Two recent interviews

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I had a cou­ple of impromptu inter­views with over­seas inter­net media groups this week–Dominic Frisby inter­viewed me on my expec­ta­tions for 2011 on his “Frisby’s Bulls and Bears” pro­gram, and Michael Surkan inter­viewed me for the inter­net radio/podcast progam The Opti­mistic Bear. I’ve excerpted the intro­duc­tions from the two web­sites below; to hear the inter­views them­selves, click on the main links below.

The Frisby interview

In part VIII of our of shows look­ing at 2011, Dominic Frisby talks to Aus­tralian econ­o­mist Steve Keen of

Steve is Asso­ciate Pro­fes­sor of Eco­nom­ics & Finance at the Uni­ver­sity of West­ern Syd­ney, and author of the pop­u­lar book Debunk­ing Eco­nom­ics (Zed Books UK, 2001).

Steve pre­dicted the finan­cial cri­sis as long ago as Decem­ber 2005, and warned that back in 1995 that a period of appar­ent sta­bil­ity could merely be “the calm before the storm”. His lead­ing role as one of the tiny minor­ity of econ­o­mists to both fore­see the cri­sis and warn of it was recog­nised by his peers when he received the Revere Award from the Real World Eco­nom­ics Review for being the econ­o­mist who most cogently warned of the cri­sis, and whose work is most likely to pre­vent future crises.

He has over 50 aca­d­e­mic pub­li­ca­tions on top­ics as diverse as finan­cial insta­bil­ity, the money cre­ation process, math­e­mat­i­cal flaws in the con­ven­tional model of sup­ply and demand, flaws in Marx­ian eco­nom­ics, the appli­ca­tion of physics to eco­nom­ics, Islamic finance, and the role of chaos and com­plex­ity the­ory in eco­nom­ics. His work has been trans­lated into Chi­nese, Ger­man and Russian.

Click here to read Steve’s essay of Decem­ber 2009 on the global debt cri­sis, Debt­watch No 41, Decem­ber 2009: 4 Years of Call­ing the GFC.

Click here for more on the book, Debunk­ing Eco­nom­ics.

This Week on Bear radio: A moment of Minsky

In this episode Steve Keen shares his knowl­edge of eco­nom­ics to not only debunk the rev­er­ence paid to econ­o­mists by pol­icy mak­ers but to explain that the titans of the eco­nomic the­ory are mis­un­der­stood. Keynes wasn’t the advo­cate for stim­u­lus spend­ing as many assume and Karl Marx actu­ally had a lot of great insights that are con­ve­niently swept under the car­pet. Steve goes on to pro­vide a tuto­r­ial on the life and ideas of his hero Hyman Min­sky, explain­ing how this was one of the few who under­stood the sheer unpre­dictabil­ity that under­lies all eco­nom­ics. We also dis­cuss the how there is noth­ing spe­cial about the Aus­tralian, Cana­dian, or Chi­nese economies other than the fact that they have been able to breathe new life into their economies by blow­ing big­ger bub­bles. The end result is inevitable: global deflation.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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11 Responses to Two recent interviews

  1. Peak Debt says:

    Excel­lent work Steve, love the way you’re will­ing to speak up about debt and the unsus­tain­abil­ity of the rapid expan­sion in Aus­tralian credit even though you may be a voice in the wilder­ness now, your day will come! Recent RBA finan­cial aggre­gate data (see chart below…)

    Real Infla­tion — RBA Finan­cial Aggre­gates Chart

    … shows how out of con­trol debt is grow­ing, espe­cially hous­ing debt, grow­ing well above the RBA 2–3% infla­tion tar­get, mean­ing we should really have much higher inter­est rates, and wouldn’t that pop the bub­ble and bring house prices back to sen­si­ble lev­els! This can’t go on defy­ing grav­ity forever!

