Philip Pilkington: Debunking Economics – An Interview with Steve Keen – Part 1

Steve Keen is an Associate Professor in economics and finance at the University of Western Sydney. The second expanded edition of his popular book Debunking Economics is available now.

Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.

Philip Pilkington: One cannot help but be struck by the reaction of the economics profession to the recent financial crisis. In the first edition of your book, Debunking Economics, you warned that a crash was probably coming – and in this you weren’t the only one. And yet now, post-crash, neoclassical economists have simply buried their heads in the sand and pretended that rational criticism of their theories simply doesn’t exist. The crash discredits almost all these theories and yet they continue to insist that they remain valid.

They remind me of Christian fundamentalists rabidly arguing against evolution in face of what appears to be insurmountable evidence against their assertions. Could you talk a little about this? How can these people be so deluded? Why won’t they listen to reason?

Steve Keen: That’s a pretty accurate characterisation of their behavior. I cite a couple of glaring instances of this in the second edition. Olivier Blanchard, founding editor of the American Economic Review: Macroeconomics, and Chief Economist of the IMF, published a paper one year after the crisis began in which he opined that “the state of macro [economic theory] is good” – despite its complete failure to anticipate the biggest economic event of the last 70 years. One year later, rather than admitting that the state of macro might not be so good after all, he instead warned that just because neoclassical economics had failed this crucial empirical test:

It is important to start by stating the obvious, namely, that the baby [neoclassical macroeconomics] should not be thrown out with the bathwater…

The only two neoclassicals that I could locate who attempted to model the crisis using the DSGE framework – that is, the overarching macroeconomic framework used by mainstream economists to explain large-scale economic shifts – actually did so by arguing that large unanticipated shocks hit the economy, and these explained the crisis entirely! One of these (P.N Ireland, ‘A New Keynesian Perspective on the Great Recession’, 2011) toyed with abandoning the model…

Indeed, the Great Recession’s extreme severity makes it tempting to argue that new theories are required to fully explain it.”(Ireland 2011, p. 31)

…but he rejected this course largely because he thought there was no other analytic way to consider the crisis apart from neoclassical economics. In so doing he argued that it was effectively impossible to do what I do, which is develop causal mathematical models of the relationships between economic variables, especially private debt, that anticipated this crisis:

Attempts to explain movements in one set of endogenous variables, like GDP and employment, by direct appeal to movements in another, like asset market valuations or interest rates, sometimes make for decent journalism but rarely produce satisfactory economic insights.(p. 32)

Instead he explained the crisis by varying unpredictable shocks:

…the Great Recession began in late 2007 and early 2008 with a series of adverse preference and technology shocks in roughly the same mix and of roughly the same magnitude as those that hit the United States at the onset of the previous two recessions… The string of adverse preference and technology shocks continued, however, throughout 2008 and into 2009. Moreover, these shocks grew larger in magnitude, adding substantially not just to the length but also to the severity of the great recession…(Ireland 2011)

The problem with this argument is that shocks, if that’s what really caused the crisis, should ultimately stop – and in fact unexpected good ones should start to arrive to keep the mean shock at zero. But the economy continues to tank, because it wasn’t an exogenous shock that caused it at all, but the endogenous dynamics of credit that neoclassicals completely ignore.

The reason they continue with this delusion is for the same reason that astronomers stuck with the Ptolemaic version of the solar system long after anomalies were discovered between the theory’s predictions and observation: it’s all they know, and their whole world view is organised around it.

Secondly, though neoclassical economists like to intimidate critics with mathematics, frankly most of them lack training in the areas of mathematics needed to analyse dynamic systems – which explains Ireland’s ignorant remark cited above.

They’ll only start to listen to reason when reality has continued to defy their predictions well past the initial crisis of 2007. We’re now into the 4th year of this crisis, and only now as the effects of the fiscal stimuli of 2007-09 wear off (policies their underlying economics opposed, by the way, which they adopted only in a state of sheer panic when the crisis hit) and the economy still hasn’t recovered, are some of them starting to realise that their paradigm simply doesn’t fit reality.

However most will go to their graves still believing in the neoclassical paradigm and they’ll blame some exogenous factor – probably some unspecified government policy or even, laughably, unions –for causing the crisis. In this they’re just like any other set of committed believers in a falsified paradigm. Max Planck, the person who discovered quantum mechanics, gave up on convincing his contemporaries of the new approach, as most of them stuck to the Maxwellian model despite its empirical failures and the success of quantum mechanics, once quipped that “science advances one funeral at a time”, and the same will be even more true of this pseudo-science of economics.

PP: It’s nice to draw analogies to physics, but economics seems to me to be a whole different enterprise. To admit that Planck’s theories may have something to them merely required that a person renege on certain aspects of their scientific worldview. But to see capitalism as being inherently flawed raises all sorts of political and moral questions. Unlike Planck’s theories, I get the impression that new economic perspectives actually offend economists – and, for that matter, policymakers – at an almost spiritual level.

You go into great detail in the book about how economists are actually trained and I found this to be very interesting and relevant. As they advance through academia they have their worldviews gradually narrowed and hollowed out until they cannot really conceive of the economic, political and social world in any way that doesn’t fall into line with what they refer to – in high Scholastic fashion, I might add – as their ‘axioms’. They seem to be brought through an indoctrination program that ensures that these ‘axioms’ remain fixed in their minds at such a base level that they cannot be moved – not unlike a Scientologist or some other cult member.

Surely there is some difference here between how neoclassical economics is taught and, say, how physics was taught in Planck’s day? And surely this has consequences for, shall we say, the rather long half-life that neoclassical economics seems to possess relative to other disciplines? In short, given the way economics is transmitted through the generations can we really expect the neoclassical research program to die before there is some fundamental shift in the way we organise our societies?

SK: Yes, that’s true. The general principle is the same, and this is what led to Kuhn’s analysis that science proceeds by the development of paradigms in what he calls ‘normal science’, followed by periods of volatility when the old paradigm strikes a series of anomalies it can’t resolve, leading to a scientific revolution in which a new paradigm is formed that can account for the anomalies.

But this process requires a degree of dispassionate separation between the empirical data and the theories. If a theory makes a prediction, and an anomalous result occurs–like the Michelson-Morley experiment that implied that there was no ‘aether’ through which light waves passed (since the speed of light was the same when measured in any direction). This and other anomalies were confronted by the pre-quantum physicists of the day within their paradigm in an attempt to resolve them – unsuccessfully. Hence the ultimate development of quantum mechanics

But in economics, anomalies abound but simply aren’t even acknowledged, so attempts to resolve them simply don’t occur: the neoclassical paradigm just sails on oblivious to them.

My favourite here is the conflict between the neoclassical theory of the firm, which requires rising marginal costs, and the more than a hundred studies that have contradicted this –the most recent being Alan Blinder’s ‘Asking About Prices’. Rather than confronting this ‘anomaly’, neoclassical economists continue teaching and building models that assume rising marginal costs, and in fact the most (in)famous paper in methodology – Friedman’s ‘assumptions don’t matter’ paper – was written specifically to advise economists NOT to even read the empirical literature. When he argued that ‘assumptions don’t matter’, the assumption he was defending most strenuously was the counter-factual assumption that marginal costs rise as output rises:

The lengthy discussion on marginal analysis in the American Economic Review some years ago is an even clearer, though much less important, example. The articles on both sides of the controversy largely neglect what seems to me clearly the main issue — the conformity to experience of the implications of the marginal analysis — and concentrate on the largely irrelevant question whether businessmen do or do not in fact reach their decisions by consulting schedules, or curves, or multivariable functions showing marginal cost and marginal revenue…

The reason they simply refuse to even countenance anomalies – including now, not merely that marginal cost curves don’t rise but the inherent stability of capitalism given the economic and financial crisis – is, as you note, that this offends their world view. They perceive capitalism as inherently stable, and even what Australians call the ‘GFC’ (Global Financial Crisis) hasn’t been enough to shake that faith.

