My Walk to Mt Kosciuszko is no longer a solitary affair: at last count, I will have a dozen companions for the entire distance, and another 16 joining me for at least one day.
One of those coming for the entire trip is the Commentary Editor from Business Spectator, Rob Burgess. Rob will report from and on the Walk on a daily basis, covering it both as a news story, and as the basis for a discussion of the wider issues facing business and economics in the uncharted terrain of the supposedly ‘post-GFC’ world.
The others joining me on the trek are doing so not just for the scenery, but because they too believe that Australia’s economic policy has become beholden to maintaining house prices at unsustainable levels. Despite government rhetoric (and some action) about improving home affordability, the First Home Vendors Boost did far more to make houses more unaffordable than the government’s minor actions in the opposite direction. The other walkers are joining me to bring attention to the absurdity of managing the Australian economy by making it impossible for people to afford houses in their own country.
But though The Walk will have a political protest at its core, it is not party partisan: our call here is “A Plague on Both Your Houses”. Whatever else might change if Tony replaces Kevin, one thing that won’t change is a sky-high house price policy, since both sides of politics in Canberra (not to mention the commercial Banks and their economists) have become convinced that the major reason the GFC occurred was that house prices fell.
This is true in the same sense that jumping off a cliff is painless—it’s hitting the ground at its bottom that hurts. The real cause of the GFC wasn’t falling house prices per se, but the mortgage debt that drove them higher as households took part in a speculative bubble. The rising debt level was, in effect, climbing the mountain in the first place: deleveraging was jumping off it.
The only way to prevent a financial crisis is not to climb the mountain in the first place: to stop debt being taken on for speculative reasons. But instead politicians the world over encouraged households to do precisely that, in the misguided belief that financial engineering was a road to wealth. Instead, it was the road to debt penury.
Once that debt has been accumulated, trying to stop house prices falling is like keeping Wily Coyote stationary in midair after he’s fallen off a cliff with an anvil attached to his legs: he’ll stay there for a moment, but after a while, it’s “Hello Terra Firma”.
House prices rose in America and the rest of the OECD because households took on bucketloads of mortgage debt, and they fell because households stopped taking on more debt. The fall in house prices was a symptom of households ending the leveraging game: it was coincident with the crisis, it made it worse because the collapse in house prices and the rise in insolvencies made banks insolvent, but the real problem was that households had got into too much debt.
So how does Australia keep house prices high? By encouraging households to get into yet more debt. The next chart shows what happened to the household debt ratios (both to disposable income and to GDP) before and after the First Home Vendors Boost.
The rise against GDP is far more dramatic than against household disposable income because other government policies—the stimulus package itself and the RBA’s 4% cut in interest rates—boosted disposable income dramatically last year (but even so, mortgage debt is now a higher proportion of household disposable income than before the GFC). The Boost-inspired house price bubble was financed by households adding another 6% of GDP to their already unprecedented debt burden, when prior to The Boost they were on track to reduce mortgage debt by about 3% of GDP in 2009.
We’ve avoided hitting the ground of deleveraging by climbing to a higher cliff.
Just to add to the anecdotes.
I was recently talking to a friend who is a long term Beijing resident and he was telling me minboggling stories of wealthy Chinese bringing suitcases of money into certain gated communities in Beijing and basically saying ‘how many houses will can I but for this?’.
The houses would be purchased and left idle with no tenants.
IMO China is a massive bubble ready to burst, our property market has been influenced by this money, but it is really peanuts compared to what is being done in China itself.
When it goes pop we will go pop.
Philip
A major man-made catastrophe has to have many points of failure, because the system is meant to have checks and balances. The fact that GFC happened has meant that there are many “causes”, each one of which played some part. Dean Baker and Michael Hudson are some of the individuals among many who saw some of the unsustainable features and to their credit, predicted and warned about troubles ahead. Real-World Economics does not have the credentials to create the Revere Award. Many, many foresaw troubles ahead (too many to mention) and some for contradictory reasons and therefore some must have predicted problems for the wrong reasons. What are the right reasons? If you don’t know what they are, how could you give awards? Without trying to demean their insights, most of the candidates are just talkers, speculating about what might happen.
