Another Getup idea–direct attack on the FHOS

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Reg­u­lar read­ers of this blog would know that I am a staunch critic of what I pre­fer to call the “First Home Ven­dors Grant”, which is why I quickly sup­ported the pro­posal on GetUp’s sug­ges­tion box for a boy­cott cam­paign by first home buy­ers.

That sug­ges­tion has become a suc­cess in its own right even before GetUp decides whether to pur­sue it or not, with the cam­paign being reported in the Fair­fax media: see Online cam­paign tar­gets high cost of hous­ing. Chris Zappone’s arti­cle head­lines The Age and the Syd­ney Morn­ing Herald’s home pages, and it had 364 com­ments as of 3.30pm today–a remark­able num­ber for a sin­gle story in less than six hours.

Now a blog mem­ber has added a third house price cam­paign sug­ges­tion with a direct attack on the First Home Own­ers Scheme:

Stop­ping the First Home Buy­ers grant

It only has 2 votes so far–and I can’t give any of my votes because I’ve exhausted them on the First Home Buy­ers Strike, anti-Neg­a­tive Gear­ing, and a cou­ple of per­sonal inter­ests (defend­ing Wik­ileaks and cam­paign­ing in favour of asy­lum seek­ers). But if you’d like to add to the odds that GetUp will mount a cam­paign on the gen­eral issue of house prices in Aus­tralia, please log on and vote for this sug­ges­tion.

Also, have a read of Saul Eslake’s OpEd “Imag­ine a tax sys­tem that penalised work”, cri­tiquing Neg­a­tive Gear­ing. It’s an excel­lent piece.

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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  • Speak­ing of Debt, Banks and politi­cians — the con­text is Ire­land, but…

    Should make the hair stand up on end the way the truth needs to be squeezed out like the blood from the stone; drop by drop by drop.

    Frog in water — water in fry­ing pan — fry­ing pan on fire…

  • sir­ius

    @AK (To the board admin­is­tra­tor — I would like a post num­ber I could quote here please).

    Although there are lots of sub­se­quent details to appre­ci­ate, the pri­mary detail is that there is “no moral haz­ard” for the banks. Another prob­lem is that we still refer to banks as “banks” when their busi­ness model has changed so much that that the use of the term “bank” is invalid. 

    The clever thing about the banks is that the “out­ward appear­ance” of banks is just the same and so “the peo­ple” are deceived into believ­ing that noth­ing has changed.

    (This “fea­ture” of con­tin­u­ing to use the same word to refer to some­thing that has changed so dra­mat­i­cally is actu­ally very com­mon and why I try to avoid var­i­ous name words and “isms”).

    “New­ton — for every action there is an equal and oppo­site reac­tion.””

    This does not apply to the bank­ing sys­tem and it is the fun­da­men­tal prob­lem that cur­rently applies to the bank­ing sys­tem as it is cur­rently (loosely) defined.

    How­ever I always “check myself” since ulti­mately some­thing that is on an unsus­tain­able tra­jec­tory must always be arrested. Maybe I just have to think that this can go on for another 20–30 years (with ensu­ing fall­out) before we get there. In which case there is no prob­lem.

    Real” banks do not need to be a pub­lic util­ity. Indeed in my (vir­tual) world they are not, but I think I need to wait a few years before this idea will catch on.

    Obser­va­tion: define “bank”.

  • sir­ius

    Inci­den­tal background:In 1936 John May­nard Keynes bought at auc­tion 100 lots of the man­u­scripts of Isaac New­ton that had been stored ..

    New­ton: The Dark Heretic (Part 1 of 6) (Keynes)

    Once again his­tory as pushed in the main­stream is a mis­lead­ing fab­ri­ca­tion.

  • Lyon­wiss


    I do not dis­agree with your views. Many ideas have been tried and they failed. But because the rea­sons for their fail­ures were never really under­stood they are tried again and again with the same results of fail­ure. Ide­o­log­i­cally, we went from mar­kets and cap­i­tal­ism to gov­ern­ment and social­ism then back to mar­kets and cap­i­tal­ism… round and round in cir­cles over more than a cen­tury mak­ing no real progress. 

