Some weeks ago, Will Doherty sent to me an interesting introduction to the  Light Board pedadogy that I will share with you today. The Light Boad  is a teaching device that can be used in order to create dynamic digital lectures.

by Will Doherty,  The “Light Board” is a  Teaching Device for On Line Lectures

  1. Presenting the new teaching device

Student attention, learning retention is the key to teaching. The moment you turn your back and write on the white board or flip chart you disengage with the audience. Imagine a method where you can avoid this by writing on glass, facing the audience with the message being seen and read at the same time on both sides. This is the Light Board.

Professors Matt Anderson and Michael Peshkin are the founders of the Light Board concept. Together these experts developed a new approach that allows freedom to free script as well as show and annotate Power Point images. Their research and experience has confirmed how the Light Board can benefit STEM related subjects.

In the UK,  a smaller version: Mini Light Board (MLB) by Will Doherty.. Designed for the low budget market, it lends itself to High Education tutors and teachers. Ideal for coaching and tutoring students in on line courses or classes, the Light Board and Skype can make learning interactive and adaptable to any subject. The MLB can be built for under £100.

This device can also be used in on line teaching and interaction with students in remote areas. An example includes teaching “real time” from a base in Edinburgh or Glasgow reaching out to the Outer Hebrides, Shetland, Orkney Islands or Scandinavia. If the students and the teachers have a Light Board both can show and tell, demonstrate and see. Free scripting can take place allowing scribbles, drawing and demonstration.

2. Why  is significant?

Light board and similiar tools such as the MBL offer a way to create videos that complement flipped classrooms and other online or hybrid learning models. These videos can provide highly effective assistance for problem explanations, homework explication, and course review. Those who frequently explain or lecture using a board may find these tools a natural fit for presentation.

As such, it can help overcome the reservations of instructors who are uneasy about video production. In addition, the technology presents new opportunities for creative use as presenters annotate images or video. These simple and elegant tools enable lecturers to face the camera while illustrating and annotating their talk, making the content both easier for the viewer to follow and more interesting to watch.

Although the technology is meant to enable quick video production, some recordings might still require some postproduction video editing and encoding. Therefore, it is  desirable for videos to be completed in a single take, obliging those using this technology to carefully plan their presentations.

3. Implications for teaching and learning

Light board and similar tools like the MLB meet the student’s need for clear and informative lecture capture while offering the instructor a quick and effective method of video production that includes visual aids. The technology is especially valuable for instructors in  economics, who often work through formulae or explain complex processes using  diagrams and illustrations.

The resulting lectures are easy to watch and the lecturer’s face remains a natural part of the presentation.

4. Workshops on the MLB

The MLB project  has been launched and trialled at Manchester and Strathclyde University in order to support on line learning and creativity by moving away from bullet point slides to interactive free hand scripting.

In 2017 a workshop was held at Manchester University, Turing Institute. Here senior lecturers identified how the mini light board will help with on line Maths tutorials both UK and overseas. Several of the lecturers carry out voluntary work teaching Maths to students across Africa and this will help with the delivery and learning.

Some months ago, in 2018, Strathclyde University hosted the first Mini Light Board workshop. Lecturers and senior managers attended the workshop to learn and see how the MLB concept could augment their on line lecturing strategy as well as build a proto type mini version. The day was succesful, the team developed their own new prototype which is now being tested throughout Scotland. During the plenary discussion  students identified new applications and enhancements for the MLB  also in the primary school market.

As the Light Board teaching concept has provenance from the USA market, more evidence is certainly need on how we can use and apply it to augment existing teaching pedagogies in the UK and other countries.

For more details check and


About Will Doherty: Lecturer and University Staff Governor Blackburn College, Programme Leader BA (Hons) Business & HRM Lancaster University Programme, Author and Business Consultant. Among his articles and publicatoons:  Introduction to Light Board Pedagogy , Copyright theft, Why Training Doesn’t Work!,  Why Have an L&D Dept?, Development Needs Analysis, Global Businesses Need global standards.


Previous post on  Lecture 8A covers first 17m of video lecture in  Advanced Macro  — explains how different ways of articulating the micro-foundations for Keynesian Macro Concepts leads to dramatically different Macro Outcome.

This post is Lecture 8B — from 17m to 37m of video lecture linked at bottom of post. It attempts to make sense of the Keynesian explanation of unemployment based on insufficient aggregate demand. It concludes that several elements missing from Keynes must be added to get to a satisfactory explanation.

 Friedman’s Methodology  leads to crazy models: In previous post (  Lecture 8A – Microfoundations for Keynesian Economics ), we showed that even small differences in the micro-foundations could lead to very large differences in the macro outcomes. Depending on how we choose micro-foundations, we can get almost any result we like at the macro level. So the question arises: HOW should we construct our micro-foundations? How can we choose among the wide variety of possible micro-structures. This leads to a very serious methodological issue of what models are and how they relate to reality. On this topic, see my detailed discussion in post on Models and Reality. Briefly, the standard POV adopted in neoclassical textbooks is that the only job of models is the provide a match to observations. The inner details of the models can be arbitrary.  However neoclassical economists insist that a good model must have optimizing behavior by all agents, and the equilibrium outcome of the model should match observations. There is no requirement for models to be realistic.  Because realism or lack of it is not relevant,  Friedman’s methodology   states that significant models will have wildly inaccurate descriptive representations. This methodology leads to ridiculous and absurd models, which failed completely in the Global Financial Crisis (see  Quotes Critical of Economics ). In fact, as we have argued elsewhere, maximization does not describe either firm behavior or consumer behavior. Furthermore, behavior of a complex dynamic system cannot be understood by looking at its equilibria. So the methodological tenets of neoclassical economists are fundamentally wrong.

Critical Realism in Models: In this course, we take the POV that models are simplifications which help us to understand a complex reality. Because of this, realism is a requirement – we cannot allow wildly inaccurate descriptions. Realism has to be understood correctly. We want to strip away inessential elements and focus on simplest descriptions which capture the mechanisms that produce the phenomena of interest. The process of stripping away complexity can be said to create descriptive inaccuracy, but this is of a different type from the kind of absurdities created by conventional methodological stance a la Friedman. For example, when  massive empirical evidence proves that human agents do not maximize utilities , than we cannot made utility maximizing behavior as an explanation of any observed phenomena. Note that we may nonetheless assume utility maximization as a convenient placeholder for human behavior if the phenomenon we wish to explain does not depend very much on exact nature of human behavior. That is, if we believe that replacing utility maximization by many other types of behavior would lead to the same results.