Here is one candidate who should be on the list: Brooksley Born, who saw that complete ignorance of what goes on inside the OTC derivatives market worth hundreds of trillions of dollars is a catasrophe waiting to happen. It is hard to fault the simple logic and indeed derivatives: CDOs, CDSs etc. were the weapons of mass destruction in the GFC. She predicted trouble and tried to do something about it.
For those who have too much faith in governments and regulators, here is a view of the “real-world”:
http://www.pbs.org/wgbh/pages/frontline/warning/view/
@ Lyonwiss (#127)
I am afraid I disagree with your posts 121, 124 and 127, and most specially the last one (#127).
With respect, I believe you have not read Dirk Bezemer’s paper. I suggest you read it and the Timeline included in the Real-World blog. You’ll find that the Revere Prize nominations closely reflect Bezemer’s list.
If you had read Bezemer, you’d recognize that not one of his economists was just a “talker”, as they produced papers containing data and reasoned their conclusions. Here I speak on the basis of my own experience with two authors: Prof. Keen and Dean Baker.
You say: “Real-World Economics does not have the credentials to create the Revere Award”. Lyonwiss, what are the credentials required to create a prize? Say, the credentials of the Swedish Central Bank? (More on this below).
If you check the “About” page of the Real-World blog, you’ll find a list of founders. Many of them are first-order scholars and experts in their fields (including two “Nobel” Prize laureates that you might consider as a more serious prize). To name just those that I am more familiar with: Deirdre McCloskey, Paul Ormerod, Steve Keen, Bruce Edmonds, James G. Devine, Richard Wolff, Robert Heilbroner, Paul Davidson, Dean Baker, Joseph E. Stiglitz, Kenneth J. Arrow, L. Randall Wray, and Mark Weisbrot.
Furthermore, against your impression that many of the nominees foresaw the crisis “for contradictory reasons”, in fact, many of them shared characteristics such as a focus on flow-of-fund models. Unless this was a serendipitous characteristic, I would say it points us in a clear direction.
Nevertheless, I won’t claim to be knowledgeable about each and every nominee. If you know about an author who shouldn’t be there, perhaps I would have been best to say so during the nomination process.
Anyway, you concluded, based on your perception that the authors reasoned from contradictory perspectives, that we don’t know the real reasons of the crisis: “What are the right reasons? If you don’t know what they are, how could you give awards?”
I am sorry to say this, but your logic is faulty. If “you” knew the reasons of the crisis, “you” would deserve the prize, not the nominees. It is because the reasons of the crisis were unknown, that the reasoned explanations given are contributions: they provide new knowledge.
Let me clarify this: there is no point in awarding a Nobel Prize in Medicine for finding that bacteria are related to stomach ulcers, if that fact was common knowledge. Otherwise, I would nominate myself for this year’s Nobel Prize in Medicine for the “discovery” that tonsillitis is due to a bacterial infection.
This is not like an exam, where the professors grade their students on the basis of knowledge previously imparted.
In relation to Brooksley Born, I am afraid you seem not to understand the objective of the prize. I repeat: I mean no offense. The idea, as far as I understand, was to award economists who did predict the crisis, with specific details (to avoid the possibility of serendipity). And that is due to the myth mainstream economists fostered that no economist could have predicted the crisis, as the crisis, by its very nature, was unpredictable (according to mainstream economists, people like Prof. Keen just guessed the crisis).
I may be mistaken, but I believe Ms. Born is not an economist. This in itself would disqualify her.
And although I am not familiar with her work, judging by what you say, I don’t know whether it qualifies, either. Because the idea was not just to point to an aspect of the problem and say that this may be problematic; instead there was the needed of an explication of why this aspect may have effects on the whole of the economy.
ADDED AFTER NOTICING SOMETHING WITH THE REVERE PRIZE
Having said all that, I do agree that the Revere Prize has problems, as I have just found out (literally, a few minutes ago).
If you read the call to vote notice, you’ll find a group of persons protesting that Prof. Nassim Taleb (NYU) was not nominated to the Prize. I must be honest here: I have no idea who this gentleman is, what he has done, or why he should be included.
However, his supporters seem to feel very strongly he should be a nominee. Ironically, not a single one of them bothered to nominate him and so he wasn’t included in the list of nominees. I suppose Prof. Taleb and his supporters were expecting the Prize promoters to prepare a list of nominees and submit it to vote. I also suppose they were sure Prof. Taleb’s presence in that list was a certainty.