    I think ide­ol­ogy is not that impor­tant. It is how we orga­nize human activ­i­ties that’s impor­tant. The bureau­cracy is just as inef­fec­tive and cor­rupt in Aus­tralia as in the for­mer Soviet Union, except that bureau­cracy has a much more lim­ited role in Aus­tralia. When Key­ne­sian econ­o­mists talk about gov­ern­ment spend­ing they imag­ine use­ful employ­ment and eco­nomic growth and not white ele­phants and eco­nomic waste. When neo­clas­si­cal econ­o­mists talk about the mar­ket they imag­ine equi­lib­rium of sup­ply and demand, max­i­miz­ing the util­i­ties of indi­vid­u­als and not infor­ma­tion asym­me­tries, rigged mar­kets, frozen mar­kets etc.

    The essence of eco­nom­ics is about imper­fec­tions, mar­ket fric­tions, adverse incen­tives, costs etc. and how to econ­o­mize or min­i­mize on all those costs. A dis­si­pa­tive dynam­i­cal sys­tem can­not have equi­lib­rium solu­tions sim­ply because of the leak­ages. We rely on inno­va­tions and cre­ative destruc­tion to keep the sys­tem any­where near a sta­tion­ary state: we need to be cre­ative just to “tread water” eco­nom­i­cally.

    The bot­tom line is I have no com­pelling solu­tion, even if I can spec­u­late like every­one else. I’m more con­cerned at this stage with a proper diag­no­sis. I would like to set down the require­ments of a new eco­nomic par­a­digm, as the first step of a con­struc­tive approach.

  • Steve,
    Thanks for the feed­back.

    It’s odd that the thread­ing wold be shunned by com­menters, but you would know bet­ter than me. I’m only an occa­sional vis­i­tor. I’d say revisit it in the future as the num­ber of com­ments increases. Is there a way to keep the com­ments all on one page?

    Does the fact that some­thing is dif­fi­cult imply that it should not be tried? What else can be done if manip­u­la­tion of Credit Impulse is too risky? 

    I’ve favored a mutual or co-oper­a­tive own­er­ship struc­ture of finan­cial inter­me­di­aries. What do you think?

  • sir­ius

    thought some here may find the fol­low­ing “inter­est­ing”…

    “The default rate on mort­gages increased unex­pect­edly in the first quar­ter of 2011, com­pared to the pre­vi­ous three months, the Bank of England’s lat­est Credit Con­di­tions Sur­vey says.

    The report states the num­ber of mort­gage defaults is expected to increase fur­ther over the next three months.

    Fur­ther­more, losses given default were reported to have increased in Q1 2011, and are pre­dicted to rise a lit­tle fur­ther in Q2””

    FWIW this came as a sur­prise to me since a lot of peo­ple in the UK were on “base rate tracker mort­gages” and since the base rate was dropped from approx 5% to 0.5% their mort­gage inter­est rate dropped 4.5% also. Hence those peo­ple are pay­ing a mort­gage pay­ment of hun­dreds of pounds less per month 

    Could this be due to peo­ple being out of work or on a short­ened work­ing week ?

  • sir­ius

    The debate about Obama birth­place con­tin­ues

    I find it inter­est­ing (read some of the com­ments). One does some­times won­der about all of these things.

  • ak


    Thank you for your response. 

    So let’s assume that we are not obsessed by deriv­ing macro­eco­nom­ics from the “first prin­ci­ples” of micro­eco­nom­ics since we may agree that human behav­iour is far more com­plex that assumed by the mar­ginal util­ity the­ory and that mar­kets are imper­fect.

    What is your view about the mod­el­ling method­ol­ogy used by W. Godley’s school? I am not say­ing that the mod­els were com­plete as debt-defla­tion was not antic­i­pated in the ear­lier mod­els. NB it is inter­est­ing to see the evo­lu­tion of the sim­u­la­tion results deliv­ered by the model in time.

