Play the ball and not the man

flattr this!

The import of Ger­ard Henderson’s dia­tribe in today’s SMH is that the media has done a “soft” job on  my views, which have only gained noto­ri­ety because of the extreme pre­dic­tion I have made—about the forth­com­ing eco­nomic down­turn qual­i­fy­ing as not merely a reces­sion, but a Depres­sion. It seems I’ve only got atten­tion because of my extreme views, while the media has let the side down by doing a “tabloid” job only and not sub­ject­ing my views to scrutiny.

In fact, as many in the media know, I have gained atten­tion because of my Debt­watch Report, which will be two years old as of the next issue (No. 28, to be pub­lished in Novem­ber the day before the RBA meet­ing). The jour­nal­ists who have reported my views—including of course Kerry O’Brien, who gets spe­cial atten­tion from Ger­ard in his mockumentary—have read my analy­sis for two years now. I saw no sign of any atten­tion to the analy­sis behind my pre­dic­tions in Henderson’s piece—apart from pos­si­bly a “just in case” con­ces­sion towards the end where he noted that “His pre­dic­tions of a debt-induced decade-long depres­sion … may be correct.”

In that case, the com­men­ta­tor who deserves the appro­brium for “tabloid” jour­nal­ism is Hen­der­son him­self, and not the ABC nor the Daily Tele­graph, nor Sixty Min­utes. They, after all, read my research, have quizzed me exten­sively about it, and made the deci­sion based on inves­tiga­tive jour­nal­ism that my views deserved coverage.

For this, I applaud them—for stand­ing up for the prin­ci­ples of the Fourth Estate. Stan­dard eco­nomic com­men­tary has been dom­i­nated by the cheer­lead­ers for the poli­cies which have led to this cri­sis, while the author­i­ties them­selves and the aca­d­e­mic pro­fes­sion of eco­nom­ics itself have turned a blind eye to any argu­ments that ques­tioned the mantra in favour of dereg­u­lated finance.

I know this from exten­sive expe­ri­ence. I have made five appli­ca­tions for ARC fund­ing to inves­ti­gate the dynam­ics of debt-deflations and Depres­sions in the last ten years; all have been unsuc­cess­ful (includ­ing one time when I topped UWS researchers on the ARC’s then pub­lished ref­er­ees’ point scores, after which seven UWS researchers received funding—but I was not one of them).

I made a sub­mis­sion to the Wal­lis Com­mit­tee in July 1996, in which I warned that secu­ri­ti­sa­tion of loans could lead to a cri­sis exactly like the Sub­prime cri­sis that has now unfolded—and of course my com­ments were ignored.

I wrote to the RBA in June 1998 offer­ing to hold a sem­i­nar on the “Finan­cial Insta­bil­ity Hypoth­e­sis”, which is the foun­da­tion of my argu­ment that we are likely to expe­ri­ence a Great Depres­sion. The offer was declined.

As has often been said, offi­cial chan­nels are often clogged to make sure infor­ma­tion and crit­i­cism doesn’t get lis­tened to. When I saw the debt that Australia’s spec­u­la­tive bub­ble in real estate (and belat­edly shares) had got us into, I decided to turn to the jour­nal­is­tic pro­fes­sion to raise the alarm. To their credit, since I made a good case and the empir­i­cal evi­dence was com­pelling, jour­nal­ists lis­tened to me.

So Ger­ard, maybe you should do some inves­tiga­tive jour­nal­ism now too. Go to my blog www.debtdeflation.com/blogs, where you will find Debt­watch Reports going back to Novem­ber 2006, and aca­d­e­mic papers on debt defla­tion pub­lished as long ago as 1995 (maybe even read Debunk­ing Eco­nom­ics). And if you’d like to take a real risk and play the ball rather than the man, I’m more than will­ing to give a sem­i­nar on debt defla­tion at your Syd­ney Insti­tute.

Over to you.

About Steve Keen

I am a professional economist and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous debts accumulated in Australia, and our very low rate of inflation.
Bookmark the permalink.