Though neoclassical economists would deny that they are political, the vision of the economy as inherently stable has become embedded in their politics and that of the populace as well. The fundamental difference between Republicans and Democrats really boils down to this, a difference in belief over whether the market system is really stable (Republican) or ever so slightly unstable (Democrat).

That’s where the organisation of society, as you put it, buts in. It has to cease being a political stance for an academic to say ‘capitalism is unstable’. One of the first economists to say that, by the way, was Joseph Schumpeter, and he was no raving radical: he actually saw the instability of capitalism as one of its strengths.

But while ever that’s how the political debate is shaped – and it was itself shaped by economic theory over the last two centuries – then developing a dispassionate understanding of how capitalism actually works will be almost impossible. In that situation, neoclassical economics becomes fundamentally ideological: its role is to defend capitalism against not merely attacks, but even dispassionate analysis.

The ultimate outcome of all this, however, is crises like the one we’re now in. If you use an ideology to guide how you design a society, then ultimately you will end up with social failure, whether that society is socialist (the Soviet Union before the Fall of the Wall), capitalist (America now), or religious (Iran etc).

I doubt that we can ever learn to be apolitical about our economy however. Maybe what we need instead is an ideology which is generally consistent with what its strengths are, while still cognizant of its weaknesses. That’s one reason I push a Schumpeter-Minsky vision of capitalism. Schumpeter emphasises the creative instabilities of capitalism – making instability to some degree a good thing. Minsky points the finger at financial instability – where those same creative energies are misplaced into Ponzi schemes that ultimately fail, leading to a private debt crises like the one we’re now in. If the Republicans and Democrats then effectively embraced the Schumpeterian core of capitalism, but differed over how one limits the Ponzi cancer that the financial sector can cause, we might get both a more realistic economics and a better class of politics.

PP: Interesting. What sort of responses did you get to your work from economists? I mean, I know that most of these criticisms have been around for a number of years, but now that you collected all the old ones in one place and added a few of your own what was the response from your colleagues? I don’t just mean ‘official’ correspondences and articles, but also ‘unofficially’, at meetings and the like? Surely they couldn’t hide from the fact of the financial crisis which you predicted in the first edition ten years ago and which must have at least softened their intellectual armour a little.

SK: You’d be amazed, there certainly have been some neoclassicals who have shifted a bit from blind faith, but generally they are unmoved. I recently gave a talk at a conference on lawyers on regulation of financial institutions, and at the end the organizer asked if there were any economists in the room who would like to respond. There was one – a chief economist for a major Australian regulatory authority. He looked very uncomfortable as he told me that what I had presented was a ‘straw man’ critique of neoclassical economics. I replied that my presentation had centred on the works of Krugman, Bernanke and Blanchard – so if I was guilty of attacking straw men, neoclassical economists were guilty of awarding straw men Nobel Prizes, top ranking government jobs and editorships of leading journals!
Two factors lie behind this I believe. The first is that they simply can’t conceive of any other way to analyse the economy than the one they’ve imbibed from their economic training.

The second is the zealotry component of the belief in neoclassical economics: their capacity to believe in this approach is as firm as the capacity of a Doomsday Cult to believe that the world will come to an end on a particular day. When each time the given day passes, a new one is constructed. The irony for neoclassical economics of course is that it’s the opposite of a Doomsday Cult: it preaches that nothing bad will ever happen (so long as governments are kept under a leash and unions are cowed). Then something really bad does happen given nearly unregulated markets. They can’t deny that it has happened, but already they’re starting to interpret it as the result of government policy!

I’m not joking, even though they played a huge role in encouraging the dismantling of so many regulatory structures from the time of the Great Depression – including the abolition of Glass-Steagall – they are now developing models that argue that what regulations there were led to the ‘moral hazard’ problem that caused the crisis in the first place. Take this comment from the most recently forged (I’m sorry, I meant minted…) Nobel Prize winner Thomas Sargent:

The main idea is that when a government is in the business of being a lender of last resort or a deposit insurer, depending on how it regulates banks, it affects the risk that banks take and the probability that the government is actually going to be required to exercise lender of last resort and bail out facilities. Neil and Jack call it the “moral hazard” problem, which is the idea that when you insure a bank, you alter its incentives to undertake risks.

So now they’re developing papers that argue that what caused the crisis was deposit insurance! Imagine how we’d be now if that remaining pillar from the post-Great Depression debacle had been removed prior to 2007. But instead they’re trying to pretend that the crisis would not have occurred if there hadn’t been deposit insurance! Instead, of course, the crisis still would have occurred and the aftermath would have been an instant Depression, rather than the more drawn-out one we’re actually experiencing.

PP: That’s absolutely shocking, but it seems a bit silly at the same time. Are they really suggesting that we get rid of deposit insurance to limit ‘moral hazard’? I can’t imagine that would go down well with their target audience – or anyone else, for that matter. Are statements like this indicative that neoclassical economists cannot actually talk about anything practical anymore? Are we seeing a shift to a sort of purely theoretical cult that just sits around debating inanities and broadly retreating from the policy arena?

SK: I think it’s the usual syndrome: since capitalism is perfect, any problems in capitalism have to be the result of government interventions into it (or nasty unions). So the best they can do when a crisis hits is to point to some government intervention and say that it was to blame – when in fact if it hadn’t been in place, a serious downturn would have become a catastrophic one: imagine Lehman times ten if suddenly the public’s deposits disappeared when the crisis hit.

Of course they claim that if there hadn’t been deposit insurance then depositors would have chosen safer banks and the crisis wouldn’t have happened in the first place. But there are countries that didn’t have formal deposit insurance where irresponsible lending still occurred.

Fundamentally, they’ve always been such a cult. Their one policy objective for the last four decades has been to reduce the level of government intervention in and regulation of the economy – so their policy objective has been less policy (the one they still approved of was the central bank setting interest rates, so long as they did so to limit inflation).

They could get away with that while the economy was booming, and even seem practical if the economy did well at the same time as their policy of less policy was implemented.

Their deregulatory zeal did help set off a boom, since it allowed the huge growth in private debt that funded the internet and the subprime bubbles. But this was an unsustainable process, and now when the economy’s been about as deregulated as one can manage, its true instabilities and Ponzi Schemes have overwhelmed their belief in equilibrium.

So now they can whimper all they like about how removing the tiny handful of regulations they didn’t manage to abolish would have made things better, but it’s whimpering rather than analysis. I hope they actually make this case loudly, because it’s so stupid that it will hopefully discredit them in the eyes of the politicians who still take them seriously.

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    1. mansoor h. khan


      Everybody has some kind of an ideology of everything around them (it is their mental model of the universe which helps them navigate it day-to-day). So what is yours?

      The purpose of blogging is to be open to change so one can build an ideology in their minds that is closer to reality.

      Mansoor H. Khan

      1. Travizm

        Think you’ve taken one to many neoclassical courses to the head Mansore!

        SK = class act.

        Science needs to take the power back.

          1. Susan the other

            Mansoor, your new electronic storage seems to amount to a new currency. You sound a bit like F. Beard. Just curious about your take on interest. Do you see it as the root of all evil too?

          2. mansoor h. khan

            Susan the other,

            I see it as a root of much evil but not all evil.

