A Galilean Ges­ture: Eat­ing with Dr. Steve Keen

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My talk at the  Cana­dian Cen­tre for Pol­icy Alter­na­tives was attended by an inter­est­ing eclec­tic bunch, with pos­si­bly the most eclec­tic of all being Genevieve Tran, who pub­lishes the “Money Big and Small” blog. She asked me about finan­cial lit­er­acy, I replied that the con­cept, like so much in eco­nom­ics, has been made non­sense of by neo­clas­si­cal econ­o­mists, and the con­ver­sa­tion con­tin­ued on from there.

This is her record of the evening. For more of Genevieve’s writ­ings, check out her blog (she warns me there’s an approach­ing “Galileo Plays Fris­bee” fol­lowup).

The other Thurs­day, I ended up at a pub with Galileo.  Yes, the pre-emi­nent 17thcen­tury Ital­ian astronomer who died while under extenda-remix house arrest by the Catholic Church for being…right.  Yes, THE Galileo who has since been uni­ver­sally un-begrudged; con­vert­ing through the vision of his tele­scopes, every last flat-earth­ling.

He appeared to me as a ghost.  Here he is sit­ting across the table at the Wolf and Firkin in Toronto, a halo of white all around his head.  Oddly, of all things, he spoke with an Aus­tralian accent.  Between cheek­fuls of sweet potato fries and house salad, we dis­cussed Nor­we­gians, real­ity TV, the state of fast fash­ion, and the econ­omy. Yup.  It was 28 degrees on a Toronto sum­mer patio, just shoot­ing the shit with One of the World’s Most Emi­nent Heretics. ?!?!??!?!?!??!?!?


(uh, this is a record rewind sound in case you’ve never seen it in print!)

Some of you may be able to iden­tify this fig­ure as Dr. Steve Keen from the Uni­ver­sity of West­ern Syd­ney (now rid­ing Toronto’s pub­lic tran­sit).  He’s a Pro­fes­sor of Eco­nom­ics.  What he does has noth­ing to do with reli­gion: scrip­ture inter­pre­ta­tion, the cen­tre of the uni­verse, dogma, heresy etc.  But, strangely enough, he’s found him­self right back in the 17th cen­tury where the Pope of That’s Who Says So in Eco­nom­ics, wishes Dr. Keen would just lock him­self up in his house and never come out again.  But here he is in Toronto, doing some math­e­mat­i­cal work in June 2012, all the way from Oz and he didn’t even fall off the edge of the earth.

So, I’m not being entirely abstract.  Dr. Keen IS a ghost of sorts—many in the field of Eco­nom­ics like to pre­tend he doesn’t exist.  These include cer­tain Nobel-Prize-Lau­re­ate-dis­ci­ples and his own Aus­tralian gov­ern­ment.  But at the same time, ghost-hunters like the Cana­dian Cen­tre for Pol­icy Alter­na­tivesBBCUni­ver­sity of Oxford and the Fields Insti­tute in Toronto (U of T) have been happy to have him haunt them from time to time to chat and work on stuff.  So, why is it that Dr. Keen is so annoy­ingly liv­ing up to his name, accord­ing to many?

Let me quote him from a few hours before the fries and salad:

I’m doing my best to erad­i­cate [the Neo­Clas­si­cal econ­o­mists who dom­i­nate the field]…The rea­son they didn’t see this [pro­longed world debt] cri­sis com­ing is that they leave banks, debt and money out of their [math­e­mat­i­cal] mod­els.  Now I know when I say that to a non-econ­o­mist, the reac­tion is ‘Huh?, you’ve got to be kid­ding!  They’re econ­o­mists!  Of course they know about debt, banks and money’  and I say, ‘no they don’t, they left them out of their mod­els so they couldn’t have pos­si­bly seen a cri­sis caused by debt, banks and money even com­ing.’”

