Keen: We need bubbles or bastards to grow

Steve Keen has joined the Modern Monetary Theorists today in asking whether or not we need a surplus at Business Spectator:

…the correct analogy for the government is not that it is like a business (or like a household), but that it is like a bank. Private banks and the government can both create money by their activities; banks by lending, and governments by running deficits. If we insist that the government actually takes money out of the economy every year by running a surplus, then the other has to compensate to make up for it, or the money supply will evaporate.

He goes on to describe how public and private debt have waxed and waned in a counter-correlated fashion over the past few years so that Western economies can grow:

Australia avoided a recession during the crisis because private debt continued to grow, but even so the same pattern is evident. Falling government debt was possible from 1993 till 2008 because private debt grew enormously (and financed a housing bubble as it did). Then from 2008 onwards, a rising level of government debt countered slower growth in private debt.
Which would you prefer: a world in which monetary growth depends solely on asset price bubbles financed by private lending, or one in which monetary growth also comes from government spending on welfare and public infrastructure?

Neither, thanks. The former for obvious reasons, the latter for the reason that the pollies won’t make good choices. They give the money away as pork.

Fortunately there is a third choice. In simplifying his argument, Keen does not mention the third sector that makes up GDP in the MMT universe: the external sector. So long as we run a current account deficit we are reliant upon  either public or private debt to grow. But not if we turn ourselves into an export powerhouse with an external sector surplus. Then we can grow without either bubbles or barstards.

I can dream…

Houses and Holes
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  1. The Patrician

    Ahh the Magic Pudding…as economic theory it makes engaging children’s literature.

  2. Dream on HnHs but one day your dream will come true. Whilst an economy can grow for a very long time from debt and asset bubbles some day that stops without pursuing productive investment and output. Which day that will be is the very hard question to answer

    • I’m still waiting for the same over here in NZ. But as you say, when those in power will finally wake up is anyone’s guess.

    • “…some day that stops without pursuing productive investment and output.”

      … and even given the achievement of “productive investment and output”, in a finite world of finite resources, the more “productive” we are, the faster we consume / pollute / destroy those finite resources.

      And all for what? To generate ever more “growth”, as measured in debt-money, so that the international usurer class can keep on sucking out a “yield” / “return” on electronic bookkeeping entries.


      Everyone (with rare exceptions) is nucking futs.

  3. I agree with you final comment. By ignoring the external sector keen has still yet to grasp the full mmt framework. Also, A bit disappointing he does not flesh out the full central bank architecture showing the transmission mechanism of money creation via the treasury.

    A bit disappointed with his effort tbh. If you want to discuss mmt here I suggest you post more links from Mitchell or mosler.

  4. While your comment is true at a national level, it isn’t helpful at a global level. Sure we can run a CAS, but one country’s CAS is another country’s CAD. I’d prefer a sustainable system rather than my country winning for a short time in an unsustainable system.

    • Duh!!!!!
      Why do MMT’ers think we are so damned stupid?

      Wew’re trying to make our own copuntrry sustainable and a chronic CAD financed by asset sales of mines houses and farms to foreigners, along with the internal econom y distortions and waste that producesd, is not a sustainable situation no matter how you look at it.

      • Peter Fraser

        mig it’s all debt backed, every last dollar in the system.

        Even the dollar coin in your pocket is government debt.

      • migtronixMEMBER


        I know and that’s what’s unsustainable! Especially since the coin has a “real” cost of production

  5. elasticMEMBER

    But does the government create money through deficit spending?
    That would depend on whether the government spends first and sells government bonds later.
    If they sell the bonds first and they are purchased with pre-existing money then no new money is being created.

    • It makes no difference at all. So long as government “spending” is done via bonds issued at usury, rather than issuing usury-free sovereign currency, the government is NOT creating any “money”; all it is creating is a heavier debt burden, and a transfer of the nation’s wealth to transnational usurers.

      Edit: there is no such thing as “pre-existing money”; there is only newly created debt plus usury obligations. Any “pre-existing” money available for purchasing something (ie, so-called “savings”), is simply a collation of pre-existing debt+usury obligations of other people.

  6. We are currently a resource export powerhouse!

    Are we likely to rival Mexico’s transition to a manufacturing export powerhouse, or Germany’s? Not a chance in the current setting: high wages, low productivity, high energy costs, currency disadvantage (both ways – inputs/outputs) and regulatory handbrakes.

    Hopefully we’ve got a Jobs or a Zuckerberg or a Gates imminent.

    • migtronixMEMBER

      Exactly! Though good luck with the tech, we’ve already exported them…..

  7. migtronixMEMBER

    Export powerhouse? We already are!! Why do you think the dollar is headed back over 93?