The phenomenon we wish to explain is unemployment. Consider a simple fixed proportion production function where 10 LLs own 5 Acres of land each, and One Acre + One Laborer can produce 10 units of corn. Each LL can hire a maximum of 5 laborers, so if there are more than 50 laborers, the model will generate unemployment. Here we have a very simple model which produces unemployment. This model generates understanding – if we do not have sufficient productive capacity – ways to utilize laborers for production, then excess labor beyond maximum productive capacity will remain unemployed. When we come to the Great Depression, it is clear that this explanation will not suffice. This is because the economy did have full employment prior to the GD 29, and so potential there was capacity in the economy to employ all workers. So the problem is to find a model in which there is unemployment when the economy does have the capacity to hire all the labor. For example, suppose that there are 40 laborers in the economy given above. Then it is clear that all 40 CAN find productive employment. There is land to spare, and each laborer can produce 10 units of corn when allowed to work.

In this situation, there really is a puzzle as to how unemployment could emerge. Something must go wrong to prevent an activity which yield benefit to all participants – laborer would earn wages, and landlord would earn profits, and there are no parties which would be hurt by this additional production. If we can solve this puzzle, we may get some understanding of why unemployment occurs in the real world.

Keynes argued that money is an essential ingredient, and has real effects in the short and long run. He also stated explicitly the sequencing that wages are paid upon hiring laborers, and production takes place later. Let us try to use these two ideas as building blocks for a model where unemployment might occur. Since Keynes used a static one-period framework, we will also work with this same case.

Suppose initially that all laborers are paid PKR 100, which is the going nominal wage rate. All 40 are hired, and production takes place, creating 10 units each for a total of 400 units of corn. This sequencing, where payment is made in nominal terms, before the market for corn opens, has rather startling consequences, which run counter to intuition generated by neoclassical theories of price determination.

Model 1: Suppose a closed economy, and no use for corn other than sale on domestic market. Than all 400 units would be put on the market, while laborers have 4000 PKR as their wage earnings, which is all the money available to buy. So price of corn would be 10 PKR per unit, and every laborer would receive 10 units of corn – Wage equals marginal product of labor. But this is a very strange model because the LLs earn zero profits. Why would they go to the trouble of producing corn, if they earn nothing in the process – this question arises in a Market Economy, where production is done for profits.

Model 2: LLs can consume some of the corn, and put the rest on the market. Suppose each LL consumes 200 units of corn, and puts the remaining 200 units on the market. Now there is a total of 2000 units of corn on the market, while there is 4000 PKR available in wages to purchase the corn. So the price would be 20 PKR per unit of corn, and each laborer would be able to buy 5 units of corn, distinctly less than the Marginal Product of labor, which is 10 units of corn. This is a static equilibrium which can repeat. The landlords do not make any monetary profits, but they get to eat a vast amount of corn.

QUESTION: Why does wage fail to equal marginal product of labor in Model 2? The theory is that there would be competition among the LLs to increase the wage, because each has an extra acre of unutilized land, and if he can attract a laborer, he can make more profits. However, in the initial phase where wages are being paid, competition in nominal wages has no effect on outcome. Regardless of how high the money wage is, the price of corn will be set in exact proportion to get back all of the wage income. This illustrates how wages are set in nominal terms and the real wage is an outcome of the system as a whole, exactly as Keynes said.

Both of these models illustrate one of the basic principles of MMT – A sector cannot make profits unless it receives injections from the outside. All inside transactions cancel in monetary terms.

Model 3: The only way for Landlords to make monetary profits is to sell the surplus corn to some other sector. This could be the government, or it could be an urban sector (or any other sector of domestic economy), or it could be exported to the foreign sector. In all such cases, money which flows into the sector from the outside is the profit to the landlords.   As MMT tells us, the private profits of the agricultural/rural sector exactly offset losses of some other sector. How much can the landlords sell to the urban sector (for example)? According to neoclassical theory, there are technological constraints on the profits of the landlord. Their profit should be equal to the marginal product of Land, the input they supply to the production process. In the fixed proportions production function, the marginal product of 1 Acre of Land is equal to the marginal product of one laborer and both are equal to 10 units of corn. Adding up of the two marginal products to the total product does not hold. In this model, the Landlords can sell arbitrarily large amounts to external sectors, and leave arbitrarily small amounts for the domestic market. Regardless of how much or how little they put on the domestic market, the laborers will spend all their wage-money on purchasing the product.

It seems reasonable to think that landlords will leave subsistence amounts of corn on the domestic market, so as to prevent domestic unrest or revolutions, while marketing the rest for highest profit. Since the amount retained for domestic market is based on political considerations, it need not satisfy equilibrium conditions for profit maximization. That is the domestic price can be less than or higher than the foreign price at which the surplus over subsistence is sold.

So far, there is no unemployment in this model, and unemployment cannot exist unless some amount of produce remains unsold. If this happens, it would give a signal to the landlords that over-production has taken place, and they would make decision to reduce production. But how can produce remain unsold? Let us consider the Keynesian idea that the labors SAVE some portion of their wages for use later. This would reduce the effective demand and perhaps lead to surplus production which could not be sold. To see how this works, suppose the LLs sell 200 units of corn to external sector at some price p, making profits of 200p. The remaining 200 units of corn is put on the domestic market for sale, there is a total of 2000 units for sale, while the laborers have 4000 PKR in total income. If they spend all of their income on purchasing corn, the price of corn would be 20 PKR per unit and every laborer would get 5 units of corn.

Now suppose that the laborers decided to save half of their income for potential contingencies in the future. Saving 2000 PKR leaves them with 2000 PKR to purchase corn. When 2000 units are available for sale, the price will fall from 20 PKR/unit to 10 PKR/unit and all of the corn will be sold. Since all the corn is sold, there is no reason for the Landlords to limit production in the next round, and this situation can repeat.

