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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  • Lyon­wiss

    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.

  • @ 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?

  • @ 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.

  • Lyon­wiss

    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.

  • 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

  • johnm

    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?

  • Pingback: P?íštipká?()

  • @ Steve

    Finance as the Humpty…”

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


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

  • 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.

  • Lyon­wiss

    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.

  • Lyon­wiss

    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.

  • Lyon­wiss

    The chart:

  • 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.

  • @ 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.

  • The Ghost of Mur­ray Roth­bard Haunts The Econ­o­mist

    by Gary North

    Seems applic­a­ble and rel­e­vant

  • Lyon­wiss

    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.)

  • This is really great work. Thanks for shar­ing blog, this is really inter­est­ing infor­ma­tion for me.

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