Date of Submission

Spring 2012

Academic Program

Economics

Project Advisor 1

Kris Feder

Abstract/Artist's Statement

The failure of conventional neoclassical macroeconomic models to predict the current global economic recession has led some economists to seek an alternative theoretical framework capable of predicting instability and recessions. The flow of funds framework is one approach that has been proposed for its ability to predict instability. One economist in particular, Dirk Bezemer, has received significant attention for his work examining those who used flow of funds models to predict the recession and his claim that the flow of funds framework is capable of predicting instability.

This project explores the vulnerabilities and advantages of using the flow of funds framework to predict instability. I find the phrase flow of funds framework or approach to be unhelpful in the discussion seeking a new approach because the approach is not tied to a specific theory. Instead, I compare several individual models including Bezemer's own model, a model used by the Levy Institute, and a model developed by geoclassical economist Michael Hudson. I find that the historical and theoretical nature of the geoclassical framework makes it idea for predicting long term trends and instability.

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