If there is price rigidity, and the price of corn cannot fall from PKR 20/unit, THEN we have the possibility of surplus. Only 1000 units of corn can now be sold on the domestic market and 1000 units of corn remains as surplus. If this can be sold to some external sector – government, urban sector, foreign sector – then again there is no serious problem. But if there is some capacity limit on outside sales, then the surplus cannot be sold. In this case, the LandLords get the message that what was produced could not be sold, and so they should cut back on production. This can produce unemployment in the next period.

Lessons from this model/analysis

In one-period, static model, shortfall in aggregate demand can only come from fixed prices. This is not true in DYNAMIC Multi-period models, but these require more sophisticated analysis, which Keynes did not make. SAVINGS by laborers DOES create disequilibrium: Money profits to landlords become NEGATIVE. They do not recover in revenue what they paid in wages. However, this should result in declines in nominal wages. What happens depends on disequilibrium dynamics.

The final conclusion from all of these considerations is that the mechanism of insufficiency in aggregate demand which was used by Keynes to explain unemployment has not been sufficiently articulated. Many factors were left unspecified, all of which matter to the outcome. A well-articulated Model must specify the technology of production: Cobb-Douglass, IRTS, DRTS, Leontief. These all make a difference. In addition, market structure and sequencing must be specified. Do we have competition, monopoly, monopsony, posted prices or oral double auction. Who produces, and who markets the product. The Information Structure is also important – the Sequencing of Decisions and information flows, who know what and when?. Relative Bargaining Power, and Social Norms govern the outcomes. Of Vital importance is disequilibrium outcomes and how they are resolved. The Class Structure – Landlords, Laborers, Others, also matters – even in our simple models, consumer behavior of laborers is essentially different from that of the Landlords for structural reasons – Landlords do not consume out of wages they earn. Similarly, if the economy is driven by profits, then some other sector must be involved, because profits can only be earned if money is injected into the system. So a well-specified model must have multiple sectors, such as Domestic Other, External Sector, and Government.

We abandon Keynesian analysis of unemployment, noting that the explanation it provides is seriously complete, and must be augmented by additional factors. In particular, fixed prices does provide an explanation, but this is clearly a short run phenomena and to get a serious explanation along these lines requires consideration of disequilibrium dynamics. Subsequent analyses by many authors show the importance of debt, and in particular leveraged debt, which plays a key role in producing major financial crises. To introduce these ideas, we consider a different mechanism – Fisher’s theory of Debt-Deflation – which was also proposed as an explanation of unemployment and the Great Depression, but did not receive much attention in the mainstream. In recent times, elements of this theory have been picked up by Minsky, Koo, Mian and Sufi and others.

This post (Lecture 8B) covers the 20 minute segments from 17m to 37m of the lecture 8. The first 17m were covered in previous post on  Lecture 8A: Microfoundations Matter 

The remaining portion of the lecture explains Fisher’s Debt-Deflation Theory.

  Lecture 8A of Advanced Macroeconomics   — Outline below covers the first 17m of the lecture linked below at bottom of post.

1. EXCESS Savings reduce Effective Demand, Normal Savings Do Not

It seems clear that shortfalls in aggregate demand can lead to recessions, but only in presence of fixed prices. Furthermore, normal levels of savings cannot create such shortfalls – an abnormally high level of savings is required. This is because of factors discussed in “ The Subtleties of Effective Demand ”. Basically, if a normal level of savings is reduced from Aggregate Demand, this money is saved and goes on to period T+1. Similarly, the savings of last period T-1, is going to come into the present period T. This will exactly offset the shortfall in Aggregate Demand created by the savings. However, this will not happen if for some reason there is EXCESS savings, over and above normal levels. This excess S(T) > S*  will be not be compensated fully by S(T-1)=S*, where S* is the normal level of savings.

What could lead to abnormally high savings? It appears that debt can force people to earn money to pay off debt, reducing aggregate demand. Thus it appears that the Keynesian mechanism for creating unemployment as an equilibrium phenomenon relies on debt – without explicit mention. Once the role of debt is highlighted as the source of shortfall in aggregate demand, we examine in detail Fisher’s theory of Debt-Deflation, which never received the prominence that Keynes did. In the recent times, this theory has been resurrected, and is solidly backed by empirical evidence. See: Fisher-Minsky-Koo theory of debt-deflation.

2. Empirical Evidence favors Keynes Conjectures

Examination of the empirical evidence around the Great Depression period supports Keynesian ideas about Unemployment. The paper “Real wages, working time, and the Great Depression” by Hart & Roberts, 2010 shows that as unemployment increased, wages and prices both declined while real wage remained fairly constant (see  Lecture 7  for details). This shows that wage rigidity is NOT the explanation for high unemployment during the Great Depression. Furthermore, it supports the Keynesian idea that cutting nominal wages will not reduce real wages. Also the data refutes the RBC models. If random shocks reduce supply of labor increasing unemployment then the Marginal Product of Labor should increase so that nominal wages should be counter-cyclical. In fact, observed nominal wages are pro-cyclical.

Even the the broad macro perspective of Keynes is supported, explaining his theory of effective demand requires articulation of the micro-structure of the model. Post-Keynesians have strongly resisted/rejected this neoclassical demand from micro-structure, because the neoclassicals accept only one kind of micro-structure – with optimizing agents, equilibrium outcomes, and no uncertainty. Since this type of micro-structure is patently absurd, nothing is gained by knowing whether or not we can construct maximization/equilibrium/known future kind of model which supports Keynesian conclusions. The New Keynesians attempt to do this by providing neoclassical foundations which lead to Keynesian conclusions. Although this can be done, it is irrelevant. As clarified in Models and Reality, from the critical realist methodological perspective, our models should be believable simplifications of reality. While we reject  Friedman’s Folly of accepting wildly unrealistic models , we do argue that we need to provide realistic micro-foundations, based on reasonable descriptions of human behavior, structure of markets, role of money, and genuine uncertainty. This is because, as we will see, the Keynesian macro-phenomena, are very sensitive to these details.

