The always moving equilibrium

[00:00:00] My goal this morning is to outline a blueprint to restore equilibrium to the global financial system and the institutions designed to uphold it. I have spent the bulk of my career from the outside looking in on financial policy circles. Now I am on the inside looking out. I am eager to work with each of you to restore order to the international system.

[00:00:26] This is the Debunking Economics podcast with Steve Keen and Phil Dobbie. Well that is the US Treasury Secretary Scott Besson talking about equilibrium in the global economy, although he has earlier said he wasn't sure that it really existed. But the fact that he felt the need to intervene with massive bond buybacks to stop longer dated bond yields getting out of control surely shows equilibrium doesn't exist.

[00:00:52] Otherwise, why the need for so much intervention? Surely equilibrium if it's self-correcting that would mean that he wouldn't have to do anything. And neither with central banks. That's this week. So Steve I want to talk about equilibrium this week which I know is one of your favorite jobs because you topics because you love fantasy.

[00:01:18] But Scott Besson this week almost said that you know it's it's a fantasy while also saying that he wanted to get back towards it because of what he's been doing with bonds. So this fantastic thing that the market looks after itself, but the government has to be there to influence it as well. Which means it doesn't. I mean even if you look at central banks, I mean if the market looked after itself you wouldn't need central banks to interfere with things would you?

[00:01:44] I mean they've got a fantasy about capitalism being a self-equilibrating system. And then whenever they try the fantasy in the real world it breaks down and the government has to intervene to keep the thing going going forward. And this is I mean I've actually now proven this as it happens not just making an argument that the market cannot take care of itself, but I can prove it. Which is work I've done with the mathematicians using what's called persistence theory.

[00:02:11] But in the conventional thinking they have this absolute religious belief that the economy heads towards equilibrium and so in your equilibrium why change? And then they put it in the real world. Oh Jesus what the hell's going on here? The government has to intervene to stop the financial system collapsing. So that's right and the but the interesting thing is so the core of equilibrium is this idea of the supply demand curve and and how they cross.

[00:02:36] And so everything is always trying to get back to the point at which they cross which is a static point. And yet exactly so much of the economy that they're talking about is moving. So when they say equilibrium do they mean static equilibrium because they talk about inflation getting back to equilibrium by that they mean it's getting to a constant level of growth. Not a not a static point at all. So I'm confused as to what they mean when they say.

[00:03:02] Well they're confused at what they mean as well. But I had a recent fight with I don't know as much fight I just watch this bullshit being pumped out on Twitter by economists with a one a wonderful. Yes is Villaverde something or other quite a lovely rolls off the tongue very nicely unlike his thinking which is all equilibrium thinking. So what what I found quite amusing was that he like it's 20 years since the global financial crisis now pretty much coming up to the 20th anniversary.

[00:03:29] These bastards didn't see it coming with their equilibrium oriented models. But what's happened it's 20 years later gee we've forgotten about that. Let's push our equilibrium based models as if not as if they didn't completely fail to see the global financial crisis coming two decades ago. So they get to the stage they forget about their problems. Now is that is there is there argument that the crisis created the equilibrium. So it's it's it's it's talk about the crisis. What's crisis what crisis you remember the old super tramp go record cover.

[00:03:59] Yeah. Okay. That that's their state of mind crisis what crisis. Yeah. But if we looked at house prices for example as an example right now so they've gone down maybe 10 percent bit more now perhaps in Australia that perhaps got further to go. And some people would say well that's the housing market just adjusting itself. So that adjustment is an example of equilibrium at work.

[00:04:25] Equilibrium is a deadly word to use without defining what the hell you mean. And the trouble is what is often meant by equilibrium people the people that talk about my body is in equilibrium. No, it's not if it's an equilibrium you'd be dead. And also alive forever. Let's look on the positive side. That's true. That's true. But that's but yeah it's it's homeostasis is often what people mean by equilibrium. So the system is in a sense sense of coordinated balance between all the various parts of your body that are changing at different times.