            When(god willing) currency issuance becomes equity based (spent into existence by government or given to people who will then spend it into existence) then interest rate on lending (not insured lending when deposit insurance is revoked) will be much much higher. This in itself will greatly greatly reduce fractional reserve lending and lending in general.

            It is not possible to remove all evil until the day of judgement.

            Mansoor H. Khan

    2. Diogenes

      I am particularly interested by Professor Keen’s reference to neoclassical economists blaming deposit insurance for the existing financial crisis. I wonder if this thinking might not help to explain why Bank of America recently moved its $45 trillion (notional) of derivatives exposure from Merrill Lynch to its FDIC insured banking subsidiary. When the next wave of the financial crisis hits, it seems increasingly probable that the American deposit insurance program will collapse precisely because its resources will be consumed covering the losses experienced by the likes of BofA and its TBTF counterparties on opaque, high risk derivatives products. At that point I am assuming the neoclassical economists will blame deposit insurance itself– not Bank of America and its ilk– for the crisis itself. Voila: the self fulfilling prophecy.

      1. spooz

        Not sure its a done deal. The fed likes it and the FDIC doesn’t. We’ll have to see how it works out. Another example of the failure of our regulatory system allowing slight of hand by banksters if the fed wins.

        I don’t like the idea of eliminating FDIC insurance, giving the conservative savers who have suffered from many years of low interest rates another kick in the pants. Many of them are retirees with no debt and are extremely risk adverse with their retirement funds. Expecting them to become experts on evaluating balance sheets prepared under loose accounting standards does not seem fair.

    3. Jerome R.

      “I get the impression that new economic perspectives actually offend economists – and, for that matter, policymakers – at an almost spiritual level.”

      This remark reminds me of a recent encounter I had with a CFO at a networking event. Our conversation steered towards the present state of the economy, when he suddenly asked me about what school of economics I believed in. I told him “I guess you could say I’m a Keynesian”, and he said with a scowl “there’s a special circle in hell for Keynesians”, and then walked off. I realized that for this man, economics literally WAS a religion.

      1. digi_owl

        Especially funny as at least the neo-keynesian “branch” is about as relevant to what Keynes wrote as water is to fire…

  1. gizzard

    Nice interview

    I really like Keen but I wish he would get on board with a more MMT styled model that accounts for vertical transactions. He does so well with examination of horizontal (banking) transactions and he is a tireless analyst. He would be a great guy to get on board with Randy, Warren , Bill and company.

    To me the fundamental flaw of neoclassical economics is its understanding of banking. I should say that, for somewhere between some and many, they dont misunderstand it as much as its convenient to misrepresent it.

    To me the most obvious is the notion that banks are lending “savers” money to “borrowers”. This is demonstrably false, and a correct analysis makes it clear that banks are simply leveraging a portion of the borrowers future income and potential savings.

    Here is a thought experiment that should show this

    Imagine ten people who are all consuming every bit of their income. They have nothing to save because they spend everything to live. Now imagine that only one guy finds a way to consume less and can therefore accumulate savings. At this point could a bank (Im going to take a cue from neo classical econ and “assume” a bank into existence) take his savings and lend them to any of the other nine people?? Of course not. Everyone else is consuming all their income, they have nothing to borrow. A bank could however loan the saver some money against his future disposable income. That loan is created out of thin air and is an addition to present money supply. Once each of the other nine people in that are able to accumulate savings by not using all present income for consumption, they can then become a borrower against THEIR OWN potential income stream.

    It requires no one elses savings for me to get a loan, only my own potential future income beyond consumption.

    Banks make claims on each borrowers own savings and future income and no one elses.

    1. rapazinho

      In the classical model, financial intermediation, specially by banks, is risk neutral, their institutional rol is to distribute risk. In the on-going crisis, they created risks. Eventually, (2008?) the depth of the financial pool and its discount options were unable to cope with undisciplined and irrational financialization´s increased risks.

    2. Lidia

      “Banks make claims on each borrowers own savings and future income and no one elses.”

      That’s not true at all… A bank making a $10,000 loan programs the consumption of $10,000 in real future goods, energy and services. So really, banks don’t just create claims on borrowers’ future income, they create claims to real wealth in the here&now, all of which new claims compete against the existing claims of the current non-borrowing owners of said real property.

      Money/loan creation is infinite and locked into an exponential growth model; our planet is finite and can’t sustain exponential growth in any aspect for long. THAT is the “fundamental flaw” plaguing pretty much every “school” of economics. So much schooling and so little comprehension…

      1. gizzard

        Yes and they base the repayment of the loan (with interest which is what they are after……..aka the “point” of banking) SOLELY on the borrowers income potential and asset holdings.

        I believe my point still stands

        1. Lidia

          The issue is that by bringing future exponential consumption into the here&now, lending at interest serves to exacerbate and HASTEN the fatal reckoning, adding an artificial exponential component (what ever the loan interest rate is) in excess of what might be a baseline of consumption expansion based on population growth.

          Borrowers’ “income potential” is neither something knowable by banks nor unbounded by reality, but most important: Borrowers’ “income” is not “income” to the system as a whole. Money used to repay loans still has to Ultimately Come From Someplace within the system.

          In the aggregate, all borrowers cannot owe more than the sum of all the assets on earth, yet in monetary terms that is what is happening today, because of the capacity of debt creation to suck people into its own reality, which is at odds with the actual physical world. All banks are bankrupt, all countries have deficits, everyone is a borrower. Where are the creditors?? There are none… the creditor is in all cases merely (handwaving) “the future”.

          1. No Know

            Sounds to me that you and gizzard are saying the same thing, although you make the additional point that debt which exceeds assets and income must eventually bring down the system. Sorry if I missed something.

        2. Lidia

          See joebhed’s comment praphrasing Volcker, below: “‘The basic problem is that there is not enough money to make the debt-service payments on the debt already out there’.”

          This does not just hold true now, but always has held true.

          In the past, though, new “money” (in the form of assets) was brought into the dollar system, pound system, or what-have-you by that system’s physical expansion (conquests of lands and peoples previously external to the system). After the integration of China into the now-global marketplace, there’s no more “outside the system” from which to introduce assets in the thieving, sleight-of-hand fashion which has allowed previous incarnations, the hot-house forms, of cultivated European capitalism to appear—miraculously— to “work”, “create” and “grow”.

          1. gizzard


            “The issue is that by bringing future exponential consumption into the here&now, lending at interest serves to exacerbate and HASTEN the fatal reckoning, adding an artificial exponential component (what ever the loan interest rate is) in excess of what might be a baseline of consumption expansion based on population growth.”

            The issue with what? Im simply describing how a loan originates. What conditions need to be met for that to happen. A bank can generate a new loan for someone whenever that person has the likelihood of a future income stream…. period. Gizzard doesnt need Lidias savings so he can borrow them through a bank, all Gizzard needs is a future income stream and boom a loan can happen. How well the bank assesses the likelihood of the continuance of that income stream as well as how well Gizzard does (both can be wrong but earnest or they can be intentionally deceitful) is a factor in whether the loan is succesfully repaid not whether it is generated. And yes, of course there are macroeconomic consequences to missing the mark. My target is not to support or come out against banking it is simply to try and show that MY loan is not a product of yours or anyone elses savings. I am not borrowing yours or anyone elses money when I borrow, I am borrowing from Doppelganger gizzard of 5 years hence.

            The neo classical notion I am after is two fold really 1) That savers are necessary for there to be borrowers (bank borrowers) and 2) That keeping banks balance sheets in order is necessary to generating loans

            I’m under no illusion that Ive succeeded but I hope Ive raised some additional questions about thse notions.


            “Borrowers’ “income potential” is neither something knowable by banks nor unbounded by reality, but most important: Borrowers’ “income” is not “income” to the system as a whole. Money used to repay loans still has to Ultimately Come From Someplace within the system.”