As the list was written as a result of submission of candidates by the public and Prof. Taleb’s followers did not submit his name, he was not included, and his supporters demand his inclusion now, after the nomination process was closed. What’s worse, Prof. Taleb himself seems to take this as a personal affront.
Currently the prize promoters face a real dilemma: at one hand, they could accept Prof. Taleb’s “direct” nomination (or re-open the nomination process), but this in my opinion would be risible, and unfair to all other nominees; worse still, it would expose the prize promoters to a situation where anyone could raise hell, and get what they want if the outcome wasn’t what they desired; at the other hand, they could just ignore the objections, but subject themselves to endless criticism by Prof. Taleb’s group.
This might be more trouble than it’s worth, for the prize money offered… And it sure reeks of improvisation. Besides, the damage to the prize’s credibility (which, at the end of the day, is what it can offer) is probably already done.
If I were the organizers, I would be tempted to cut my losses and call the whole thing off. The idea of recognizing the work of people who “did see it coming” was a commendable one. I myself had hoped Prof. Keen would get some recognition, however symbolical.
Unfortunately the execution was awful.
I hope this is no indication of the future of alternative economics.
Marco,
Why do we need celebrities in the first place? Catholic church introduced them (but they must be dead), modern capitalism needs them as model consumers and a distraction from the misery of debt peonage… Communism needed Pavka Morozov and Che Guevara.
OK call me a kind of anarchist. I have finally come out. What I hate are the predominant elements of our debt-fueled overconsumption culture where marketing replaces reality. I know that this toxic elements will always be there but personally I can stay away from this kind of stuff.
Do we want to manipulate people to believe in post-Keynesian economics or do we want to provide arguments which will prove that the neoclassical approach is wrong? I am afraid that once we get into marketing our ideas instead of disputing false ideas introduced by neo-classicals, monetarists and Austrians the point we want to make will become very blurred…
ak
“Why do we need celebrities in the first place?”
That’s a very good question. I am starting to feel that, at least among some, recognition for some contribution, real or imaginary, is more important than the contribution itself.
Don’t get me wrong, I find it fair that people’s efforts be recognized. It’s just a matter of priorities.
“OK call me a kind of anarchist. I have finally come out”. I’ll come out of the closet, too: I am a commie
ak #129,
Excellent post. 100% agreed.
‘Marketing’ is entirely about manipulation of perceptions, deception, distortion, and (often) outright lying. In context of the broader discussion, one cannot “fight fire with fire”. All that is achieved is creating a bigger fire.
As soon as any group – no matter how well-meaning – begins to embrace aspects of marketing (such as ‘celebrity’), the door to multiple evils is opened. Not least being Pride. Dogmatism. And laxity of intellectual rigour.
Marco2,
Bezemer’s paper was mainly to counter the claim that “no one saw this coming”, by drawing up a list of those who wrote about unsustainable aspects of the economy. A common theme was the building up of debt through flow-of-funds analysis, as Bezemer noted:
An accounting (or balance sheet) view of the economy makes clear that this dynamic – a bubble – is unsustainable in the sense that it is constrained by the real economy’s ability to service debt. Yet without policy intervention, it can last for many years or even decades, if starting from low levels of indebtedness. A burst occurs as investors realize this constraint is approaching or has been reached. The severity of the impact of a burst will be the larger as real-economy consumption (and thereby production) have grown more dependent on capital gains rather than on wages and profit.
This is economic insight, which is very different from forecast, which is what the Revere Award (criterion 2 and 3) said these people were doing. If they were accurate forecasts then Steve Keen would not be walking to Mt Kosciuszko now. Similarly, Bezemer also mentioned about Baker:
In May 2004, Baker sold his apartment in the Washington Adams Morgan. He was quoted as saying “I felt like a fool holding
onto it I’m pretty sure that prices around here will plummet”
Economics is a subject in disrepute. Full credit to all those economists who are making the effort to go beyond mainstream equilibrium economics. But there has been no real progress in methodology which can separate economics from religion. In science, a false paradigm can be overturned, but not in economics. What will neoclassical economics be replaced with?
To make awards for economic forecasts is quite premature. As ak and BarnabyIsRight.com might agree, this is a sort of false advertising.
