Mish Mashes the WEF

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My comrade-in-outrage Mish Shedlock has also taken a swipe at the World Economic Forum report More Credit with Fewer Crises, and pointed out a key weakness that I omitted reference to: their inability to understand exponential growth.

Mish’s post is here:

World Economic Forum Endorses Fraud; Steve Keen Mocks the WEF Report, So Do I; The Purported “Need to Double Credit in 10 Years”

Mish attacks the report on many fronts, but the one that I’ll highlight here is the following: its statement that:

“This means that the world’s stock of credit outpaced GDP growth by less than 2 percentage points a year – not a wide margin. In theory, there is nothing unsustainable about this picture: as long as credit grows broadly in line with economic growth, the credit is put to good use and borrowers can meet interest obligations and repay principal.”

The American mathematician Andrew Bartlett claims that “The greatest shortcoming of the human race is our inability to understand the exponential function”, to which I’d add that that shortcoming almost defines neoclassical economics. 2 percent per annum doesn’t sound like a lot, but over 36 years that means the ratio doubles, over 72 it quadruples, over 144 it becomes 8 times what it was, and so on.

Mish provides some nice graphs to illustrate this process:

For the record, the actual rate of growth of the private US debt to GDP ratio was roughly 2.9% p.a. from 1945 till 2008. That means that the ratio doubled every 25 years, from 45% in 1945 to 90% in 1970, 180% in 1995, and if it had kept going, it would have been 360% in 2020.

Instead it fell over in 2008, and is now going backward at a rate of knots. Here’s an extrapolation of the trend that the WEF says is “nothing unsustainable about”, from the time period they should have started their analysis—not 2000 but 1945—and focusing on the key problem—private debt:

“Nothing unsustainable about” it, eh?  This naivety by neoclassical economists about growth and exponential processes in general is positively dangerous for the human race. I’ll let Mish take over from here.

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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89 Responses to Mish Mashes the WEF

  1. Tel says:

    We’ve been through this before but this time you are going to need to argue with the food prices rather than me. Just insist that they are not rising, please set the USDA straight, they seem confused.



    But since all the commodities are rising, it’s just easier to accept that the buying power of the US dollar is falling.

  2. Tel says:

    A conspiracy is, by definition, a group of people who organise themselves in order to commit crime.

    From a strictly legal standpoint, if part of that organisation is to systematically manipulate the word of law such that they can achieve their ends legally then there is no crime, thus cannot possibly be a conspiracy.

    However, from the somewhat looser standpoint that some behaviour is just evil (regardless of whether it can slip through a legal loophole) it might be reasonable to claim that a large scale delusion which not only causes many people to lose their savings unfairly but which propagates itself and perpetuates itself is indeed a crime, and does have some structure of organisation to it.

  3. Tel says:

    Just to continue, as a further thought… the universe (to the extent that we can measure it) does not allow any free lunch. That was codified in the physical laws of thermodynamics, and no one has yet figured out a way around those laws. To some extent (from an economic standpoint) new technology gives the appearance of a free lunch because it brings new efficiency and new pathways to a system that was previously restricted.

    Part of the delusion of central banking is that governments can legislate a free lunch. Yes, governments are powerful entities, but not powerful enough to repeal the laws of thermodynamics. This delusion hurts people in as much as it encourages them to get their lunch by banging on the table and demanding someone bring them the free lunch that they deserve — rather than working for it. When a small number of people bang on the table we either feed them to shut them up, or ignore them until they give up. As the number of people doing this gets larger, they stability of society gradually becomes more at risk.

    To some extent, a country like Australia is blessed with coal, iron and gold reserves that are not exactly available for free (someone still needs to dig it, refine it, work the machines, etc) but at any rate they represent a significantly cheaper lunch than if we didn’t have those reserves. This blessing is good, unless it further reinforces people believing that the state of affairs will last forever, and they are owed something simply because they are standing here.

  4. Tel says:

    The whole idea of having small banks is that they can go bankrupt now and then. That’s the mechanism that provides regulation to the system as a whole… and it’s the ONLY mechanism that can do the job. Avoid the “too big to fail” mentality, and also avoid the “investment should be risk free” mentality. No free lunch, even with government regulation, still no free lunch.

  5. Tel says:

    Here’s a good quote, it’s from Soros so it takes a bit of decoding:

    Every one of the 15 commodities from arabica coffee to zinc covered in a Bloomberg survey of more than 100 analysts, traders and investors last month was expected to increase this year. Commodity assets under management rose to a record $354 billion in November, according to data compiled by Barclays Capital.

