Tag Archives: banking

How to Safely Deflate the Housing Bubble

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[Sent to my one remaining plausible outlet 3 May.]

The main reason for stratospheric housing prices is that the commercial banks are allowed to create too much credit. The failure to understand and remedy this structural defect poses a serious threat to Australia’s economic stability and social cohesion.

Housing prices are an election issue. They are also a prime driver of severe inequality and a serious threat to the stability of the Australian economy. Foreshadowed rises in interest rates threaten to collapse the very high levels of household mortgage debt and bring on a serious recession. The dream of home ownership is disappearing for many. Homelessness is a rapidly increasing problem. Such inequality will further undermine our once-liberal society.

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The Myth of the Robust Deregulated Economy

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[Published at Pearls and Irritations 3 Dec 18]

The economic ‘reforms’ of the 1980s are supposed to have set Australia up for an unprecedented run of prosperity: 27 years, and counting, without a recession. The economy’s robustness is supposed to have saved us from the Global Financial Crisis. In fact our economy has been unstable, and its performance has been mediocre verging on anaemic. Any appearance of robust prosperity is due to a huge run-up of debt, some direct intervention, high immigration, overwork, selective blindness and over-active imaginations.

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Trying to Clarify Modern Money Theory

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coinsmedievalModern Money Theory is about how our monetary system works in the complicated real world – with a central bank, government spending of new money, private bank lending leveraged off the government “base” money, and the central bank and government kept separate by complicated rules allegedly to ensure “sound” money.  It is such a convoluted subject that there are about as many accounts of how it works as there are “experts”.  MMT cuts through a lot of that to a story that makes good sense and is quite contrary to a lot of things said by politicians and mainstream economists.  So MMT seems to be a very good thing.

Yet the most accessible book on the subject, Modern Money Theory by L. Randall Wray, concludes with the Chapter What is Money? that I find to be convoluted and confusing.  Much of it is built on the assertion that “goods cannot buy goods”, which I find mystifying.

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Sack the Economists

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… and disband their departments

The honourable Alan Greenspan testifies before...

The honourable Alan Greenspan testifies before the House Financial Services Committee. (Photo credit: Wikipedia)

[My silence for some time here has been mainly because I was focussed on re-packaging my economic ideas in a form that might gain more traction.  So, there is a new book manuscript of the above title.  It will help to promote it (to publishers) if I have readers’ reactions.  Therefore, if you will undertake to give me feedback, I will supply you with the draft MS (120 pages, 2.2 Mb pdf).  You don’t have to be expert, it’s for a general audience and so I want feedback from that audience.  Most helpful to me will be comments on its readability and interest.  Of course any discussion of its arguments are also welcome.]

Here is the first part of the introductory chapter.  I will post more in a few days.

Chapter 1.  Economists Don’t Know What They’re Talking About

In 1994 Paul Ormerod published a book called The Death of Economics1.  He argued economists don’t know what they’re talking about.  In 2001 Steve Keen published a book called Debunking Economics: the naked emperor of the social sciences2, with a second edition in 2011 subtitled The naked emperor dethroned?3.  Keen also argued economists don’t know what they’re talking about.

Neither of these books, nor quite a few others, has had the desired effect.  Mainstream economics has sailed serenely on its way, declaiming, advising, berating, sternly lecturing, deciding, teaching, pontificating.  Meanwhile half of Europe and many regions and groups in the United States are in depression, and fascism is making a comeback.  The last big depression spawned Hitler.  This one is promoting Golden Dawn in Greece and similar extremist movements elsewhere.  In the anglophone world a fundamentalist right-wing ideology is enforcing an increasingly narrow political correctness centred on “free” markets and the right of the rich to do and say whatever they like.  “Freedom”, but only for some and without responsibility.