Also, I should have added that undue importance may have been placed on the role of economics or economic theory in GFC. Many working in the investment banks (from anecdotal reports) saw the GFC coming, but they were there “to make hay while the sun shines”. As subsequent bailouts proved that they were right. So better economic theories would not have altered this behavior.
@ ak, BIR: On the issue of :
“‘Marketing’ is entirely about manipulation of perceptions, deception, distortion, and (often) outright lying.”
Marketing is selling something. Sometimes that’s a product or service and sometimes it’s an idea. When we debate each other in this forum we are ‘selling’ our ideas – we are marketing our thoughts to the audience whether we care to look at it that way or not; we are attempting to persuade. I absolutely agree that marketing or advertising can be all those unseemly things you mention but when distortion already exists and an unjust imbalance of information is clear, then it would be remiss of any who are aware of this to not attempt to redress the balance in the most appropriate way.
The most appropriate way is using proven communication methods and the (now interconnecting) mediums of communication and information distribution that the largest segments of society have access to. Whatever your belief is about the evil nature of advertising, its power does not always have to be used negatively. The internet gives the minnows (us) a much greater chance of presenting a counter-mainstream argument to a population who in other times may not have had the opportunity to discover it.
By ignoring our power to persuade and our power to present an idea and package it for ease of understanding of many, simply based on the purity of our own philosophical views is to accept defeat. You must fight with the weapons your enemy uses and media is certainly the world’s most powerful weapon. By awarding a prize to a Professor like Steve Keen or any of the other nominees the intention is not to create a celebrity – society does not understand celebrities to be economists! We are publicising a FACT. The award simply is a device that packages this fact. The world at large might digest this fact like this:
Some guy got an award for predicting the GFC. Hang on? Didn’t I hear that it couldn’t be predicted?
Marketing is not replacing reality here. It is calling attention to it.
Lyonwiss #132,
“This is economic insight, which is very different from forecast, which is what the Revere Award (criterion 2 and 3) said these people were doing. If they were accurate forecasts then…”
Well said you. An astute observation.
digitalchris #134,
“Marketing is selling something… When we debate each other in this forum we are ‘selling’ our ideas – we are marketing our thoughts… I absolutely agree that marketing or advertising can be all those unseemly things”
Not wishing to be pedantic, because I do broadly agree with the intent underlying your comments.
However, it is actually quite important to distinguish between “marketing” and “advertising”. Whilst interconnected in their applications, they are in fact quite different animals.
My comments about “marketing” specifically arise from the fact that marketing inherently involves the developing of a Strategy to convince someone to hold a certain view, and thus, take a certain action. That Strategy is subsequently used in the myriad “advertising”, “public relations”, and “sales” processes. The fundamental intent in the development of a marketing strategy is to manipulate the perceptions of others.
I agree that we must not ignore the power to persuade, etc. And I do concede that the awarding of a prize etc in recognition of achievement does not necessarily involve an intent to create ‘celebrity’.
I am simply warning that it is unwise to adopt the strategies that have got us into this mess, in the mistaken belief that these are necessary to get us out again. It really is akin to the idea that you can get out of a debt problem by more of the same.
The Truth … if indeed you have found it … will come out in its due time, simply by discussion, and frank communication. There is no need to ‘gild the lily’, or ‘push the point’. In fact, I would suggest that the more one tries to use those tools that are so commonly employed in perpetrating untruth, in hope of achieving ‘cut through’ of the real Truth, the more you (inadvertently) distort the clarity of the message. Or reach targets who are simply not yet ready to receive the message. All good things in their due time.
Patience is a virtue.
@ Lyonwiss (#132, 133)
I respect what you say, but I still disagree.
From the call for Nominations for the Revere Award in Economics:
“They [1] must be economists, and we are looking for the three [2] who first and [2] most cogently warned of the coming calamity.”
http://rwer.wordpress.com/nominations-for-the-revere-award-in-economics/
These, I understand, are the criteria for selection of a nominee, as established by the promoters of the Prize. I imagine we are talking about these, aren’t we?
By these criteria alone, as I argued before in the case of Ms. Born, those people who were “working in the investment banks (from anecdotal reports) saw the GFC coming, but they were there ‘to make hay while the sun shines’” would probably have been disqualifed.