    My ques­tion is not about com­plete­ness or cor­rect level of detail but whether you can find any issues with the method­ol­ogy:

    1. The intro­duc­tion of the stock-flows con­sis­tent frame­work (which by def­i­n­i­tion accounts for stim­u­la­tory effect of pri­vate bor­row­ing and neg­a­tive influ­ence of debt delever­ag­ing on the GDP)

    2. The depen­dency of flows mainly on flows in an ear­lier period (lagged) with some influ­ence on the size of the stocks (based on work of Keynes, Kalecki and Kaldor),
    using sim­pli­fied lin­earised esti­ma­tions of rela­tion­ships between para­me­ters (“elas­ti­cies” and “propen­si­ties”)

    3. The reliance on GDP data in cal­i­brat­ing the model and defin­ing start con­di­tions.

    The fol­low­ing state­ment made by one of for­mer stu­dents of Michal Kalecki shows that there might be some merit in using the Post-Key­ne­sian / Kaleck­ian frame­work:

    At the very begin­ning of the shock ther­apy in Poland I had the
    priv­i­lege to be invited to pre­pare an experts’ report of the
    expected results of this pol­icy pack­age. I came to the con­clu­sion
    that GDP would fall over 1990 by 15 to 20% instead of the
    tac­itly assumed (although not pub­lished) decline of about 5%
    (Laski 1990). In 1990 GDP fell by 11,6% and 1991 by another
    7%. As far as I know there was no other econ­o­mist to fore­see this
    devel­op­ment. This was not the result of any per­sonal prophetic
    abil­ity; I had sim­ply used the method of Kalecki and tried to
    cal­cu­late the results of the decline of effec­tive demand. My
    exper­tise was of course com­pletely ignored and shelved.”

    I sus­pect the Chi­nese still use that ana­lyt­i­cal frame­work to man­age aggre­gate demand.

    Do you know any alter­na­tive mod­el­ling frame­works (except for gen­eral equi­lib­rium mod­els which I don’t think describe the real­ity cor­rectly)? Do you think that it is more appro­pri­ate to build a macro multi-agent model? Or should we just give up?

  • Lyon­wiss


    The answer to your ques­tion: “Could this be due to peo­ple being out of work or on a short­ened work­ing week?”, is “Yes”.

    Illiq­uid­ity and insol­vency are nec­es­sary and suf­fi­cient con­di­tions for mort­gage default for home own­ers. Illiq­uid­ity is a lack of cash­flow to make mort­gage repay­ments, due com­monly to higher inter­est rates or unem­ploy­ment. This may not lead to default if equity can be released through refi­nanc­ing. How­ever, if you are insol­vent (neg­a­tive equity) as well, then it is game over.

    Aver­age UK house prices are still 15 per­cent below the mid 2007 peak, in real terms. Out­side Lon­don, the sit­u­a­tion is much worse. This means many home­own­ers are insol­vent, assum­ing their highly mort­gaged homes are their main assets. For many the insol­vency con­di­tion is sat­is­fied.

    UK unem­ploy­ment is at a 17 year high. Ris­ing unem­ploy­ment means the illiq­uid­ity con­di­tion is being faced by more and more home own­ers. This means a rise in mort­gage defaults for those who are insol­vent. For those who are not insol­vent, we would expect an increase in refi­nanc­ing. This is exactly what your news arti­cle reported: “On the other hand, demand for secured lend­ing for remort­gag­ing increased notably over the period, and is expected to con­tinue to increase in the com­ing quar­ter.”

    I have a fully quan­ti­ta­tive, sto­chas­tic model for this the­ory to make pre­dic­tions. But aca­d­e­mic jour­nals are not inter­ested, because credit agency mod­els for credit defaults (eg KMV) are what they teach and must be right.

  • Lyon­wiss


    Let me give you a rhetor­i­cal answer to your last ques­tion, “Or should we just give up?”. How could we give up when we haven’t even started?

    We have not even started to fully under­stand all the log­i­cal, method­olog­i­cal, empir­i­cal and philo­soph­i­cal errors of exist­ing eco­nomic the­o­ries. We have to thank God­ley and MMT for point­ing out some glar­ing math­e­mat­i­cal or log­i­cal errors of main­stream eco­nom­ics. But these are not fun­da­men­tal depar­tures from the exist­ing equi­lib­rium frame­work.

