Steve Keen – Associate Professor of Economics & Finance at the University of Western Sydney.
I know didly squat about economics. I know a lot about the effect of economics in the sense of government policies, of inflation and debt, international trade and much more only in how they have impacted me over a lifetime of working, buying homes, raising a family, running a couple of businesses and now contemplating retirement. I can sum up my personal strategy – LUCK! I have been lucky. The other Post out today shows an example of that luck.
Frankly, economists haven’t figured widely in my role call of people that I admired, probably because I don’t really understand what they are talking about. (That’s why this Blog has a real live economist as part of the team, to help educate me and all the rest of the readers who come to this Blog!)
The other Post on this subject spoke of David Kauders, who clearly saw it coming. Now here’s an economist who also saw it coming, Steve Keen.
Steve’s website/Blog has some interesting content and the following are extracts published with the written permission of Steve. Firstly, who is Steve Keen? Let him speak in his own words:
Steve Keen
As an economist, I do something very unusual: I treat money seriously.
Though this may be hard for those who have not done an economics degree to believe, economists have it schooled into them that “money doesn’t matter”–that it is just a “veil over barter”, there to make it easier to swap commodities than it would be if you actually had to find someone who had what you wanted, and wanted to sell what you wanted to buy.
The argument that persuades them goes something like this: ”what would happen if you simultaneously doubled all prices and all incomes? Nothing!” In other words, if consumers are rational (now there’s a much abused word, but I digress), they shouldn’t care about the absolute prices of goods, just their relative prices. So doubling all prices and doubling a consumer’s income shouldn’t cause her to do anything different (but of course, changing relative prices would alter behaviour).
Bollocks. Double all prices and my income, and I’d be much better off because my mortgage payments would take less of my income (even if interest rates were also doubled). That’s because I’m in debt–I have a mortgage. And you can’t simply double interest rates to reach the same outcome as doubling prices, because debt repayment dynamics make the whole thing “nonlinear”: include debt seriously in your analysis of consumption, and the “veil over barter” vision of money collapses. But this “inconvenient truth” is omitted from economics–not because economists are deliberately hiding it, but because they have deluded themselves about the nature of money.
That was more than enough to have me spending time meandering over Steve’s Blog and I invite you to do the same. Especially to consider buying, for just ten dollars, a copy of Steve’s eBook, Debunking Economics. I’m only just into the book and already finding it fascinating, and remember, I don’t understand economics!
Here’s what Steve says about his book:
In the midst of the greatest financial crisis since the Great Depression, have you ever wondered why economists didn’t see it coming, and why they don’t seem to know what to do, now that it’s here?
As one columnist put it, if “economics gurus … are really so smart, why didn’t they predict the GFC [Global Financial Crisis]? In fact, why didn’t they stop it?””
I’m one “economic guru” who did predict the Global Financial Crisis. I went public with warnings that it was imminent in December 2005, established the DebtWatch Report in November 2006, and started this blog in March 2007.
I saw the GFC coming, not because I’m that much smarter than other economists, but because I long ago realised that the standard model of the economy–known as Neoclassical Economics–is utterly unrealistic. Instead of working within this dominant but barren paradigm, I helped developed an alternative approach based on the work of Hyman Minsky. Knowledge of this far more realistic approach to economics is why I saw the crisis coming, while neoclassical economists were rabbiting on about “The Great Moderation”–the belief that their management of the economy had reduced or possibly even eliminated the business cycle.
I wrote Debunking Economics in 2001 to explain to the general public why accepted economic theory is such a poor guide to the way the economy actually works. Over the last fifty years, numerous flaws in the theory have been pointed out by economists, but this unrealistic theory has rolled on–and become even more unrealistic over time–until this crisis hit.
Now, just when the world wants someone, anyone, to show the way out of this crisis, the people who can least be relied upon to find it are the ones that are actually in charge–professional economists. To give you an idea of how little they know, check out this recent OpEd in the New York Times, “That Freshman Course Won’t Be Quite the Same“. Written by Gregory Mankiw, author of a widely used introductory economic textbook, and one of Bush’s economic advisers, it shows that he really doesn’t have a clue about how this crisis came about.
Written for the non-mathematical reader, Debunking Economics explains why economists are so completely at a loss about the GFC–because their model of the economy is based on everything from elaborate delusions and fantasies, to subtle mathematical errors and outright clangers.
In my other Post, I concluded that we were probably still in the dark. I haven’t asked Steve the question but I suspect that he might answer that the dawn is a very long way off.
theory have been pointed out by economists, but this unrealistic theory has rolled on–and become even more unrealistic over time–until this crisis hit.
Learning from Dogs 