My HARDtalk interview transcribed

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I have just been sent a transcript of my interview on HARDtalk, done by Jane Ross, who (to quote her blog) is "a freelance editor specializing in personal story". Jane has posted the transcript to her blog ("Steve Keen on the New Great Depression”), and she has given me per­mis­sion to repost it here.

Jane also kindly edited it for printing–something for which I am very grate­ful. Often lan­guage will slip in a live inter­view, and you can say the oppo­site of what you intended. This tends not to be noticed by lis­ten­ers (they appear to sub­sti­tute what you meant to say), but when it’s printed it can look stupid.

My most recent instance of this was in a live dis­cus­sion of pop­u­la­tion growth, when I was talk­ing about the extinc­tion of Australia’s megafauna; appar­ently I said “megaflora” instead. Jane has edited out such slips in the tran­script below.

Sev­eral peo­ple have also posted record­ings of the talk to Youtube. HARDtalk asked me not to post it myself–so I took down a record­ing I had put up–but it seems impos­si­ble to stop these things “going viral” today, so here is one of those record­ings as well.

Econ­o­mist Steve Keen, inter­viewed on the BBC’s HardTalk, Novem­ber 24, 2011

(Tran­scrip­tion and edit­ing by M. Jane Ross)

Sarah Mon­tague of the BBC’s HardTalk (HT): Another Great Depres­sion is all but inevitable. That’s the view of my guest today. No won­der he’s been called the mer­chant of gloom. But then Steve Keen is one of the few econ­o­mists to have pre­dicted the global finan­cial cri­sis. And while he used to be a lone voice chal­leng­ing the eco­nomic con­sen­sus, more and more peo­ple are now lis­ten­ing to him. His way of avoid­ing Depres­sion: bank­rupt the banks, nation­al­ize the finan­cial sys­tem and start all over again.

HT: Steve Keen, wel­come to HardTalk.

Steve Keen (SK): Delighted to be here.

HT: Do you really think we’re headed for another Great Depression?

SK: We’re already in one. And the same thing applied back in the last Great Depres­sion that peo­ple didn’t call it one until it was over. Because in an expe­ri­ence like this you’re always hop­ing there’s change just around the cor­ner, the sys­tem will turn around. It’s only after you’ve been through it peo­ple look back and see that it’s been going for some years. So the Great Depres­sion wasn’t called the Great Depres­sion until some­time in the late 1930s.

HT: For those peo­ple who are watch­ing lis­ten­ing to this think­ing okay I can cope with things as they are now, they should relax because it’s just a few more years of the same?

SK: I wouldn’t call it relax­ing but cer­tainly the sit­u­a­tion now which econ­o­mists in par­tic­u­lar are hop­ing is tran­sient is going to be a drawn out expe­ri­ence. The best we can hope for is some­thing like what Japan has been through. Japan still talked about hav­ing a lost decade since 1990 but it’s really been a lost two decades.

HT: The best we can hope for is a lost two decades?

SK: If we leave it to the basic mech­a­nism by which cap­i­tal­ism elim­i­nates exces­sive debt which is bank­ruptcy and a slow grind­ing process of pay­ing the debt down. Once we get back down to the level of debt that the sys­tem actu­ally needs which is far lower than the level of pri­vate debt we have now then the process will be over. But that could take some­thing like 20 years.

HT: You’ve also sug­gested that it could take a ris­ing level of violence.

SK: The trou­ble is when you have a grow­ing pop­u­la­tion and an econ­omy that is used to growth and peo­ple expect­ing to get employed when they leave school and they find that in fact there are not enough new jobs com­ing on to han­dle the new entrants into the labor mar­ket, even if you grow slightly less than the rate of pop­u­la­tion change, that means that [you have] a pop­u­la­tion which you’re say­ing in the recent media is a lost gen­er­a­tion. Well, that lost gen­er­a­tion only has one out­let and that is frus­tra­tion and vio­lence. It is not the way to man­age an effec­tive soci­ety to be caught in a trap like this.

HT: And of course what we know from the last Great Depres­sion was that it had a pro­found effect on pol­i­tics and not least led to the rise of for exam­ple Hitler.