94 Responses to Play the ball and not the man

  1. sage of collins st says:

    Steve, you are a pub­lic fig­ure now — you have to expect this. This is the price of enter­ing the debate in such a pub­lic way. Please keep the analy­sis coming.

  2. SAVEME2 says:

    Steve, Mr Pas­coe is also on the job of try­ing to pull your ideas down. Quoted below is Mr Micheal Pascoe’s cri­tique of you. Your col­leagues seem to be get­ting very geal­ous of your media expo­sure. Yoy must be doing some­thing right!

    Mr Pas­coe quoted verbatim:

    Econ­o­mists can occa­sion­ally be dan­ger­ous things when rad­i­cal or sim­ply wrong ideas fall on fer­tile ground. Karl Marx, for exam­ple, never per­son­ally hurt any­one that I know of, but some of his ideas even­tu­ally helped cause incred­i­ble suf­fer­ing and death.

    Domes­ti­cally, an asso­ciate pro­fes­sor at the Uni­ver­sity of West­ern Syd­ney, Steve Keen, is cur­rently scar­ing the easily-frightened with espe­cially dire fore­casts about the Aus­tralian econ­omy. Keen’s pre­dic­tions aren’t taken very seri­ously by most econ­o­mists, but he’s still enjoyed plenty of media atten­tion, much of it unques­tion­ing. Some of my media col­leagues are happy to search out the most extreme and alarmist views — they make big­ger headlines.

    Keen is pre­dict­ing the eco­nomic equiv­a­lent of the earth split­ting open, spew­ing forth fire, toads and ser­pents, the seas turn­ing to blood, the Four Rid­ers of the Apoc­a­lypse lop­ing off ran­dom heads and limbs and so on. He rep­re­sents a tiny minor­ity of eco­nomic opinion.

    (Part of Keen’s appeal to pop­ulist media is that he has put his unit on the mar­ket, claim­ing hous­ing prices are going to crash. As Rory Robert­son, Mac­quarie Bank’s respected inter­est rate strate­gist, observed, Keen would have more cred­i­bil­ity as a hous­ing fore­caster if he had sold his unit last year.)

    Jour­nal­ists can be as dan­ger­ous as econ­o­mists too when they need­lessly scare their audi­ences and per­haps pro­voke them into doing the wrong thing. I’m writ­ing this on a flight to Perth and have just watched the Chan­nel 9 Inflight News with a cou­ple of prime examples.

    There was doom and gloom story that treated the rash of redemp­tion freezes by mort­gage funds as if it news — it’s been going on for months. And the report used the sorry house of Citi Pacific as its main case study. Citi Pacific blamed Kevin Rudd — I think the over-geared Gold Coast out­fit should look much, much closer to home for the root of its prob­lems. Quite frankly, Citi Pacific was on the nose with the stock mar­ket before the sub-prime cri­sis hit.

    More impor­tantly, a seri­ous young Eng­lish reporter (well, young com­pared with me) filed a cliché-riddled yarn from Shang­hai that gave the impres­sion China might be grind­ing to a halt and that it would take the rest of the world down with it.

    What rub­bish.

    China is slow­ing, but slow­ing from an unsus­tain­ably high growth rate to what remains strong growth in anyone’s lan­guage. The 9 per cent growth it recorded in the Sep­tem­ber quar­ter would of course be the envy of any other coun­try — down from more than double-digit growth last year.

    If you want to know what China is doing, turn to the experts, the two com­pa­nies that are inti­mately entwined with the China story: BHP and Rio.

    Last week Rio released its quar­terly pro­duc­tion num­bers and included the com­ment that the expected re-bound in Chi­nese demand from the Olympics close-down looks like being delayed from the Decem­ber quar­ter and was more likely early next year. That caused a sharp sell down of Rio and other resources shares.

