Are the Post-Keynesians Wrong on Uncertainty?

 Michael Brady's Criticism of Post-Keynesian Economics 

"The market can stay irrational longer than you can stay solvent." ~ John Maynard Keynes

    If you've heard about Paul Davidson, and read his work, and then attempted to read more by him utilizing the search bar, you have most likely run into M.E Brady's work on Post Keynesians and Uncertainty, primarily claiming that the Post-Keynesians aren't true successors of Keynes and a sort of nihilism. Michael Brady's work is extensive and the individual is clearly very determined, however wrong. Brady generally tends towards a laissez-faire theory of the market process and the tendency towards full employment of resources of the free market naturally, which leads to the "withering" critiques of the Post-Keynesians. However, M. Brady is generally off the spot on these critiques, primarily on degrees of uncertainty and concluding that's of nihilism. An example of his critique of the Post Keynesians is found in this quote:

“The Post Keynesian school is doomed intellectually because it does not have a solid foundation to deal with uncertainty as a range. Radical uncertainty only has import in decisions involving innovation/long-run capital investment. Any attempt to put it at the center of decision making leads to intellectual chaos.”

    This first criticism is not satisfactory. In fact, Brady admits that radical uncertainty is fundamental to the market economy through central decisions of innovation and long-run capital investment. Long-run capital investment and innovation heavily determine the entire traverse of the market process, without a satisfactory theory of it we result in a theory that is without grounding in reality and ignores the necessity of crucial decisions on a massive scale, such as the creation of the iPhone, a crucial decision by any standard. Had we followed a standard explanation of this without a long-run theory of radical uncertainty and innovation, we would somehow have to explain through mental gymnastics that the economy had this state pre-programmed into objective probability distributions, that the creation of the iPhone and the creative destruction that ensued from its creation where all apart of some theistic God’s plan for the economy which further pushed us across a linear tendency towards General Equilibrium and Full Employment of all resources, capital, and labor. 

    Had this been true, we would then be able to believe that in the market economy of ergodicity we could objectively calculate these probability distributions of the future and make decisions from it, that rational expectations could be made from it and thus deriving a theory of a linear tendency towards equilibrium and full employment of all resources. This, however, is not true for an economy such as the modern market economy, which at the center is constantly filled with crucial decisions of entrepreneurs to innovate and fundamentally change the transmutable future of the market process, it makes much more sense to describe this in an open-ended conception of the market process in which the economy isn’t tending towards a static state, the economy is unfolding throughout historical time and is constantly unfolding in different ways due to the nature of a kaleidic environment that the market process functions on. If Post-Keynesians like Davidson were to not place at the center of our analysis radical uncertainty stemming from innovation and long-run capital investment, they would end up with a similar theory to the Neoclassical which fails to comprehend the intricacies of the market process and the unfolding behavior of the market process over time, we would end up with a theory that neglected all true uncertainty for a form of epistemic uncertainty which is simply just complexity, rather than Ontological uncertainty which is true uncertainty. 

    Ontological uncertainty comprehends that the future is not set in stone, it is constantly adapting and changing, and moreover, fundamentally uncertain. The direction of the economy can never be in one direction due to its dependence on the expectations and the production processes of individuals and the consequent incompatibility between certain plans causing disequilibration, or creative destruction, in Schumpeterian lingo. None of this could exist had this theory of radical uncertainty not been at the center of the market process theory of decisions for Post-Keynesians, they would end up with a theory that can only describe an ergodic system of robotic decision-makers, such as the world of Lucas and other New-mainstream economists who favor a laissez-faire system due to their ignorance of the conditions of financial markets that stem from their lack of centrality on radical uncertainty! This is not a critique of the Post-Keynesians, it is what makes them fundamentally correct, and what makes the New-Classicals, New-Keynesians, and Neoclassicals fundamentally wrong, ignorance of the centrality of radical uncertainty leads to faulty theories! When we comprehend that the path of the economy is not fixed, i.e., it cannot be calculated probabilistically and therefore is radically uncertain, we must also comprehend that most investment is therefore irrational, betting on the future conditions of the market dependent on millions if not billions of contingent human actors, all acting in their own self-benefit based on their subjective valuations and expectations. 

    This makes the economic decision-making process incredibly volatile, which New-Classicals and New-Keynesians tend to deny, unfortunately. The reason for the volatility of the market economy is based on the problem of determining the future accurately when it is not predetermined, therefore the Mainstream of economics tends to ignore this for the sake of their dogmatic financial laissez-faire stance, which is untenable when realizing the non-ergodicity and the transmutability of the economy and the economy’s future. We cannot proceed with any satisfactory theory of the market process without a theory of how long-run capital decisions and innovation occurs under certain conditions and how it affects the rest of the economy, as the very heart of the economy’s future and economic relationships are determined by these crucial decisions and their impact on the future. To claim that Post-Keynesians do not have a solid explanation of the market process due to having radical uncertainty at its core of decision-making is completely false. The reason Post-Keynesians stand out and tend to be more correct on these issues is due to the radical subjectivism underpinning economic reality on the Post-Keynesian view of Joan Robinson, G.L.S Shackle, and Paul Davidson, and why the future is much more than uncertain, it is radically uncertain. This brings us into another criticism of Brady’s, that Post-Keynesians don’t understand that there are various degrees of uncertainty: 

“Paul Davidson assumes that Keynes’s and Shackle’s views are the same. The Post Keynesians DO NOT accept the concept of uncertainty coming in different grades or gradations. They fall back on Shackle’s own words … – Uncertainty is the opposite of certainty. … There is nothing in between certainty and uncertainty.”

