Debunking Economics - the podcast: Recent Episodes
Steve Keen & Phil Dobbie
Economist Steve Keen talks to Phil Dobbie about the failings of the neoclassical economics and how it reflects on society.
The UK election debate changed tune when Nigel Farage agreed to stand for Reform, promising to cut migration and rid the UK of all the problems these nasty foreigners are responsible for. Elsewhere the recent European Union elections saw a sharp shift to the right, again driven by concerns over migration. If Donald Trump wins again in the US at the end of the year that too will be gained on a ticket spreading fear and loathing over migrants.
It is clearly an issue that can’t be ignored. Yet you have to wonder how many fo the proposals from the likes of Farage are workable, or effective. People in poor countries will always want a better standard of living. Phil and Steve discuss whether it’s an aspect fo the world we have to live with. More importantly, is it being used to spread division and diverting attention from the real problems, like the underinvestment in public infrastructure. That’s down to fiscal conservatism and governments worried about debt.
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Imagine if Keir Starmer, the UK Labour leader, had said, let’s not get too obsessed with government debt. If we go down that road we won‘t be able to provide the public services we need, our infrastructure will crumble further and we’ll simply see the country’s productivity erode further by the day. Unfortunately, he didn’t say that. Instead, he has pledged himself to the temple of fiscal responsibility, just like the Conservatives. That means, whichever party is in power the UK can expect something akin to the austerity that plagued the last 2010s. Phil asks Steve just ow much extra spending the government can get away with, though, when the Liz Truss experience suggests governments are answerable to the financial markets.
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There’s been a debate brewing post-pandemic about how much inflation has been elevated by companies increasing their margins. The evidence of that is the increased profits, not just in the tech sector, which has helped increase the share prices of these companies, evidenced by record levels across the US share market indices.
This week Steve Keen says its clear that is happening. Even before the pandemic, when inflation was lower, companies were still increasing their margins more than the level of wages, so workers were increasingly worse off. Hence the pre-pandemic stagnation. But companies need to improve their efficiency to fend off competitors and provided the rising returns that investors are demanding. So, isn’t the constant drive for higher margins simply an acceptable and necessary function of capitalism?
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The UK is heading to the polls on July 4th and the Conservative Party is heading for annihilation. Yet, when it comes to espousing sensible ideas from textbooks, Rishi Sunak had the making of a good Prime Minister. For example, tackling productivity by building the necessary infrastructure, investing in education and building cities and regions where businesses could cross pollinate their expertise, facilitated by strong communication and transport links. He presented all of these ideas three years ago and since then productivity has fallen. Why? Steve says these are all great ideas, but there was no money there to support them. You can’t facilitate growth whilst pulling money out of the economy through government spending cuts. Hence, Tory party economics has failed on delivery.
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Steve is on hols this week, so Phil takes a look back at a couple of Debunking Economics podcasts from just before Donald Trump took office. In many ways he stuck to his promises. He tried to cut immigration, he introduced protectionism with hefty tariffs on China and he cut taxes. Now he’s promising more of the same, although Biden might have beaten him to it when it comes to heftier taxes on China’s EV exports.
The first time around Steve suggested some of Trump’s thinking was right, although perhaps for the wrong reasons. Tax cuts to boost spending seems like a good idea, but he directed it at high income earners in the false belief that they would use this money to invest in jobs to grow the economy. Instead, tax receipts fell and the new jobs didn’t materialise.
He is also hell bent on making America self-sufficient for energy. America’s domestic oil production has been steadily increasing since 2016. Can we expect this to accelerate, given he has repeatedly declared climate change is a hoax, and the likely funding support he is receiving from the fossil fuel industry?
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Should we tax wealth more? The UK’s Shadow Chancellor Rachel Reevs wouldn’t be drawn o the question at an FT forum recently. She said the UK is already a high taxing country. But around the world the wealthy are getting wealthier. Is that a bad thing? Some would say that if they are making money creating growth for the economy, then why would you want to stop them. Jeff Bezos, for example, makes a small fraction of the wealth of the economic benefit he has created for broader society. But does it make sense that income from wealth – primarily capital gains – is taxed less than I come from work? No, says Steve Keen. It should be the other way round. Listen in for a discussion about taxing wealth, that’s a little more nuanced than just saying tax the rich.
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UK Labour leader Keir Starmer has said if he wins the next general election, within 5 years he will have re-nationalised Britain’s railways. Phil asks Steve whether it naturally follows that this will lead to an improvement in services and lower fares? Steve reckons you any need to look at government run services elsewhere in Europe to answer that question – but Britain’s trains weren’t so great even in the days of British Rail, when they were in government hands. This time there’s a chance one of the key areas of investment will remain in private hands, negating the advantage of public ownership.
Railways are also an easy choice. Many franchise operators have fallen by the wayside, forcing the government to step in. Renationalisation was starting t happen by default. Ut what about water? Nd, more significantly, what about the power industry. How can an industry that relies on making more money from customers operate in an environment where climate change is demanding we use less?
Phil and Steve discuss how Labour’s plans only seem to scratch the surface. Th direction of travel is right, but they don’t seem to be heading very far down the line.
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The new industry is struggling to survive, with far reaching consequences on public accountability and democracy. Steve says part of the problem could have been fixed with a suitable micropayments system, so readers could consume articles without subscribing to papers in full. Phil’s not so sure, pointing to the fact that an increasingly large proportion of the population is not consuming news at all and what they do read or watch is on their feeds in social media. News media is having to resort to click bate on low-rent stories that will drive traffic and help drive advertising revenue. There’s little or no scope for investigative journalism unless it is funded by the public purse – but governments and reticent to fund such activities if they fear they will be caught out by it. So how do we fix the journalism deficit?
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There are two types of people who buy gold. Speculators who see it as a risk-adverse asset class to buy when other investments look a little shaky. There are also those who hold onto gold because they believe paper money has no intrinsic value and is therefore susceptible to collapse. Zimbabwe, who’s paper currency has been undergoing decades of increasing worthlessness, is now being replaced by a new form of blockchain currency – the ZiG, completely backed by gold and foreign currencies. Phil and Steve discuss whether it’s a smart move for Zimbabwe, before looking at the broader global preoccupation with the stuff.
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Sadly for Donald Trump, America seems to have been doing quite well in his absence. It has weathered the pandemic and inflation better than most. GDP pr capita is rising faster than most places and consumer spending is on the up. In fact, the main reason the Federal Reserve isn’t cutting rates is because the economy is doing so well they don’t see the need for a sudden change. But there are lots of warts in the US too. Industrial production plateaued decades ago, crime is rampant, despite the high predisposition for putting people in prison, the rich-poor gap is as wide as ever and, even though America spends more than anyone on health, they have a comparatively low life expectancy. Has America lost its way, with China beating it on EVs and, possibly AI, with Boeing outstripping Boeing because their planes are less prone to falling apart? This week Phil and Steve talk about what needs to change, and what happens if more of the world decides not to conduct international trade in US dollars.
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For a while now Dr Edgar Feige has been a proponent of an automated transactional tax. The idea is that we get rid of all taxes – income tax, sales tax, corporate tax, excise, capital gains, import and export duties, inheritance – and replace it all with a tax on all transactions Every transaction, which can be easily identified through bank accounts, has a very small tax on it. Phil and Steve discuss the pros and cons this week. It’s certain broad in its reach, but is there a danger that it could penalise those on lower incomes. There’s certainly a question mark on how it addresses the hoarding of money or long-term investment in asset classes that show strong capital gains. Perhaps it needs to work in conjunction with some means of taxing wealth – but that means, already, the simplicity of a transaction-only tax disappears.
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There’s been a lot of speculation lately about the role of immigration and its impact on inflation. Does a flood of foreign workers push down wages, which contains cost and keeps prices down? Conversely, did the low immigration levels post-COVID add to the wage pressures because, combined with sickness from COVID, there were a lot less people for every job vacancy. It sounds sensible, but Steve believes it’s only a small part of the issue. And if did have the potential to increase labour supply governments are often negating the benefits by failing to invest money into the economy, putting pressure on services and creating another inflation dynamic.
We also hear from Ben, who has a few words to say on the recent Elon Musk episode and all the talk of emigrating to Mars. Apparently we ignored the sex angle. Ad Ben set the task for next week’s podcast. Feel free to add your own contribution by clicking on the mic logo at debunkingeconomics.com
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The Bank of Japan has just lifted interest rates for the first time in 17 tears. The central bank has kept rates in negative territory in the mistaken belief that it would encourage banks to lend an people to borrow, helping to boost their flagging economy. Steve Keen says it’s based on the mistaken belief that banks lend money from their reserve accounts. They believed that by charging to hold onto the money banks will prefer to lend it out. If that was the case, the policy has been a dismal failure, with bank lending falling over the years the policy has been in place. So what next for a country with a shrinking, ageing population and massive private debt.
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One analogy that economists like to use is that of the Capitol Hill Babysitting cooperative in Washington DC in the 1970s. Government workers set-up a babysitting group, where they to it in turns to babysit each other’s children, so they could enjoy nights out without paying for childcare. There were quite a few on the group, so payment was formalised through the issuance of scrip. Economists like it because it mirrors a monetary system and suffers some of the pitfalls and problems faced in the economy at large. For example, the system quickly stopped functioning because some members would horde scrips, leaving others with none, and unable to go out for the night. The short-term fix was to issue more scrip, to get over this liquidity problem. Steve is concerned about drawing too many conclusions from such a microcosm, but it does seem curious how government workers are okay with issuing more Scrip for babysitters, but don’t see the need to expand the money supply in the broader economy.
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The UK Chancellor Jeremy Hunt delivered what is almost certainly his last budget, promising the usual stuff – more investment, more jobs, better public services and lower taxes. And, miraculously, all of this will be achieved by lowering government spending. Despite the rubbery figures, Steve Keen argues that the budget ignores the key principle, that you can’t increase GDP if the government is cutting back on money creation by trying to reduce its “deficit”. A get-out clause on that would be if the country was to see a sudden increase in the export/import ratio. That is in the budget figures, without any explanation as to how that’ll happen. So, what does a Steve Keen UK budget look like?
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The UK Debt Office has started selling bonds to retail investors through the primary market Previously the only way you could buy government bonds was through financial institutions, through ETFs, for example. The reason giving for opening it up to consumers is that it will allow them to “contribute more significantly to meeting the overall financing requirement”. Hat makes it sound like they are concerned that there won’t be sufficient demand from institutional investors, including the banks. Steve Keen says what they probably don’t understand is this move will actually shrink the amount of money in circulation. That’s probably a bad move in a stagnant economy. To make matters worse, they ar ehell bent on selling off the government’s shareholding of the Nat West group, which will have a similar impact. Listen in to find out how and why.
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Elon Musk has his fingers in many pies. Social media, space travel, internet access, AI. Even tunnel drilling. He’s grown from developing a modest series of online city guides, to being one of the richest men on the planet. Is he a genius, or simply a Trumpesque style wheeler and dealer? This week phil – not a big fan – asks Steve – massive fan – whether Elon Musk is actually good for humanity. It’s a chance for Steve to expound his theory that whatever else he is doing he is preparing the way for mankind to leave the planet and live on Mars. Disturbing news for Phil, who quite like it here, mostly.
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The concept of American Exceptionalism has been talked about for decades, mainly by Americans. Now the term is back in vogue because the US has shown the fastest recovery from the pandemic and subsequent inflation. It’s also a period of intense speculation in US shares, driven by phenomenal rises in the value of big tech stocks. Is this something the rest of the world should be worried about. Is American Exceptionalism real? To put things back in perspective Steve Keen reminds us that the share market is nothing more than a Ponzi scheme, and whilst the US might account for 70% of the market cap of global equities, it still only represents 11% of world trade. So it might just be exceptional at the wrong things.
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Rishi Sunak, like most politicians, is adamant that he can grow the economy by getting businesses to be more productive. But can businesses really grow the economy by themselves, if the government just gets out the way? You might think that by employing more people, or creating more widgets, you are helping the economy. But there’s one big constraint, which is how much money you have to spend. Without taking out a loan you can’t spend more money than you have in your own personal bank account. So, businesses that produce more will find there’s no market for any extra products, unless the supply of money increases. There are caveats, which are basically covered in the formula for GDP – but, by and large, Rishi Sunak is trying to encourage more spending by limiting the amount of cash we have by reducing government borrowing.
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Have central banks waited too long before dropping interest rates. Over the last week or so we’ve had Jerome Powell, the Governor of the Fed, saying inflation is coming down but they want to see more data before they’re convinced enough to drop rates. The Bank of England’s Andrew bailey said pretty much the same thing. And the ECB. But, as Phil and Steve observe this week, whilst we wait bank loans to corporations are falling rapidly, and in the US corporate bound issuance is also well down. Delaying rate cuts is hurting businesses who can’t grow and increase supplies to help reduce inflation. In fact, it is arguably making inflation worse. Steve argues this week that the main cause of inflation this time round has been margin profiteering by corporations, because demand is high and supply constrained. If companies can’t borrow to extend production, to retain profits all they can do is keep pushing prices higher and enjoy greater margins. It’s a long way from the monetarist philosophy which has been driving interest rates higher.
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Yanis Varoufakis joins Steve nd Phil this week to talk about the thinking behind his new book technofeudalism. The ‘cloudists, as he calls them, aren’t operating in the market, they have replaced the market. They learn from us tell us what we want to buy and then sell it to us. Their capital is the algorithm they have developed, but also the information we provide in the records of our behaviour and the posts that we make. The result is a massive accumulation of wealth. But how sustainable is a model that sees so much money being made by so few people? Yanis says it’s not at all sustainable, and suggests a couple of ways that the governments of the world can respond, so that we benefit from the technology without destroying our respective economies.
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If Trump has one sensible policy its his drive to reindustrialise America. Since he left the Oval Office we’ve had global supply chains challenged by the pandemic, wars and a downturn in economies we used to rely on for cheap goods. The financial advantage of outsourcing to Asia is losing some of its gloss, and the uncertainty of supply has to be a real concern. Add climate change to the equation, with haulage vessels mass emitters of pollution, there are even more reasons to produce more at home. But how realistic is it for a country like Britain to reindustrialise. Shouldn’t it be a priority? Or are we still wedded to the Ricardian theory of comparative advantage?
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Is it right that the growth opportunities of businesses are determined by the vagaries of the finance markets. Companies wanting to raise debt through bonds or bank loans face higher costs right now because of the rise in interest rates. Someone with a great idea could be held back because of the cost of borrowing. Whether its borrowing or issuance of equity businesses will find an increasing chunk of their earnings are being fed to the finance sector. Increasingly, a sector that minimises risks by only lending to companies supported by assets. Phil and Steve discuss whether there a role for the government to be more involved in developing a higher-risk, lower cost approach to loans. And when it comes to smaller businesses managing cash-flow could a more amenable tax office be part of the solution?
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As you’ll hear at the start of this week’s podcast Warren Buffet isn’t a big fan of private equity firms. He says they lie, so they are not a good choice for investors, like pension funds, for example. But they are even worse for the companies being acquired by private equity funds. Morrisons is an example. A successful supermarket chain with a long, distinguished history, acquired by a US private equity fund, who bought out shareholders. Then, in true private equity fashion, employers are told that there will have to be savings made to cover the debt – the debt that was created by paying out shareholders for the acquisition. How is that fair on anybody, except the executives of the equity fund who benefit from the increasing equity in their portfolio, which they can enjoy at lower tax rates than a business out to make a profit. Is that how capitalism is supposed to work?
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The UK government has been refusing the pay demands of young doctors in the UK who held a series of strikes in 2023. Their argument is that pay has been declining in real-terms since 2008. Unless pay catches-up there will continue to be a drain of new recruits, which will impact patient safety and put undue pressure on those left working in the NHS. Steve Keen says the government’s argument – that there just isn’t the money – ignores the ability for sovereign nations to create new money. There’s an argument that if you create too much it will create inflation, but that applies more to the generation of excess demand for goods and services. Nobody chooses to go to hospital. So, is the government’s end-game to destabilise the NHS and force more private health provision, so less of the cost appears on their balance sheet?
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Our podcast listeners often ask which economics books they should read to get up to speed on some of the discussions we have, and to understand more about the way the economy really works. This week, for those with a wad of book tokens gifted to them at Christmas, we look at a selection that are worth getting stuck into over the holiday period including:
- Gleeson-White, J. (2011). Double Entry. Sydney, Allen and Unwin. https://www.janegleesonwhite.com/double. A beautifully written exposition of the evolution of double-entry bookkeeping.
- Bak, P. (1996). How nature works: the science of self-organized criticality. New York, Springer. https://link.springer.com/book/10.1007/978-1-4757-5426-1. An accessible explanation of a complex subject.
- Minsky, H. P. (1982). Can "it" happen again? : essays on instability and finance. Armonk, N.Y., M.E. Sharpe. Can It Happen Again? | Essays on Instability and Finance | Hyman Minsk (taylorfrancis.com). About twenty very well written short essays by Minsky that explain his approach to economics. Much better than either of his books.
- Lynas, M. (2020). Our Final Warning: Six Degrees of Climate Emergency. London, HarperCollins Publishers. https://www.amazon.co.uk/Our-Final-Warning-Degrees-Emergency-ebook/dp/B07YN9WSN8/. The best read on what climate change will actually mean.
- Adams, D. (2003). The Hitchhiker's Guide to the Galaxy: The Original Radio Scripts. additional material by M. J. Simpson. (25th Anniversary ed.). London, Pan Books. https://www.amazon.co.uk/Original-Hitchhikers-Guide-Galaxy-Scripts/dp/1529034477. An antidote to reality.
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Central banks assume there is a natural rate of interest – a point of equilibrium at which the demand for loans matches the supply of loans. They believe if interest rates have been too low, they risk over-heating the economy, risking inflation. But does it work? Steve suggests that interest rates should be fixed, with control of the economy managed through government fiscal policy. But Phil asks, won’t interest rates always move? If somebody wanted to borrow money off you, and you knew there was few other places they could get a loan from, surely you’ll charge them more. Or if you fear inflation will rise, won’t you want to charge higher interest to compensate for the effective reduction in the money returned to you at the end of the loan?
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Keir Starmer will be the UK’s next Prime Minister. Few things in life are more certain. So why did he see the need to write an opinion piece for the Telegraph extolling the virtues of Margaret Thatcher. He said she had freed up Britain’s entrepreneurial spirit. Really? She also created massive private debt, driven by a tax-incentivised housing bubble that together with market liberalisation, led to the growth of highly paid jobs in the finance sector in the south, whilst her industrial policy and attacks on unions saw northern towns laid to waste. Hardly a period of history you’d imagine a left-wing leader to look back on in a favourable light. Unless, of course, Keir Starmer isn’t really a Labour leader. Phil and Steve look back at the good and bad of Margaret Thatcher’s decade in power and the lasting effects it had on the UK economy.
