Finance as the Humpty Dumpty of Academia

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(My apologies for the previous post–I didn’t check the YouTube link**, which was to an earlier video.)

I gave the presentation below to a Griffith University symposium on Finance theory “after” the GFC/Great Recession.

Speakers only had 20 minutes, and if you think I normally speak fast, brace yourself for the speed of this presentation. I suggest you keep the mouse near the “pause” button in case you want to spend more time reading some of the text–which is also here of course in the Powerpoint File.

** PS The reason for not checking was that Google Chrome, which I prefer to Internet Explorer, doesn’t show me the video when I go to preview mode within WordPress–though it does show up when I publish the post. If any WordPress whiz out there can tell me how to fix this, I’d be obliged.

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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143 Responses to Finance as the Humpty Dumpty of Academia

  1. Lyonwiss says:

    Peterjbolton July 30, 2011 at 8:21 pm

    If bureaucracy is really about politics and not about applying the best skills and knowledge for the public good, then the best economists, the best engineers, the best doctors etc are not a priority for the public service. The system selects (as you say) “the bottom levels of intelligence and are soon indoctrinated into the priesthood of bureaucracy”.

    Indeed, the best advice may contradict political objectives. (I have personal experience of a government minister interfering with my work in the past.) Hence the best knowledge and expertise are not really welcome in operating the public sector. One senior bureaucrat explained to me “only perception matters”. Most government agencies have substantial “public affairs” departments to manage spin for their public image.

    Under such arrangements, government agencies are run by political bureaucrats with just enough knowledge worker underlings to follow orders to get the basic jobs done. Since real expertise is not welcome to serve the public, the public sector can be downsized at will without any palpable difference, eg “Max the Axe”:

    “Moore-Wilton typifies the new generation, self-styled CEOs anxious to break the Public Service from what they perceive to be its cobwebbed past and adopt the culture of the commercial world.”

    Australia follows the US model of the “revolving door”, where politicians (the PM) can appoint anyone, eg a CEO of bank, to be the head of a government agency. The enabling legislation is the Public Service Act 1999. For his act of corruption of the Australian public sector, Max Moore-Wilton was rewarded with the position of CEO of Sydney Airport Corp. in 2002. The die is cast.

  2. peterjbolton says:

    @ Lyonwiss July 30, 2011 at 10:39 pm | #

    “If bureaucracy is really about politics and not about applying the best skills and knowledge for the public good, then the best economists, the best engineers, the best doctors etc are not a priority for the public service. The system selects (as you say) “the bottom levels of intelligence and are soon indoctrinated into the priesthood of bureaucracy”.

    What you disturbingly describe I also have experienced, but, it is still mere variations upon the theme of bureaucracy evolved. John Howard is / was an awful/ ugly / nasty Prime Minster in the ranks of his predecessors; a sweating, lying pimp of extraordinary disgust and just another step in the devolution of an Epoch which reaches towards, urgently, putrification..

    “In milk we find acid and alkaline. Alkaline is also an acid. Time leads to instability and eventual separation; coagulation, coalescence, putrification and a natural return to the basic elements. Where throughout the Universe do we not find this process? At the present time our ignorance of the basic fundamentals of science lead us towards the total destruction of civilization by falsely and wrongly believing that we can survive in an environment that we can abuse and corrupt. We cannot. We either live in accord with the Universal Laws or we perish (suffer).”

    I have great admiration for Minsky’s work and often wondered as to why he has been so consensually ignored only to find that it is you that proffer the answer:

    “If bureaucracy is really about politics and not about applying the best skills and knowledge for the public good, then the best economists, the best engineers, the best doctors etc are not a priority for the public service. ”

    No “if” about it at all, as it is “a priori”.

    Bureaucracy: v. Mises

    There are lessons to be learnt here amongst these observations. Oui?

  3. peterjbolton says:

    @ Lyonwiss – an after-thought:

    Bureaucrats are unelected “politicians”, whereas, elected “politicians” are subservient bureaucrats. This is “democracy”. This is the system.

    Where, both are subservient to the Banking Cartel.

  4. Lyonwiss says:

    Peterjbolton July 31, 2011 at 1:48 am

    The first Rothschild said: “Give me control of a nation’s money and I care not who makes the laws.” I would say simply: “Money makes the laws”, as we saw in the GFC, money corrupts the politicians who make the laws.