    It’s per­haps not acci­den­tal then that Rio’s chief econ­o­mist, Vivek Tulpule, turns up in an inter­view in today’s Syd­ney Morn­ing Her­ald putting a bit more per­spec­tive on those China remarks. As the SMH reports:

    He said the down­turn in met­als demand in China dur­ing the sec­ond half of this year had taken the mar­ket by surprise.

  3. Thanks SAVEME2, I won­der what robust analy­sis Mr Pas­coe con­ducted to arrive at his con­clu­sion — “Keen’s pre­dic­tions aren’t taken very seri­ously by most economists”.

    And thanks also to James Haughton for point­ing us to John Quig­gins blog topic for today where he says “I’m gen­er­ally in sym­pa­thy with the argu­ments pre­sented here [Steve’s CPD paper]. How­ever, hav­ing made sim­i­lar argu­ments for a long time and hav­ing been con­tin­u­ally sur­prised by the dura­bil­ity of the asset price boom/bubble let me offer a cou­ple of counterarguments/cautions.……[go to blog to read spe­cific points].…Obviously, the oppos­ing argu­ments I wanted Keen to respond to look a lot weaker now. What­ever qual­i­fi­ca­tions I might still want to make, Keen got the basic points right, and those who are crit­i­cis­ing him now should con­cede this.”

    And I notice on the news the politi­cians were now gun­ning for Glenn Stevens today, after hav­ing a good go at Ken Henry on the pre­vi­ous two days.

    Looks like it’s open sea­son on econ­o­mists — except, of course, for those employed by the banks and other vested inter­ests because they ARE “respected” (though Mr Pas­coe didn’t tell us by whom).

  4. Emil says:

    OldSkep­tic,

    I agree with your assess­ment of the RBA — in my mind, they totally let this get out of con­trol and should have stopped the party much sooner. I guess no one wants to be the party pooper — look at Rudd, going out of his way to pre­ma­turely drop his wad of sur­plus dol­lars on us by giv­ing first time debt slaves a bonus just big enough to make them feel wealthy for a week while they buy a house. Fool­ish­ness knows no bounds when it comes to politi­cians. Peo­ple think the cause of the GD was incom­pe­tent lead­er­ship. This scares me given the cur­rent world­wide line up of clowns at the helm.

  5. BrightSpark says:

    Steve

    Looks like you have another turkey tack­ling you and not your con­sid­ered opin­ion. His sim­ple argu­ments reveal that he has only just dis­cov­ered your work and is obvi­ously not aware that you have been warn­ing of this prob­lem for a long time. He only chooses to crit­i­cise when crit­i­cism is least jus­ti­fied that is when you are being proven correct.

    Now he does not realise that by mak­ing those claims he is admit­ting that the econ­omy is extremely frag­ile as you have been claim­ing for some time. Again no argu­ments except some gob­bldy­goop about BHP RIO and China, what is jour­nal­ism com­ming to? News­pa­pers sure are a waste of space time and paper!

  6. Muzz says:

    Henderson’s essen­tial beef seems to be your achieve­ment of pub­lic­ity. This, of course, is the turf of Insti­tute mouth­pieces and his attack sug­gests that per­haps he con­fuses you with one.

    Insti­tute mouth­pieces can make shock­ing pre­dic­tions to achieve pub­lic­ity but take no risk in doing so. Econ­o­mists mak­ing shock­ing pre­dic­tions are plac­ing their cred­i­bil­ity and long term careers on the line.

    So this jeal­ousy over pub­lic­ity only makes sense if Hen­der­son thinks you are right, or that you are not an economist.

  7. Mal says:

    Steve

    Henderson’s arti­cle was all about HIS per­sonal ego usurp­ing yours!

    He has no cred­i­bil­ity and due to the fact that either his own house is worth less than what he paid for it (like mine is), or his mar­gin lend­ing account has been thumped, then he is prob­a­bly another one try­ing to talk the mar­ket up,

    No cred­i­bil­ity from me!

    Mal

  8. Bullturnedbear says:

    Hi All,

    I have been think­ing through some of the pos­si­ble polit­i­cal out­comes of the debt defla­tion and I don’t like them. Tell me what you guys think?

