldor, Nicholas, ‘The Irrelevance of Equilibrium Economics’, 82, December 1972, 1237-1255.
Wiles, Peter, ‘Cost Inflation and the State of Economic Theory’, 83, June 1973, 377-398.
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For example the celebrated corporate economists, R M Cyert and J G March, earlier criticised the orthodoxy’s simplistic and unrealistic assumptions about enterprises (‘A Behavioral Theory of the Firm’, 1963).
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5
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Management science ‘systems’ considerations revealed additional fatal flaws in macro that academic economists of the earlier period hardly touched upon.
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6
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In Rostovian terms both productive and entrepreneurial efficiency criteria apply.
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7
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Administration, congressional and media attribution of blame to corporate and Wall Street ‘greed’ etc indicate a poor understanding of the real situation.
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8
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The macro orthodoxy operates according to the rule that, if particular problems cannot be resolved by means of which it approves, those problems shall remain unresolved. No matter how bad are economic and financial conditions, other approaches and techniques etc will not be tolerated. Wiles (1973) noticed this phenomenon. He described the orthodoxy as ‘a self-sealing ideology’. The writer has direct experience in three countries of the truth of that description.
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9
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The reason is that no replacement can be found within economics proper. The solution lies in a blend of economics and management science.
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10
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This can be viewed as a ‘counter-reformation’ that actually preceded the ‘reformation’ itself.
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11
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Treasuries and ministries of finance, other economic agencies, central and commercial banks, other financial institutions, economics faculties of universities, economic and financial journalism, etc.
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12
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The situation is the worst of all worlds: a terminally-incapacitated policy orthodoxy that is enormously influential and powerful.
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13
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Development proceeded in the Sloan School of Management at the MIT, from the late 1940s to the mid-1950s.
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14
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Private and public sector, civilian and military.
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15
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Time-related.
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16
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For present purposes real prediction means estimation of future system values in terms of the same factors that generate future behaviour and outcomes in reality. This enormous advantage is beyond the reach of economics.
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17
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This confers great benefits for monitoring, planning and regulatory purposes. Absent this capacity key system characteristics are literally invisible to policy, even if the latter is attempting to address actual behaviour.
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18
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And, frankly, by the ineptitude and selfish shortsightedness of the academically-controlled System Dynamics Society.
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19
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The quality and timeliness of recovery from the present crisis must inevitably be adversely affected by lack of predictive and other requisite technical capacities. For instance, the means for effective and efficient regulation (design and monitoring) is not currently available to legislators, advisers and regulators. Moreover, leaving in place the real causes of the crisis risks its repetition later.
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