Evidently Ormerod and Keen were too subtle.  It’s true their books also get a bit technical at times, especially Keen’s, but then they were addressing the profession, trying to bring it to its senses, to reform it from the inside.  That seems to have been their other mistake.  They produced example after example of how mainstream ideas fail, but still they had no effect.  I think the message was addressed to the wrong audience, and was just too subtle.  Economics is naked and dead, but never mind the stink, just prop up the corpse and carry on.

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Finding a Framework for a New Economics

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[In preparing a pitch to some possibly supportive people, I realised I have not spelt out in brief form the argument that economies are complex self-organising systems.  There is a straightforward logic, it is not simply a preference pulled out of the air, or the depths of my psyche.]

Many economists, and more non-economists, agree that economics needs new ideas, given the comprehensive failure of the mainstream to foresee the Global Financial Crisis and its continuing failure to lift the US and Europe out of deep recession or depression.  Yet few seem to know where to start, and there seems to be little agreement on how much the subject needs to change.  When proposals appear that might begin to address fundamental problems, many economists seem to recoil, and others seem simply to fail to recognise that the proposals have any relevance.

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BoE Economist: Economies are Wild Horses, not Rocking Chairs

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[After a break for family business and time out, here is a bit of vindication.]

Olaf Storbeck is the International Economics Correspondent with Handelsblatt, Germany’s business daily. Based in London, he is writing about current economic research.  Here he interviews Andrew Haldane.

Andrew Haldane is the Bank of England’s Executive Director for Financial Stability. I recently talked to him about the crisis of contemporary economics and the way forward.

You are vocal critic of mainstream macro economics. How does this square with the tradition of central banks who historically have been very conservative institutions.

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Eight Elementary Errors of Economics (slightly revised)

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The long, and slightly modified, version of Eight Elementary Errors of Economics is now on SteveKeen’s Debtwatch.  Reblogged on Business Spectator, 22 June and The Bull 23 June.  I consolidated two of the previous points and added what is now the final point on emergent wealth of land. See also on Real World Economics Review Blog, 7 June, with long discussion.

Post edited 4 July:  the full modified version now follows, so it’s all consolidated here.

The Global Financial Crisis, the extreme inequality of wealth world-wide, the materialism of modern life and the dire state of the planet are not accidents, nor just unavoidable consequences of the nature of things.  They are the result of the modern practice of economics, which makes elementary errors of accounting, evidence, perception and theory.

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Eight Elementary Errors of Economics

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[This is my most recent attempt to encapsulate the deep flaws in mainstream economics, and the sensible alternative struggling for recognition.  Posted 7 June at Real World Economics Review blog, with a lively discussion following.]

The Global Financial Crisis, the extreme inequality of wealth world-wide, the materialism of modern life and the dire state of the planet are not accidents, nor just unavoidable consequences of the nature of things.  They are the result of the modern practice of economics, which makes elementary errors of accounting, evidence, perception and theory.

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Nature and Roles of Money and Banks

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[This article is based on extracts from The Nature of the Beast: how economists mistook wild horses for a rocking chair eBook.  Guest-Posted on Steve Keen’s Debtwatch site 1 June.]

Any discussion of the nature and role of money in modern economies typically brings out a plethora of confusing or conflicting theories, claims and counter-claims about what money is, what role it plays, what dysfunctions it might be responsible for and how they might be fixed.  One common set of claims is that money is a unit if account, a medium of exchange and a store of value.  I argue the first property is a trivial one and the last is only true if the money is wholly or in part a real commodity, like a pig or some tobacco.

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How banks destabilise the economy – and take your money

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[Extract from The Nature of the Beast]

Almost every institution involved in the financial system is, in the jargon, highly leveraged.  This is as true of old-fashioned banks with fractional reserves and mainstream banks with capital adequacy requirements as it is of shadow banks. What does “highly leveraged” mean?  It means you are betting a small amount of your own money plus a lot of other peoples’ money on a large return.  If the return is positive, you make a handsome profit.  However if the return is negative you lose not only your stake but potentially everything you own.

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