Understand the economy as dynamic model and forsee the economy crisis at the same time? If you think that sounds to good to be true, have a look at Professor Steve Keen´s project, who is working on that at the very moment....

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by Steve Keen

Minsky is a system dynamics computer program: a program for building models of complex dynamic systems visually to allow them to be simulated numerically. There are many such programs in existence already: programs like Simulink (part of Matlab) and Vensim enable engineers and social scientists to build models of everything from vehicles and rockets to the dynamics of social interactions in a prison.

An image of Minsky´s digital appearence

These tools are extremely well known and used in engineering and management, but surprisingly are very poorly know and barely used at all in economics–yet the economy is clearly a complex dynamic system. Economtists don’t use such tools not because they have something better, but because they maintain an outdated fiction that the economy is either in or very near its equilibrium at all times, and can be modeled as an equilibrium process rather than a dynamic one. So programs like Simulink and Vensim have never taken off in economics.

Economists also model the economy as if banks, debt and money do not exist.

Both these realities of modern day economics are a travesty: the economy should be modeled dynamically, and we have to recognize–especially after the economic crisis–that banks, debt and money have crucial impacts on the economy.

Minsky addresses both these issues by not only being an easy to use and free (Open Source) dynamic modeling tool that anyone can use for any modeling purpose, but also by being able to model the peculiar dynamics of finance using a “double-entry bookkeeping” system in addition to the standard system dynamics toolkit of a flowchart that can be numerically simulated. This bookkeeping tool–called a Godley Table–makes it easy to model the complex financial flows that occur when a financial transaction is made–say a customer buying goods off a supplier when the customer uses one bank and the supplier uses another.

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