[00:04:55] So like like your pulse changes over the day even the nostril through which you breathe air fluctuates through time. You know the the heart can be described as a chaotic generator when it gets into regular rhythms and you're in trouble. So all there's so many things that are changing in our bodies at any one time. But if we're walking around healthy we're not an equilibrium we're in homeostasis.

[00:05:20] And that the many of the systems all these various systems are in not outside the boundaries of survival of the of the being. Right. In no sense you're in equilibrium. So the term itself is a is a fallacy. Maybe. Okay. Well maybe it's just a terminology thing then because isn't that the same thing. I mean I quite like the idea of comparing it to the human body because if you look after yourself and you go running or whatever you get your heart rate comes down. You you you breathe easy you probably live longer.

[00:05:48] So isn't that the case with the economy if you keep it in in check and under control. It's it's going to be more balanced. That is where equilibrium is the problem because it's it's it's the way that this is the I'll go back to that Villaverde conversation because he argued that if you don't understand equilibrium you don't understand economics now my exactly opposite if you believe in equilibrium you don't understand economics.

[00:06:14] But nonetheless he said the definition of equilibrium they use is the one developed by one Irving Fisher in 1907 in his PhD thesis which is called the theory of interest. And he republished that paper in 1930 when he was now a famous economist. They went from you know an academic to somebody who's globally he would remember the old movie you know people might not know what movie tones is.

[00:06:40] We used to get our news segments through the little you know 10 minute segments shown in the movies movie tone. And they're all very over the top. And then again with another one of his crazy theories and Irving Fisher has bought out a new book. Yeah it was all like that. Exactly you've got it you've nailed it that's the way okay. So Irving Fisher stocks have reached what looks like a permanently high plateau etc etc. Reassuring people there wouldn't be a stock market crush which wiped him out okay sent bankrupt by it.

[00:07:09] So what he the definition that he used in 1907 of equilibrium is that nobody is I has any incentive to change their current behavior. Okay and that's in that sense it is like a homeostasis definition because we're all looking at what everybody else is doing what we're doing. I'm going to continue doing what I'm doing. That's that's the definition of equilibrium that Fisher effectively defined.

[00:07:33] So when that means expectations are consistent your expectations are consistent with everybody else's so there's no need to change. Now as part of that to make that work in his own model he was building a model of the finance market and it's basically supply and demand analysis. Same sort of thing okay but applying supply and demand to finance. Now the problem with finance supply and demand for bananas you pay your banana you get your banana you reach your banana. In effect it's in a moment in time.

[00:08:00] But in finance you pay for your you take out your mortgage you've got to pay for the next 30 years okay. And there's repayment taking place and so on and so forth. So to handle making the model work through time Fisher added two little assumptions. One is that the market is in equilibrium and with respect to all moments in time. So rather than just assuming equally being at a point in time which is what the supply and demand drawing does for ordinary commodities.

[00:08:30] You've got to move it through time and presume you always remain at that equilibrium point. That's one thing. Secondly he says debt must be repaid. All debts are repaid. Now he violated those assumptions himself in 1929 when the stock market crashed 10% in one day. And so he was totally devastated. He was financially wiped out. He would have gone bankrupt except that he had a wealthy sister-in-law who kept him afloat. He would have been homeless unless Columbia University bought him a new house. He lost his house as well.

[00:08:59] So you can imagine how severe a shock this was to that guy. And then in the aftermath of that he reconsidered what on earth led me astray. How did I get myself in this situation? And his final conclusion was the reason he made the mistakes he made was because he believed in equilibrium. And he didn't anymore. Okay. So then equilibrium is that that's the problem. So what he wrote in his debt deflation theory of great depressions, a paper I recommend people to read, it's accessible on the web in 1933.

