There is a general agreement that the mainstream macroeconomics has largely failed to predict or correctly estimate the last economic and financial crisis, see the introduction here on the website of the Institute for New Economic Thinking. This failure has motivated more than ever different heterodox approaches to macroeconomics.
The approach known as the “quantum macroeconomics” is such a case. Admittedly, the manifesto of the quantum macroeconomics suggests that this movement emerged along a time span of 40 years. However, it is the character of the manifesto of this movement that attracted our attention. Without going into great detail, in this post I will discuss some of the main assertions of quantum macroeconomics.
The manifesto starts by saying that: “It is odd but in the beginning of the Third Millennium the majority of economists continues to consider money as marginal and nonessential, if not irrelevant, to economic theory”. I should assume that by “economists” they mean here macroeconomists (on one hand, their site is has the tile “quantum macroeconomics”, on the other hand, money should, at least theoretically, interest mostly macroeconomists). Clearly, the authors are not too much aware about the latest developments in the literature. To start with, it is mainly in the Woodford’s view about New Keynesian macroeconomics that money are not important for monetary policy (and macroeconomics). This claim has largely been refuted by the recent literature, see here or here, to give only two examples.
But let us go further in the manifesto. Going to the key point of the manifesto, we read that “In his quantum monetary analysis, production is conceived as an emission, an instantaneous event through which physical output is given a monetary form, and is issued as a “quantum of time”. You may find, like me, quite strange that the production is viewed this way. Certainly, no serious economists would think that production is “instantaneous”; just think about the Kydland’s idea on “time to build”. The manifesto further states that “Issued by banks as a numerical form expressive of any production output, money can be neither a commodity nor a simple ‘veil’ “. I really think that the authors do not understand the issue of money creation. The banks do not need in any way any reference to “production output” to create money. The reader might want to check the recent debate between Keen and Krugman on the issue of money creation.
The manifesto continues afterwards by stating various limitations of mainstream (macro) economics. I would mention only one of them. Consider they approach to exchange rate. They state that “For decades, economists have been pursuing the pipe dream of using a fixed exchange rate system, largely considered as the best tool in encouraging growth in international transactions”. This is rather a misrepresentation and a gross simplification of the views on exchange rate regimes. To give a simple example, think about the case of the Euro Area. Many economists have started to argue that some of the members (particularly from the PIGS group, Portugal, Ireland/Italy, Greece and Spain) should exit the Euro and let their new currency depreciate, see here an example. The debate on the advantages and disadvantages of various exchange rate regimes is a much wider debate and we cannot but direct the reader to further readings.
The quantum macroeconomic approach can easily be categorized as an econophysics approach. The general perception of the econophysics, especially among the more prominent figures in economics, is however quite bad. The quantum macroeconomics does not really help changing this perception. I might come back to the econophysics issue in a future post.