Steve Keen is a genius! The theory he espouses near the end of the entrevista is so outside the current thinking, it just probably would work.
By the same reasoning that any economic model of capitalism should include depression, it seems to me that any economic model of capitalism should also include failure and revolution but I don’t think this is so easy to reconcile within a rational framework.
Minsky held that, over a prolonged period of prosperity, investors take on more and more risk, until lending exceeds what borrowers can pay off from their incoming revenues. When overindebted investors are forced to sell even their less-speculative positions to make good on their loans, markets spiral lower and create a severe demand for cash—an event that has come to be known as a “Minsky moment.”
Hyman P. Minsky
It appears to me that government intervention gums up this process of reaching a new equilibrium and so any economic theory must include meddlers as well: be they government bureaucrats, politicians, lobbyists, corporate campaign donations and all other works designed to manipulate and legislate legalization of corrupting behavior. It seems to me that these factors reach outside the arena of economic purists who think an economic model describes the operating world. I expect that such factors as corruption may be included into these models as coefficients which are really no better than assumptions made by the methodological dualism of Mises. Anyway, just a thought.
Great comment..where’s the rep button.
great show max. I’m for one am a Keensian.
It’s good to see Steve Keen’s universal bailout gain traction.
Dat’s the solution or at least a big part of it.
Great interview …. thanks Max! Clever spiders placed outside nature in a very, steep walled tub.
we need to start looking in the inverse direction
forget the debt for a second and the fraud and ask why were the loans made? so the banks could make money obviously, and what is that money for? (besides bonuses) is not that income intended to pay the investors in the banks there intrest? yes , and what if THAT intrest were to exceed the income generated by the loans I.E. are the banks oversold? would the banks not then desperately need to make loans drop standards, even ignore that people were comiting fraud in a quest to meet there intrest payments? and failing that need to drop the rates to nothing or as close as they could? (zirp anybody)
cause and effect reversal is a fave of the ptb in there control of the masses this is a systemic structural issue NOT hapenstance brought on by fraud it made it MUCH worse BUT it is NOT the cause and nither is the debt it is the nature of this system that it reach the virtical curve on the graph at some point demonstrate to me that that time has not now been reached. Mr.Keen what say you? if im corect then discharging the debt wont help at most we would gain a year maybe two as the debt was reissued , those investors and savers will still be there with hands out waiting for payment so the debt WILL be reisued and …….the planet nore its econimy will be larger but that intrest payment WILL be as the number of “investors” increse every second as more people hit the system up and finance is the ONLY way left to make ANY real money what so ever.
this is I belive what is acculy happening and if it is a ponzi scheem (and it most definatly is)……….corect me if im wrong BUT there is NO coming back from that you sieze the asets and return as much as possable to the victoms and people lose there asses and then…………it is GONE not reformed not restructured GONE EVAPORATED poof vanished nothing left…………………………..execpt for a lott of extreamly desprate and pissed off people looking for blood
Mr Keen talking sense again
The capitalist class were quite happy with the little guy with the moustashe and bankrolled his enterprise as long as he was bashing the socialists, Jews, gays etc. only problem was they thought he was working for them, he had other ideas. One was to create an empire, the other empires didn’t like that and said no, you can’t mussle in on our business, only ‘we’ have the right to exploit the oiks of the world, they dressed it up in freedom and democracy and anti-fascism but hey come on, Churchill an anti-fascist, more like takes one to know one, but back to today, one superpower racket with all the hardware, what force can face such odds and prevail. The answer is in the odds, they are a minority of a minority of a minority. Just like everyone else.
What a great discussion – well done Steve and Max!
*Sidebar – Off Topic – Ever since I updated my Adobe FlashPlayer I haven’t been able to paste text into comment boxes. Possible corelation there. May wish to wait for next update. *
back to topic…
“…and create a severe demand for cash – an event that has come to be known as a Minsky Moment” -Keen -from Jayme‘s comment
Cenrtal banks that incorporate the manufacture of fiduciary media, and the political mechanisms built around them, not only recognize the Minsky Moment in theory, but do their best to manifest it. Not only do they attempt its manifestation but do their best to elaborate it, to eventually manifest to the best of their ability a continuous state of Minsky Moment Perpetuation. Money manufacturing plants are no different than automobile or computer manufacturers. They sustain benefit through demand of their products. Cash in that way is not different from cars or ipads.
Capital value may be preserved or increased [or decreased] through various means; but moreso in the case of cartel or monopoly, moreso is the temptation to manipulate value through the manipulation of factors in supply and/or demand. American finance and industry have been the masters of this for the past century. Manipulation of supply was dominant before the explosive advancement of mass marketing through mass media. Nowadays manipulation of demand reigns king. At the heart of demand for all goods is the associated demand for cash.