This was the off-putting pitch Dr. Keen started with dur­ing his talk ear­lier at the Arts and Let­ters Club on Elm St.  And clearly, Dr. Keen isn’t half as nice as Galileo (the lat­ter who tried to com­pro­mise with his oppres­sors to say that his sci­ence debunk­ing the God-cre­ated-world-as-cen­ter­piece doesn’t have to be at odds with scrip­ture).  Dr. Keen quoted Max Planck quite frankly  that “Sci­ence pro­gresses one funeral at a time” (not to say that Eco­nom­ics is a sci­ence).

I hadn’t known of him really before this talk.  A friend in Tokyo had urged me to go and upon googling it, I learned that Dr. Keen was THE guy in the world who proved all this eco­nomic cri­sis stuff would go down exactly as it has gone down, way back in 2005 (and not with divin­ing sticks, but with MATH y’all).  How­ever, I RSVP’d on the strength of the open bar and free cheese.  Pow­er­ful lures.

Back to the snake oil.  Obvi­ously, it is dis­may­ing to hear that in this day and age, we can’t turn our backs for a sec­ond, while we go about our daily work, and dare entrust the levers of Pretty Impor­tant Shit to blue-rib­boned econ­o­mists to do their job—which is to steer our econ­omy away from doom–because they are sleep­ing on the job!!  So, if for even plebes like me it is OBVIOUS to fac­tor in banks, debt and money when try­ing to fig­ure out how the econ­omy behaves, how could it ever pos­si­bly escape the stratos­pheric brain­power of Zeus??  Dr. Keen must be lying!

(Good god….he’s not.  🙁  )

Dear Dr. Keen, 

If what you are say­ing is true, I want to know: to what extent is this assum­ing away (i.e. not includ­ing the fac­tors of ) “debt, banks and money” done when plan­ning whole coun­tries’ economies by eggheads??   What do you mean “Neo­Clas­si­cists” who think this kind of thing dom­i­nate the field?  How is it pos­si­ble that dude after dude in Eco­nom­ics (gen­der equal­ity aside, I can’t imag­ine any woman would want any inclu­sion in this) can car­tel-style leave out such com­mon-sense intu­itive / real-ass fac­tors such as:

- bankers are rewarded based on the size of loans they are able to ped­dle to bor­row­ers

- they actively hot-sell more expen­sive mort­gages than peo­ple can really afford to achieve their rewards; this actively dri­ves up the prices of houses (because for crissakes, what else would ever cause some of these Chi­nese thumb traps in Toronto to go for $750,000?!??!); and doesn’t this just serve to expand the size of loans/mortgages (=more rewards) to ped­dle in the future?

- when peo­ple are in debt, many of them (who are respon­si­ble) won’t want to bor­row any more money

- when peo­ple are in debt, many of them don’t feel like shop­ping

- and if they do (say, for neces­si­ties), it wors­ens their predica­ment of debt (= debt is dan­ger­ous)

- bail­ing out banks so that they will have more money to lend to the pub­lic (=cre­at­ing more debt) as an answer to the eco­nomic cri­sis of debt does not make sense on a per­sonal, micro level (so, how does it on a macro level with­out it per­pet­u­at­ing a death spiral?)

I wonder what there is to gain by overlooking such huge warning signs en masse as economists? 

1. Com­radery? 

2. Is being a dis­sent­ing econ­o­mist a scary and lonely thing?

3. Is there school­yard bul­ly­ing, in the field of Eco­nom­ics if you don’t so much as wear your pocket-pro­tec­tors the same way?

4. Is there really a Pope of Eco­nom­ics that one shouldn’t cross? (I thought I was just kid­ding)

5. Will econ­o­mists lose fund­ing if they don’t say what they’re paid to say?*

*To this end, are econ­o­mists really only wor­ried about their own per­sonal econ­omy rather than the one shared by the rest of us?

Dr. Keen, your pre­sen­ta­tion included a lot of nasty, eye-cross­ing math, which didn’t have the effect of con­vinc­ing me (not entirely your fault: 2 glasses of red wine + deriv­a­tives – all I ever learned in under­grad Econ = 0):

(…and some seri­ously unrhyth­mic hyphen­ations)

And I’m sorry I squan­dered our con­ver­sa­tion at the pub after­ward on how real­ity TV is surely a sign of the world end­ing.  (You may have had a slightly more com­pelling anec­dote…).  I shall have to track you down to make you speak Eng­lish to me, Aussie accent notwith­stand­ing. 

