Steven Keen on BBC’s HARDTalk By Houses and Holes in Economicsat 5:06 am on November 28, 2011 | 70 comments Find below a video of Steve Keen’s recent appearance on BBC HARDTalk. He stands up well under a withering barrage of questioning very much from within the neo-classical frame of reference, including some pretty weird ad-hominem attacks. Share on Facebook Share on Twitter Share on Reddit + - You may also be interestedEndless regress My estimable co-blogger Delusional Economics showed he was Guest Post: Leigh HarknessI discovered Leigh Harkness's web site a few months ago while doing Macro 101 - Foreign debt There have been a few posts on this blog recently about the fiscal Guest Post: It's a question of fundamentalsAs you can imagine we are a bit busy this weekend; so we have opened Comments david collyer November 28, 2011 at 7:50 am If engineers were as bad at bridge building as economists are at economics, they would be strung up from lamp posts everywhere. Steve Keen is a national treasure and Australia’s beacon of light. reusachtige November 28, 2011 at 8:28 am + 1 The_Mainlander November 28, 2011 at 8:34 am +1 Skoptimist November 28, 2011 at 9:20 am +1 And with the numbers needing to be strung up, it would make sense to get into the rope making business [email protected] November 28, 2011 at 1:47 pm Go long hemp futures ay? Skoptimist? amdweb82 November 28, 2011 at 10:10 am +1 too. He’s getting quite a fan club Alex Heyworth November 28, 2011 at 12:10 pm “If engineers were as bad at bridge building as economists are at economics, they would be strung up from lamp posts everywhere.” If engineers were as bad at bridge building as economists are at economics, there probably wouldn’t be any lamp posts standing for them to be strung from. Bobby Fischer November 28, 2011 at 1:16 pm +1 One of the few economists who actually makes sense macros November 28, 2011 at 8:16 am Helicopter drop Steve Keen! RusseII November 28, 2011 at 8:42 am So, you all agree that bailing out all the borrowers is the answer. macros November 28, 2011 at 8:59 am I think it is a stupid idea. However, I think that no matter what, the problems will be papered over – maybe helicopter style. In the end, I think that Steve is saying at the system will end up printing money to reduce private debts. This has already been considered in the US. He said that there is no leadership and that it should be a systemic process. Savers who wish to avoid being wiped out will need to look towards protecting themselves via hard asset exposures. Although I’m not optimistic that this will happen for most until it is too late. Skoptimist November 28, 2011 at 9:38 am What sort of hard assets are you referring to? Gold? or perhaps agricultural land? (I suspect you don’t mean residential land as it was largely responsible for much of this mess). macros November 28, 2011 at 9:49 am Gold, agriculture and sustainable companies. I would exclude residential land, for the reasons you mentioned – the reliance on debt. Skoptimist November 28, 2011 at 12:54 pm Sounds like a decent plan and one I concur with. I also like the idea of sustainable companies and have invested in a few of the smaller listed ones. For a country that has a fair amount of agricultural production there isn’t much choice with regard to listed agricultural companies. It seems as if the foreigners have all spotted the potential and bough many of them out. There are a couple of small ones, but not many. The Prince November 28, 2011 at 9:55 am Listed or unlisted companies Macros? Agree on gold/agricultural – I consider them security assets and have both in my portfolio, with a view to buy a lot more of the latter. macros November 28, 2011 at 10:02 am Prince, I think that in the long run it shouldn’t matter if they are listed or unlisted. In the short-run, I think that listed companies could be a risk if you utilise margin lending, or if they have debt funding risk during a volatile re-adjustment process. I personally think it would be the strategy of owning sustainable companies that you can put in the bottom of the draw for a decade. The Prince November 28, 2011 at 10:18 am Fair enough, have to agree with you there. Sorting out the wheat from the chaff is the best way to go – reliability of earnings and low or zero risk of funding/liquidity is key. There’s not a lot to choose from however – less than 20 listed companies IMO. With solid hedging techniques (and not using leverage – agreed), you can allay a lot of the volatilty that will inevitable surround any listed company price variations over that decade to get a return OF your capital. For unlisted, I’d prefer to own a few accountancy practices or funeral parlors…death and taxes will never go away. macros November 28, 2011 at 10:59 am Prince, I agree there are not of companies to choose from in Australia, however it may be appropriate to consider US