Saturday, August 20, 2016

Steve Keen Gets a Grilling

This is the toughest interview I have ever seen an economist get. Steve Keen does feel uncomfortable at times, I thought, but he stands his ground very well. Three cheers! Steve Keen has been going against the tide for years and so I guess Steve Sackur decided to put him through the works to see if he can back up his claims when put to the test. Steve is such a great guy.


Steve Keen interview on BBC HardTalk August 2016


https://www.youtube.com/watch?v=IcNBW9609HM&feature=youtu.be&a

Published on 19 Aug 2016
Steven Sackur and I discuss why (mainstream) economists shouldn't be trusted, Brexit, the Euro, and overall the need to reform economics a decade after the Global Financial Crisis.

43 comments:

Ralph Musgrave said...

I have big doubt's about Keen's "debt jubilee" idea. Far as I can see it involves printing and dishing out money on a scale that would make Robert Mugabe blush. I set out some detail on that here:

http://ralphanomics.blogspot.co.uk/2016/08/steven-keens-debt-jubilee.html

Keen and the interviewer discuss the debt jubilee after about 19.00.

Andrew Anderson said...

Well the obvious problem there is the ENORMOUS amount of stimulus involved: that is, we’d get hyperinflation. http://ralphanomics.blogspot.co.uk/2016/08/steven-keens-debt-jubilee.html

Be fair. Keen also talks about limiting credit creation in his "A Modern Jubilee".

Consider that a corollary to "[bank] loans create deposits" is "[bank] loan repayment DESTROYS deposits." Therefor a fiat distribution and credit creation restrictions can be combined for no net increase in total purchasing power.

Bob said...

What is the difference between bankruptcy and a debt jubilee?

Matt Franko said...

" printing and dishing out money on a scale"

Ralph the 'scale' is dependent on the price not the other way around...

iow when you want to get total govt expenditures you have to integrate the prices paid delta T and get the summation over time...

Say the DoD was going to re-do a runway and was going to buy 500,000 yards of concrete over a five month project they would be buying 100,000 yards per month at $75/yard so they would be "dishing out" a $7.5m "scale" in the first month..

So what is the functional relationship between the total spent over the month ($7.5 million) and the $75 they paid for the yard of concrete?

It works the other way around... iow the price is the independent variable and the total amount they spend is the dependent variable...

Economists dont have the maths correct in general they have never been trained correctly in applied mathematics in their degree programs...

Matt Franko said...

Economists think if the govt spends more out of the TGA that prices go up... its the other way around...


iow if they pay higher prices then they end up withdrawing more out of the TGA even if they buy the same quantity of product or services over an equivalent delta T....

"its about price not quantity...."

Andrew Anderson said...

What is the difference between bankruptcy and a debt jubilee? Bob

Hand out new fiat equally to all citizens - debtors and non-debtors alike.

Ralph Musgrave said...

Andrew,

Re your claim that the limits to credit creation proposed by Steve Keen might negate the Mugabe style money printing exercise that he proposes, I doubt it. According to the back of the envelope calculations on my blog article (link above), the amount of money printed and distributed under Keen's proposal would be three times GDP for the US and 1.5 times for Australia. Those figures are astronomic.

Also the latter new money represents an increase in the private sector's net paper assets ("Private Sector Net Financial Assets" as MMTers sometimes call it). In contrast, there is no REDUCTION in PSNFA when credit creation by commercial banks is made more difficult. Reason is that for every dollar created and loaned out by commercial banks, there is a dollar of private sector debt. So I’m skeptical about his proposal.

Matt,

Re the “price” of the money that Steve Keen proposes handing out, there is no price far as I can see: i.e. it’s a straight gift.

Tom Hickey said...

Ramanan posted this

Steve Keen On BBC HARDtalk

MRW said...

Bob,

The question should be What is the difference between bankruptcy forgiveness and a debt jubilee?

Answer: none. Functionally.

Debt Jubilees are thousands of years old. Records show that the Sumerians were doing it in 3500 BC. New rulers did it all the time. To remove the draconian taxes of a previous despised ruler. To gain the desire of the people to serve in their armies. To gain the loyalty of the people and level the playing field. The rulers had control over creation of the unit of account, after all.