Your plebe and trusty eco­nomic serf-girl,


*     *     *  

It is too hot right now (32 degrees, plus my Mac­Book is burn­ing up) for me to dig into all this now.  But, it’s hor­ri­ble to think that there are peo­ple out there who are hired by gov­ern­ments (i.e. us tax­pay­ers) to con­sult about where to go with the econ­omy, who are ^%&*# or just frickin’ *&^&%%$#@.

Kim Kar­dashian at least lays bare every last sor­did secret, every week!

I’ll be watch­ing you Dr. Keen!

(I guess you’re watch­ing us too!)

FYI, Galileo’s mid­dle fin­ger is on dis­play at the Museo Galileo in Flo­rence (surely await­ing cer­tain individuals…who then prob­a­bly wouldn’t get it any­way).

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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  • Hi Steve Keen, While you are chat­ting to your maths mates, can I ask you, before you get them to dif­fer­en­ti­ate equa­tions, to get them to just add the num­bers up first :
    How to save the World in 8 Days :
    http://www.mediafire.com/view/?u66za5he67b4php -

  • cen­ter­line

    Won­der­ful arti­cle Genevieve (if you hap­pen stop by here that is). If I were a per­son of any sort of influ­ence at all (my dogs occa­sion­ally lis­ten to me, usu­ally around meals, but that is about it — lol) work like this would be in major pub­li­ca­tions. This sort of work is so impor­tant in my opin­ion towards get­ting the aver­age per­son to take that first step into some­thing that has been socially engi­neered out of them over so many years… crit­i­cal think­ing.

    Thanks again for the most enjoy­able read­ing.

  • Steve Hum­mel

    I really like her style. Now if econ­o­mists would also wake up to the dom­i­nat­ing fac­tor of pro­duc­tion that tech­no­log­i­cal inno­va­tion actu­ally is and real­ize that the same was a com­mon asset that could and should be DISTRIBUTED to all.….Damien’s call for the num­bers to bal­ance out might become a free­ing real­ity.

    Math, sci­ence and accoun­tancy mixed with phi­los­o­phy, the will to free­dom for the indi­vid­ual, ora­tory and humor could kick­ingly and scream­ingly herd the entirety of the eco­nomic and polit­i­cal appa­ra­tus toward poli­cies that would actu­ally work. Here’s to icon­o­clasm and “ideas whose time has come.”

  • Steve Hum­mel

    It is gen­er­ally assumed that the pur­chas­ing power of money
    is increased or decreased by its veloc­ity of cir­cu­la­tion. How­ever
    this the­ory will not bear exam­i­na­tion in the light of the facts regard­ing
    the issue and with­drawal of money under the estab­lished sys­tem.

    For pur­poses of analy­sis the fol­low­ing sim­ple illus­tra­tion of
    the veloc­ity of cir­cu­la­tion the­ory will suf­fice.

    A wage-earner A. uses a $10 bill of his income to buy two 

    pairs of shoes from a shoe mer­chant B, who imme­di­ately goes into the
    adjoin­ing store and spends the $10 to pur­chase some shirts from C,
    C in turn imme­di­ately goes across the street to gro­cer D and buys 

    some pro­vi­sions cost­ing $10, gro­cer D. then takes the $10 bill across
    to the local garage E, to buy some gaso­line and oil. 

    The con­tention is that the $10 bill pro­vided pur­chas­ing
    power to the extent of’$40 dur­ing the day by virtue of its “veloc­ity of
    cir­cu­la­tion” in enabling $40 worth of goods to be pur­chased by con­sumers.
    On the face of it this would appear to be the case, but on exam­i­na­tion
    it will be found to be a com­plete fal­lacy.