    Brady’s criticism here is problematic. To begin with, multiple Post Keynesians have accepted a view of different gradations of uncertainty depending on the economic importance and other factors, acting as if Post-Keynesians follow a view of complete radical uncertainty completely ignores what a great deal of Post-Keynesians truly believe about the market process, such as Jespersen (2009). Our degrees of belief on certain decisions, or degrees of uncertainty, vary on multiple variables. Some economic decisions are much more certain than other economic decisions, the economic decision to purchase a good, say bread, today, is much more certain than the economic decision to utilize the internet for commerce and greater ease, which was radically disequilibrating on the economic system and fundamentally was a case study of radical uncertainty in action. Creating such a complex system and then using it to radically change the entire economic system to a level that was completely unforeseeable by the first of these inventors is clearly a case study of radical uncertainty. 

    Contrasting this behavior with that of the choice to purchase bread or purchase a new capital good is certainly much less uncertain, but the reason why economists such as Paul Davidson tend to employ such an analysis as the core is due to the pathbreaking nature of these decisions, they fundamentally alter the course of all sectors and radically disequilibrate and overthrow the previous equilibrium order. These decisions are incredibly complex and have massive influences on economic life. To ignore such is to completely ignore the importance of this crucial decision-making and ignore what makes the economy truly function. Ontological uncertainty’s effect on the economic environment is to turn every decision subject to uncertainty, and especially in investing, subject to radical swings due to the dependency on millions and if not billions of contingent human actors shaping the future. The Post-Keynesian radical subjectivist focus on this conception is not the reason why they err, it’s the reason why Post-Keynesians are generally much better in their analysis of economic conditions! Degrees of uncertainty, however, do not change the final analysis of radical uncertainty in the economy and consequently financial market failure and the private sector failing to provide for less than full employment. When considering that such large, economy-shaking decisions strongly affect the entire market process and subjective expectations of each individual, the economy is fundamentally radically uncertain. A choice to buy a capital good or bread does not have economy-wide impacts, however, the creation of something revolutionary is and is then consequently subject to radical uncertainty which affects all economic participants in some form, this makes the entire economy then subject to radical uncertainty. The fact that the economy has some gradation of uncertainty doesn’t change this analysis of irrational investment and radical uncertainty about the future and consequently swings in investment behavior, it merely exists to show us that a choice to produce or buy bread is less uncertain than innovation or long term capital projects. 

    Brady’s final criticism that I will go into here is that Keynes did not solely view the economy in matters of complete incalculable uncertainty. This claim, while true, isn’t something that should serve to invalidate Post-Keynesian analysis, because as Keynes himself claimed, these interval estimates are fundamentally imprecise and do not serve as completely reliable measures in a world of Ontological uncertainty. It is simply a way to mathematically express Keynes’ decision-making theory that could also be described as something subject to non-mathematical probability measures due to the sheer amount of individuals and subjective valuations and expectations at work, these interval estimates can only function as somewhat correct, never accurate enough about the future to do empirical work from. Brady’s arguments against the Post-Keynesians, that they are not the true successors of Keynes due to the differences in probability are not fully true, however, I do accept that Keynes did have an objectivist slant. Shackle’s and Davidson’ theory of the future and uncertainty, however, remains fundamentally correct to me due to the insistence on the incalculable, transmutable future, stemming from long-run capital decisions and radical innovation which cannot be ever calculated through probability in a world of non-ergodicity, the data necessary to do so is fundamentally imprecise as Keynes himself admitted. 

    

    To claim then, that market participants then are able to find objective probability distributions in an ergodic fashion and bring the economy towards full employment from intervals makes little sense, when Brady himself accepted that this theory of radical uncertainty is clearly applicable to multiple phenomena in a market economy and consequently a theory which underpins how the market grows and adapts throughout historical time, and how the market economy fails. Brady’s criticism falls on all ends when considering that his analysis’ change nothing for the Post-Keynesian view of the economy and criticism number two is something most Post-Keynesians accept, they're barely anything substantial as an argument against Post-Keynesianism. Keynes had an objectivist leaning that the "Bastard" Keynesians espouse, Post-Keynesians espouse his subjectivist leanings. The minor differences between Keynes and the Post-Keynesians are not something that destroys the Post-Keynesian analysis, it's simply something to note.