[00:09:27] And he said that we can assume that all economic variables tend in a general way towards equilibrium. And I'm not going to have any idiot bloody neoclassical telling me that Fisher doesn't know what he's talking about because they're using his definition. Okay. So this is Fisher, the guy who used the definition that modern neoclassicals like this Villa Verde character teach to their students now and using their models.

[00:09:52] 2026 back in 33, 1933, Fisher saying this, this equilibrium is misleading. And so what he said was we can assume that variables tend towards equilibrium, but the equilibrium sort is self maintained and always subject to further disturbances. And so, so that in real world, any variable is either above or below its ideal equilibrium value. So his argument was, that's not equilibrium at all then. We're not in equilibrium. We're outside it.

[00:10:22] The real world, you might imagine that your system will move towards equilibrium and he defined what they call equilibrium now. So he, you know, I'm quoting the bloke who defined their modern definition, but he then said, you're going to be out of equilibrium. So you have to have an analysis based out of equilibrium behavior, otherwise you're misleading about capitalism. But is the argument, you know, I'm sure it's wrong, but isn't it a bit like a pendulum in that the pendulum is swinging on a base point?

[00:10:49] It's never there, but it's always swinging backwards and forwards from it. It's actually, yes, you're right. Yes, you're right. It is like, it is like a pendulum, only there's one problem. Well, you don't, you, you're not going back to the base point. You never get there. No, no, it's a two part pendulum. There's a bend in the middle. Right. Okay. Now that's one of the world's most famous chaotic models, because if you have a pendulum, there's nothing more regular than the motion of a pendulum in this sense, except Donald Trump lying. But that's, that's another form of regularity. Okay. So, but with the one, all it can do is do that.

[00:11:19] And it can define it. You get us, you know, a sine wave out of the fluctuations. It's all very mathematically precise. You had to put a pendulum on a pendulum and it's absolutely chaotic. It's absolutely hilarious to watch one. They fly all over the bloody place. So the real world has more than one linkage. Okay. With more than one linkage, you, you, there's no way that the pendulum is the right model, but you've got to have a, a, a, a two part pendulum. And there you get chaos, not, not regularity, not equilibrium.

[00:11:50] And in any case, even if you didn't do that, and you just had a pendulum swinging and you're saying, well, okay, prices are moving around this base price, which is where it would settle down to eventually. It's not settling down because as we started out, it's, it, it, the economy is not setting. The process moving through time. Yeah. So you're never going to get back to that point. Exactly. You will be swinging around it, but the point itself is moving. So that's right. You're moving through. Yeah. So when you're moving through time, it's non-equilibrium analysis and that's stock standard in actual sciences.

[00:12:20] Economics thinks it's a science. It's a load of garbage instead in mainstream economics. There's better ways, far better ways to do it, which is borrowing concepts from engineering and physics in terms of modeling dynamic systems. And those systems are always out of equilibrium. So the whole idea that a system reaches the equilibrium is just a 19th century fallacy from before we learned about thermodynamics, before we learned about complex systems.

[00:12:46] And so economists are hanging on to stuff, which was really advanced in 1850. Okay. So I don't know if you've out of date today. I don't know if you formed an opinion about Scott Besson, the U S Treasury secretary, but, uh, so he talked about equilibrium this week. This is why I thought we should revisit it. And he was talking about, uh, his intervention in bond yields, which, which would be interesting in itself as a topic in the second part of this discussion. But he was saying it was his job to push markets towards equilibrium. But then he also said, but nothing's ever in equilibrium.

[00:13:15] He's sort of like confessing that he doesn't exist. Well, he actually has a background with George Soros. And so Soros also had a non-equilibrium analysis of finance markets. And Soros's argument was that the conventional theory says finance markets are in equilibrium. And, uh, and the prices reflect the discounted net present value of expected revenues streams from the investments of the company. And gearing has no effect at all, total garbage. Uh, what, what, um, and then markets are supposed to be, you know, prescient. They can predict the future.

