2nd Anniversary Issue…
Why Did I See it Coming and “They” Didn’t?
The financial crisis is widely accepted as having started in August 9 2007, with the BNP’s announcement that it was suspending redemptions from three of its funds that were heavily exposed to the US securitisation market (click here for the BNP August 9 2007 press release).
Just three months beforehand, the OECD released its 2007 World Economic Outlook, in which it commented that:
“In its Economic Outlook last Autumn, the OECD took the view that the US slowdown was not heralding a period of worldwide economic weakness, unlike, for instance, in 2001. Rather, a “ smooth” rebalancing was to be expected, with Europe taking over the baton from the United States in driving OECD growth.
Recent developments have broadly confirmed this prognosis. Indeed, the current economic situation is in many ways better than what we have experienced in years. Against that background, we have stuck to the rebalancing scenario. Our central forecast remains indeed quite benign: a soft landing in the United States, a strong and sustained recovery in Europe, a solid trajectory in Japan and buoyant activity in China and India. In line with recent trends, sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment.” (OECD World Economic Outlook Vol 81 p. 7; emphases added)
Similarly, Reserve Banks around the world had set interest rates to relatively high levels to restrain rising inflation, which was then seen as the main threat to continued economic prosperity. Our own RBA increased rates when the crisis began, and three more times since. And it was not alone: the European Central Bank also raised rates after the crisis (see Figure One) .
Figure One
Reserve Interest Rates
In December 2005, almost two years before the crisis hit, I realised that a serious financial crisis was approaching. I was so worried about its probable severity–and the lack of awareness about it amongst policy makers–that I took the risk (for an academic) of going very public about my views. I began commenting on economic policy in the media, started the DebtWatch Report (the first was published two years ago in November 2006), registered a webpage with the apt name of www.debtdeflation.com, and established the blog Steve Keen’s Oz Debtwatch.
How come I got it right, and “they”–the official economic managers–got it so wrong?
It’s not because I’m any brighter than they are–there are plenty of highly intelligent people in those organisations. Instead, it’s because they follow mainstream views in economics, and I follow a minority perspective. The economic history we are currently living through is proof that the mainstream is fundamentally wrong about the nature of the economy, while my minority perspective is at least partially right.
This is not something one should be able to say about a science, and there lies the rub: economics is not even close to qualifying as a science. A better model for economics is a group of warring religions–or science, such as it was, before Galileo’s empirical revolution, when what mattered to scientists was not empirical relevance, but conformity to with the Bible.
Forty years ago, Keynes was The Messiah, and his General Theory was the Bible. But the “stagflation” episode of the 1970s allowed a new Messiah to arise: Milton Friedman, with his doctrine of Monetarism. Though Monetarism itself is no longer espoused, the economic religion that Friedman represented–known as “Neoclassical Economics”–supplanted the previous Keynesian orthodoxy. Today, the majority of economists know of no other way to think about the economy–and they run Central Banks and Treasuries throughout the world, and dominate tuition in universities.
They also develop mathematical models of the economy, which are in turn used to guage its health, and to advise politicians about policy challenges in the near future. According to these models, just over a year ago the economy was in fine shape, and the main policy challenge was to avoid overheating that would lead to rising inflation.
Well inflation did rise. But simultaneously the global economy was falling into a serious recession driven by a global financial meltdown that these economists and their models completely failed to anticipate. Rarely in human history have policy makers been so badly misled by the so-called experts.
The three key aspects of Neoclassical economics that led to its wildly inaccurate forecasts are the beliefs that:
- A market economy always tends towards equilibrium;
- Money impacts “nominal” variables like the rate of inflation, but has no long term impact on “real” variables like employment and GDP growth; and
- Finance markets are rational; in particular, the level of private debt reflects rational calculations about future income, and can therefore be ignored by policy-makers.
The key aspects of the approach that I take (the “Financial Instability Hypothesis” developed by Hyman Minsky) that alerted me to the approaching danger are the propositions that:
- A market economy is inherently cyclical;
- Money is fundamentally credit-driven, and has impacts on real variables as well as nominal ones in the short and long term; and
- Finance markets destabilise the real economy, because they are prone to bouts of euphoric expectations that lead to debt-financed speculative bubbles.
These very different perspectives have two key effects on the economists who hold them:
- they focus attention on very different sets of economic data; and
- they inspire mathematical models of the economy that are very, very different.
What is “a beautiful set of numbers” lies in the eyes of the beholder
Neoclassical economists focus upon three numbers:
- The rate of economic growth (preferably above 3% per year);
- Unemployment (which they prefer to be low, but not “too low”–the moving target for which in Australia was 4.5% until recently); and
- The rate of inflation (which they prefer to be as low as possible, and certainly below 3%).
On all three fronts, from the vantage point of 2006, 2007 looked like being a vintage year–except that the first number was so high that the second was tending too low, which could mean that the third could start to rise. Hence the economic focus was on reducing growth via higher interest rates, to increase unemployment slightly and thus reduce the rate of inflation (see Figure Two).
Figure Two
Australian Growth, Unemployment and Inflation
The RBA’s policy response to this was immediate and decisive. Having already raised rates in 0.25% increments five times since 2002, it accelerated its inflation-control program with three more increases in 2006, two in 2007 –the first of these coming just before the crisis broke, and the other famously during the 2007 election campaign–and two more during early 2008.
Figure Three
Movements in Australian Reserve Interest Rates
Unfortunately, the RBA’s response was also the wrong one. While inflation did rise, it was not the main problem facing the economy. Trying to control the inflation rate by raising interest rates at that time was a bit like trying to control a patient’s blood pressure when he was dying of cancer. That cancer, as is now widely acknowledged, was private debt. The economic variable that their Neoclassical training led them to ignore, the ratio of private debt to GDP, was now indisputably the most important number of all.
Economists who are influenced by Hyman Minsky–broadly known as “Post Keynesians”, since Minsky was a follower of Keynes–focus precisely on that datum. This ratio of a stock (outstanding debt at a point in time) to a flow (the annual output of goods and services) tells you how many years of income it would take to reduce debt to zero. It therefore measures the degree of pressure that finance is imposing on the real economy.
A certain amount of debt is vital to the proper functioning of a market economy, since most companies need flexible working capital to be able to operate, and overdraft facilities and lines of credit provide that flexibility. But too high a debt to GDP ratio means that the financial burden of debt repayment on the economy is excessive, and Minsky’s theory implies that there is a tendency for the debt to GDP ratio to ratchet up over a series of booms and busts, resulting eventually to a Depression.