    Because all money issued cre­ates a debt of the cor­re­spond­ing
    amount at its source of issue, for all prac­ti­cal pur­poses mer­chants
    B, C, D, and E can be assumed to be oper­at­ing on credit loans
    from their banks with some “sav­ings” invested in their stock. 

    The pro­ceeds of every sale they make can be divided into three
    parts: (1) repay­ment of a bank loan before a new line of credit can
    be obtained to replace stock, (2) pay­ment of oper­at­ing costs and 

    (3) net profit–i.e per­sonal income for ser­vices. Sup­pose that in
    each case B, C, D and E work on a 15% net profit From each
    pur­chase amount­ing to $10 they would be obliged to set aside~ say,
    $8.50 repay­ment of’ their bank loans for replace­ment of stock and over­head
    costs, and only $1.50 as per­sonal income.
    This is like­wise true of C and D. There­fore, by spend­ing
    the $10 both of them cre­ated a lia­bil­ity against their future pur­chas­ing

    When A obtained the $10 in wages there was against it a
    cor­re­spond­ing cost in the prices of goods com­ing on the mar­ket. This
    lia­bil­ity must be kept in mind. 

    On buy­ing the two pairs of shoes from B, A sur­ren­dered his
    right to $10 pur­chas­ing power and B acquired the right to $1.50 of
    this, the bal­ance going for the repay­ment of his bank loan and can­cel­la­tion
    of the money as shown pre­vi­ously. (If he was oper­at­ing on his
    own cap­i­tal it would make no dif­fer­ence, for the $8.50 would have to
    go to the replace­ment of work­ing cap­i­tal with the same result.) 

    If B does not repay his bank loan, but spends the whole $10,
    he will have a lia­bil­ity of’$8.50 out­stand­ing which will con­sti­tute
    a debt against future pur­chas­ing power. In other words he will have
    to sell over $50 worth of goods with­out get­ting any por­tion of it for
    his own use in order to make good the deficit.

    Thus while it is true that in the exam­ple quoted, the $10
    bill resulted in $40 worth of goods reach­ing con­sumers there was
    cre­ated a trail of debts against their future pur­chas­ing power amount­ing
    to $10 (the lia­bil­ity against the orig­i­nal issue of the money) plus
    $8.50 (B’s undis­charged lia­bil­ity) plus $8.5O (C’s undis­charged
    lia­bil­ity) plus $8.50 (D’s undis­charged lia­bil­ity) mak­ing a total
    of.’$35.50 Sup­pose E now meets his oblig­a­tions of.’$8.50, he retains
    $1.50 as his net profit–:i.e.,as pur­chas­ing power. 

    It will be evi­dent that the effect is exactly the same as
    if A. bought gaso­line, etc., from E, and B C and D had obtained
    goods from each other on time, pledg­ing their future pur­chas­ing

    The so called “veloc­ity of cir­cu­la­tion” did not add to pur­chas­ing power at all. The fal­lacy of the the­ory lies in the incor­rect assump­tion that money “cir­cu­lates” whereas actu­ally it is issued against pro­duc­tion, and with­drawn as pur­chas­ing power as the goods are bought for con­sump­tion.

  • Exactly right Steve H.
    Here is another ver­sion
    Start with 1=1
    Mul­ti­ply both sides by MPT/M to get
    MPT/M = MPT/M.
    Define V to be PT/M
    and so replace the PT.M on the left with V so then you have
    can­cel the M’s on the right and you get MV=PT
    — this is no more than say­ing 1=1 ! This works if
    M is the num­ber of Mol­e­cules in a spoon of Sugar,
    P is the Price of a cup of milk and
    T is the Tem­per­a­ture of the Sun
    : “MV= PT” is a tau­tol­ogy pre­tend­ing to be an equa­tion — it means noth­ing.

  • Steve Hum­mel


    Thanks for the cal­cu­lus which is not my strong suit. 🙂

    Do you get the feel­ing that many here are not lis­ten­ing, not read­ing or for what­ever rea­son refus­ing to acknowl­edge and/or com­pre­hend?

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