listed companies as this opens up a lot more opportunities with the characteristics that we agree upon. This is a process that I’m working through at the moment. A death & taxes strategy sounds good. We could hope that the system becomes simplified, which would be bad for accountants, but that is wishful thinking. I guess that unlisted companies in the Ag space in Aus could work too. JC November 28, 2011 at 11:03 am Prince, just curious what listed agricultural stocks do you consider “investment grade”?? The Prince November 28, 2011 at 11:10 am I was referring to ag property, not listed stocks. However to answer your question, Graincorp (GNC) is the standout, but still not investment grade, IMO. There maybe some value in the small caps, but I haven’t found any yet. macros November 28, 2011 at 1:28 pm The be specific regarding agriculture, I think there will be opportunities in the property, commodities and a potentially a few of the companies in the sector. rob barratt November 28, 2011 at 10:58 am What kind of borrowers are we talking about? Let’s take the case of people with a large mortgage, negative equity and no job. If we decide to forgive the debt, huge issues will instantly become apparent; 1) Where do you draw the line between forgiving the debt and leaving the debtor with all/some of it. Will one person get to live in their “paid off” home while the guy next door has to slave on for another 30 years? 2) Imagine the scale of rorting that will accompany any such idea 3) With everyone now owning their houses, we immediately see the creation of a new equivalent to the land rich baby boomer generation, with those who were too young to benefit from the handout being effectively put at a huge financial disadvantage. People need to think very carefuly about the social consequences of forgiving debt. Alex Heyworth November 28, 2011 at 11:27 am Rob, I thought it was fairly clear from the interview that Keen was not proposing to give handouts to just debtors. The idea was to give everyone a handout, with the proviso that debtors had to use it to pay off debt. So the savers would have their savings, plus the handout. The debtors would have the “asset(s)” that they borrowed for, and no savings. So the savers are still better off. rob barratt November 28, 2011 at 11:57 am A perfect formula for inflation. If this were not true, it must be true that, if you print enough, debt goes away and everyone is now better off. Ergo, print continually… I think Steve has made a great case for the problem caused by debt in the economy, it’s just I’m not so sure about his proposed solution. Mav November 28, 2011 at 12:12 pm A perfect formula for inflation . I don’t think Keen was suggesting ALL household debt to be forgiven by handing out money. Basically, he wants to reduce the level of debt to a manageable proportion of GDP. . Also, there will be inflation IF the savers spend their cash handout and borrowers borrow again. To avoid this, RBA/APRA can mandate that interest rate/bank capital ratio required on any new household debt is sufficiently high to control inflation within the band. rob barratt November 28, 2011 at 12:20 pm I’ve probably got to such a great age that I now believe a) You never get anything for nothing; and b)Any formula that looks that good is going to suffer from the law of unexpected consequences. Alex Heyworth November 28, 2011 at 7:57 pm A one off substantial change in prices, which might result from the handout idea, is not the same as inflation (at least not as economists define it). I would have to see a lot more evidence before I believed that a handout such as Steve Keen is proposing would result in ongoing inflation. The_Mainlander November 28, 2011 at 8:59 am Disruptive. That is what Steve is and the Repressive State Apparatus won’t like or let it happen even though he is clearly correct. TM reusachtige November 28, 2011 at 9:01 am “How can we silence this fella?” macros November 28, 2011 at 9:58 am The_Mainlander, Steve is actually just pointing out what is already happening. He isn’t challenging much. Ben Bernanke – helicopter drop strategy (end-game) + The US already has been considering wiping out (or reducing) private debts, as many have completely stopped their mortgage repayments (some as a strategic choice). I think his words about a systemic process are just an acceptance of where things are already headed. The_Mainlander November 28, 2011 at 11:03 am I meant that he is this: “Steve Keen is a national treasure and Australia’s beacon of light.” apologies it did not link to the comment section. TM. Mav November 28, 2011 at 12:18 pm Ben Bernanke – helicopter drop strategy (end-game) . If you are referring to QE, TALF and the various alphabet soup of Ben’s bankster-friendly programs, all of those programs were directed at the creditors, NOT the debtors. So they resulted in either large reserves