Ross Gittins finally comes aboard

• Tweet

• Tweet

Ross Git­tins final­ly comes aboard the debt-defla­tion train, with an arti­cle in today’s (Decem­ber 8 2008) Syd­ney Morn­ing Her­ald enti­tled “It’s not infla­tion that did us in, it’s the bor­row­ing”. For non-Aus­tralian read­ers, Ross has been a reg­u­lar eco­nom­ic com­men­ta­tor for Syd­ney’s lead­ing news­pa­per for about forty years.

His eco­nom­ic posi­tion in the past could be described as pre­dom­i­nant­ly neo­clas­si­cal, with occa­sion­al dash­es of Key­ne­sian­ism, the odd infre­quent jibe at the unre­al­is­tic assump­tions under neo­clas­si­cal eco­nom­ics, and a social­ly con­cerned ori­en­ta­tion that was crit­i­cal of both income inequal­i­ty and exces­sive con­sumerism.

He is, in that sense, some­what of a wind-vane. He is unlike­ly to lead debate,  but if he switch­es direc­tion, then maybe the debate itself is chang­ing direc­tion too.

His arti­cle opens with the fol­low­ing quite appo­site state­ment: “WARNING: The fol­low­ing com­ment ben­e­fits from the wis­dom of hind­sight. It’s an idea that’s crossed my mind sev­er­al times in the past decade but now I’m sure of it: for all that time the world’s cen­tral bankers have been on the wrong tram, wor­ry­ing about infla­tion when they should have been wor­ry­ing about exces­sive bor­row­ing.”

Indeed. Most of his writ­ings have gone along with the “Infla­tion Pub­lic Ene­my Num­ber One” posi­tion that typ­i­fies neo­clas­si­cal econ­o­mists in gen­er­al, and those run­ning Cen­tral Banks and Trea­suries in par­tic­u­lar.

There are aspects of his analy­sis in the arti­cle that I would dispute–attributing suc­cess in con­tain­ing infla­tion not to Cen­tral Banker’s adroit manip­u­la­tion of inter­est rates, but “micro­eco­nom­ic reform”, for instance, when I expect that the glob­al­i­sa­tion of pro­duc­tion has had rather more to do with it.

But the basic mes­sage is con­so­nant with the one I have been run­ning on Debt­watch for 3 years now, and in my aca­d­e­m­ic research since 1993.

Now I hope to see future arti­cles dis­cuss the upshot of this: that con­ven­tion­al eco­nom­ic theory–especially Neo­clas­si­cal eco­nom­ics but also stock-stan­dard Keynesianism–is com­plete­ly inca­pable of advis­ing how to cope with a debt-induced cri­sis, since pri­vate debt plays no role in its analy­sis, and it pre­sumes the coun­ter­fac­tu­al that the econ­o­my is in dis­e­qui­lib­ri­um.

Final­ly, if you read this Ross, can I sug­gest some fol­low-up read­ings for you: Irv­ing Fish­er’s “The Debt Defla­tion The­o­ry of Great Depres­sions” (Econo­met­ri­ca 1933 Vol 1 pp. 337–357); Hyman Min­sky’s “The Finan­cial Insta­bil­i­ty Hypoth­e­sis: An Inter­pre­ta­tion of Keynes and an Alter­na­tive to ‘Stan­dard’ The­o­ry”, Chal­lenge 1977, pp. 20–27; and my own “Finance and Eco­nom­ic Break­down: Mod­el­ling Min­sky’s Finan­cial Insta­bil­i­ty Hypoth­e­sis”, Jour­nal of Post Key­ne­sian Eco­nom­ics 1995, Vol. 17, No. 4, 607–635.

And of course, this blog.