3.  Microstructure Matters for Effective Demand.

One of the crucial insights from the behavioral/experimental economics literature is that small and apparently irrelevant details of experimental setup can make major differences in outcomes. The same is true of Keynesian Macroeconomic conclusions. Depending on how we set up the micro-details, the aggregate outcome can vary greatly (see also,  Lecture 7: Micro-structure Matters ). Below we discuss four different micro-structures, each of which leads to different results at the aggregate, macroeconomic level. We will show that four different micro-structures lead to four different outcomes.

4.  Four Micro-Structures: Four Outcomes

We consider the same model we have been working with (see:  Simple Model Explains Complex Keynesian Concepts ). There are 10 Landlords (LL) each with 5 Acres of Land and simple fixed proportion production function 1 Acre plus 1 Laborer produces 10 units of corn. Suppose the Money wage is 100 PKR per laborer, and there are 40 laborers.

A: Several Micro-Structures leading to subsistence wages:

The situation is one of shortage of labor, so in principle laborers should have power. But suppose market structure is as follows. At the beginning of the period, wages are paid in NOMINAL terms. Then production takes place. All product belongs to the landlords. All 40 laborers will be hired, and will receive pay of PKR 4000. At this point the market for corn is not open so the price is not known. Now, the landlords have all the output, and they have two options – they can market the corn to earn money, or they can self-consume the corn. Suppose this is a one-period economy, and consumption of corn is subject to diminishing marginal utility, but no satiation. Then the landlords will just eat all the corn, and will not put any on the market. To get a more realistic outcome, suppose there is satiation. There is a maximum limit to consumption of landlords. Then Landlord will market the surplus which remains after their maximum consumption. Since this is a one period economy, and money is worthless unless used to purchase corn, however much the landlords place on the market, all of the quantity will be purchased by the laborers – all PKR 4000 will be spent, and price will adjust to ensure that all marketed surplus is sold. It is easily possible for Landlords to market just enough corn to keep laborers at subsistence level, while extracting all the money they have been paid in wages.

Other ways to get the same result involve preventing the landlords from eating corn – corn is coarse food for peasants while the landlords only eat imported food. The landlords can export food at the foreign price, and use revenue to purchase foreign food. They can retain some food to sell on domestic market. However little they retain, the laborers will spend all their money on purchasing this food, so they can extract the entire amount paid as wages. Again, laborers can end up with subsistence wages.

Note that in all these models, nominal wages are determined at the beginning of the period and real wages depend on landlord decisions about how much product to put on the market at the end of the period.  This is how a monetary economy works.

B: Landlords get Subsistence Profits

Suppose we eliminate money from the economy and determine wages in terms of units of corn directly. Suppose landlords compete with each other to hire labor, offering them some share of the output (10 units of corn per laborer) as the wage. Since there is scarcity of labor and surplus of land, competition will lead to landlords ending up with the smallest possible share of corn. For example, in an experimental setup (using oral double auction type bargaining), the landlords will end up paying 9 units of corn in wages, and keeping one unit of corn in profits. Any landlord offering less – 8 units of corn – can be outbid for the laborer by some landlord who offers a higher wage.

C: Cobb-Douglas Production Function

Instead of fixed proportions, assume a Cobb-Douglass production function. Then we can set up a market structure such that Labor and Land both receive their marginal products, as per neoclassical theory. For example, Oral Double Auction pricing, where Landlords compete for laborers and laborers compete with each other for work, will lead to this result. However, a Posted Prices setup, where Landlords announce wages, can lead to capture of surplus by landlords.

D: Social Norms of Fairness:

We can also imagine other types of societies with other types of cultural norms. For example in a society with strong norms of fairness and equality, we could have a sharecropping situation. Each landlord hires four laborers. One “fair” solution would be to split 50-50 so that each laborer gets 5 units of corn, while each landlord gets 20 – 5 each from the 4 laborers he hires. An alternative fairs solution would be that each landlord gets 20% of the produce from each laborers. In this case, all landlords and laborers would end up with equal amounts, 8 units of corn.

5.  Conclusions:

We can create a vast variety of different models with different structures, and get very diverse results. For example, if the landlord hires laborers and owns the produce, this results in different outcomes from situations where landlord rents the land to the laborer and the laborer owns the produce. Depending on how money is used, and the sequence in which payments are made, and production takes place, and how the market for corn is organized after production, many different outcomes can result.

From this we conclude that the demand for Micro-Foundations for Keynesian Economics is legitimate, because how we specify the micro-foundations makes a huge difference. Keynes does not specify Market Structure, Technology, Social Norms, Institutions, Social Classes, Sectors of Economy, and many other factors of importance. All of these factors make a difference to the outcome.  Depending on HOW we specify these, we can get to different understandings and explanations of Effective Demand. Whether or not unemployment can exist and persist will depend on these factors which Keynes did not specify.

End of First Part of Lecture. To be continued – Next part discusses how one can get to Keynesian type unemployment equilibria. Video below contains the full lecture, covering this first part, as well and many other topics. The above post covers the first 17 minutes of the lecture.




The strong focus on rationality, quantifiability, observability, and empiricism — putting the head over the heart — kills the marvelous magic of being alive — even a moment of life truly lived, packs a powerful punch — far greater than the lifetime of rational thought. Today, the catastrophic course which Descartes, the father of Western philosophy, took, has poisoned our lives, all over the planet. When one denies the immediate sensations, our pulsing hearts, racing breath, and tingling skin as evidence of our existence, and relies on the weak and faulty testimony of reason — I think therefore I am — this is equivalent to “feigning anesthesia”. Once this is done, it becomes possible to wonder — and have serious debates on — whether thought processes of the computers can be distinguished from those of humans, and derive ridiculous tests to assess this. Today, we need to learn to live as human beings again, instead of thinking machines, to bring back the magic to the beyond-words amazing gift of life in this un-imaginably precious world. Article below, published in The Express Tribune, June 20th, 2016, attempts to show how.


Max Weber wrote that “The fate of our times is characterized by rationalization and intellectualization, and, above all, by the ‘disenchantment of the world.’ Precisely the ultimate and most sublime values have retreated from public life …” The disenchantment of world leads to the modern view of the heart as merely a pump for circulation of blood.  The ancients had deeper understanding; as Pascal said “The heart has its reasons, which reason does not know. We feel it in a thousand things. It is the heart which experiences God, and not the reason. This, then, is faith: God felt by the heart, not by the reason.” Elevation of the head above the heart has led to a loss of wonder at the myriad mysteries of creation which surround us, and also caused deep damage to human lives in many dimensions. As our Poet Laureate Allama Iqbal emphasized: “At the dawn of Judgment, Gabriel told me, Never accept hearts which are enslaved by the mind.”