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In his election pledges President-Elect Javier Milei promised the people of Argentina two things. First, he would do dollarize the economy. He’d ditch the Peso and replace it with the, already widely used, UD dollar. Secondly, he would abandon the central bank, who he blames for the rampant inflation, which is one part of many fronts of destruction against the Argentinian economy. But can a country really do without a central bank, even if it is reliant on the currency of another country? This week Phil and Steve talk about the roles of central banks – everything from controlling inflation, to maintaining the stability of the banking sector. Could it all be managed by governments internally? Some of the work is deeply technical and people in governments don’t tend to be very good at anything that requires working with numbers.
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Last year net migration in the UK reached 745,000 people. A new record, which amount to more than 1% growth in the population. It’s an unsustainable population growth but Steve Keen argues growth on the planet as a whole is unsustainable. He worries that as climate change destroys food production migrants and UK locals alike will be queuing for relief flights to Rwanda. Climate aside, what is the impact of migration on the economy. It’s helping recipient economies by boosting GDP, often through lower page jobs for the migrant workers. Meanwhile the origin nations are losing workers and expertise, inhibiting their ability to develop. Is part of the solution more control on wages, so local workers are more willing to take on jobs left to migrants? That could slow the migration, encourage foreign workers to build their domestic economies and control the population growth in developed nations. Is that the logical way forward?
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George Osbourne was the UK Chancellor wedded to austerity. “More cuts, more difficult decisions” he said at the start of 2014, as he struggled to get the British budget back into surplus. But regular listeners to this podcast know that a government budget in surplus is sucking money out of the economy. Steve Keen reminds us of the logic that shows austerity does nothing except cause damage. Phil talks through some of that damage, including cuts to public services, a shortage of UK life expectancy, even an increase in hate crime. But, weirdly, the country is still facing austerity. Not through a lack of government spending, but through a high level of taxation. People are still struggling, and the economy is on a fast road to nowhere, whilst other countries follow suit.
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Last Wednesday Optus phone, mobile and internet users in Australia went without and sort of service for a full working day, starting from about 4 in the morning. At he same time, Thames Water in Surrey were slowly connecting back customers who had not had water supplies since the previous Saturday morning. Why are things we have always assumed we can rely on, suddenly starting to break? A spokesperson for Thames Water says the outage was because of a rare storm that only occurs every ten years. So are we now specifying infrastructure is good enough, even if it can’t cope with a one-in-ten year event? How did we get here? Is it the privatisation of these services, is it the political culture, is it ravages of uncontrolled competition or is a lack of engineering focus. Phil and Steve are joined this week by Matt Tett, who runs Ennex Test Labs, a Melbourne based company that runs performance checks on key bits of infrastructure, including equipment within telecommunication networks. What does he think we can take out from the Optus failure?
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Everyone is talking about AI right now. Rishi Sunak’s new best friend is Elon Musk, who has been over in Britain to talk about it and the danger it presents. ‘Civilization destruction’ is how he described it. But, whilst that might be a long-term concern, isn’t the short-term danger of more concern. Liker deep fakes. Or the rising use of energy by data centres and processing power. Or a reliance on an intelligence that just be plain wrong about things – there are some examples in the podcast. Even the wins, like fighting cyber-crime, could they be negated by cyber-criminals using AI to fight AI? And how much of what we are going through was predicted in EM Forster’s 1909 short story, The Machine Stops?
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Marc Andreessen is the brains behind the Mosaic web browser, that paved the way for the web interfaces that made the Internet useable. He’s, quite rightly, a billionaire. You could even say he has delivered a social surplus, in that we have all benefited from his invention to a value many more times than we was rewarded with personal income. Well done to him. But his belief that technology is unbounded is way off the mark. In a recent blog post – The Manifesto on Techno Optimism – he argues that technology has solved all of mankind’s problems so far, and it will continue to. Once we have resolved the constraints of energy, with fusion for example, we will be able to increase consumption a thousand times over, thanks to the unbridled benefits of technological development. Phil wonders whether we want so much more than we already have, whilst Steve says his manifesto is a fast track to destroying the planet. Maybe that’s why we are planning space flights to Mars.
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Entrepreneur Nick Hanauer says he is one of the richest 0.1% of people, but he’s a defender of the people. That’s why he’s exposed the lies we are fed in his latest book ‘Corporate bullshit - exposing the lies and half-truths that protect profit, power and wealth in America’. Once you realise it’s not about facts, it’s about power, it changes how you engage with the information fed from these companies. But, not only do these companies have power, they also have the influence that can convince thousands of others to do their bidding for them. Often playing on people’s self-interest. Nick’s hope is that his new book will alert more people to the techniques used by corporations to convince us that their self-interest is for the good of everyone. Even if they die of cancer I the process. Or the planet is ravaged by the impact of climate change. Nick joins Phil and Steve to talk about the book and what he hopes to achieve through it.
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A simple challenge on the podcast this week – how do you fix world poverty? When he was President of the World Bank Jim Yong Kim set a target of ending world poverty by 2030. In 2019 just 8.4 percent f the global population were living in extreme poverty. Sadly, the pandemic added another 70 million people live below the extreme poverty line, lifting it to 9.3 percent of the global population. World leaders seem more intent on fixing the short-term issue of illegal migration rather than fixing the core issue of why people are escaping to the west. This week Phil and Steve discuss why some countries are poor and what we can do about it.
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Rishi Sunak is seemingly proud to have cancelled the only real nation building project Britain has had for decades. Instead, the money will be spent on sticking-plaster solutions to existing infrastructure, without any business case or overarching strategy. The reason? It all got too expensive. The other reason, Mr Sunak obviously thinks it’s a vote winner and he is well behind in the polls. This week Phil asks what’s happened to the £25 billion that has already been spent. The answer, of course, is that it has been pumped into the broader economy, aiding economic growth well before anyone enjoys the benefits of the completed project. There’s discussion about why public sector investment doesn’t need to undergo the rigorous cost-benefit analyses of private projects and why the UK is so bad at delivering large scale engineering projects. Will we see any visionary engineering feats again in our lifetime?
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Economists like to believe human behaviour is predictable. Otherwise, they probably wouldn’t have a job. Steve Keen argue that we do tend to behave like the rest of the herd, but how many herds are there? Phil asks if economists need to develop the sort of demographic segmentation modellers that marketers use? It’s certainly a long way from the basic assumption that we all act the same – as one representative agent, driven by fear and greed. But if we develop a more sophisticated approach, predicting behaviour for a number of segments of society, wouldn’t we arrive at a model so complicated, so full of assumptions, that it renders the model useless? In other words, can we ever really understand the psychology of human behaviour?
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Liz Truss is back. She kept a fairly low profile after very short tenure as the UK Prime Minister, but popped up again for a speech at the Institute for Government, arguing that she was right about supply side economics and the need to fight against 25 years of economic consensus. She seems to think if everyone had read Milton Friedman the world would be a better place. There’s no surprise that Steve Keen disagrees with almost every point Truss made, but the law of averages suggests she must be right on some things. Phil and Stebe analyse the speech and look for some bits of it that might actually be worthwhile. Whilst, of course, dismantling the rest of it.
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The US dollar is creating real problems right now. Speculators are buying it up as US Treasuries (bonds) offer higher yields at lower prices than other forms of sovereign debt. US shares are also proving popular as talk of a US soft landing intensifies, suggesting they’ll be more scope for company growth in the US than just about anywhere else. All of that is adding to the strength in the US dollar, which is weakening the value of other currencies. That means other countries pay more for importing goods, adding to the inflation that central banks are trying to bring down. It’s a scenario that wasn’t foreseen by Friedman when he advocated for floating exchange rates. He believed floating exchange rates would balance out terms of trade, but clearly that’s not happening. So, Phil asks Steve this week, is there a case for some form of capital controls, or other restraints on the flow and value of currencies?
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There’s a vain hope in investment circles, and amongst politicians, that we can still enjoy economic growth on the road to NetZero. There are those who believe that we can decouple our economic growth from our consumption of fossil fuels. In other words, we can continue to enjoy growth driven capitalism whilst avoiding the impacts of catastrophic climate change. Steve Keen is less convinced. He fits into the zero-growth camp, where the only way to reduce our impact on the planet is to stop increasing our consumption. So, what would that look like? For many people it might not be too different to life now, with vast segments of the population seeing their wages falling and living standards reduced. But the top echelons of society would feel the difference. Also, how do companies innovate if they lose the profit motive. And isn’t it all part of some global conspiracy for a new world order controlled by the elite, led by Bill Gates, who is merely a puppet for shape shifting reptilians working to destroy humanity?
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Are we earning too much? Many of us are now spending less than we earn on day-to-day consumption items We’re putting our excess income into our future earnings, through our pension funds, who use a chunk of that the money to buy non-productive assets, liking investing in shares on the secondary market, to no-benefit of the companies we invest in. Phil talks to Steve about why we have this imbalance between earnings and spending when, at an aggregate level, our income should equal our productive outputs. The difference is, of course, that we borrow a great deal, particularly to buy a house. It’s this reliance on borrowing which is increasing our consumption beyond the outputs we provide to the economy. And we borrow more than we can afford on the assumption that house prices will rise. So the question isn’t whether we should earn less, but whether we should borrow less.
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If he managed to stay out of gaol and makes it to the White House, Donald Trump has proposed a flat 10% tariff on all goods coming into America. He’s called it the Ring Around the Collar of America – which has led some to suggest the policy is a nasty stain that will be difficult to get out. But as phil Dobbie discovers, Trump has one supporter in the shape of Steve Keen. Steve talks from Hungary, where he is currently on assignment, suggesting this form of protectionism will be good for America. But will it come at the expense of GATT (the General Agreement on Trade and Tariffs). Could we be entering an era when all nations are imposing trade barriers and the prospect of free trade disappears. “I won’t be shedding any crocodile tears over that,” says Steve. Listen in to see why Steve is a Trump supporter on this particular issue.
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Recently Steve was commissioned to write a report for Carbon Tracker, an independent think tank offering in-depth analysis of the impact of climate change and energy transition on the finance industry. Inside “Loading the DICE Against Pensions” he looks at the reasons why pension funds have vastly underestimated the impact of climate change on investments. He talks through the issues with Phil, who asks, even if we know how bad the situation is, how will it change where we put our money?
You can download the full report here: https://carbontracker.org/reports/loading-the-dice-against-pensions/
There has been lots of speculation about BRICs countries working to develop a new trading currency, to enable trade without the reliance on the US dollar. There’s also talk that maybe this new currency will be backed by gold? Many suggest this will be a challenge to western fiat money. There’s a suggestion that such currencies will lose value against such a strong currency, backed by a physical commodity. This week Phil talks to Steve about this commodity obsession and why this idea wouldn’t work unless, of course, you aren’t interesting in growing the size of the economy.
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QE was big news before the pandemic. Then, as governments issued bailouts to keep us at home, central banks went into overdrive, buying up the mushrooming bond issuance from government. In some ways, it was a sort of People’s QE, because the money was finding its way directly into people’s bank accounts. So, how does that compare to the QE before we all got ill? And is the pandemic-style QE at all responsible for the rise in inflation we’ve experienced since? Phil asks Steve if there are lessons to be learned about People’s QE and inflation.
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Phil and Steve return to the well-worn path of talking about house prices. Why? Because, despite the downturn during the pandemic, followed by sharp rises in interest rates by central banks around the world, house prices are again edging up. Clearly, nothing can stop the march higher, even though an increasing proportion of the population simply can’t afford to enter the property market. So, we know who the losers are. Ut who is winning? And what can government policy do to build a more affordable stock of housing?
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The UK is recovering slower than just about anyone from the pandemic. The UK’s GDP is flat compared to where it was four years ago, whereas most countries have recovered from the pandemic, and then some. Inflation rose faster than most comparable economies and is taking longer to come down. So why is the UK struggling so much. This week Phil asks Steve the obvious question, has Brexit got something to do with it? And what role does a growing trade deficit play in the tardiness of Britain’s recovery?
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One of the biggest problems Britain faces is that so much of the wealth is concentrated in the southeast. And it only seems to be getting worse. The country has shifted from a Prime Minister who promised to level-up the economy, to a fiscal conservative who wants to cut government spending and reduce real wages, meaning there is less spending power outside London. Phil asks Steve if there is an easy solution to the economic destruction London is rendering on the rest of the UK?
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The UK Chancellor and the Bank of England Governor have called for increases in productivity as a way of helping to brig down inflation. So, not only should workers expect wages to fall in real terms, people should also be doing more per hour worked. Are they dreaming? This week, Steve Keen says you can’t increase output without increasing investment in technology and machinery, something the Chancellor is less keen to do. So long as the UK is investment starved, you’ll never see a rise in productivity.
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We last had a financial crisis in 2008 (ignoring the pandemic years), and if we’re not in another crisis now, we’re well on the way to it, with mortgages rising, taxes increasing and the price of everything continuing to rise. Your spending power is being hit in three directions. But, isn’t that what central banks want? So we spend less and inflation comes down, theoretically. Yet the banks, who might not be to blame this time, are now feeling the hurt. In fact, they stand to gain from rising interest rates because they can raise their borrowing costs. This week Phil asks Steve, will the banks always win, come what may?
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The UK economy is ready for a major downturn. In part it’s down to supply chain difficulties, thanks to COVID, the war, the great resignation, sickness and, let’s not forget, Brexit. Originally central banks recognised this and said the inflation was transitory and we just needed to ride it out. Since then, they’ve gone back to their conventional thinking that inflation can only be fought with interest rates. The higher the better it seems. But Prof Steve Keen tells Phil Dobbie that it is the worst response possible, causing unnecessary suffering and cutting back on the kind of investment that could fix the supply chain difficulties. So why are they doing what they are doing?
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If we ignore the flagrant human rights abuses, there’s a lot to admire about China. There economy has grown at an incredibly rate whilst the West has been stagnating. So, what’s their secret? Phil quotes Mervyn King, former BoE governor, who spoke to a Chinese central banker and asked that very question. Here what he said, and what Steve Keen thinks is behind China’s growth, in this week’s podcast.
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Older Brits will be familiar with Bruce Forsythe’s Generation. Today everyone is playing the Generation Game, but the young are the one’s losing out. They are steeped in debt and faced with the prospect of progressively unaffordable housing. Many of the over 60s meanwhile, have accrued healthy amounts of assets. As Phil Dobbie discusses with Steve Keen much of this we4alth will be passed on, but not everyone will benefit. So intergenerational wealth is adding to the rich-poor gap.
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We know we don’t pay a fair price for energy. Energy companies are making a mint because they extract the energy without worrying about most of the externalities – like the impact they are having on the ecology of our planet. But what if they did pay a fair price? Could the economy survive? Phil Dobbie asks Steve Keen if we can fix our problems with the pricing mechanism if there was a way to accurately cost energy.
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There is about £2.5 - 3 trillion of assets in UK private pension schemes. Through the tax system we are heavily incentivised to put money into our pension plans. So, what’s wrong with that? That money is supposedly used to invest in businesses, so it helps the economy grow. If only. This week Steve Keen talks to Phil Dobbie about the orle pensions have had in the financialisaton of the economy. He believes a better state funded system would be a healthier approach, but don’t count on it happening anytime soon.
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Part of the problem with the global economy is that nobody has a plan, except perhaps the Chinese Communist Party. Elsewhere politicians lurch from one crisis to another, and any long-term planning is simply about how they can win the next election, and that often means kowtowing to the powerful, who well might be funding their election campaign. This week Steve talks through the work of Positive Money, who do have a plan about how to transform the economy, ignoring vested interests, throwing away trickle-down theory and building an economy dominated by a banking sector reliant on rising house prices. So they have a plan, but what do we do with it?
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Central banks seem to be in a rush to offer digital currencies, but why? Conspiracy theories point to China, and visions of private bank accounts monitored by the state to counter the hidden transactions of cryptocurrencies. But the proposition for crypto is very different. Central banks aren’t offering a new investment opportunity, they are talking about a transactional currency. But how does that differ to our sovereign currencies for which most money is stored in a digital form. The case for consumers is far from compelling, but Phil and Steve hit upon what could be the real motivation. You have to wait to the end of the podcast to get there.
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New Keynesian economists have accepted that their HANK model, which models the behaviour of one representative agent, doesn’t explain the outcomes on different income groups. As we know, the latest rate rises are having a more profound impact on income variation. Steve says their models don’t work because they don’t realise the distribution of income. The answer , according to the new Keynsians, is to assume a HANK model, which allows for heterogeneity, with different consumer groups behaving in different way, dependent on their income and wealth. Is this a step forward, or a band aid on a flawed concept?
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Reaching net zero – is it doable, or is it just a pipe dream? In podcasts recently Steve Keen has expressed thoughts that we are already too late to avoid catastrophic climate change. But this week, Harald Design, a scientist at Empa, the Swiss Federal Laboratories for Materials Science and Technology, gives a more positive spin on the outlook. He reckons, if we focused on the task, accepted there would have to be an increased usage in fossil fuels in the short term, we should be able to get to net zero in 5 to 10 years. Of course, anyone who has watched “Don’t Look Up” knows that scientists might have the answer, but it’s the politicians and media commentators who will stop it happening. And the economists, let’s not forget them.
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Nobody wins when rates rise. Central banks might argue that everybody wins, because they are using these rises as the blunt instrument to knock down inflation. But the wealthy lose out because asset prices take a hammering, and the working poor become of the unworking even-poorer as the economic slowdown leads to rising unemployment. But it’s clear those on lower incomes suffer the most. This week Phil asks Steve if there’s a way for central banks to reduce the inequality as they seek to tame inflation?
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There is nothing or contentious that immigration, it seems. In the UK there’s a swathe of the population that don’t like foreigners very much, unless they are serving than fish and chips in Torremolinos. Others will deny being xenophobic but argue that Britain is full and there’s no room for anybody else. A more rationale argument might be that too much immigration happening too quickly can have societal and economic impacts – but what is too much and too quickly? This week Phil Dobbie and Steve Keen wade into the immigration debate.
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Not so long ago the world was worried about deflation, supposedly driven by low-cost imports from China, but also a stagnating economy driven by high levels of private debt. Now central banks are trying their hardest to bring down inflation, fearing without their expertise it will spiral out of control. So, will it? What caused it? And can we live with it? This week Phil and Steve look at the pros and cons of inflation and discuss whether it is here to stay.