SK: Absolutely. Hitler got there because he was the per­son who reversed the con­ven­tional eco­nomic behav­ior of his time and turned Ger­many around from unem­ploy­ment of 25% and more down to full employ­ment and of course build­ing a huge war machine in the process. [He was] regarded as a god by his peo­ple for doing it and then we had the cat­a­stro­phe of the sec­ond world war. But he would never have risen to promi­nence had it not been the total despair of peo­ple in the mid­dle of the last Great Depres­sion. So you can have very very bad social out­comes out of a process like this. Even if peo­ple get enlight­ened about what caused it and after the event have more wis­dom about the amount of debt they will take on, the tran­si­tion can be dreadful.

HT: What we have seen so far have been move­ments like Occupy Wall Street in cap­i­tal cities around the world. I know you’ve spo­ken to those pro­tes­tors in Syd­ney. When you think about their anger — it’s nei­ther left nor right — but it’s cer­tainly not right-wing.

SK: That’s right. That’s one of the pos­i­tives to me. The Tea Party was a pre­de­ces­sor in that sense in terms of a vis­ceral reac­tion to what they thought was going wrong with the econ­omy and that has cer­tainly had a right wing fla­vor to it. This Occupy Wall Street really is pro­gres­sive and gen­er­ally you’d type­cast them as Left and I’ve cer­tainly seen quite a few politi­cians say­ing it’s the “usual sus­pects” in the protest move­ment doing it.

But in fact it has been very broadly based. Very much youth based, but also par­tic­u­larly in Amer­ica large num­bers of peo­ple who are laid off indus­trial work­ers, some laid off finan­cial work­ers. Peo­ple who wouldn’t nor­mally be expect­ing to be sit­ting in a tent at the bot­tom of Wall Street.

HT: So why do you think that’s heartening?

SK: A major part about their atti­tude is that they feel they’ve had their trust in soci­ety betrayed. They want to bring about a har­mo­nious soci­ety. They’re not social­ists in the old-fashioned overthrow-capitalism style of a lot of pre­vi­ous protests. They are empha­siz­ing they believe soci­ety should be some­thing we can actu­ally trust in and that’s been destroyed by what’s hap­pened with the finan­cial sec­tor. They’re try­ing to rebuild that trust. They’re not quite cer­tain how, it’s a very vague move­ment, but that is not your man-the-ramparts, burn-everything-down socialism.

HT: Some of them are of course opposed to cap­i­tal­ism which you are not. It’s just the form that this cap­i­tal­ism is taking.

SK: I’m opposed to cap­i­tal­ism par­a­sit­ing itself which hap­pens when we let the finan­cial sec­tor take over and gen­er­ate far more debt than we need.

HT: Before we get into that, as far as these pro­tes­tors are con­cerned, you’ve told them that actu­ally they should be going fur­ther. In a sense you’ve seen it as a call to arms. You’ve said, “You should be occu­py­ing the eco­nom­ics depart­ments of universities.”

SK: Yes. Because you don’t get into as dis­as­trous a sit­u­a­tion as we are in now with­out extra­or­di­nar­ily bad think­ing. And eco­nom­ics depart­ments were the source of that bad thinking.

HT: How far do you think they should go, though? Would you be say­ing to every­body get out in the streets? Is that the way you feel about it?

SK: I think we have to change the polit­i­cal power bal­ance right now. Fun­da­men­tally the finan­cial sec­tor, effec­tively the cred­i­tors of the world, were dom­i­nant polit­i­cally and have cer­tainly set the polit­i­cal agenda for the last 20 or 30 years. The debtors have been down at the bot­tom of the pile. Now we need to reverse that and turn the power back towards the debtors rather than the creditors.

HT: Your argu­ment is that politi­cians won’t lis­ten until there is some­thing to make them listen.

SK: Absolutely. Politi­cians are reac­tive indi­vid­u­als. They’re not lead­ers most of them. The vast major­ity of them. They’ve been going along with the gen­eral trend of believ­ing that a larger finan­cial sec­tor, more dereg­u­la­tion, is a good thing. And their cam­paign dona­tions come from there as well as the over­all milieu in which they think. To get them to change around from that they really have to see that as being a dead end. Not a way to reelec­tion but a way of los­ing elections.

HT: Your solu­tion is remark­ably rad­i­cal. We should write the debt off, bank­rupt the banks, nation­al­ize the finan­cial sys­tem and start all over again.