    “A year ago you had the prospect of inflation but the reality actually in the developed world of deflationary pressures,” Soros said. “Well because of the commodity boom, which was basically a lack of confidence in all currencies, not just the dollar, but there’s no alternative to the dollar, better to own commodities.”

    In my reading, what Soros is saying is there is inflation but he won’t call it inflation, so let’s just call it rising prices and lack of confidence in the dollar. Personally, I just feel more comfortable dispensing with the doubletalk, but then again, I don’t have a house of cards to keep propped up either.

  6. peterjbolton says:

    I am in total agreement with Steve; the people who are making the decisions just do not have the essential and necessary tacit knowledge, intellect and integrity to frame a conspiracy (which i have stated many, many times) and more to the point, none of these people at the higher levels, justifiably, trust each other.

    The reason for the preferences of secrecy, is merely, in the last moments, total shame and guilt.

  7. juk says:

    Inflation is theft. Theft of the time, intelligence, thought and effort of those who spend their days doing productive work in exchange for money. Money which is later devalued by the inflation (theft) of a corrupt government.

    For a government or anybody to target a rate of theft of anything above zero should result in them being locked away.

    I can’t for the life of me understand how so many people can be fooled by the real nature of inflation. Our jails are full of people who try to steal, destroy or misappropriate someone else’s wealth or property, but when the government does it, well that’s just fine as long as it’s only a little bit (2%).

    Mr Bartlett may well have been right if it wasn’t for the deception that is inflation.

  8. Tel says:

    I was perfectly specific in my definition: “when commodities and food both go up in price, that’s more commonly known as inflation.”

    If you are so big on specific terms, why use a phrase like “old chestnut” which means nothing whatsoever?

    As for the definition on money, perhaps this is a little more complex but money is whatever people use as a medium of exchange. Of course, many things can be money, depending on the people and depending on the circumstance. There is no particular reason why money must be one particular thing only, other than it must be widely accepted amongst people who wish to trade. Precious metal has by far the longest history of fulfilling this function, has the widest acceptance, is very difficult to cheat on and is highly resistant to inflation.

    Credit is a promise, I will give you something you want in the future if you give me what I want now. There is a place for this, but not to be confused with money. Money settles debts, credit defers the settlement into the future.

  9. Dave says:

    “I’m sorry but that article is pure techno-optimist vapourware”

    Yes it is optimistic to assume that our car centric way of life can be easily converted to one powered by hydrogen fuel cells/batteries.

    However long distance mass transport of goods and people is still possible and proven through electric rail. Electric rail benefits not only from using multiple energy sources (and so can adapt to changing availability of renewable or fossil resources) but also use something like one tenth of the energy as conventional internal combustion engions to do the some job.

    To assume we can transition to an era of electric cars/trucks continues the dream of exponential growth of extraction finite resources in a world on the brink of severe resource/energy contraction.

    We could equally take a page out of China’s book, and make a change to electric bicycles. Using one myself in my daily transit to work uses 0.5kWhrs for 45km, or about the same as the energy my computer uses in 2 hours. An electric car on the other hand would use about 5kWhrs (or roughly 100 times the energy of the bike), to cover the same distance.

    Once you realise how inefficient and costly it is to move 1000kg of battery and vehicle as opposed to 20kg of electric bicycle, you see that if you are hooked on independent transport, in the century of terminal declines, you might have to look at the alternatives.

    Aviation as we know it will die with the end of cheap oil, and return to being a privilege of wealthy elites. Shipping on the other hand has many alternatives it can use, like coal, oil, or even dare I say it wind/sail power.

  10. Steve Keen says:

    Another option is the SkyTran proposal for combining low cost magnetic levitation with computer bus design to provide an urban transport network with a cost of US$10 million per mile (one tenth that of light rail).

    The website http://www.unimodal.com is down right now but this archive still has info:


    Wikipedia has an entry:


    This old link contains info on the economics of the project:


    And a colleague of mine Trond Andresen will present a seminar on the concept at the Sydney Uni Institute of Transport and Logistic Studies on Tuesday 22nd, for anyone who can attend uni seminars and has the time for this one.

  11. Dave says:

    The SkyTran looks exciting! Perhaps you would appreciate this post on ‘The Energy Bulletin’

    Its all about the history of ropeways, and their possible rediscovery in an energy/environment challenged world.


    Maybe we will all fly one day!

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