INET: Finan­cial Insta­bil­ity Mini-Doc­u­men­tary

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The fol­low­ing is a mini-doc­u­men­tary that was screened on one of the final days at the recent Insti­tute of New Eco­nom­ics Think­ing (INET) con­fer­ence held in Berlin.

Finan­cial sta­bil­ity, or the lack thereof. Lead­ing thinkers speak out on what they feel is at the core of the prob­lem.

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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  • TruthIs­ThereIs­NoTruth

    I par­tic­u­larly like David Weinstein’s sug­ges­tion to look to dis­ci­plines such as soci­ol­ogy and neu­ro­sci­en­tists etc for answers. He is still stuck in the aca­d­e­mic frame of mind, because miss­ing from his list are the peo­ple with the best insights into how eco­nom­ics works, par­tic­u­larly finance. It’s prac­ti­tion­ers who have this per­spec­tive. Of course 99% of peo­ple who work in finance don’t really under­stand how the sys­tem actu­ally works. You need some­one who under­stands how the cogs actu­ally turn and how they are con­nected. From trea­sury oper­a­tion to trad­ing and loan cre­ation, how does money actu­ally move around, where does it come from, where does it go. How is reg­u­la­tion incor­po­rated, what is the actual rela­tion­ship between reg­u­la­tor and finan­cial entity at the actual point of con­tact. What do banks actu­ally worry about strate­gi­cally and tac­ti­cally when it comes to fund­ing and fund allo­ca­tion, what is mech­a­nism behind that. What are the mech­a­nism which are acti­vated dur­ing a cri­sis. Fresh from the cri­sis is the time for aca­d­e­mics to engage with prac­ti­tion­ers and ask these ques­tions. I think aca­d­e­mics tend to stay in the the­o­ret­i­cal com­fort zone and stay away from these inter­ac­tions as it becomes appar­ent very fast that there is actu­ally no the­ory out there that can come close to describ­ing the real world.

    On a bit of a tan­gent, it’s been a few years since I’ve been fol­low­ing the work of econ­o­mists who work directly in mar­kets. One of the things I was try­ing to observe is con­fir­ma­tion of the rhetoric that they’re all ‘neo-clas­si­cal’ econ­o­mists. What I found fairly early on is that there is very lit­tle if any the­o­ret­i­cal influ­ence to their work. They’re work is best described as pure and up to date empiri­cists. The work relies on a broad and up to the minute analy­sis of all the observ­able eco­nomic infor­ma­tion. The­o­ries on the inter­ac­tion and depen­dance of vari­ables are for­ever tem­po­rary as the econ­omy evolves. It’s never about pre­dict­ing what hap­pens next, it’s about broadly under­stand­ing the cur­rent state of the eco­nomic engine and hence the con­se­quences of newly observed data, it is not just a some prac­ti­cal appli­ca­tion of econo­met­rics. This is an entirely dif­fer­ent dis­ci­pline to the­o­ret­i­cal eco­nom­ics and I cringe every­time I see fore­casts based on the­ory, I cringe even more at the white knuckle fin­ger cross­ing that the next piece of data will con­firm the the­ory…

    The­ory has a dif­fer­ent place. Pol­icy and reg­u­la­tion has some the­o­ret­i­cal influ­ence. Any­one going into any finan­cially influ­en­tial job should have some the­o­ret­i­cal back­ground. The prob­lem with cur­rent the­ory is that it is clearly based on lit­tle con­sul­ta­tion with peo­ple who actu­ally make the the­ory hap­pen.

  • alain­ton

    There is a very good piece today at project syn­di­cate by senior advi­sor to the Chi­nese Gov­ern­ment Andrew Sheng on whether a new con­sen­sus has emerged from INET­Ber­lin

    http://www.project-syndicate.org/commentary/a-berlin-consensus–

    exist­ing polit­i­cal sys­tems promise good jobs, sound gov­er­nance, a sus­tain­able envi­ron­ment, and social har­mony with­out sac­ri­fice – a par­adise of self-inter­ested free rid­ers that can be sus­tained only by sac­ri­fic­ing the nat­ural envi­ron­ment and the wel­fare of future gen­er­a­tions.
    We can­not post­pone the pain of adjust­ment for­ever by print­ing money. Sus­tain­abil­ity can be achieved only when the haves become will­ing to sac­ri­fice for the have-nots.
    The Wash­ing­ton Con­sen­sus of free-mar­ket reforms for devel­op­ing coun­tries ended more than two decades ago. The INET con­fer­ence in Berlin showed the need for a new one – a con­sen­sus that sup­ports sac­ri­fice in the inter­est of unity. ’

  • Lyon­wiss

    @ TruthIs­ThereIs­NoTruth April 30, 2012 at 10:02 pm

    Spot on. Far too many fail to be aware of the full pic­ture, even if they only focus on a tiny part of it in their work.