Without going anywhere further, in the mid 1990s Scientific American published an article (Scientific American. The Analytical Economist. Derivatives: Not the Real Thing. January 1995. Page 28) warning that, in relation to derivatives, “increasingly, observers have begun to worry that a major misstep could vaporize financial markets”.
In my opinion, that does not qualify the editors of Scientific American to receive the Prize!
You can find the whole quote in an article in my blog:
http://aussiemagpie.blogspot.com/2009/12/famous-efficient-market-hypothesis-ii.html
In my opinion, you are confusing forecasting with explanation. But they are not the same thing:
“This is economic insight, which is very different from forecast, which is what the Revere Award (criterion 2 and 3) said these people were doing.”
I agree with you that it is economic insight what people like Prof. Keen and Dean Baker (and probably others) achieved, but I don’t see where it was said it was “advertised” as forecast, accurate or otherwise.
“To make awards for economic forecasts is quite premature.”
The same: I could not agree more. But where on earth did the Real-World blog say nominees were forecasting accurately to the 6th significant digit…
If it is not ask too much: what do you understand by “forecast” and “insight”? Why do you consider is forecast what the Real-World blog is advertising?
Another example of confusion:
“Also, I should have added that undue importance may have been placed on the role of economics or economic theory in GFC. (…) So better economic theories would not have altered this behavior.”
The theory of gravity, for instance, predicts that a plane whose engines stop in mid flight will fall. It’s not meant to keep the plane “floating in the air” without engines.
Marco2
My opinion is that prizes in economics should not exist, except an anti-prize such as the “Dynamite”. There should be no Revere, no Nobel. The conditions of award are largely arbitrary and ultimately divisive among contributors. It creates new religious prophets, self-seeking and counter-productive. Let us agree to disagree. My views are not all extreme compare to this:
http://www.dailymail.co.uk/news/worldnews/article-1259863/Worlds-cleverest-man-turns-1million-prize-solving-mathematics-greatest-puzzles.html?ITO=1490#ixzz0ixGtLuZv
Agreed: we disagree. Sorry for being stubborn.
Very impressive, Dr. Perelman. I guess I must be smarter than I thought: thanks to my new neighbors, I had a very annoying bedbug problem (but unlike Dr Perelman, I managed to get rig of them)
But I shower everyday, and I also do shave (sometimes even 3 times in a week!).
Now seriously: if you ever feel curiosity, try A.F. Chalmers’ What is this thing called Science?
Cheers
Marco2
Whatever Chalmers says about the Popperian view, economics is not a science.
@ BIR 135
You are right to point out the difference between ‘marketing’ and ‘advertising’. Indeed, this area is my profession (honest disclosure!) Funnily I didn’t get into the industry to manipulate, obfuscate, misinform, lie etc etc, I got in to learn how to use media for the ultimate purpose of activism in various forms. That is unusual I suppose, but that aside, I’ve had about a decade of learning the ways of media now and one thing I do know is that you can deliver or communicate a message en-masse without resorting to conventional methods. When you say mass communication using old conventional methods is a useless endeavour in this case, you are right. Re-reading my post I can see that I might’ve sounded like I was suggesting an ad campaign for Steve with an Award as the spearhead. I was just stating that it wouldn’t be a bad event as a catalyst for debate and that it would present another (as yet not widely publicized) side of the story in an easily digestible form. But given that there may be questions of intent and bias surrounding an award such as that, I understand your argument entirely.
What I am really saying is that mass communication as an idea is not the wrong approach. The old methods – as you observe – have been tarred with the brush of disrepute and are linked to the pure idea of selling and consumerism. However, if I were (for example) to devise a ‘marketing plan’ to bring awareness to Steve Keens research and that of others with similar thoughts then you wouldn’t find me proposing what most of the world calls ‘advertising’ in any traditional sense. I would not propose ‘more of the same’. The plan would be a collaborative approach; led through social media and by a simple push to discussion forums such as this. In that sense I would not be highlighting a place where people can discover the truth or find a new celebrity. The fundamental intent of the strategy would be to direct people to a place where they could discover ANOTHER SIDE and interact around the new information. Those few who may wish to discover another side to the story (there aren’t many yet – I know) would do so and we would continue to build a strong message that is built on real people and reality – not the buying power of one individual or company. So you can see that a strategy or marketing plan that is devised for mass communication can be created for this purpose – it just wouldn’t use traditional approaches or media channels as its primary mediums. It would put the emphasis on the information and simply present an option to the people who would then have their own option of engaging with the forum or disregarding it. If Steve was to win an award for predicting the GFC, it wouldn’t do any harm to the strategy since the award wouldn’t be the strategic focus.