How about abolishing banks altogether. That’s possible.
Issuing currency can (and I would argue should) be done by the sovereign states. It can be completely non-usury or perhaps very modestly and not exponentionally. Lending can be done by any 3rd party (private sector) including the sovereign. It’s not hard at all, in fact I think original legislation was often made with that in mind. It never materialized because.. well, the banksters were already right there enjoying the state’s bed bugs.
It’s possible today. And yes, why not have one national bank in a country. It might be that country’s central bank why not. The rest can be private. I realize that a worldly banking cartel (private or sovereign) can then still bring some other country to its knees, so it’s not all that simple, but as a train of thought this idea seems very simple and logical, and… implementable. Might be mostly a question of individual courage and political will.
However you look at it, if money means credit than issuing of credit needs to be of the sovereign. If money means simply currency then credit would be something else and there could be private banks who do just that. But then its their risk not ours.
Finally, the collapse *will* be disorderly, because “the elite” wants it that way. They don’t want a rational solution. They want a heglian solution, meaning their plan for world govment being rolled out. Obviously one of the problems today is that the so-called sovereign and the so-called private are the same cronies.
Great guest Prof. Keen, best regards all,
A quick glance at the type of complex mathematical models Steve dreams up to make sense of global trade points towards his unrealistic worldview. Smart guy, but too confident.
The minsky principle of debt seems to be similar to the Peter Principle for job promotion:
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For the BBC sitcom, see The Peter Principle (TV series).
The Peter Principle is a belief that in an organization where promotion is based on achievement, success, and merit, that organization’s members will eventually be promoted beyond their level of ability. The principle is commonly phrased, “employees tend to rise to their level of incompetence.” In more formal parlance, the effect could be stated as: employees tend to be given more authority until they cannot continue to work competently. It was formulated by Dr. Laurence J. Peter and Raymond Hull in their 1969 book The Peter Principle, a humorous  treatise, which also introduced the “salutary science of hierarchiology.”
The principle holds that in a hierarchy, members are promoted so long as they work competently. Eventually they are promoted to a position at which they are no longer competent (their “level of incompetence”), and there they remain, being unable to earn further promotions. Peter’s Corollary states that “[i]n time, every post tends to be occupied by an employee who is incompetent to carry out its duties” and adds that “work is accomplished by those employees who have not yet reached their level of incompetence.” “Managing upward” is the concept of a subordinate finding ways to subtly “manage” superiors in order to limit the damage that they end up doing.
This principle can be modeled and has theoretical validity for simulations.
I wholeheartedly agree with Max’s assertion that there is no science of economics. Seems to me that it is totally behavioural rather than strict science ( in terms of modelling ). I wonder if Steve Keen could formulate models predicting the the herding behaviour of a flock of sheep and mob of cats. I think people can be herded like sheep most of the time and herded like cats on other occasions. When people begin to behave unpredictably ( from a central planner or economists point of view) even Steve’s model could be totally wrong – something he would be loathe to admit. Steve’s models never seem to mention gold and silver, government debt seems to be almost ignored and money printing is not considered dilutionary ( or that bad in terms of policy) only misdirected ( straight to overstretched borrowers instead of bankers seems to be his position). Because of a couple of great ideas and predictions Steve seems to look at the entire world through his modelling and seems to get quite a few things wrong these days. He never considers any ideas outside of his rather narrow scope.
All the minds in all the worlds will never complete a competent model of finance that can withstand the destructive power of unchecked criminal fraud by those who style themselves as our leaders. The current crisis is the result of unprosecuted theft pure and simple. Start decorating the local public furniture with convicted fraudsters or if you feel a little delicate perhaps public chain gangs of convicted fraudters sweeping our roads will surfice.
Sam’s comment above about being a Keensian – Sam, brilliant!
Always liked Steve Keen, but sometimes he’s like the cat who swallowed the canary. He’s not showing all his cards. He has a vision of a perfect society, (through a perfect economy) but won’t come right out and give us the picture. Right Steve?
Total respect to the Prof. as a some what out of the box theoretician but if the whole thing is an engineered collapse,(like the 70’s oil crisis for example) and corruption not being a variable in Steve’s equations, it kinda throws the formulas out the window doesn’t it.
And like Terry says, there are no prosecutions for the big fraud anymore..
@snoop diddy, I have met Peter many times in my life!
Well said Mr Keen. Mr Keen is a true Aussie rebel, if ever I’ve met one.
Here is to the Aussie rebels one and all!
PS: Go ahead Max and slight me – read I have hair. But in the end, Love rules not hate – or envy – Ha Ha Hah!