BBC interview at LSE
Paul Mason is recording an interview with me in front of an audience at the London School of Economics for the BBC Radio 4 program Analysis on April 3rd at 6.30-8pm (the audience will be able to ask questions and generally take part in the discussion). If you’d like to attend, please follow this link to book a place.
Keen on Economics
I comment on current economic events at my blog Steve Keen’s Debtwatch. You can also follow me on Twitter, where I am @ProfSteveKeen.
The Naked Emperor Dethroned?
A new, expanded and extensively revised version of Debunking Economics is now available.
At 215,000 words, it is 95,000 words longer than the first edition. The bulk of the new text critiques modern neoclassical macroeconomics, and outlines my alternative monetary circuit approach. However many chapters from the original have been extensively revised as well.
Kindle Version
The Kindle version of the second edition of Debunking Economics has just been released. This version differs slightly from the print version, in that the graphics that are available in a separate booklet are integrated with the text for easier reference on an eBook device. To purchase it, click on one of the links below:
The Launch
The second edition of Debunking Economics was launched at the University College London on October 4th, from 6-8pm.
An audience of about 100 heard me give an overview of the book, and Ann Pettifor make the case that neoclassical economists didn’t see this crisis coming because they don’t understand the process by which money and debt are created in our economy. I’ve uploaded a video of the launch to YouTube (linked below) and once I get over jetlag from my trip back to Sydney, I’ll add audio and photos as well (and hopefully a higher resolution video as well).
Click here to watch the launch.
(Briefly!) No. 1 in the UK
Thanks to George Monbiot’s excellent feature in the Guardian, DE II hit Amazon UK’s top 100 list, and it’s been number 1 or 2 in Economics (two of the other books at the top of that list aren’t economics at all, but a statistics manual and a health and safety exam guide. It’s since fallen back to the top 20-40 in the UK, and the top 100 in the USA.
Where to buy
To purchase online, click on one of the links below:
Abbey’s (Australia)
Melbourne University Bookshop (Australia)
Sample Chapters
Predicting the “Unpredictable”
I won the Revere Award for being the economist who most cogently warned of the crisis, and whose work is most likely to prevent a future one. Predicting the “unpredictable”, the first chapter of the second edition, collates my warnings of an approaching crisis in the first edition, which was written in 1999 and 2000.
Misunderstanding the Crisis
A major reason why Bernanke was appointed Chairman of the Federal Reserve was that he was alledegly an expert on the Great Depression. In “Misunderstanding the Great Depression and the Great Recession“, I explain why he and almost all neoclassical economists–including Paul Krugman–don’t understand why the Great Depression occurred, and have barely a clue as to why we are now, once again, trapped in a debt-deflation.
Where’s the old site?
I have replaced the website that supported the first edition with this new WordPress-driven format. If you are looking for anything from the old website, please click here.
If you are looking for my most recent work, please visit my blog Steve Keen’s Debtwatch. If you would like to support the work that I and others are doing to try to develop a realistic alternative to neoclassical economics, please join the Center for Economic Stability.
December 22, 2011 at 8:02 am
well done Steve!! I just wonder when will the UK wake up and elect leaders not tapeworms lol !! what would you advise the middle class do to protect themselves from the economic Tsunami – possibly migrate !! hows about Australia
December 25, 2011 at 6:32 pm
The self-declared leaders of the West are incapable of thinking anything else other than getting re-elected.
Of all the addictions known to mankind, nothing comes close to being addicted to money and power.
In all likelihodd, Mayan phophecy will materialise and the herd has only itself to blame for electing these
people who keep selling the very same stuff under different labels whether it be New Labour or whatever.
January 10, 2012 at 7:44 am
Congratulations on this page and these books.
Perhaps another line of research, another line to propose hypotheses or solutions is the use of complementary currencies.
http://www.kapitalverdad.org
http://personales.ya.com/kapitalverdad
Thanks.
February 13, 2012 at 2:13 pm
In the book Debunking Economics Steve Keen explains that if change is to come it will come from the young and from other professions such as physics, engineering and biology.
Here is one such book: True Wealth of Nations.
http://www.lulu.com/product/ebook/true-wealth-of-nations/17478013?productTrackingContext=product_view/more_by_author/right/2
It is an engineering critique of how the models have been used by economists and how models are created. The book also points to an alternative way of measuring wealth and how we can create more true wealth.
“The reason why our society has increased in wealth is not “money” but because with time the accumulated sum of new ideas encapsulated in new technology has grown. Thus true wealth can only be created by new ideas – and the correct type of ideas, those that give us what we truly need. Money is in this sense only one small part of the millions of ideas and inventions that support our way of living today. This book outlines an engineering approach of how we can model our society. ”
Much of the problems today with economics is that we reason and argue in a “money space.” Instead of setting up visions of how we want society to be and then in an engineering way set up models for how we should get there we are trapped in the “money space” where we only see a shadow of our true wealth (real values). And today these shadows are grossly distorted by strange economic ideas and models that do not meet sound engineering criterias.