  5. peterjbolton says:

    Lyonwiss July 31, 2011 at 11:41 am | #

    Indeed, no argument; where Money has no morality nor ethics – it goes where money demands, but only when money demands it so.

    So, we must seek the solution in the “money” materialistic System that lords over and controls our socio-economic organizations and forges our Minds and those Minds of our youth, while corrupting everything human in its path.

    Or, humanity is being jerked around through the thorough corruption — by the monetary credit distribution system – that is, our system, which we do not at all comprehend or even understand.

    Now, we start to see that which Economics is unknowingly dealing with, er, unsuccessfully, and that by opening the window slightly wider, or by lifting the veils of Isis, one can glimpse that it is the Monetary system that is controlling us and not we, it!.

    Quelle surprise!

    Did not Jesus – as the ancient texts of the Bible states in the allegorical Act of hunting the money lenders from the steps of the Temple ~2000+ years ago? Has not Usury been declared illegal and forbidden by numerous Nation States over the past 3000 years?

    But, as we know best sans consideration or reference to any historical reasoning, or record, just as we collapse the whole global system.
    Man, are we quick… and smart too? I believe Isaac Azimov made the same observation.

    Bureaucracy is a prolific and viral disease.

    Holders of US Treasury Debt

  6. johnm says:

    A few weeks ago I thought I’d look for a ‘central banking’ game which would help me explain whats going on to the grandkids, something like monopoly but with just bankers as players, so everyone could win. It would have to be computer based, handling all that paper currency would make for an untidy game, couldn’t find one. Anyone know an open source games writer up for a bit of subversion?

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  8. peterjbolton says:

    @ Steve

    “Finance as the Humpty…”

    View the “Doorbell” – this is how it works…

  9. peterjbolton says:

    The link to the above – sorry again. Really! 😉

  10. peterjbolton says:

    Supporting evidence that says (as I) that RBA will hike rates this week giving Mr Stevens a surge of a much needed fix of accelerated adrenaline: Risk Rated.

    –By February, Europe’s sovereign-debt troubles resurfaced, this time in Greece. A bailout deal was reached. But the realisation that Europe’s banking system was stuffed with governments bonds as collateral, and that government bonds were…well…stuffed…clearly scared the big pants off the market. The forces of debt deflation marched again and stocks fell.

    –Then the earth moved in Japan. It seems odd that the trifecta of disasters in Japan would be bullish for Aussie stocks. After all, Japan is a big consumer of Australia’s energy exports (thermal coal, LNG). But it’s not so odd if you understand the relationship between the Aussie dollar, the Japanese Yen, and Australian stocks.

    –In short, the forces of credit expansion and easy money fuelled the rally in March. The Yen rose in the early days after Japan’s quake. The belief was that Japanese capital deployed overseas (where interest rates are higher than zero) would be repatriated back to Japan to pay for the cleanup and fund the rebuilding of quake-struck zones.

    –That may have happened. But what definitely happened is that central banks in Japan, America, and Europe all agreed to intervene in currency markets to stem the Yen’s appreciation. A stronger Yen would have been a big blow to Japanese exports. And Japan had enough on its plate at the time.

    –Thus, Aussie investors were again saved by the flood of easy money resulting from low interest rates in another country. The carry trades—where investors borrow at low rates in one country to invest in higher-yielding assets in another country—have been a huge boon to Australian stocks. As the Reverend Jesse Jackson might say, “If the money doesn’t flow, the stocks won’t go.”

    –This may surprise a lot of Aussie investors. It’s commonplace to think that China’s resource demand is what supports Australian stock prices. But the chart above proves that’s not the case. Corporate earnings are directly affected by Chinese demand, of course. But the chart above suggests Aussie stock prices don’t trade on corporate earnings but on global money flows. And global money flows depend on whether credit is expanding or contracting.

    From The Daily Reckoning Dan Denning this very day.

  11. Lyonwiss says:

    Peterjbolton August 1, 2011 at 11:40 am

    Finance theory, such as the “efficient market” doctrine, has provided the moral umbrella for widespread fraud in nearly very level of American society. There can be no recovery until this simple fact is officially and commonly recognized.

  12. Lyonwiss says:

    Peterjbolton August 1, 2011 at 12:12 pm

    I’m not sure that Dan Denning is right about Japanese money flow affecting our stock market. Certainly there is a close correlation between AUD/JPY and the Australian stock market, as the following chart shows. It is a question of causality.