[00:13:45] Um, Soros's argument, and then this is where Besson would be quite in line with him because he was involved in the raid on the, on the British pound, uh, is that markets underreact in user initially and then overreact later. So you, when you see a trend, you buy into the trend, knowing the market's not going to be taking notice of it. Then the trend will strike, bang, the value of your option goes up, get to the top and you sell out again. And that's how they made their money.

[00:14:12] So he understands non-equilibrium thinking that's actually a positive in his favor. Right. Because he's used it to his advantage. Yeah. Uh, and, and now he's trying to, well, look, we'll take a, we'll take a break now because I, because what he's been doing with bond markets is interesting, probably, probably ineffective, but it is an example of the complexity of systems.

[00:14:35] Uh, so I think we should revisit that because a lot of it is to do with government bonds versus other forms of, uh, of, of purchasing debt as well. So we'll look at all of that when we come back on the debunking economics podcast. This is the debunking economics podcast with Steve Keen and Phil Dobby.

[00:14:58] So Steve, Scott Besson had to intervene or he felt he had to intervene in the bond markets because the yield for longer dated bonds was rising and rising and rising. It was, it was across the whole yield curve, but particularly long dated bonds. And so that meant that the cost of borrowing, not just for the government, because as you, I know your answer would be well in terms of government costs, who cares?

[00:15:23] But generally the, uh, longer term borrowing costs were rising because the yields were getting higher. So he felt as though he had to intervene with buybacks, which the treasury does quite a lot of, but they did a lot more of it. And in fact, they've done it a couple of times since as well. So what they do is they take those 30 year bonds and then they buy them back and then they reissue them as shorter duration bonds in the hope that there are, because there's less 30 year bonds around.

[00:15:51] Uh, that means that the, uh, the, the price of those 30 year bonds will go up because there's less supply of the bonds and that will bring the bond yields down. It's not really worked for him, but the fact that they have to intervene in that way is like saying, well, you know, we're intervening. And the markets, the markets, as he said, you know, he's trying to bring things back to equilibrium, but equilibrium doesn't exist. I mean, is it pushing on a string a bit?

[00:16:20] No, I mean, this is, um, sensible in its own bizarre way, even though it's coming out of the Trump administration, because this is what the government always does. Um, uh, it's always buying and selling bonds. There used to be a word called open market operations were much more common back in the days before the global financial crisis. But it's always trying to manipulate the value of the bonds. It sets the price.

[00:16:41] And there's a, like the, when the, when the government sets the price on its new bonds, it then has a whole range of operations to make sure the price remains, the interest rate remains within a band around the target that they've set. So they're forever buying and selling bonds to achieve that. And this is just a larger, larger scale version of the same regular operations. This isn't the central, right. But by the government, by, by the treasury, not by the central bank. Yeah. So that is the interesting thing, isn't it? Well, they can both do it.

[00:17:08] I mean, they've both got the capacity to buy, buy bonds indefinitely. Um, and like, it's a, it's a question like the, the basic way that money is created is by the treasury going into negative equity, which creates positive equity for everybody else. So, uh, it, it, it can be doing the buying. Uh, the central bank could be doing the buying. It's, it's a, it's a toss up as which institution can do it. They can both do it. So why do you think yields have been going up so much? Uh, there's actually a massive uncertainty on the global economy for obvious bloody reasons. It's read by Scott Bessett.

[00:17:38] What else could you need? Sorry, but yeah, it's, you know, the market, the, the, the, the bond market is the biggest speculative whorehouse on the planet. And, uh, if they're looking at what's going to happen, they're forever trying to outdo each other. I recommend people watch the big short to get an idea of the behavior, big short, and also, um, the wolf of war. Wall Street. Yeah. To get an idea of the personalities involved there. Classic movies. Yeah, yeah. A brilliant movie, really, truly brilliant.