The old channels are useless for activism (in isolation). They are one sided and have next to no credence with people. Digital mediums that allow collaboration, interaction and exchange of ideas in real time, if used correctly are the purest and most powerful democratic tools people have ever had to exert power and influence and elicit action and I would use this insight as a starting point for any strategy plan. Anyway, I get the feeling – now that I’ve clarified my position – that we may agree on many of these points.
digitalchris #140,
“Anyway, I get the feeling – now that I’ve clarified my position – that we may agree on many of these points.”
Indeed. In fact, I’d be struggling to identify any point of disagreement with #140
Well said you.
P.S. for digitalchris,
Here’s a relevant saying that you may appreciate -
“Whoever educates the people without uniting them in a loving way of mind is like someone who weeds without wanting to harvest” — (Li Gi, The Book of Customs)
digitalchris # 140
+100
digitalchris,
I agree with #140
I wanted to say something different.
Marketing not only changes the object but also the subject.
People who had good intentions of saving the environment often end up installing dodgy insulation (Peter Garrett). Not to mention France 1789 and Russia 1917…
This is the 3rd leg of reflexivity for George Soros and an explanation why the colour revolutions in Ukraine and Georgia he godfathered failed so miserably.
Because when well intentioned people become involved in social activities their minds change.
http://en.wikipedia.org/wiki/Stanford_prison_experiment
That’s why I don’t care about celebrities. It is all good and there is a lot of influence almost for free but there is small price to be paid: freedom. If I was a celebrity I could no longer ignore what the people would think about me when I said something what I ought to say. The only way to avoid this is to abstain from choosing certain cheap and easy solutions and throw away the predominant social logic.
On the matter of prediction, and asset prices being determined by the forces of supply and demand, I found these interesting quotes:
“I have shown that utility generally does not exist as a function, that utility maximization is not an equilibrium condition, and therefore that price generally cannot be expected to be defined as a function of demand variables. This means that textbook economic theory is wrong, inapplicable (no great surprise to anyone, presumably) and cannot form the basis for intelligently made socio-economic policy decisions. I pointed out further that market models are not equilibrium models and that there is no stability either in the models or in asset price data. The entropy can be defined, but it is never maximized in an unregulated free market. Equilibrium does not prevail and is not a useful idea for understanding real markets. As the collapse of LTCM demonstrates, the market cannot be counted on always to be relatively ‘efficient’: surprises occur in the form of large, unanticipated deviations from all model predictions.” (p. 534)
“The fact that real markets operate on the basis of noise, irrationality, and complexity rather than on the basis of narrowly defined ‘rationality’ and Adam Smith’s controlling/stabilizing hand means that anything can happen, including long runs of either pleasant or unpleasant events.” (p. 535)
McCauley, Joseph L. 2000. “The futility of utility: how market dynamics marginalize Adam Smith,” Physica A, Vol. 285, pp. 506-538.
ak #141,
Another excellent post. Again, 100% agreed.
Serendipitous that you should have written “when well intentioned people become involved in social activities their minds change.”
Today while knocking out 30km in prep for the walk, this thought came to me (for another blog I tinker with) -
“I Don’t Know why do-gooders and world-improvers are so sure what’s best.
I do know, desire to help can cause more damage than desire to harm.”
Dear Professor Keen,
I wonder what would happen, if the RBA lowers the official interest rate to 0.5%. In 2008 the market was ominous with many distressed sellers. But the quick lowering of the interest rate to 3% rapidly reversed the situation and many vendors withdrew from the market. Given the predominance of variable interest rate loans, the RBA certainly has a very potent weapon in holding up the housing market. Indeed, if this were to happen, many investors would be laughing all their way to the bank with their negatively geared property investments suddenly turning cashflow positive.
I am afraid that, affordability for owner-occupiers aside, our property market still has plenty of reserve in support available.
Of course, if the banks can’t find overseas funding at 0.5%, then it is a different kettle of fish. But the RBA can always print cash itself and lend it out to the “Giant Building Societies”.