    There are a lot that is right and a lot that is wrong in every eco­nomic the­ory I have read. I think fil­ter­ing through all those the­o­ries, debat­ing on who’s right and who’s wrong, and who said what, are aca­d­e­mic activ­i­ties which have gen­er­ated many research papers and pro­fes­sor­ships. It has got us nowhere. 

    Arguably there has been no real progress in eco­nomic under­stand­ing for decades. The evi­dence for this asser­tion is the wide­spread claim after the GFC that “we are all Key­ne­sians now” and with that came big gov­ern­ment spend­ing and money print­ing. To me, Key­ne­sian eco­nom­ics has been ade­quately dis­cred­ited, decades ago.

    We are in an intel­lec­tual vac­uum, with the incum­bent neo­clas­si­cal econ­o­mists likely to brush off the GFC as a “black swan”, which is being absorbed with the econ­omy adjust­ing back to equi­lib­rium. This is just another phase of the cir­cu­lar motion of eco­nomic knowl­edge.

    We need a fresh start, at least in method­ol­ogy, with a solid empir­i­cal foun­da­tion, which is now pos­si­ble because of cheap tech­nol­ogy. It was not pos­si­ble even a cou­ple of decades ago. Advances in eco­nomic the­ory had to be based then on ear­lier eco­nomic the­o­ries, which led to peo­ple going off into tan­gents, build­ing dif­fer­ent schools and cre­at­ing dif­fer­ent reli­gions rather than cre­at­ing sci­ence. In sci­ence, dis­putes are (at least mostly) set­tled by empir­i­cal evi­dence.

    The recent empir­i­cal advance on how credit affect the econ­omy, i.e. by credit impulse (thanks Steve), is extremely impor­tant, because it is no longer pos­si­ble to ignore money in the mod­ern econ­omy (as in neo­clas­si­cal eco­nom­ics). A credit event like the GFC last­ing sev­eral years at least can­not be ignored just as a short-term blip. Credit needs to be endo­g­e­nized in the cor­rect way. 

    We’ve only just begun… on a very long road. Empir­i­cal work with the­ory is much harder than just the­o­riz­ing and the empir­i­cal work pro­duces far fewer papers. Most aca­d­e­mics will not have the train­ing or the eco­nomic incen­tives to pur­sue this path.

  • Philip


    You men­tioned that you believed that Key­ne­sian­ism has been dis­cred­ited long ago. Are you refer­ring to the white­washed the­ory that exists in the US (New Key­ne­sian­ism) thanks to Hicks and Samuel­son, or to the post-Key­ne­sian­ism of Keen, Godly, David­son, et al., or both?

    Hav­ing read Joseph McCauley’s Dynam­ics of Mar­kets, he observes that the one- or-two para­me­ter mod­els that are the sta­ple of Key­ne­sian mod­els for decades are as worth­less as the Mon­e­tarist mod­els: eco­nomic sys­tems are com­plex and nonuni­ver­sal, filled with sur­prises, rather than yield­ing sim­ple and pre­dictable out­comes. Bas­ing pol­icy on these mod­els may not nec­es­sar­ily lead to a steady state but could as eas­ily yield chaos instead.

    What do you think of the econo­phy­ics school of thought? Hav­ing read through McCauley’s work, econo­physi­cists appear to be way ahead of the other main­stream schools in ana­lyz­ing dynamic and chaotic sys­tems. Unfor­tu­nately, analy­sis is restricted to cap­i­tal mar­kets because of the lack of data exist­ing in goods/services and labor mar­kets.

