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.
Like many commentators, I regard August 9 2007 as the start of the “Global Financial Crisis”. On that day, BNP Paribas declared that several of its funds were being closed because liquidity in those markets had completely evaporated:
So I was particularly amused–in a sick sort of way–to see this brilliant info-graphic on The Fed on Twitter today: it plots the amount of laughter in FOMC meetings between 2000 and 2012. “Peak Laughter” occurred literally days before the crisis began:
The model belongs to the family of “financial balances models”, an approach pioneered by Wynne Godley and collaborators at Cambridge University (UK) and then successfully developed by the macroeconomics team of the Levy Institute — led by Godley himself.
At its heart, the KFBM (Kingston Financial Balances Model) is characterised by a set of thorough accounting matrices that gather the major stocks and flows of the US economy as well as their links across institutional sectors. This results in three key strengths of the KFBM:
As I explained in my last post, banks can’t “lend out reserves” under any circumstances, which undermines a major rationale that Central Bank economists gave for undertaking Quantitative Easing in the first place. Consequently, the hope that Bernanke expressed in 2009 is “To Dream The Impossible Dream”:
To dream the impossible dream
To fight the unbeatable foe
To bear with unbearable sorrow
To run where the brave dare not go
Former Chair of the Federal Reserve Ben Bernanke listens while US Secretary of the Treasury Jacob Lew speaks at the Brookings Institution July 8, 2015 in Washington, DC. AFPPHOTO/BRENDANSMIALOWSKI (Photo credit should read BRENDANSMIALOWSKI/AFP/Getty Images)
But there are some mainstream concepts that are so deeply embedded in even highly intelligent, flexible thinkers like Joe, that they continue thinking in terms of them, when a bit of really serious thought would show that the concepts are in fact nonsense.
I’m posting videos of lectures given by my Kingston colleagues to the introductory “Becoming an Economist” course, since the StudySpace software Kingston uses doesn’t support MP4 files. The first is Devrim Yilmaz’s lecture last week on “Data Collection and Presentation”.
But Joe’s latest public contribution—“The Great Malaise Continues” on Project Syndicate—simply echoes the mainstream on a crucial point that explains why the US economy is at stall speed, which the mainstream simply doesn’t get.
I’ve attended two conferences in two days where both the power and the impotence of the European Central Bank (EBC) have been on vivid display.
Its political power is considerable, both in form and in substance. At both seminars, the ECB speaker—ECB Board member Peter Praet at the first, and ECB President Mario Draghi at the second—spoke first, and then left. In form, the ECB has no need to defend its policies because it is unimpeachable in its execution of them. In substance, it does not even considering engaging with its subjects—I use the word deliberately—in open and robust discussion.
The position of the economy in the environment is a shared blindspot in economics: no existing school handles the topic well, and yet this is the key issue we need to understand. I explain the Laws of Thermodynamics–as well as I could in an introductory class without using mathematics–and provide some links to important topics that students wouldn’t normally hear about in an economics degree.
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