I believe Michael Hudson and his Harvard colloquium discovered in the last 15 years that Debt Jubilees are older than 3500 BC. Certainly pre-dated all the Bible crap about it.

Andrew Anderson said...

Also the latter new money represents an increase in the private sector's net paper assets ("Private Sector Net Financial Assets" as MMTers sometimes call it). In contrast, there is no REDUCTION in PSNFA when credit creation by commercial banks is made more difficult. Ralph

Total purchasing power surely includes "Private Sector Net Financial Assets" AND bank deposits that were lent into existence. So a decrease (by net repayment) of bank deposits that were lent into existence can be matched by a new fiat distribution for no net increase or decrease in total purchasing power.

Tom Hickey said...

What is the difference between bankruptcy and a debt jubilee? Bob

Stigma, both social (deadbeat) and economic (low credit rating, which is the end of the road in the US)

Tom Hickey said...

Total purchasing power surely includes "Private Sector Net Financial Assets" AND bank deposits that were lent into existence. So a decrease (by net repayment) of bank deposits that were lent into existence can be matched by a new fiat distribution for no net increase or decrease in total purchasing power.

This is the point of fiscal stimulus in the face of private credit contraction.

MRW said...

Well the obvious problem there is the ENORMOUS amount of stimulus involved: that is, we’d get hyperinflation. http://ralphanomics.blogspot.co.uk/2016/08/steven-keens-debt-jubilee.html

Ralph, how would it produce hperinflation? Keen specifically says that the stimulus would be inserted into private bank accounts to pay off debt FIRST, then if all debts were paid, it would be a cash infusion.

The Federal Reserve inserted $29 trillion into global banks between 2008 and 2010. Didn't cause hyperinflation. And it hasn't cured private sector ills because the small guy (here) didn't receive the benefit.

MRW said...

Tom @ August 20, 2016 at 11:48 AM,

Good point.

MRW said...

Andrew Anderson,

Any increase in Private Sector Net financial Assets (PSNFA) comes from the government, not credit creation. Only way it can, short of counterfeiting.

High-powered money (federal government-created money) does not come with an offsetting liability, like credit creation. It's the citizen's money to keep. Every credit creation debt is offset by a debtor investment contribution (usually), collateral, interest payments, and a repayment schedule. It all nets to zero at that (horizontal) level. No so high-powered money.

Matt Franko said...

" The rulers had control over creation of the unit of account, after all."

They had control over the prices they paid too...

Matt Franko said...

Ralph "money" doesn't have a price it is the unit... It's like you are saying "the weight of the kilogram...."

Matt Franko said...

Do we say that the weight of a lone banana sitting on a kitchen counter is less than a lone banana among a 25,000 lb sea container
full of bananas? Just because the sea container is "heavy"?

Matt Franko said...

How do you guy's brains work?

Matt Franko said...

Ralph you have to give up and try to forget about ALL Quantity Theory....

Andrew Anderson said...

Any increase in Private Sector Net financial Assets (PSNFA) comes from the government, not credit creation. Only way it can, short of counterfeiting. MRW

And where do I say otherwise? Hmmm?

Ignacio said...

1 USD = 1 USD = 1 USD

Yes, but the question is not that 1 USD = 1 USD. The question is that given a quantity of supply (olf real things) if you tune up (or down) the quantities of dollars on aggregate the price those things can go up (or down).

Now, hold a second. This would ONLY happen if people actually goes and tries to buy all the excess supply that there is out there and that can be produced (output gap). This is not usually the case, many of that money would stay in the pockets and people may save more.

It isn't black or white. It isn't "ow there will be hyperinflation!" neither "ow it doesn't matter a iota because 1 USD = 1 USD = 1 USD". It all comes down to aggregated behaviour.

My guess? On the short run, nothing would happen (on prices, I mean), on the mid run it would increase aggregate demand, on the long run it would create credit demand too (and this, ultimately may trigger generalised price raises, and certainly rises in certain commodities due to 'reflexivity' and speculation). Hyperinflation? End of the world? Zimbabwe/Weimar? Not a chance. And I may be very well wrong, as experience has demonstrated the private sector may still save any excess and not increase spending significantly. That's why 'helicopter money' is a bad idea: is the government who will have to increase spending becaus ethe private sector may not want to run the risk after recent past events.