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Silicon Valley Bank collapsed last month because there was a run on the bank and they didn’t have the assets to cover their customers deposits. They were trading insolvent, in other words, even though they had switched the money deposited into US Treasuries, supposedly the safest investment on earth. But they bought before the price of Treasuries came crashing down, as bond yields went up. This week Phil asks Steve if bonds now behave just like shares, and how much of the recent volatility is the result of QE by central banks?
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After the Great Depression a bunch of economists got together to hatch a plan to stop future runs on banks. The plan called for banks to only accept demand deposits “subject to a 100% reserve requirement in in lawful money and/or deposits with the Reserve Banks”. Some read that as an end to fractional reserve banking but, as Steve Keen explains this week, fractional reserve banking doesn’t really exist because banks don’t lend out deposits. And whilst some good came out of the Chicago Plan, he reckons restricting a banks ability to create money would be bad news for the economy. And wouldn’t stop a bank run – as evidenced by the recent collapse of SVB in the US.
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If the west decouples itself from China and other autocratic regimes, just as we have done, to an extent with Russia, what does that mean for international trade? What does it mean for international investment if we exclude money from countries that are growing faster than we are? This week’s discussion follows a question from Pola, a listener, who asked, “Any chance you could talk about foreign debts and how this works? Also what impacts are likely to occur as BRICS etc move to payments in their own currencies instead of US dollars”. Or, perhaps, more poignantly, what would be the impact of a BRICs wide trading currency to challenge the dollar.
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The collapse of Silicon Valley Bank last week can be put down to two things – first a management team that clearly ignored the falling value of the assets they held, and second the fact that the Fed was doing its best to make those assets fall even more. The end result is hardly a surprise when you look at the numbers. In fact Frances Coppola predicted as much after the collapse of Silvergate Capital. This week Phil and Steve look at what went wrong and ask whether it could happen to other banks.
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At the end of this week’s mega-long episode of the Debunking Economics Podcast Steve Keen admits he longer sees Australian house prices as the most important issue on the planet. But it, along with private schools, continues to occupy dinner party conversations in many Australian households. So, with prices now falling, will they spiral down further as the RBA continues to lift interest rates. Or will they, as often seems to happen will they slow for a while than pick back up as inflation slows? This week Phil and Steve examine the growing wealth divide in Australia, driven by those who bought property early enough, and those who missed out and can’t get on the ladder.
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This week on Debunking Economics Phil and Steve are joined by Richard McGahey, author of a new book “Unequal Cities: Overcoming anti-urban bias to reduce inequality in the United States”. One of the problems the US faces is that cities, by and large, are self-funded, with little in the way of federal or state support, beyond minimal welfare programmes. And cities compete with each other to survive. As Steve points out, being self-sufficient within an organism is not how organisms function properly. But that’s how the American economy is structured. And Richard suggests that the US is losing out, because properly funded cities are the most productive aspects of an economy, provided the ills of city living, such as pollution, congestion and social inequality, are funded and managed.
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They are pushing up interest rates thew world over because monetary theory dictates that this is the way to bring down inflation. But not so long ago those same banks were arguing that inflation was only transitory and there was no need to lift rates. So, what changed? And why isn’t it working. Inflation is coming down very slowly and the wage pressures they seek to ease, by making people lose their jobs, isn’t working. The labour market is as tight as ever. This week Phil asks Steve what central banks are playing at, and, if they fail, will governments and the public start to lose faith in them and the policies these unelected representatives foist on us?
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The UK is gripped by strikes right now, but they are not the only ones. All over the world public and private sector workers are taking action as their salaries fail to keep up with inflation. Central banks are urging caution, fearing a wage spiral could push prices higher. This week Phil Dobbie and Steve Keen discuss the theory behind wage setting – a principle that someone sees chief executives earning a ridiculous multiple of the take-home pay of their workers. So, how are wages arrived at? One theory suggests it is the contribution they make to the profitability of a company, but Steve says its more to do with entrenched hierarchy.
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Over the weekend Liz Truss was singing her own praises, with a front-page article in the UK’s Sunday Telegraph. She is known, of course, for being the UK’s shortest-term Prime Minister after her plans for tax cuts (mainly for the wealthy) sent finance markets into a spin. In particular, bond prices collapsed and saw pension funds running low on collateral, forcing the Bank of England to step in. But was she wrong? Former Chancellor George Osborne said she made the mistake of cutting taxes without cutting spending. Does that make her the poster child of MMT supporters? She’d be horrified at the description, no doubt. This week Phil and Steve talk about what was good (if anything) and bad about Liz Truss’ economic plan.
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For most of us liquidity is an easy concept to understand. Have we got enough cash to pay our bills? For small businesses it is a simple case of managing your cashflow and ensuring your cash on hand exceeds your current liabilities. For banks it’s a mix of ensuring you have the capital to meet demands from depositors, as well as the reserves to meet interbank transfers. To ensure we have liquidity we ensure there is a buffer, to keep us out of trouble. But does that buffer keep us using money productively. Even though Paul Krugman is Steve Keen’s Professor Moriarty, can his babysitting voucher analogy help us to understand the impact of low levels of liquidity on a functioning economy where productivity capacity isn’t being fully utilised.
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It would be a bold prediction to say that capitalism is on the way out. Nor should it be. It has provided growth and innovation for the global economy, but has it become too laissez faire? Phil asks Steve whether we need to return to the mixed-economy many of us grew up with – when governments controlled large essential sectors, such as transport and utilities, and imposed tighter regulations on those sectors open to private sector involvement. Are we seeing how unfettered capitalism creates more problems, even before we consider the impact it is having on the consumption of the planet’s resources?
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Conventional economics is built around the idea of opportunity cost. If there is a limited resource a decision has to be made about how best to use it. How is that principle applied when you look at Modern Monetary Theory, when governments can create money without limits until you have reached a point of full employment. There is no need to look at one choice over another. Perhaps you can do both? So, what determines how money is spent? Are those spending decisions left in the hands of politicians? Steve Keen says, to start with, the theory of opportunity cost should be ditched because it only applies at a personal level. He explains why that is, but agrees with Phil that politics is the big stumbling block when it comes to the practical application of MMT.
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After a disastrous couple of years, can things get any worse in 2023? Steve Keen and Phil Dobbie look ahead and actually find some positive take-outs from the precarious situation we find ourselves in. Inflation will fall, that’s taken as read. Politics will shift to the left, that’s already happening. But our future is still left in the hands of politicians who have no idea how to steer us to a more positive future.
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Most people think economics can be summarised in just two words – supply and demand. Where they cross that determines price and as they move the price moves. But what if the supply curve is wrong, or meaningless. One of the first economists to question that was Piero Sraffa, an Italian economist who had grave misgivings about the law of diminishing returns. Steve Keen talks through Sraffa’s life and theories on this week’s Debunking Economics podcast.
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This week, another economist that has influenced Steve Keen’s thinking; the Austrian born economist Joseph Schumpeter. His economic thinking veers a long way from the traditional Austrian school. As Steve explains this week, Schumpeter argued that if an economy was always moving to or from a point of equilibrium, then it follows that the profit of companies will always be zero. Only through innovation will those businesses get ahead, with means money invested in older technologies will no longer be rewarded. This was Schumpeter’s argument for Creative Destruction, an idea so basic you wonder why nobody had made the observation before him.
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Bill Phillips, rightly or wrongly, has a lot to answer for, because his work is drawn on by central banks when trying to determine the likely rate of inflation. But are they misinterpreting his theories? This week Steve Keen explains why there’s more to the Phillips curve than most people understand. There’s also a lot behind the man, from life on a farm in New Zealand, to engineering a radio in secret in a Japanese Prisoner of War camp. Listen in to hear the story of the man behind the infamous Phillips curve.
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We continue our series looking at economists who influenced Steve Keens thinking. This week it’s American economists Richard Goodwin, who Steve says is the chief proponent of non-linear thinking in economics. He wrote Theories of Surplus Value, which was about business cycles happening without any exogenous shocks, from overaccumulation and overproduction His biggest weakness was that he didn’t accept the role of banks in money creation, as he highlighted in a letter to Steve in the 1990s.
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Irving Fisher was an American economist whose book The Purchasing Power of Money looked at the relationship between money supply and price levels. In fact, to many he is seen as the father of monetarism, but on this week’s podcast Steve Keen explains how Fisher’s struggles with debt led him to develop his thinking on debt deflation as the cause of major economic downturns. He’s the first of a series of economists who have influenced Steve’s thinking, that we’ll be looking at over the next five weeks or so.
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How widespread is the idea that one person's debt is another person's credit and therefore has no impact on the economy. What are the implications of this thinking and what changes when the realisation that the banking sector is also involved and so is is the relative velocity of money in different hands. If we accepted that debt and credit don't always can cancel each other out how would that change the approach of governments and the monetary policy of Central Banks?
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His answer to Great depression was that we should spend our way out. But now we have rampant inflation because people are spending too much. What would Keynes do now if he was presented with the challenge of trying to prevent the world from going into a global recession whilst also getting inflation under control? Steve and Phil look at the ideas of Keynes and ask would any of them help us in the situation we now find ourselves in.
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During the last big financial crisis there was a lot of talk about the work of Hyman Minsky. Even Janet Yellen, at the time the chair of the San Francisco Fed, said there were a lot of lessons in his work for central bankers. What did she mean? Or, as Steve Keen asks, has she actually read any of his work? This week Phil asks Steve what was the thinking behind Minsky’s Financial Instability Hypothesis. And what was a Minsky moment, and why are we so far from one right now?
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In a recent podcast Steve Keen claimed that the law of thermodynamics dictates that we can no longer extend economic growth whilst looking for efficiencies in our use of energy. This week Phil questions Steve more on this. After all, so much of the growth we have seen over the last 100 years has come from the way we harness energy and use it to better effect. Can’t we just keep doing that? And could we use economics to fix the problems it has created, by more accurtaelyt pricing the real cost of energy and pollution? Even if we could – and Steve says we are already consuming too much of the earth’s resources - the International Energy Agency reckons if we are to reach net zero by 2050, then energy efficiency needs to improve by 4% per year. We’re a long way from achieving that, so is it time for a reality check?
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Last week on the Debunking Economics podcast Phil and Steve talked about the likely imposition of Austerity 2.0 around the world, in particular in the UK. Steve said there’s really no need for it. This week he explains more about how cuts in the government deficit starves the private sector of cash, which will guarantee a recession, or worse. Listen in for an easy-to-follow explanation of how a government deficit increases money in circulation and how reducing that deficit shrinks the money supply. They talk about Wynne Godley’s explanation of sectoral balances, and how the interplay between government spending and private sector money is how the economy works now. The complicating factor, is foreign spending. What happens when government money finds itself overseas?
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With big-spending Boris gone, Britain’s new Prime Minister will almost certainly promote austerity 2.0, under the guise of fiscal conservatism. He won’t be alone in that, with governments the world over trying to reduce the deficit they incurred during the pandemic. But is austerity the way to help the economy back onto its feet? And do governments need to balance their books?
In August the UK government spent £10 billion than its income. Listen in to find out why you should be thinking of that as new money added to the UK’s £2.2 trillion economy, rather than an expense that has to be repaid. Slower spending by governments and fiscal tightening by central banks will shrink the money supply at a time when people are already struggling through lower real wages, higher inflation and cuts to public services. Are governments ready to hasten the downward spiral?
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Before her plans were ripped up, the UK’s newest Prime Minister was promising growth, growth, growth in an economy that has avoided it for a long time. And she was going to do it through that tried and tested method of trickle-down economics! Cut taxes for the rich and watch the economy grow. Sadly, we’ll never know whether it worked or not because the plans have been ditched and its back to higher taxes and less government spending. More austerity and low growth. But, Phil asks Steve, isn’t low growth what we need? If we want to save the planet surely we have to abandon the idea that each year we consume that little bit more? But how do you do that when entrepreneurs need the growth imperative to come up with those innovative ideas that improve our lives. Without the incentive for companies to grow wouldn’t we end up with a Soviet-style centrally planned economy, producing lots of stuff that nobody wants.
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We all know money has a value, but if you are borrowing it, it also has a cost. But aside from buying houses and a few other big items, we generally are more concerned with the value of the money we earn rather than the cost of the money we borrow. Today we look at the relationship between the cost and value of money, and ask whether the instability in interest rates is hindering our ability to plan for our future. What would happen if interest rates were fixed? And what about the rising cost of money, when governments need to spend more money to support us when times are tough – like now, for example?
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The world is living in fear of rising inflation. Central banks are trying to combat it by pushing up interest rates, which means people also now fear how much their mortgage is going to cost. So, are they making matters better or just adding to the problem? This week Phil Dobbie asks Steve Keen if inflation is as big a problem as central banks make out, and whether hiking interest rates will fix the problem this time round. And why a 2% inflation target. It’s the aim of most central banks to get inflation down to that level, but it sounds like it had a rather haphazard, unscientific origin. If they changed the target to, say, 4 percent, what would happen? More to the point, what would happen if these banks did nothing at all?
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Last week Kwasi Kwarteng, the new UK Chancellor, announced a cut in taxes at the same time that the government was stepping in to subsidise rising energy costs for homes and businesses. The cost of all this dwarfs the money spent on the furlough scheme. That means there’s a heap of government money being pushed into the public sector. Conventional economists, of the Friedman mould, would argue that we’re already seeing inflation driven by too much money, so what abut this next blast of government spending? Could it make inflation worse? And what about the repercussions on income disparity – from the budget and its unforeseen consequences. Hopefully someone in the Treasury is listening.
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Last week Kwasi Kwarteng, the new UK Chancellor, announced a cut in taxes at the same time that the government was stepping in to subsidise rising energy costs for homes and businesses. The cost of all this dwarfs the money spent on the furlough scheme. That means there’s a heap of government money being pushed into the public sector. Conventional economists, of the Friedman mould, would argue that we’re already seeing inflation driven by too much money, so what abut this next blast of government spending? Could it make inflation worse? And what about the repercussions on income disparity – from the budget and its unforeseen consequences. Hopefully someone in the Treasury is listening.
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Shadow Banks can take the blame for the 2007-8 financial crisis, packaging up mortgages and selling them as securities to investors. It seems like there’s no lack of imagination when it comes to how these companies find new ways of making money. This week Phil asks Steve if shadow banks are all bad, or is there some good? Do they, for example, create competition for established banks? Or are they simply a mechanism for operators to work outside banking regulations. Is there a need for more regulation of the shadow banking sector? And what is a shadow bank anyway?
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Shadow Banks can take the blame for the 2007-8 financial crisis, packaging up mortgages and selling them as securities to investors. It seems like there’s no lack of imagination when it comes to how these companies find new ways of making money. This week Phil asks Steve if shadow banks are all bad, or is there some good? Do they, for example, create competition for established banks? Or are they simply a mechanism for operators to work outside banking regulations. Is there a need for more regulation of the shadow banking sector? And what is a shadow bank anyway?
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It’s clear, when energy becomes short in supply, free market forces can’t look after all of society. Just the wealthy. That’s why governments are having to step in, propping up an industry that is raking in massive profits. But could free market forces drive a more efficient delivery of energy, by making lower cost renewable energy able to compete on a more level playing field. Whilst there’s no doubt pricing is distorted in favour of fossil fuel provides, Steve tells Phil there’s still no option but to nationalise the provision of energy, something we know will never happen.
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It’s clear, when energy becomes short in supply, free market forces can’t look after all of society. Just the wealthy. That’s why governments are having to step in, propping up an industry that is raking in massive profits. But could free market forces drive a more efficient delivery of energy, by making lower cost renewable energy able to compete on a more level playing field. Whilst there’s no doubt pricing is distorted in favour of fossil fuel provides, Steve tells Phil there’s still no option but to nationalise the provision of energy, something we know will never happen.
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Liz Truss, the UK’s latest Prime Minister, has vowed to review the mandate of the Bank of England (BoE). It’s unclear what outcome she wants, although Kwasi Kwarteng, who is likely to be the new Chancellor of the Exchequer, has suggested the BoE didn’t move fast enough to lift interest rates. Does that mean she wants more influence over the bank’s decision making? On this week’s podcast Phil Dobbie and Prof Steve Keen look at the approach taken by central banks this time round to reduce inflation and Phil asks Steve, if you were to change the function of central banks, what would you do?
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Liz Truss, the UK’s latest Prime Minister, has vowed to review the mandate of the Bank of England (BoE). It’s unclear what outcome she wants, although Kwasi Kwarteng, who is likely to be the new Chancellor of the Exchequer, has suggested the BoE didn’t move fast enough to lift interest rates. Does that mean she wants more influence over the bank’s decision making? On this week’s podcast Phil Dobbie and Prof Steve Keen look at the approach taken by central banks this time round to reduce inflation and Phil asks Steve, if you were to change the function of central banks, what would you do?
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Whilst the US might be struggling a bit with inflation, its nothing compared to what’s likely to happen in Europe. This week Russia shuts down its gas pipeline to Europe, supposedly for repairs, but there’s no guarantee it will open again. Even if it does, supplies are a fraction of what they were and Europe wants to stop its reliance on Russia anyway – pushing prices sky high, with rationing the only likely solution. Meanwhile, the Euro is weakening as the dollar goes from strength to strength, and that’s adding to Europe’s inflation pressures. And throw a drought on to of all of that, adding to the energy and supply problems. Plus a growing wealth divide. Is there any good news for Europe? Steve Keen reckons the only answer, sadly, is for Europe to give-in to Putin and make swathes of Ukraine the sacrificial lamb as the only way to avoid economic collapse. Even then, Europe has a number of inherent problems to overcome.
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It seems the whole approach to global trade is being redrawn. Donald Trump wanted to do less trade with China before the pandemic, and now with the Ukraine invasion the west wants to do less – preferably nothing - with Russia. Hardly surprising then that the BRICs nations (Brazil, Russia, India and China) are developing their own ecosystem that could see them trade less with the west, including developing their own trading currency to remove the reliance on the US dollar. Phil Dobbie talks to Steve Keen about the impact this would have on the West.
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It’s a question being asked more and more. How many of the things that we privatised should be brought back under state control, as energy companies record massive profits, yet those on low incomes are struggling to heat their homes? In the UK privatisation was rampant in the eighties, but were mistakes made? Steve Keen has a simple test as to whether some things are best managed by the public sector or the private sector? But what about public-private partnerships? Are they potentially the worst outcome of all?