            Okay…. not sure this refutes any point Ive made. I agree that the banks model is flawed precisely because we are borrowing our own future un knowable incomes……. when it comes right down to the nub of it.


            “In the aggregate, all borrowers cannot owe more than the sum of all the assets on earth, yet in monetary terms that is what is happening today, because of the capacity of debt creation to suck people into its own reality, which is at odds with the actual physical world. All banks are bankrupt, all countries have deficits, everyone is a borrower. Where are the creditors?? There are none… the creditor is in all cases merely (handwaving) “the future”.

            I think you are thinking about some “stock” of money being necessary to pay off some stock of debt. Its not exactly like that. I agree that banks are bankrupt but not exactly for the reasons you describe.

    3. Nathan Tankus

      He’s working on modeling government. his model is in continious rather then discrete time (think Godley’s SFC models). He makes some compelling arguments that continuous time is preferable.

      1. digi_owl

        Preferable? Anyone but a neo-classic would see that trying to model a real life system using anything but continuous time is asking for trouble.

  2. masaccio

    The reference to scholasticism is right on point. From my alma mater:

    4. Static. Modern philosophy is the philosophy of change, of phenomena, of perpetual flux. Scholasticism is the philosophy of permanent substantial being. Not that the Schoolmen ignored change, but by preference they rested upon complete existences and achieved results, e.g. a perfect morality and a full-grown society, not the development of either.

    1. Philip Pilkington

      Thanks. That may have come across as an off-cuff reference but it’s not. Neoclassical economics bears great resemblance — both theoretically and institutionally — to medieval scholasticism.

      1. Susan the other

        So Philip, when you previously argued for ultra low interest rates because interest was the big problem caused by debt, were you thinking economies could be maintained without much growth if interest were under control and everything would stay in balance over long period of time?

        1. Philip Pilkington

          When did I argue about low interest rates? I don’t think interest rates ‘do’ that much. I’d be surprised if I made that argument. Maybe it was in a different context?

          1. Susan the other

            It was a few months ago and you were talking about the Irish debt. You seemed to me to imply if not say that if the interest rates were kept sufficiently low that the very large debt was manageable. I took your comments to mean that debt was not the problem, interest rates were.

      2. digi_owl

        So in essence they have not moved much beyond taking the scholastic warning about interest and throwing it out the window? No wonder they are stuck with a barter like system, they are basically still applying 1700s thinking to 2000s problems! Those are not angles dancing on the head of a pin, they are demons!

        1. F. Beard

          The prohibition against usury is actually sound – mathematically and socially. Common stock as money is a way to consolidate capital for economies of scale without usury. It is also democratic, at least to the extent one owns capital, including his own labor.

          1. F. Beard

            9) We need a currency system where money is spent into existence and does not need to be lent into existence so the economy is never starved of currency in circulation.
            Mansoor H. Khan’s WEB site


  3. Max424

    We will have soon have an Ultra Right-Wing candidate/madman (or candidate/madwoman — don’t give up, Michelle!) vying with the Far Right-Wing candidate Barrack Obama for the privilege of being the Supreme Servant of the United Banks of America and Europe.

    Now, who we gonna vote for?

    Obama! (!!!)

    Why? Duhhhh….because Barrack Obama is 5% less likely to eliminate the last of the “tiny handful of regulations” that are doing their pitiful utmost, to fend off, the final installation of world-wide financial Armageddon — which is coming, regardless.

    Note: Hope, at this point in the evolution of man, should be viewed, in my opinion, as a hyper-advanced form of stupidity.

  4. joebhed

    We can all side with Keen against the clueless neo-classicals when it comes to both missing the crisis, and their failure -through to today – to comprehensively assess its cause.
    “On the Deeper Roots of the World Financial Crisis”:

    I am reminded of Volcker’s early statement to characterize what was underway.
    Paraphrasing here: ‘The basic problem is that there is not enough money to make the debt-service payments on the debt already out there’.

    While correct, that view always frames the solution in terms of economic growth, without first dealing with the reality that the system is insolvent.

    Interesting that the issue of moral hazard associated with deposit-insurance gets debated on these pages. Progressives seem to think that it’s the best thing since sliced bread. This while ignoring the reality that wanton private wealth-creation using the debt-based money system that we call fractional-reserve banking could never achieve its heights of absurd leveraging without that moral hazard of deposit insurance.

    The only real solution is to end that system of creating our money as a debt that always creates more debt than money – remember Volcker – and remove the need for deposit insurance through a public-money transformation of bank credits into real money, lending them out as 100 percent reserved.

    No moral hazard.
    Market-based pricing of real risk associated with using real people’s real money.
    The Money System Common

    1. F. Beard

      Interesting that the issue of moral hazard associated with deposit-insurance gets debated on these pages. Progressives seem to think that it’s the best thing since sliced bread. This while ignoring the reality that wanton private wealth-creation using the debt-based money system that we call fractional-reserve banking could never achieve its heights of absurd leveraging without that moral hazard of deposit insurance. joebhed

      Yep. Government deposit insurance and a government provided lender of last resort appear to be critical to the banks’ ability to counterfeit.

      and remove the need for deposit insurance through a public-money transformation of bank credits into real money, lending them out as 100 percent reserved. joebhed

      Even honest lending (100% reserve) is risky so a risk-free money storage service should be provided. Since government is the source of fiat, it is the ideal institution to provide that risk-free fiat storage service. However, government should never lend money since that is bound to show favouritism to some at the expense of others.

      1. joebhed


        With full-reserve banking, all loans would be backed by the deposits of consumers and businesses that are intended for the purpose of lending.

        For those ‘deposits’ that represent cash-equivalents (checking accounts, generally), the role of the banks WOULD be to provide essentially the “bailment” of these deposits.

        However, regardless of public money restoring morality to the money system, the role of the government in banking is much reduced.

        Provision of that storage service, on the basis of fees charged therefore, should still remain a ‘private’ banking function.

        Section 402(a)(1)(B)(ii) of the Kucinich Bill declares as follows:

        “”(ii) DEPOSITS AS BAILMENT- Any United States Money on deposit in a transaction account at any depository institution shall–
        (I) be treated as a bailment for the mutual benefit of the parties and terminable at will; and
        (II) as property held in trust as bailed property, not be treated as an asset of the depository institution or as a source of credit.””


      2. digi_owl

        Not sure if 100% reserve would help, as we could still get the observed behavior of lending first and finding reserves later…

        1. F. Beard

          Yes, inter-bank lending creates a banking system. So eliminating a government provided lender of last resort and government deposit insurance is essential to crushing the counterfeiting cartel. As for the need for the public to store its fiat safely that should be provided by the government itself since it creates fiat and is thus a risk-free place to store it.

        2. joebhed


          We would NOT have the construct of “finding” reserves afterwards.
          That would end.
          Banks can only lend the money they have available for lending.

          Upon transition to full-reserve banking, all bank-credit ‘money” is transformed into United States Money.
          Upon passage, only the government can create new United States Money.
          101 (a) 1
          (1) the authority to create money within the United States shall hereafter reside exclusively with the Federal Government;

          It is then illegal to lend without the deposit backing.

          Section 402 (e) of the NEED Act states:

          (e) United States Money as Source of Loans-
          After the effective date, all lending by depository
          institutions may be accomplished only by the lending of actual United States Money that is–
          (1) owned by the depository institution from earnings and or capital contributions by investors;
          (2) borrowed at interest from the Federal Government; or
          (3) borrowed at interest through the issuance of bonds or other interest-bearing securities by the lending bank, to the extent that such bonds or securities are structured in a manner consistent with the purposes of this Act.