SK: That’s if it was easy to do. It’s not. If we had the sit­u­a­tion of the 1930s where the banks owned all the debt — the banks had extended the loans and there­fore if you wrote the loans off, the banks were the only sec­tor that would directly suf­fer — it would be easy. The trou­ble is the banks haven’t sim­ply cre­ated far more loans to the debtors. They’ve also then bun­dled those as secu­ri­ties and sold them to pen­sion funds and individuals.

HT: So it’s too inter­con­nected to do it.

SK: It’s far too inter­con­nected to do it in the old-fashioned way of a jubilee. You could not do it with­out caus­ing as much destruc­tion as you’re try­ing to prevent.

HT: Now you’ve used the phrase “the old-fashioned way of a jubilee.” That’s because it is some­thing that has hap­pened his­tor­i­cally which is a writ­ing of debts.

SK: If you’ve ever been to the forum in Italy and taken a look at the friezes that are cut into the stone there, one of them is of the burn­ing of the books of debt, which is a reg­u­lar activ­ity in pre-capitalist soci­eties of actu­ally writ­ing off the debt com­pletely and lib­er­at­ing peo­ple who had been put into debt slav­ery before­hand. If you hadn’t had that escape valve none of those soci­eties would have lasted.

HT: Tell us how it could work as you are propos­ing it. Whose debts are you are writ­ing off?

SK: Well, you have to see where the debt is a good or bad thing. And debt in some senses is def­i­nitely a good thing. Because ris­ing debt is what actu­ally fun­da­men­tally finances invest­ment. Increases in pro­duc­tiv­ity, new tech­nolo­gies, the iPads of the world and so on — fun­da­men­tally they’re financed by ris­ing debt lev­els. That’s the good aspect of debt. The neg­a­tive side is when we bor­row the money to gam­ble on ris­ing asset prices. And that’s what we’ve been doing glob­ally, encour­aged by the banks to gam­ble on ris­ing share prices, ris­ing house prices.

HT: So I want to bor­row a mil­lion pounds because I’ve got this fab­u­lous idea that is going to be a new tech­nol­ogy, a new inno­va­tion and soci­ety will ben­e­fit from it — good. I want to bor­row a mil­lion pounds because I want to gam­ble on finan­cial instru­ments — bad!

SK: That’s right. If you look at the form of the good bit in America’s econ­omy for exam­ple, that seems to be some­thing which is sus­tain­able at the debt level of some­thing like about 50 or 70% of one year’s GDP. Whereas the cur­rent level of debt in Amer­ica peaked at 300% of GDP. It’s about 4 to 5 times the level of gov­ern­ment debt.

HT: But that’s not all bad debt. An awful lot of that for exam­ple in the US as we know is peo­ple want­ing to own a house and in order to do so tak­ing out a mortgage.

SK: Yes. What they’ve been caught up in, that has caused a bub­ble in house prices. There’s no deny­ing now that there’s been a house price bub­ble. And the cause of it was actu­ally bor­row­ing money in the first place. With­out the house price bub­ble they could be back with 75% level of debt.

HT: Where we are now, are you say­ing we write off the mort­gages, the debts of peo­ple like you and me?

SK: Yes.

HT: Even peo­ple who can afford to pay?

SK: We have to look at the sit­u­a­tion that we’re in and say, What do we face if we con­tinue try­ing to honor debts that we now know should never have been extended in the first place? What do we face? The best exam­ple of that is Japan and Japan is a far more cohe­sive soci­ety than any­where else on the planet really. They have been in a 20 year slump where the rate of [eco­nomic] growth has been lower than their pop­u­la­tion growth, and they’re hav­ing ris­ing unem­ploy­ment even with a falling population.

Now if we look at that in OECD nations, we face two decades of that. So what I’m talk­ing about, yes, of course this is an extreme change but it is basi­cally admit­ting some­thing which should be obvi­ous to every­body by now: the credit sys­tem has failed.

HT: Okay, but in terms of what the solu­tion is, and we can get into the details of why you think the eco­nomic one has all been wrong, but you’re say­ing: Write off the debts of any­one who owes a mortgage?