February 27, 2012 at 8:35 am
Excellent book – in the 1960′s, I did an economics degree after doing an engineering degree. I was shocked and amazed that the emperors of economics had no clothes, naked in front of the engineers. (Today, I also think that Physicists are a little naked). I wish I had had your book then. I would have laughed more and cringed less.
Anyway, I would like to add a suggestion for the next edition of your book – or maybe a different book. Maths is or can be hard. But accounting is not so hard. Both provide a discipline to thinking that words alone cannot get across. I suspect that an explanation of macroeconomics which is developed using balance sheet, cash flow and income statements would be a lot easier to understand. It would still be economics, not accounting, but it would not leave me scratching my head so much.
For example, at the top of p 219 of Debunking, you are explaining Minsky when you go and say “… and yet growth also occurs over time, then credit and debt must make up the the gap.” My question is: what gap and how could finance possibly fill it? Finance of all kinds is zero sum at every step. Everything is a transfer payment. It nets to zero and cannot fill any gap, in the current period, the prior period or the next period. If you laid this proposition out in accounting statements, the gap and the filling of it would no doubt jump out of the page.
Great book.
February 27, 2012 at 8:53 am
Lending is NOT a transfer from a saver to a borrower Richard: it is an endogenous creation of debt by a bank that is identical to a new creation of money by the loan itself. That’s the “secret”. My next blog post on http://www.debtdeflation.com/blogs will outline this.
February 27, 2012 at 9:17 am
When a bank (1) lends to a borrower and/or (2) endogenously creates a debt and/or (3) creates new money by the loan itself, then every single step is a zero sum if you consider all the debits and credits of all the participants. Each participant must balance his books. The aggregate of all participants must be balanced … I think.
I would love to see your argument laid out in the form of T-accounts for all the participants. However, until I see that, I don’t know the secret. In the absence of that, can you say which step does not have its equal and opposite step.
I am genuinely curious, not just jousting.
March 14, 2012 at 2:38 pm
In your comment above on feb 27, you said that you would outline the “secret’ of banks and debt. I keep a regular watch on your blog but have not found this yet. Do you still intend to do it or have I missed it?
March 17, 2012 at 3:11 am
Richard:
Every business/every government/every non profit agency in the world uses the same double entry bookeeping system to keep track of money.I think the example you are looking for goes like this:
If a person goes to a retail outlet and charges up a $100.00 purchase ,the cash register or computer screen records the following:
Debit Accounts receivable $100.00 Credit Sales $100.00
If a person goes to a Bank for a student loan,the bank will make the following entry: Debit Student loans receivable $10,000
Credit Your checking account $10,000
It may be hard to believe,but the bank just created $10,000 “Out of thin air” No deposit slip required !!!!!! You now owe the bank $10,000
plus interest . The same applies for car loans/home improvement loans ,as well as Mortgage loans. No problems/ No worries.
March 18, 2012 at 6:54 am
Bob, thanks for picking this up. Let’s stick to one case:the student loan. (And apologies for my pedestrian pace).
There are 4 entries of $10,000. The bank has two (Asset = student loan; Liability = deposit in students account). The student has two (Asset = checking account balance; Liability = student loan). Grand total = net zero.
You summarise this as “the bank just created $10,000 out of thin air”. No doubt you are focussing on the Asset of $10,000 in the student’s checking account. That is money and has magic powers. But it worries me that you characterise the other three entries as thin air. If only.
In this case, so far, there has been no change in the real economy. The magic money need to be spent to get things rolling – petrol, not lube.
When the student has burnt all his petrol, the economy is spinning at 3000 rpm. So, I now cycle back to my correspondence with Steve Keen on 27 Feb. What are the steps which get us back to deal with the other three entries?
And,if this works, why does not everyone lend everyone else $1000000 so the economy spins at 6000 rpm?
March 19, 2012 at 8:55 pm
Hm. I’m sure I left a comment here. I was asking about whether there had been any sensible work on memes, evolutionary economics and simply enthusing about the book which I think is wonderfully interesting (and very clear even for non-mathematicians like me). Did you get my comment or did you just think it was too silly to use. On the discussion above about magic money, the assumption is surely that the student will pay back the debt to “balance” the books. The bank gives today-money to the student and in the future the student gives the bank more today-money than he borrowed. So far, so good. What if he goes bankrupt instead?
March 20, 2012 at 10:59 am
Patricia, assuming the student does not go bankrupt and indeed does pay the loan back, doesn’t that just reverse all the entries, albeit with a time lag. That is what happens If the student is like the third servant in the parable of the talents. If he just hoards his money and gives it back, then it does not act like petrol for the economy. And he will get a telling off for doing not trying hard enough.
So, before paying it back, he has to do something with the money .. engage withe economy by doing some transactions with third parties. In simple terms he has two choices: spend the money on something which leads to net value added for the system or on something which does not. Financial transactions do not add value to the system .. they are like a visit to the bookies, zero sum. At some point someone has to try something which is non-zero sum.