    Gov­ern­ment always seem to be the last ones to the party. The World is groan­ing under too much debt and not enough income to cover it. So what do the gov­ern­ments decide to do. Bor­row more money to bail out the fail­ures. This will only delay the cer­tain out­come of debt defla­tion and wealth destruc­tion. It just won’t work to bor­row more money when too much debt is the prob­lem. Ask any “old” banker.

    Now the pos­si­ble outcomes:

    I believe the calls to “reform the sys­tem” will con­tinue to rise to the point where the gov­ern­ments of the World will come up with a new sys­tem purely because as politi­cians they have to give the peo­ple what the peo­ple think they want or need.

    Now the big prob­lem. When the gov­ern­ments bor­row heaps more money to prop up a sys­tem that’s fail­ing (and will fail even­tu­ally any­way, because it has to) the debt bur­den will be mag­ni­fied and remain with the tax pay­ers after the cri­sis is over.

    To then change the sys­tem to one that reg­u­lates against too much debt (or some vari­a­tion under another name), “so it can’t hap­pen again” ha ha! will leave the World with the debt and a reduced means to grow incomes to pay back the debt. Dou­ble Whammy.

    The pri­vate debt pen­du­lum will swing back hard and then be arti­fi­cially held there by new gov­ern­ment poli­cies. This will mag­nify the pain for longer than needs be.

  9. toksira says:

    Pas­coe and his cohorts on yahoo finance have been writ­ing rub­bish for years, but this arti­cle smacks of desperation.

  10. furball says:

    Roubini’s lat­est speech is avail­able here:

    mms://media2.bloomberg.com/cache/vcYqArJFMJgA.asf

    Truly impres­sive descrip­tion by Roubini. I highly rec­om­mend his web­site, rgemonitor.com

    I’m still wait­ing to under­stand exactly what trig­ger the Min­sky Moment for Aus­tralia. How­ever, I do take the adjust­ment process sug­gested by Merrill’s that a struc­tural de-leveraging may be occurring.

    They point out the rela­tion­ship b/w credit & GDP prior to dereg­u­la­tion. They point out Three dis­tinct phases of credit growth since 1984. Dereg­u­la­tion — Sup­ply Side; Low Infla­tion & Low Rates — Demand Side; China & Terms of Trade.

    Can any­one think of what may drive Phase IV ?

    If not, then how will the adjust­ment occur ? Slowly, with 20% real washed off over three — five years ?

    Or like Steve Keen suggests ?

    Steve, Roubini even makes men­tion of a “Min­sky Moment”.

    There’s no dis­pute from me about the pos­si­bil­ity of finan­cial sys­tems spi­ral­ing out of con­trol… how­ever, in Aus­tralia, while you have clearly demon­strated the poten­tial, what I’m look­ing to hear is the cat­a­lyst event that will trig­ger the decline that locks in *expected* cap­i­tal losses that push hous­ing into a decline *all over the country*.

    I greatly appre­ci­ate your com­men­tary and think your pro­mo­tion of Debunk­ing Eco­nom­ics and Unsta­ble Finan­cial Sys­tems deserves a lot more credit than it receives. That is, I per­son­ally believe that you should be taken seri­ously by acad­e­mia, as opposed to only by the media, who may be look­ing for a headline.

    How­ever, please pro­tect your future posi­tion by mod­er­at­ing your claims.

    That is, make it clear that you are talk­ing about a real decline in the res­i­den­tial prop­erty asset class. Make it clear that an adjust­ment process may be orderly and all pol­icy ini­tia­tives pos­si­ble to per­mit slow ero­sion of real wealth — slowly eas­ing the pres­sure rather than has­ten­ing a col­lapse — should be undertaken.