I did not see the data in Figure Three until December 2005, since my “day job” is as an academic rather than an economic policy maker. I had signed a contract to produce a book on financial instability as long ago as 1998, but the unexpected success of Debunking Economics, and the follow-on debate that engendered amongst academic economists, forced me to delay commencing that task.
As soon as I did see the data–in December 2005, when preparing an Expert Witness report for a court case (the “Cooks Case”)–my Minskian eyes told me that a serious crisis was on its way. Given that the debt to GDP ratio was far higher than during either major post-WWII crisis (1973 and 1989), it appeared obvious that Australia was about to experience its most severe economic crisis since the Great Depression.
Because I knew that neoclassical economists would not realise this was about to happen, were likely to make things worse by increasing interest rates as the crisis approached, and would probably mis-diagnose the cause once it occurred–as they had during the Great Depression–I decided to go public with my analysis via the media, a regular commentary timed to coincide with the RBA meeting (DebtWatch), and eventually a blog (www.debtdeflation.com/blogs).
Figure Four
Australia's Debt to GDP Ratio 1955-Now
Minsky’s hypothesis warns that a crisis begins with the faltering of an asset price bubble. That not one but two bubbles were in progress was obvious in both Australian and American stock market and housing data.
Minsky argues that there are two price levels in a market economy–one for commodities set largely by the costs of production and financed largely from income, and the other for assets, set largely by people’s expectations of future gain, and financed mainly by debt. The ratio of one price level to another thus gives an indication of whether the economy is in a bubble, or a bust.
There are curly issues in the ratio of share prices to the CPI–the reinvestment of retained earnings give shares an upward trend over time compared to the CPI, while the index itself overstates share returns due to survivor bias. But the relatively rapid movement in share prices, versus the slower changes in consumer prices, means that a blowout in the ratio is a good indicator of a bubble. On that basis, Australia’s market had clearly entered a bubble in early 2003, while the USA’s began in 1995 (and had already burst in 2000, only to restart in 2003).
Figure Five
No such curly issues apply with the house price to CPI ratio. Especially when dealing with established houses, there is no long term trend, as the Herengracht Canal index establishes. In a real price series going back over 300 years, house prices have risen and fallen compared to consumer prices, but there is clearly no rising trend (see Figure Five).
Figure Six
CPI-Deflated Price Index for Amsterdam's Herengracht Canal
On this basis, both Australian and US house markets were clearly in bubbles, and the US bubble was unprecedented in its history.
Figure Seven
USA and Australian House Price Indices
The final piece of evidence that pushed me from expecting a serious recession to quite possibly a Depression was provided by the RBA in September 2007–a month after the crisis began–with a chart showing Australia’s private debt to GDP ratio going back till 1860.
Even after I augmented it to include an estimate for non-bank debt prior to 1953 (which made current data look less extreme compared to historical data), it implied that our debt crisis was more than twice as severe as the one that caused the Great Depression. When the Great Depression began at the end of 1929, Australia’s debt to GDP ratio was 65 percent. It has now reached a peak of 165 percent.
Figure Eight
Australia's Debt to GDP Ratio from 1860-Now
That impression was confirmed when I later saw the US data–courtesy of Gerard Minack and the availability online of US Census reports. Its debt to GDP ratio was 150 percent at the end of 1929 (and subsequently blew out to 215 percent as prices and GDP collapsed in the first 3 years of the Depression).
With financial sector debt included, the USA reached that peak again in 1987–the year Greenspan, despite his “Austrian” approach to economics that decried government intervention of any sort, performed his first “successful” rescue during the Stock Market Crash in October.
That rescue worked, not by overcoming the problem of excessive debt-financed speculation, but by re-igniting so that it reached even higher levels. Though borrowing slumped after the Savings and Loans collapse in 1989/90–falling from 170 to 165 percent of GDP–the bubble began once more in 1994. It then rocketed on through the Dotcom Bubble, and didn’t even draw breath then since there were now two asset market bubbles feeding off each other–the Subprime Bubble’s expansion more than counteracted the Dotcom Bubble’s collpase, until finally there were two debt-financed asset bubbles running at once–an unprecedented event in America’s financial history.
By 2004, even non-financial private debt had exceeded the level that triggered the Great Depression, while total private sector debt reached a staggering 290 percent of GDP (without including the impact of financial derivatives, another form of debt that did not exist in the 1920s).
Figure Nine
USA's Long Term Debt to GDP Ratio 1920-Now
The RBA data in Figure Eight was first published in a speech by Deputy RBA Governor Ric Battellino (“Some Observations on Financial Trends“). I found his interpretation of the chart both stunning, and predictable:
“The factors that have facilitated the rise in debt over the past couple of decades – the stability in economic conditions and the continued flow of innovations coming from a competitive and dynamic financial system – remain in place. While ever this is the case, households are likely to continue to take advantage of unused capacity to increase debt. This is not to say that there won’ t be cycles when credit grows slowly for a time, or even falls, but these cycles are likely to take place around a rising trend. Eventually, household debt will reach a point where it is in some form of equilibrium relative to GDP or income, but the evidence suggests that this point is higher than current levels.” (emphasis added)
This was stunning, because the previous two peaks in the debt to GDP ratio were followed by Depressions, and yet they were far lower than the current level. Even the most anecdotal approach to history would imply that all might not be well at present.
It was predictable, because it was consistent with the mindset that has dominated economics for three decades now, ever since Friedman’s counter-revolution against Keynesian economics in the 1970s. Whereas the once-dominant Keynesian approach saw the economy as potentially unstable, Friedman’s revived “Neoclassical” approach presumed that the economy was self-equilibrating. Thus data which an engineer would see as indicating an approaching breakdown was interpreted by an economist as indicating an approaching equilibrium.
This belief in a tendency to equilibrium is built into the models of the economy that neoclassical economists construct–which is why these models gave no warning of the approaching crisis, and why economists were the last ones to realise that a crisis was actually happening. I’ll discuss their models–and the Minskian alternative–in next month’s Debtwatch.
Australian Private Aggregate Debt Table
Australia's Private Debt Table Disaggregated
November 2nd, 2008 at 6:35 pm
It is interesting to read Ric Battellino’s recent speech at http://www.rba.gov.au/Speeches/2008/sp_dg_301008.html especially the statement “I think there are reasons, however, to believe that the Australian housing market will not follow the US market to the same degree.”