          SEC. 102. of the NEED Act makes it a crime to make that loan without the immediate deposit.

          Any person who creates or originates United States money by lending against deposits, through so-called fractional reserve banking, or by any other means, after the effective date shall be fined under title 18, United States Code, imprisoned for not more than 5 years, or both.

          If you can imagine it, bankers will actually be lending other people’s money.

          1. F. Beard

            So you would ban inter-bank lending? Also, why should anyone be allowed to borrow from the government since that is essentially lending money into existence? So the theft of purchasing power by the banks and so-called “creditworthy” would remain.

          2. joebhed

            To F Beard.
            Why do you say it would prevent inter-bank lending?
            That is not true.
            It would prevent ‘leveraging’ any bank balance that was NOT real money.
            Inter-bank lending is a necessity for commerce.

            As to why the government should lend to banks when necessary to provide ‘liquidity’, why NOT?
            Government, under the NEED Act, meets its public purpose to provide the means of exchange for the national economy. The bank would only borrow from the government when it made economic sense, always assuming adequate money in existence.
            The government’s receipt of interest charges flows into its provision of currency, reducing the need for money creation.

            I see no theft of purchasing power here, merely the enabling of real commerce. Again, the purpose IS to save good, old-fashioned capitalism.


          3. F. Beard

            Why do you say it would prevent inter-bank lending?
            That is not true.

            If you say so. I see nothing in that bill that would allow inter-bank lending.

            It would prevent ‘leveraging’ any bank balance that was NOT real money. joebhed

            The clearing of checks by competing banks is a major check on leverage. Interbank lending essentially creates one huge bank since for a cut in the interest a competing bank will forego “cashing” a competitor’s checks.

            Inter-bank lending is a necessity for commerce. joebhed

            I don’t see that. Check clearing is necessary for commerce but not inter-bank lending, imo. However, I see no ethical (or practical) way to prevent inter-bank lending.

            As to why the government should lend to banks when necessary to provide ‘liquidity’, why NOT? joebhed

            Because liquidity on demand is one thing that allows the banks to leverage. Banks borrow short and lend long confident that they can obtain liquidity as necessary from the Fed. Banks should not have that privilege. Why should they?

            Government, under the NEED Act, meets its public purpose to provide the means of exchange for the national economy. joebhed

            As part of a reform package, the entire population should be bailed out of all existing “credit” debt since that debt is as counterfeit as the money it created. Since savers would receive an equal amount (in the interest of fairness) that would mean a large amount of genuine legal tender would enter the system. That, plus deficit spending plus genuine private money alternatives should provide all the liquidity the private sector should need.

            The bank would only borrow from the government when it made economic sense, always assuming adequate money in existence. joebhed

            Borrowing from the government is equivalent to receiving brand new money. But where does the purchasing power for that new money come from? It comes from all existing money holders. So why are you giving my purchasing power to the banks? So they can drive up the prices I have to pay?

            The government’s receipt of interest charges flows into its provision of currency, reducing the need for money creation. joebhed

            But not ethically. The government should simply create, spend and tax its fiat, nothing else. Lending (and borrowing) should occur only in the private sector.

            I see no theft of purchasing power here, merely the enabling of real commercejoebhed. joebhed

            All money creation dilutes existing purchasing power in that money. Government has the right to tax us in that manner (given genuine private money alternatives) but that right should not be extended to the banks or anyone else.

            Again, the purpose IS to save good, old-fashioned capitalism. joebhed

            Genuine capitalism can save itself. What you would perpetuate is bad ole banker fascism though I know you mean well.

            Summary: We need separation of Banking and State.

    2. Susan the other

      Thank you for the clip of Berndt Senf. He was a little tedious but he clarified the problems with interest pretty well. So now that we have done the worst possible damage and even written derivative contracts on top of all of it, where on earth can we go from here without new laws?

      1. joebhed

        First of all, congratulations on slogging through Dr. Senf’s tedious explanations of the debt-based system of money.

        He correctly describes the inevitable consequences of exponential debt-based money increases that are necessitated by long-term compounding interest.

        Those include not only the wealth disparity we see today between the creators of our real wealth(labor) and the owners of the monetary assets that command those interest payments.

        They also include the crises of the socio-economy, the environment, society, the state and our human condition.

        Without new laws, we can do nothing.

        New regulations that restore Glass-Steagall will not fix our money system – what Nobelist Frederick Soddy described as “a confidence trick’.

        Our national private debt-based money system needs to be replaced by a public money system, or the grandkids will be back here doing this all over again.


    3. digi_owl

      “I am reminded of Volcker’s early statement to characterize what was underway.
      Paraphrasing here: ‘The basic problem is that there is not enough money to make the debt-service payments on the debt already out there’.”
      Is that not the age old problem of confusing stocks with flows?

      1. joebhed

        Only if insolvency is the same as confusing stocks and flows.

        There is debt.
        There are debt-service payments.
        Which MUST be made with money that is created out of debt.

        When there is not enough NEW debt-based money created to pay the interest on the old debt-based money, then the monetary system is insolvent.

        It’s the digging the hole deeper to get out of the hole concept of economic growth.
        It is virtual economic growth.(ZIRP, QE, FASB)
        The monetary system is on battery-powered backup.
        Waiting for the next beep.

        The unsustainable, parasitic fractional-reserve banking, debt-based system of money does not run in reverse.
        Is there a stock and flow construct for unpayable debts?
        Is there a stock/flow construct for insolvency?

  5. Knut

    Dr. Keen has the sociology of the economics profession dead right. It is incredibly centralized because what counts for professional advancement is not whether one has contributed to understanding how economic events play out, but whether one publishes. This wouldn’t be so bad if it weren’t for the fact that some publications are worth more than others, namely publications bearing on points of theory. Instead of theory being an aid to understanding, it becomes the object of it. The younger generation of economists, and I mean going back now 35 years, never really learned that theory is a bag of tools, not an abstract replication of some ‘essential’ economy.

    I think a lot of this has to do with the very large mathematical input that goes into elementary graduate training. It crowds out everything else. Students are supposed to start with zero knowledge of an economy, master the subject in two years to the point where they can write a thesis that moves the frontier forward. The problem is that in two years of math training all they learn is the mathematics of first-year undergraduate economics. This is not a sound base for extending the frontier, and it contributes to the scholastic dogmatism referred to above by Massacio.

    1. ReaderOfTeaLeaves

      And to underscore your point, it’s worth noting that if they are spending so much time on mathis, what sort of Mathis are they using?

      Keen points out they are using static math. Rather than dynamic Mathis that would enable them to model dynamic systems. So it is small wonder they think markets are stable. If you had no experience modeling dynamic change, you’d assume stability and ‘self correcting’ exist.
      Scholastism, indeed.

  6. jake chase

    Conventional economics is complete bunk. It misunderstands the role of credit, the role of leverage, the functioning of finance capitalism, which profits from the unending recapitalization of assets driven by loan finance. Bank deposits have nothing to do with corporation finance. Major companies all borrow in the bond market, and most now sit on more cash than they can deploy. Bank lending is fueled by money market borrowing. Bank profits are fictions created by derivative bets. Only bank bonuses are real.

    We have no economic problems which are not political problems. The major political problem is refusal to enforce laws against corporate crime, and laws which actively enable corporate crime, such as fictions regarding the stewardship of “independent” directors every last one of whome is a management stooge, because it is only by playing the management stooge that one becomes a corporate director. Look up the resume of any “independent” corporate director and you will find a stereotypical token eeking out a cushy living serving on six to twelve boards. The credentials are limited to respectability, race, gender, retirement from government or military bureaucracy. The rewards are staggering and the only work requirements are a sound digestion, cocktail party conversation, and a willingness to wink at executive theft.