To make the best of the few moments that we are granted on this amazing planet, we must learn to appreciate the multiple paradoxes of this precious gift of life. On the one hand, “All we are is dust in the wind” – within the grandeur of the universe, and as just one among billions of people currently alive, my life is an insignificant speck. On the other hand, my life is all that matters to me, and the entire universe is contained within, and created by, my imagination. This simultaneous awareness of both truths diametrically opposed to each other, is not accessible to reason. However, poets have no difficulty with it; as Rumi said “You are not a drop in the ocean, you are the entire ocean, contained within a drop.”

When the heart and soul are removed from the picture, reason reduces man to a material object, just a drop in the ocean. Then it becomes possible say that the value of a man’s life is the sum of his lifetime earnings. Initial statements to this effect by secular and materialistic philosophers like Hume caused shock and horror. Nowadays, it has become widely accepted. The effects of this reduction have been profound in all dimensions of human life. Instead of recoiling with horror, we eagerly accept as the latest wisdom the idea of the “human resource”. Economists discuss human beings as inputs into the production process. The goal of the economic system is seen as the production of wealth, and the worth of a human being is calculated according to his ability to contribute to this goal. This comes from looking at only one side of the picture, the insignificance of a human life.

The other side of the picture is to realize that human lives are infinitely precious. Each human being is unique, with experiences and history like no one else. Each moment in our lives is new – no such moment has even existed before, and no such moment will ever arise in the future. Every moment presents us with unique opportunities to progress towards the infinite potential for growth planted within our souls. If we can grasp these opportunities, we can reach to heights that have never been scaled before in human history.

Consider the miracle of the seed, which defies all logic. The tiny seed has no arms, legs, eyes, or moving parts. Buried within the ground, it seeks out, and extracts from the soil, the hundreds of different chemicals required to manufacture roots, trunks, leaves, fruits, etc.  It unerringly sends roots downwards towards water, and the shoots upwards towards the sun, though it has no mechanisms to perceive directions. Within the seed, the Creator has implanted not just the design, but the full capabilities to manufacture not just a tree, but a forest. The potential planted within a human being is far greater. Those who realize it can achieve marvels. With training and discipline, humans can walk barefoot on fire, slow life processes down to survive being buried, break bricks with bare hands, accomplish incredible athletic acts, write literature and poetry of enduring excellence which inspires millions, and even greater spiritual feats which cannot be witnessed by others.

To put it in more prosaic and less poetic terms, the purpose of wealth is to provide the opportunity for all human beings to fulfill this potential, which cannot be measured in monetary terms. This reversal of the “human resource” idea is the central contribution of the capabilities approach to development, which emerged from the emphasis on Human Development pioneered by Mahbubul-Haq. This focus on the intangibles of human experience, which lead to the development of capabilities, is precisely what has gone missing from economic cost-benefit calculations.

Disenchantment, as reflected in the banishment of the ultimate and sublime values from the public domain, has resulted in impoverishment of human lives in many dimensions. We have learned the false and misleading lessons that our lives should be devoted to careers, production of wealth and the pursuit of pleasures. Recent research shows that while we are attracted by material possession, and short term gratification, long-run happiness comes from seeking enriching experiences, and emphasizing experiences over possession and consumption. Bringing back the magic into our lives requires paying heed to the wisdom of the ancients. Most important to our personal happiness is investing time on the social threads with which the fabric of our lives is woven. Generosity, acts of kindness, service to others, even at personal cost, contribute more to long run happiness than selfish maximization of short run pleasure. It is a central lesson of Ramazan that abstaining from desires, as well as other vices, and striving to do virtuous deeds, leads to spiritual growth. Spiritual growth is the core component of the development of character and capabilities. Let us use this opportunity to make a commitment to improving ourselves as human beings, as this is the most effective way of making the world a better place for all.

Related article: Social Revolutions – how individualism trumped social connections. My blog: An Islamic WorldView

Economic conditions are constantly changing. Today, our generation is confronted with the outcomes of contemporary globalization that is a broader, complex, and multifaceted process characterized by new markets, new actors and new rules. Indeed, globalization has produced many changes in our economy, society, culture, and politics. As a result, deep pressures to conform to new standards of behavior, such as efficiency and competitive performance, have forced individuals and communities not only to rethink values and practices but also to rebalance tradition and change.

In the scenario of globalized markets, individuals and communities face many challenges to be resilient because of the changes in markets, wealth and power. Throughout the last forty years, most governments around the world supported the long-run process of neo-liberal reforms that turned out to be characterized by the financialisation of the capitalist economy. By negatively influencing labor and working conditions, it rendered increasingly difficult to reach (or even approach) the level of full employment. In this setting, changes in corporate ownership, through waves of mergers and acquisitions, created new business models where companies, while highly powerful and concentrated, turned out to be simply bundles of financial assets and liabilities to be traded (Madi, 2017).

Considering the labour markets, employability seems to be shaped by private strategies that aim cost reductions, labour flexibility and efficiency targets. Longer working hours, job destruction, turnover, outsourcing, workforce displacement and loss of rights have also been part of the spectrum of management alternatives aimed at cost reduction. Indeed, the current dynamics of labour markets favoured the vulnerability of workers, mainly young people, and precarious jobs. Therefore, job instability and fragile conditions of social protection turned out to put pressure on the redefinition of survival strategies. As a result workers turned out to redefine their skills, become informal entrepreneurs or migrate, among other examples of the current worldwide changes in their livelihoods.

In this setting, current neoliberal policies of resilience have been increasingly prevalent in current economic thinking and policies. The policy recommendations seek to foster the capacity of individuals and communities to cope with market uncertainties. BRASSET and HOLMES (2016) present a literature review on the neoliberal (and managerial) policies of resilience, characterized as a set of governance techniques aimed to manage uncertainty and achieve the adaptation of individuals and communities to global changes.  Considering the labour markets, for example, the neoliberal policies of resilience have turned out to enhance the workers´ adaptation to the “market discipline” and, therefore, there has been a re-distribution of the responsibilities for social adjustment among the state, business men, investors and workers. As a consequence, the evolution of unemployment results from the “unsuitable” or “inappropriate” behavior of workers to face a changing real-world.