Looks from Figure 7 that the Australian property market is about to do the high dive. The most indebted property market in Australia would be Sydney and it is becoming obvious that the NSW state government finances are in a mess. Shortly they will either cut spending or increase taxes with severe effects on the ability of residents to finance housing.
November 2nd, 2008 at 8:41 pm
[...] DebtWatch No 28 November 2008: What is Really Going On? By Steve Keen Rather, a ? smooth? rebalancing was to be expected, with Europe taking over the baton from the United States in driving OECD growth. Recent developments have broadly confirmed this prognosis. Indeed, the current economic situation is in … Steve Keen's Oz Debtwatch – http://debtdeflation.com/blogs/ [...]
November 2nd, 2008 at 10:00 pm
An very interesting read.
I’m not sure that the rusted-on Austrians would be very keen for Greenspan to be put in their camp. In fact, if their blogs are anything to go by, they also blame Greenspan for the disaster precisely because he meddled in the market in a distortionary way. I think these hard core Austrians would also find Friedman’s monetarism sticking in their craw.
I hasten to add that neither the Austrians, nor Friedman are my cup of tea!!
November 2nd, 2008 at 10:13 pm
Regarding Sydney’s property market: anecdotally there is some indication that interest and perhaps prices have picked up over the last couple of months since the interest rate cut and the increase in first home owners grant. I myself am hoping to take advantage of it to get out of my property (and mortgage) at the same price I bought it for in 2004 before the crisis hits hard and property prices really start to tumble.
On the point that economics is not a science. Why is this? I don’t really understand what economist do all day but it occurs to me, that of all the social sciences the one best placed to take up the scientific method is economics. Its hard to take the hypothesis –> prediction –> experimental verification approach in anthropology but in economics there are literally trillions of data points available in the form of solid actual numbers from real world markets. Why is it that economists are not interested in the prediction and experimental verification side? I hear the argument that this is difficult in the social sciences but its just as hard in Astronomy, Paleontology, Oceanography or any branch that studies things that are difficult to fit inside a laboratory, yet they manage quite well. I often think of it when they mention the Nobel prize for Economics. Its always interesting to compare it to the prize for Physics.
In Physics it may take 50 years from the time an idea is first proposed to the point it has been experimentally proven. Then they award the Nobel prize. In Economics it seems to be enough to have a series of popular ideas. No-one seems too bothered about whether they are right or wrong. It would be an interesting (and perhaps embarassing) exercise to compare the Nobel prizes for Physics and Economics over the last 40 years and see how well they have stood the test of time.
November 2nd, 2008 at 11:59 pm
First of all, Happy Anniversary Debtwatch! And thanks to Steve Keen for being a public intellectual and making his thoughts accessable to us.
Swio comments on economics not being a science, and that’s the case, I suppose. Unlike the physical sciences, results of experiments will turn out a little differently each time due to complexity, as well as people having learned and retained something from earlier times. The system evolves, so won’t test exactly the same way at a later time. In this, it’s not lovely and repeatable like physics, and you can’t repeatedly set up the preconditions for a depression and run the event over and over.
As regards economics being in the Nobel prize system, well, it’s an imposter! Nobel did not originally include it. Nobel prizes were awarded from 1901, but the economics prize was first awarded at the behest of Sweden’s central bank. {source: Wikipedia} I’m guessing this was done to give economics some glory by association with the most worthy areas of human endeavour. It seems the economics award is separately funded by the bank, rather than from the Nobel bequest.
November 3rd, 2008 at 12:07 am
Oops! Meant to point out that the first Nobel Prize in Economics was awarded in 1969. (Wikipedia). So there were 68 years of Nobel Prizes prior to the first Economics Nobel.
November 3rd, 2008 at 12:17 am
Going back to the bank deposit guarantee; is there now an incentive for the banks to artificially inflate their cash deposit rates to attract funds? As an example, I just saw an advertisement on the SMH.com.au website from Suncorp Bank offering an 8.15% rate. An increase when the RBA has decreased rates and the government is injecting funds into the economy to boost spending.
It’s not making sense to me.
November 3rd, 2008 at 1:33 am
swio – Regarding Why can’t economics be a science.
In a macroeconomic sense I think Steve’s works predicts with a fair degree of certainty when trouble times are about to unfold. Especially his simulations showing the Minsky debt cycles and how they go chaotic under high debt levels. Understanding his formulae and working through his simulations is worthwhile.
For accurate date/time predictions many that do not follow markets often think that it is easy to predict where stock prices, unemployment numbers, inflation etc… will go. Well if it was easy then there would be many people making billions predicting the future.
Quite simply there are too many variables that are difficult to formulate mathematically which include:
- psychology of the productive middle class; does hard work produce just rewards
- psychology of the creative class; are the risks worth the rewards; note rewards do not necessarily have to be monetary
- generational psychological trends; young people today see debt as a right of passage
- politics and how politicians seek to please the masses irrespective of good/bad policy
- and of course black swan events
November 3rd, 2008 at 3:23 am
Steve.
Happy aniversary to debtwatch and please keep up this good work.
I note that you are interested in the work on economics carried out by some physicists. This prompts me to ask if your are aware of any engineers who have similarly taken an interest in economics.
May I sugest that I believe that the systems conrol methodology used in Engineering particularly in the Electrical and Aeronautical disciplines could be used to model economic systems and system stability. I note that when feedback effects, such as the anticipation of price rises causes prices to rise through speculation; they are noted, but little effort is made to quantify and model them.
The work of two pioneers in system control engineering seems very relevant. These pioneers were Dr Harry Theodor Nyquist and Dr Hendrick Wade Bode. Using their methodology it is possible to accurately predict the stability and stability margins for systems with delays and resonances and with various loop gains. More recently these methods which can be examined graphically (s-plane) and are based on laplace transforms form the basis of computer models which now provide extremely powerful design tools.
An observation on this debtwatch, what are the consequences of the high level of part time employment? This has two effects a short time constant in employment hours reduction consequences and an increase in the proportion of people who need “sub-prime”, “no doc”, “low doc”, or “lie doc”, loans to purchase real estate and keep the bubble inflating.
Once again thank you very much for your efforts.
November 3rd, 2008 at 4:30 am
Steve,
Since the inception of the government guarantee on bank deposits, global CDS markets have priced in a higher chance of the Australian government defaulting on its obligations.