  7. spooz

    “The problem with this argument is that shocks, if that’s what really caused the crisis, should ultimately stop – and in fact unexpected good ones should start to arrive to keep the mean shock at zero. But the economy continues to tank, because it wasn’t an exogenous shock that caused it at all, but the endogenous dynamics of credit that neoclassicals completely ignore.”

    Physicist Stefano Battiston (et al) wrote a paper in 2009 titled “Liaisons Dangereuses: Increasing Connectivity, Risk
    Sharing, and Systemic Risk.” which concludes:

    “… individual financial fragility feeding back on itself may amplify the effect of an initial shock and lead to a full fledged systemic crisis. The results [of the analysis] offer a simple possible explanation for the endogenous emergence of systemic risk in a credit network.”

  8. Paul Tioxon

    The endless debunking of economics serves the useful political purpose of recruiting the intelligentsia out of the socializing environment of polemics, apologetics and defense of the ideological superstructure of capitalism. Almost from the first words of bourgeoisie formulations of the money grubbing movement contra church and land owning aristocrats were the calls for tempering the enlightenment model of man as purely rational, needing only reason to define himself and to act in the world for a better and more improved status. “I think, therefore I am” is the bedrock of reason and individuality which lays the groundwork for an expansive ideology of personal rights, personal property and and personal methods of deriving at the highest accumulation of all that life has to offer.

    And immediately, the critical eye of human experience fought back to remind that to be human is more than a capacity for thinking and learning as can be acquired through faculties of perception other than logical, rational discourse. The heart wants, what the heart wants. To deny what we feel, and we all know what we feel, without much urging or schooling, leads us to a one dimensional existence of cruelty and isolation, the general alienation of a person cut off from the rest of humanity next door, in day to day existence. The counter arguments of qualitative, un mathematically measurable human experience has debunked economics from the moment of its birth to the present day.

    Intellectually, Marx threw the first thunderbolt, followed by more social scientists, such as Weber. Morally, the Catholic church has issued Papal Encyclicals condemning capitalism and calling for political reforms to ameliorate human sufferings at the hand of greedy bastards and oppressive employers. From Rerum Novarum in 1891 to Caritas in Veritate in 2009, greed in never good and never ends well.

    “Benedict warns of dangers arising from unbalanced growth and from those pursuing profit purely for its own sake, without seeing profit as a means to do good. He discusses increasing inequality, including new groups of poor emerging even in rich nations. The pope says globalisation has in part given rise to damaging cultural eclecticism and levelling. Addressing political leaders, Benedict says that “The primary capital to be safeguarded is man” and suggests that reducing prolonged unemployment should be a high priority as it causes “great psychological and spiritual suffering.” He goes on to discuss the suffering caused in the underdeveloped world by food shortages, saying that to feed the hungry is an ethical imperative. The Pope considers a number of trends harmful to development: the prevalence of corruption in both poor and rich countries, the existence of harmful speculative capital flows, the tendency for development aid to be “diverted from it proper ends due to irresponsible actions”, the “unregulated exploitation of the earths resources”, and “on the part of rich countries there is excessive zeal for protecting knowledge through an unduly rigid assertion of the right to intellectual property, especially in the field of health care.”

    Excerpt of Chapter 2 taken from Wikipedia:

    The problem is not that neo classical economics needs to wait for the passing of the mis-educated, but that the system which provides the sinecure for these ideological networks of power, unbridled global capitalism, reproduces itself from generation to generation, with no political challenge. The debunking is the first step to wake people up and motivate them to think and look and then act beyond what wisdom they have digested without bother to seriously challenge. Movement into the streets to demonstrate urgent dissatisfaction with the status quo is acting, but in the final analysis, a strategy for taking power, specifically building formal organizations and networking with other organizations that seek to take power, ideologically at first, such as on NC, in the streets with fellow dissidents such as the Occupation Movement second, and thirdly, with ongoing varied political organizing efforts across the country and around the world. And by political, yes to vote but also to sustain activity between elections, to consolidate gains, defends past victories, i.e. Social Security and Medicare and promote the new reforms and new wholesale changes, such as Universal Single Payer Non-Profit Health Care. Like 1000 lawyers chained to a sinking ship, it’s a good start so far.

  9. pebird

    The point about deposit insurance being a source of moral hazard illustrates why commercial and investment banking must be separated.

    MF Global is another example of the crisis being generated out of the wholesale side of finance. MF Global customers didn’t need deposit insurance because self-regulating financial firms would never commingle customer funds. Hmmmmm.

    As Diogenes points out, banks are trying out creative ways to move investment risk onto the public utility currency provides. The investment side absolutely needs the public subsidy in order to survive this crisis.

  10. digi_owl

    “it preaches that nothing bad will ever happen (so long as governments are kept under a leash and unions are cowed).”

    Sounds like the perfect extension to beliving that material gains is a indication that god approves of your actions…

    full speed ahead, icebergs are but a myth!

  11. Lew Glendenning

    He supports regulation. Regulations can’t work, and in fact don’t work, as shown by the fact that the most highly regulated sectors of the economy are the ones that treat their customers the worst, and the fact that all regulatory agencies produce outcomes opposite of their stated goals.

    You hate to deal with banks, telcos, insurance companies, regulated suppliers of gas and electricty. All heavily regulated.

    The Fed and its counterparts around the globe have produced the ever-increasing amplitude of the business cycle, now in its worst down phase since 1930. The FDA is the leading distal cause of death : proximal causes of death are ‘yes, research has produced drugs for your disease, but it takes 10 years to work through the regulatory apparatus to get the drug to market, you will have to wait’, ‘yes, research has produced drugs for your disease, but it costs $100M+ to take a drug through the regulatory apparatus, not enough people have your disease, so too bad for you’, ‘yes, there are natural substances that will cure your disease, but no company can afford the $100M to take them to market as they are not patentable and therefore there can be no profits’, and ‘no drug exists, as nobody researches small-scale diseases because the market isn’t big enough’.

    Money buys power. People with money get the laws, rules, regulations they want.

    If you don’t like that, you have to take the power from the government so that money can’t buy it.

    Minimum government works despite being implemented by corruptible people precisely because it removes the incentives to corrupt the people in government.

    Corrupted government is a far bigger problem than lack of a social safety net, etc., as shown by the fact that the FDA’s own studies have shown the negative effects of their regulations for over 40 years, yet they keep getting more power, the better to deny us effective medicines.

    Our corrupt government is killing us at a hell of a rate, bankrupting us even faster.

    1. Foppe

      Friedrich, you’re alive! How nice of you to drop by. Too bad about the anti-government hate-mongering, though. Might I suggest you ponder the question whether it might be the case that there can be good and bad types of regulation, and that what we have an excess of is the latter, and a dearth of the former? I don’t really like your ‘law of the jungle’ alternative all that much better than the thing we have now.

    2. alex

      Arguing with a dyed-in-the-wool libertarian is like trying to convince a shaman that evil spirits don’t exist.

    3. Ian Ollmann

      That’s just garbage, and you know it is! The fact is that a drug is not a drug until it is PROVEN to be safe and efficacious. Until then, it is snake oil like all the rest, conning real people out of real wealth in the hope for a cure. The proof costs time and money and that is the cost of moving healthcare forward.

      I have worked in drug discovery. The first discovered novel chemical entity is almost never the thing that makes it to market. The molecule is modified for improved efficacy, selectivity and to make sure that it is metabolized safely and drug-drug interactions are understood. The improvements are night and day and not the sort of thing you want to pawn off in the name of expediency.