As a matter of fact, in the frame of the neoliberal policies of resilience, human life turns out to be focused on the attempt to face exogenous uncertainties and risks in order to foster adaptive strategies. In short, the sole purpose of resilient individuals and communities seems to be survivability.

Indeed, in the light of current  global social and political challenges.  the spread of the  discourse of resilience calls for a critical thinking on the failures of economic thinking and economic policies.


BRASSET, J and HOLMES, C. (2016)  “Building Resilient Finance? Uncertainty, complexity, and resistance”, The British Journal of Politics and International Relations, 18(2): 370–388.

MADI, M.A.C. (2017) Pluralist Readings in Economics: key-concepts and policy-tools for the 21st century, Book Series: Economics: Current and Future Developments.Volume 2.  Bentham Publishers

Lecture 7 of  Advanced Macroeconomics , 9/26/2018 at PIDE, Islamabad.
The Lecture explains that Keynes provides a general broad outline — a model IDEA, and not a model. Within this outline, there are many ways to fill in the details — these are the so-called Microfoundations for Keynes. Depending on HOW we fill in the details, we can get to different types of models with different types of phenomena, which may be called effective demand. This means that microfoundations, left unspecified by Keynes, matter in both the interpretation of his theory of effective demand, and also in terms of whether or not the central phenomena: an equilibrium at which unemployment exists – can be demonstrated within the model.  This is the CENTRAL reason for the massive amount of confusion about about the concept of Effective Demand, and the resulting Unemployment Equilibrium, which Keynes described. Depending on how we fill out the micro details, we can get to many different possible definitions and interpretations of Keynesian Effective Demand.
The 95m Video Lecture is linked below. Also, for those with less time, Slides for the Lecture, which provide an outline and overview of the contents of the lecture, are linked below.

The slides are available on slideshare, and can be viewed below: An expanded outline, based on the slides, is also attached, just below the slides
An auto-generated transcript of the talk, using YouTube voice recognition (which may have many mistakes) is available from the website for the course. See:

Lecture 7 of Advanced Macroeconomics,

26th September 2018. by Dr Asad Zaman VC PIDE


To understand Keynes, we must  FIRST Understand Say’s Law: “the aggregate demand price of output as a whole is equal to its aggregate supply price for all volumes of output”

Production of goods has a COST = Aggregate SUPPLY price = Payment to factors of production + Profits.

Total Money generated as factor income is ALL the money that is available as demand. ALL goods are for sale. Money will be exactly enough to buy all the goods  (because prices will adjust to clear the market).

Consider Thought Experiment in Simple Model

Two factors of production: 40 Acres land and 40 laborers

Land Rent is 40xR, Payment to labor is 40×100=4000

Factor Income = 4000 + 40R, Total Product = 400 Corn.

Price of Corn = (4000+40R)/400=10+R/10

Demand = Supply; Price equilibriates.

This is Say’s Law – Factor Income is exactly the amount needed to purchase the entire amount produced – price creates equality

Crucial Question: What determines Rent & Wages

Share of Capital and Share of Labor?

Classical Answer: Rent is Marginal Product of Land, Wage is Marginal Product of Labor.

The two sum to total income from production under zero profit long run equilibrium.

Keynes agrees with classical answer: W=MPL; this determines capital share as well.

In order to compare with our own answer/model, we first REVIEW the neoclassical theory

According to Neoclassical Theory,  Shares are Determined by Marginal Product – Why?

Assume 40 Mini-Landlords, each has one acre of Land (K).

è K=1, L=1 produces 10 Units of Corn.

Suppose W=100 Rp, this is the numeraire. One price can be set arbitrarily, all others will adjust proportionately.

SOLVE for competitive equilibrium in this economy.

Fix K=1, every landlord has K=1 è

◉             First Order Conditions for Profit Maximization

For equations — see slides, or video lecture, linked above

Firms are price takers, p,w fixed in above equation, which gives the demand for labor by firms. At competitive price p, demand MUST come out to 1 unit of labor, otherwise excess or deficit demand for labor. Set L=1 to solve for competitive price. Fix value of b arbitrarily, say b=0.8. Solving for p in above we get:

For equations — see slides, or video lecture, linked above

◉             Competitive Solution

Each LL hired 1 unit of L at wage 100 Rp, produces 10 units of corn worth 12.5/unit, sells for 125 units, makes profit of 25 Rp, enough to buy 2 units of corn. Laborers buy 8 units of corn with 100 Rp. Factor Payments exactly equal demand. Say’s Law holds.

For equations — see slides, or video lecture, linked above

◉             Disequilibrium Dynamics: What Happens if p=15?

Revenue from Sales is 150=15×10, 100 goes to Labor, 50 to LL.

Laborer buys 6.66, LL buys 3.33, Demand=Supply for Corn.

BUT MPL > w.

Competition for additional laborers will drive up the wage, until the shares of capital and labor are 20-80

◉             Cobb-Douglass First Order Conditions

For equations — see slides, or video lecture, linked above

Competitive Equilibrium exists ONLY with Constant Returns to Scale. If  , then total revenue from sales will not equal payments to factors.

Other Production Functions Lead to Different Results

Key Point of this Lecture: Micro-Structure Matters

Little, Apparently Un-important Details, Make Huge Difference

Cobb-Douglass, CRTS, lead to W=MPL, R=MPK.

If α+β>1 IRTS (Increasing Returns to Scale), then MPL+MPK is less than Total Revenue.

If α+β<1 DRTS, than revenue is less than sum of shares to capital and labor. Both cannot be paid.

Competitive Equilibrium fails in either case.

As Usual, Economists adopt Ostrich Strategy: Assume it all works out — SO LET US ASSUME CRTS!

This assumption reflects an Ideological commitment to Free Markets & Competitive Equilibrium, we freely make assumptions, as required, to get optimality of free market.

