Who is Michael Emmet Brady? Well, he appears to be a man with a PhD in economics who claims to have unearthed what he considers to be the “true” interpretation of the work of John Maynard Keynes — one which, he claims, has been missed by almost everyone else who claims to follow in the tradition of Keynes. He publicises his views in a few academic papers but most people come across him through his reviews of Post-Keynesian books on Amazon.
The Radical Subjectivist did a nice post on Brady that seems to me generally correct. Basically Brady appears to be making the claim that buried within Keynes’ Treatise on Probability is some sort of theory of microeconomic behavior. This has always seemed to me a bizarre assertion.
Surely for someone to make decisions in line with Keynes’ work on probability they would have to have first read and understood this work. Given that such an argument is coming from a scholar that complains that not enough people read the Treatise the irony is, of course, enormous. Indeed, in many ways Brady’s argument is structured in the same way as a rational expectations argument in that the economist assumes that people act in line with his model of them — so, it implicitly assumes that such a model exists “in their heads”, which seems unlikely unless they have deeply studied and adopted said model.
I’ve had debates with Brady’s followers before — yes, he has some rather vocal followers. My experience has been that they focus on minutiae and cannot really answer more fundamental criticisms like the one above. I have also pointed out where he was factually wrong in one of his reviews and never got a reply. All that considered, here I am going to take a different tack.
Okay, Brady is claiming that he has a mathematical model to get a grip on uncertainty. Fantastic. Then I think that it is time to apply it and display the results. He can do this in the financial markets. These markets, as Keynes and the Post-Keynesians know well, are characterised by substantial degrees of uncertainty (and no, that does not mean that you cannot make educated guesses to try to predict the movements of these markets as Brady seems to think). So, what Brady should do is apply his mathematical understanding of uncertainty to these markets to make predictions.
And that is where my challenge comes in. I follow the markets regularly. I think I know them pretty well at this stage. I also find them to be characterised by enormous amounts of uncertainty. So, if Brady takes up my challenge, I will continue to watch these markets and any time I come across what I consider to be a completely uncertain forecast — and there are many of these every week — I will lay out both the data and why I find it uncertain on this blog. Brady can then apply his technique and we can see if it works. If it does, we can then talk to some of the people I know in the hedge fund industry and we can set up a fund the money from which we can use to spread Brady’s ideas.
If Brady does not want to take up this challenge or his technique fails — let’s say that it gets things wrong more than 80% of the time — then we will know that he has not made the discovery he claims to have made. If he does take up this challenge and his technique succeeds, then we should all prepare for the coming revolution in not just finance and economics, but in science generally.