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…

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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.