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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  • Bhaskara II

    I thought ferir was pro­nounced f-error.

  • Bhaskara II

    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)

  • Bhaskara II

    Paint­ing of the draft­ing of the Dec­la­ra­tion of Inde­pen­dence:

  • Bhaskara II

    An other page from the U.S. National Archives

  • Bhaskara II
  • jbra­gin


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

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


  • User­Friend­lyyy

    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

  • Bhaskara II

    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.”

  • Bhaskara II

    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

  • tralfamado­ran777

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

  • Andrew Ander­son

    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?

  • Bhaskara II

    A post­mas­ter fit for the great khan or trav­el­ing Keen?

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

  • 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.

  • twowith­inthree­thati­sone

    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.

  • twowith­inthree­thati­sone

    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.

  • 4In­ter­est2

    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-($110x10%) 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,


  • 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.