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.