I would be interested to know your opinion on what the impact of a default would be. Do you think rapid devaluation of the AUD would ensue? Would the AUD portion of private debt be dramatically reduced by hyperinflation? Presumably if this were to happen, house prices in USD would still collapse as you predict, but house prices in AUD could continue to rise?
November 3rd, 2008 at 7:25 am
On economics not being a science, part of that is situational–the inability to perform controlled experiments–but part is also behavioral. Astronomy can’t perform controlled experiments either, but astronomers do modify their models when observation contradicts reality.
Economists have not, in general, done that.
There are schools of thought that have broken away from the (neoclassical) mainstream for empirical (as well as ideological) reasons, with the Post Keynesian group being the most obvious there; and there are groups that have broken away for methodological reasons as well (PKs again, and also evolutionary economists).
But in general the majority of economists (of the neoclassical ilk) cling to beliefs about the nature of the economy that are manifestly contradicted by the data. My favourite instance here is the treatment of Alan Blinder’s Asking About Prices:
http://www.amazon.com/Asking-About-Prices-Understanding-Stickiness/dp/0871541211/ref=sr_1_1?ie=UTF8&s=books&qid=1225657037&sr=1-1
This book contradicts neoclassical expectations about how firms set prices all the way down the line, using a simple and well designed and implemented survey method. It is totally ignored by the profession, with only one review of it published on Amazon’s site, versus 77 fpr the neoclassical microeconomic bible by Mas Colell:
http://www.amazon.com/Microeconomic-Theory-Andreu-Mas-Colell/dp/0195073401/ref=sr_1_1?ie=UTF8&s=books&qid=1225657172&sr=8-1
No prizes for guessing who wrote the one review of Blinder!
So that’s the main barrier to being able to attach the moniker “scientific” to economics. You can use all the math you want–and they do–but if you are immune to the empirical data, you have a mathematical religion, not a science.
On the method of engineers, I’m well aware of systems engineering (my colleague and good friend Trond Andresen is a systems engineer at the Norwegian Institute of Technology):
http://www.itk.ntnu.no/ansatte/Andresen_Trond/ta-eng.html
However I haven’t yet mastered Nyquist plots and other techniques of the discipline. I hope to have the time to do so when I finally get into the book Finance and Economic Breakdown in earnest. All my own models are developed using differential equations that are of course at the core of the engineering method; I often display them in Simulink, Vissim etc., but I prefer to work in straight ODEs for model development.
November 3rd, 2008 at 8:25 am
Another good set of insights Steve.
However, I am not that sure that “They” did not see “it” coming.
According to Canadian author Naomi Klein, ‘they’, the neo-conservative policy makers not only saw it coming but have set the ground work to ensure the deliverance of conditions that will ‘debtonate’ the financial system here and elsewhere.
Iceland, which boasted the lowest corporate tax rates in the West – thanks to taking on board the philosophy of Friedman and the neo-cons, is a prime example of the ruthlessless of the create-a-crisis brigade. It is very easy these days for secretive hedge funds to destroy whole national economies with an ‘electronic stampede’ on currency or stockmarkets. When the economy comes up for air, the hand that reaches out to help is that of some neo-con entity, those linked through philosophy to the ones who caused the disaster in the first place.
Here are some thoughts on this matter, most I have gleaned from Naomi Kleins writings on disaster capitalism:
Trickle-down economics is the product of right wing think tanks and is in essence anti-social and ant-democratic.
The theory: if taxes are cut for high income earners they will invest more in business infrastructure and equity markets. As a result, goods will lower in price and create more jobs for the middle and lower classes.
It never happened. It was a delusion.
Orchestrated raids on the public sphere is Disaster Capitalism.
And it is a science. Milton Friedman was its chief priest. His client disciples included Mao, Pinochet, Thatcher and Reagan. Judging by the policy decisions of Bush, Blair and Howard, no country, including China is immune from his anti-democratic legacy.
Friedman’s teaching lives on in the Chicago School of economics. His disciples have infiltrated the IMF, World Bank and various govt Treasuries. It is worth knowing what they stand for in their bound-to-fail intellectual effort to remove democracy from the world.
Nature designed humans for freedom, not economic slavery. That is why ‘they’ will eventually fail. If man cannot help man, nature will. My belief is man can help man by exposing the disaster capitalism con.
In the early years of their induced crises in Chile and Argentina, the neo-cons speculated that a hyperinflation crisis could create the shocking conditions required to push through policies that diminish the state and the public economy. By 1995 a chief economist at the World Bank, Michael Bruno, an institution funded with tax dollars from 178 countries and whose mandate was to rebuild and strengthen struggling economies, advocated the creation of failed states because of the opportunities they provided to start over in the rubble. Iraq is the most recent example of this economic theory being implemented.
Whenever one sees a forum promoting the privatisation of national assets, Government deregulation of business or severe cutbacks in social spending, know that you are watching the entry of harbingers of disaster capitalism.
Cheers, keep up the good work.
November 3rd, 2008 at 8:27 am
Another good set of insights Steve.
However, I am not that sure that “They” did not see “it” coming.
According to Canadian author Naomi Klein, ‘they’, the neo-conservative policy makers not only saw it coming but have set the ground work to ensure the deliverance of conditions that will ‘debtonate’ the financial system here and elsewhere.
Iceland, which boasted the lowest corporate tax rates in the West – thanks to taking on board the philosophy of Friedman and the neo-cons, is a prime example of the ruthlessless of the create-a-crisis brigade. It is very easy these days for secretive hedge funds to destroy whole national economies with an ‘electronic stampede’ on currency or stockmarkets. When the economy comes up for air, the hand that reaches out to help is that of some neo-con entity, those linked through philosophy to the ones who caused the disaster in the first place.
Here are some thoughts on this matter, most I have gleaned from Naomi Kleins writings on disaster capitalism:
Trickle-down economics is the product of right wing think tanks and is in essence anti-social and ant-democratic.
The theory: if taxes are cut for high income earners they will invest more in business infrastructure and equity markets. As a result, goods will lower in price and create more jobs for the middle and lower classes.
It never happened. It was a delusion.
Orchestrated raids on the public sphere is Disaster Capitalism.
And it is a science. Milton Friedman was its chief priest. His client disciples included Mao, Pinochet, Thatcher and Reagan. Judging by the policy decisions of Bush, Blair and Howard, no country, including China is immune from his anti-democratic legacy.