SK: No. There’s a cer­tain level of debt which is nec­es­sary for such things as obvi­ously busi­ness invest­ment but also there’s a pro­por­tion of peo­ple who wish to own their own homes. If we go back his­tor­i­cally and see what level of debt did that involve in terms of the ratio to the GDP, then in my own coun­try of Aus­tralia for exam­ple, that level of debt was about 10% of GDP. Now it’s since risen to 100% of GDP. Now, most of that extra 90% sim­ply financed the rise in house prices itself. It’s a bubble.

HT: Some­body, under your solu­tion, is com­ing in and say­ing that’s a good debt, that’s a bad debt?

SK: No. If we try to do it on an indi­vid­ual basis, we’ll be here for­ever and we’ll feed lawyers more than ….

HT: Who’s mak­ing the deci­sion about the broad sweep?

SK: That’s why it has to be an intel­li­gent mod­ern jubilee. We can’t say: Wor­thy bor­rower, unwor­thy bor­rower. We have to have a sys­temic approach because fun­da­men­tally house­holds did not make the bad deci­sions. The bad deci­sions were made by the banks to lend in the first place.

HT: Accept­ing what you iden­tify as the prob­lem and try­ing to under­stand what the solu­tion is, in this new sys­tem that we’re replac­ing the cur­rent bad one with, who’s decid­ing who gets the debt write-off and who doesn’t?

SK: I wouldn’t say it was a case of mak­ing a choice between one indi­vid­ual and another. It has to be a sys­temic process by which we reduce the level of debt-finance money in the econ­omy and increase the amount of government-created money. Because we have two sources of money in a cap­i­tal­ist econ­omy. The banks can cre­ate money by extend­ing loans. The gov­ern­ment cre­ates money by run­ning a deficit. Now back in the early 60s the ratio of gov­ern­ment cre­ated money to the over­all money sup­ply was 15%. It’s fallen so far that we’ve got an entirely debt-based sys­tem which has dri­ven spec­u­la­tion. We need to cre­ate the gov­ern­ment money to bal­ance out the credit. So I’d actu­ally have a gov­ern­ment cre­ation of money sys­tem approach to try to rebal­ance the sys­tem and reduce the pri­vate debt.

HT: The gov­ern­ment, the cen­tral bank, prints money to pay off people’s debts? What I’m won­der­ing is, you say, “Write off debts.” And it’s basi­cally pri­vate debt that you want writ­ten off. Mort­gages, com­pa­nies’ debt. How is that working?

SK: We’d have to give the money to the debtors rather than to the cred­i­tors. If you look at what’s been hap­pen­ing in the last three or four years, all the res­cues Bernanke has done, the banks around the world have done, have been to give money, to cre­ate money and give it to the bank­ing sec­tor in the belief the bank­ing sec­tor will lend to get the econ­omy start­ing again. Now that is bizarre because we know one rea­son they won’t lend is they’ve lent too much already. So all that money has been ineffective.

HT: So who are you giv­ing the money to?

SK: …[This is] a work­ing model. But the idea would be, you would give the money to the pub­lic and if the per­son who received it was in debt, the first thing they would have to do is pay their debt level down. They could not spend.

HT: So basi­cally a gov­ern­ment would say, Look, we’re not giv­ing this extra money to the banks. We might even take back money that we put into the banks. We’re going to give all effec­tively per capita. If you have any debts it has to go to that.

SK: That’s right, it pays the debt down first of all. The rea­son we have to do some­thing like this rather than sim­ply writ­ing the debt off is…

HT: It’s a tax cut?

SK: No. It’s very dif­fer­ent to cut­ting a tax. If you give the money to every­body and then require those who are in debt to reduce their debt then they’re bet­ter off obvi­ously. But the com­plaint peo­ple make about a jubilee or a debt write-off is, What about me? I’ve saved money. I’ve bought bonds. I’m going to lose.

HT: Exactly, it’s the moral haz­ard argu­ment. It’s basi­cally, you’re reward­ing failure.

SK: Yes, but the sys­tem has failed not the indi­vid­u­als in it. And if we don’t admit that we’re going to spend another 20 years in this grind­ing process.

HT: But you will have peo­ple run­ning busi­nesses who hear this and say, Well, hold on a second….

SK: But they’ll be get­ting the money as well.

HT: But they’ve been man­ag­ing them­selves well. Their rival who was a badly run busi­ness and should have gone out in the process. A reces­sion should have weeded them out. They’re get­ting a boost too.

