Max Keiser interviewed me in his inestimable style on the Max Keiser Report earlier this week, and the interview is now available (the interview began at roughly midnight my time on a day that had started for me at 5am, so there are some slips in my delivery here–for instance at one point I say “fail to avoid” when I meant “avoid”).
I’ve had some difficulties in getting the embed to work (the latest version of WordPress seems to do something untoward to the embed code) so you may need to hit the “refresh” button before you’ll see the video below.
The show always starts with an interview between Max and his partner Stacy Herbert, reviewing the financial news of the last week. It’s entertaining, informative and provocative–if you haven’t encountered Max before, you’re in for an surprise.
The interview with Max starts at about the halfway point of the video below, and we cover the housing market, why Australia has not suffered greatly from the GFC so far, why deflation is more likely than inflation, and what the outcome is likely to be of governments attempting to deficit stimulate the economy while ignoring the level of private debt.
Angophera was i not clear in my comments?
“Keiser mentioned Charlie Munger of Berkshire saying we needed a new constitution”
it not just the constitution that needs change but the power arrangements surrounding it.
i do not think it is a satisfactory proposotion that we have un elected wall street bankers coming in and out of the revolving door of the american cabinet.
i do not think its satisfactory that the president gets to choose his men subject to congressional approval, not the citizenry.
and because the citizenry dont have to turn up and vote, money talks and prejudice abounds
in this country even prime ministers can lose their seat.
i have said this before,
when they write the history of the next 30 years it will be the american presidential system of governance that will be held to account for the collapse of the current global political and trading system, and our economic prosperity, such as it is, with it.
trade and economic prosperity cannot flourish without political security, and it will be the barely elected presidency with its unelected cabinet, that will bring into jeopardy the current geo political framwork through miss guided foreign policy.
in my view the world would be much better served if the americans had a bench of 3 or 5 presidents all serving on a rotational staggered basis, compulsory voting, and total public funding and the banning of private funding.
show me a political, economic or military disaster, and i’ll show you a regime that cant govern itself or is being out governed by its mortal opponents.
Re #23 mannfm11,
Yes, I think you’re correct that Minsky’s solution only works with a much lower level of debt.
In the models I did in my 1995 paper, there was a bifurcation point for government debt: below one level of the rate of growth of private debt, government debt could stabilise it at a fluctuating but long term constant ratio of government debt to GDP. Above that level, it took accelerating levels of government debt to stabilise private debt. That I think is the situation we are in now, and once I realised this I started to regard Minsky as an optimist.
That’s one reason my solutions involve abolishing a large slab of the debt–in line with Michael Hudson’s thinking–and not merely government spending as a counterbalance (which was Minsky’s idea and is also given form in my 1995 JPKE paper).
Lyonwiss, I love the expression of “Dynamite Laureate Greenspan” (and of course also Friedman). I’ll use these in future with a link to the relevant blog entries whenever I use their names.
@ Lyonwiss (#24)
I believe you are right in your interpretation of what the Dynamite Prize means: “we have been going up the wrong path for the last few decades”. And undoubtedly a fraction of the economics profession understands it this way. But this is not the whole of the profession and, least of all, the whole of the universe of decision-makers.
I also agree that a “bit of government stimulus and a bit of money printing” will not fix this. To see that you are right and that at one stage even pollies and their advisers understood that, we only need to remember last April meeting of the G20. They made recommendations from putting a cap on high executives’ pay packages, to introducing new financial regulations, to crack down tax havens.
To see what good those recommendations were: financial regulation legislation in the US has stalled; in Davos last year, the bankers already opposed most changes, although in a low profile move; in Australia, there are proposals to transform Sydney into a tax haven (apparently supported by former members of the Howard cabinet), with no substantive change in the way executives are compensated.
In Steve’s expositions on Minsky, he explains that periods of financial stability, because of that very stability, induce increasing risk-taking behavior from bankers and investors. And this erodes the very same stability, making the market more prone to crashes.
As the application of this process, in what concerns most people in this blog, is to housing and mortgages, people seem to accept that this occurs only in those markets.
But I can’t see why investors in financial assets or real estate, large or small, have to be the only ones affected by it.
In fact, I see the current reaction against the limited neokeynesianism a la Krugman precisely in the same light: neokeynesianism’s ability to make the situation “look like the crisis is over” moves capitalists to become greedier.
This may be just herd behaviour: financial markets appear to be booming, wohoo! Let’s all make money! A kind of feeding frenzy.
But I can think of a simple factor, well grounded in economic theory that can explain it: opportunity costs of investment.
Suppose you have enough money to either (1) open a small factory or to (2) buy several houses for rental market and speculation. You may end up deciding to open the factory based on many things (from, say, your deep patriotic sense of duty, to your wish to honor your late Dad’s memory, as he was a blue collar worker), but whatever the things influencing your decision, at least some consideration for opportunity costs will affect your decision.
Let’s simplify this and consider that only opportunity costs play a role. So, the higher returns offered by the financial markets, the higher the returns required by you from the “real” economy. If those returns are not offered in Australia, but in the Philippines, so be it.
And the thing probably works the other way around: the higher the returns offered by the “real” economy, the higher the returns demanded from the financial sector.
To achieve these higher returns, foreign investors need to be allowed to invest in physical assets in markets outside their country of residence and be allowed to move their financial capitals without any obstacles. In other words: globalization.