Friedman’s teaching lives on in the Chicago School of economics. His disciples have infiltrated the IMF, World Bank and various govt Treasuries. It is worth knowing what they stand for in their bound-to-fail intellectual effort to remove democracy from the world.
Nature designed humans for freedom, not economic slavery. That is why ‘they’ will eventually fail. If man cannot help man, nature will. My belief is man can help man by exposing the disaster capitalism con.
In the early years of their induced crises in Chile and Argentina, the neo-cons speculated that a hyperinflation crisis could create the shocking conditions required to push through policies that diminish the state and the public economy. By 1995 a chief economist at the World Bank, Michael Bruno, an institution funded with tax dollars from 178 countries and whose mandate was to rebuild and strengthen struggling economies, advocated the creation of failed states because of the opportunities they provided to start over in the rubble. Iraq is the most recent example of this economic theory being implemented.
Whenever one sees a forum promoting the privatisation of national assets, Government deregulation of business or severe cutbacks in social spending, know that you are watching the entry of harbingers of disaster capitalism.
Cheers, keep up the good work.
November 3rd, 2008 at 9:02 am
apologies for the double posting, internet connection conked out so i reposted. Cheers.
November 3rd, 2008 at 10:08 am
Dear Steve,
I am very interested in the raw data for your long-term debt graphs. Where have you got that data from? Especially Figures 4 and 8. I take it Figure 9 is from Minack. Could you tell me where he got the data from?
Best,
Tom
November 3rd, 2008 at 10:21 am
Just to add: I know that the graphs were in Battelino’s speech (nominated as credit rather debt!)but I would like to use the raw data to construct my own graphs for a presentation (with appropriate acknowledgement of course!).
November 3rd, 2008 at 10:29 am
Hi steve, My question is, what is the roadmap now? I can see the evolution of this financial mess and where it has got us so far. I think the remainder of the mess is extremely bad and should be highly predictable. There is a graph on http://www.marketoracle.co.uk/Article6647.html which shows the ALt-a loans, the second big wave of defaults. That in my opinion wipe out anything and everything left standing, that is without even considering or including the prime loans, derivatives, unemployment, businesses getting wiped out, the cost of wars, social security etc. So no matter what governments do, no matter what strings they try to pull, it appears impossible to make the outcome different. Recently I read that gold will hit $2000 because of defaults as well. I have done alot of reading on many websites over 18months and I dont pretend to be an economist, but I have the sense to see this train wreck has only just started!. The financial system world wide could easily totally collapse and governments seem to be only able to react to unfolding events, mostly to stem financial panic. So could you please comment on these and other upcoming things and their combined effects as time is really running out. Or is it way too scary for anyone to handle? Not thinking about real outcomes got us into this mess.
November 3rd, 2008 at 11:28 am
Hi Tom,
Figure 4 comes straight from the RBA website: just divide the figures in D02Hist.xls for total credit by those in G12Hist.xls for nominal GDP.
The longer term data comes from an RBA Research Discussion Paper by Kent and Fisher; I asked the RBA to supply the raw data to me after Battellino’s September 2007 speech.
The US long term data was ferreted out by Gerard Minack, using the Census that is now available online in scanned PDF format going back well over a century. The post-1950 data is in the Flow of Funds, again easily accessible data.
So the information is there; the problem is that neoclassical economists ignore it because their theories persuade them that money, credit and debt don’t matter.
So much for that…
If I ever get the time (or someone else volunteers theirs!) I’ll put a data repository up on this website.
November 3rd, 2008 at 2:01 pm
Re: economics as a science – I’m going to give a shout-out for the under-explored avenue of basing economics on statistical and thermodynamic rather than linear and newtonian physics, as demonstrated in Farjoun and Machover’s “Laws of Chaos” (www.probabilisticpoliticaleconomy.net). Steve, where’s that review of F&M? can’t let a little thing like total financial collapse stop the theoretical work!
November 3rd, 2008 at 2:29 pm
Thanks Steve,
I appreciate the response
November 3rd, 2008 at 2:32 pm
Hi Steve,
Very interesting article. I have a couple of questions. The first relates to the many people I know who have sold out of equities since August 2007 and are now “in cash”. In your models is their money safe, or other events likely to unfold that will affect cash holdings?
The second relates to inflation. Is it possible to keep commodity inflation and asset deflation running at the same time? (Is that what is occurring now?)
November 3rd, 2008 at 4:13 pm
Hi Steve,
Excellent post, thank you for your economic insight. I am just wondering about figure 9; if the component of total debt that is financial related were to be stripped out, would the level we are currently at be below the 1929 level?
If that is the case, would it be likely that the effects on the financial segment of the economy may be worse than on the real economy, given the relative lower level of non financial debt, meaning consumers can be more resilient.
I understand there are many differences in the circumstances, but if the above is taken on its own, what conclusion would you draw?
November 3rd, 2008 at 4:27 pm
If money has been pouring into banks as a relative safe haven, and the bank deposit guarentee has accelerated this process, does this mean that banks now have renewed capacity for stoking the housing asset bubble free of any real worry about losing their depositors’ money? The first home buyers’ grant is being advertised by at least one lending institution as being sufficient for a loan deposit. Has the government got a handle on this, or could they be too blinded by the need to keep the construction and retail sectors going in the short-term?
November 3rd, 2008 at 8:38 pm
An excellent newsletter as always. Thank you for so comprehensively addressing my questions on the competing positions and the relationship between economics and the underlying science (if any).
I have been convinced of the basic correctness of your views for some time now, and in turn that provides perspective which helps to explain many things that have puzzled me for a decade or more. Australia simply has no right to be as prosperous as it is!
I look forward to insights into how this process may play out, and in particular what early warning signs will be indicative of which path events may take. Currently I do not see how we can get either deflation or hyperinflation, and I rather expect a kind of economic lockjaw, Japanese style, for many years to come.
November 3rd, 2008 at 10:35 pm
Steve,
I just found this website and I’m impressed. It is sort of deja vu for me, because I’m an ex-pat and B.Econ and used to work with Rick Battelino and Glen Stevens at the RBA. I’ve posted links to this article at economistsview.typepad.com where I regularly post.
By the way wrt Gerald Henderson making fun of you selling your flat – what took you so long. (I sold mine in January). And I’m pretty sure that the excellent US Economist Dean Baker sold his flat and moved into a rental property during the housing boom over there.