[00:18:06] Um, so this, this sort of, you know, trying to outdo each other by picking which direction the market's going to go in and making capital gains and also capital losses on buying and selling bonds. That's, that's all they do. And so it's nothing to do with government debt because that shouldn't matter. Well, government debt, I mean, government debt is, this is the, the, the, the panic, the, the market would be panicking on the base of government debt, because the idiots in it, and pardon me, you're idiots if you believe neoclassical economics. It takes your brain away.

[00:18:34] So, you know, you might have an IQ of 130, but it's three after you've done an economics degree. Um, they, they believe this stuff and they expect, oh, this panic's going to happen. That's where the, what's called the widow maker trade came from. You know, the beliefs that the last, what is it now, 30 years that Japan's on unsustainable path with this government debt and people have been buying expecting to have to, you know, have a huge loss and do a sort of a, like the English did back in the eighties. And they're, they're going to make a killing.

[00:19:02] In fact, they end up being, the, the speculators end up with the killing because the central bank has an unlimited capacity to buy bonds issued in its own currency. So the idea that there won't be buying, this is what's going on. It's backstopping its own sales. Yeah. And in Japan, because it got close. I mean, yeah, the government bought almost all of them. You know, when you got close to a hundred percent, they were buying so many Japanese government bonds, weren't they? So, yeah. And a huge part of the share market these days as well. So this is why you have to understand the accounting.

[00:19:32] And that's why I built Revell. And, and, and most people think they understand the accounting, but they literally get it wrong. They're doing it in their heads. They don't, they don't necessarily balance the lines. Revell forces you to do that. And you can see straight away that the government with the, since it has a central bank, has an unlimited capacity to buy bonds that it's issued in its own currency. And that means that there's no possibility of those bonds not being sold.

[00:20:01] If, if there was a chance where the market or the, the, the third party buyers, the banks and the, apparently now the American government lets individuals bid than bonds, which is stupid. But that's the sort of thing you get when people who design the system don't understand it. But they, if the government, if the bonds don't get sold, then the central bank can buy the lot. And like my little cure, if you're worried about government debt, tell you what, I'll get Scott to buy all the bonds tomorrow. And that literally could be done.

[00:20:31] So there's no limitation. He, he talked about having to buy them to try and quell the fever. That, that it was almost, you know, it's the animal instincts. So again, that's, that's sort of like a, that, that's not equilibrium, is it? That's, that's human dynamicism. And this, this is where you're thinking in a complex system and thinking about the government as part of a complex system, not the entire element, but part of that system.

[00:20:57] Then when I do my, my modeling approach to economics, which I start from macroeconomic definitions and drive the model from definitions. And when we built, built the model of including a private sector, which borrows to build factories. So it's leaving out speculation in this case. Wage workers getting, wage rises are based on the level of employment. Banks lending money at interest. And then the government having counter cyclical spending. The system is only stable with the government in there.

[00:21:26] If you neutralize the government, then the system can fall into a debt deflation. And this is, and this, this, this is the last, this is the Great Depression. Okay. So what happened with the Great Depression was government spending was too small to counter the downturn in private sector spending that the stock market crash caused. And credit went to minus 30. And according to census figures, I think they exaggerated, but according to census figures adjusted for current measurement systems,

[00:21:53] the negative credit was, credit was falling at the rate of 30% of GDP per annum for two or three years. Now, that just caused the biggest downturn in the history of capitalism, the longest depression. But when the government got to be larger, so it went from 2% of GDP to 5% of GDP, it stabilized the system. We didn't continue going down the plug hole. So ironically, when you look at it in a dynamic sense, it's a non-equilibrium system and the government has to take a role.

[00:22:23] Otherwise, the private sector will fall into traps like a Great Depression. So even if you have complex modeling like you've been doing, there's still so many unknowns, aren't there? Absolutely. Because, for example, the reason why Bonnier, one of the reasons why Bonnier, it's the risk element, obviously, because, well, Donald Trump is president. That's why people are trying to get gold out of the country as quickly as possible, because they're worried about what he's going to do next.