Andrew Anderson said...

That's why 'helicopter money' is a bad idea: is the government who will have to increase spending becaus ethe private sector may not want to run the risk after recent past events. Ignacio

Oh so government spending is necessarily going to increase spending at the local hamburger joint?

Pray tell how?

Ignacio said...

Government can increase investment when the private sector does not, which is what is fundamentally failing and will destroy the structure of our economies: falling rates of investment (then we would have hyperinflation further in the future). There is no stopping of how we decide that spending and investment is done and how it trickles down (instead of up), the democratic bases are there for people to take them, but as long as people insist on radical individualism and stupid-based solutions then yes it probably would end up as a yet an other form of corporate welfare and government picking winners.

Off course as long as people keeps relying on childish behaviour and magical thinking that there is an easy fix to all problems instead of actually removing dysfunctional institutions and take charge of them thing won't happen. But hey, someday we will need to grow up, or just blew it up, there ain't much alternative.

MRW said...

That's why 'helicopter money' is a bad idea: is the government who will have to increase spending becaus ethe private sector may not want to run the risk after recent past events.

Whoa! You want the government to increase spending when the economy is in the tank. How else do you increase jobs? Do you think businesses hire people when there are no sales, no income? No decent business would think of it.

Only the federal government can produce jobs by spending. The traditional things are infrastructure, health, education, etc. How do you think FDR created the middle class after he switched the nation to a fiat currency? The government suddenly had unlimited funds to put people back to work.

Andrew Anderson said...

How else do you increase jobs? MRW

By giving people new fiat and letting them decide how to spend it, is how else.

Tom Hickey said...

The "price of money" is the interest rate, which a currency sovereign controls as the monopoly provider.

Tom Hickey said...

All economists agree that MV=PQ where the equal sign signifies identity. Because it is an accounting identity.

The issue is over theoretical interpretation involving causality.

MRW said...

Andrew,

By giving people new fiat and letting them decide how to spend it, is how else.

That doesn't produce jobs. They could just as easily save the money and not spend it.

Jobs create income, an ongoing event, not a one-time drop. From a macro POV, big diff.

Andrew Anderson said...

Jobs create income, an ongoing event, MRW

A UBI would generate income too and is much more just than a JG since victims should not have to work and/or waste their time for restitution.

But sure, let's have generous infrastructure spending but let's focus on getting the work done (i.e. using bulldozers, not teaspoons) not on providing jobs per se.

Ignacio said...

Japan, where the private sector has super strong balance sheets, hasn't been able to make up the lack of aggregate demand... You credit everyone's bank account by a given amount and you may as well get the same effect, unless the quantity is ridiculous, in which case what you will do is destroy the "purchasing power" you talk so much about (and with all the risks it goes with regarding confidence on the government and institutions).

As much as some people hate the government, or are lazy about actually fixing it, sometimes there are no magical one-pony tricks and it requires work, coordination and cooperation at institutional levels to lift things. But instead we want to give some bucks to everybody so they can buy the next iPhone model, as that will fix jackshit.

Meanwhile the rate of investment is decaying, as well as productivity, and everything crumbles. We are living off fundamental research from the 70's and carbon reserves, when that is over entropy will make a severe backlash. Expect the world to keep it's rate of 'central america'zation with all the stupidity and policy making going around.

Andrew Anderson said...

But instead we want to give some bucks to everybody so they can buy the next iPhone model, as that will fix jackshit. Ignacio

Eliminating a lot of private debt without increasing total purchasing power nor disadvantaging non-debtors fixes quite a lot.

Eliminating privileges for the banks fixes a lot too.

Bob said...

Stigma, both social (deadbeat) and economic (low credit rating, which is the end of the road in the US)

But entrepreneurship (risk taking) requires bankruptcy (forgiveness). Stigma and debt prisons would put an end to all that.

Tom Hickey said...



Tell that to US elites. Personal bankruptcy laws were stiffened in the US at the behest of banks, and there is no out for student debt, which even bankruptcy leaves intact.

Of course, firm bankruptcy is treated differently than personal. In addition, corporations are limited liability organizations.

Ignacio said...