    Then you’ll be unde­ni­ably right, your intel­lec­tual frame­works will be looked upon more fav­iourably & shrill com­men­ta­tors with vested inter­ests & nar­row per­spec­tives will not be able to

    The Mer­rill Report can be found if you take a free trial on the roubini web­site. I don’t men­tion because I like Mer­rill, the fact they sold their com­pany in a rush is tes­ti­mony to their finan­cial man­age­ment and is some­thing that ought never be for­got­ten. I just men­tion it because it presents the case (return to long run aver­ages over time) that can­not be ignored.

    If you can show what is our Min­sky Moment, then please do go ahead.

    I have con­trol of two prop­er­ties, and the one that is not the fam­ily home is being pre­pared for sale.

    So, with those dis­clo­sures, please take my com­ments as encour­age­ment. I’ve also read your book, and enjoyed it’s illu­mi­nat­ing path­way. But then again, I’m a fan of all things dis-equilibria, includ­ing book by chem­istry noble prize win­ner, ilya prigonone, by title of The End of Cer­tainty, which argues for a quan­tum mechan­i­cal for­mu­la­tion that does not per­mit for the reversibil­ity of time, as implied by clas­si­cal formulations…

    Good Luck Steve. Don’t over-reach and you’ll be vin­di­cated. They have moved onto try­ing to take out your cred­i­bil­ity with sweep­ing blows, per­haps because they do not wish your under­ly­ing mes­sages to be exam­ined in detail.

    All the best,
    Furball.

  11. The attack dogs con­tinue (apolo­gies for being the bearer). Terry McCrann writ­ing in The Week­end Aus­tralian — “At least it [Keart­ing enter­ing the debate by men­tion­ing Kon­drati­eff cycle] made a more ele­gant change from eco­nom­ics alarmist Steve Keen”.

    It is a real shame when gen­uine aca­d­e­mic rigor and con­cern for fel­low Aus­tralians is so threat­en­ing to the estab­lish­ment that they must attempt to tram­ple it down.

    It really is time that the entire eco­nom­ics pro­fes­sion — includ­ing those employed by the vested inter­ests — stands united and says enough is enough! Free­dom of thought and debate is what is needed at this junc­ture, rather than char­ac­ter assas­si­na­tions on those that dis­play courage and humil­ity by stand­ing up and voic­ing their hon­est and con­sid­ered opinion!!

  12. BrightSpark says:

    Now Keat­ing is elegant .…..?

    Where did Keat­ing earn a PhD?

    Has Terry McCrann read any of Steve’s work? He seems to require “ele­gance” encap­su­alted in one line of cliches.

    Are there any cred­able jour­nal­ists out there who can con­fine them­selves to accu­ratly report­ing on news items. If there were per­haps their edi­to­r­ial quips would not be so stupid.

  13. GSM says:

    On some com­ments here;
    The Aus­tralian Min­sky moment will arrive when many mort­gage hold­ers realise (together) that unem­ploy­ment is headed sev­eral points north of where expec­ta­tions are now, and MANY will decide to unload that heavy mort­gage– all at the same time.There is a tsunami of sup­ply headed for the mar­ket in the New Year. House prices here are in decline and will remain so until the next employ­ment cycle points up.

    I’ve been read­ing Roubini for a year now. Keen’s posi­tion is pretty much in line with his albeit with a lag. I’m rather cer­tain that avoid­ing a house price deba­cle like that afflict­ing the US and UK is upper­most in KRudds mind. Roubini was pil­lar­ied as late as June this year for his extrem­ist views by the US MSM that despised any econ­o­mist who was forth­right enough to tell it really like it is. If Steve has done his home­work (which no doubt he has), he has noth­ing to worry about.Future event’s here will bear him out. I would offer how­ever that respond­ing to these types of media jibes demeans Steve’s position.

    Just like Drag­net;
    “Just the facts, ma’am”

  14. Nic says:

    I came to this site by it being ref­er­enced by Nouriel Roubini’s site, a compliment.

    Henderson’s attempt at mild ridicule of you, and his usual swat­ting of the ABC & 60 Min­utes in pass­ing, is another.