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On the Why Curve podcast last week, Phil (and Roger Hearing) spoke to Daniel Gros, Director of the Centre for European Policy Studies, who argued that the gas crisis in Europe will be largely resolved by the pricing mechanism. High gas prices from Russia are making LNG imports feasible, because Europe will pay more than Asia for supplies. It won’t completely bridge the shortfall, he says, but if Europeans make a 15 percent cut in usage, then there will be no need to negotiate with Putin. This week on the Debunking Economics podcast Steve Keen argues that the pricing mechanism ignores the needs of the poor and has, for decades, favoured the rich. The fact that governments need to subsidise low-income households against rising fuel prices, whilst energy companies report record profits, demonstrates just how broken the pricing mechanism is.
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Central banks are pushing up interest rates to slow down the rate of inflation. The principle is simple. Supplies are constrained and demand is high, so we’re being charged more for practically everything. If we can slow demand then the demand-supply divide will narrow. But can you do that without throwing the world into a recession in the process? The US Federal Reserve seems to think so. They put out a paper last week, by Chris Waller and Andrew Figura, called ‘What does the Beveridge curve tell us about the likelihood of a soft landing?’ Today Phil Dobbie talks to Steve Keen about the argument that a soft-landing can be secured if there are fewer jobs being offered, not a reduction in the number of people employed.
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In the UK petrol cars emit 128g of CO2 per kilometre. In the US they drive bigger cars, for longer, so the carbon impact is that much greater. But cars, buses and motorcycles account for less than 10 percent of greenhouse gas emissions. Switching to electric could make a difference (unless of course the electricity is coal powered) but will it make a big enough difference, and are the objectives for Net Zero by 2050 really achievable? Phil Dobbie talks to Prof Steve Keen, and asks, are we lulling ourselves into a false sense of security when we think electric cars are a big part of the answer to climate change?
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As inflation grows around the world the US dollar enjoying multi-decade highs. To an extent, that’s helping mitigate the impact of inflation in the US by dampening the rising cost of imports. Most other places, though, are seeing the opposite happen. The rising dollar devalues local currencies making imports, including energy, more expensive, adding to inflation. This week Phil Dobbie talks to Prof Steve Keen about the impacts of exchange rates on international trade and how nations could be starting to challenge the US dominance in currency markets. As Pola, a Debunking Economics Podcast listener asks, what happens as BRICs nations (Brazil, Russia, India, China) move to payments in their own currencies instead of using the US dollar? Beyond that, what if they develop their own trading currency, similar to the Bancor proposed by Keynes back in the 1940s.
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When British Prime Minister Theresa May said there was no magic money tree she was wrong. There is, but you still have to look after it. What happens if you take the money off the tree too quickly, and give it to the wrong people? Is that what’s happened over the last two years? This week Phil Dobbie asks Steve Keen if there’s an optimum level of expansion to the money supply (through government spending) and how do we claw back from it if we have overspent?
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Inflation is rising everywhere as supply chains hit prices in the shops and at the fuel bowsers. Central banks are responding to this the only way they know how – by pushing up interest rates. Phil Dobbie asks Steve Keen what’s their rationale, when higher interest rates won’t fix the supply issues? Steve suggests there will be a rapid reversal in policy when the central banks realise the real damage they are doing to the economy. ‘There will be no soft landing’, he says. ‘There never is’. But what about taxation, asks Phil. Could demand be softened by taxing the high earners?
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When COVID has gone and the war is over, will we return to the patterns of international trade we were enjoying just a few years ago? Steve Keen says not, which puts him in the camp of anti-globalists that FT columnist Martin Wolf wrote about recently, in an article ‘The big mistakes of the anti-globalisers’. This week Phil puts some of Martin’s arguments to Steve, including the evidence that international trade has significantly boosted GDP globally and helped reduce extreme poverty. Won’t a more self-sufficient approach turn back the clock on both those achievements. Listen in for why Steve thinks times have changed for good, as we focus on sustainability over efficiency.
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When COVID has gone and the war is over, will we return to the patterns of international trade we were enjoying just a few years ago? Steve Keen says not, which puts him in the camp of anti-globalists that FT columnist Martin Wolf wrote about recently, in an article ‘The big mistakes of the anti-globalisers’. This week Phil puts some of Martin’s arguments to Steve, including the evidence that international trade has significantly boosted GDP globally and helped reduce extreme poverty. Won’t a more self-sufficient approach turn back the clock on both those achievements. Listen in for why Steve thinks times have changed for good, as we focus on sustainability over efficiency.
Conspiracy theorists are out there claiming that unelected representatives are holding power, using technology to control our behaviour. China has tried a bit of this social engineering, but there are those who believe its far broader than that. They also reckon the drive for us to not use cash is part of the agenda, so ‘they’ can track our behaviour. That’s why central banks (who are unelected representatives who control our behaviour) want to move to a digital currency and are against cryptocurrencies that they can’t control. This week Phil Dobbie asks Prof Steve Keen if there is any potential for truth behind this fearmongering. Maybe we could all do with a bit of control!
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Central banks the world over are busy lifting interest rates and, at the same time, engaging in quantitative tightening. In other words, all those bonds they bought up, will progressively be sold back to the commercial banks they were bought from. As those central bank balance sheets start to fall, what impact does it have on the economy? Does it mean we’ll see a shrinking of the money supply. That’s the commonly held belief, but, in reality the shift will have little impact, except for making banks slightly better off. The bigger concern is when they sell off corporate bonds, as Prof Steve keen explains to Phil Dobbie in this week’s podcast.
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The Tragedy of the Commons is a concept developed by William Forster Lloyd one hundred and fifty years ago. The argument is that if you allowed everybody to graze their cattle on common ground, with nobody in charge, the land would be overgrazed and the individual pursuits of many will result in destruction for all. So, do you put someone in charge, who imposes regulations on everyone. Or do you go the way of the free marketeers, who would argue that someone owns the land and rent sit out, with a vested interest in maintaining the long-term viability. Is there a definitive answer and how can we apply the Tragedy of the Commons to capitalism today? Phil Dobbie talks to Prof Steve Keen.
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Central bankers and economists have often used the Phillips curve to determine the path of inflation. The problem is, they often get it wrong. No wonder then, that they question its validity when it doesn’t work the way it should. Call it operator error. On today’s podcast with Phil Dobbie, Steve Keen explains how most miss the dynamic aspects of Phillips’ observations – it’s the speed of change that counts, not a snapshot of employment levels at any particular time. Her also considered the changes in the price of inputs. On that basis, with unemployment rapidly falling and the price of imports rapidly rising, the Phillip’s curve has never been more relevant. So, does it tell us what happens next?
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Stagflation is that worrying combination of rises prices in a stagnant economy. Central banks believe the answer is to push up interest rates, to magically reduce inflation and miraculously demand returns to normal. There’s a debate as to whether that can be done without kickstarting a recession. Some argue that might be the poison pill we have to take – pointing to when Paul Volcker at the US Federal Reserve pushed interest rates as high as 21.5% , leading to recession, but ultimately seeing economic growth return. Steve Keen says this time, it’s different. And we can’t assume the inflation cycle is as transient as many politicians, economists and central bankers believe.
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BP made $12.8 billion profit last year, $4.1 billion on that in the fourth quarter. In the first three months of this year Shell’s profits reached $9.1 billion. Meanwhile pensioners and low-income families are struggling to keep their houses warm, as high energy prices add to the inflation squeeze being felt with food and other household essentials. Phil Dobbie asks Prof Steve Keen whether this all points to the need for a windfall tax on energy companies who are enjoying massive profits through no-action on their part. And should it be a one-off initiative, or is this time to rethink how we tax these companies in a way that will engender investment in renewables?
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The supply chain disruption from COVID, and the imperialist ambitions of Vladimir Putin have demonstrated, more than ever, the need for nations – or at least neighbouring groups of friendly nations – to be self sufficient in food and energy. Will we find the world returning to a spit between the West, autocracies and developing nations? Can each group survive without the others? Prof Steve Keen tells Phil Dobbie that we will still be reliant on autocratic regimes for mineral resources, and the world really needs to come together to tackle climate change. Even if that’s a pipedream we at last need a plan for how we manage the world’s resources and ensure we have a reliable source of food and energy, without kowtowing to despotic regimes.
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Property expert Russell Quirk maintains that housing will always be a good investment and prices will, in the long run, always go up. Perhaps this year inflation will rise faster, so in real terms prices may dip, but in the long run, he reckons, the direction will always be north. Prof Steve Keen on the other hand, maintains that, at some point, things will rapidly head south. Why? Because banks are offering loans through the creation of new money, which makes it easier for them to meet consumer demand, irrespective of how realistic house prices are. And they get locked into a feedback loop, where valuations are based on previous valuations. Your house is worth more because all the other houses around you are worth more. This, recons Steve, will come unstuck, possibly in a big way. He says we don’t accept it because it’s not happened in recent history. Just as we didn’t expect a pandemic because we hadn’t seen one like it for 100 years.
The UK the Chancellor’s wife Akshata Murty was in the news a couple of weeks ago when it was revealed that she was claiming non-domicile status in the UK, so most of her income from her shareholding in dad’s company in India could be taxed over there at a much lower rate. The issue for many was that she wasn’t paying her fair share of tax. But does her wealth present a bigger problem. This week Phil Dobbie asks Prof Steve Keen whether Akshata Murty is an example of the rentier class, who make money from having money. And does that necessarily mean the money is used less well than if it was in the hands of good old-fashioned capitalists? Or is it all just a bit of jealousy, because we don’t have wealthy parents?
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Economists like to think that there’s an equilibrium that the economy is either briefly moving away from or heading back to, and it’s all explained in those simple models we did at school. Those were mostly microeconomic models, of course, that are somehow magically interpreted at the mac level. Or there are more complex mathematical models that reflect only a tiny slice of the bigger picture. But didn’t Sonnenschein–Mantel–Debreu theorem debunk that? This week Prof Steve Keen tells Phil Dobbie that even their work ignored a fundamental feedback loop which clearly demonstrates that equilibrium is fantasy land.
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The inflation genie is out of the bottle. Can we get it back in there before it does too much damage? Central banks are trying to tackle it by racing each other to put up interest rates, possibly to levels we haven’t seen in years, despite the fact we’re all leveraged to the hilt with our mortgages. Can that be done without causing a recession? More to the point, does monetary policy actually do what central bankers think it will? On this week’s Debunking Economics podcast Steve Keen tells Phil Dobbie that its up to governments, not banks, to bring inflation down. Instead, it seems, everyone is doing exactly the wrong thing!
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Energy prices are going through the roof. They were before Ukraine erupted, but with Russia the world’s second biggest producer of natural gas, and Iran in third place, it seems we are destined to get our gas from trouble spots, and pay for the price for it. But Steve Keen says we have to get used to the idea that resources are no longer plentiful and rising prices from scarcity are becoming a fact of life. Phil Dobbie asks if there is anything that can be done to prevent an energy crisis akin to what we experienced in the seventies. The difference then, of course, that the issue was relatively short term. Now, its part of a major transition, escalated by COVID and geopolitics.
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The EU has talked about issuing new bonds to protect its eastern borders against Russia and to prepare Europe for a future without reliance on Russian oil and gas. Normally bonds are issued by individual countries. If the ECB felt the need to intervene it would buy up those bonds, normally proportional to the size of the member countries. Even during the pandemic, their pandemic emergency purchase program saw them buying up sovereign bonds from member countries. Could this time be different?
Is there a Europe wide need that could see the EU operating a centralised budget to, for example, fund a European army? Well, they have already started down that track with the issuance of green bonds this year. How does it work? How does it create a budget through debt issuance, and see that money move to suppliers in individual European nations? The answer is, its complicated but not insurmountable. The question is, is a centralised EU budget, supplementing each countries own budgets, a good thing or a bad thing?
Phil Dobbie talks to Prof Steve Keen about what could be a new direction for the EU, where it wields money for pan-European spending projects.
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The war in Ukraine looks set to continue for a long time. A 90 minute high-level meeting between the two parties, mediated in Turkey, got nowhere today. Meanwhile, the west is imposing more and more sanctions on Russia. Putin spoke calmy at a press conference today about how they will manage these increasing constraints on trade and finance, making out it wasn’t really a big deal. So will they make their way through it, or will these sanctions be the nail in the coffin for Putin’s plan? Or will they just make him more resolute? Will he start to attract the support from his people that Hitler gathered between the two world wars? Phil Dobbie talks to Prof Steve Keen, asking whether we are taking the right approach on this. Whatever the outcome, Steve reckons we should prepare for more unrest in the future, as demand for minerals heightens and the world is split between those with them, and those without them. Could this resource split and an increasing sense of protectionism become a deadly combination?
Most people agree that Rishi Sunak is crazy to introduce new taxes on the British public when inflation is compromising living standards and the Bank of England is lifting rates and pushing up the cost of mortgages. Now a war in Europe is pushing the cost of fuel ever higher. But the Chancellors argument is that the government has to pay back the money it borrowed during the pandemic. If it did, it would take decades. But, as Steve Keen explains in this week’s podcast, Modern Monetary Theory suggests the money doesn’t need to be paid back, and tax is really on a mechanism for controlling the money supply. Phil Dobbie looks at some of the crazy taxes that have been introduced, many to do with changing behaviour or distributing wealth. Both noble aims, but the execution might have left something to be desired.
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It seems Putin will not be satisfied until he has a puppet leader installed in Ukraine to replace what he’s called their Nazi leader – he’s Jewish by the way. This week Phil Dobbie talks to Steve Keen about Russia’s motivations for the invasion. None of them justify the action, but a bit of history helps explain the animosity between the east and the west. Meanwhile, the approach of sanctions will hurt countries depend on Russian resources, and will they have any impact on the crazed Russian leader?
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A society riddled with debt is a society that is reluctant or unable to spend. A lot of that debt has now found its way into housing, with mortgages higher than ever. That’s money we’re using to pay off our home loan that we could be spending keeping the economy moving. In short, its slowing the speed at which money circulates. So, how do we fix it? The answer is get rid of the debt. And Steve Keen has a cunning plan. A monetary reset. How would it work? Phil Dobbie explores the idea in detail with Steve on today’s Debunking Economics podcast.
Last year Andrew Bailey, the Bank of England Governor, spoke optimistically about how the UK economy would bounce back because so many people had stashed away money in their savings accounts. But, at the same time, we also saw rising levels of debt. This week, Phil Dobbie asks Steve Keen how you can have rising savings and debt at the same time. If you have spare cash sitting in your bank account, wouldn’t you use it to pay off your debts. The fact that people are not doing that tells us something about the state of the economy. And where did all these extra savings come from anyway? And why did they never materialise into a massive spending splurge like the Governor had predicted?
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House prices in Australia continue to rise. According to Domain’s House Price Index, prices in Sydney have risen by a third in the last year, to a median value of $1.6 million. Housing affordability has never been a bigger issue, but how do you bring prices down when two thirds of the population are owner occupiers. That’s a question Phil Dobbie puts to Steve Keen, as he explains his two-pronged approach to containing house prices – first, limiting the value of loans to a multiple of the rental value of a property and, secondly, a big reset, which sees debt repaid and bonds issued to those who don’t currently own a property. Would it work, and could it be explained in a way that the voting population will understand?
Central banks control the interest rate through the decisions of their various monetary committees. Almost all of them are set to raise rates multiple times this year. But what do they basis this decision on? These days it is related to the rate of inflation, but to what extent is that driven by the amount of money in circulation. Can the central bank control both? And what about the velocity of money? All questions Phil Dobbie puts to Steve Keen in this week’s Debunking Economics podcast, along with the question, what if we didn’t change interest rates at all?
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One of the surprises as we emerge from the worst of COVIS (hopefully) is wjaty’s being called the Great Resignation. Even though employment levels in most countries remain below pre-pandemic levels, that’s not stopping those who hung onto their jobs through the crisis from leaving in their droves. So, what’s driving this trend. Prof Steve Keen suggests it’s a “kick in the balls to the gig economy”. But what happens next? Already central banks are lifting interest rates, fearful of rising wages pushing inflation higher. How is that going to work out. Tune in to this free half-hour podcast as Phil Dobbie talks to Steve about what’s driving this dramatic shift in the labour market.
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Even the most ardent supporters of small government will agree there are times when governments need to offer subsidies to companies and industries. Paying for the furloughing of workers during the pandemic was one unavoidable example. But are their times when subsidies can distort the economy in unforeseen ways. The support for the food industry that promotes livestock over plant-based diets is a prime example. This week Phil Dobbie asks Prof Steve Keen whether there a better way of supporting industries without complex subsidies?
Around the world we have seen the size of the money supply increasing considerably over recent decades, but none more so than the last couple of years, as governments spend like crazy to support people during lockdowns and illness. In the UK the amount of money in circulation has increased by almost £200 billion. Phil Dobbie asks Steve Keen if there are consequences of growing the monetary base so quickly, and what’s the role of the central banks in controlling this supply?
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There are a lot of people questioning the direction of conventional economics, yet, even after the biggest spending splurges ever made by governments outside wartime, there is still a lot of talk about fiscal conservatism, paying back the debt and balancing the budget. But contrarian voices question whether that is the best way forward, whilst others are seeing an end to fiat money and are buying into alternatives, like Bitcoin. In this free half hour podcast Phil Dobbie and Steve Keen look at those questioning the way our economies run and the contrarians who believe there’s a better way; contrarians who don’t agree with each other.
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Is a negative trade balance such a bad thing? Some countries with a bit deficit seem to be doing okay, like American, even the UK to an extent, whereas others, like Japan have a trade surplus and a economy on the road to nowhere. This week Phil Dobbie and Steve Keen discuss how important is a trade balance for the overall good of an economy. And what about jobs? Donald Trump was concerned his trade deficit was giving away jobs to China. Was he right about that? And what about the strange suggestion from Modern Monetary Theorists that exports are bad, imports are good for an economy?
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Economics works so well because we al have perfect information about everything, all the time. Right? We choose products at the best price because we know all about all products and their prices, so we can make the best choice. That means we can all pursue our own self-interests to provide the most efficient outcome for any situation. Huh? This week Phil Dobbie talks to Steve Keen about the myth of perfect information and the equally as convoluted theories around asymmetric information. But are we getting closer to this supposed information utopia, thanks to the internet? Or is it the supplier who is gathering perfect information, about us?
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If capitalism is driving everyone to make a profit – and we all save a bit of that profit and therefore accumulate more wealth, does that mean everyone can be better off, if we all run profitable businesses? Does that mean Boris Johnson’s idea of levelling up is a good one? Or is there a constraint on how much wealth there is. Today on the Debunking Economics podcast Steve Keen explains to Phil Dobbie the difference between stocks and flows. Profits are flows, whereas accumulated wealth is a stock. He shows how everyone cold theoretically create a profit, but if you increase your wealth you are doing so at the expense of someone else. Once again, it’s easier to explain if you understand double entry bookkeeping.
