George Monbiot Seminar

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This is the video of the seminar I gave in Oxford earlier this month that The Guardian‘s George Monbiot attended. George then wrote the feature “It’s in all our interests to understand how to stop another Great Depression“, which briefly propelled the new edition of Debunking Economics to No. 89 on Amazon UK‘s Bestseller list.

Given that my audience included academic economists–from PhD students to Professors of some note–I went into more depth on the modelling I have done of Minsky’s Financial Instability Hypothesis than I normally do in public talks. The discussion I had afterwards is also recorded, which is why the video is so lengthy.

One part of the discussion that I found quite notable was that, even after showing empirical evidence on the impact that rising and then falling private debt had on the economy both now and during the Great Depression, I couldn’t convince several of the academics in the audience of the importance of private debt: they kept coming back to “one person’s debt is another person’s asset, therefore the level of debt doesn’t matter”. They therefore argued vehemently that the distribution of debt was important, but its aggregate level was irrelevant.

I tried to point out that since the rate of change of debt contributes to aggregate demand (for both newly produced goods & services, and existing assets), then the change in debt matters, but I made no headway at all with the argument.

As I noted at the end, maybe I’d better come back for a longer seminar then. The point I would make, in much more detail, is that even if one accepted that the level of debt can be anything at all without having macroeconomic consequences on its own (which I don’t accept–at some level of debt, debts can’t be repaid and both creditor and debtor fail in a chain reaction of bankruptcies), the rate of change of debt and its acceleration do matter. This in turn gives the level of debt an imputed relevance, since at a low level of debt the rate of acceleration of debt can be both positive and quite high, while at higher levels of debt it will generally be low and can be substantially negative–just as a car’s acceleration can be very high and positive when the car is moving slowly, but will be low and potentially very negative when the car is travelling at a high speed.

I hope that argument would get through, but there’s a lesson to be learnt in the failure of my argument on the day to get past economic a-prioris–even amongst economists who were quite sympathetic to my overall critical attitude to neoclassical economics. This is that a static mindset is so much a part of economic thinking that the “slice of time” consideration that “one person’s debt now is another person’s asset now” completely dominated how they thought about the macroeconomic impact of debt.

I would have left that seminar somewhat deflated if George hadn’t been in the audience. But of course his presence there, and his subsequent column, made it all worthwhile–and helped the first print run run out in a couple of weeks (hence the delay in getting copies to some blog subscribers and CfESI Partners and Fellows; they’ll be on their way–and as signed copies to make up for the delay–after I get to England again in mid-November)

If you’re not a regular reader of Monbiot, you’re missing some real gems of both commentary and journalism. Being an Australian, I have almost no idea of who Christopher Booker is, but George’s hatchet job on him in The superhuman cock-ups of Christopher Booker in his blog today is a gem of a 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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70 Responses to George Monbiot Seminar

  1. koonyeow says:

    Title: A Response to Geoff Davies (a.k.a. The Seen and The Unseen)

    The Seen:

    Credit money leads fiat money.

    The Unseen:

    Who is coercing whom? Central banks influencing financial institutions or financial institutions coercing central banks? The repeal of the Glass-Steagall Act should serve as a guide.

    P.S. Eagerly awaiting your paper, Lyonwiss.

  2. Steve Keen says:

    I think we’re speaking at cross purposes then. I see the originators as the buyers of the promise to pay from the borrowers, who then on-sell this to the purchasers of securitised loans. The originators I see as defrauding in both directions.

    In any case, this is one of the many instances of a conversation between us being too complex to do justice to the topics via snippets of comments over the web.

  3. Lyonwiss says:

    @ Steve Keen October 29, 2011 at 11:15 pm

    You said you want to punish the lenders, being buyers: caveat emptor. But you now say “The originators I see as defrauding in both directions.” But the originators are not the lenders/buyers. The originators have taken their money (fees), ran and out of the picture. How does a debt jubilee punish the originators?

  4. Steve Keen says:

    Punishment is not my primary intention Lyonwiss: ending the drag on aggregate demand from deleveraging is.

  5. mahaish says:

    “. The originators have taken their money (fees), ran and out of the picture. How does a debt jubilee punish the originators?”

    it cant, lyonwiss

    but the state or the owners of those securities can sue using corporate or dare i say it criminal law

    the whole lot of them should be thrown in jail, from the brokers promoting these flawed products, that they knew were flawed,

    the bankers packaging these products which wouldnt even meet the most charitable under writting standards.

    in fact anybody involved in delibrately designing these products to fail so that hegde funds can make a killing on cds swap shorts,

    they should all be thrown in jail, and their feet shouldnt touch the ground while we are escorting them to their jail cells

  6. peterjbolton says:

    @ Lyonwiss – I present, in the below link, the irrefutable and damning evidence that the US peoples are now openly competing (gasp) to usurp the Australian peoples’ intellectual (sic) grasp and position in the global field of epistemology. I believe that the Bogan through their “leadership” should officially declare an official objection and shock and awe motion (sic) with the UN Security Council before we transfer that ~US1B to the US for their not-yet-built satellite for our defence against all them evil and conspiratorial Indonesian people smugglers and terrorists – you know all those that have since become taxi-drivers.