In Leontief Production: Rents,Wages not equal to MPL

In constant proportions production function, both factors have FULL output as marginal product. When K=1, L=0, adding L=1 gives 10 units of output. When L=1,K=0, adding K=1 also gives 10 units of output. So BOTH factors have FULL output, factor payments CANNOT be made according the marginal products.

Central Question: What Determines Wage/Rent Shares?

Neoclassical Answer is Ideological Propaganda: Conflicting Technical Details are suppressed.

Impression: S&D holds everywhere: Reality: ONLY in Comp Eq

Impression: W=MPL, R=MPK; Reality: ONLY in CE with CRTS

What if NO CE or NO CRTS?

If we reject neoclassical views, THEN what determines share of capital and labor?

Marxist View: Labor Gets Subsistence Wage

Note that FULL output is Marginal Product of Labor = Labor Theory of Value (of course Full output is ALSO MPK).

To understand Marx, Start at arbitrary 50-50 share; determined by historical context and social norms.

Capitalism is competition among capitalists for profits.

Profits come from exploitation of labor. This means capitalists will use power to increase their share.

Exploitation increases until laborers revolt.

So: Is Wage Equal to MPL? Data shows clear divergence


Data strongly conflicts with the idea. To explain these differences, Economists List Six Theories

  • Cheaper Capital lead to rise in investment in capital
  • Increased Capital Mobility – substitution of cheap labor
  • Resultant Reduced Bargaining Power. Fewer Unions.
  • “Superstar Effect”: Externality gives massive returns to top
  • Rents: Excess profits from patents, non-market effects
  • Tax Policy

Above reasons are rationalizations – attempts to save neoclassical theory.

Real Reason: Financial De-Regulation in 1970s

Rise of FIRE: Finance, Insurance, Real Estate

Massive increase in payments of rents to FIRE sector (Hudson)

All productivity Gains are captured by the powerful – Marxist hypothesis: share is NOT according to marginal product, but according to relative POWER of the two classes.

Reagan-Thatcher revolution unchained finance, and created power necessary to capture gains in productivity.

Economics & Theories – driven by power struggles between classes.

Back to MAIN question:

How to Understand Unemployment after Great Depression?

Answer: use models which capture essential elements –

Models are necessary, because world is complex.

All intuitions cannot be put together in any simple way.

Models ensure coherence and consistency of entire structure.

Experience cannot be understood without models.

Models cannot be understood without experience.

◉             How to Understand Unemployment?

◉             What caused Unemployment after Great Depression?


Say’s Law – if producers produce, process of production will generate enough income for factors to enable purchase of product. No danger of insufficient demand.

OBSERVATION: Producers had CAPACITY to produce – laborers were there, factories were there. BUT they did not produce – WHY? If Say’s Law is VALID, then there was no danger from producing an excess. When we supply, the process will create its own demand.

This is why Keynes STARTS by rejecting Say’s Law.

Keynes’ Intuition: Producers thought they would be unable to sell

That is, Say’s Law does not hold. BUT WHY?

Intuition: Producers think there will be insufficient aggregate demand. (and they are right!)

Intuition: What happens at the aggregate level is DIFFERENT from a scaled up version of what happens at MICRO level.

IDEA: Work solely at Aggregate Level – Unique Innovations of Keynes – invented MACROECONOMICS.

Translate Intuition into Model

Keynes painted broad details – Intuition about Complexity: Behaviors of Aggregates not scaled up Micro Behavior.

Omitted the Micro Picture, concrete details of what happens at the micro level which leads to this Macro.

This led to the critique: Keynesian Economics LACKS Micro-Foundations.

Responses to Micro-Foundations Critique of Keynes

One Response: Macro Picture does not depend on Micro – Chemical properties of molecules have no relation to properties of sub-atomic particles.

Another Response: Create Micro Picture – New Keynesian/ Neo-Keynesian

Crucial Issue: Micro Details MATTER – Is production function Cobb-Douglass CRTS, or Substitutable with IRTS, or Leontief? This MATTERS for theory of effective demand.

Important Point: Neoclassical Micro-foundations lead to REJECTION of Keynes (contrary to Keynes own ideas). This is why Post-Keynesians often resist demand for micro-foundations.

Massive Confusion About Effective Demand: Different Ways of Filling out Micro Details lead to Different Theories

How should we fill out the micro detail?

Try for REALISM – closest approximation to hidden reality.

Approximation is good (enough) if it reproduces observed phenomena. [This is ONLY Criteria: Friedman’s Folly – match between model results and observation is important, but NOT the sole criterion for validity of model]

Critical Realism: Trying to find the HIDDEN structures of reality. In addition to matching empirical evidence, model should provide a PLAUSIBLE explanation of the hidden causal structure which leads to the observed phenomena.

Questions we need to answer – in terms of match between HIDDEN structur

◉             What is the Production Function?

◉          Do We Have Perfect Competition? S&D Theory Holds?

◉             Cobb-Douglass with CRTS required for S&D

◉             Sraffa’s Critique: IRTS & DRTS are not compatible with S&D

◉             CRTS leave SCALE indeterminate.

◉             C-D with CRTS implies MPL is below subsistence level.

So – to find out what model is suitable, we must ask: How did the real wage behave in GD?

Keynes speculates that it increased.

◉             Bordo, Michael D., Christopher J. Erceg, and Charles L. Evans. “Money, sticky wages, and the Great Depression.” American Economic Review 90.5 (2000): 1447-1463.

GRAPH (see slides or video lecture linked above) show steady decline in prices and wages during the great depression, while the real wage remains roughly constant.

Cobb-Douglass: As more labor is hired MPL should decrease.

◉             Links to Relevant Materials

Website for course: Advanced Macroeconomics

Related Post  Subtleties of Effective Demand

Information about Author: About Me section of



(Continuation of   Lectures on Advanced Macroeconomics  )

As I read more and more about effective demand, I got more and more confused — how can I explain this concept to my poor students, if I don’t understand it myself? There are a huge number of articles with different and conflicting views and interpretations of this concept, which Keynes describes as being central to his theory. Let me proceed to clarify the insights that have resulted from struggling with this material, and going through many iterations of revisions in terms of how to make sense of this theory.