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During his Tory Party conference speech, Boris Johnson said that he remembers something about Wilfredo Pareto, in the “cobwedded attic of (his) memories”. In his mind, Pareto was all about levelling up – that you can improve the lot of some of society without anyone else losing out. But Pareto is most famous for the 80:20 rule – at the time he observed that 80 percent of land in Italy was owned by 20 percent of the population. It’d be worse than that today. For example, in England half of all land is owned by less than one percent of the population. So, can you really expect to be able to improve the wealth of everyone? If the poor suddenly get rich, won’t they demand the swathes of land that is the domain of the uber-wealthy? Plus, doesn’t climate change place a ceiling on growth that puts paid to Jonson’s ambitions. Phil Dobbie talks to Prof Steve Keen, and asks whether levelling up is a vain hope, and whether Pareto ever argued the case in the first place.
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Donald Trump believed that China was manipulating its currency to get an unfair advantage against the US. This week Professor Steve Keen explains why manipulating currencies isn’t that easy – and the US will always be at a disadvantage when it comes to competing for international trade. He talks with Phil Dobbie about why countries moved to floating exchange rates, and how the system would have worked better if people had listened to Keynes. Meanwhile, it’s helped create an industry that transacts almost $2.5 quadrillion each year!
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The world’s leaders are getting together in the UK at the end of this month to discuss how to tackle climate change. Meanwhile, fuel prices are rising higher and higher, and increasing talk of inflation. Prices are rising because, quite simply, demand is rising but supply is still constrained. Gas supplies in Europe are dependent on Russia and renewable energy has been held back by low winds and other weather-related influences. Now, to meet demand, countries are stepping up their use of fossil fuels. Energy supplies “at any costs” has been the approach in China. Phil Dobbie asks Steve Keen whether we’ll ever reach renewable targets whilst the energy industry is in private hands. In the UK how much of the problem we now face is the result of Thatcher-era philosophies that believed competition would yield greater amounts of lower priced energy?
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Governments have been spending their way through the pandemic, so what happens to that money? Regular listeners will understand how this spending gets added to the money supply, but then what? Steve Keen looks at the impact of government spending on the private sector, and Phil Dobbie asks if this is a prime example of modern monetary theory in action? Could the COVID years be used as the case study of how MMT works? There’s also some discussion on whether government handouts, like furlough payments, were the best approach. Would tax cuts have had the same impact? And what’s the relationship between an increase in the supply of money and the velocity of that money? If the government is injecting cash but we’re not spending it, is it really having the impact governments had hoped for?
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Steve Keen is a man of many surprises. His latest is that he is going to stand for the Senate in New South Wales. He’s packing his bags and heading back to Australia, for an election that will be held early next year. He’ll be one of six senate candidates in NSW for the New Liberals. So, is this a good move? From an academic to a politician, from developing and challenging theories to creating soundbites for TV? Phil Dobbie asks why he is making the move, what are his chances and what does the New Liberal party stand for. And could this spell the end of our weekly podcasts?
COVID is causing supply disruptions the world over, evidenced by disruptions to supply chains and rising producer prices and consumer prices. Central banks are quick to suggest this is a temporary measure, and inflation will start to fall as quickly as it rose. And yet, they are also making noises about raising interest rates, as a way of controlling inflation. Last week the Bank of England was hinting that could happen sooner, rather than later, even as they implement quantitative easing. Phil Dobbie asks Prof Steve Keen whether there’s any merit in lifting rates in an economy struggling to recover. And what if inflation is here to stay? What policy can work for an economy where supply falls well short of demand and prices rise beyond the means of many lower paid workers?
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Central banks around the world are at different stages of how they supposedly deal with the COVId-19 crisis. Most are implementing some form of QE, but many are now reducing their purchases, and some are even lifting interest rates. How can they all have a different monetary approach to dealing with the same crisis? And can any claim to have been operating independently, buying up the increasing amount of debt issued by their respective governments? With the big four central banks (the BoE, the ECB, the Fed and the BoJ) having amassed $24.5 trillion in government bonds, does anybody really expect they will ever get their balance sheets back down to zero? If not, have they really embarked on MMT but are afraid to admit it? Phil Dobbie talks to Prof Steve Keen.
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Whilst the UK still lumbers under high COVID infection rates, and the economic recovery stalls, with GDP growth now at a trickle, the government wants to raise taxes. Even if you believed it was a fair tax, is next April – when the rise kicks in – the time to be taking spending money out of people’s pockets. But, as Phil Dobbie discusses with Prof Steve Keen, this is far from a fair tax. Those earning over £50,000 per year will pay disproportionately less than those on lower incomes. The money will help to fund the health care sector which is predominantly serviced by for-profit companies, some of whom are paying their senior staff very handsome salaries. We’re told we can expect more tax rises soon as the Tory government scrambles to reduce its debt burden. All of this ignores, of course, the ideas of Modern Monetary Theory (MMT) that suggests governments can overspend if the excess money is used to create jobs. Even if you ignored MMT, doesn’t the issue of caring for the elderly, raise the obvious question about inheritance tax. Isn’t it time to tackle Britain’s problem of hereditary wealth?
There’s a lot happening with China right now. First, they are extending their social and commercial controls, which is adding uncertainty to foreign investors looking to get involved with Chinese firms. Maybe the Communist Party likes it that way. There’s also the risk that a more cocooned China could play a stronger military role in the Asia Pacific region. Then there’s the ever-expanding debt – private and government. Hilliard MacBeth, a Debunking Economics listener asks whether private sector debt, in particular, will create a problem.
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Following on from a fortnight ago, what happens as resources start to become scarce? We’re already seeing the short-term impact of supply chain disruption because of COVID, but what when this becomes more common, and we have to get used to the idea of not always getting what we want? Prof Steve Keen suggests that rationing of goods might be the only way forward, but Phil Dobbie asks whether a shift to a more localised service-oriented economy might cut our demand for resources, particularly if the prices become prohibitively expensive.
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More students than ever are off to university next month because of the A level grade inflation, accentuated by teacher assessments replacing exam results because of COVID. How useful is it to society to have more and more people studying at university? Is it adding to the GDP of the country? In today’s podcast Steve Keen suggests that we are devaluing a university education, which helps nobody. He explains why. And Phil Dobbie suggests, for those who don’t reach university standards – or who simply don’t want to go – could another two years of A levels be the answer?
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We’ve talked about the climate change crisis on the Debunking Economics podcast, but there’s a broader issue we all face, highlighted in the Club of Rome back in 1972. We are chewing up resources faster than they can be renewed or sourced. It’s not just oil, but iron ore for steel production and previous metals used in microprocessors. Simon Michaux, associate professor at the Geological Survey of Finland, joins Phil Dobbie and Steve Keen to talk through the scale of the issue and how it’s already impacting the economy.
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Many governments have done an excellent job at propping up businesses during the pandemic. For example, paying companies to furlough workers will, in theory, enable those businesses to quickly bounce back, with a workforce ready to go. But what if the pandemic drags on for years to come? Already governments are talking about how they will claw back the massive increase in government spending. And, whilst large corporations might have the cash to survive, perhaps after a little restructuring, small businesses have the most to lose. They have also borrowed the most. So how does the global economy come back from this? Prof Steve Keen tells Phil Dobbie that it’s a shame this hasn’t been seen as an opportunity to embrace modern monetary theory. But it’s been shunned by governments and central banks who prefer the old way of doing things, which will be highly detrimental to all of us, but particularly those most in need.
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Karl Marx never advocated violent revolution, but he did expect that the power balance between capitalists and workers would change. On today’s podcast Steve Keen tells Phil Dobbie that Marx wrongly expected that profits would ultimately shrink, so workers would be fighting for a slice of a shrinking pie. That’s not happened. Perhaps the main reason we’ve avoided a violent revolution is because the poor have become richer, just not as much as the very rich. It could be a different story soon though, if the pie starts shrinking.
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Steve Keen has often said, the problem with economics in, it ignores thermodynamics. That’s not always been the case. Georgescu-Roegen, a Romanian economist, wrote The Entropy Law and the Economic Process in 1971, which embraced the orle of energy and waste in economics. But we’ve taken backward steps since then. This week Phil Dobbie asks Steve Keen to explain what thermodynamics is and why it is critical to the forward direction for economics. Without it, can we really save the planet?
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Even the most ardent free marketeer accepts that there is some degree of subsidy needed to support low income earners or necessary industries that are not commercially viable. This has particularly been the case through the pandemic. But what’s the best way of applying these subsidies? If you pay directly to companies will you be inhibiting efficiencies and competition. If you pay directly to consumers how do you know they will spend the as you intended? Should governments be offering payments to individuals that can only be spent in a particular way? And how do you avoid political motivation behind the issuing of subsidies. This week the government published the UK Subsidy Control Bill, which sets out the rules that apply to local authorities and national governments, but not the UK government. To no media scrutiny whatsoever.
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From day one economics students are taught that their discipline is all about the optimal allocation of resources. The concept of scarcity is at the very heart of how we are supposed to think. And yet, as Prof Steve Ken explains this week, that scarcity doesn’t really exist. There’s plenty of people available to do jobs, there’s masses of untapped energy potential from the sun. This challenges the idea of opportunity cost – why do A or B when you can do A and B? Ironically, the one recource which is scarce, the environment, is the one element that economics has traditionally blithely ignored. So, if its not to do with managing the allocation of scarce resources, what should be the real definition of economics? Phil Dobbie suggests one – perhaps you can do better.
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Canada and the west coast of the US have been hit with extreme heat the last week. The town of Lytton in British Columbia reached 49.5C, the result of a heat dome caused by static high-pressure. It’s another reminder that the world has to act on climate change. This week the ECB’s Christine Lagarde talked about how the EU needs to see around €330 billion every year by 2030 to achieve Europe's climate and energy target. Couldn’t they just issue this as bonds, in the same way they have with the Pandemic Emergency Purchase Programme? And what about Rishi Sunak’s plan in the UK to issue green bonds for regular households to invest in? Will either of these proposals create new money, or simply redirect spending away from other non-green initiatives. Be prepared for another discussion between Phil Dobbie and Steve Keen on when money is actually created and whether some of the proposals could actually destroy money, hindering our efforts to tackle climate change.
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Businesses and politicians have worked tirelessly to reduce the power of workers and dissemble unions. Of course, nobody was better at it than Margaret Thatcher. But has she, and all those did their damnedest to reduce the power of unions, actually done the country a disservice? Do economies function better with strong unions? Are they the necessary counter to a system that allows companies and financiers to push wages down to the lowest possible level leading to slow economic growth? Questions Phil Dobbie puts to Steve Keen in this week’s Debunking Economics podcast.
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Boris Johnson has enjoyed photo opportunities this week with Australian Prime Minister Scott Morrison with the announcement of an ‘in-principle’ free trade agreement between the two countries. It’s the first new one for the UK outside those that already existed through the EU. Great news for biscuit eaters, because Tim Tams are so much better than Penguins. But it’s seen as bad news by UK farmers who adhere to standards that don’t exist in the UK. Like hormone fed beef. So, is it a bad deal? And what about the idea for free trade generally. The argument since Ricardo’s day was that for agricultural it removes the constraint of land and, therefore, the law of diminishing marginal return. That should make goods cheaper, even those made here. Is the theory right?
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The world is fixated with the present. We want to earn money quickly and spend it quickly. CEOs don’t care about much beyond their stock options, politicians only work to getting re-elected, consumers want instant gratification. It’s no wonder then that we’re not prepared to make compromises for long term consequences, like climate change, because the economic system we use has no way of managing our investment in the future. Is there a better way of managing the economy, in a way that ensures we look after the planet and provides for you in your old age?
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Today on the podcast Phil Dobbie talks to Steve Keen about the value of things. Supposedly, price is a substitute for value, meaning if someone is prepared to pay more for something then they must value it more. But as they discuss, that only applies if everyone has the same amount of money. A poor household will place greater value, as a proportion of their wealth, on heating their home. A rich household will see extra use of that same resources as a discretionary item that they place little value on, particularly relative to their income. So, is the concept of value another broken element of a modern capitalist economy, and is there a way to allocate resources more effectively? We know, from the Soviet experience, that getting the state to do it creates even worse results.
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US inflation is now running at 4.2% on an annual basis, and producer prices the world over have been rising as input costs for product creep up. How much of this will be passed on to the consumer as companies struggle to absorb these costs – and what impact will these higher prices have on demand? Central banks are all toeing the same line, that rising inflation is only transitory, driven by supply chain disruption, so there’s n o need for them to respond by pushing up interest rates anytime soon. But will prices bounce back? In this week’s podcast Prof Steve Keen tells Phil Dobbie that the bigger concern, post-COVID, is going to be deflation. Listen in to find out why.
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This pandemic has been massive amounts spent by governments, and a chunk of that government debt is being bought by central banks. But with central banks buying up government bonds, whilst maintaining low interest rates, who is really benefiting? The answer, of course, is the wealthy. This week Steve Keen explains why the current situation is widening inequality, with the central banks at the front and centre of tis change. But government policy is helping too, in the wrong direction. So, is there any way out of this. Or has COVID-19 simply amplified a trend that was already upon us?
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There seems to be an assumption by many that the crisis we have experienced will quickly bounce back. Output will resume, demand will return, everyone will be back in work and the economy will rapidly expand back to where it was before COVID. Central banks appoint to supply chain disruption in the short term that might create transit inflation, but that’s the only obstacle to the road to recovery. Except, it’s not really working that way. There are forecasts for massive growth this year, but there’s not a lot of data to support these predictions. The US jobs recovery, for example, that was expected to see one million new jobs a month, has slowed right down. And yet the IMF expects the economy to grow by 6.4 percent this year, even though more than eight million Americans who had a job before the pandemic are still looking for work. So, what’s the best approach out of the crisis? What should Treasurers and policy makers the world over be focused on. A question Phil Dobbie puts to Steve Keen in this latest Debunking Economics podcast.
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There’s one clear difference between this recession and almost all those that have gone before. This time there was a pandemic involved, which hit demand and supply equally. So are there any similarities between this global recession and those that have gone before. Phil Dobbie puts the question to Steve Ken in this latest Debunking Economics podcast.
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40 world leaders go together virtually this week, for a bit of an impromptu climate summit called by Joe Biden, before the next big climate conference (COP26) in Glasgow in November. In this edition of the Debunking Economics podcast, Phil Dobbie asks Steve Keen whether Bill Gatesd has the right approach. He advocates removing the green premium. His argument is, we don’t choose zero carbon emissions products because they are more expensive. If you remove this premium, then everyone will buy zero emission products and the problem will go away. Too simplistic?
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Janet Yellen has repeatedly called for countries to raise their corporate taxes, so they are in-line with the increases she has planned for the US. There’s also been a call for companies to be taxed where they earn their revenue, rather than declaring profits in countries where tax is lowest. Her reasoning is transparent, of course. She wants to raise corporate taxes in the US and doesn’t want countries to move overseas, or shift their profits out of America. Is it a good idea? Prof Steve Keen likes the idea of a coordinated approach to tax, but can’t see it happening in reality. And can you do it for corporate tax without considering other measures? Like income tax, for example. And the moment you look at a coordinated fiscal approach to that extent aren’t you are stepping dangerously close to world government?
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You might have thought that digital currencies were the domain of cryptocurrency evangelists, and were largely stores of wealth rather than money used for transactions. Now, it seems, central banks everywhere are investigating digital currencies as part of their modus operandi. Most money in central banks is digital, of course, so when they discuss digital money what exactly are they talking about? This week Phil Dobbier talks to Prof Steve Keen about why central banks are looking more closely at digital currencies, some of it good, some of it a little more sinister.
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Last week we looked at how economics text books that taught us the law of demand, and how fundamentally flawed it was. Today, equally as useless, the law of supply, with the supply curve representing the marginal cost of producing goods. Steve explains how its is flawed because of the assumption that as you produce more of something the cost of production rises. Phil asks, how does that relate to the idea of economies of scale? Is conventional economic theory arguing against itself?
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Steve Keen believes the way we look at economics is wrong from the ground up. Take the demand curve, for example. It shows how, when prices fall demand goes up, and vice versa. Whilst it works at an individual level, but attempts by theoreticians to demonstrate that this works at the aggregate level have all failed. In this episode we look at the Sonnerschein-Mantel-Debreu theorem, which looks at how price changes of one good will impact your consumption of that good and all others. The big failing, says Steve, is that they ignore the relationship between workers, capitalist and bankers. In this podcast we explain how the income distribution effect makes the demand curve much more complicated than the neoclassical economists would let on., to the point where the theory at its simplest level is worthless.
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Post Brexit we were promised a global Britain. It’s got off to a bad start with a massive fall in exports to the EU in the first month of this new utopia. Meanwhile, there seems to be a lot of talk about Britain accepting inward investment, in particular encouraging foreign firms to list on the London stock exchange. This week Phil Dobbie discusses the various types of foreign trade, from inward to outward FDIs, corporate takeovers and UK share listings by foreign firms. Will any of these benefit the UK, and does the government actually have a plan?
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The UK chose to respond to a global pandemic by reducing the amount of money given in foreign aid. Yet COVID-19 is attacking every country in the world. So is climate change. And there will be other viruses to come. For example, Ebola is reported to be out of control in West Africa right now. It is not as infectious as COVID-19, but its fatality rate is way higher (maybe as much as 50 percent). So, how does the west protect the developing world, and itself, through mass vaccinations. Can it fund the vaccines with money it creates. Could we adopt an approach where the pound, the dollar and the Euro fund local production facilities in developing nations, just as the Chinese Yuan is funding belt and road initiatives in many countries. Never before has there been a need for such global cooperation, but how do we fund it?
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The UK won’t see an end to lockdown measures until July, but after that the hope of many is that the economy will bounce back quickly. The Bank of England governor has called it a coiled spring. Many are comparing it to the roaring twenties. Part of the reason for this optimism is the argument that many people in the country have saved money during the lockdown, because they haven’t been able to spend on shopping or on overseas holidays. The household savings ratio increased significantly last year. But the figures are misleading, says Prof Steve Keen, on this week’s Debunking Economics podcast. National account figures ignore the servicing of debt, so the gap between income and consumption appears greater than it is in reality. If there was an increase in household savings you’d expect a decrease in the amount of household debt – but that’s not happening, says Steve. There’s a danger that the UK government will assume a rapid recovery, and pull back on stimulus measures that we’ll discover are needed further down the track. All because they ignored the impact of debt.