    Peak Debt
    Aus­tralian Prop­erty Crash Blogs

  2. spadijer89 says:

    On the land tax ques­tion. You seem to devi­ate from the ques­tion asked and start con­flat­ing land tax with stamp duty, cap­i­tal gains tax and the like. Sorry, if I sound some­what blunt but that’s dodg­ing the issue – and doesn’t answer the ques­tion. You were asked about land tax specif­i­cally and not fringe taxes. Are you seri­ously sug­gest­ing there still would be prop­erty bub­bles with a 100% land tax, as Georgeist advo­cate? Of course you aren’t. You should have made that crys­tal clear.

    *Ulti­mately, there­fore, your point is polit­i­cal, not eco­nomic*: state gov­ern­ments which, unlike the Fed­eral gov­ern­ment, are finan­cially con­strained and thus need a low level land tax so they don’t get kicked out of office (by burst­ing the bub­ble when they increased the land tax, like they did in Japan in 1989) on one hand, but still have a rev­enue base, on the other. But that’s pre­cisely because a) they lack polit­i­cal courage to explain why land taxes are bet­ter than any other tax base and b) aca­d­e­mics like your­self focus on pol­i­tics rather than just report­ing the data. YES, we should not sep­a­rate the pol­i­tics from the eco­nom­ics (in fea­si­bil­ity terms), BUT the two are sep­a­rate in fac­tual terms: a high land tax would pre­vent bub­bles. It requires a cul­tural and polit­i­cal shift. But the same applies to your ideas of redefin­ing cap­i­tal assets (which sev­eral legal loop­holes would arise, it’s more dif­fi­cult to evade pay­ing a land tax – you can’t hide it in a Swiss bank account!). 

    I also note in pass­ing in the 1840s the U.S. gov­ern­ment defaulted on its loans pre­cisely because it refused to raise its prop­erty tax — which high­lights your point of courage. More­over, if (state) gov­ern­ments want “rev­enue” what pre­vents the gov­ern­ment from abol­ish­ing stamp duty and cap­i­tal gains and increas­ing their land taxes? Surely, they could do that in the­ory after the bub­ble bursts, but no, polit­i­cally — most MPs them­selves also own homes – I mean rep­re­sen­ta­tive democ­racy, after all, con­sisted of land­lords for sev­eral cen­turies! So there is an eco­nomic argu­ment there, but acknowl­edges insti­tu­tional lim­i­ta­tions – too many peo­ple seri­ously believe credit bub­bles are the way to get wealthy. 

    We all agree we need to end “prop­erty bub­bles” – whether its land tax or legally redefin­ing cap­i­tal assets, either way it requires a cul­tural shift. In its purest form, land tax, unlike your plan, can­not be dodged (assum­ing no exemp­tions) by lawyers and has numer­ous other ben­e­fits (see William Vickery’s and Joseph Stiglitz’s paper on the ‘Henry George Theorem’). 

    Per­son­ally, in future, I’d like to hear you respond to ques­tions of land tax the way Michael Hud­son does: “absolutely, we need one. Putting pol­i­tics aside, morally and eco­nom­i­cally it has numer­ous advan­tages – whether pol­icy mak­ers will adopt it is a dif­fer­ent issue”. 

    Any­ways, I’ve always main­tained the first place where land tax will be imple­mented in coun­tries that actu­ally pro­duce stuff: Sin­ga­pore (gov­ern­ment plans to increase land tax to cool prop­erty prices), Hong Kong (derives 40% of its rev­enue from land and has a rel­a­tively sta­ble prop­erty mar­ket) or Switzer­land (due to low home own­er­ship rate of merely 33%), both of which have the tax in var­i­ous forms.

  3. spadijer89 says:

    * all of which (rather than both of which). Sorry, typo. Also notice coun­tries that have land tax tend to also export *man­u­fac­tured* goods — unlike Ponzi economies with­out high land taxes.

