Kayemmo inter­view: Stocks, Flows and the MEGO Effect

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This is a very good inter­view recorded at the VAL con­fer­ence on sus­tain­abil­ity I attended in Michi­gan ear­lier this month.

You can lis­ten to it by click­ing the link below:

Steve Keen’s Debt­watch Pod­cast


I you’d like to down­load the audio, please go to Kayeemo’s pod­cast site:


Given the qual­ity of this inter­view, I would rec­om­mend sub­scrib­ing to Kayeemo’s pod­casts.

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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  • Dra­gunov

    *searches “Den­nis Mead­ows” out of curios­ity*
    *watch youtube pre­sen­ta­tion*
    *likes on face­book*

    He only has 67 likes.… we’re screwed.

  • alain­ton

    Guys ive a ques­tion — in the UK the talk has been to shift (not increase) gov­ern­ment spend­ing from rev­enue to cap­i­tal projects to boost jobs and growth. Given that these projects wont be com­pleted for a decade or so in many cases it is dif­fi­cult to see a pro­duc­tiv­ity ben­e­fit of this as a means of boost­ing short term growth.

    Under the vanilla keynisian the­ory if the mar­ginal propen­sity to con­sume of a teacher is the same as some­one build­ing a power sta­tion the effect on the fis­cal mul­ti­plier and out­put is the same. 

    Basil moore and oth­ers have argued that the idea of the fis­cal mul­ti­plier is wrong and should be replaced with what is now called the veloc­ity mul­ti­plier.

    With­out get­ting into the maths this is how I under­stand it, if you invest a dol­lar in a project with a high ratio of cap­i­tal to labour then they will pur­chase inter­me­di­ate prod­ucts with a high cap­i­tal labour ratio and so on ad infini­tum. Decom­pos­ing the total spend on final con­sump­tion goods will always be less than a dol­lar but the key is the dol­lar has cir­cu­lated more. Its kind of like the flip­side of the idea of ’round­about’ con­struc­tion, its not the length of pro­duc­tion that mat­ters, but in more cap­i­tal­is­tic processes there is likely to be more rapid cir­cu­la­tion — even though the total con­struc­tion period takes longer.

    So shift­ing from rev­enue to cap­i­tal spend­ing could boost growth in the short term and com­pet­i­tive­ness in the long term.

    It would be inter­est­ing to see how the trea­sury econ­o­mists jus­tify the shift, sheer prag­matic des­per­a­tion or a new open­ness to het­ero­dox ideas?

    Is this idea of the mul­ti­plier right?

  • RickW

    The con­cept of a “mod­ern” debt jubilee men­tioned in the inter­view has much more appeal to me than sim­ple debt for­give­ness. I also con­sider it prefer­able to gov­ern­ment spend­ing of any form or try­ing to reverse defla­tion using money laun­dered through the bank­ing sys­tem as done with QE.

    Unlike the last stim­u­lus in Aus­tralia it should not be means tested — every­one, irre­spec­tive of cir­cum­stances, should get the ben­e­fit. In this way savers are treated fairly.

    Over­all it seems the bankers are worse off but they still sur­vive.

    I gather your dynamic model is already capa­ble of giv­ing an indi­ca­tion of the eco­nomic response as it would be sim­i­lar to the pre­vi­ous direct stim­u­lus but on a larger scale.

    Most of the peo­ple I know who got the first stim­u­lus in Aus­tralia were care­ful with how they used it. A cou­ple of peo­ple used it towards grey water sys­tems, a num­ber used it to reduce debt and one other put it toward solar pan­els. In my view they made good deci­sions.

  • LCTesla


    did Paul Krug­man just admit there is a delever­ag­ing cri­sis? what hap­pened to “delever­ag­ing is just redis­tri­b­u­tion of income”?

  • sean­brose­ley

    I recently wrote on another blog that Krugamn has started to realise that there is an ele­phant in the room, but he still hasn’t fig­ured out that it has diar­rhea

  • It’s the same “aggre­gate debt doesn’t mat­ter analy­sis” as before LCTesla. He hasn’t moved an iota from his sta­tic “dis­tri­b­u­tion of debt is all that mat­ters” per­spec­tive.

  • LCTesla

    Ah sorry, I notice that now. Kinda jumped to con­clu­sions from just read­ing the top por­tion of the post there.

    Could it be, how­ever, that it is pos­si­ble to some extent to explain the issue in the terms he uses, i.e. the way the bank­ing sys­tem lends money, an inor­di­nate num­ber of “Judi­cious Janets” is cre­ated out of nowhere (i.e. cred­i­tors being cre­ated in the process of lend­ing) such that the inter­est rate is auto­mat­i­cally sent to the zero bound, the way cen­tral banks react to this?

    I sup­pose there would be no way to work the whole endoge­nous money cre­ation dynamic in there, though.

  • I think you’ve answered your own ques­tion LCTesla.

  • alain­ton

    Talk­ing about delever­ag­ing Koo in a note yes­ter­day argued that the euro­zone has now firmly moved into a bal­ance sheet reces­sion. Nice digram of sec­toral bal­ances

    The Kiy­otaki-Moore model krug­man refers to depends on an exoge­nous shock and doesnt look at the change in debt. Given that in these mod­els invest­ment dynam­ics are influ­enced by the mar­ketabil­ity of assets used as col­lat­eral in the finan­cial con­tract (land), the com­par­a­tive sta­tic approach will tell you noth­ing about how you got into the start­ing posi­tion that cre­ates the prob­lem in the first place.

  • koonyeow

    Title: Steve, Did You Short The Mar­ket Big Time?


    The most com­pre­hen­sive inter­view I’ve ever heard.

    How should banks be re-struc­tured after a mod­ern jubilee?

    You’re on finan­cial easy street? Did you short the mar­ket big time before the crash (smile)?

    Hope that you con­tinue to fight like how Neo fought agents Smith.