    There is always a choice but I wonder if they have been told this?

  7. peterjbolton says:

    @ Lyonwiss
    @ Steve Keen
    @ Mahaish


    The object of intellect is for the benefit and peaceful passage of humanity along those roads where evolving consciousness leads us.

    As such, as there is overwhelming and abundant evidence that the – in the first instance – whole Profession of Economics has totally and irresponsibly failed in its objectives, orientation and social functionality and has permitted massive fraud and suffering to be imposed onto humanity, the first priority that should be addressed should be to reverse this error and this can be done by publishing the truth – the whole truth – the big picture: not difficult!

    At some future time, the due process of Law in a priori reason can be applied to those alleged to have perpetrated unlawful and fraudulent acts upon the public but this should not become the focus on today’s’ critical necessity, nor a fetish as it diverts us from what is urgently necessary.

    I estimate that there is still some time prior to the madmen of “leadership” launching nuclear attacks against humanity – well maybe I just hope there is? – so any move by those of influence and reason within the rank and file of the Economist brethren would be a responsible expectation.

    We need to correct all that erroneous information that has been fed to humanity as it is these incorrect and false discourses on the fundamental principles of the socio-economic orderings that has primarily led us to the brink of planetary-wide destruction.

    We need people to care as it is they that will receive the full soul and body destroying impacts, as a direct result of those false volumes of supposed learned words by the hands of those that they have been led to believe (and paid for their services of responsibilities to the community at large) that they should / could /must trust and obey.

    And which has now clearly been exposed and demonstrated as all “faith and hope” at best and “piss and wind” at worst.

    Be so informed at what comes – destruction:

  8. al49er says:

    It appears Steve that in an effort to demonstrate your regard for the excellent journalism, astuteness, clear thinking and judgement of The Guardian’s George Monboit, that you choose to demonstrate his status by referencing his
    ” hatchet job” on one of those disgusting ‘climate change sceptics’. (ref link to “superhuman cock up of Christopher Booker”)

    You and others might like to read the full text of another very insightful journalist John Izzard ( even if not of the stature of a journalist who writes for “The Guardian”! – with apologies to John because for all I know he MAY have been published in the ‘Guardian’ or some equally erudite newspaper ) “Quadrant’ online 25th. Oct.

    The irony for Steve of course ( and his small group of contrarian economists – and of course we more ordinary plebs who have judged against all the wisdom of the world’s mainstream economists and politicians, that HE might in fact be correct), is that HE is ‘the sceptic’.

    I am certain therefore that John Izzard’s article should give Steve considerable comfort. Here is just a taste.


    Over the [past] decade or so, politically driven climate deniers have adroitly used instruments of democratic practice to erode the authority of professional expertise.
    Clive Hamilton, Australian Public Intellectual (No.64)

    Perhaps the most monumental waste of time, effort and money in all history was the building the Great Pyramid of Giza for the Pharaoh Khufu—that is until around 4500 years later when Australia decided to “save the planet” by the introduction of a Carbon Tax.

    Back in 2500BC Khufu wanted to ensure his entry into the afterlife. All available evidence suggests that his effort was in vain. Tomb-robbers saw to that. Indeed back then all of the temple priests and courtiers and after-life scientists had, no doubt, little need to whisper in Pharaoh’s ear that he might not make it. After all the science “was settled” both as to his afterlife prospects and the inviolability of the Great Pyramid, to intruders. The greatest intellectual minds in Egypt, no doubt, agreed upon that point.

    Meanwhile, back in Australia, circa 2011, a new pyramid scheme is now underway, a Carbon Tax, which has about as much chance of altering the temperature of planet Earth as Pharaoh Khufu’s efforts to stay in one piece—forever. Now we, like the ancient Egyptians, are about to undertake a gigantic endeavour, a voyage into the unknown world of climate manipulation.

    So you would expect that the great intellectual minds of Australia—those eagerly supporting the climate-change theory— would be very happy with the outcome of the Gillard government’s passing of the Carbon Tax legislation. But no, they are most unhappy. Why? Because blasted democracy was getting in the way of settled science — or as Professor Clive Hamilton put it: “instruments of democratic practice” were “adroitly used” to “erode the authority of professional expertise”.

    Another unhappy intellectual, Professor Robert Manne, stated in his recent essay, “Bad News” that:

    Democracy relies on an understanding of the difference between those questions that involve the judgment of citizens and those where citizens have no alternative but to place their trust in those with expertise.

    You might well ask Professor Manne: Since when has democracy relied upon trusting scientists? Surely this is venturing into the world of Dr. Strangelove?

    Clive Hamilton, Vice Chancellor’s Chair (CAPPE) Charles Stuart University, stated in a recent article in The Conversation:

    The practices of democracy at times do not sit comfortably with the best advice of those most qualified and knowledgeable…

    They [citizens] have attempted, with considerable success, to undermine the authority of climate science by skilful exploitation of a free media, appeal to freedom of information laws, the mobilisation of vociferous citizens, and the promotion of their own to public office. In this way democracy has defeated science.