    I also note that US states or coun­ties with high land/property taxes are all the one’s who suf­fered the low­est fall in prices — and in fact are grow­ing — cities like The hous­ing mar­ket is rel­a­tively sta­ble despite a national sub­prime mort­gage cri­sis, and Pitts­burgh added jobs in 2008/9 even as the national econ­omy entered a sig­nif­i­cant jobs reces­sion. The hous­ing mar­ket is rel­a­tively sta­ble despite a national sub­prime mort­gage cri­sis, and Pitts­burgh added jobs in 2008 even as the national econ­omy entered a sig­nif­i­cant jobs reces­sion. It also tried the Pitts­burgh exper­i­ment: whether half the city was divided up with effec­tively cap­i­tal gains tax (i.e. land AND build­ings) and the other half just land — the 4000 vacant com­mer­cial prop­er­ties on the lat­ter fell to merely 160 (remem­ber Steve all those idle and vacant houses — a land tax fixes this!) and obvi­ously, the lat­ter also grew thrice as much.

  4. spadijer89 says:

    cities like Pitts­burgh”. Haha, sen­tence lapse. My bad.

  5. myopia says:

    Excel­lent inter­view with Dominic — he often asks some of the ques­tions us lay folks would. Keep up the good work!

  6. jeffca says:


    I under­stand the debt deflation/deleveraging which would lead to depressed asset prices in homes and per­haps in equity (like we have seen in Japan).

    I’m try­ing to rec­on­cile this asset defla­tion with infla­tion (which we may need to agree on a def­i­n­i­tion) on many com­modi­ties such as crude oil and food. Some of the infla­tion can be argued as spec­u­la­tion (with foods for exam­ple) and from the con­tin­ued cur­rency depre­ci­a­tion from mon­e­tary expan­sion. And oil which has seen increased demand and may have dimin­ish­ing sup­ply (peak oil). I’m not sure what will hap­pen to labor infla­tion though I expect labor wages to deflate (real wages to decrease).

    In this case very much like Japan the US can face asset and wage defla­tion and com­mod­ity inflation. 

    1 Do econ­o­mist account for a sit­u­a­tion both deflation/inflation? (I find the econ­o­mist view deflation/inflation to be both macro and there­fore binary by def­i­n­i­tion). In some regards this is an unde­sire­able model from a pri­vate bal­ance sheet per­spec­tive with assets deflat­ing, real wages deflat­ing and daily expenses inflating.

    2. From the view of pre­serv­ing per­sonal pur­chas­ing power than cash would be ideal in a deflat­ing econ­omy. Yet with com­mod­ity infla­tion, from increased global demand, mon­e­tary induced cur­rency depre­ci­a­tion ( and per­haps spec­u­la­tion) is not com­mod­ity a smart way to pre­serve pur­chas­ing power. Or does your model call for defla­tion of com­mod­ity mar­kets as well?

  7. Steve Keen says:

    Hi Jef­fca,

    Defla­tion in assets nor­mally goes hand in hand with defla­tion in com­mod­ity prices too–as we saw severely in the Great Depres­sion and lightly in Japan. The com­mod­ity infla­tion we’re see­ing now is partly a spec­u­la­tive phe­nom­e­non (with the US Fed fund­ing a lot of it!) and partly the wild­card that this defla­tion­ary expe­ri­ence coin­cides with Peak Oil and bios­phere break­down as pre­dicted in the Lim­its to Growth Report almost 40 years ago. It’s why I lean towards expect­ing defla­tion, but am will­ing to admit it’s a gam­ble this time.

  8. Steve Keen says:

    Hi Spadi­jer,

    I’m not opposed to a land tax–I just don’t see it as a panacea. If it were imple­mented as a range of mea­sures designed to stop spec­u­la­tive bub­bles being debt funded, then I’d sup­port one. But I think it’s valid to be aware of the polit­i­cal issues, and also to con­sider what the root cause of the prob­lem is as well. I see that as debt being used to fud spec­u­la­tive bub­bles rather than enter­prise, so my own reform pro­pos­als are directed at that.