As higher returns are sensitive to governmental decisions (say, foreign investment regulation, workplace laws, taxes, tariffs, environmental, OH&S regulations, and financial regulation), capitalists will fight with claw and teeth to gain leverage over governments. This is what I believe happened in the US, UK, here and elsewhere starting during the 1980s (under Thatcher, Reagan et al).
Then we had this all too brief interlude where “now we all were Keynesians”, while the GFC seemed to threaten the very roots of capitalism. If you like, it was a collective loss of self-confidence. Now that the threat seems to be over, the self-confidence is back and we have the low of the tide.
Have a look at this cartoon. This is the idea:
Regarding the Ongoing Irrelevance of Keynesian Economics
http://www.leftycartoons.com/regarding-the-ongoing-irrelevance-of-keynesian-economics/
In any case, this ceaseless flow and reflow of investment back and forth causes the global economy to become increasingly interconnected and complex. And banks profit and grow and become more powerful and risk seeking. The fact that they also become “too big to fail” is not conducive to risk averse behaviour!
If one link of the web fails (say a volcano eruption in Mindanao island), both the “real” economy and the financial markets somewhere else will be affected. Say, you lose your factory in the Philippines and your investment and you can’t repay the bank, which goes broke because of that.
“That’s one reason my solutions involve abolishing a large slab of the debt–in line with Michael Hudson’s thinking–and not merely government spending as a counterbalance (which was Minsky’s idea and is also given form in my 1995 JPKE paper”
point taken and im in favour,
but, government spending money without a liability attached to it, is also another way we can address these problems, and allow the private secor to fix its balance sheet.
it would mean dismantling interest rate targeting, but so be it.
the question remains, do we do this and keep housing asset prices where they are, and aid abbett the current systems tendency to use part of this government largess to undertake ponzi like behavior
Dr. Keen,
Thanks for the link to the Moore paper. If I read it correctly, then the Federal Reserve is essentially powerless in controlling bank lending, even if it sets the federal funds rate relatively high. This is a pretty counter-intuitive idea, given how much emphasis politicians place on reserve banks.
I had also come across for the first time the idea that the base rate of inflation can be interpreted as the excess growth rate of money wages minus the growth rate of average labor productivity. If this is accurate, then I imagine it all sorts of implications that economists are ignoring. Is this still argued by Post-Keynes economists?
Lyonwiss & Marco2,
I think these two quotes helps to explain why economic theory and economists themselves tend to be rather conformist and even corrupt:
“The dominant economic discourse has, since the early 1980s, reinforced its hold in academic and research institutions throughout the world: critical analysis is strongly discouraged, social and economic reality is to be seen through a single set of fictitious economic relations which serve the purpose of concealing the workings of the global economic system. Mainstream economic scholarship produces theory without facts (“pure theory”) and facts without theory (“applied economics”). The dominant economic dogma admits neither dissent from nor discussion of its main theoretical paradigm: the universities’ main function is to product a generation of loyal and dependable economists who are incapable of unveiling the social foundations of the global market economy. Similarly, Third World intellectuals are increasingly enlisted in support of the neoliberal paradigm; the internationalisation of economic “science” unreservedly supports the process of global economic restructuring.” (p. 42)
“The “official” neoliberal dogma also creates its own “counter-paradigm” embodying a highly moral and ethical discourse. The latter focuses on “sustainable development” and “poverty alleviation” while distorting and “stylising” the policy issues pertaining to poverty, the protection of the environment and the social rights of women. This “counter-ideology” rarely challenges neoliberal policy prescriptions. It develops alongside and in harmony rather than in opposition to the official neoliberal dogma. Within this counter-ideology (which is generously funded by the research establishment) development scholars find a comfortable niche. Their role is to generate (within this counter-discourse) a semblance of critical debate without addressing the social foundations of the global market system. The World Bank plays in this regard a key role by promoting research on poverty and the so-called “social dimensions of adjustment”. This ethical focus and the underlying categories (e.g. poverty alleviation, gender issues, equity, etc.) provide a “human face” for the Bretton Woods institutions and a semblance of commitment to social change. However, inasmuch as this analysis is functionally divorced from an understanding of the main macro-economic reforms, it rarely constitutes a threat to the neoliberal economic agenda.” (pp. 42-43)
Chossudovsky, Michel. 1998. The Globalisation of Poverty: Impacts of IMF and World Bank Reforms (Sydney, Australia: Pluto Press).
Steve,
Thanks for the Moore paper. I’ll recommend “Shaking The Invisible Hand” by Moore for readers here. The quote in the paper by Max Planck A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it is both nice and depressive – it seems to suggest that we have to wait for another generation to get rid of neoclassicals!
There is another quote – by Freeman Dyson in “The Scientist as a Rebel”- which you may like – because it is what you have tried to say on various occasions. The great advances in science usually result from new tools rather than from new doctrines.. Mainstream is full of doctrines and nothing else.
Re #32 ArmchairPundit “I had also come across for the first time the idea that the base rate of inflation can be interpreted as the excess growth rate of money wages minus the growth rate of average labor productivity.”
Yes this is still the basic Post Keynesian position on inflation, and in fact it can be derived from a dynamic model of production and price setting, as I show in this paper:
http://www.economics-ejournal.org/economics/discussionpapers/2010-2
@ Philip (#33)
The second quote is terrific: it puts my argument into perspective.
When a guy like Paul Krugman is seen as a socialist (as he is seen, in the “land of the free”), we need to worry.