November 3rd, 2008 at 11:20 pm
Much focus is currently on US financial destabilisation but there appears to be a perfect financial storm is brewing with many countries heavily exposed to the ‘BRIC’ and developing economies. A recent New Statesman article is worth a read.
http://www.newstatesman.com/economy/2008/10/european-banks-crisis-imf
November 4th, 2008 at 6:54 am
With the very recent revelation that September recorded the biggest quarterly drop in house process for 30 years, the predictions of ‘doomsayers’ such as Steve Keens are now being realized. I would like to make the point that one man’s downfall is another’s windfall. Here I speak to the fact that while it is perhaps true that income has been relatively well-distributed over the last decade or so, the same can not be said for wealth.
Last week the Deputy Governor of the RBA, Ric Battellino, raised a number of arguments in an effort to stem mounting gloom at the prospect (read reality) of falling house prices. These included supply-demand issues, but also the fact that price growth has largely been the product of investment by middle-aged Australians at low risk of defaulting. Interestingly, Battellino also questioned the “social value” of this pattern shift in asset distribution. The supply-demand argument of course makes various assumptions: 1, that immigration rates will remain high (questionable in a time of falling employment); and 2, that there remains a large pool of prospective 1st home buyers eager to enter the housing market at present prices. This 2nd assumption will now be tested, but there can be no doubt that affordability has diminished such that many young Australians have abandoned hope of homeownership. How much upward pressure can remaining ‘aspirationals’ bring to bear? One thing is certain, if house prices do fall by double digits (and right now they are clearly on track to do so), then these disenfranchised young Australians will not be tearing their hair out in grief. Unfortunately, younger Australians will also be hardest hit by the same looming spectre of unemployment that is now helping to driving the property market down. No pain no gain? It is time for Australians to debate whether it was right to allow such a quantum shift in the demographics of homeownership and an investigation into which factors facilitated it.
November 4th, 2008 at 9:17 am
If Greenspan were really an “Austrian” he would have abolished the federal reserve, resigned and re-instated the gold standard allowing the free market to determine interest rates. He walked away from his Ayn Randian roots long ago…
November 4th, 2008 at 9:39 am
Steve R,
What you say makes sense to me, except the last bit about debating the quantum shift in home ownership. As you point out that issue is now being resolved through economic forces.
The debate now should be focussed on competing visions of the future.
Here is on:
The debt overhang in first world economies acts to reverse economic growth in those countries and the conventional market mechanisms (stock markets and banks) in developing economies reliant on trade with the first world come under severe stress and in many cases are taken over (nominally or in reality) by national governments.
For Australia, this means a sharp reduction in commodity export prices as raw materials are funneled into lower profit nation building activities. This results in a substantial contraction in foreign investment, a lower dollar and increases in the costs of imports – flowing through to ongoing inflation in the 3-5 % range while asset prices continue to decline.
The decline will be arrested gradually as China takes up the foreign investment slack, acquiring significant holdings in many major companies operating in Australia (and getting some satisfaction in snapping up at bargain prices companies that gouged them during the commodities boom).
Housing will decline 10-20%, not enough to make it really “affordable”, but sufficient to keep the population busy servicing debt rather than defaulting.
Five year time frame.
November 4th, 2008 at 11:02 am
I’m grateful for your articles Steve, and everyone’s comments, especially Gary, Rycoka and Margaret on November 3rd, 2008, as they struck a chord with my worries. I just wish I could find a financial adviser who subscribes to some of your views. I’m pushing uphill getting any sense out of my ‘financial adviser’ – note the inverted commas. They all push ‘the line’ – don’t do anything and everything will eventually return to ‘normal.’ They haven’t a clue. As a self-funded retiree and a mature age student with a very moderate grasp of economics I’m like a rabbit frozen in the headlights wondering what I should do. How ‘safe’ is Cash now? Or should I rush out and buy some gold ingots?
November 4th, 2008 at 11:22 am
Reason,
It’s interesting that you meantion Dean Baker, I’ve been following his work for a couple of years now. Regarding his housing, he purchased a condo in 1996. In 2002, he wrote a paper for CEPR inquiring as to whether there was a housing bubble or not. http://www.cepr.net/documents/publications/housing_2002_08.pdf
No one believed him, but nevertheless, he sold his condo in2004. for triple the price he had purchased it for. He then rented an apartment, and has been doing so ever since. It was a big move that paid off. It is interesting that the most highly educated economists in the U.S., trained at Harvard/MIT/Chicago, etc., missed the housing bubble while Baker was one of the few who saw it coming. No highly technical analysis was needed, just looking at long-term trends in the housing market.
The Center for Economic and Policy Research, of which he is a co-director and founder, http://www.cepr.net, is worth checking out. Its bias is liberal-left. Australia really needs an equivalent over here.
Baker believes in a very subversive concept: that free market discipline should be extended to the rich. His papers and articles are easy to read and make a lot of sense. Stripping the rich of all their welfare would make us all better off.
November 4th, 2008 at 8:38 pm
Dear Steve,
I agree with you that we are heading for very dangerous times, such that humanity hasnt seen before. However I strongly disagree (as have some of the commentators earlier) that it a “chance event”. This is by DESIGN!!
What are your thoughts on Lyndon Larouche and his solution to the whole affair??
November 4th, 2008 at 10:11 pm
Love the blog Steve.
To be honest I think the root cause of “why they didn’t see it coming” is much more general than that, though.
Humans evolved to be able to plan through a year’s harvest, to get through the winter. Once we mastered that trick, natural selection pretty much stopped. So as a whole we’re not much better long-term planners than we were 10,000 years ago.
I came across this concept studying peak oil, but I realized it really explains just about all the major problems we face today, be it debt, global warming, peak oil, whatever. Essentially our problems boil down to the fact that, we as a race do many things that benefit it us in the short run, but are disastrous in the long run, because we can FEEL the short-term benefit, but most cannot understand the long-term cost. Because we never evolved the ability to really plan that far out.
November 4th, 2008 at 10:54 pm
Actually if you want to understand economics you have to build a base on several major pieces of work:
(1) Viable systems theory (comes from cybernetics, key ref: Stafford Beer).
(2) Cognitive psychology.
(3) Human group theory. Humans as individuals are one thing, in small and large groups they are something else entirely.
Viable systems theory gives the basis of how ANY system must work (including any human ones), and to be viable they must follow certain characteristics. If they don’t then they are not viable and eventually an environmental change will kill them.