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Australians can no longer turn to Facebook for news. From today they have banned Aussies from posting links to news sites on their platform, or for Facebook users anywhere linking to Australian news content. Australian treasurer Josh Frydenberg says these actions demonstrate that the big social media players wield too much power and control. Facebook has taken this stance because they don’t believe they should have to pay whenever anyone on Facebook chooses to link to an Australian news site. Who can blame them? So howshould new content be funded, and should we be concerned about the power of the major internet players? Phil Dobbie and Steve Keen don’t exactly see eye to eye on this.
In 2019 Greta Thunberg spoke to politicians at the UN Climate Week, saying they were promoting fairy tales of eternal economic growth. The next year we saw GDP in advanced economies fall by around five percent. Was this a win for the green movement? James Strain, a Debunking Economics Podcast listener, suggested we talked about the need for de-growth. He said, “It seems to me that this is imperative to our transition to a more sustainable society, but it breaks so many long-held fundamentals in mainstream economics that it's hard to see how we would begin to make the transition.” Most attempts to transition to a green economy have been fairly piecemeal, and don’t acknowledge the need for a move to less consumption. There is an answer, though. Steve Keen wasn’t a supporter of carbon trading at the business level, but he reminds Phil Dobbie of his suggestion that countries allocated carbon points to individuals. If you wanted to use more then you’d have to buy points from somebody else. They discuss how it could work in practice.
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There was a bit of argy-bargy on the share markets in America last week, when a bunch of day traders set to take on Wall Street, particularly the hedge funds who were shorting stock on Gamestop, amongst others. Were the day traders the bad guys in this scenario? Did the retail traders know what they were getting themselves in for? In this episode Prof Steve Keen suggests maybe the Robin Hood retail platform should be considered the bad guys. A step in the direction would be to reduce speculation in the market not drawing more people into it, he says on this week’s podcast, not to mention the waste of brainpower that has been exerted on this while exercise!
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Remember a time when central banks pretended to be independent, insulated from day-to-day politics? That had all but disappeared before COVID, but the pandemic was the final nail in the coffin of central bank independence. Instead, they have been colluding with governments to provide the mechanism to issue more public sector debt. Monetarism can’t resolve this crisis, so central banks’ usual tools are worthless. This week Phil Dobbie asks Prof Steve Keen whether this new arrangement, where the central banks and the treasury collude, is here to stay? If the government can use money creation to develop policies to build jobs and control inflation, what’s left for the central banks?
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Last weekend, Lord Sumption, was talking about why a lockdown harms everyone when the virus mainly ills people who are old or who have with debilitating conditions. He suggested we shouldn’t have lockdowns, because the lives lost were of less value than the rest of us. He isn’t the first to suggest that some lives are worth more than others. In fact, he argues we place a value on human life to determine the extent of healthcare intervention. It’s called the Value of Prevented Fatality (VPF). This week on the Debunking Economics podcast Phil Dobbie asks Prof Steve Keen whether we should consider the value of life in segments of society when developing policy on the pandemic. Some would see pensioners as a cost to society and, if you were being totally heartless, less of them would be a benefit to the economy. We look at just how flawed that thinking is.
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One big problem as we emerge out of the COVID crisis is, even if we have money we’ll be reluctant to spend it. So, how can the government get us to step up our spending? The answer, perhaps, lies in Austria in the 1930s, when the Mayor of Wörgl issued his town’s own currency, with built in demurrage. Could a new, parallel currency be the way to increase the velocity of money and help the economy bounce back. Could it also be the first big step towards a universal basic income? Prof Steve Keen talks through the benefits with Phil Dobbie.
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If you follow the science of Cliodynamics, the events unfolded in the United States the last few years have been entirely predictable. This week Prof Steve Keen talks to Phil Dobbie about the work of Peter Turchin, who has built mathematical models to track changes in society based on economic, demographic and political changes. How much can it tell us about the rise in populism that brought Donald Trump to power? Can it tell us want happens next?
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Earlier this year Phil Dobbie asked Steve keen for his predictions for 2020. Without a whiff of COVID-19 IN THE AIR, Steve talked of a capitalist economy on government life support. On that he was pretty much on the mark. So what of 2021. In this free edition of the Debunking Economics podcast he explains the reasoning behind his five predictions for the year ahead:
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Recession in Europe and America as financial aftermath to the COVID crisis.
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The housing bubble to continue in Australia., but maybe not in Canada.
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Strong growth in China.
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A rapid fall in coal mining
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Severe weather crises in Europe and USA from collapse of Arctic winter sea ice
Phil tries hard to accentuate the positive in Steve’s predictions, but fails miserably. It’s all doom and gloom!
As the US government argues over whether to spend almost another $1 trillion to stimulate an economy ravaged by COVID-19, and the UK government likely to increase public sector borrowing by GBP215 billion this year, plus central banks lowering interest rates to often below zero, is there a chance our response to COVID-19 has been over the top? Some argue that the response, when the economy finally recovers, will be highly inflationary. Whilst others, Steve Keen included, believe deflation is going to be the issue, and it’ll be a long time before we see inflation rising. Phil Dobbie asks whether we’ll see governments use these inflation fears as an argument to curtail spending in 2021, even though the virus is still spreading and the job is far from done. And Merry Christmas to all our listeners. More next week!
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Would the UK be better off with tariffed trade with Europe? The public discourse seems to be focused on how to remove tariffs, but Prof Steve Keen argues that if they are sufficiently high they will encourage domestic production across a variety of industry sectors. The more complex the mix of industries the more self sufficient an economy becomes, which also increases the potential for developing a broader range of exports. The only limitation is scale – but with 65 million people, is Britain big enough to go it alone? Phil Dobbie points to countries with high GDP that have a hefty reliance on foreign trade.
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The UK has cut its foreign aid budget to help pay for the domestic costs of COVId-19. Is that a bit of a callous move? That’s a rhetorical question, but there’s a more meaningful question on today’s podcast – is there a better way of managing foreign aid. Steve Keen has worked with agencies dealing with foreign aid, and discusses the failings of the process with Phil Dobbie. Corruption is one issue with the recipient nations, whilst the donor countries often choose destinations that look after their own vested interests. But John Maynard Keynes had an idea that would have made foreign aid more of an automatic process. It’s just America won’t like it very much.
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Steve Keen and Michael Hudson have both been arguing for a debt jubilee for some time. Now, as COVID-19 hits the poorest hardest, and leaves those with money better off than before, is this the right time to write off debt? Can the economy recover without it? After all, its stagnated since the 2008 global financial crisis. If you were to have a debt jubilee, how would you do it. Steve and Michael have different ideas about how it should be implemented. They explain their thinking to Phil Dobbie on this week’s free edition of the Debunking Economics podcast.
It’s a first for the Debunking Economics podcast, but we think it’s not a bad idea – a bunch of listener questions to make sure we are all on the same page. Suneil Basu wrote to ask if we could cover off the differences between Keynesian and Post-Keynesian economics, and the different approaches of the Chicago and Austrian Schools. Also, how did neo-classical economists claim the centre ground? Listen in for Steve’s answers. Also a couple of questions on the EU versus the WTO, and whether Russia had a hand in the Brexit result. SAs we say on the podcast, it’s a grab-bag of questions – but that keeps it interesting (we hope).
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The world economy has undergone massive transformation with COVID-19. There will be an even bigger upheaval as climate change takes hold. How do we prepare for the economic changes it will bring about. The way of coping with the virus emergency has been unprecedented levels of government intervention. Does that mean the only way to transition to a greener economy is through public funding, or can the private sector carry the can? And who manages the transition? Eric Rosengren from the Boston Fed admitted to the FT earlier this year that they don’t have the tools to “stop firms and households” from taking on “excessive leverage”, yet it’s the Fed policy that has created the problem. Phil Dobbie asks Steve Keen whether rising asset prices are a bad thing or not, and if its seen as a problem, what can be done about it?
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The world economy has undergone massive transformation with COVID-19. There will be an even bigger upheaval as climate change takes hold. How do we prepare for the economic changes it will bring about. The way of coping with the virus emergency has been unprecedented levels of government intervention. Does that mean the only way to transition to a greener economy is through public funding, or can the private sector carry the can? And who manages the transition? Phil Dobbie talks to Prof Steve Keen.
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Despite intensive talks Michel Barnier says there are still clear divisions between the EU and the UK over an agreement post-Brexit, which is less than two months away. This week Prof Steve Keen, a Brexit supporter, says the whole affair should be put on hold whilst the world copes with COVID-19. Phil Dobbie asks whether a deal will ever be reached anyway? Did the UK really think it would secure a tariff-free relationship if it didn’t adhere to rules on government subsidies. Rules that are surely being broken right now as cash handouts are rife to protect businesses that face closure because of the virus. And every free trade agreement always has a clause about opening up public procurement, the terms of which are complicated. Do we rally expect all this to be resolved by the end of next month?
Governments spent up big at the start of the COVID crisis, but they are being a bit more canny with their money right now. Meanwhile, central banks are seeing the need to step in, with monetary policy being used to fill the gaps where fiscal stimulus isn’t forthcoming. But are they kidding themselves? Can the economic consequences of a pandemic really be filled by a central bank dropping interest rates and buying back a large number of government bonds? In short, the answer is no. In this week’s Debunking Economics podcast Prof Steve Keen discusses the limitations of monetary policy measures with Phil Dobbie. Plus, why QE isn’t creating money, its just moving it around a bit, to those people who need it the least.
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There’s a commonly held misconception that the Bank of England is creating extra money and pumping it into circulation through quantitative easing. In this week’s podcast Prof Steve Keen explains how QE amounts to nothing more than an asset swap – so no new money is created. The only way money can be created is through commercial banks issuing loans – something they are not doing much of – or governments running a deficit. Even the IMF is now suggesting that advanced economies should not be worried about public debt. Talking to Phil Dobbie, Steve explains the limited impact of QE and the need for something like the Bradbury Pound, when the government issued currency – interest free and deb free - without any involvement of private banks.
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Wealth in UK is very concentrated I the southeast of England. In other countries, the structure of administration and banking has seen a more diversified economy. So what could change to make income and productivity more equable throughout the UK. In this week’s Debunking Economics podcast Phil Dobbie talks to Prof Steve Keen about the devolution of Scotland, the role of local administrations, Germany’s regionalised public banking system and the role of local currencies, including the Worgl experiment in Austria during the great depression. With more people experiencing the benefits of working from home could this be the first step in a more decentralised UK economy.
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Politicians, the media and most economists are obsessed with government debt – now more so than ever. But, as Modern Monetary Theory has shown, there is no issue with governments perpetually running budgets in the red, providing the extra money supply resulting from it is not inflationary. This week Phil Dobbie suggests some of the debt issued in the form of bonds could be given to the public as a form of universal income, which increases when government debt is highest – when the economy is in most trouble. So, what does Steve Keen think of this approach – and are there any downsides to the introduction of People’s Bonds?
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Would a job guarantee resolve the battle between inflation and unemployment? Conventional economists argue that when the labour market is tight – and there are few jobs to go around – people ask for more money and that creates inflation. When there are very few jobs – like now – inflation is much lower. The counter argument, from Modern Monetary Theorists, is that a job guarantee would reduce this flux, whilst improving the lifestyles and wellbeing of the population. This week Phil Dobbie asks Steve Keen whether the MMT have got the logic right and, even if they have, can it be practically applied?
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The US Federal reserve this week indicated that interest rates will remain close to zero through till 2023, at the earliest. Why because inflation is subdued and they don’t expect it to pick up until employment returns to normal. But what’s normal? Central banks work on the principle of NAIRU - the nonaccelerating inflation rate of unemployment – but they never seem to be able top in down exactly what that rate is. Before the pandemic US unemployment was down to 3.5 percent, with no sign of inflation lifting. Phil Dobbie asks Prof Steve Keen whether the idea of a fixed NAIRU rate just plain wrong?
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There are the deniers who will argue that mankind has no influence on climate, but worse yet, there are economists who argue the impact will be so small the cost of trying to prevent it will be far greater than the consequences of living with it. That’s the line taken by joint Nobel prizewinner William Nordhaus. In this week’s edition of the Debunking Economics podcast Prof Steve Keen takes Phil Dobbie through some of the spurious arguments and assumptions used by Nordhaus to reach his spurious conclusions. Some of them defy logic. If you offered them in a high school science exam, you’d probably fail.
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There's a video of this week's podcast on YouTube: https://www.youtube.com/watch?v=HfW4R_RcyJ0
In Japan Shinzo Abe has announced he is stepping aside because of ill health. Will this mark the end of Abenomics, the term used to describe his three-pronged approach to fighting the country’s ailing growth rate and deflation? Some point to the continued slow growth as a sign that his approach hasn’t worked, but on today’s podcast Prof Steve Keen tells Phil Dobbie, things would have been much worse with a more conventional approach. Japan is an example of Modern Monetary Theory in action, and for those who believe pumping money into the system will create inflation like in Venezuela, why hasn’t this happened in Japan where deflation has been the biggest concern?
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Governments the world over are spending like crazy to try and steer their economies through the COVID-19 crisis. Whether it’s the fiscal policies of the government or the monetary policies of the central bank, it all still revolves around using money that wasn’t around a few months ago. So how much of what is happening is described by Modern Monetary Theory – and how much more could be done if we accepted that MMT is the way things should really work. And do central banks, or treasurers really understand it? Phil Dobbie asks Prof Steve Keen whether MMT can solve the COVID-19 debt problem?
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We’re travelling less, staying away from the office, and spending more time at home. In the short term, it seems, those who still have money are spending a slug of it doing up their house, or moving to a bigger one, with outdoor space. House prices in the UK are growing much faster in Scotland, Wales and regional England than they are in London, for example. So, will escalating house prices be one of the consequences of COVID cocooning – and does that make the economic impact of the virus even worse than it is already? Questions Phil Dobbie puts to Prof Steve Keen in this week’s Debunking Economics podcast.
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The agreement by EU members to issue grants and loans to member states suffering the most from COVID-19 was a turning point for the union. Whilst US politics sees continued bickering on the size and form of a stimulus package, across the Atlantic a diverse range of countries have come together to agree a way forward. Is this a major turning point for the EU. Come we see fiscal and monetary union that could pave the way for the United States of Europe? It’s a question Phil Dobbie puts to Steve Keen in this week’s Debunking Economics podcast.
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The UK’s Home Secretary Priti Patel has revealed the government’s plan to curb migration to the UK, with a universal points system. It’s going to be hard for anyone to migrate to Britain without a job lined up that pays over £25k. Phil Dobbie asks Steve Keen whether it’s a good thing to set a minimum wage for migrants. After all, having we been exploiting workers, paying too little for jobs the locals aren’t prepared to do? Or do these low paid jobs impact the rate of pay for all workers, whatever they do for a living?
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Remember climate change? Believe it or to, even with COVID-19 dominating our consciousness, the environment is still a thing. A new report by NGFS - a voluntary group of central bankers concerned about the environment – reckons the world’s global GDP could fall by 25 percent by 2100 if we do not do more to reduce greenhouse gas emissions. Whilst their intent might be right, Steve Keen is concerned that their modelling is wrong. Like most of the economics profession there is no application of systems thinking. Models are too simplistic, ignore tipping points and assume a closed system that doesn’t account for vital external variables. He says the worst of humanity is dragging us into a crisis, exploiting the worst of human behaviour – that we don’t think it will personally affect us.
Income tax, sales tax, council tax, car tax, capital gains tax, inheritance tax – there’s just so much tax! This week Phil Dobbie talks to Prof Steve Keen about the whole idea of taxation. For many it’s simply a form of revenue raising for governments, but once you accept that governments can create their own money in their own currency, the role of taxation changes. This week we look at the role tax plays in minimising income disparity, and the importance it should play in Boris Johnson’s quest to ‘level up’ the economy. And thanks to Ed Twohig for suggesting the topic.
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The world has become dependent on trade with China, so much so that . We’ve become so we’ve been prepared to overlook human rights violations. But is that about to change? President Trump has managed to convince world leaders to ditch Huawei from their telecoms networks on fears that their equipment could be snooping on us. But, could it also be that Huawei makes twice as much money as the US’s Cisco, the world’s next biggest telecommunications equipment provider? In this week’s podcast Phil Dobbie asks Prof Steve Keen whether the world can do without China, and are hypocritical trading with them if we believe their behaviour is that bad?
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Boris Johnson has talked frequently about levelling up the UK economy – bringing the wealth of the more deprived areas so they are closer to the wealth of the more affluent areas, without the affluent folks having to pay for it. This week, Phil Dobbie asks Steve Keen whether that’s possible, or do you have to level down – take some of the wealth from the high earners to distribute to the more deprived regions? They discuss growth poles, carrot and stick measures and the importance of minimum wage and local council funding. The answer for Boris is in this podcast, let’s hope Dominic gives it a listen.
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Inevitably, as governments spend more and more money to help their economies navigate through the COVID-19 crisis, the questions inevitably being asked is, how will all this be paid for? The assumption is, either governments will have to cut back on spending, or taxes will have to be increased. Few economists or politicians suggest that the debt is never repaid. In this edition of the Debunking Economics podcast Phil Dobie talks with Prof Steve Keen about how central banks, like the Bank of England, are creating money to cover this extra spending. Isn’t there a danger that if it gets out of hand we’ll end up like Zimbabwe, or Germany after the first world war? Once a central bank has created money to cover government debt, can it ever really be wound back?
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Donald Trump is pushing ahead with his protectionist agenda, and possibly with good reason. There were over 17 million manufacturing jobs in the US in 2000, in the 10 years that followed, China joined the WTO and the US lost about a third of those jobs. In this edition of the Debunking Economics podcast Phil Dobbie asks Steve Keen whether protectionism is valid in this day and age. What of the conventional philosophy that trying to do everything locally avoids economies of scale and pushes prices up for everyone? Steve’s argument, you need a complex economy to produce efficiency and innovation. It’s the lack of protectionism that has stymied growth in many economies. But there are exceptions, especially for an Elon Musk fan boy like Steve!
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Furloughed workers, self-employed grant schemes, increased unemployment benefits, low interest loans, quantitative easing – governments and central banks are pulling out all the stops to try and offset the economic consequences of COVID-19. So who is doing it well? Phil Dobbie asks Prof Steve Keen to evaluate some of the programs implemented around the world – which ones are effective, which help the finance sector but do little for the broader population, and is there enough of it given the size of the impact? Governments are now trying to pull back on stimulus programs, even though infections continue and unemployment is in danger of rising still higher? Will we have learnt anything at the end of this experience about how the economy really works?