SK: Every­body gets a boost because we’re not try­ing to boost indi­vid­u­als we’re try­ing to elim­i­nate a mis­take of the finan­cial sec­tor that’s been going on for 40 years.

The scale of what I’m talk­ing about sounds extreme in con­trast to nor­mal pol­icy. But nor­mal pol­icy has allowed a 40-year buildup of the level of debt to sim­ply unsus­tain­able scales. One of my col­leagues Michael Hud­son puts it beau­ti­fully. “Debts that can’t be repaid won’t be repaid.” You sim­ply have to work out how you don’t repay them. We have to have a sophis­ti­cated approach to elim­i­nat­ing a sys­temic level of debt that should never have been built up in the first place.

HT: You give all this money to indi­vid­u­als or com­pa­nies. There’s that [ques­tion] of how you give to com­pa­nies. They pay back to the banks. You said, “If we keep the par­a­sitic bank­ing sec­tor alive, the econ­omy dies.” Under your model, these par­a­sitic banks as you call them would die?

SK: No. If you did a nor­mal debt write-off, yes the banks would have to be bank­rupted, reor­ga­nized, nation­al­ized and sold again later back into pri­vate own­er­ship. I’m not argu­ing for nation­al­iza­tion of banks per­ma­nently. But if you did this they wouldn’t need to be because what they’d lose in loans they’d gain in loan repay­ment. Their assets wouldn’t change.

But what would hap­pen of course is, [cur­rently] they actu­ally make money out of [mak­ing] the loans so their cash-flow would decline rad­i­cally so you’d prob­a­bly still have orga­ni­za­tions which would be finan­cially chal­lenged by that. Their cash-flows would drop dras­ti­cally. So the banks would still have dif­fi­culty. We still need to man­age them in some fash­ion. But it wouldn’t be a case of hav­ing to shut them all down. Because fun­da­men­tally they’re not just illiq­uid, most of them on cur­rent con­di­tions are insolvent.

HT: If you are effec­tively ensur­ing their sur­vival this way, what do you mean when you say we need to kill off these parasites?

SK: Bank­ing behav­ior can be pos­i­tive when it pro­vides invest­ment funds for cor­po­ra­tions and work­ing cap­i­tal and a small amount of money for con­sump­tion. That’s the pos­i­tive role of bank­ing. Its become a neg­a­tive role because fun­da­men­tally they’re financ­ing Ponzi schemes. They’re giv­ing us money to gam­ble on asset prices but the money they’re giv­ing us to gam­ble with is actu­ally what is caus­ing asset prices to rise. And this behav­ior has taken over the finan­cial sec­tor in the last 30 or 40 years. That is the par­a­sitic behavior.

HT: And this par­a­sitic behav­ior goes to the heart of your argu­ment and your the­sis of what has been wrong with the model of eco­nom­ics for decades. You talk about the insta­bil­ity there. Your argu­ment is that actu­ally insta­bil­ity can be a good thing.

SK: This is the clas­sic argu­ment the non-orthodox econ­o­mists have been mak­ing ever since Joseph Schum­peter. Insta­bil­ity in cap­i­tal­ism is part of why it’s cre­ative. The insta­bil­ity that means you can see a poten­tial open­ing for a solid-state record­ing device over those cludgy old Walk­mans gets us to iPods and all the tech­no­log­i­cal devel­op­ments we’ve seen that are actu­ally part of Occupy Wall Street on a grand scale. That’s a cre­ative insta­bil­ity. Now that also has, over the top of it, the pos­si­bil­ity of finan­cial insta­bil­ity which is the dan­ger­ous one. I’m try­ing to pro­mote what I see as the cre­ative insta­bil­i­ties and reduce the destruc­tive insta­bil­i­ties of capitalism.

HT: Your argu­ment about the way cap­i­tal­ism has worked is that it unchained Frankenstein’s mon­sters, which is this finan­cial instability.

SK: If you look at Robert Harris’s [novel] The Fear Index, he starts with a quote from Franken­stein. The dan­ger in the sys­tem is that banks make money by cre­at­ing debt. They always want to cre­ate debt. Most of us will decline the oppor­tu­nity to take that debt on because debt’s not a good thing. Hav­ing debt is an oblig­a­tion. For exam­ple, mort­gage. The mean­ing of mort­gage is death con­tract, in Latin. Not a charm­ing thing to be in.