    Another major prob­lem is not just the abil­ity to sort through errors and incon­sis­ten­cies in the the­o­ries of other schools of thought. Power plays a big part in deter­min­ing the eco­nomic the­ory of the time. Look­ing at the his­tory of eco­nomic thought, the eco­nom­ics the­ory fits what is con­ve­nient for the rich and pow­er­ful. The emerg­ing cap­i­tal­ist class from the 17th cen­tury onwards demanded an eco­nomic the­ory that jus­ti­fies its wealth, priv­i­lege and power. Thus the clas­si­cal lib­er­als across a spec­trum rang­ing from doves (Smith) to hawks (Nas­sau Senior) deliv­ered. In the state com­mu­nist soci­eties, ortho­dox Marx­ists deliv­ered the the­ory that the gov­ern­ment over­lords wanted. In our mod­ern time, state cap­i­tal­ists have their power and wealth pro­tected by a chang­ing syn­the­sis of Austrian/neoclassical/Keynesian eco­nomic the­ory.

    Empir­i­cally-based eco­nomic the­ory such as econo­physics will always be put at a dis­ad­van­tage because it pro­duces the­ory, ideas and pol­icy that the rich will not want to hear, whereas they will fund main­stream the­ory because it helps to jus­tify the exist­ing insti­tu­tions of wealth and power. The excel­lent doc­u­men­tary Inside Job pro­vides a good exam­ple of this (espe­cially the econ­o­mists Glenn Hub­bard and Fred­eric Mishkin).

    Empir­i­cally-based econ­o­mists have a dif­fi­cult task ahead of them, to put it lightly…

  • Lyon­wiss


    One of Hayek’s crit­i­cism for Keynes is that there are deci­sions that gov­ern­ments can­not pos­si­bly make cor­rectly, sim­ply because they can­not pos­si­bly have all the nec­es­sary infor­ma­tion. A triv­ial, obvi­ous, but impor­tant exam­ple is indi­vid­ual con­sump­tion pref­er­ences. That’s why we had fail­ure of the for­mer Soviet Union, which man­u­fac­tured a lot of use­less con­sumer goods no one wanted. 

    Wastes from gov­ern­ment spend­ing are empir­i­cal facts from all coun­tries, includ­ing cap­i­tal­is­tic ones (eg home insu­la­tion in Aus­tralia). The crit­i­cism goes beyond dif­fer­ences in ide­al­ized mod­els to explain the eco­nomic impact of gov­ern­ment spend­ing.

    Econo­physics is more about quan­ti­ta­tive meth­ods used in physics than about eco­nom­ics. It demon­strates some of the flawed meth­ods used in eco­nom­ics. But it is not usu­ally about eco­nom­ics. It is about finan­cial data min­ing, pro­duc­ing few eco­nomic insights or use­ful pre­dic­tions. It is untrue that there is a “lack of data exist­ing in goods/services and labor mar­kets.” There will never be enough eco­nomic data on the micro-sec­ond, sec­ond, minute or hourly scale to feed the data min­ing machines. In many ways, econo­physics is like econo­met­rics.

    Totally agree that “Power plays a big part in deter­min­ing the eco­nomic the­ory of the time”. Money and power has entrenched neo­clas­si­cal eco­nom­ics, because the free mar­ket dogma insti­tu­tion­alises the whole­sale trans­fer of wealth to the elite. The eco­nomic incen­tives for aca­d­e­mics is to strengthen such a hold on soci­ety with the cur­rent eco­nomic par­a­digm.

    For those who want to pur­sue the truth the price has always been high eco­nom­i­cally. Most peo­ple are unwill­ing to do it. But for those who do, the sat­is­fac­tion of dis­cov­ery is immense, even though they are usu­ally ignored by the rest of soci­ety.

  • ak


    The dif­fer­ence between the Soviet sys­tem and the Key­ne­sian one was not quan­ti­ta­tive but more fun­da­men­tal (qual­i­ta­tive).

    The main fea­ture of the Soviet sys­tem was the state own­er­ship of the means of pro­duc­tion and lack of pos­i­tive incen­tives for work­ers to work harder, replaced by total­i­tar­ian con­trol exer­cised by the party and the secret ser­vice. The com­mand econ­omy was not just the ulti­mate ver­sion of the Key­ne­sian aggre­gate demand man­age­ment and cen­tral plan­ning. It was some­thing dif­fer­ent what can be hardly imag­ined by peo­ple who did not live there.