[00:22:50] But also, it's AI has driven the world crazy as well. And so there's all of this money being spent on AI. So on the one side, you've got what is seen as being a risk. Government debt is seen as being more risky than before. And then you've got this massive AI opportunity that people are going, well, OK, the risk is high. It's a little bit higher than the government.

[00:23:14] But the difference between a safe government and a risky AI investment with companies that have got high turnover already, the risk is diminished somewhat. And so that means that money that would have gone into government debt is now going into private debt. And that's pushing the yield up for the government as well. It would have been very difficult to, you know, a few years ago have said, well, that's a scenario that's likely to happen. Who'd have known?

[00:23:41] I mean, because we're talking trillions being spent on AI. Yeah, but at the same, I mean, the AI bubble is what the government, they're going to have to counter the downturn when the bubble bursts on that front. Yeah. But the big problem that happens when people talk about this is they're confusing the secondary and the primary markets for government bonds. Now, the secondary market, they're already owned by a private individual, most of them. Yeah. Most bonds are owned by non-bank financial institutions these days. They're gambling about the price.

[00:24:08] So as they change the price, that changes the effective yield on those bonds. But the bonds have a fixed yield. If you've bought a bond offering 4% and it's $1,000 bond, then it gives you $40 per year, no matter what the interest rate is calculated as being. So there's no change in the amount of money being paid by the government. For those bonds. The rate's gone up. It's going to cost the government more money. No, it's going to pay the same $40 no matter what. For the bonds it's already issued. The bonds are already issued. Yeah. But the new ones. Yeah.

[00:24:38] The new ones. That's usually new bonds. People say, well, the rates, why would you buy bonds on the primary market when you get them more cheaply on the secondary market? The reason being that the processes of government spending create reserves. Okay. And the reserves, the rate on reserves is set by the Federal Reserve and the rate on bonds is set by the Federal Reserve. Now, so long as they make the yield on bonds higher than the yield on reserves, it means that anybody who takes part in the auction and has reserves on hand,

[00:25:06] and this is mainly talking about banks here, then they're turning down. They've got one asset created by the government that yields 4%. They've got another asset created by the government that they can buy with the one that yields 4% that yields 5%. What are they going to do? They're going to buy. No matter what the difference is between the primary market price and the secondary market price. So, it's not realising that there are two distinct markets, two distinct sales processes.

[00:25:34] And what happens on the secondary market can influence what happens on the primary, but the main determinant of the primary market is the gap between the return on bonds and the return on reserves. The interplay between, take your point, but the interplay between that effective interest rate on government bonds, so 30-year bonds, for example, will influence how much I pay to borrow for 30 years if I want to issue private yields.

[00:26:03] So, it pushes up the private yields. It does that, definitely. So, it's pushing up the cost of AI, in other words, isn't it? Which must be part of Scott Besson's concern as well. We've got all these companies that are borrowing an enormous amount of money. If that bubble's going to burst, it's going to burst that much faster because they're paying high yields. Yeah, and that's true. So, in that case, that's the reason to try to bring down the price on the secondary market. But it doesn't affect the government's capacity to sell bonds on the primary market, nor does it affect the government's cash flow.

[00:26:31] In fact, what I'm finally seeing, I've got to give, I mean, Warren Mosler, I'm going to be attacking the shit out of him over his arguments on trade very briefly. Get ready, Warren. Okay. That is total nonsense. I don't care if I offend people in MMT. I'm looking forward to it, in fact, after they've offended me for the last few years. But Warren made a very sensible observation about a year or two ago that because the government creates the money that it pays as interest on bonds, just like it creates the money when it has a deficit,

[00:27:01] that creation of money, as the interest rate goes up and you're therefore paying more per bond, you're actually stimulating the private economy. You're not restricting it. You said you're increasing the rates that are going to be paid for other people for private borrowing. That's one effect of all the interest rate, higher interest rate. But a higher yield means if the government's got debt of 100% of GDP, if it was paying on all those bonds the same rate,

[00:27:28] of course it doesn't because those bonds have been around for a long time and the rates don't change. But if the interest rate's 5% and the level of debt is 100% of GDP, then the government interest on those bonds is the 5% of GDP stimulus for the economy handed out to rich people and financial markets. So rather than as much as the higher rate makes private debt more expensive, the higher rate on government debt is actually a stimulus for the economy.