    But the data suggest when the All Ords falls, then Aussie dollar weakens against the Yen, suggesting outflow of Japanese money. That is currency flows FOLLOW stock market fluctuations. A possible explanation is Japanese savings are looking for better returns in Australia and are reacting (not anticipating) to investment prospects.

  13. Lyonwiss says:

    The chart:

  14. peterjbolton says:

    The Solution: Moving ahead by changing the Paradigm:

    This animate was adapted from a talk given at the RSA by Sir Ken Robinson, world-renowned education and creativity expert and recipient of the RSA’s Benjamin Franklin award. For more information on Sir Ken’s work visit:

    A vitally important Presentation that should resonate amongst those of you that are not yet dead.

  15. peterjbolton says:

    @ Lyonwiss: Your various post today.

    Thank you for your comments and the graph:

    But, as Keynesians and neoclassics and indeed the Austrians, etc., — and I speak in general but suggest most – if not all for those in influential positions we can see as Steve Keen infers, none of these Economists stay with the script but indeed all carry their own Book of interpretations like the Holy Books of Institutional Religion and dispense according to consensual compromises which are arrived at through political expediency.

    So in the case of what the Treasury, or the black duck or Glen Stevens *perceives* us happening through arbitrage and carry trades of ‘borrowed’ Hot Money flows is what is important as opposed to actually what it is that is occurring. Not only this, but political pressure arising out of the Industrial and Collectives Lobby plus pressure imposed by the Brown (Green) Party, Foreign Empire pressures — all that is bundled under Diplomacy — also bias the results to what can only be described at chaotic Chaos. This is not complexity at all; it is just pure madness where the results can easily be determined and predicted as bad news.

    We are at the point that those who know something but which is all wrong and fragmented in its interpretative essence, will eventually fail.

    I have also heard and read the arguments that the fiats of the West are high because of our greater productivity and I would like to point out that in Australia’s case this is incorrect because our productivity, au contraire. is low and heavily inefficient and horribly expensive.

    Management in work sites are just a disaster where 15% of budgets spent on safety, results in more than 50% in real productivity (my estimation) and you can see worse that this in Councils’ and governments and civil engineering works. Ask a workman on a major site if they are on time and in budget and he will normally tells the truth that suggests totally incompetent management and huge overruns in cost and time.

    And there is nothing more costly and inefficient that the machinery of Government. And Australia’s Government or Tiers of Taxation are a perfect example of the horrors of Hanlon’s Razor.

    I also end with a clarification: Bureaucracy is not Public Service (IMO) but what we have in Oz is Bureaucracy but I believe that we once did have Public Service. We need to get back to Public Service as our Bureaucracy is just a budge for the unemployable with the lurks and perks of Royalty.

    But, you must also understand that none of this will change because those that could change it, do not want it to change as they profit too well with the status quo – which has always been the case.

    Law, trumped Reason,
    Power trumped Law,
    And Ethics only, and not the perception of an arrogance of superiority,
    can trump Power.

  16. peterjbolton says:

    The Ghost of Murray Rothbard Haunts The Economist

    by Gary North

    Seems applicable and relevant

  17. Lyonwiss says:

    Peterjbolton August 1, 2011 at 8:26 pm

    Very relevant, but a badly written article, because it is unclear whom Gary North is quoting half the time. Despite this shortcoming, the article justifies some of Murray Rothbard’s criticisms of Milton Friedman, who was often misunderstood to be a champion of the free market, but not as seen by the Austrians.

    Austrians would never condone the manipulation of fiat money by the government to induce inflation, which is the central idea of Friedman’s monetarism. Bernanke is a disciple of Friedman’s in his belief in the power of money.

    On the celebration of Friedman’s 90th birthday, Bernanke said: “Friedman and Schwartz’s insight was that, if monetary contraction was in fact the source of economic depression, then countries tightly constrained by the gold standard…”

    Bernanke concluded his speech:

    by saying “I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

    Helicopter Bernanke increased base money to $2.7 trillion from $0.8 trillion in 2006 (year of Friedman’s death), when he became Fed chairman. The real-time experiment of monetarism and his flawed understanding of the Great Depression is before our eyes – emerging inflation and faltering growth and employment.

    (Disclaimer: I’m agnostic to economic religions, only observer.)

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