Title: “Crunchtime”: Bringing together the best policy minds to discuss Australia’s future
Location: Trades Hall Auditorium, 4 Goulburn St, Sydney NSW
Link out: Click here
Description: The best policy thinkers from Australia and abroad will come together for “Crunchtime” – Australia’s first progressive think-tank conference.
Tax, social policy, the global financial crisis and climate change will be pulled apart by impressive policy minds including Ann Pettifor from Advocacy International in the UK. Ann has written extensively on debt and finance, climate change and international development and was one of the authors of the UK national economic foundation’s Green New Deal.
Local speakers include CPD fellows Steve Keen, David McKnight and Mark Davis.
The event coincides with the half way point of federal Labor’s term, and is one year on from the 2020 Ideas Summit. It will provide an opportunity to consider the impact of the global financial crisis and to discuss the values that should drive future policy.
Start Date: 2009-04-22
Start Time: 9:00
End Date: 2009-04-23
End Time: 17:00
I will contribute to one workshop (3.10-4.30pm on Wednesday 22nd) on ”Responsible Markets”, along with Dr Lindy Edwards, Australian National University, and Dr John Quiggan, Queensland University (by videolink).
April 16th, 2009 at 9:38 pm
Steve, I hope there are some politicians there who will be listening. I’m done with the constant optimism. The business cycle exists because of credit. The ability to borrow several years of future income to spend now creates waves in aggregate demand since continuous borrowing is clearly unsustainable. Waves in credit create waves in spending/demand creates waves in production/activity creates waves in employment creates waves sentiment creates waves in asset pricing. No wonder governments want to get credit markets working!
My approach? Understand, monitor and exploit the business cycle! See http://www.business-cycle-monitor.com.
April 17th, 2009 at 4:16 am
Steve
Ann’s very good on pointing out the flaws in debt, but like everyone else, hasn’t come up with an alternative.
I reckon there is an alternative, involving a new take on Equity, beyond the conventional obsolescent “Corporation”.
I gave the annual lecture in Dublin to FEASTA, which went down well…..
http://www.slideshare.net/ChrisJCook/equity-shares-a-solution-to-the-credit-crash-presentation
and here
http://www.youtube.com/watch?v=I5mgnR5lagI
April 17th, 2009 at 7:48 am
Interesting slide show Chris,
And I can see some potential for the idea. My focus is more on the macroeconomics–though I have my own rather simpler idea about controlling the debt pyramid via a redefinition of shares–and it’s important to temper concepts like this with a caveat that, though they might prevent a crisis in the future, they can’t do anything about the structural problems this credit bubble has given us.
Providing a system that won’t f___ up like this one did doesn’t address the damage this one has done to our productive capacity, the skills in the workforce (too many “financial engineers”, nowhere near enough real ones), etc. I’d suggest adding one more slide that shows your credit pyramid falling sideways onto a factory, pointing out that we’re going to be building a new system on the ruins of the old one–and they aren’t pretty.
April 17th, 2009 at 9:59 am
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5160120/A-Copper-Standard-for-the-worlds-currency-system.html
Hmmm, I seem to remember suggesting pretty much the same thing a few weeks back. Mind you, there have been movements from China to get involved in mining and resource acquisition for years so this is a logical culmination.
Good luck with your “progressive” think-tank. We all love progress!
April 18th, 2009 at 7:48 pm
Steve,
As with a number of other engineers who comment here, I have to add my voice to their chorus that you are the first economist who makes much sense to us. I’ve been a avid reader for some months now, and I do have two questions:
1. Minsky describes three kinds of debt: hedge, speculative and ponzi. Trick question, do you have any idea of the relative portion that each type represents? (As a % of GDP.) This question obviously begs several others; how would one go about accurately distinguishing between these categories in practise, and how each category might vary over the course of a business cycle.
2. The next question is is related. As a New Zealander I’ve been looking around to find a measure of our total debt. At present our current govt net debt is very low, but we have racked up around $180b of private sector debt mainly on housing. At the same time we do have significant overseas assets (whatever they may be worth) but a total figure has been hard for a non-economist like me to determine.
However a very recent OECD report :http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10567229 mentions that “The problem there is that the country as a whole, as distinct from the Government, is already heavily in debt to the rest of the world, to the tune of 93 per cent of GDP even after allowance for New Zealand investment abroad.”
Now compared to the same sort of ratio you are quoting for Australia and the USA it would seem on the face of it that little old NZ has been fairly conservative. Are we comparing apples with apples here and if so, why the alarmist talk from the OECD?
3. In the current model some level of debt is inevitable and sustainable. How far then do we have to deflate to such a desirably stable situation? If NZ is currently running at 93% how much debt would you imagine we have to unwind?
