As an economist, I do something very unusual: I treat money seriously.

Though this is hard for non-economists to believe, economists have it schooled into them that “money doesn’t matter”–that it is just a “veil over barter”, there to make it easier to swap commodities than it would be if you actually had to find someone who had what you wanted, and wanted to sell what you wanted to buy.

The argument that persuades them goes something like this: ”what would happen if you simultaneously doubled all prices and all incomes? Nothing!” In other words, if consumers are rational (now there’s a much abused word, but I digress), they shouldn’t care about the absolute prices of goods, just their relative prices. So doubling all prices and doubling a consumer’s income shouldn’t cause her to do anything different (but of course, changing relative prices would alter behaviour).

Bollocks. Double all prices and my income, and I’d be much better off because my mortgage payments would take less of my income (even if interest rates were also doubled). That’s because I’m in debt–I have a mortgage. And you can’t simply double interest rates to reach the same outcome as doubling prices, because debt repayment dynamics make the whole thing “nonlinear”: include debt seriously in your analysis of consumption, and the “veil over barter” vision of money collapses. But this “inconvenient truth” is omitted from economics–not because economists are deliberately hiding it, but because they have deluded themselves about the nature of money.

I take it into account, and as a result I get a very different picture of how the economy operates than do conventional (”neoclassical”) economists.

I use this blog to post monthly reports on debt levels in Australia and the USA.

Further reading

  • This blog. I started it in 2006, when I concluded that a serious debt-driven financial crisis was inevitable, and someone had to raise the alarm about the possibility of one happening. Here you will find:
    • The Debtwatch Report which come out just before the RBA meets each month to set rates, and takes a topical look at economics and the rate decision in particular;
    • Academic papers that focus on the topics of debt deflation and the monetary system;
    • A Podcast recorded after each DebtWatch report by Stuart Cameron of Rife Media
  • My report And Deeper in Debt published by the Centre for Policy Development last September.
  • Debunking Economics, a website that supports my book of the same name, and stores my lectures on economics and finance at the University of Western Sydney.
    • The most relevant lectures to explain the approach I take to finance are those on Financial Economics
    • The most accessible lectures on my non-orthodox approach to economics in general are those on Managerial Economics
  • Blogs by other commentators whom I believe have a handle on what has happened. For a decade or more, these writers have been “contrarians”, railing against the stupidity of Wall Street and accommodative Central Banks while the rest of the pundits applauded such financial innovations as … subprime loans:
  • Lest it be thought that I’m a critic of everything the RBA does:
    • Most of my Australian data comes straight from the RBA Bulletin Statistical Tables
    • The RBA Conference on Asset Prices and Monetary Stability has some excellent papers. I only wish that the orientation set in this conference had guided subsequent RBA policy.
    • This RBA paper comparing the Great Depression to the 1890s Depression is one of the most informative historical analyses I’ve ever read
  • Ditto for the US Federal Reserve. While I believe that the “Greenspan Put” has encouraged “moral hazard” behaviour that has made this the worst financial bubble ever, the Fed has also been a bastion of free and accessible data. My US data largely comes from its Flow of Funds report.