So far, so good then: they recognise that almost all economics has got banking wrong and they realise the way the world really is. But then they ask this:
In which circumstances do the money-creation and loanable-funds approaches yield the same outcomes? In our paper, we establish a simple benchmark result. In the absence of uncertainty and thus of any bank default, both processes yield the same allocation. Hence, in such cases, using the loanable-funds model as a shortcut does not imply any loss of generality.
So, having recognised that economics has got banking wrong these two authors then expend considerable effort in trying to prove that they can ignore what they know to be right and can instead persist in using a model that they know to be wrong. What is more, they claim to have shown that this is possible, because what else can the word ‘establish’ mean? All they asked their fellow economists believe is that there is a world in which there is no uncertainty and that banks cannot, as a result, ever default. Or to put it another way, they say ‘let’s just assume that 2008 did not happen and carry on as we did before’.
No, that’s not what they said. Rather, they said that which model of banking we’re going to use does not change allocation. Jeez, someone who is unable to grasp that sort of qualification of a statement really shouldn’t be an academic, should they?
There are those who would like to suggest that Howard Reed was wrong to say that economics needs reconstruction. You do, however, only need to see a paper like this, which is designed solely to maintain the economic status quo based upon an absurd set of assumptions to support the claimed existence of a market that cannot, and does not, exist in reality, to see why that reconstruction is essential. We can no longer live with this sort of crap. Or to put it another way, we can no longer live with this sort of completely rubbish approximation to the truth.
I’d need to be rather more secure in my own academic credentials before I made statements like that.