Keynes and followers — both the Hicks-Hansen-Samuelson variety, as well as true blue post Keynesians — argue that it is deficiencies in the Aggregate Demand which lead to the unemployment equilibrium which is central to Keynesian economics. Stated in very simple terms, the argument can be phrased like this. The process of production generates factor incomes. These incomes are exactly the source of the demand for the product. If all the income generated is always spent on purchase of products, then the aggregate demand will exactly equal the aggregate supply — this is Say’s Law. In this case, there is no concept of shortfall in aggregate demand which could lead to unemployment.

However, Keynes and his followers deny the equality. They argue that some portion of the factor income could go into savings, thereby lowering the aggregate demand. Now the aggregate demand could be greater or lesser than the aggregate supply. An equilibrium would occur when the two are the same, but there is no guarantee that this equilibrium would occur at full employment. The standard diagram used to illustrate this idea is given below:


For our purposes, we can assume a direct proportionality between N, the amount of labor employed, and Y, the value of the output produced. Furthermore, it makes no difference for our argument whether prices are fixed or flexible, so let us assume them to be fixed for simplicity. The X-axis just measures the value of total output Y (equivalent to N, rescaled, since the two are directly proportional).  The 45 degree line just measures the total factor income generated by the production of output worth Y — by definition. The consumption function is C=a+bY, where a>0 and b<1 is the marginal propensity to consume. When Y is low, the laborers/consumers demand is greater than the total product. However, since the slope b is less than 1, this consumption demand must intersect the 45 degree line. At points beyond the intersection, we have deficient demand. Both deficient and excess demand would set in motion processes to eliminate the disequilibrium so that equilibrium would occur at the point at which the demand for consumption generated by factor incomes is exactly equal to the value of the total output. This intersection can occur at a point at which full employment does not occur, demonstrating the existence of an unemployment equilibrium — which is the CENTRAL goal of Keynes.

According to Keynes, classical economics is based on Say’s Law, which requires C=Y — the consumption function has a=0 and b=1, so that the consumer demand is exactly the same as the factor income, and there is zero savings. In this case the consumer demand is exactly the same as the aggregate supply function — both are the 45 degree lines, and equilibrium can occur at any point — however much is produced, it will generate exactly enough demand required to purchase and consume it. In this case, standard economic forces will automatically drive the economy to full employment.  Keynes, and post-Keynesians argue that consumer savings will disrupt the operation of Say’s law, and create a divergence between the demand for consumption at a given level of factor income Y (which will be C=a+bY) and the supply of goods at the same level (which will be Y). Because of this violation of Say’s Law, equilibrium will not occur at all possible levels of production Y. It will occur only at one particular point of intersection, and that point could easily be an unemployment equilibrium.

This idea actually works in a one period static economy, which was the mode of analysis used by Keynes. However, despite a lot of effort, I was unable to make it work in very simple dynamic extensions of the same economy. After many trials, I realize that this savings argument is much more subtle than it appears at first blush. The problem in the dynamic, multi-period setting is actually very simple. Today the consumers/laborers SAVE a portion of their income S=Y-C, reducing the aggregate demand. However TOMORROW this same saving will be available to the consumers as additional amount of money, over and above the factor income. When we talk about saving for the future, then we cannot ignore what happens in the future as a result of this saving. Furthermore, in a dynamic setting, except for the very first period, every period has a past as well as a future. Let M(T) be the total money in the hands of the consumers in period T. This amount is split into C(T) and S(T), the consumption and savings in period T. Now, in period T+1, the money holdings in hands of consumers will be M(T+1)=F(T+1)+S(T) — the factor income PLUS the amount the consumers saved. The consumption function should be defined using THIS amount, and not just the factor income amount — if savings plays no role (as it does not in a one period static analysis) then the model is not logically consistent.

Once we realize that for logical consistency, savings MUST enter into any dynamic analysis, we are led to the realization that it MUST also enter into even a static one-period analysis. This is because we must have M(T)=F(T)+S(T-1). The money in the hands of the consumers today must be the factor incomes in the current period PLUS the savings from the previous period. It is logically inconsistent for a model which has savings in current period to ignore the savings from the previous period.  But, as soon we put in the CRUCIAL missing variable S(T-1) into the analysis of the current period, the savings gap appears in a very different light — as we shall soon see. To the extent that today’s saving reduce current demand, yesterdays savings offset this by adding to demand. Let S* be a normal level of savings. Then in long run equilibrium S(T-1) = S* = S(T), and so the savings gap created by present savings will be exactly made up for by savings coming in from period T-1.

As this analysis demonstrates, normal levels of savings S* do not create deficiencies in aggregate demand, and hence cannot create unemployment. However, abnormal levels can indeed create such deficiencies, and lead to the kind of unemployment that Keynes wanted to explain. To see how this can happen, suppose we are at a full employment equilibrium, with shortfall in aggregate demand from saving S* being exactly compensated for by the increased income due to savings S* from previous period. Now suppose that there is a catastrophic crop failure. The Landlords have cushions, but the laborers draw down their savings and go into debt to survive. Come planting season, the landlords note the general misery in the land, and how the general population is in debt, and times are tight. They wonder whether they should go to the trouble and expense of producing a huge amount of crop. Who will buy it? Would it not become surplus, and drive down the price of crops? In this situation, they are likely to restrict production to have enough for self-consumption, and a moderate surplus for sale. The concept of restricting production to get good prices on crops is well known. The aggregate demand has gone down because the normal savings cushion S* of the laborers has been wiped out. Now, when they are paid wages, instead of using it to buy corn, they will use it repay debts, and to build up their savings back to the normal levels. This abnormally high savings is what causes the collapse of aggregate demand. This corresponds exactly to the analysis of Atif Mian and Amir Sufi in the House of Debt. See my brief analysis and summary in Why does Aggregate Demand Collapse?.

The relation between debts and depression was emphasized in the debt-deflation theory of Irving Fisher. Even though Keynes was aware of the links, he chose not to emphasize this in his General Theory. Making the connection explains why “helicopter money” would go a long way towards ending the depression. A moratorium on debt repayments, and an infusion of money to rebuild savings and restore aggregate demand create full employment. This would then create prosperity which would allow people to pay off debts. The Aggregate Demand Depression leads to loss of jobs which further inhibits the ability of people to pay of debts, creating a vicious cycle, as has been noted by many.