If you get a spare ten minutes today, watch the above video interview, aired earlier this week on ABC’s The Business, featuring Lord Adair Turner – former chairman of the UK Financial Services Authority and current research fellow at George Soros’ economic think tank, the Institute of New Economic Thinking.
In the interview, Turner channels Steve Keen and discusses the unsustainable explosion of private sector debt across developed economies, which has created a fundamental problem of instability and prevented economies from recovering.
Turner identifies three key reasons why private debt has exploded across the developed world:
- “The extraordinary extent to which banking sectors throughout the world do not lend money in a way that stimulates the economy, but lend money essentially to buy existing real estate”;
- Rising inequality, driven in part through rising land values; and
- Related to the above, technological advancement, which has created extraordinary returns to owners of capital, while wiping-out (automating) jobs for less skilled workers.
Turner identifies three main solutions:
- Increasing the minimum wage;
- Macro-prudential controls on mortgage lending; and
- Freeing-up land/housing supply.
He also notes that real estate booms and busts are highly destructive, and interest rate increases alone are ineffective, since they harm the broader economy long before it cools housing (hence the need for macro-prudential).
Overall, the interview is a nod to MacroBusiness’ campaign to free-up land supply and planning, tax reform (including ‘abolishing’ negative gearing and implementing a broad-based land tax), and implementing macro-prudential controls on mortgage lending.
unconventionaleconomist@hotmail.com