  12. digi_owl

    I wonder if this zealousness regarding inflation control (Or inflation in general. I keep wondering about this insistence about “inflation adjusted” reports. Who cares as long as wages keep up with the inflation rate?) is because inflation “undermines” debt. That is, with inflation there is more money going round while the debt stays at the same amount. End result is that debt becomes easier to manage by the borrower. So in the eyes of the creditor the debt have been devalued…

    1. spooz

      Problem is wages don’t keep up. Look at minimum wage time series in constant dollars, and you’ll see that real wages have been going down. At the same time, huge inflation in things like education and health care are creating more economic inequality in our system. A narrow focus on inflation may help those who took risks, but will hurt those who didn’t.

      1. digi_owl

        And your problem there is that the unions got their backs broken in the 80s, as they kept watch on the wage to inflation ratio…

  13. Hugh

    Re modern economics, the first rule of the con is never admit the con. It is pointless and even dangerous to think conmen act in good faith. They are not. You want to know why mainstream economists continue to promote their discredited theories? They do so because their careers, prestige, and salary depend on giving intellectual cover to and pseudo-justifications for kleptocracy.

    We really need to dispense with this idea that all of the different components of the kleptocratic system: bankers, politicians, regulators, judges, academics, and journalists are filled with well meaning but mistaken people. People who are an integral part of and have benefited substantially from a system that has stolen tens of trillions, damaged the lives of hundreds of millions, keeps 50 million in poverty, created 30 million disemployed, 10 million facing foreclosure, and killed millions of Americans through poor and unavailable healthcare are not nice but misguided. They are criminals acting as criminals in the furtherance of a criminal enterprise.

    1. Foppe

      Sure, Hugh, but there are also lots of dupes (or rule-followers) who are simply incapable of being sufficiently critical to be able to realize what system it is they are supporting ‘intellectually’. Not all economists (etc.) profited excessively from doing pushing the party line; a large number likely just do it because it is a way to make money, and because they take pride in meeting the goals the system sets for them (in Eichmannian fashion). And the only way to change them is to change the rules for them.. Asking that they become politically active (like you are doing here) is largely a waste of time. (Which is not to say that they should not be held accountable, but simply that theirs is an existential failure rather than an intellectual or ideological one.)

      1. Hugh

        Dupedom is just a dodge to avoid responsibility. It riffs on “no one could have known” and “everyone was doing it”. But in fact both are false. People did know and not everyone was doing it. And more importantly, kleptocracy is not some abstruse fact that defeats the understanding of even the best trained economists. You don’t even have to be an economist or have any special knowledge to see how it operates. As the saying goes, “you don’t need a weatherman to tell you which way the wind is blowing.” So yes, the bad faith of both the rule followers and the economic stars is existential in nature. But as in all things existential, the bad faith was not intrinsic but resulted from a choice. They act in bad faith because they have chosen to act in bad faith.

    1. F. Beard

      Then read the Bible. One will find The Bible is consistent if one takes the trouble to read all of it.

      You will seek Me and find Me when you search for Me with all your heart. Jeremiah 29:13

      So Jesus was saying to those Jews who had believed Him, “If you continue in My word, then you are truly disciples of Mine; and you will know the truth, and the truth will make you free.” John 8:31-32

      1. craazyman

        true Beard, but it’s even truer in the King James.

        I think more people would be Christians if the King James Bible was the only one available. Or maybe I’m just too sensitive to language.

        God Himself speaks King James English.

        Not sure who speaks the New Revised Standard version or whatever other discount store bible they’re trying to sell to the Nascar crowd, but it’s not the same dude who called down the 10 commandments. It must have been an assistant. Or they outsourced it to some Chinese factory like Foxconn. Maybe there was a Li Po among them, but if so, he had his hands ties.

        1. F. Beard

          I do love the King’s English but I am assured that the NASB is an accurate word for word translation of the Bible (I am unwilling to learn Hebrew, Greek and Aramaic at my age).

          1. Travizm

            You must kill those who worship another god. Exodus 22:20

            Kill any friends or family that worship a god that is different than your own. Deuteronomy 13:6-10

            how does the king james phrase this?

            (i thought) the whole NK ethos is the recognition of problematic ideologies….yet it appears the comments are becoming infected.

            shame….since the comments section was as good as the editorials.

          2. F. Beard

            shame….since the comments section was as good as the editorials.

            Well, if I am unworthy of this illustrious crowd then Yves can ban me.

            And with me goes ideas on a general bailout and genuine monetary reform.

            As for killing non-believers, the Canaanites were given about 400 years to repent of such practices as child sacrifice. They did not. Oops! Here come the broom of judgement to sweep them away. So sad.

        1. Travizm

          Hi Mansoor,

          4.89 : They desire that you should disbelieve as they have disbelieved, so that you might be (all) alike; therefore take not from among them friends until they fly (their homes) in Allah’s way; but if they turn back, then seize them and kill them wherever you find them, and take not from among them a friend or a helper.

          Do you believe in this?

          1. mansoor h. khan


            Dude. The meccans had declared total war on the muslims. Allah gave permission to fight them. Quran was revealed over 23 years and each revelation has a very in a specific context. many parts of the quran cannot be understood without first learning the seerah (the context of the revelation).


  14. alex

    P.N Ireland, ‘A New Keynesian Perspective on the Great Recession’, 2011: “the Great Recession began in late 2007 and early 2008 with a series of adverse preference and technology shocks”

    In other words it was cause by the caprice of evil spirits, which no theory can be reasonably expected to account for.

  15. sherparick

    Gee, not having FDIC insurance really worked well during the period 1929-33.

    I am continually struck by the rigid ideology and lack of historical knowledge by some of the commentators. I will note that period from 1946 to 1977, although troubled by inflation at the end, was a period free of global financial shocks and catastrophes such as we experiened since 1980s. There were many unique things about this period, but it certainly had far more financial regulation and taxed based income redistribution than any period in Western history.

    1. F. Beard

      Gee, not having FDIC insurance really worked well during the period 1929-33 sherparick

      The government itself, since it is the source of fiat, should offer a risk-free money storage and transaction service for its fiat.

    2. ECON

      Bravo to sherparick. Yes the discipline of economics and political economy is rather no different than other disciplines during the Great Recession of 2007/8 such as the accounting profession, the legal profession, professional management in corporations esp banking, our legislators federal and state, and on and on…all have demonstrated how they subverted our institutions and society for pursuit of greed and other unsavory ends. I see it as contradictions in our culture and society that delegitimize the affairs of men and mice. The cancer of Corruption will bring down the structure. No worry for the Commies to do it.

    3. kevinearick

      government/corporate has nothing to do with economic growth, but it can and does redistribute the proceeds when it can capture them. the last lock-out ended and the new one began around the era you mention.

      this lock-out will end soon, quite badly for many of the clubs, because the system must be brought into equilibrium in this cycle, or there will be a massive collapse.

    4. joebhed

      Deposit insurance is only needed when money is created out of debt through fractional reserve banking, and then that debt becomes the basis of more debt-based lending in a vicious cycle of deceit.
      With full-reserve banking, there is a $$-backing to every loan made. There can be no “run on the bank” against which deposit insurance is necessary.

      There will always be insurance against banker-fraud, etc., but not against the collapse of the upside-down pyramid of fractional-reserve banking.

      The only way to do away with deposit-insurance and its associated moral hazard is to make it unnecessary.


      1. F. Beard

        There can be no “run on the bank” against which deposit insurance is necessary. joebhed

        Yes. Excellent point. With matching maturities between deposits and loans then the bank cannot be caught “short”.

        Still, even honest lending is risky UNLESS some theft is involved.