I can’t see any forces stopping the house prices going further up. Our bubble may still have a lot more room to grow before it runs out of puff.
If the RBA is willing to print cash, then maybe our problem will not be domestic debt-deflation, but a foreign-debt crisis and domestic hyperinflation.
Is that an alternative possibility?
There is a way to avoid or mitigate the risk which I mentioned above: concentrate on delivering the message itself rather than on promoting people and building the social structure needed to deliver the message.
The message is that:
1. mainstream economists are wrong and it is mainly private sector debt dynamics what drives the economy (except for direct government intervention),
2. we will be in a deep trouble especially in Australia unless the system stability is restored.
Here I am in 100% agreement with Digitalchris about using new media.
If I write something on this blog I deliver my message directly who wishes to read and I am in control what is written. I don’t need anyone to carry my message since a new direct communication platform (the Internet) is available. I am sitting in a caravan park in a rather remote (and very nice) NSW town now – and what I type can be read anywhere in the world. I also use the Internet to send direct messages to the people I want to listen (most often they don’t but I think a few times it worked) and plant some of my ideas on discussion lists elsewhere.
I am just a vessel carrying memes to the society and the memes is what is important not the vessel itself (sorry this may even sound Christian but I have never rejected this aspect of Christianity).
If we rely on the old mainstream media structure (even using the Internet to actually broadcast the articles) – journalists (and professional writers) would write about me and my message. What will most often make mess from the message because they are may be not concerned with the accuracy. They just make money by writing stuff. They make often innocent people instant celebrities (and some of these people like it because they got money and attention – what poisons them)…
Do we want Steve to be mentioned in the celebrities or rather sport section of Sydney Morning Herald: “Tough superhuman runners and Tony Abbott joined by professor Keen”?
The only benefit of the MSM involvement would be to direct people to read the original message by creating “media buzz”.
And this is pretty much it…
BTW how do the Austrians use the Internet to deliver their message? It appears to me that they are punching well above their intellectual weight. What Digitalchris wrote above may be the exact description of what they have already been doing.
Hi Lyonwiss,
Re no prizes in economics, frankly I agree–it makes what is not science appear to be one.
In one sense though, that’s the objective of the whole Dynamite/Revere Award thing: to provide rivals to the “Nobel” that appears to put economics on the same footing as Physics and Chemistry. The fact that another group of economists can propose a prize that is a negative (Dynamite) and award it to someone who got the Nobel (Friedman) is a way of flagging that economics is not a science.
Similarly for the Revere. The amazing thing about the GFC was not that some economists predicted it, but that so many did not when blind freddy without an economics degree could tell something was about to hit the fan. Drawing attention to the minority that didn’t have the neoclassical wool pulled over their eyes is a means to delegitimise neoclassical economics.
Steve,
I appreciate your comments. But to “delegitimise neoclassical economics” is not enough. Actually, neoclassical economics is legitimate, but not enough. If you set all the terms with (d/dt) to zero in your dynamical equations, you have an equilibrium model. In this sense, equilibrium models are sub-models of dynamical models, so they are potential special solutions.
For economics to cease to be a religion and to become a science, it needs to be unified and synthesized. It must include all that is good and right in all the different schools: neoclassical, post-Keynesian, Austrian etc. We need to get together and work out a new paradigm and not to fight more rhetorical wars. The Revere Award is divisive in the sense that it is biased against some schools, particularly the Austrians, who (as you know) were early warners of the GFC.
Among the Austrians I would name Peter Schiff and William White. Peter Schiff fought highly public battles against Arthur Laffer and other market economists. Peter Schiff’s 2006 “forecast” for 2007/2008 was quite accurate. William White was a lone voice cloistered in the BIS, warning other powerful mainstream econocrats, that complacency about price-stability in the real economy was unjustified.
Prizes are used to legitimize certain preferences over others. (You can set the criteria to suit the selected candidates.) The Nobel Prize was largely (if not deliberately) to legitimize neoclassical economics over others, to the detriment of economics and economic education. There is no need to do the same for another school of economics, to retaliate, to market, to advertise or whatever.
The predators, the financial terrorists, the looters etc. would love nothing better than chaos, whether it is after a natural catastrophe, a man-made catastrophe or a divided and confused economics profession.