    To be taken in stride. I doubt a debate of your rea­sons for sell­ing your prop­erty will be as edi­fy­ing as your pre­vi­ous pro­nounce­ments on the bub­ble econ­omy, which sim­ply will not get air-time.

    I do not think Henderson’s con­clu­sions were so harsh, he acknowl­edges you may well be right.

    Given you clearly have been so far, keep up the good work.

  15. Ken says:

    Hope­fully Keating’s posi­tion as the mes­siah of Aus­tralian eco­nom­ics will be re-evaluated soon, when dereg­u­lar­i­sa­tion becomes a dirty word. It must be obvi­ous that any gov­ern­ment that dereg­u­lates will make the econ­omy look good for a while unless they restrain debt and Keat­ing couldn’t restrain either pub­lic or pri­vate debt. About two years in thir­teen with the bud­get in sur­plus and only with Vic­to­ria bor­row­ing as though it never had to repay the money.

  16. Bullturnedbear says:

    The SMH reported today that almost all super funds reported losses for the year to Sep­tem­ber. Not news of course.

    What has occurred to me though, is that the Gov­ern­ment was receiv­ing 15% of all Super­fund rev­enue. Now that almost all funds are down. The Aust. Gov­ern­ment has a huge hole in its bud­get. Wait until the papers and oppo­si­tion wake up to that one. I don’t know how big that num­ber was, but it must be in the billions.

    As unem­ploy­ment rises and min­ing rev­enue falls off the cliff, the bud­get will start to resem­ble a sieve.

    The Govt is still talk­ing up bud­get sur­pluses. Dream on! How stu­pid was that any­way to con­vince the pub­lic that respon­si­ble gov­ern­ments always ran a bud­get sur­plus. That was one of Costello’s non­sense mantras.

  17. Foundation says:

    BtB: “What has occurred to me though, is that the Gov­ern­ment was receiv­ing 15% of all Super­fund revenue.”

    Good point. I’ve noticed that my super fund reports gross earn­ings in one col­umn and net earn­ings in another. When gross earn­ings are pos­i­tive, net earn­ings are lower. When gross earn­ings are neg­a­tive, net earn­ings are higher! Does this mean that the super fund actu­ally claims against losses?

    If so, they might be suck­ing money out of the Trea­sury, not just fail­ing to con­tribute?
    http://img20.imageshack.us/img20/1559/supersm1.jpg

    I’m no super­an­nu­a­tion guru, can some­body set me straight?

  18. Ken says:

    Foun­da­tion, they wont be tak­ing money out of Trea­sury but they prob­a­bly have cap­i­tal gains losses which will be car­ried for­ward. They also have franked div­i­dends which aren’t tax­able, so it gets confusing.

    The change in rev­enue is a very impor­tant point. Reduced tax rev­enue and increased social secu­rity pay­ments, so the sur­plus is going to dis­ap­pear rather quickly. That is what you expect in a reces­sion but that is no rea­son to spend it on vote-buying. I’m bet­ting on Rudd win­ning the next elec­tion and then dis­cov­er­ing that there isn’t enough money. How large can they make the deficit ?

  19. Chris White says:

    in my new blog http://chriswhiteonline.org I post Immanuel Wallerstein’s argu­ment that the world depres­sion has started.

    He analy­ses long term Kon­drati­eff cycles and long polit­i­cal hegomonic cycles where the US power declines.

    We can assert with con­fi­dence that the present sys­tem can­not sur­vive. …This will not be a cap­i­tal­ist sys­tem but it may be far worse (even more polar­is­ing and hier­char­i­cal) or much bet­ter (rel­a­tively demo­c­ra­tic and rel­a­tively egal­i­tar­ian) than such a sys­tem. The choice of a new sys­tem is the major world­wide polit­i­cal strug­gle of our times.’

    Also, I post a series of crit­i­cal analy­sis from left his­to­rian Humphrey McQueen.

    there are links to the
    Monthly Review Press eco­nomic analysis.

Leave a Reply