Comments for Debunking Economics http://debunkingeconomics.com Critiquing Neoclassical Economics & Developing an Alternative Tue, 24 Apr 2012 20:22:27 +0000 hourly 1 http://wordpress.org/?v=3.3.2 Comment on Debunking Economics by SteveKeen http://debunkingeconomics.com/#comment-29 SteveKeen Tue, 24 Apr 2012 20:22:27 +0000 http://debunkingeconomics.com/?page_id=21#comment-29 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 www.cfesi.org--beneath an umbrella "Keenomics". 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”.

]]> Comment on Debunking Economics by Robert Platt http://debunkingeconomics.com/#comment-28 Robert Platt Tue, 24 Apr 2012 16:43:05 +0000 http://debunkingeconomics.com/?page_id=21#comment-28 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 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

]]> Comment on Debunking Economics by Duncan Goodwin http://debunkingeconomics.com/#comment-27 Duncan Goodwin Tue, 20 Mar 2012 18:48:16 +0000 http://debunkingeconomics.com/?page_id=21#comment-27 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. 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.

]]> Comment on Debunking Economics by Richard Holman http://debunkingeconomics.com/#comment-26 Richard Holman Tue, 20 Mar 2012 10:59:12 +0000 http://debunkingeconomics.com/?page_id=21#comment-26 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!!!! 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!!!!

]]> Comment on Debunking Economics by Patricia Finney http://debunkingeconomics.com/#comment-25 Patricia Finney Mon, 19 Mar 2012 20:55:30 +0000 http://debunkingeconomics.com/?page_id=21#comment-25 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? 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?

]]> Comment on Debunking Economics by Richard Holman http://debunkingeconomics.com/#comment-24 Richard Holman Sun, 18 Mar 2012 06:54:39 +0000 http://debunkingeconomics.com/?page_id=21#comment-24 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? 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?

]]> Comment on Debunking Economics by Bob Watson http://debunkingeconomics.com/#comment-23 Bob Watson Sat, 17 Mar 2012 03:11:12 +0000 http://debunkingeconomics.com/?page_id=21#comment-23 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. 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.

]]> Comment on Debunking Economics by Richard Holman http://debunkingeconomics.com/#comment-22 Richard Holman Wed, 14 Mar 2012 14:38:38 +0000 http://debunkingeconomics.com/?page_id=21#comment-22 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? 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?

]]> Comment on Misunderstanding the Crisis by The “eight or ten dollars of loans to families and businesses” from each extra “dollar of capital in a bank” [Obama's words] simply didn’t happen. What went wrong? « Economics Info http://debunkingeconomics.com/samples/misunderstanding-the-crisis/#comment-21 The “eight or ten dollars of loans to families and businesses” from each extra “dollar of capital in a bank” [Obama's words] simply didn’t happen. What went wrong? « Economics Info Mon, 12 Mar 2012 03:02:14 +0000 http://debunkingeconomics.com/?page_id=77#comment-21 [...] Source [...] [...] Source [...]

]]> Comment on Second edition available in October 2011 by SteveKeen http://debunkingeconomics.com/2011/03/second-edition-coming/#comment-20 SteveKeen Sat, 10 Mar 2012 21:41:55 +0000 http://debunkingeconomics.com/?p=4#comment-20 Thanks Patricia--a lovely comment. On evolutionary economics, I think the clearest expositions of how it can be applied have been made by Paul Ormerod. He has two main books on this: Butterfly Economics, which I have read and can heartily recommend, and "Why Things Fail", which I must confess that I haven't yet read. R&R was OK, but I didn't find the analysis all that deep. As for memes, there is now the Journal of Memetics. I did some refereeing for it ages ago, but haven't checked it out for years--too little time. Thanks Patricia–a lovely comment.

On evolutionary economics, I think the clearest expositions of how it can be applied have been made by Paul Ormerod. He has two main books on this: Butterfly Economics, which I have read and can heartily recommend, and “Why Things Fail”, which I must confess that I haven’t yet read.

R&R was OK, but I didn’t find the analysis all that deep.

As for memes, there is now the Journal of Memetics. I did some refereeing for it ages ago, but haven’t checked it out for years–too little time.

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