  9. William says:

    Well done Steve for putting out the mes­sage, but that sec­ond inter­viewer was a lit­tle strange. He seems a very nice fel­low, but a lit­tle para­noid, the idea that aca­d­e­mic econ­o­mists have a uni­fied agenda their pump­ing out to sup­port their jobs doesn’t ring true. It doesn’t cor­re­spond to how acad­e­mia works. Econ­o­mists are moti­vated by their rep­u­ta­tions, which are built on get­ting pub­lished in jour­nals. As for their employ­ment in the bureau­cracy, that works on two lev­els, the mid-levels of are staffed by peo­ple cho­sen by employ­ment boards com­posed of clue­less peo­ple from HR who did lib­eral arts degrees, and select can­di­dates on the num­ber arti­cles pub­lished regard­less of the qual­ity. The high lev­els are staffed by who-you-know, not what-you-know, and then you cre­ate jobs within your organ­i­sa­tion for the mates who are will­ing to pub­lish arti­cles declar­ing that your arti­cles are genius.
    This char­ac­ter­i­sa­tion may be very crude, but see­ing aca­d­e­mics as fix­ated on secur­ing their place in the history-books, sorry I meant, place in the text-books. It’s a lot closer than the over-mind para­noia. It’s a lit­tle fright­en­ing to real­ize there are peo­ple who think that’s how bureau­cra­cies work. It must be hell being a bureau­crat, half the time peo­ple think you don’t know what your doing, the other half they think your devi­ously omnipo­tent. It’s the only group that’s rit­u­ally por­trayed as both not-joined-up and utterly homo­ge­neous; as chron­i­cally unable to take risks or to ‘think out­side the box’ and simul­ta­ne­ously always friv­o­lously wast­ing money on bizarre projects that defy ‘com­mon sense’. In the pub­lic imag­i­na­tion a bureau­crat is some kind of anal-schizophrenic.

  10. Steve Keen says:

    Bril­liantly put William! I did try to dis­avow my inter­viewer of those views, but it’s amaz­ing how often peo­ple imag­ine con­spir­a­cies being con­ducted by peo­ple who at other times they are will­ing to regard as clueless.

  11. spadijer89 says:

    Thanks Steve. I know that you don’t mind land tax, but I think that land tax has numer­ous advan­ta­geous beyond stop­ping spec­u­la­tive orgies in land, assum­ing its set at a suf­fi­ciently high rate before the bub­ble itself, of course. I ask you: what could help enter­prise more than cheap land (as idle land comes onto the mar­ket, to be used by pro­duc­tive cap­i­tal­ist rather than spec­u­la­tors) and abol­ish­ing taxes on labour and cap­i­tal? I know of no bet­ter sys­tem to encour­age enter­prise. Curi­ously, Schum­peter was a big fan of Henry George for pre­cisely this rea­son, and described him as one of the most orig­i­nal econ­o­mists around. Like­wise, Hayek only entered eco­nom­ics after read­ing Progress and Poverty.

    But I note in pass­ing all the major Depressions/recessions were pre­ceded by land spec­u­la­tion, or more pre­cisely, nat­ural resources: 1840s, 1870s, 90s, Panic of 1907, the Great Depres­sion, 1973–75 REITS etc. So really the issue is rent, not debt per se (debt, for the most part, just being one kind of rent). It would seem to me the debt is the excess or after path of a cul­tural propen­sity to get some­thing for noth­ing. First land val­ues go up (good infra­struc­ture, pop­u­la­tion growth, media reports i.e. sta­bil­ity is desta­bil­is­ing), THEN the debt comes it that fuels the fire. A vicious spi­ral that your mod­els cap­ture then takes place. This implies tar­get­ing the rent/speculation. A lim­i­ta­tion of your sys­tem is that exter­nal source of funds aside, lawyers and other word­smith and finan­cial inno­va­tors can dodge the reg­u­la­tion or have the courts read down cer­tain Acts of pro­vi­sions (so I’d have to see draft leg­is­la­tion of what you are propos­ing pre­cisely, before I can com­ment). Bit harder to dodge a flat, high land tax with no excep­tions – although either way both our pro­pos­als will face stiff oppo­si­tion and only fea­si­ble when the entire sys­tem melts down.

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