[00:27:57] And this is, some people have, I've seen some statisticians starting to look at this and saying we expected like a downturn because of the increase in rates, but it seems that demand has risen. And the reason is you're giving rich people more money to spend. Now they don't spend much, but that's where high asset prices come from and, you know, high prices for high end consumer goods. Well, they use that money to buy those bonds on the secondary market for companies that are investing in AI, I guess. Yeah.

[00:28:24] I mean, I'll need to do the accounting, but yeah. Yeah, perhaps. So, all right. Very good. So getting back to the equilibrium thing. I mean, he is basically, when he's saying that he's helping the market get back into equilibrium, he's using that equilibrium argument in terms of interest rates. He's saying, well, yes, we're trying to get back, even though he's saying, but, you know, nothing's ever in equilibrium.

[00:28:51] But at the same time, he's trying to say he's trying to get the market back into equilibrium. In other words, that interest rates are too high. He's trying to get them back to equilibrium. And he doesn't believe it, of course. But what is the equilibrium that he's talking about in terms of interest rates? Well, I mean, the conventional theory believes there, as they call it, a natural rate of interest. There's a natural rate of everything in their classical theory. Yeah. Just as there's a natural rate of unemployment, which keeps on changing. That's right. Everything natural never settles down. Okay.

[00:29:21] Yeah. But it is, you know, you do get a gap between the rate you've got to pay on bond of interest and the rate of inflation is a serious issue for anybody who's got money to manage. So when you get a big gap between the rate of interest and the rate of inflation, and that's what's happening now, the real rate's quite high on historical standards, then, yeah, you want to bring it down. And so that's what this operation was intended to do. It could work.

[00:29:51] I mean, I don't, you know, I'm not going to trust the Trump administration to do anything properly. But the idea of using government money creation capability to change the direction of the market is quite feasible. So it's not really equilibrium. I mean, it makes sense in that it's trying to make the markets function better to bring down the cost of borrowing to reduce the element of risk associated with that investment. But it's not equilibrium. It's the wrong word. As you said, it's a question of definition, isn't it? It's the wrong word. Yeah. Yeah.

[00:30:21] I mean, I don't mind Bessett using it because I know from his own background that he doesn't take it seriously. But the trouble with mainstream economic analysis thinks that economy does head to equilibrium and they believe that it'll get there if they get the government out of the way. Now, when you do the mathematics properly, which is what I do with my friends in the mathematics fraternity, you find that if you take the government away, the system is more unstable, more likely to collapse.

[00:30:47] And so their arguments, so the conventional belief in equilibrium is an anti-government spending equilibrium. When they try that in the real world, the system crashes with financial bubbles and bust like we've got now. So there's two occasions in the 19th century when the government, the British government passed rules saying the central bank cannot bail out the private banks. They had to reverse it twice or the system would have crashed completely with stock market crashes.

[00:31:12] So the whole idea of the government can get out of the way and the system will work is simply mathematically false. So, right. So the government should be involved, but the government should also understand what they might break when they do stuff as well, which is where they don't. That's the trouble. That's where a lot of our messes come from. Yeah. All right. So just before we go. So you have finished your latest book. It's gone off to the editor.

[00:31:40] So tell us about the book, who it's aimed at, what's different to what's gone before and when's it going to be available? Hopefully I'll ask the Lance question because I'm hoping in February. That's like about a six month process to go from the manuscript into all the editorial work that's necessary and then distribution and so on. The title is How Economists Will Destroy Capitalism. Okay. Okay.