April 19th, 2009 at 7:42 am
Hi Redlogix,
On point 1, the measure would differ for every country, but for Australia I’d see the hedge level being around 25-35% of GDP We sustained about 25% for 20 years from 45-65, and they were our best in terms of macroeconomic performance. The USA is probably higher, but certainly below 100%.
On 2, that 93% sounds like it’s just foreign debt–on which the Australian figure is about 70%.
On 3, in Australia’s case we’d need to unwind the equivalent of a year’s GDP to get within cooee of hedge only; the USA would need to unwind 2 year’s worth.
April 20th, 2009 at 10:15 am
Here may be our future – they are almost throwing houses away in the UK.
http://www.auctiontoday.co.uk/auction_details_online.php?auctionID=U-001PO
April 20th, 2009 at 1:26 pm
This is very, very pricey. Are they providing a fee to speakers?
Only for rich folks and upper-income retired folks it seems.
April 20th, 2009 at 2:28 pm
Come on Chris
$150 for a 2 day seminar = very, very pricey?
‘Only for rich folks and upper-income retired folks’??
The last seminar I attended was about $80 for one day, and I thought that was very reasonable. And I’m certainly not ‘rich or upper-income’.
April 20th, 2009 at 5:14 pm
They’re probably paying airfares Effit–no speaker fees but a lot of people are being flown in from interstate–and possibly also catering.
April 20th, 2009 at 5:22 pm
Steve
It was Chris who was questioning the price of the seminar. I think the price is very reasonable. Just sorry I don’t live in Sydney to attend.
April 21st, 2009 at 9:22 am
Steve,
You and some of the bloggers on this site often talk about mathematical modelling. I wonder if there is a risk that a mathematical approach to economics runs the risk of diverting attention from the wider thrust of an economy (like counting the trees and not seeing the forest)? Is mathematics meaningful in economics?
Clearly, in the physical sciences mathematics is essential; we couldn’t build a bridge without it. But in physics there are provable causes and effects; for instance as Isaac Newton found if you release an object it falls to the ground. I don’t believe this is true in the so-called social sciences where human behaviour often causes an unpredictable outcome; although there seem to be broadly based approximate flows.
As most of us have found when doing a business model the mathematical outcome depends largely on the assumptions of the inputs and a wide variety of results are possible; for example when developing a strategic plan or next year’s budget. Would this also be true in economic modelling?
As you so rightly and forcefully demonstrated, the neoclassical economists got it wrong. Is that, at least partly, due to seeing economics as a science, when it probably is more like a belief-system, something more driven by social mood than measurable factors, such as interest rates and GDP?
I am a great believer in trying to keep things as simple as possible and frankly the GFC could have been foreseen without the benefit of economic training. I was concerned about the US economy as early as 2005, and based on history I believed the US would drive the outcomes in Australia. In early 2007 I was sufficiently convinced about an economic malaise and I sold all my shares.
Now, I don’t consider myself particularly smart, I simply looked at the huge debt in the US and compared it with previous bubbles in the US and as I had spent a lot of time in Japan I was conscious of a similar problem there. This together with high stock prices (dividends in the late 1990’s and early 2000’s were under 2% for the first time in history) told me there was danger. Added to this the observation that economies went through cycles (although lacking precision in timing) and I was convinced that troubled times were ahead. Whilst I wasn’t sure when a collapse would occur, the size of the bubbles, larger than anything before it, made me feel that it had to be soon.
There were some other peripheral issues that bothered me, like the growth of the finance industry versus what used to be called “smokestack” industries and the complexity of financial instruments, but these only were extra fuel on the main concern, which for me was excessive debt and high stock prices. (I slipped up by not paying as much attention to real estate valuations in the US as I should have).
I wonder if I had reached the same conclusion if I had made a deep study of economic theories and ran a mathematical model?
So my question is: “Given that economies are largely people-driven with little physical certainty, is there a risk that by making economics complicated with mathematical models and having a belief that theories are gospel, the likely actions of the market become obfuscated?”
April 21st, 2009 at 4:37 pm
Otto C
I can not answer for Steve but as one of the advocates of mathematics on this blog I would like to comment.
You make a good point, but, you claim that you could see the problem comming by questioning among other things the levels of debt. It seems to me that you were using your own mathematical model to reach this conclusion and that your model was valid.
What I have been questioning are the models used by neoclassical economists which did not even posses the validity of your model. This is illustrated by their failure to predict the current collapse.
The neoclassical models appear to have no place for the passage of time. Because of this they cannot include the effect of time delays caused by factors which you describe and changes in technology. Also the effect of feedback on both the time delays and the magnitude of the effects is totally overlooked.
None of the neoclassical models include time as a parameter, when I first saw this I could not believe it! Even Adam Smith in the 18th century showed some appreciation of the affect of the passage of time. These 21st century “neo classicals” are oblivious to it. They are full off **** er, hubris.