@Andrew

That's much more than what is needed for an iphone, we are talking about very large quantities of money for everyone, more like a mortgage or what amounts to a nice fat pension plan. How much is "a lot", where do you put "the limit", who gets to decide the quantity that gets credited and to whom, where do we stop, and most importantly, are we going to ignore the derivative markets and the effects such thing may have (the elephant in the room btw)? If not, how are you going to fix the downfall?

The complexity of the web of contracts that exists is hardly understood by anyone, but certainly not by those making those suggestions. Is not as easy as "just let's credit everyone by a random amount". There are legal and technical implications (let's forget about morals to not make it more difficult), and it would surely affect the economy in ways we don't know beforehand.

Is way easier to treat the problem as a problem of flows and income, let private sector heal itself through increasing flows, and then slowly reduce the dependency on the banking system adding enough flows so people can save and invest without relying so much on credit cycle while you change the rules through politics so they lose power. That and demography plus environment would do the rest.

But if you want a revolution, sure, go ahead; but don't expect it to be pretty though.

Andrew Anderson said...

are we going to ignore the derivative markets Ignacio

If you mean credit default swaps, a universal fiat distribution would reduce the risk of defaults.

MRW said...

Andrew Anderson

A UBI would generate income too and is much more just than a JG since victims should not have to work and/or waste their time for restitution.

But sure, let's have generous infrastructure spending but let's focus on getting the work done (i.e. using bulldozers, not teaspoons) not on providing jobs per se.


Handling the macro economy means creating a prosperous society.

"Victims" aren't wasting their time working for restitution. They aren't working for restitution. They are working, an honorable thing to do.

(1) People with jobs produce useful things, or provide useful services, for sale. This increases growth in a society.
(2) Federal government jobs does not solely mean a Job Guarantee (JG). Congress supplies needed jobs in a downturn by applying proper fiscal policy to generate jobs in 50 states.
(3) People don't want handouts, being on the dole. It's demeaning.
(4) Most importantly, there are immense social costs to society when people are out of work: alcoholism and drug use, domestic abuse, mental illness, violence, hopelessness, despair, loss of individual freedom, lack of an ability to plan for the future for oneself or one's family.

When an economy serves the public interest, it serves all aspects of the human being and collective human life. it's not just Big Daddy giving citizens an extra-big allowance one week or every month. (I am not carving out the elderly or infirm in this description; taking care of them is a given.)

MRW said...

Andrew,

If you mean credit default swaps, a universal fiat distribution would reduce the risk of defaults.

No it wouldn't. You don't understand the Kachina doll-like characteristic of derivatives, or how defaults cascade when one fails. Furthermore, ommon people cannot participate in derivatives. They are precluded from it by a multi-million dollar lower limit on participation.

A universal fiat distribution would no more reduce the risk of (CDO) defaults than daddy giving you a wad of cash keeps you from losing your shirt in a casino.

One has absolutely nothing to do with the other. Nothing.

Andrew Anderson said...

They are working, an honorable thing to do. MRW

Again the endless conflation of working with having a job.

1) One can have a job that does no positive work.
2) One can have a job that does negative work, e.g. being a drone operator/assassin.
3) One can do positive work without a job, e.g. wife/mother, e.g. volunteer work.

Your JG risks 1) and 2) and precluding 3).

Otoh, a solid case exists that government subsidized private credit creation is legalized theft and thus that RESTITUTION is called for, not a blame-the-victims, insulting, time wasting, resource wasting, guaranteed job.

Matt Franko said...

"It all comes down to aggregated behavior"

Well as far as "inflation!" the key behavior would be a willingness to pay higher prices....

Tom Hickey said...

"Inflation" is defined as a continuous increase in the price level (aggregate).

MRW said...

@Andrew Anderson re: August 21, 2016 at 10:18 AM

You're dotty.

Robert said...

Comments on the risks that a debt jubilee would trigger hyper-inflation seem to have missed specifics of Keen's proposal. Everyone receives the same amount of money, but those in debt must use it to pay down debt. The debt repayment isn't inflationary because the new money used to pay down debt has been destroyed (along with the bank asset (loan). No debt? Then keep the cash (this is equitable, because otherwise you've rewarded debtors). Would the new cash be inflationary? Likely not if the economy is operating well below full capacity.