[00:32:07] And I seriously mean that because it's focusing on the work of neoclassical economists on climate change. And it is worse than I could ever have possibly imagined. Their work is garbage from the very outset. So I show what's the consequences of trusting people whose knowledge of the problem they're talking about is non-existent. And what it means is they've basically told us we're locking on a yellow brick road into the Butte future where there's been a slight inconvenience from a bit of a rise in temperature,

[00:32:35] but it's no different than moving from New York to Florida. What are you complaining about? Just get air conditioning and stay in. Just get air conditioning. Yeah. Yeah. Air conditioning your fields, air conditioning your cows, everything will be fine. And they're basically saying we're on a road to extinction. The path we're following right now literally will lead to the extinction of 75, if we're lucky, 75% of life on the planet, including us. That's the path we're on.

[00:33:00] And when you look at the scientific research, the numbers that economists think will cause minor damage to the GDP have in the past caused mass extinctions. And that's what we're toying with. So I go through the how did economists get it so wrong? How can I show that they're so wrong? And then what are the alternatives? So down the end, I got accused of being in favour of a world government in that interview on Diary of a CEO recently. I didn't want this.

[00:33:29] This is this is what comes when you ignore a problem for 50 years. OK, because we should have changed direction 50 years ago with the limits to growth. We didn't because of economists now are about to crash into a brick wall in that situation. Yes, I've got to pull the wheel out of your hands and, you know, central planning is going to be necessary. But I make a hypothetical argument if we could combine what they call solar, solar resource management, I think they call it.

[00:34:00] Combine that with trying to do biologically based sequestration of carbon. And we could get back to pre-industrial levels of carbon by the end of the century and reduce temperatures by two degrees very rapidly. With great negative consequences. But the alternative is extinction. So I go through all those possibilities. Well, it's fantastic, isn't it? Sorry? Sorry. Yeah, you finish your point. Sorry. Yeah.

[00:34:28] And I pull apart neoclassical economics in the process because the work on by climate change economists is so bad that the really important question is how the hell did this shit get published in the first place? Now, the only reason it got published. Shit's being polite. It's not polite. The only reason it got published is because neoclassical economists were the referees. And the whole of economics is guilty for this failure of the people like Nordhaus working on climate. Right. So, look, I mean, two things.

[00:34:56] First of all, it's really good news that this is not available till February because it could ruin a lot of people's Christmas. If it could be very bad Christmas present. Yeah. You don't want this Christmas. Enjoy Christmas before you read this. And secondly, of course, AI is making all of this, you know, happen that much faster because it's using it consuming more energy that much faster, which is which is fantastic because this is obviously the way nature intends it. AI means that the machines are able to do everything.

[00:35:25] I think the human race is wiped out because of climate change helped by AI and the machines live on forever. And that's your next book, Steve. We better hope they're intelligent. Yeah. Yeah. Frankly, I'm backing the kangaroos. I reckon the kangaroos are going to take over in 60 or 70 million years once they have all the poseable thumbs. They might make a better fist of running the planet than thus omnivores have done.

[00:35:54] Yeah, exactly. And when they go shopping, they don't need to use plastic bags, do they? That's right. They can put it in the pouch. Yeah. Got it in the pouch. They're designed. Yeah, yeah. Yeah, exactly. They've got, you know. Everything built in. It's all there. Yeah. Excellent. Very good. There we are. More sensible discussion, as always, on the... Kangaroos in equilibrium. There we go. Yeah. We will. Well, they sort of do bounce around, don't they? But on the same point. Yeah. That's right. They're just on the spot. They never go anywhere. They just bounce around on the same spot. Let's leave it there. We will see you next time, Steve.

[00:36:24] Thank you. See you, mate. Bye. The Debunking Economics Podcast. If you've enjoyed listening to Debunking Economics, even if you haven't, you might also enjoy the Y Curve. Each week, Roger Hearing and I talk to a guest about a topic that is very much in the news that week. It's lively. It's fun. It's informative. What more could you want? So search the Y Curve in your favourite podcast app or go to ycurve.com to listen.