What if my analysis is used for evil purposes?

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One of my Patrons posed a very good question to me: in a nutshell, how would I respond to a politician who took my ideas and perverted them for political gain? Here’s Andre’s full query:

Hi Steve, thank you, you’ve given me the gift of some of the most important ideas and explanations I’ve come across in my lifetime.

I was wondering how you might respond to a politician who misreads your latest book, and then declares:

1.  People will love me, because Steve Keen says I can become known as a master of managing my country’s economy by engineering a private debt boom

2.  People will love me, because when private debt eventually falters, Steve Keen says I get to tell everyone they get more government spending on them, because public debt is justified to offset lack of accelerating private debt

3.  Even if some people grumble about me enlarging the state, they’ll definitely love me when I tell them they’re all getting tons of free money in a debt Jubilee straight into their bank account and/or their debts partially repaid for them.

4.  Best of all, after a few days of announcing everyone gets more public spending and free money in their bank account, the country’s private debt load will be reduced enough that we can start another private debt boom!

a.   And this debt boom will make my country even more prosperous for even longer because no one will be afraid – after all they now know that the worst thing that can happen is that I have to announce to them again that they’ll be getting more free money in another debt jubilee!

b.  Free money from speculating on assets in a private debt boom, followed by free government money for public services, followed by free money in a debt jubilee, over and over again until we’re the richest nation the Earth has ever known!

The short answer is that it’s already happened. The long answer is that I don’t believe that conscious policy will get us out of this crisis: instead we’ll get out of it the same way we got out of the last one (the Great Depression): as the accidental side-effect of responding to an existential crisis.

Now I’ll background both those answers.

The (Long) Short Answer: Kevin Rudd

I first realised that this crisis was inevitable as a consequence of checking the Australian private debt to GDP data in relation to a court case on predatory lending, in which the NSW Legal Aid Commission had asked to be an Expert Witness.

As I explain in Can we avoid another financial crisis?, while drafting my report (in late December 2005) I wrote the line “Australia’s private debt to GDP ratio has been rising exponentially”, and then realised that, as an Expert, I couldn’t just use hyperbole—that was the Barrister’s job! I’d have to research the data, and I’d need to replace “exponentially” with another expression. “Increasing sharply” perhaps.

So I downloaded the private debt data from the Reserve Bank of Australia’s website, grabbed the nominal GDP data from the same place, wrote a few import and data processing routines in MathCad (my favourite mathematical and statistical program—I loathe spreadsheets) to match the monthly debt data to the quarterly GDP data, imported the data, graphed it, and instantly realised that calling the trend exponential wasn’t hyperbole: it was an accurate description of the trend. The chart shown in Figure 1 was ultimately a centrepiece of my Expert Witness report.

Figure 1: Australia’s exponential increase in its private debt to GDP ratio from 1952 till 2006.


Granted the data are non-stationary, but the obvious correlation of this with a simple exponential function was so strong as to be almost ridiculous. I used a nonlinear fitting function to find that the correlation coefficient of the actual debt to GDP data to a simple exponential function (with an initial value of 0.23 and a growth rate of 3.4% per year) was a staggering 0.978.

Having seen this data, there was no doubt in my mind that, when the rate of growth of private debt stopped, Australia was in for its biggest economic crisis since the Great Depression. The only question was whether this was just an Australian phenomenon, or a global one.

The only reasons the fit was less perfect were two super-exponential bubbles in the mid-1970s and 1980s—both of which I knew caused severe booms and busts at the time, since they occurred at significant points in my own life…

You can read the rest of this post on my Patreon page if you become a Patron: Click here to read the rest of this post.

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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3 Responses to What if my analysis is used for evil purposes?

  1. neiljharvey says:

    Kevin’s politician seems like an odious character, am not sure how he came up with such a villainous rogue. although looking at that graph it does seem like somebody has beat him to the idea.

  2. ak says:

    It has been a while since I last commented here but the topic is in my opinion worth a bit more than casual attention. I haven’t read the new book yet as it is not available in electronic format, I will do it as soon as it arrives.

    I think that the knowledge about debt-fuelled booms has been actually put to good not to bad use in China.