    Every­thing was politi­cised at any level. Igno­rance shown by the mem­bers of polit­buro led to social insta­bil­ity and to unbe­liev­able waste. It is not true that we had too much of some goods — lack of every­thing was a norm. The sys­tem only grew as long as the work­ers were ter­rorised. After 1956 when the Stal­in­ist ter­ror abated, it lost steam almost instantly. This was obvi­ous and there were attempts to reform it, sup­pressed by the fos­silized lead­er­ship of the com­mu­nist party. In Poland in 1968 the so-called “Zion­ists” and revi­sion­ists (mar­ket social­ists) were either expelled or silenced (this included Michal Kalecki and the mem­bers of his eco­nomic school). In 1970 Gen­eral Sec­re­tary Gomulka ordered shoot­ing of work­ers who organ­ised demon­stra­tions against food prices increases.

    But the sys­tem was reformed some­how in China in the direc­tion of “mar­ket social­ism” or “state cap­i­tal­ism” — the party still tightly con­trols the macro­eco­nomic pol­icy and is firmly in power but pri­vate own­er­ship of means of pro­duc­tion has been encour­aged and the mar­ket not the Plan­ning Com­mit­tee deter­mines the prices. 

    This sys­tem works so far con­vinc­ingly well (despite human rights issues). I am not sure that there is much less waste and mis­al­lo­ca­tion of resources in the neolib­eral sys­tem. They don’t have 13% unem­ploy­ment in China.

  • Lyon­wiss


    Quan­ti­ta­tive dif­fer­ence can lead to qual­i­ta­tive dif­fer­ence. Eco­nomic effi­ciency is impor­tant. Great waste even­tu­ally leads to scarcity, civil unrest, repres­sion, police states etc. This can occur not only under the Soviet sys­tem. Watch devel­op­ments in Greece, Ire­land… and many Arab coun­tries. China is already repres­sive even with­out appar­ent eco­nomic scarcity. The 64 mil­lion empty apart­ments in ghost cities do not sug­gest eco­nomic effi­ciency. The Chi­nese gov­ern­ment manip­u­lates facts, fig­ures and images to pacify its own peo­ple and the rest of the world. In the 1950s and 60s, the Soviet Union was also look­ing great…

  • sir­ius


    I have a fully quan­ti­ta­tive, sto­chas­tic model for this the­ory to make pre­dic­tions. But aca­d­e­mic jour­nals are not inter­ested, because credit agency mod­els for credit defaults (eg KMV) are what they teach and must be right.”

    Is that model some­thing you would like to pub­lish here or at least pro­vide to me so I can take a look at it ?

  • mikes place

    Hi Steve, the votes are above 500 now for the GetUp cam­paign, I was hop­ing for another front page plug to hope­fully kick this up a gear, a lot of the vot­ers are mak­ing com­ments that they have run out of votes because of the other prop­erty related cam­paigns, so it may be tough get­ting this into third place

  • That’s still pretty good going Mikes, thanks for adding to it.

    GetUp will need to think about this one for a while–it’s out­side their stan­dard exper­tise. I’ve offered to assist with any­thing they con­sider doing, and my cur­rent posts will give them some info there. But it’s been amaz­ing to get this level of back­ing so rapidly.

    BTW, those of you that suf­fer on Face­book, con­sider click­ing on the link I’ve now put up on the home page here:

  • Daltica

    Steve, the web address for the Face­book anti neg­a­tive gear­ing cam­paign has been changed to

    This is much eas­ier to remem­ber.

  • Chris­tiank

    Hi Steve

    Peo­ple often say that foriegn investors (mainly Asian) are dri­ving up prop­erty prices. Do you know if any analy­sis has been done on this?


  • I wish I could! Unfor­tu­nately, as well as remov­ing the restric­tions on for­eign buy­ers buy­ing prop­erty entirely (before being forced to rein­tro­duce most of them), the Rudd gov­ern­ment also directed the FIRB (For­eign Invest­ment Review Board) to stop col­lect­ing sta­tis­tics on how much prop­erty was being bought by over­seas buy­ers.

  • Chris­tiank

    thanks Steve,

    Awe­some work you are doing.…you’re one of few that actu­ally makes any sense when it comes to hous­ing.