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Paul Davidson - The Trouble With the Ergodic Axiom 2/4

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Published on Jun 28, 2012

In the second part of this four-part INET "From the Director's Chair" interview, INET Executive Director Robert Johnson talks with Journal of Post Keynesian Economics co-founder Paul Davidson about Davidson's book The Keynes Solution: The Path to Global Economic Prosperity.

Davidson explains the problems Keynes saw with the ergodic axiom, a concept economics borrowed from statistics that says the future is stable and can be predicted by data from the past. The axiom has taken hold because economists suffering from "physics envy" think they need this assumption to make economics feel more like a physical science. However, as Paul Samuelson famously wrote, this approach often dooms economists to making precise but irrelevant predictions about the future. Davidson suggest this it was this belief that led us into the financial crisis in 2008, after which Alan Greenspan would famously say that "the whole intellectual edifice collapsed," without being able to explain how or why. This is the failure of the ergodic axiom.

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