A Galilean Gesture: Eating with Dr. Steve Keen
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. ?!?!??!?!?!??!?!?
wlu-wlu-wlu-wlu-wlu
(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 Alternatives, BBC, University 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,
Genevieve
* * *
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).
Discussion (8) ¬
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 -
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.
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.”
6. VELOCITY OF CIRCULATION
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
power.
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
power.
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
MV=MPT/M
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.
Damien,
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?