    We are world leaders at exporting our future…

  8. reusachtigeMEMBER

    Steve Keen? Isn’t he that bloke who sold his house thinking a crash was on yet it has at least doubled in price by now? LOL! Clearly someone to listen to…. lol (just in case you missed the first one)

  9. Keen’s analysis flawed; was debunked in weekend links —

    “Keen fails to address the absolutely critical point, that the govt deficit (thence, rising GDP) is NOT generated by the govt creating “money”. On the contrary, under our present usury-based monetary system, it is generated by the govt creating debt, owing usury. Some 70% of which is owed to “non-resident holders”.

    Until Keen takes the next step in logic and enlightenment, to clearly identifying that whilst ever govt deficits are “financed” by selling IOU’s at usury to the transnational usurer class — just as private debt-financed “GDP” growth is also — then analysis of this kind is (inadvertently) misleading, and dangerous.

    In a world where, thanks to the blind / ignorant / “educated” acceptance of the plethora of false rationalisations and sophistries of usurious lending, all “money” now comes into existence only in the form of IOU’s at usury, with the consequence of enslaving the debtor, either directly, or indirectly, to transnational bankers (who have demonstrated nil respect for local sovereignty or national wellbeing), the whole Private debt vs Public debt argument is a complete nonsense.

    Educated fools can argue till the cows come home about all the minutiae and semantics of variances in usury rates, maturation terms, government credit ratings, etc etc blah blah blah. In the Big Picture, it is all so much pseudo-intellectual noise, a sound and fury signifying nothing. Because the fundamental truth is this: There is no essential difference between Public and Private debt-at-usury financed economic “growth”. The ultimate outcome, in the long run, is identical in both cases. Usurers grow richer; everyone else becomes their slave; the planet’s finite resources are financialised (“priced”), plundered, polluted, and consumed, in pursuit of endless “growth” (in debt, thus, usury revenues to the money-lenders).”

      • Senexx,

        Have tried twice to submit a critique of that Skelton paper, but both times it has disappeared into the ether (or Spam folder?).

        Have a very close look at (one example) her Section 5, the paragraph beginning “Indeed, the entire process of taxing and spending must, as a matter of logic, have begun with the government first creating (and spending) new government money.”

        Her thesis as stated in the abstract pivots on section 5 … and it is historically ignorant, woolly-headed academic theoretical garbage.

        Just consider for a moment that (1) commercial banks create “money” (as debt/loans) which can be used to pay taxes, and (2) she is referring to the USA Federal Reserve system, and (3) there was a time when you could pay taxes in tobacco and hemp.

  10. “But not if we turn ourselves into an export powerhouse…”

    That’s like the economist joke about hypothesizing the existence of a can opener – where none exists – to open a can.

    Since the second world war that has been an Australian ‘dreaming’ and, chances are, will continue to be.

  11. Isnt Keens problem with a ‘permanent budget surplus being a poor model’ ?

    Sure I get the point about him not incorporating exogenous supply. But basically he is releasing his Minsky model view showing fairly clearly what happens to demand as a budget surplus is sought.

    In the context of a government looking at some fairly major social transformations I think the points he makes – essentially wrapped up as ‘no the focus on a budget surplus is not inherently going to help us’ – are quite valid.

    I tend to agree with the criticisms made by Op8 etc – there are shortcomings to his model. But as a basic guide to why the budget surplus plucked out of thin air to become mandated at some point ten years down the track after the Boomers have had their slurp at their magic pudding (and I even agree with flawse and with patrician that yes there is a magic pudding element to it all) and with the 1%ers knowing nothing but magic pudding since 2008, is pretty much bull, and his model raises some quite cogent points.

    You wont get any more fervent adherent than me to the need for Australia to develop an economy that earns its way from overseas – as opposed to borrow from overseas and sell off assets to do so, or domicile international subsidiaries and shelf companies in the mining sector to shepherd resources earnings to overseas – but with everyone else in on the magic pudding I think it fairly arbitrary to start pointing at Keen with the accusation, when he is making a fairly valid point about permanent budget surpluses being the backdrop for some major ideological pursuits by the Torynuffs (aided and abbetted by ALParatchik whig aspirations).

    • +many, well put.

      If you wanted to criticize Keen, you should start with his use of GDP as an indicator of growth. But then to change this, you need to change the way the world of finance and economics works now. That’s not going to happen anytime soon.

      In light of this, his analysis is good and he does make some good points. Now remember his assumption about running a continuous, small deficient which leads to a asymptote in the debt. I don’t know how feasible this is and at what point this relationship breaks down.

      • migtronixMEMBER

        If you wanted to criticize Keen, you should start with his use of GDP

        Op8 did!! Tore it apart even

      • @mig And I don’t disagree with Op8. Good luck changing it in the near future though.

      • Tell me if I am wrong but hasnt Keen himself torn apart GDP a number of times?

      • @Gunna I am not as familiar with all of Keen’s work but i suspect he has. In engineering science, this would akin to using the wrong cost function.