The only rea­son we take on more debt than we need is because we get per­suaded that we can make a gain out of it by lever­aged spec­u­la­tion. That lets banks per­suade us to take on far more debt than we should which they have very suc­cess­fully done in the last 40 years largely under the cover of my discipline.

HT: You talk about banks per­suade us to take on more debt. It sounds as though your model, which is that people’s debts could be writ­ten off, would per­suade them to do it all again.

SK: You have to pre­vent the pos­si­bil­ity of asset bub­bles being financed by lever­age again.

HT: So you’re say­ing wipe the slate clean. The exam­ple is Greece. The EC task force that’s going in to try to sort it out looked at the fig­ures and their quar­terly [report] said there’s 60 bil­lion euros of unpaid out­stand­ing taxes. Now that’s effec­tively pri­vate debt that’s owed to the gov­ern­ment. Now if it’s wiped off….

SK: We’re get­ting con­fused between pri­vate debt and sov­er­eign debt. And also the very pecu­liar nature of the Greek tax­a­tion and finan­cial system.

HT: But the Greeks wouldn’t have the sov­er­eign debt prob­lem if peo­ple paid their taxes.

SK: But you’ve got the sov­er­eign debt prob­lem every­where else as well. I mean America’s got ris­ing lev­els of sov­er­eign debt. Why does it have ris­ing lev­els of sov­er­eign debt? Because the pri­vate sec­tor is reduc­ing its debt hav­ing caused far too much to begin with. All this emanates, across most of the globe, [from] a pri­vate debt bubble.

Greece is rather an anom­aly. If we actu­ally focus upon the anom­alies and ana­lyze what to do in their cases, we’re going to mis­lead our­selves with the rest of the system.

HT: You had a Eureka moment — a light-bulb moment — at 1 a.m. on a Decem­ber morn­ing back in 2005 when you looked at the pri­vate debt fig­ures for Aus­tralia grow­ing expo­nen­tially. You wrote and then you actu­ally checked.

SK: I’d writ­ten “debt has risen expo­nen­tially com­pared to incomes” in an expert-witness case. This was a draft. And I thought, I can’t really get away with that as the expert. I’m not the bar­ris­ter, I can’t use hyper­bole. So I dived in to check the data and thought it won’t be quite expo­nen­tial so I’ll need to mod­ify but it’s cer­tainly been ris­ing. That was in the back of my mind. I plot­ted the data and [found] the per­fect expo­nen­tial curve from 1964 through to 2005.

I thought, this process has to change. When it changes and debt starts to reduce again we’re going to have an enor­mous finan­cial cri­sis. Some­body has to raise the alarm and I’m prob­a­bly that somebody.

HT: You were called a tall poppy for doing so because you were going against the grain.

SK: Oh, yeah.

HT: Because peo­ple weren’t tak­ing account of pri­vate debt. They didn’t think that it was nec­es­sar­ily impor­tant. They wor­ried about gov­ern­ment debt but not what ratio­nal indi­vid­u­als were tak­ing on.

SK: That’s because econ­o­mists have a myth­i­cal view of how money is cre­ated that basi­cally sees bank­ing as being an inter­me­di­ary between peo­ple who are patient and there­fore save money and peo­ple who are impa­tient and there­fore want to spend money and all you’re doing is trans­fer­ring spend­ing power from the patient to the impa­tient. So you can for­get about the aggre­gate level of debt. So it’s a blind spot.

HT: You alone are clever enough to see this?

SK: No, no, no. I’m stand­ing on the shoul­ders of a true giant, Hyman Min­sky. And there’s many other non-orthodox econ­o­mists around the world who have also been influ­enced by Min­sky and are not being lis­tened to. I’ve just got the loud­est mouth but cer­tainly I’m not the only one.

HT: You’ve referred to: Progress hap­pens one funeral at a time, when you’re talk­ing about economists.

SK: I was actu­ally using an anal­ogy from Max Planck talk­ing about physi­cists and explain­ing why he failed to con­vince his Maxwellian col­leagues of quan­tum mechan­ics and finally aban­doned the pos­si­bil­ity of ever doing it and thought he would just wait until each of them die off and the young kids come through who can cope with some­thing as bizarre as quan­tum mechan­ics to under­stand the world prop­erly. A sim­i­lar thing applies in all sci­ences but eco­nom­ics is actu­ally prob­a­bly worse on that front.

