An interview with Professor Michael Hudson on the Real News Network, where he focuses on US house prices, the ongoing problem of private sector debt (particularly student debt) and the lacklustre performance of the economy.
Professor Steve Keen is an economist working in the post-Keynesian tradition at Kingston University here in the UK. He is well-known as a critic of mainstream economics (see his excellent and wide-ranging book Debunking Economics) and its failure to predict or satisfactorily explain the Great Financial Crisis (GFC) and recession, which he did some years before it occurred. His latest book is Can we avoid another financial crisis?, a 130-page polemic aimed at the intelligent layman.
Keen’s central thesis is that mainstream economics failed because it ignores the role of private debt creation by the financial system, known in the jargon as ‘endogenous money’. This grew unsustainably in many countries in the decades prior to the crisis and drove a boom in the real economy and, even moreso, in asset prices (stock markets and housing). Credit expansion in economies such as the US and UK started growing consistently more rapidly than GDP in the 1980s, following the deregulation of the financial sector. Although it was subject to cycles, the trend in private debt as a share of GDP was upward. When its growth slowed or even went into reverse, the result was a severe recession and the aftermath is still with us both economically and politically. Continue reading
An eleven-minute interview with post-Keynesian economist Steve Keen, which begins one minute into the video. He discusses the huge accumulation of private debt in the US and how it is to blame for the Great Recession and the aftermath of sluggish growth. This story has been repeated in many countries across the world. In my view this is only part of the story, but it is an essential part. He usefully counters the hysteria over public debt and the ignorance over levels of private debt with some lessons from history.
Recently, the economics editor of the Guardian newspaper in the UK, Larry Elliott, presented us with a comparison of the Great Depression of the 1930s and now. In effect, Elliott argued that the world economy was now in a similar depression as then. The 1930s depression started with a stock market crash in 1929, followed […]
Did anyone forecast the Great Recession that has created so much suffering across the world for close to a decade? The answer is yes, but they tended to be from outside positions of power and either kept quiet or were ignored.
The Bank of England’s Chief Economist, Andy Haldane, recently claimed that ‘big improvements’ have been made in its ability to forecast the British economy. If this is true, it is undoubtedly welcome.
Haldane highlights the failure to take account of high and rising borrowing levels, but still admits that the Bank is ‘not going to forecast the next recession’, since their ‘models are just not that good’.
Greater forecasting success fell to more heterodox economists, those from outside the mainstream, whose work was more prescient. Continue reading
Global stock markets ended 2016 near record highs and have started 2017 in a similar vein. Optimism about global economic growth, employment and incomes has bounced. The latest data on manufacturing, as measured by the so-called purchasing managers’ index (PMI), the view of companies on their sales, exports, employment and orders, show a rise in […]
“The important thing for Government is not to do things that individuals are doing already, and to do them a little better or a little worse; but to do those things that at present are not done at all.”
John Maynard Keynes (1926), The End of Laissez-Faire
I like this quote from the great economist, but although it may be clear in some instances what is ‘not done at all’ through private initiative, there is still plenty of room for debate about what the state should do.
One must remember that ultimately Keynes worked hard during the latter years of his life to try to save capitalism from itself by remedying its apparent defects, such as mass unemployment and poverty. He lived through two World Wars and the intervening Great Depression of the 1930s. These disasters profoundly shaped his thinking about economics and the role of state intervention in the economy. It is therefore misinformed to decry such intervention as socialist.
The mixed economy of the post-war years in the end outperformed state socialism both materially and socially, although its progress was halted in the 1970s by the crisis of ‘stagflation’ (the novel phenomenon of inflation and unemployment rising together).
I think that Keynes and today’s post-Keynesians are wrong that there is a permanent solution to recession through state intervention, but that despite this, we should not reject the latter which remains vital to the positive evolution of the economy and society.