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The world is facing the greatest economic downturn of our time. In the US at least 15 million more people are unemployed than just a few months ago. There are fears of a second wave and, even if it is contained and a cure is found, the chief scientist at the World Health Organisation is now saying it could take up to five years to get the virus under control. Meanwhile, as governments inject trillions of dollars of stimulus into the economy, share prices are reaching all-time highs. How can that be? How can the markets behave as though we were in the midst of the best of times? Phil Dobbie talks to Prof Steve Keen about what’s really driving share prices ever upwards.
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The US might not be in a great place right now, with the riots, a narcissistic president and the COVID-19 virus taking a long time to slow down, yet, for generations it has been the country the world looks to for opportunity and innovation. Look at almost all the world’s newest big companies – Microsoft, Apple, Google, Twitter, Tesla – and they all hail from America. It claims a huge proportion of the world’s inventions and innovations. On that basis, shouldn’t we still be looking up to America? What is it they are doing that the rest of us are not?
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Mental health is an issue that impacts a growing number of people, not helped by the COVID 19 lockdown. Divya Dhami, an undergraduate student from the University of British Columbia, says the economy is paying for it in terms of reduced productivity. Money investied in fixing the problem would be recovered through increased GDP. But isn’t GDP part of the problem? Phil Dobbie asks whether the wellbeing index is a better measure of government success? Steve Keen suggests debt is a significant part of the problem – in the good old days students went to university to learn and it was a relaxing experience. But there are behavioural issues too – like addiction. Just how far do we want the state to intervene?
Governments everywhere have been pledging billions of dollars – in some cases, trillions – to help their economies navigate through the COVID-19 pandemic. Much of it has been spent supporting businesses and helping to sustain people’s income. But what happens when we come out the other side. Quantitative easing is now widespread, but there’s still an expectation those central ban purchases will be wound back. So what does that mean for the post-pandemic economy? A question Phil Dobbie puts to Prof Steve Keen in this edition of the Debunking Economics podcast. And are there countries who can’t run up debts? Or companies or industries that can’t operate effectively with the potential debt they have been forced to build up. Just how long will we be paying for the last few months?
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There are all sorts of theories on why there is such a huge discrepancy in income in society, and why it differs from one country to the next. For example, why does the USA have a far worse Gini index (41.4) than Japan (32.9)? Whilst there’s been lots of debate around education, ability, inheritance and opportunity, Blair Fix at York University in Toronto, has concluded that society’s hierarchy is really the overarching influence. If he’s right, that means regulation is the only way to stop income becoming so divided. Listen in to catch up on Blair’s work, in this three-way discussion with Phil in the UK, Steve Keen in Thailand and Blair in Canada.
Economists tend to see income as related to the value labour adds to a product or service. By that rationale, during this crisis, nurses helping save lives contribute only a fraction of the CEOs who are watching their companies fall apart. Or is something else driving inequality? It’s largely the growth of the rentier class, says Steve Keen. Phil Dobbie asks whether technology could also be making thinks worse, not better. Is a skilled carpenter forced to charge less because of the availability of mass produced pre-packed furniture? And how can lots of office jobs, which create nothing, pay more than jobs that add directly to the value of something? Even if we fully understand the causes of inequality, will we ever rid ourselves of it?
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Companies and governments are racking up massive debts to cope with the impact of COVID-19. Apart from grants for a month or two of partial salaries, the approach has largely been to extend easy short-term credit to those people and businesses struggling to survive. We can expect, once an initial amnesty on repayments has passed, many of these companies will go to the wall, adding to the massive peak in unemployment. How can economies grow when individuals are piled high in debt and governments are forced to use austerity to repay their massive spending programs. Steve Keen has argued that debt needs to be written-off, even before the Corona crisis. Now seems like the right time for society to discuss the benefits of a debt jubilee. The only downside seems to be a significant reduction in the size of the finance sector. Can we live with that? Or, perhaps they can shift their emphasis to more productive investments.
In some parts of the world politicians, investors, business leaders and economists are behaving as though the Corona virus is almost eradicated. There are talks of easing up on restrictions, even though it’s only through the lockdown that infection rates have been held back. If, instead, we believe epidemiologists, who tell us this thing is with us for some time, what will life be like on the other side. Phil Dobbie asks Prof Steve Keen for his views on how our lifestyle and ways of business will change. Steve says it’s the beginning of a fundamental change in the way we interact with our planet.
He has been called the ‘Father of Economics’, but how much of what he talked about and wrote about has stood the test of time? Have we fully understood his ideas of free trade and the invisible hand? And why is a man, who cared so much about the plight of the poor, now seen as the poster boy for the right and those with money to protect? Phil Dobbie talks to Prof Steve Keen about the work of Adam Smith – the good and bad – on this episode of the Debunking Economics Podcast.
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Billions of dollars are being pumped into economies the world over to protect economies from COVID-19. Much of it comes in the form of government fiscal stimulus, funded through bond issuance. Some of it involves businesses taking up further debt themselves, through low interest loans. Nobody seems to be pursuing helicopter money and while there’s some dabbling on the idea of universal basic income in the US, the money is peanuts compared to average expenditure. In this special free podcast, Phil Dobbie asks Steve Keen whether enough is being done to facilitate a rapid economic recovery, and who will be the beneficiaries – the business sector or the finance sector?
Putting the Corona virus aside for a moment, on this week’s Debunking Economics podcast Phil Dobbie talks to Steve Keen about our use of energy. He raises the dilemma of energy prices – if they are too low, usage goes up, expanding our ecological footprint. If you try to counter that by artificially inflating prices, it’s the poor who suffer – as evidenced by the riots in Paris. So, how do we limit our appetite for energy, and can we do it without destroying the world economy? And, importantly, can we do it when power creation and distribution is largely in the hands of private companies?
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The EU is debating whether funding to protect economies from the ravages of the Corona virus should come from centrally issued Corona Bonds, or from country-specific debt. In short, should Italy and Spain pay the price of their own misfortune and be landed with the bill to pay off for years to come, whilst totally sovereign nations, like the US, simply issue bonds which can be paid for by the central bank and for which the government has no intention of ever repaying. In this edition of Debunking Economics Phil Dobbie asks Prof Steve Keen whether the inflexibility of the Euro at a time like this will mean countries like Italy will no longer want to be part of it. Could this crisis expedite the demise of the Euro, and, perhaps, the EU itself? If so, is that a good thing?
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TRANSCRIPT
PHIL DOBBIE [00:00:01] If you were Italy right now, or Spain, suffering thousands of deaths from the Corona virus and the EU, that body was there is there to unify Europe, was quibbling about how we should fund that support, wouldn't you be wondering whether EU membership was worth it? In fact, when this is over, and you are possibly riddled with more debt as a consequence from all of this, wouldn't you be thinking what is the point of staying in the EU? And could Italy and Spain and others quickly follow the UK on the back of the way the EU has dealt with the Corona virus? That's today on the Debunking Economics podcast.
PHIL DOBBIE [00:00:38] I'm Phil Dobbie and Steve Keen is with me again, of course. The EU is meeting this week to discuss Corona Bonds, which is something Steve talked about weeks ago on this podcast - funding what could be generated through bonds which are bought by the European Central Bank and issued in large volumes to help countries suffering the most, that need the resources basically, to manage their way through this crisis. But some in the ECB, like Germany and the Netherlands, still see the funding coming through loans, just so those southern European countries don't get used to the idea of lots of free money. So they come out of this crisis with more austerity as they try and pay back those loans, just to add to the general sense of misery. Oh, Steve. The joys of the EU. Well, it is a joy for those who who live in the north of the EU anyway, because they don't have to go through all this austerity.
STEVE KEEN [00:01:33] Yeah, it's incredible how the ideology can be sustained when reality is slapping it in the face and kicking in the balls. But that's what's going on. Particularly this is this is just particularly Germanic dedication to what's known as ordoliberalism, which is a combination of the sort of extreme libertarian attitude you'll find with a lot of American libertarian Austrian types combined with this Germanic idea that uou've got to enforce it, so that's where the ordo comes from. And they're saying we've got to get right back to austerity as soon as we finish this without thinking, well, if we didn't have austerity maybe we'd have enough beds right now in the hospitals and enough intensive care units to be able to cope, which we don't.
PHIL DOBBIE [00:02:16] But Germany is covered, of course. I mean, they've got a it's very sad, but they've got almost 2000 deaths in Germany. But compare that to Italy, where it's over 17000, almost 18000 deaths. So, yeah, I mean, they're in a much better position.
STEVE KEEN [00:02:31] Yeah, they've got the capacity to some extent. But having a decent public health system helps. They haven't destroyed that, whereas the Americans didn't have one to begin with.
PHIL DOBBIE [00:02:41] And they've got they've got a government surplus (in Germany). So if they need to spend more money, they can dip into it.
STEVE KEEN [00:02:47] That has no relevance whatsoever. But yes, I'll let you get away with that one.
PHIL DOBBIE [00:02:50] But from from their point of view they're saying, yeah, we've got the government money. We can spend it.
STEVE KEEN [00:02:57] Yeah, that's true. That's the reasoning they'll use unfortunately.
PHIL DOBBIE [00:02:59] And Italy doesn't have that surplus. So people in the south aren't gonna buy this. When this is all done and dusted once this is all over, people in Greece and in Italy and in Spain and Portugal, they're all going to say, hang on a second, the EU didn't work for us in this occasion. There was no funding coming. We didn't get to make any extra funding. You didn't help out. What? What are we getting for our membership,.
STEVE KEEN [00:03:24] Particularly Italy? Yeah. And in Spain, too. I mean, that's the situation with them is absolutely appalling .When the Italians can rely upon the Cubans and the Chinese more than they can upon their own neighbours, the whole idea of European solidarity ain't looking so crash hot. It's not solidarity. They've been locked into a death cult.
PHIL DOBBIE [00:03:48] And the euro is the big problem here, isn't it? Because we've got one central bank. The one central bank issues the bonds. They determine if they are going to embark on quantitative easing. If they if they changed the regulations of the EU, which they have loosened, there's nothing to stop the Europeans agreeing that the the central bank will issue a mass of new debt, new bonds, and that will go to funding the crisis in Italy. There's nothing at all to stop that happening. As you say it's just ideology.
STEVE KEEN [00:04:23] Yeah. And it's also that it's been set up in such a way that it can't make a decision, unles its a decision to increase austerity. Remember I voted for Britain leaving the EU. At the time I made the arguments in favour of it, not on the point of view of what would benefit Britain, but ultimately, it was an organisation that shouldn't they shouldn't exist given its policies. Somebody said, look, you can't say it's not Democratic. Look at this democratic structure here. The Democrat structure I saw was, first of all, the European Commission, a bunch of economic dominated bureaucrats, tthey draught the laws, not the parliament. The parliament cannot draught laws. The law is sent to the parliament for ratification or objection. And if the parliament votes against the law, it can also be voted for by the 19 finance ministers who meet independently and no records are kept at their meetings. That's why Yanis Varoufakis recent move to release all the recordings he made I think is a brilliant move because it shows us how stupidly and badly they behave. So the whole thing is set up in such a way that, whatever the commission wants to happen will happen. What everybody else wants to happen, you can get it can get ... well, I was only the words starting with F,.
PHIL DOBBIE [00:05:38] Stuffed. Let's go to with stuffed.
STEVE KEEN [00:05:41] Consequently, there is there is no capacity to make a decision unless it's a decision which supports the direction of the Maastricht Treaty and makes it even more difficult to spend or create government money in even more difficult to rescue people than in the dire circumstances of the Corona virus. So this could be the death knell. What I'd like to see happen is Italy to say, we've had enough, every bank account in Italy is now a Lira account, the new lira is worth one euro, we repudiate its national debts, including the German and French banks, you guys can get stuffed and we're starting our own monetary system again.
PHIL DOBBIE [00:06:18] Do you think that will happen? I mean, Greece came so close to it, didn't they? I mean, Yanis was was on the verge of pushing that button, if he could have got support within his within his own government. Do you think Italy will, and if Italy does then obviously, Greece and Spain are not going to be far behind.
STEVE KEEN [00:06:34] It's possible. I mean, Italy's got an apalling trajectory in terms of the number of deaths right now.And with the leader of being a populist right wing populist as well, it's a possibility. We actually discussed in a previous podcast, what would shift after this? Would people say we overreacted, but think Italy is one country where peole are going to say, right, this went really badly and we've got to do something about it, and we're not taking Belgium bullshit anymore. If weare going to do something Belgium doesn't like anymore, because Belgiumbeing the centre of the EU, then we're going to do it. And so I think there's a possibility that the fracture could come through Italy over the Corona crisis.
PHIL DOBBIE [00:07:19] It's interesting when you look back at the foundation of the EU. It really came out of a crisis, that crisis being that the Second World War. Then we had, the Marshall Plan, and it was America pumping large amounts of money into Germany to industrialize Germany and the concerns from the French that Germany was going to become too dominant, which is why that, early on, France wanted to share a currency to try and avoid the the imbalance. Of course, Germany had all that debt to the US, written off. How quickly they forget.
STEVE KEEN [00:07:49] And they also do not let's not forget German debt to Greece, for God's sake, which the Greeks wrote off. So it is remarkable how fast we fail to learn from history. And this will be on the level of the Second World War, by the way. The impact is so great, so rapid, whether it can be avoided or not, whether we could have reacted in a different fashion or not, that doesn't change it. It will be the biggest economic crisis since since the Great Depression and the fastest shut down of productive resources since the Second World.
PHIL DOBBIE [00:08:23] So, at the same time, we had all this fear, didn't we, during the Brexit campaign that the EU was going to allow Turkey into the EU? We did allow Hungary into the EU. Janos Ader say now is basically a dictator. He's got full powers. He's enacted no sunset clause on on when that power might end. He's still a member of the EU. So basically dictators are allowed in the EU now.
STEVE KEEN [00:08:51] Yeah, well, they always were. The whole idea that its a democratic institution as a joke and the joke is being exposed right now because, what would people want on the ground, they want, for example, they want masks. Now you can't have them. They want ICU units. No you can't have them all. This is democratic, isn't it?
PHIL DOBBIE [00:09:09] So it goes one way or the other, doesn't it? It either falls apart or it becomes, which is perhaps more dangerous, it pulls together more. And we've spoken about this before. If the EU acts as one nation, then one nation would not allow the southern part of the country to have such a massive death threat. That would be people like people in London laughing in cocktail bars while people in the north of England died of starvation. You can't allow that to happen. So Europe isn't behaving like one country. It wants to be more integrated, but it's still going to be a series of sovereign nations. And each of those nations is still going to be in it for what they can what they can get out of it.
STEVE KEEN [00:09:49] Yeah, that's the trouble. I mean, there's is a certain sense of European commonality, not quite that dire, but nonetheless, the Europeans identify Swiss and Germans and Dutch, et cetera, et cetera, first, then European second. Americans identify as Americans first and Alabamans and Californians and so on, second. So this is thing even Milton Friedman realised was when he wrote in opposition to the formation of the euro in the very first instance, that you don't have the degree of commonality you need. Also, in a very important point, which even again, even Milton Friedman realised this, you don't have a common treasury. Without a common treasury the expenses get passed from one effectively state treasury to another, which are spending constrained. And they resent, therefore, people moving from one state to another because you impose the burden of the wealth in that person on their recipients state. So all these things just argue against the EU and the Euro from the very first outset. And the whole thing about it, is was supposed to strengthen Europe. Well, great. What's fabulous strengthening this has been. This has. First of all, it amplified the impact of the crisis back in 2008. Now its having a debilitating impact upon its capacity to respond to the Corona virus. They'd be better off by separating. And this is the great tragedy of the European Union.
PHIL DOBBIE [00:11:05] Well, so will it then? If if Italy says that's it, as you say, we're going we're not going to pay off our debts, so you can get stuffed. So they pull out of the euro, even if they don't pull out of the EU, and they went back to to the to their own currency, the lira, the that would pretty quickly devalue. They would have a competitive edge against Germany. They could build a manufacturing base to challenge Germany over time and a far healthier future for Italy. So why wouldn't they do it and why wouldn't everyone else follow them?
STEVE KEEN [00:11:49] I can still see people sticking on saying that we've got to maintain the euro. I wish people would learn from these sort of experiences. But again, as I've said in the last podcast, experience has made me rather pessimistic about the capacity of people to learn from experience. However, if the Italians did pull out and did go back to the Lira and could devalue against the euro, then they would lose one of the two main problems have had fromthe euro to begin with, which is, with a lower inflation rate than Germany, necessarily their goods got more expensive over time because they were not able to devalue. Once they can devalue, the difference in inflation rates doesn't matter. And therefore, the competitiveness that Lamborghini and Ferrari and Fiat have lost against Mercedes Benz and BMW would disappear and they could restrengthen their manufacturing sector. So it would be an amazing lesson in how how bad an idea was to form the euro in the first place, to get out of the damn thing and see the economy do quite well. And by the way, if they did actually write off all their debts, it's quite possible they could revalue against the euro and still do well, because they wouldn't be carrying any debts, whereas the rest of the European Union would.
PHIL DOBBIE [00:13:01] And they could do that. Can they?
STEVE KEEN [00:13:03] Yeh. Plenty of countries have written off their foreign debts in the past and as soon as they do it, people say your currency is going to plunge in value, because the market won't trust you. 30 seconds later, the bond traders absorb the whole experience and they're now buying your currency because you're no longer debt encumbered.
PHIL DOBBIE [00:13:21] So what does it do to the banking sector in the in that process, though?
STEVE KEEN [00:13:25] Well, again, you've got you've got to be ready at the central bank. There is actually an Italian central bank. Every European country has its own central bank. It just doesn't have a power to issue a currency. Suddenly you've got the power and you can therefore provide as much in the way of assets to the banking sector, so that its liabilities don'texceed the assets and therefore they don't go bankrupt, you can do that instantly. Then they would they would enable the banking sector to continue operating.
PHIL DOBBIE [00:13:52] So say Italy and others then say, well, we're going to follow the same path - if that threat is made to the EU, is the EU going to look for a halfway house? Maybe the idea that everyone can have their own independent currencies, their own independent bank, and we just have a common trading currency, like we used to with the ECU. That is stripping back the EU so it becomes more like the common market. You get to that stage, then Britain might say, well, you know what, we don't want to be in the EU, but we might be part of this.