sitting idly on bank balance sheets (debt aversion from borrowers) or the money re-directed to play in the casino markets (asset inflation) or money lent back to the Treasury for easy profits. macros November 28, 2011 at 1:18 pm No I’m referring to Ben Bernanke making comments that he could always do a helicopter money drop, to spread the money everywhere – not just the banking system which has gone nowhere. flawse November 28, 2011 at 9:39 am Right helicopter drop our debt away. Hmmmm what about everyone else in the world we owe money to? We already run a CAD so our economy is geared that way. Drop money = more consumption = more Foreign Debt. The economy cannnot be fixed with paper money. Vast structural changes are required including the dismantling of large parts of the Service sector. Much of the featherbedding of industry has to go but also the stupid over-regulation of industry. Monopolies and Oligopolies have to be broken up. All this has to be done in the face of rapidly rising imported inflation as Asia reaps its rewards for 50 years of hard work and saving. It isn’t going to happen. macros November 28, 2011 at 9:53 am Flawse, I think Steve is referring to an international process and is not highlighting Australia. Too many people here focus on Australia, but we are only a leaf on the tide. I’d personally bet on it having a greater than average possibility in some form or another (not saying that I like it – I’m just accepting things for what they are). By the way, you say “The economy cannnot be fixed with paper money”. Well, this is not relevant. We have a paper money problem that will be fixed with paper money. flawse November 28, 2011 at 10:53 am macros…unfortunatley we don’t have a paper money problem. We have a structural problem. macros November 28, 2011 at 11:02 am Yes, a structural paper money problem. We also have an energy issue, but that is a separate issue which is putting fuel on the fire. As Ben Bernanke says, they can’t print oil. flawse November 28, 2011 at 11:50 am macros…nooooo Our structural problem is a real one. We consume too much, produce too little, save nothing, have a service sector, that produces basically nothing, that is way out of balance with the rest of the economy. The wrong people get paid too much. Producing people get paid too little. The money flows are only the symptom of the underlying actual real problem. macros November 28, 2011 at 1:20 pm flawse, The underlying actual real problem is due to the imbalances caused by an exponentially growing money debt system, which results in economic issues such as producing too little and consuming too much. The things you mention are the symptoms, but not the problem IMO. flawse November 28, 2011 at 11:53 am macros…I can’t see why the Chinese workers, who have worked really hard, saved as much as they can, enjoy a much lower living standard than we do, now should just forgive us our debts? poida November 28, 2011 at 12:02 pm flawse I agree the producers get paid too little (only CPI wage increases for those who add value here where I work. 3% is fuck all) And we are expected to watch and applaud when the winners in the world make out like bandits (i.e anyone in the FIRE sector) Zero tax on value adding labour, 50% tax on FIRE sector profits. I will not dignify those profits as “earnings” and of course no Negative gearing, proper risk & reserves for the banks (Deep Thought you are the unsung hero of Australia – I sips a bit of bitter beer for you) and no more fuckin’ debt for anything. Fer fuck’s sake, do we have enough already? Debt that can’t be paid will not be paid. But what about the interest on it, some think, what about the interest… So we keep the decepid system rolling along, month by month, to ensure the important people get their vig. macros November 28, 2011 at 1:23 pm The Chinese workers have worked hard and saved… to have the Government spend the money for them on infrastructure programs. What debts? Do you really think that they will ever get back real value of the US bonds they hold, which, in the end, are simply a tribute paid to the US for the privilege of using the current international monetary system. The view that the Chinese are savers and the US are debtors does not encapsulate the dynamic that exists. The Chinese Govt has used all that savings to leverage their government debt system. Jimmy November 28, 2011 at 9:41 am Interesting point of view, although I disagree about his assessment of Japan, which he uses as the main basis for why we have to lower debt levels. As we’ve seen on Macrobusiness, and the Economist, Japan’s per capita wealth has growth faster than the US (and most other Western countries) over the last 10 years. Alex Heyworth November 28, 2011 at 10:37 am An extremely impressive performance. Jono November 28, 2011 at 10:40 am Steve Keen did diagnose the problem quite well, but his proposed