Again, I go back to the items above on 27 Feb. Growth in the real economy (the value-added gap) cannot be filled by credit and debt. The real economy and finance occupy different universes. Those universes influence one another but they do not occupy the same space. We have a problem of the same nature as the mind/body duality problem.
Help someone, please!!!!
March 20, 2012 at 6:48 pm
Richard. I signed up just because I thought I might be able to help. I don’t know the answer to your question for sure, but I have an idea, because it is this ‘secret’ that I’ve spent years trying to figure out.
1. You’r right, all the accounting entries balance.
2. Accounting just records who owes what, not what they do with it – consumption or production, and so is not relevant in the discussion of credit-fueled economic advances. Here’s why: (i think)
Loans, when created without withdrawing an equal amount of purchasing power from the marketplace (which is what happens when banks lend), essentially create more dollars chasing fewer goods for a period of time. Hence, rising asset prices. Yes, the loans will be repaid, but over the medium term they are not, and so this timing difference creates an environment where rising asset values beget increasing loans, beget increasing trade, beget increasing loans, beget increasing asset values…. (all with equal-sided entries). At this stage of the cycle, you have increasing credit (offset by increasing debit, yes) that fuels all sorts of activity that is over and above what is natural growth.
Steve’s arguments talk about the rate of change of debt being important. So, when credit is expanding it creates an environment which encourages credit expansion and is therefore accelerating. The opposite is true.
So, while your accounting is all nice and neat and everything balances, the question is, what has happened to the nature of the assets and liabilities. For the student in the above example, he spent all his assets and now has a liability which is offset by what? A deficit, or negative retained earnings in accounting terms. But so what? As long as he can meet his debt repayment (or at least interest), then all is good. So he borrows more, and creates larger deficits, because rather than invest in production (or productive capacity) he consumes. As he, and millions of others, increase their debt, everything continues to balance, but the balance sheet becomes more and more hollow as production (read wealth generating capability) actually declines. And then it stalls, as credit can no longer be expanded (who is left to borrow?) even with negative interest rates.
The economy can continue to limp as long as credit doesn’t contract, but as soon as it does, then look out below. The balance sheet is revealed as the naked emperor and we have a re-set of values. Debt write-offs, new currencies, whatever it takes.
So, the secret, really, is that in this ‘middle period’ of expanding credit, when values and perception of values get distorted, capital is mis-allocated, the wealth of previous hard-working generations is consumed, and economists come up with new ideas to explain prosperity by spending, most of the expansion is not real, but is rather the discounting of future labour/production to the present.
But through it all the balance sheet keeps track, like it should.
I’m not sure that helped or not, but maybe through continued dialogue when can get to the bottom of it.
April 24, 2012 at 4:43 pm
A year ago I read a standard undergraduate economics text in the hope of getting some understanding of the state of the world’s economy. I found it difficult to reconcile some of the theories described in it with my own experience of life and business. Debunking Economics has enabled me to understand the true extent of the disconnect between much of economic theory and the real world. Economics was not part of my education and I have not always found it easy to follow. For instance, while I was struggling to grasp the underlying logic of the Money Multiplier, my mind wandered to an episode of The Goon Show (BBC Radio, 1950s) in which our heroes had been thrown into a dungeon in which the only possible escape route was a small window high above their heads. They decided to climb up to it by standing on one anothers’ shoulders. Eccles climbed onto Neddy Seagoon’s shoulders and Bluebottle climbed onto Eccles’s. This did not get them high enough so Seagoon climbed up onto Bluebottle’s shoulders and Eccles in turn climbed up onto Seagoon’s. Puffing, grunting and muttering curses, they continued upwards in this way for some time until interrupted by a stern and pompous BBC announcer: “Listeners are warned that this trick should only be attempted by experienced idiots on sound radio.” It would seem that the “experienced idiots” have graduated to giving economic advice to the President of the United States.
Although Bernanke’s efforts to demonstrate the Money Multiplier have failed, neoclassical economists will be encouraged by the news that Seagoon and his companions escaped from the dungeon, clearly demonstrating that strategies of this type can be successful – as long as the appropriate underlying assumptions are in place.
I look forward to reading Prof Keen’s next book
April 24, 2012 at 8:22 pm
Hi Patricia–and everyone else here.
I’m afraid I’ve missed a lot of the discussion on this blog! I am flat out in general and with monitoring Debtwatch (www.debtdeflation.com/blogs) where I actively post, and I only just realised today that an active conversation was going on here.
I’ll ask my assistant Dave Lawson to keep an eye on things here, but in general there’s only so much time I can devote to monitoring discussions and replying to them, so most of my attention will be confined to Debtwatch.
We are about to redevelop, rationalise and combine the three sites–Debtwatch, this one, and http://www.cfesi.org–beneath an umbrella “Keenomics”.