HT: They are so wrong and you are so right?

SK: They are so wrong and they should know they’re so wrong but they don’t know their own lit­er­a­ture well enough to real­ize that they are wrong.

HT: But you do?

SK: I do and so does a large num­ber of non-orthodox econ­o­mists. I’d say prob­a­bly about 10% of aca­d­e­mic econ­o­mists would fall into the non-neo-classical camp. They would be call them­selves either post-Keynsians or Aus­tri­ans. There’d be some Marx­ists, evo­lu­tion­ary econ­o­mists and so on. We’ve been watch­ing this deluded major­ity and being excluded and derided our­selves by that major­ity know­ing they’re fol­low­ing a totally fool­ish vision of how cap­i­tal­ism func­tions. And ulti­mately the only way we can con­vince the world that they’re wrong is after they have caused a spec­tac­u­lar eco­nomic cri­sis which they’ve done. So now we’re com­ing out of the wood­work. We’ve been there for 40 or 50 years.

HT: In your view of how things are hap­pen­ing, can you see a politi­cian bold enough to do what you think is necessary?

SK: Not yet. If Obama had been elected in 2012 rather than 2008 it might have been pos­si­ble. Some­body with his charisma could have seen that. But unfor­tu­nately I can’t see any­one on the hori­zon right now.

HT: Steve Keen thank you very much for com­ing on HardTalk.

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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 My HARDtalk interview transcribed

  1. Dannyb2b says:


    How would this dif­fer to the Govt reduc­ing tax, or increas­ing pen­sion etc. Except that the expense of the RBA open­ing and admin­is­ter­ing an account for every Aussie would be removed”

    Increas­ing cit­i­zens accounts would be an increase in pur­chas­ing power or an increase in the money sup­ply. Adjust­ing gov­ern­ment spend­ing would be the fis­cal pol­icy side while mon­e­tary pol­icy would be con­ducted through cit­i­zens accounts instead of with banks. Its much more sim­pler to admin­is­ter accounts with the pub­lic were the funds are not cre­ated t=hrough debt and there­fore inter­est doesnt need to be cal­cu­lated. No adjust­ment of rates, or mul­ti­ple mar­ket oper­a­tions in order to repay debts. Just sim­ple one off pay­ments at fixed time intervals.

    And money can not be cre­ated debt free. It’s impos­si­ble. Money is a finan­cial asset that must be sup­ported by a finan­cial debt lia­bil­ity. As are all finan­cial assets.
    A house is built and is sup­ported by the real phys­i­cal asset. As is gold and sil­ver etc
    Money is cre­ated by jour­nal entries. It only has value if sup­ported by debt. Either Govt debt (Govt bonds, indi­rectly by cen­tral bank reserves or notes and coins) or non Govt debt (bank loans or overdrafts).”

    Money doesnt need to be sup­ported by debt at all. It just needs to be accepted as a medium of exchange by the pub­lic as it is now. Peo­ple that use the Aussie dol­lar dont con­sider whether it was debt cre­ated they just know every­one accepts the notes for what­ever trans­ac­tion they need so they trust it.

  2. Endless says:

    Slight off topic, but it is inter­est­ing to see that Gold is behav­ing like a risk asset at the moment. When there is a flight to safety Gold drops, which is of course not the tra­di­tional view of gold as a safe haven. US dol­lar is the prefer­able safe haven. While EU teeters on the brink, and there is a sniff of good news out of the US (unem­ploy­ment drop­ping) rel­a­tively the USD looks good.

    Be very inter­est­ing to see at what point Gold starts to look more attrac­tive again.


  4. mahaish says:

    -Govt BONDS pur­chased by non banks also destroy money”

    not strickly speak­ing rj,

    trea­sury cre­ates the reserve add, and the cen­tral bank under­takes a liq­uid­ity swap.

    so the finan­cial assett posi­tion is not changed, and the liq­uid­ity of trea­sury secu­ri­ties are only mar­gin­ally less than cash, and they can be colatoralised.