Human group theory is interesting, a small area not fully researched (not as sexy as working out more ways to find reasons to drug children I suppose). But the power of group beliefs and pressure to conform is incredible to behold.
Personal exmaple: I did a paper back in 2004. A part of it demolished Scholes-Black from empirical evidence (trust me it did not take long, about an hours work). Plus I killed traditional V-A-R calculations.
I also workd out a crude, but workable, alternative that would provide better V-A-R calcs. It sure was crude, but it had one important aspect … it worked, while normal methods don’t .. as we now can see.
The reaction was amazing. Now being the cynical, skeptical SOB I am I didn’t expect much but even I didn’t expect … nothing. Not a whisper, not even an email.
Privately a few people, over a few glasses of ale, admited they agreed, but ‘eveyone uses these methods so we have to”. The blind sheep leading the …. you get the idea.
People can be more stupid than you can possibly believe, but groups can add an order of magnitiude to that stupidity. And, as we know from historical research, groups (tribes, companies, states, empires, etc) can fail the viability test and vanish from the pages of time (look up Jarad Diamond’s book for some examples).
November 4th, 2008 at 11:16 pm
Hi Steve
Regarding this part if your post;
“Unfortunately, the RBA’s response was also the wrong one. While inflation did rise, it was not the main problem facing the economy. Trying to control the inflation rate by raising interest rates at that time was a bit like trying to control a patient’s blood pressure when he was dying of cancer. That cancer, as is now widely acknowledged, was private debt. The economic variable that their Neoclassical training led them to ignore, the ratio of private debt to GDP, was now indisputably the most important number of all.”
I’m no economist, just trying to understand what you mean. Private debt to GDP ratio should be the target, therefore rates should have been raised much earlier. Is that correct? If so, given that they missed the boat what should have been done if raising rates at the time the RBA did so was not the “correct” thing to do?
November 5th, 2008 at 1:44 am
old skeptic,
I’m actually keen that we use computing power more and move away from simultaneous equations and move towards using object oriented simulation. It will not necessarily give us usable forecast, but it will give us a behavioural understanding of what CAN happen. There is no reason NOT to use this approach anymore. We really can model an economy with millions of individuals and hundreds of thousands of firms.
November 5th, 2008 at 1:45 am
old skeptic – why don’t you post a link to your paper here?
November 5th, 2008 at 7:22 am
Dear Nick
Lyndon Larouche’s analysis reminds me of one of my favourite old pieces of graffiti:
“Just because I’m paranoid, it doesn’t mean they’re not out to get me”.
Some of Larouche’s arguments are straight out of la la land–for instance his basic “thesis” that the crisis has been deliberately engineered by England to destroy the USA and reintroduce the British Empire.
I frequently criticise economists for fighting the last war, but Larouche seems intent on going several steps better and re-waging the American War of Independence.
The obvious riposte to that–apart from “what are you on, and where do you get it?”–is that the UK has an even worse private (non-financial) debt problem than the USA–with private debt at 240 percent of GDP versus 175 percent for the USA. It is likely to suffer even more in this downturn than the USA.
That said, what Larouche has to say about the cure, which includes substantial debt moratoria, is a lot closer to the mark for today than his analysis.
But having read some of Larouche’s material and that of his supporters, I avoid him and them completely. I am intent on doing sound analysis, and finally making that a mainstream activity within economics, as a product of this crisis. There are enough (unwitting) raving loonies within economics (practicing neoclassical economics at one extreme and unreconstructed Marxism at the other) without admitting one more with Larouche and his theories.
November 5th, 2008 at 7:26 am
Dear Old Sceptic,
No promises here, but if I like the arguments you made in that 2004 paper then I will put it up on my theory page. Please email it to me.
November 5th, 2008 at 9:05 am
Thanks again Steve,
One of the most interesting aspects to this crisis has been the silence of mainstream economics once the proverbial hit the fan. Everyone seemed to have a view on why you were a wingnut, but very few notable economists (I could find none except John Quiggin) wanted to address the causes of the crisis, and your fairly detailed predictions.
I’m fascinated by your approach, while I work in mainstream economics (albeit micro-economics), and will find more to read on Hyman Minsky. Could you perhaps reccommend some material, or even link them to your webpage?
Thanks again,
Kymbos
November 5th, 2008 at 10:35 pm
kymbos
Wingnut?
Out of mainstream maybe, but wingnut says something completely different to me.
November 5th, 2008 at 10:36 pm
Steve Keen,
by the way quite a few of the links (red tabs above – for instance policy) on this website don’t work for me.
November 5th, 2008 at 10:40 pm
Steve Keen
P.S.
When I get time, I guess I’ll read a bit more of your stuff. I have consistently been ignored by mainstream economists when making the point that mainstream economists ignore balance sheets and have very weak financial-real linkages. I’m pleased that someone has developed mathematical models incorporating these.
November 6th, 2008 at 11:06 am
Hi Steve,
Just my view.
This seems a good enough summation: “This is not something one should be able to say about a science, and there lies the rub: economics is not even close to qualifying as a science. A better model for economics is a group of warring religions–or science, such as it was, before Galileo’s empirical revolution, when what mattered to scientists was not empirical relevance, but conformity to with the Bible.”
What is not clear is how Minsky’s arguments, with no intended affront, also have no scientific basis but are just further conjecture.
There are many schools of thought that saw the consequence of fractional reserve debt expansion, including the Austrians and Marxists and the ‘Commonsensecos’, and hence such insight gives little support to a scientific base of your own conjectures. With no scientific basies your mathematics and solutions may turn out to be as inaccurate, misleading, disasterous and “loony” as potentially any other economical model.
Identifying distinctions between conjecture and fact would be a good scientific start and qualifying the specific rather than assuming the general.
As example, it would seem to me it is a generalized conjecture that “A market economy is inherently cyclical” based on the specific experience of our current market which is a specific model of a market with controlled globalized centralized banking and for a longer time fractional reserve debt expansion. The point of disequilibrium or instability causing extreme ‘cyclicity’ would seem scientifically unclear. It could be that markets are inherently unstable or it could be this modus of debt expansion is unstable or it could be both or another cause. My personal conjecture leans to the roots of debt expansion as causal (e.g. fractional reserve money from nothing banking). If debt expansion being causal is correct then removing financial markets or controlling house prices and so on while the debt mechanism remains will just result in the speculative expansion in other destructive ways. It is interesting that commodities also had a bubble contrary to Minsky’s argument that the market economy price levels of commodities is “set largely by the costs of production”. Further if “A market economy is inherently cyclical” is taken as a truism then the other possibilities which may in fact be more accurate and so derive more accurate functional solutions will no longer be considered. Hence, we are back where we started with the consequence of yet another scientifically unverified and so unstable potentially disastrous or misery inducing warring economic religion, yet again throwing out a different baby with the bath water, in this case possibly a vibrant, creative, debt-stable, free market.