STEVE KEEN [00:14:31] The common market was a relatively sensible idea. It gave you a chance to have economies of scale across the whole continent, which was the objective of the European Union in the first instance. The mistake was forming the Euro as well. So, yes, you could be quite effective. And my argument always been, use the euro for international trade, to trade between countries of the European Union, use your own currency domestically. And that the real appeal to the public of the euro, and I've experienced this with the amount of travelling I've done in the European Union, is you follow exactly the same currency - you face no currency loss when you go from Germany to France, Italy to Spain and so on. And that's personally a very attractive advantage of the euro. My argument has been ,let the European Central Bank take over the currency conversion responsibilities. So you give all the private institutions impossible competition. The government bureaucracy converts the currency at exactly the exchange rate. If you have a thousand lira and that's worth two thousand Francs, you walk in with a thousand lire, you walk out with two thousand francs, you suffer zero currency loss going from one country to another. That'd be a central role for also the European Central Bank. And then with that there's no need to have the same currency across the whole of the continent. As a community, you ensure that no individual loses out of the ridiculous mark-ups that these companies make for exchanging currency.
PHIL DOBBIE [00:15:59] But you know what? I wonder whether, in fact, that that becomes less of an issue going forward as we have more technology and more competition for that side of the banking sector for foreign exchange, which we're seeing quite a lot of. So you have a you have a card. You don't you don't really care. You go from you go from Germany into Italy. You switch currencies. You've got a vague awareness of what the exchange rate may be. And you've signed up to a bank or a card which is going to give you the best possible exchange rate. Does it really matter?
STEVE KEEN [00:16:31] Well, I'm a heavy user of transferwise, for example. An unsponsored advertisement. it's a fabulous service transferwise and it saved me a large amount of money.
PHIL DOBBIE [00:16:42] Other ones are available. WorldFirst and OFX.
STEVE KEEN [00:16:45] It's brilliant. They totally undercut the incredible mark-ups and the made in all those foreign to currency changes. I don't really worry about the cost going from one currency to the right anymore. I use the same card everywhere.
PHIL DOBBIE [00:16:57] So the idea of the euro being one unified currency to make it easy as you move around and as you trade. I'm just wondering whether that selling proposition is rapidly disappearing, so one of the key reasons for the euro, perhaps as is not such a key reason anymore.
STEVE KEEN [00:17:13] Which it was a key reason back in 2000, maybe, or 1999, obviously. But you're right, now that that's there's the technology and the fact that is an enormous financial incentive there for people to move into that particular space, that's a classic case of capitalism innovating to take advantage of a large discontinuity in the economy.
PHIL DOBBIE [00:17:31] So if was to happen, if the euro did disappear, could the EU survive without it? And what form would that take, do you think?
STEVE KEEN [00:17:37] Well, to go back to being a common market, that's all we need it to be. A common market, and you'd have a forum resolve disputes between states. And it should be one where where the states have representatives, the Italian, the French, the German, etc, governments coming together just to have conversations, not having idea of a bloody parliament, which itself is a farce. The parliament, as I said before, only decide to do what the European Commission tells it to do. Nothing like a democracy. The whole idea of the European Union, from the ordinary Europeans point of view is to end the old internecine warfare of the European continent. But from the point of view of the bureaucrats, who is it getting people out of the way and let the bureaucrats run everything. Because obviously with democracy that gave us fascism.
PHIL DOBBIE [00:18:23] But it also gave us Donald Trump.
STEVE KEEN [00:18:27] So, you know, I'm not saying democracy is perfect by any stretch. And I want to get rid of it and replace it with a set of skilled individuals who don't want to do the job, who are system dynamic specialists and united by intelligent software. That's what we really need to run the complex system of the world we're in these days rather than the popularity contest of standard democracy.
PHIL DOBBIE [00:18:46] Right. Okay. Are you going to be the head of that government as well? I mean, you.
STEVE KEEN [00:18:51] So please, please, please.
PHIL DOBBIE [00:18:57] Herr Keen. My arms in the air, as I talk to you,.
STEVE KEEN [00:18:59] I'm tickling your underarms.
PHIL DOBBIE [00:19:02] I'm loving it.
STEVE KEEN [00:19:09] Let's let's let's listen to a podcast on that particular issue - democracy versus versus systemic governance. That's that's an important point later on.
PHIL DOBBIE [00:19:18] Gee. All right. So back to the EU, though. I mean, what we're describing then, really is that it's a common market. There has to be agreement on standards. Do you do governments then say, well, we're gonna have this common common market, we need to make sure you're not subsidizing your products and dumping products on our market because you've given so much state subsidy. I guess you still need regulations like that, don't you? So that you've got a level playing field.
STEVE KEEN [00:19:50] You know, some sort of commonality. It's common market, it has to have common regulations. So that's okay. It's the imposition of the budgetary noose of the Maastricht Treaty and the inability of any decision to be reached that isn't something the European Commission wants. It's having bureaucrats, who are mainly trained economists and that's the bloody problem. Trained engineers would be a damn sight better.
PHIL DOBBIE [00:20:18] Right. But a lot of it is just finding commonality of a level playing field for competition isn't it? so setting setting standards. I mean you're not going to do that by parliament. Someone's got to establish what their standards are going to be.
STEVE KEEN [00:20:30] Equally, at the same point, there's also one thing I hope we learn out of this crisis, is that the whole year of a globalised integrated economy is a mistake at a biological level. You need to have regionalized economies. I've been arguing for a long time that we need a biological approach to economics in general, and that would never have had us having globalised production systems, because globalised production systems are great for pathogens. They are not fabulous with humans. So I hope we learned that lesson that we don't go back to the obsession about bigger and bigger trading blocks, and more and more free trade, and more and more transportation around the planet, etc, etc. More and more consumption of oil.
PHIL DOBBIE [00:21:08] But that is a good reason for making sure that the trade within the EU continues then isn't it? So that the UK is not shipping a whole load of stuff across the ocean from the US or from South America or from China. We are better off eating fruit, for example, that comes from the south of Europe
STEVE KEEN [00:21:29] Exactly. You try to divine a regional trading bloc. I'm not my actual principle here is what's called the von Neumann machine. Had ever heard of that one?
PHIL DOBBIE [00:21:36] I think I had one but I couldn't work the instructions.
STEVE KEEN [00:21:39] No, you didn't. A von Neumann machine is a machine, that can make other machines and also make itself. One of the most brilliant men of all time, von Neumann, came up with the concept of this. He said humanity needs to create a machine which is capable of making all of the other machines needed, as well as reproducing itself. And then you'd send that inter outer space and you could colonize the entire galaxy. But the idea, we should think in terms of creating regions of the planet, which are von Neumann machines, meaning they create everything they need as well being able to reproduce themselves over time. So you say, what scale do we need for this region to be self-contained and have multiple self-contained regions lik,e that which don't need to trade with others. You don't go for this obsession with a globalised approach because that works in favour of the pathogens, that works in favour of humans overloading the planet, completely ignoring the other species, and then we get the biological venereal disease coming back at us.
PHIL DOBBIE [00:22:43] But I mean, all the more reason for the EU to, in some form, even if it is just a common market working to common standards, but everybody has their own central bank, they determine the way they operate, how much they borrow, how much that their debt to GDP ratio is they are that totally independent sovereign nations, but they have a common agreement on what they're going to sell and the standards between them. That's gotta be the utopia, hasn't it? Because it does create that trading bloc that the EU could then say, well, we really don't need anyone else.
STEVE KEEN [00:23:19] To reach that Utopia we've had to go through a dyspotian experience was necessary. But, yes, treating it as a regional production system, intending to achieve overall self-sufficiency across all the products that are necessary to sustain a decent high human society and a decent environment, not just for ourselves, but for the other species on the planet. That's the way we should be thinking in the future.
PHIL DOBBIE [00:23:46] Is that going to happen, though? Will the EU survive the way it is? Could, for example, if Italy say we want out of the euro, but we'll stay in the EU, to which that the payoff would be you can't write off all your debt, you don't have to pay it up back after off over over 20 years. You're gonna have to live in austerity and and perhaps more people will die from malnutrition than died from from the virus as you attempt to pay all this back. That seems more likely than Italy pulling out totally and the EU collapsing, doesn't it, sadly?
STEVE KEEN [00:24:21] Yeah. I mean, the thing is, though, lets remember there have been other Pan European and pan global organisations which have disappeared. For example, what's the most recent announcement of the League of Nations?
PHIL DOBBIE [00:24:33] Yeah, they have been very quiet lately, haven't they?
STEVE KEEN [00:24:36] Died about 80 years ago. It was killed by the First World War. So these organisations have failed in the past. And I can think of no better organisation to fail than the European Union.
PHIL DOBBIE [00:24:49] But we don't. But we don't want it to disappear and then just have a series of independent nations do we?
STEVE KEEN [00:24:58] Yanis Varoufakis has finally come around to saying he reckoned the British did the right thing for the wrong reasons when leaving the European Union. It's very hard to expect somebody to who's you whose entire life has been around trying to globalise everything and trying to minimise trade barriers, and letting competition rip and ignoring sustainability while pushing efficiency, it's very hard to have a person suddenly flip over to a biological way of thinking. You have simply got the wrong people in there and getting rid of them is impossible in a bureaucracy. So. It may be that it has to fail to be replaced by something more sensible.
PHIL DOBBIE [00:25:41] I wonder what would replace it. Could we in fact get a group of countries like perhaps France, maybe we'll include Germany, the UK and Ireland and Spain and Greece saying, well, okay, let's if that's all fallen apart, but we need to trade with each other because we've got so much trade across all on across our borders, so let's at least agree some standards and let's form the new EU.
STEVE KEEN [00:26:03] That's definitely what happens, I think. And the emphasis has to be on the ecological and social sustainability of the society, not this obsession with competition and efficiency. So it could happen, but I certainly can't see the bureaucrats in Brussels being the ones who lead the charge.
PHIL DOBBIE [00:26:20] And how quickly is it going to fall apart? Then, do you reckon? Is that going to be after this, after over this virus, the second half of this year, is this gonna be the big story?
STEVE KEEN [00:26:28] No, again, because of my cynicism about people's capacity to learn from experience. I think we'll go through this, there will be in aftermath. We will continue on and then something else will hit us. I mean, 2020 has been a one and a dog of the year. We had the fires in Australia and the floods in Australia, then the locust plagues in Africa, which we've stopped talking about but is probably still happening, now the Corona virus. We're only one third of the way into the year. What the hell's going to come along next?
PHIL DOBBIE [00:27:00] Well, we've got a lot more of this to go havcen't we? I think this is going to keep us going for the rest of the year. But the idea that this will be almost swept under the carpet, and its oging to take something else to disturb the EU, I wonder if that's the case, because, look, it's over 17000 deaths now in Italy, less than 2000 in Germany and 14000 in Spain. There's such a huge difference, a huge disparity, between nations. And surely people are going to be looking at that and saying, how did we allow this to happen? I mean, we're talking about the price on human life. Surely there's going to be some recompense from all of this.
STEVE KEEN [00:27:36] Yeah. Yeah. And I mean, just looking at the doubling rate, by the way, for Germany is not looking as healthy as a doubling rate for Spain right now, strangely enough. So maybe, maybe there'll be a price to pay in the future.
PHIL DOBBIE [00:27:52] And that's the bad news, because if Germany gets hit as much as everybody else, then that argument that there's a disparity on this disappears. To which the conclusion will be in Germany and from the powers behind the EU, that that was a crisis that we all faced, we all paid the price for it, now, let's carry on as normal.
STEVE KEEN [00:28:14] This was a crisis nobody expected except anybody who'd read Laurie Garrett's 'The Coming Plague.' And these are people who've been completely sidelined with the redesign of society. These are epidemiologists, the specialists in humans as a biological species, not humans as the dominant economic force on the planet. They're the ones who saw this coming. They've been sidelined. The one thing I hope to happen is, is that we pay much less attention to bloodyeconomists and a damn sight more to epidemiologists, engineers, physicists and atmospheric scientists. They're the people we need to listen to, not bloody economists. The EU was built by economists. That's one of the best reasons to get rid of it.
PHIL DOBBIE [00:28:55] We should leave it there. But one final question is, I mean, a lot of it does relate to the acceptance of debt, doesn't it? That's the core of all of this. So German debt to GDP is 60 or 70 percent government debt versus 200 percent in Japan. The US is shooting up there as well. Greece, I think, is less than 200 percent. Italy is relatively low. If you ijust said, well, okay, let's accept 200 percent as acceptable. Then you would have allowed a massive increase in spending.
STEVE KEEN [00:29:28] Yeah. Government deb is not the problem. We've had many talks on this issue in terms of the financial issues as well, but the whole obsession with government debt has always been wrong. It's always come out of neoclassical economics and applying a household analogy to an overall economy. It's the private debt that matters. That's what's caused all the dilemmas. That's what has led to the boom beforehand and the bust as well. Hopefully, some of that understanding will get through during this crisis as well.
PHIL DOBBIE [00:30:00] Right. So if the EU survive, but they accepted that point, could it could it survive and do good rather than be evil. If it if it accepted the fact that we should allow countries to run much heavier debt.
STEVE KEEN [00:30:14] Potentially, but again, that means countries would have divergent inflation rates. The euro should not survive. That's the one thing, the euro should not survive. The European Union potentially could survive, if it if it learns from this crisis and fundamentally changes its direction. But that's like expecting a Ptolemaic astronomer to suddenly understand Copernicus and stop drawing epicycles and start thinking about ellipsis centred on the sun. People's minds a rereshaped by the belief systems they have, and that reshaping means they are simply incapable, their neurones are wired their own way. It is it is not possible for someone to change the neurological wiring as fast as it is for a new person to come along with a fairly open neural network and relearn these issues. So in many ways we just got to retire the people who currently run the European Union. If we could keep the buildings and send the people off to retirement homes, we might get somewhere.
PHIL DOBBIE [00:31:14] Generational change is what you're talking about, isn't it? And they're all looking pretty old. Time to shuffle on and do your next thing. Good to talk Steve.
PHIL DOBBIE [00:31:25] And talking about neoclassical economics, we are going to look at Adam Smith next time. Is there anything good that came out of Adam Smith's work? Anything that we can take and say, well, that was all right. We'll look at that next time on the Debunking Economics podcast with Professor Steve Keen. I'm Phil Dobbie. See you then.
Italy is getting swamped in corona virus cases, whilst China claims the only new infections now come from visitors from overseas. Donald Trump has gone from calling it a hoax to warning that 200 thousand Americans dying will be the best possible scenario. The UK has seen its death rate step up again today, whilst Germany has seen relatively few deaths and in Sweden folks are still eating out at restaurants. In this FREE edition of the Debunking Economics podcast, Phil Dobbie asks Prof Steve Keen which countries are handling the crisis the best, not just to contain the spread, but also to prepare their economy for the recovery.
How did we allow the spread of the Caronavirus happen? Why were governments and health services so unprepared? In this week’s Debunking Economics podcast entrepreneur and venture capitalist Nick Hanauer joins Phil Dobbie and Steve Keen to look at the inevitability of this crisis. Nick says it’s all down to the preoccupation with small government. How do we solve it? Massive government spending and the creation of new money. What have we learnt? Steve hopes it’ll enable us to focus on the bigger issue, what we’re doing to the planet.
One of the questions we might be left with after the virus has left us, will be have we become too reliant on international supply chains. Another might be, are we just too reliant on stuff? If we are to look after the planet do we need to lose our appetite for goods that we keep for a short while then throw away. Why not fix them? Is it time for a repair-based economy? And if so, how do you implement it? Phil Dobbie talks to Prof Steve Keen about the circular economy, hours before he fled Europe to escape the worst of the Corona virus.
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Central banks have cut interest rates, some governments have introduced stimulus measures. But still the disease spreads and livelihoods are put at risk. In today’s extra (free) edition of the Debunking Economics podcast Prof Steve Keen argues that stimulus measures are nowhere near enough, and serious sums of helicopter money need to be added to everyone’s bank account. He has been arguing for some time that there’s a need for a debt jubilee to get the economy moving, and now might be the time to do it, starting with the issuance of zero interest debt jubilees and personal bank deposits to cover mortgages and other outstanding commitments.
We know what makes up the measure of gross domestic product – it's increases in private or government spending, increases in investment or an improvement in your balance of trade. But are those factors all driven by improvements in productivity driven by technology gains? This week on the Debunking Economics podcast Phil Dobbie asks Prof Steve Keen whether technology improvements are the only real driver of economic growth? Can the economy continually grow without it?
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The manufacturing numbers from China at the weekend showed how hard the sector was hit by the lockdown in Wuhan and neighbouring districts. In today’s FREE Debunking Economics podcast Prof Steve Keen says the rest of the world needs to prepare for a similar strategy, that will see production dive as workers don’t show up and consumers don’t go shopping. It seems likely that central banks will cut interest rates, but that won’t stop businesses going bankrupt. So what is the correct policy response?
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The US government is now running a debt exceeding $23 trillion. When Donald Trump cam rot office it was already at $18.2 trillion. Regular Debunking Economics listeners will know the ability to rack up debt is a privilege for running the world’s reserve currency. There will always be demand for US dollar bonds. But why do so many countries seek US bonds, and how long can this imbalance continue for? Will there be a time when the US dependence on government debt will come back to bite it – or can we just sit and watch it grow? And what about China – can they grow debt ad infinitum?
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The multiplier is a basic concept of economics. If you come across some money and spend it, the person you spend it with then spends a proportion of it again, the recipient of which also spends some of it. In this week’s podcast Phil Dobbie talks to Prof Steve Keen about how savings and taxation influence the multiplier, including how different sectors influence the speed of the multiplier. Plus, the commonly held assumption that if money starts circulating too quickly then it’ll assume less value. And what about those who want to accumulate wealth – do they stop the multiplier working?
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Central banks started life as clearing houses and have evolved into instruments to, supposedly, protect the economy. But with interest rates at all time lows, often in the negative, have they gone as far as they can go? And how can they control the economy when governments can implement a fiscal approach at odds with monetary policy. Is it time to consider that Central Banks have a fuller role in the management of the economy, leaving governments to consider ow best to spend the money allocated to them? Or is that a breach of democracy? Phil Dobbie discusses the idea with Prof Steve Keen.
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Artificial intelligence is everywhere it seems, except perhaps in parliament and in quite a few newspapers. But what does it mean for the future of work. Conventional economists would argue that people freed from their jobs will be able to pursue other productive outputs, helping to grow the economy still further. Phil Dobbie asks Prof Steve Keen whether that’s likely to happen Or are we facing the danger of structural change that will lead to widening income disparity. And what can we do about it, other than becoming laggards?
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