    Wow! And here’s me thinking it was the other way around.

    Perhaps these unhappy intellectuals should ponder for a while as to why people, who normally never question science, now distrust it so much, particularly when it comes to climate-change theory. Why has possibly the most trusted academic discipline, science, suddenly become the butt of suspicion and doubt? It is no good blaming the citizenry, it’s their theory, not ours.

    What has happened to some of our unhappy intellectuals is that they are now confronted with a new concept, science-politics. Science-politics follows closely on the heels of history-politics, which was first spotted in academia in the writings by historians of Aboriginal history. The basic premise of history-politics was that you can force political change upon a country, and it’s citizens, by re-jigging history to achieve a desired political outcome. That is, create a feeling of guilt, then work on the guilt factor to demand change. It works a treat. It really does. “

  9. vk says:

    …ending the drag on aggregate demand from deleveraging is.

    It is debatable whether a debt jubilee will end the drag on the aggregate demand. True, it will allow borrowers to spend into the wider economy the funds they currently allocate for paying principal and interest (at least these borrowers who are not currently defaulting on their loans). However the holders of debt-backed securities would surely spend a lot less after the jubilee.
    This also applies to the debt on the banks’ balance sheets. Once that debt is written off the banks’ shareholders (and possibly bondholders) will have to write off the expected future income from their now worthless assets and that will severely affect their own spending.

  10. LCTesla says:

    Steve, should you feel a need to engage in mental sparring against spirited opposition on the “debt jubilee” front, this may suit your needs:

  11. Lyonwiss says:

    The following recently released movie is a realistic portrayal of the atmosphere inside financial engineering fiirms, but the film is a bit thin on story line and action.

  12. mahaish says:

    “This also applies to the debt on the banks’ balance sheets. Once that debt is written off the banks’ shareholders (and possibly bondholders) will have to write off the expected future income from their now worthless assets and that will severely affect their own spending”

    they will all be broke vk,

    under a debt jubillee,

    unless the state decides to re capitalise them,

    or the state with the central bank, sets up a special purpose vehicle or portfolio, to help them re capitalise, along with changing the accounting rules

    in order to preserve artificially the liquidated values of the now worthless assetts

  13. vk says:


    Accounting is supposed to reflect reality. Changing the accounting rules – without changing the underlaying reality – is just fraud. The only exception is if we suddenly find that accounting hasn’t been reflecting the real life and needs fixing. Somehow I doubt that.

    You seem to suggest that a debt jubilee should be accompanied by a massive expansion of the governments balance sheet. With private debt ~ 150% of GDP and government currently accounting for ~30% of GDP this means 4-5 fold increase in the government. Borrowing on that scale to purchase soon-to-be-worthless assets is a very hard sell.

  14. Pingback: Behavioral Finance Lecture 10: Minsky’s Financial Instability Hypothesis | Economics for People

  15. Lyonwiss says:

    @ Vk October 31, 2011 at 11:38 pm

    Mahaish is right. You should not doubt that governments legalised fraud:

  16. michael burrows says:

    Surely a computer simulation with reasonable assumptions could demonstrate that economic collapse is inevitable given sufficient debt? I see debt deflation as a non linear phenomenon akin to column buckling. Maybe the critics live in a linear world.

    Do you think it possible that a theoretical analysis calibrated with historical records would reveal an upper limit to the amount of debt a country could safely sustain?

    I think both excessive intra and inter state debt are destabilizing. Do you agree?

    I’ve read a tiny fraction of your work so please excuse me if you already answered these questions.

  17. michael burrows says:

    I suspect supporters of the “zero sum game debt argument” don’t really consider what happens when the debts aren’t repaid and when the overall debt level is sufficiently high that the cascades through a financial system.

  18. koonyeow says:

    Title: Straw Dogs by John Gray

    Thank goodness, Lyonwiss, that the laws of nature are not negotiable.

  19. LyndonB says:

    Other post-keynesians talk about wealth effect. Private debt creates “inside wealth” which is contrasted with “outside wealth”, that is public sector’s liabilities to the private sector.

    If you think about it, private corporations for example carry always some debt in their balance-sheets, and that debt is of course wealth to someone. But no company owners would have to count that debt as part of their personal liabilities, because of limited liability. So individuals as a whole would feel more wealthy when liabilities are “buried” inside these limited liability corporations.

    And this discussion about debt completely leaves out public sector’s liabilities to the private sector, which is crucial for complete macro-picture.

    But it is swings in wealth that I believe cause swings in consumption. Housing bubble creates fictitious wealth, but then, suddenly, it is gone. Households make simple calculation: assets – liabilities = net wealth, and if that is too low they reduce consumption. Claims on government go to the asset side of the balance sheet and that’s how keynesian stimulus works.

  20. Pingback: Asymptosis » Winterspeak is Right: Economists Don’t Understand that Debt Matters. And Inflation Does Too.

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