November 6th, 2008 at 12:33 pm
Ben Dickinson is right on the money in identifying human behaivour as the underlying cause of this ( economic meltdown) and so many other issues.
The other example where this is so obviously reflected is with ‘climate change’.
Humans think that their 75 years or so in being and doing or observing things that happen in and to this world are important.
they just cannot seem to get how infinitesimaly
insignificant (in the scheme of things) it and they/we are.
So I would love to see for discussionalong the lines that and has raised and I will start my contribution by asking “when is the last time you met a clerk?” and developed proposition later.
It has been so terrific to find Steve Keen which I did accidentally from one of his radio interviews. make a real point of passing on word about this site.
November 6th, 2008 at 4:39 pm
The last but one par above should have been
So I would love to see further discussion along the lines that Ben has raised and I will start my contribution by asking “when is the last time you met a clerk?” and develop the proposition later.
November 6th, 2008 at 7:30 pm
David,
not everybody is convinced that the commodities boom was (or least mostly was) a financial bubble. Commodities have substantial and real holding costs. It is to be expected that price will rise rapidly when supplies become tight and there is plenty of evidence that supplies were tight. This issue won’t be resolved (empirically) until the world-wide recovery is well underway.
November 6th, 2008 at 7:34 pm
David,
as regards fractional reserve banking, I’m not too sure that its development was the result of government fiat, rather than (as I have seen suggested) merely the formalisation of the de facto reality. Like Steve Keen, I’m inclined to think that the money supply seen in the longer run is endogenous (supply finds a way to meet demand). We seem to both agree that control is needed as some point, the disagreement may be just where is most effective. So I tend to see your post as just quibbling about terminology rather than being about real distinctions.
November 7th, 2008 at 12:04 pm
Reason,
I’m not sure why you consider my previous post as “just quibbling about terminology rather than being about real distinction” but rather the distinction is; your belief is “I’m inclined to think that the money supply seen in the longer run is endogenous (supply finds a way to meet demand)” where as mine is that enterprise profiting from creating money from nothing is intrinsically unstable and we ignore it at our peril. These issue and the real harm caused by them in our communities do evoke some passion so I’d like to say, I appreciate Steve Keen giving opportunity for the public, like I, to share our views and I admire anyone seeking scientific grounds for economic understanding and his raising of the awareness of the debt issue. Certainly to borrow a quote, as Albert Einstein said “The significant problems we have cannot be solved at the same level of thinking with which we created them.”
I see no more reason to ignore fractional reserve money from nothing banking as it is “merely the formalisation of the de facto reality” than any other economic change considered here. I made no mention of fiat money; fractional reserve money has a long history along with banking instability. You are arguing “I’m inclined to think that the money supply seen in the longer run is endogenous (supply finds a way to meet demand)” where as I put forward that such long term ‘equilibrium will only occur with the extreme ‘cyclicity’ we are now experiencing and only after the money from nothing debt expansion has reached the physical limits of borrowers capacity to pay for it. For banks increasing profits, debt must expand, and if new debt money is continually being supplied to a system at enticing rates, speculative booms are a consequence not a cause. I tentatively put, the ever increasing supply gives the illusion of stability or equilibrium and hence speculative profits and the hope of prosperity until debt capacity is reached and the debt collapse begins and I suggest that is the full paradox, expanding debt from nothing becomes so large it eventually destroys the underlying economy that collapses with no further ability to pay for it and hence the downward spiral interest rates and all the other derivatives and subprime folly occurs along the way in an attempt to restart the debt expansion.
Regarding commodities like houses, yes they have real and substantial costs, the question is are their price rises substantially above those prices. I’ve certainly have read good arguments that it was a bubble. Some recollections; the increase in commodity prices was substantially above demand increases with the CRB index as example showing a three fold increase in commodity prices from 2001 to 2008, it’s dramatic fall also is indicative of bubble behavior; the dramatic increase of investment/retirement/hedge funds into the commodity sector also supports a bubble in prices; and the fact that the final surge in commodity prices exactly coincided with the US Federal reserve desperate lending of billions of dollars to the Goldman Sachs and co investment houses in March 2008 also smells. Of course as you point out commodities form part of the real economy so if their prices are stressed by speculation this has ramifications for all the economy as may be being seen now.
I coined the term ‘Commonsensecos’ to reflect the thoughtful lay but here’s one commonsense economic argument put by the economist Herman Daly:
“Can the economy grow fast enough in real terms to redeem the massive increase in debt? In a word, no. As Frederick Soddy (1926 Nobel Laureate chemist and underground economist) pointed out long ago, “you cannot permanently pit an absurd human convention, such as the spontaneous increment of debt [compound interest] against the natural law of the spontaneous decrement of wealth [entropy]”. The population of “negative pigs” (debt) can grow without limit since it is merely a number; the population of “positive pigs” (real wealth) faces severe physical constraints. The dawning realization that Soddy’s common sense was right, even though no one publicly admits it, is what underlies the crisis. The problem is not too little liquidity, but too many negative pigs growing too fast relative to the limited number of positive pigs whose growth is constrained by their digestive tracts, their gestation period, and places to put pigpens. Also there are too many two?legged Wall Street pigs, but that is another matter.”
I’m not sure a competitive self-interested market economy is of itself viable long term as the earth we reside on comes to its limits or that other enlightened modes of human endeavour should be explored. However to put that aside, I also make a distinction on the notion of control. If we are to continue to have a market economy, to me, it’s essential quality is it’s free flowing competitive and creative spirit. Controls I see are ones that will enhance or steer that free nature and a level playing field. Perhaps the analogy of Football might help. There is a construct in which the game is played and there is an umpire but within this construct the players are free to play as they wish and the game is played with enthusiastic intensity.
November 7th, 2008 at 12:05 pm
Herman Daly’s discussion can be found at:
http://www.theoildrum.com/node/4617#more