  • alain­ton

    I made an FOI request for UK Trea­sury to reveal results of finan­cial wargam­ing in 90s which showed that like­li­hood of finan­cial crash was nil

    The response I got was extra­or­di­nary say­ing it would ‘dam­age eco­nomic inter­ests and finan­cial sta­bil­ity of uk’ 

    wp.me/pNECF-3nQ

    Now who was it who dam­aged those inter­ests?

  • I see you’ve had the same fun I had.

    I got the ‘mon­e­tary pol­icy’ exemp­tion line from the Bank of Eng­land when I tried to find out where the inter­est on all those Gilts the BoE hold is going (or isn’t going as appears to be the case).

    http://tinyurl.com/bvzzday

    Free­dom of Infor­ma­tion. Yeah right.

  • Steve Hum­mel

    Blue smoke and mir­rors is a good tac­tic if you don’t want peo­ple to actu­ally know facts.…and an even bet­ter tac­tic when you want to main­tain CONTROL.

    To me the real prob­lem so far as money and sac­ri­fice is con­cerned is that the prob­lem is framed in a RE-dis­trib­u­tive mind­set. Nat­u­rally no one wants to give up power whether it be in the form of money or con­trol. But con­trol is the real issue, and the con­trol prob­lem is not going to be resolved until we change the mon­e­tary mind­set to Dis­trib­utism instead of RE-dis­trib­utism. The choice of re-dis­trib­utism or re-dis­trib­utism is actu­ally a false, no choice. Ask “Qui bono?” and who­ever or what­ever falls most into that cat­e­gory is where the lever­age needs to be applied. Also, to me, while it is def­i­nitely impor­tant to under­stand the work­ings of the mon­e­tary sys­tem, its even more impor­tant to think about how you’re going to change it so it works better.…or works at all.

  • Frank

    The Uk won’t give you any­thing, but if you ask the wrong ques­tions they will watch you and add you to sur­veil­lance lists.

    If you are going to play with fire, do it pub­li­cally.

  • Steve Hum­mel

    If you are going to play with fire, do it pub­li­cally.”

    Yes. The INET video is well done and every­one says the right things, but the bald assed truth is that noth­ing is really going to change until a mass social move­ment is able to herd the polit­i­cal appa­ra­tus in the cor­rect direc­tion. Ghandi got peo­ple to walk into beat­ings and Mar­tin Luther King, Jr. got peo­ple to do the same. TPTB are not going to relin­guish power or con­trol by let­ting the sys­tem be changed significantly(maybe a lit­tle mean­ing­less reform) until you make them show their true colors.….and the knives. Sad, but true. Even sad­der is, there may well be vec­tor analy­sis boards out there some­where that show war as the last way out of avoid­ing such sig­nif­i­cant change. Mam­mon and Leviathan truly are wiley and cor­rupt, but we still have to out think and antic­i­pate them. The only way to do that is to use both their own wiles AND the higher pur­poses they resist against then at the same time. Lib­erty and self inter­est, social evo­lu­tion and more money in everyone’s hands.….though art a div­i­dend.

  • TruthIs­ThereIs­NoTruth

    Lyon­wiss,

    Acad­e­mia by design is nar­rowly focused and it is a nec­es­sary and pro­duc­tive con­struc­tion. The prob­lem occurs when there is an attempt to broadly apply nar­rowly focused ideas. Appli­ca­tion should be done in con­sul­ta­tion with peo­ple who under­stand how things work in a broad prac­ti­cal sense.

  • Steve Hum­mel

    I love Michael Hud­son. He wants REAL change. Power and con­trol. That is what its all about. Any agenda that doesn’t address power and con­trol is just same old same old and not really look­ing at the full big pic­ture.

    http://www.youtube.com/watch?v=KYW5Lxm_Kjs&feature=player_embedded