solution of a debt jubilee, as sketchy and ambiguous as it is, would be a terrible mistake. Forgiving housing debt would be a travesty and an insult to those people who waited patiently, built savings and lived within their means. Steve Keen has a very narrow perspective, whereby everything is about debt levels, and the entire society and its regulations need to be shaped so he can graph the debt levels, fit them to his econometric models and feel comfortable. Just like any greedy bureaucrat, he wants to see GDP numbers continue to tick upwards so that government coffers are always full and ready to spend on their pet projects. However, he totally ignores praxeology. The idea that incentives matter and that individuals make purposeful decisions to maximise their perceived happiness. Keen totally ignores the role of savings in capital formation and fueling entrepreneurship. He seems to think GDP numbers are the only measurement of our standard of living and prosperity. Moral hazards need to be considered, and debt forgiveness would be the mother of all moral hazards. The Prince November 28, 2011 at 10:48 am I would suggest you read his blog (and published literature and his econ lessons) Jono – and not take his entire philosophy from one 20 minute interview. Although I (and UE and others here) agree he focuses on the debt demand/credit side of the equation without adequately referring to the regulatory/legislative supply side with housing (and indeed with general macro/geopolitical), he does cover many of the issues you are raising there, and almost from the Austrian prism you seem to be looking through. Alex Heyworth November 28, 2011 at 11:28 am Jono, see my response to rob barratt above. The moral hazard angle is minimized by giving everyone a handout. cyrusp November 28, 2011 at 12:09 pm “Keen totally ignores the role of savings in capital formation and fueling entrepreneurship.” That’s because in a modern capitalist economy savings do not create capital and don’t fuel entrepreneurship. And they haven’t done since 1500AD. Austrians really need to understand the implications of endogenous money creation. Read Keen’s “The Roving Cavaliers of Credit” for a detailed explanation of endogenous money. http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/ Looger November 28, 2011 at 9:47 pm Steve’s very much a card carrying deflationist I think. On one occasion I recall him saying that because debt levels are so high he thinks there’ll be deflation regardless of what governments do and I imagine that includes debt jubilees, so in his book the savers will survive. But the word “jubilee” is certainly gonna scare some people and I think the rationale behind it – enabling deleveraging to occur in a reasonable time frame so that we don’t end up like Japan or worse with WW3 – could do with more emphasis at times… And some will be highly resistant to the idea – It could be a while before Steve gets a call from the Fed. Diogenes the Cynic November 28, 2011 at 10:42 am Well done Steve, keep fighting the good fight. Bankers quake in your shoes! Is it just me or is the interviewer extremely annoying? I saw her on another session talking to Kyle Bass and she kept on interrupting or talking over his answers. macros November 28, 2011 at 10:47 am Man, she was so rude and annoying in that Kyle Bass interview. He had some great comments however. Unconventional Economist November 28, 2011 at 10:54 am Kyle Bass hit her out of the park. 3d1k November 28, 2011 at 11:37 am +1 to each of the above. The Prince November 28, 2011 at 10:55 am Agreed. Seems to be a trait with BBC reporters/interviewers. Nuance and subtlety is lost on them.. Or would you prefer the fluffy interview style Down Under or the retarded US style mainly employed by FOX and CNBC et al… macros November 28, 2011 at 11:04 am Some of those CNBC interviews are hilarious. They have no clue, yet think they know more than those whom they interview. JC November 28, 2011 at 11:05 am haha…..watching CNBC can be painful. Fox is just downright rude and combative with guests who’s opinion does not fit the Fox agenda. Mav November 28, 2011 at 12:24 pm I enjoy the confrontational approach taken on BBC HardTalk, rather than the softball questions and the “both sides are right/wrong” approach taken by the likes of CNBC. . Oh, And I don’t watch Fox. 3d1k November 28, 2011 at 12:36 pm Oh, I bet you do, secretly… 3d1k November 28, 2011 at 12:35 pm I like the usual Hardtalk presenters (and the in-depth grilling that ensues), just not this one. Jason November 28, 2011 at 12:56 pm That was my initial thought too. But after thinking about it I realised that reporter was ACTUALLY interviewing, which is rare to see nowadays. It’s refreshing to know that true journalism isn’t totally dead yet. Most journalists have a list of pre-determined questions they just fire off one after the other and smile