  5. mahaish says:

    If fiat money is used with­out bonds. Mon­e­tary infla­tion could result
    –why use fiat money rather than cen­tral bank reserves”

    by fiat money , i assume you are talk­ing about trea­sury deposits as well rj,

    i think the pro­pos­tion that a fis­cal deficit wthout bond issuance is more infla­tion­ary than a fis­cal deficit with bond issuance is highly questionable,

    this is the stan­dard nEo con , igbc line, and it has cre­ated the sov­er­eign debt fiasco’s in both europe and poten­tially in the US.

    made even more ludi­crous given that we have inter­est rate tar­get­ing by decree in most mon­e­tary regimes, which means the cen­tral bank can set rates inde­pen­dent of the bank­ing sys­tems reserve posi­tion, so no need for bond issuance under such a regime

    when we talk about bond issuance , we a talk­ing about the cen­tral bank re dis­trib­ut­ing the fis­cal deficit as either deposits/reserves or trea­suries at vary­ing maturities

    its not necesser­ally the com­po­si­tion of the defict thats infla­tion­ary , but the total level of the deficit thats poten­tially inflationary,

    as for bond issuance suck­ing up liqiuid­ity, well that assumes a loan­able fund, which again i think is highly debatable.

  6. RJ says:

    -Govt BONDS pur­chased by non banks also destroy money”

    not strickly speak­ing rj,”

    I’m refer­ing to our money not the banks and trea­suries money (cen­tral bank reserves) when a non bank buys Govt bonds.

    –Our money (bank deposits) decrease. It is replaced by Govt bonds. So say a pen­sion fund now hold a Govt bond not money at the bank.

    The com­mer­cial banks hold­ing of cen­tral bank reserves also decreases. It is trans­ferred to the trea­sury. So the com­mer­cial bank has a reduced bal­ance at the cen­tral bank and the trea­sury a higher one

  7. RJ says:

    as for bond issuance suck­ing up liqiuid­ity, well that assumes a loan­able fund, which again i think is highly debatable.”

    Our money is reduced if we (a non bank) buy Govt bonds

    If a Aust Govt bond is pur­chased by a bank. Then the bank just swaps cen­tral bank reserves for a Govt bond. It has no impact on cus­tomer deposit balances

  8. mahaish says:

    i think the point is rj,

    that eco­nomic the­o­ries that cre­ate a dis­tinc­tion between trea­sury secu­ri­ties and deposit bal­ances , are cre­at­ing a false dichotomy within a sov­er­eign cur­rency regime.

    and i think it con­tra­dicts endoge­nous money, where the cen­tral bank has to acco­mo­date the bank­ing sys­tems reserve requirments , and the only thing it can con­trol directly is the price or rate of return on reserves.

    i think its the net assett posi­tion that is impor­tant as oppossed to the liq­uid­ity posi­tion, in this age of finan­cial engineering

  9. RJ says:

    It will surely make a difference.

    If 100 bil­lion is avail­able as money to invest in total assets.

    Then the Govt issues 20 bil­lion of bond. so now 80 bil­lion is avail­able to invest in the same assets. Surely this will have an impact

  10. mahaish says:

    bonds can be liq­ui­dated, col­la­toralised and lever­aged rj

  11. RJ says:

    So explain how this impacts on the money supply

    Both com­mer­cial bank money (our money) and cen­tral bank reserves (the banks money) are both cre­ated and destroyed by mil­lions of sim­ple jour­nal entries. (there is no other way to do this in the real world)

    So what are the jour­nal entries when bonds are liq­ui­dated etc. Give me the jour­nal entries and show me how this impact on our money or bank reserves

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  13. John Regan says:

    Steve, I’m here to help:

    Not that I don’t have my hands full with other press­ing mat­ters, but we should talk about all this. I’ve been pon­der­ing the idea that we could have a gold stan­dard AND a cen­tral bank.

  14. John Regan says:

    You should look at this one too:

    I know you don’t like the gold stan­dard. I don’t think there’s any way around it, though. At least we agree on bank deposits, post jubilee.

    You and I could come up with a good plan, work­ing together. Hud­son, too.

    I would love to get into this fight, but I need an entre.

  15. Steve Keen says:

    And so say all of us John–to hav­ing our hands full! But yes, we should talk. I’ll drop you an email off-line to start the conversation.

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