  16. jswift

    thanks for the debunking of economics today

    high time for de-banking the economy tomorrow.

    has OWS taken a stand on the Tobin tax?

  17. kevinearick

    when you lock out the future, the present implodes into the past…

    So, the economy doesn’t work the way they told everyone it works. Surprise, surprise.

    Open source, those working beyond regulation, form the root and build forward event horizons, assembling unique developments, from timed integral developers. The derivative developers mirror the outcome in a relatively random competition, because they cannot see through the looking glass, in a rigged lottery economy that delivers the outcome to legacy systems. The Fed guesses and the accountants gloss over the errors.

    The blind are leading the blind, looking for the new gate system, because the root has been moved and the kids are getting farther and farther ahead, while the old system implodes on itself, as the clubs cannibalize each other. The black hole reaches out and finds nothing to eat.

    The black markets have all the necessary resources.

  18. Brett

    Mr. Pilkington may be one of the best financial interviewers I’ve ever read. I find all of these interviews fascinating…

  19. Gallam

    I have not read the whole article yet but I had to stop at this quote:

    “But in economics, anomalies abound but simply aren’t even acknowledged, so attempts to resolve them simply don’t occur: the neoclassical paradigm just sails on oblivious to them.”

    I’m starting to think that Steve Keen has not actually read much economics. How, I wonder, would he explain the transition from the Von Neumann–Morgenstern analysis of rational individual behaviour under conditions of risk, to (eg) Regret Theory. Does he think that Loomes and Sugden were unaware of the experimental anomalies?

    To paraphrase something that I said in an earlier thread, the sweeping generalisations are starting to say more about him than about what he purports to be talking about.

    1. alex

      You’re talking about behavioral and experimental economics, which one gets the impression is unfortunately overlooked as an eccentric hobby.

      Yes, Keen is perhaps too sweeping in his criticisms of “economics” (do the criticisms include his own work?), but still has very valid points with regard to what commonly passes as serious mainstream economics. Thoroughly debunked shibboleths are often passed on as though they were axiomatic (particularly in introductory courses), and laughable theories and modeling techniques are regarded as Serious Scholarship by Serious People at Serious Universities.

      Keen has never said that he alone has the answers, or that there aren’t other good genuinely scientific economists. I’d say he believes in a pluralistic approach because no one has yet found the One True Answer (if indeed such a thing exists). Nevertheless that’s no excuse for passing on known incorrect or useless theories and models as though they were received wisdom.

    2. Skippy

      Utility See:

      Utilitarianism can be characterised as a quantitative and reductionist approach to ethics. It is a type of naturalism.[2] It can be contrasted with deontological ethics (which do not regard the consequences of an act as a determinant of its moral worth), pragmatic ethics, virtue ethics (which focuses on character) and deontological varieties of libertarianism, as well as with ethical egoism and other varieties of consequentialism.


      Skippy….All of this can be boiled down to a *Natrual* liberal political philosophy, in the guise science. Beware of proclamations made from arm chairs[!], classicist rubbish. I wonder what curios surrounded them whilst in deep thought…thunder lizards?

    3. digi_owl

      first off, i think Keen is focusing on getting a mathematical model of money flow working without the considerations of human behavior.

      second, he seems to have spend recent years going back over the sources of what is taught in most economics classes right now.

  20. JustAnObserver

    Can anyone tell me what (from the P.N. Ireland quote), for all that’s holy, is a “preference shock” ??

    Is this just economist drivel for “Hey! I don’t want my portfolios stuffed full of fake-AAA rated toxic sludge” ?

    1. digi_owl

      A sudden change in preferences perhaps? My understanding, tho perhaps flawed, is that neo-classical theory assumes that people do not change preferences even when ones budget changes. So once a person prefers hotdogs they will continue to eat hotdogs, even when their budget changes to allow them to eat kobe beef at the same rate as they previously ate hotdogs.

    2. alex

      ‘what … for all that’s holy, is a “preference shock”’

      An evil spirit. Just as shamans, unable to determine the cause of an illness, could always fall back on the evil spirit explanation, so certain types of economists fall back on “preference shocks” (or more generally various types of exogenous shocks).

      Hey, it’s not in my model, so I can’t be responsible for it! The logical extreme is to simply include nothing of importance in your model.

  21. Bernard

    What! Admit that they were wrong! and, say “I’m Sorry”!

    admit that they stole all our money, government and freedom for Trillons of Dollars. Form a Kleptocracy and Give “personhood” to Business.

    Nah! Dont hold your breath for that to happen. A good joke, perhaps, on all of us. at our expense.

    But that’s about it to them. after it’s money that matters, most. they are some 7 billion people they can replace us with.

  22. Fiver

    But is the difference between the, very broadly speaking, two contending “schools” as important a determinant of our current pathetic and alarming situation as the pervasive corruption of the entire institutional framework, public and private over past several decades?

    Does it at all adequately speak to this:

  23. Bruce Wilder

    Lame criticism of deposit insurance is symmetrical to a refusal to even analyze derivatives. The neoclassical idea is that derivatives are just another way to “spread” risk; no reason to bother with institutional details, in this best of all possible worlds.

    And, shockingly, derivatives shape up as a strategic assault on the deposit base. The Federal Reserve is permitting the big banks to transfer their derivatives to the insured deposit base of Bank of America and the others, so that when economic catastrophe comes again, the government, in the form of the FDIC, and the public of course, is left holding the proverbial bag.

    1. F. Beard

      The government has NO business insuring the deposits of an INHERENTLY risky business – banking. Even honest lending is risky. Borrowing short to lend long is even riskier and creating liabilities out of thin air is riskier still.

      The government, as the monopoly issuer of its fiat, is the ideal institution to provide a free risk-free fiat storage and transaction service that does NO lending and pays NO interest.

      And if people are not satisfied with zero interest then let them take their own risks in their private sector. Saving and investment are two separate activities; one should be risk-free and the other CANNOT be made risk-free without stealing from someone.

      We are long overdue for the separation of State and Banking.

  24. Jack

    Ironically, it is the Neoclassical economists acting irrationally! Thus, defying one of their basic assumptions.

  25. walter_map

    I have a somewhat different take on the issue: it’s not as if there’s something essentially wrong with macroeconomic theory per se. The problem is that economics has been corrupted to serve the interests of the greedy weasels who run the global financial industry, in order to ‘justify’ the enrichment of the wealthy and powerful at the expense of the general population.

    I’ve known this since I was a graduate student in economics many years ago. The corruption of any and all markets was assumed as a fundamental characteristic of the whole history of business in general and of finance in particular, going back to Adam Smith and even earlier. Kings, emperors, and presidents have explicitly warned about the predations of the financiers for centuries. Why should this be such a surprise to anybody?

    What, did you think that the rapacious wouldn’t game the system, any way they could? Well-sourced quotes from prominent financiers promising just that go back to the 19th century.

    Prevailing theory itself is more or less okay, so far as it goes, but it does have its blind spots, and those are deliberate. The failure to properly treat the roles of credit, debt, and criminality in the models is egregious, because these are basic to economic systems: the assumption that there won’t be bad players is ludicrous. Models which do include these factors do exist, but you certainly won’t see any discussion of them in the Wall Street Journal.

    1. walter_map

      The bankster class controls the economics profession for their own purposes, like everything else. Even Krugman is afraid to say what he knows. Rational persons are deliberately ignored or minimized.

      Economists Are Trained to Ignore the Real World

      They Warned Us About the Mortgage Crisis

      As usual, it gets worse the more you look at it. I have often said that the US does not really have an economy. What it really has is a self-supporting system of scams:

      Our Entire Economy Is Built On Fraud

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