    The Kevin Rudd’s episode in Australia is not very significant from the global perspective. We need to understand what CCP wants to achieve and what means are available. I still think that they want to use the short window of opportunity to rapidly develop the country at any cost, no matter what. The window of opportunity will close when real natural resources run out (one of them is the ability of the Earth to absorb pollution). Blowing housing bubbles is not more unsustainable in the long run as producing 30% of the all CO2 released globally. But there is no other way of building technologically advanced economy in a competitive and hostile global environment when the time is running out. The Chinese have already started massive investment in renewable technologies. We need to understand the global political and military situation. The US would not have tolerated the rapid industrialisation of China achieved by other means, it had to be done “under the radar”. Bribing multinational corporations by letting them freely exploit Chinese workers has been the ultimate insurance policy in our globalised world.

    Another important issue is higher saving propensity of Asians in general. Export surpluses are not only causing frictions with the US, they would never be big enough to set (bias) the operating point of the system high enough what applies to both the saving and investment functions. The real issue is running the economy close to full capacity utilisation and at the same time investing heavily to grow the productive capital stock. Let’s compare Russia and China. The Russians are implementing very conservative policies taken from a neoclassical textbook. Their private and public debt levels don’t change much. Once their trade surplus faded the system settled at a low rate of investment and abysmal rate of growth. (There is some impact of recent Western sanctions, too). The share of investment in GDP is 18% while in China it is 43% (source: http://www.economywatch.com ). Is this what is good for Russia? What will the situation be in let’s say 2025 or 2030 when the credit bubble finally bursts in China? The Chinese will have a lot of housing stock for their 1.45 billion of people and new shiny infrastructure, the Russians may have a few more Tu-160 bombers because this is all their fiscally conservative government can afford to pay for.

    Now here is the crucial point. China is not a country ruled by a plutocracy like the US. Rich people, the oligarchs, don’t rule the country. There will be no depression in China. A depression has to be engineered like in Greece. Markets don’t rule the societies, there is nothing “objective” here. This is a myth peddled by some “neo-vulgar” economists especially the Austrians. Absolute property rights haven’t been given by God, quite the opposite, stupid people made the golden calf and started worshipping it. The principles of fiscal policy are a social construct in the same way as property rights and the monetary system. The alternative does exist – the Chinese know they won’t run out of fiat currency. The Chinese government will stimulate like in 2009 when the true budget deficit as a percentage of GDP (including local governments) was double-digit. State-owned banks could operate with negative equity. If a capital flight develops (what could have been seen on a small scale last year) they will impose strict capital controls. Rich people are merely the custodians of nation’s wealth not sovereign overlords like in the West. All of them have red phones on their desks (see “The Party The Secret World of China’s Communist Rulers” by Richard McGregor). At some point of time the nominal wealth of some people (effectively the claims on the fruits of other’s labour) stored in financial assets may temporarily fade, but so what? Property rights are not absolute in China as they are a social construct which may change when necessarily.

    Neoclassical economic theories are not taken at a face value, the Chinese are pragmatists even if some senior economic advisers are infected (or pretend to be) with the mainstream economic theories. The pseudo-Marxist Soviet economics of was simply ignored in 1978. The same will happen with the mainstream when such a need arises.

    Once the per capita GDP reaches the saturation level similar to what is in other developed countries the current strategy will obviously have to change as all the low-hanging fruits will have been harvested. But the living conditions of the working class in China will be far better than in the US by then. It is interesting whether it will still be possible then to effectively brainwash people in the West to support neoliberal democracy despite the recent great advance in brainwashing achieved when the social networks arrived.

    How is the ruling party, the equivalent of CCP, called in the US? It is called Goldman Sachs. But there is a fundamental difference because the Chinese organ is more interested in bringing wealth to the whole nation not only to its own members. (Maybe only because they know what happened to these emperors who allowed for excessive exploitation of the peasants, their dynasties were overthrown when they lost the Mandate of Heaven). In China power brings wealth not wealth brings power. We may see this as a corrupt system but from the whole society’s interest point of view it is “our” Western neoliberal democracy system what is far more corrupt. The global “investors” are cheering Macron’s (or rather Gapon’s) Pyrrhic victory in France. “There is No Alternative”. Almost like elections in pre-1989 Soviet bloc countries where we could only cast votes on a single list of candidates.

    The only risk to China is the weakening of the iron grip of the CCP over the oligarchy (the rich) in the long term or a mutually assured nuclear destruction if the American president presses “Nuke” instead of “Nurse” trying to send another tweet offending a well-known Middle-Eastern ophthalmologist.

    So maybe, just maybe, in the world where building the system based on a moderate level of social justice (obviously with Chinese characteristics) is not possible outright, we should learn to stop worrying and love the bubbles.

  3. jamesg11 says:

    So this now has a paywall … after all these years …

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