Inequality, Debt and Credit Stagnation

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This was my keynote speech at the French Association for Political Economy (AFEP) annual conference in Mulhouse, France (the other keynote was given–in French–by my good friend Marc Lavoie, who is now based at the University de Paris 13). In this presentation, I:

  • Disparage the “secular stagnation” explanation that Larry Summers has regurgitated for the tepid level of economic growth today. As did Hansen in the 1930s, Summers ponders “why growth would remain anaemic in the absence of major financial concerns?“, when financial concerns are obvious if you understand credit;
  • Explain why credit plays a crucial role in both aggregate demand and aggregate income, once you understand that banks originate loans rather than act as financial intermediaries; and
  • Show that my 1992 complex systems model of Minsky’s “Financial Instability Hypothesis” can be derived by working from strictly true macroeconomic identities, in an alternative to Lucas’s “microfoundations” approach to building macroeconomic models.

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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17 Responses to Inequality, Debt and Credit Stagnation

  1. Bhaskara II says:

    I thought ferir was pronounced f-error.

  2. Bhaskara II says:

    Happy, U.S. Independence Day of July 4th, 1776.

    An excellent read is the Declaration of Independence text:
    (They even link to drafts of the text)

  3. Bhaskara II says:

    An other page from the U.S. National Archives

  4. jbragin says:


    1) Why does Krugman insist on the Loanable Funds Hypothesis?

    2) Is there a consensus reason why mainstream economists insist on this Hypothesis?


  5. UserFriendlyyy says:

    Krugman is assured of his own self importance by his NY Times Column. It feeds his ego and he thinks he’s the voice of the left and can’t stand being wrong about anything. Just look how he treated Sanders (Whose chief finanical advisor is PK) this primary season. He desperately wants power, and Clinton gives him a shot at it. Bill Black had an excellent take down of Krugman

  6. Bhaskara II says:

    “In an article Wynne Godley Asks If Britain Will Have To Withdraw From Europe, written for London Review Of Books, written in October 1979, Godley writes:

    The implications for Britain of EEC membership are rapidly becoming so perversely disadvantageous that either a major change in existing arrangements must be made or we shall have, somehow, to withdraw.”

  7. Bhaskara II says:

    Definitions of EEC
    1. n. an international organization of European countries formed after World War II to reduce trade barriers and increase cooperation among its members

    Common Market, EC, EU, Europe, European Community, European Economic Community, European Union

  8. tralfamadoran777 says:

    If you will please, consider the notion of providing global economic enfranchisement

  9. Andrew Anderson says:

    Professor Keen,
    I’ve always been impressed by your “A Modern Jubilee” so I thought I’d share a particularly niffty way, I think, to impliment it using the central bank. This just occured to me yesterday.

    First, note that a central bank can operate with negative equity. So here goes using the ECB as an example:

    1) Use ECB equity, including negative equity if necessary, to give new fiat equally to all Eurozone citizens. But do it by instalments, say 1 per month for a year.

    2) After each instalment is distributed sell ECB assets to sterilize that instalment. Note that the additional fiat provided by the instalment should boost the prices the ECB can sell assets for and thus increase ECB equity to compensate for the fiat give-aways, perhaps not 100% but substantially.

    So basically, the ECB would loose some equity but we get your “A Modern Jubilee” with no increase in reserves so no one can complain of debt being inflated away.

    I can’t imagine any other objections. Your thoughts?

  10. Bhaskara II says:

    A postmaster fit for the great khan or traveling Keen?

    Snail Mail Problems? A Three-Word Solution is Coming;

  11. Steve Keen says:

    Yes that’s basically what I have in mind with the modern debt jubilee: use the Central Bank’s unlimited capacity to create money (because, as you observe, they’re the only banking institution that can operate with negative equity), and control the monetary effects via open market operations.

    I would add the caveat of course that the fiat injections would reduce debt for those with it, and become a cash injection for those without. The Open Market Operations would be needed to attenuate the impact of the latter, if necessary.

  12. twowithinthreethatisone says:

    The idea and concept of debt forgiveness/jubilee is a good one, but why stop with a mere one off effect when you can implement macro-policies that resolve the chronic problems of modern technologically advanced economies (scarcity of individual incomes and asset/price inflation)? Finally, why allow the glaringly contradictory monopolistic powers of private finance’s paradigms of Debt and Loan only to continue unethically dominating and manipulating nations and entire regions? End all of this by integrating monetary Gifting into the economy with the direct, interpenetrative and book end policies of a universal dividend and a sufficient discount to retail prices that positively enables price deflation within profit making systems.

  13. twowithinthreethatisone says:

    The US armed services have recently declared that they cannot account for $6.5 trillion. So much for monetary effects/inflation. Monetary inflation is a shadow compared to inherent, systemic cost push inflation and the natural tendencies of enterprise to increase their prices in “good” economic times. Orthodoxies hide in plain sight, and paradigms are hard to discern, even for the iconoclastic, because they fail to integrate sufficient fields of thought and so also fail to see beyond their own cultural horizon.

  14. 4Interest2 says:

    Prof Keen Greetings (and additional complimentary circumlocutions),

    With regard to the interesting idea of “Debt Jubliee”, is this proposal not in danger of creating a new dangerous financial immorality? In the simplest terms, why should anyone save money or pursue any productive activity? How can a fixed rather than a proportional distribution be fair?

    Let us take a simple example of the frivolous Bon Vivant vs. “The Saver”.

    The Bon Vivant borrows as much as he can and spends it; speculating, gambling, fine dining and other such (perhaps frivolous)
    pursuits. He knows that at intervals all (most/much) of his debts will be erased.

    “The Saver” on the other hand loses value on his savings/spending power. Eg. $100 + $10, where $10 also represents a 10% redistribution of a countries wealth. The value then of $110 dollars in non-inflated terms is $110-($110×10%) or $99.

    A fixed distribution, seems to me, nothing other than a “Wealth Tax” hidden under a different name?

    If you agree with this reasoning please consider to some larger implications:
    1) Human motivation
    2) Investments in productive capital.
    3) Wealth Tax in you modeling.
    4) Financial morality.

    It’s all well and good for a king to reward his hardworking peasants and tax his nobles but is it fair to lower, middle class and even upper class people in our modern society?

    Sincerely hoping that you can clarify financial morality of a “Debt Jubilee”.

    Good Winds,


  15. Dwain Dibley says:

    Prof Keen
    Why do you keep saying “Central Bank’s unlimited capacity to create money” when that is simply not true? The Federal Reserve has no authority to create money, period. The can only create asset-backed debt-based private credit, just like any other bank’s debt-based private credit, and there are no discernable differences between the two. They are both bank debt promising to pay money. The Fed’s open market operations supposedly regulates bank credit creation, not the actual ‘fiat’ money supply.

    Here’s a link to the Treasury’s FRA based explanation of how the Fed and banks get money from the Treasury and another on how actual ‘fiat’ money gets into circulation.

    I hope this helps.

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