How rising debt causes inequality and crisis

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In a (for me!) brief presentation with 7 slides, I explain why rising private debt necessarily causes increased inequality, and leads to an economic crisis when the rate of growth of debt exceeds the rate of decline of wages as a share of national income. Crucially, the actual breakdown is preceded by an apparent period of tranquility–a “Great Moderation”.

This was a short talk to a public audience at ESCP Europe in Paris, which was presented in English and also translated into French by Gael Giraud, Chief Economist of the French Development Agency and the translator of Debunking Economics (so the soundtrack is in both English and French).

Click here for the Powerpoint file

Right-click here to download a Minsky file that has controls for (a) linear or nonlinear functions; (b) Existence or not of debt; ( c ) Prices or a non-price model; (d) Existence of government; and (e) the capacity to control the level of employment of the population that the government is happy with (set at 65% initially).

You can download Minsky from here and you can make a donation to assist the development of Minsky here:

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Here’s a sample simulation of the debt-inequality-crisis process from the Minsky file linked above:


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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30 Responses to How rising debt causes inequality and crisis

  1. Julian Wilson says:

    Doesn’t this graph simply express the relative difficulty of the private agent raising private debt for consumption vs productive endeavours?

    When it is ^easier* to raise debt for consumption than raise productivity, the private agent will increase debt for consumption with a negative impact in debt/GDP ratio.

    When it is *harder* to raise debt for consumption than raise productivity, the private agent will increase debt for productive endeavours (invest) with a positive impact in debt/GDP ratio.

    Thus private debt has either a negative or positive feedback on GDP/private debt ratio depending upon the relative difficulty of raising debt vs raising productivity.

  2. Willy2 says:

    Didn’t read the article (yet).

    I see another reason that inceases inequality.

    In the 1960s & 1970s workers/employees received wage increases at or above inflation.

    From the (early) 1980s workers/employees received wage increases BELOW infation. It meant that wage earners consistently saw their purchasing power erode over the last ~ 35 years.

    To make up for those shortfall in income people took on more and more debt.

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  4. bobwise32952 says:

    Your charts of change in private debt and unemployment seem, at least to a non-economist, to show the opposite of your thesis: rising private debt correlates with falling unemployment. I assume the unemployment measure is actually the percent of the workforce employed, rather than unemployed. If so, better labeling would be helpful.

  5. Steve Keen says:

    That is precisely what I am arguing. You need to read more carefully.

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