What they use are effectively mathematical models in the sand pit.
Yes such models can be too complex but they could also reveal methods which could be employed to stabilise the world economy and ensure that a collapse as we are now experiencing will never happen again.
That the world leaders are still listening to these people who use such primitive reasoning, is the main concern. Too few economists are have sufficient mathematical knowledge to be even aware of the control system engineering princilples which could be applied. They do no know, and they don’t know what they do not know.
You or I could do (and have done) better!
April 21st, 2009 at 4:54 pm
Steve
Looking at the list of speakers I cannot find any speakers who are Engineers, Doctors, Scientists or for that matter members of any of the professions who would be needed to solve the physical problems. These people would be in the forfront of real wealth creation and their awareness of science and technology is what is really needed as a major contribution to such a conferrence. “Policy minds” who do not know what they do not know could be as dangerous as neoclassical economists.
Perhaps I may be wrong there may be one or two but would this be sufficient?
Many thanks and all the best at this conferrence.
April 21st, 2009 at 5:41 pm
Yea
I suppose airfares would ratchet it up.
Most people have to think hard before spending $150.
Oh well ….
April 21st, 2009 at 6:36 pm
I have to agree Brightspark,
As I expect you realise, I want to encourage engineers, physicists and biologists to usurp economics from the economists. That day may yet come, but it certainly isn’t here yet. Only a handful have become engaged with this area–Geoff Davies being one prominent example–but not enough to make a presence felt.
April 21st, 2009 at 7:44 pm
Hi Otto,
I’d largely second Brightspark’s reply here, but add that there is indeed a danger of becoming deluded into seeing your mathematical model as the economy. This is where neoclassicals have gone so badly wrong, but one essential reason why is that they have used the wrong mathematics and done it badly to boot.
Better mathematics, as Brightspark notes, incorporates time into its analysis–whereas Neoclassical models are either time-free or so kludgy in treating time that well-trained mathematical professionals, like engineers, simply gawk in disbelief at what neoclassicals call economic models.
However there is that danger of seeing your model as the economy. The only antidote here is true empiricism–abandoning ideology and testing your model against reality as is commonplace in physics. Economists use what they call econometrics to do this, but as an excellent old paper once stated, “let’s take the CON out of eCONometrics”, and generally speaking that hasn’t been done. 99% of the models are linear and assume normally distributed error terms–which by definition will be wrong since the real economy is manifestly nonlinear.
Even then, there is the reality that economic systems evolve far faster than even biological ones, that there is a degree of purposive action in social dynamics that can’t be captured accurately by a mathematical model, and so on. However I believe that generalised dynamic economic models can capture a lot of the important dynamics of a capitalist economy. Essential here is mapping what I call the economic skeleton–the fact that all capitalist economies must have workers, capitalists bankers; that credit is needed for all transactions; that production involves time and multiple commodity inputs for commodity outputs. The mathematics of this describes the linkages in the economy, but not the behavioural dynamics (the muscles, so to speak) that articulate the skeleton.
April 21st, 2009 at 8:41 pm
Steve,
Regarding testing the accuracy of economic models, I am an engineer (not an economist), but I have done some trading in the past and this has taught me something very valuable that should be used by economists to test their models. It is called “BACKTESTING”. We have plenty of historical data so all you need to do is input the historical data (eg 2007) into the model and then see if the model’s predictions for the following year line up with reality! This is really basic stuff but at a guess I would say that economists don’t even do this. From what I have seen, whenever their models don’t line up with reality, which happens in almost every case, they rationalise or try to explain away the deviation instead of correcting their models. Am I right?
April 21st, 2009 at 10:05 pm
Yes, very little of that happens in economics–and economists use the exercise to tweak parameter-rich models to reproduce the data.
I have a feeling though that this crisis might upset that applecart a tad.
April 21st, 2009 at 11:31 pm
Steve and BrightSpark,
Your explanations clear up my query on how mathematics impact on economics. The key for success seems to be in the validity of the model and the need for reality checks along the way. Likening the model to a skeleton and behavioural dynamics to the muscles is an excellent way to describe the process. I also appreciate your views on the importance of the time element and your emphasis on studying economic history.
I take this opportunity to compliment you Steve and the people who participate on this website for the information so enthusiastically provided and the willingness to educate someone as naïve as me in economic wisdom; and it is generally done in a co-operative and friendly way. It is certainly the best site on the web that I have come across.
April 24th, 2009 at 11:58 am
Hi Steve
I had a look at the conference – looked like a great program and wish I’d heard about it earlier. Are the presentations from the conference going to be made available do you know?
Cheers
Ben
April 24th, 2009 at 12:04 pm
Yes Ben, though there don’t appear to have been transcripts, so “off the cuff” talks like the one I gave may not make it into print. The CPD is organising all this however, so keep an eye on their website http://www.cpd.org.au.