and nod during the response while thinking of how to enunciate the next question. Most interviewers nowadays don’t bother listening to the answers. This one was actually a) trying to understand what Steve was talking about, and b) prompting him to clarify his position when something he said could have been taken out of context Alex78 November 28, 2011 at 11:35 am I’ve followed Steve’s blog for a few years now. Why isn’t endogenous money creation a bigger elephant in the room with everyone interested in economics?! If there was a theory that you can debunk straight off the bat with real-word consequences over how finance fundamentally works it would be the money-multiplier and exogenous (reserve bank) money creation. I asked Steve about this once and he said the people at the RBA weren’t interested in that sort of thing. My jaw is still on the ground, three years later. poida November 28, 2011 at 12:08 pm it’s called Group Think. You will not go anywhere fast in this country if you have an original point of view. SK has one and he will not be listened to by anyone who sets policy. Hence the 100% Neo-liberal economic policy we have enjoyed in AUS for the last 30 years. It goes from lowly undergraduate economics majors all the way to the Treasury and RBA. Alex78 November 28, 2011 at 12:37 pm Having got an economics degree from one of the high temples (Melbourne University) and worked in state government I know the ways of Group Think well. Underpinning it is a tendency for academics and politics to have a ‘keep calm & carry on’ approach. Ninety-nine wouldn’t be aware of their errors and that the past thirty years have provided an epic false-positive confirmation of neo-classical theory (pre-GFC that is). In Victorian government I can confirm the ‘shortage of affordable housing’ meme is alive and well. Also agriculture exports to Asia will save the Vic economy. They also love population growth. Melbourne will be 6 million + in a few years. That equals more jobs, houses, men building houses, jobs and houses…. *sorry, rant over* respect my authoritah November 28, 2011 at 2:48 pm When I listened to Keen’s solution about giving everyone money and those with debts must use the money to pay off the debt it sounds ridiculous regardless of whether or not it would work. “Ridiculous” on the basis that whoever thinks that this could be considered viable politically or within the commentariat/punditry. But then I remembered that Kevin 07 gave almost everyone $900 post GFC — AFAIK with no strings. So a general handout to everyone is not without precedent. What Keen is proposing is a far greater scale of course, probably between one and two orders of magnitude. At this stage it seems to be pre-pre-preliminary. I’ll look forward to reading a more fleshed out proposal. Houses and Holes November 28, 2011 at 2:50 pm Political naivety aside, it actually works… Shay November 28, 2011 at 3:36 pm 2nd interview I have seen with her recently. Not only is she annoying, but a crap interviewer. Thought he came across as being a bit sketchy on his proposals which wad disappointing. Maybe in a utopian environment his proposal would work but can’t see it working in reality. I probably need to read up more on his work though Al November 28, 2011 at 4:02 pm So let’s say government hands out $50K to everyone. Those with mortgages reduce their debt, and those without mortgages… guess what.. go and get a mortgage. And here we go again – First Home Vendor’s Boost and more leverage and asset bubbles. The system needs to change first. And I really like Steve Keen differentiating between debt used for asset price speculation and business investment. Leverage to invest into shares and property should be closely monitored. Leverage to invest into, let’s say, making ipods should be easier to obtain. My stupid proposal: You want to borrow to buy a house to live in – required to have 30% deposit. You want to buy an investment property or buy shares – required to have 60% deposit. At the moment this is the other way around. I know people who managed to borrow 100% for investment properties. According to the bank’s brilliant risk management people, you are collecting rent, so no deposit needed. They are negative geared so all they are doing is speculating on asset price. cyrusp November 28, 2011 at 7:28 pm “So let’s say government hands out $50K to everyone. Those with mortgages reduce their debt, and those without mortgages… guess what.. go and get a mortgage.” Unlikely. The banks would be so scarred from such a move that they would likely stop ponzi lending and therefore cause a credit crunch. Assets prices would fall and there would be no incentive to leverage up again. wycx November 28, 2011 at 7:21 pm Distributing money to the population to control debt:GDP. That is pretty much a National Dividend, no? Maybe the idea will have better luck this time around.