        However, if your boss insists on using the wrong cost function, you just have to optimise it.

    • Gunna,

      “Isnt Keens problem with a ‘permanent budget surplus being a poor model’ ?”

      Yep, I think that’s precisely the problem. Per my critique on the weekend, it appears to me that he does indeed understand the bigger issues — note in particular how he cut himself abruptly short in a stream of consciousness flow re permanent deficit being “the stupidest” — but alas, in striving so vigorously to debunk one bogus meme, he fails to address what are the very serious, indeed dangerous, implications of his own counter argument.

      • Well maybe we should get everyone knowing the current paradiogm is bull to sit down around the table and get the complete theory of economic bull as is being applied to the here and now by a current government mantra in a form which will all have us singing the same chorus.

      • Indeed Gunna. The real challenge you have there, is identifying only those participants in such a forum who (1) know it is all bull, and also (2) have a good heart, a genuine care for the greater good, and no self-serving financial motives.

        Steve is one. I suspect Michael Hudson is another. Beyond that, it starts to become a bit of a head-scratcher …

    • ++ many
      Goodness, what to do when Keen starts sounding like Krugman. Hasn’t this exact austerity GDP conundrum been Krugman’s raison d’être since at least 2009.

  12. What about running a barter system with gold coins used to cover any temporary mismatch across time and quantity?

    Would such a system allow growth? Come to think of it – what is growth? Is growth desirable? To who?

  13. The former for obvious reasons, the latter for the reason that the pollies won’t make good choices. They give the money away as pork.

    At least with the pollies, you can kick the [email protected]#@#ts out every 3 years.

    With the RBA and Big 4 banks printing money, it is an unelected, perpetual plutocracy, with the RBAcrats and banksters patting themselves in the back and grabbing million $ in salaries and bonuses while passing the moral hazard risk to the taxpayer.

    • ^^This^^

      One of the biggest problems is the transnational usurers’ shenanigans are hidden behind layers and layers of grandiose bureaucracies, “regulators”, and “independent” institutions, all purportedly acting for the greater good of the citizenry.

      A massive improvement would simply be to eliminate all those layers. Make the elected politicians directly, unequivocally responsible for the “money” supply of the nation.

      Then lynch the f***ing scum (at the ballot box), without mercy, whenever they inevitably sell the voters out.

  14. SweeperMEMBER

    The government can’t permanently be in deficit and the same households can’t keep on borrowing. Surely the best way forward is for the government to indirectly control the level of private sector investment (not to the China extreme though).

  15. In most of the first world, during the era 1940’s onwards as automobile based development in abundance kept urban land prices low and stable, booms and busts were expressed far more in volume of supply, not prices.

    This was a new phenomenon and a clearly beneficial one on a multitude of levels, social as well as economic.

    Urban planners have decided to end this because of alleged external costs. The connection to price volatility in urban land and the destruction of capital that should have been devoted to productive uses, has not yet been made by most people in the mainstream.

  16. ComingMEMBER

    This is a fascinating argument going

    Is there anyone else here who just cant quite understand “money”?

    I am very interested and try to understand but every time I think im close, I try to explain it to someone else or ask myself a basic question and realize that I dont really understand it at all

    Are there any non-biased links people can provide? Preferably not too technical: Id like to share with some friends as well

      • intertubernet

        Bitcoin protocol. I was just getting interested in the idea when Ozziecoin went from $0 to $2340 AUD, but before I could despair it crashed to 3c after news came out that everyone associated with it was a corrupt member of the Liberal Party.

        But I repeat myself.


        @intertubernet Terrible thing to say. We are not even listed on a cryptoexchange. We are not auscoin. You may have gotten us mixed up.

      • intertubernet

        Apologies ozziecoin, and thanks Mig!

        Yes, just a lame attempt at humour (aimed at speculators NOT genuine innovators). I am actually very supportive of all efforts to get a stable, widely supported digital currency up and running.

  17. I can see from some of the comments ideology continues to trump empiricism. Not much you can do for that lot.

    As for debt free money – depends if you mean without borrowing (bonds) or without paying taxes (as that is effectively a debt). If the former, it can be done without new styles of money, just a ZIRP, if the latter – eventually money stops circulating and inflation goes through the roof.

    There is no need to change the system to get this outcome.

    • The idea of debt free money is that government literally prints the money it needs, without having to have interest on it. This is unlike bonds at ZIRP, where the obligation is to pay back the principal.

      You can then have taxation if you want, in order to promote equality etc.

      Inflation is controlled via the amount of money government prints.

      • Inflation is controlled via the amount of money government prints.

        No, it’s controlled by how much is (allowed) to be spent.

        A government can always issue newly printed money to meet its bills when they arise. This of course would add to the money supply.

        If they tax it back, there will be no upward pressure on marginal price stability.

        If they tax more than they spend, it’s dis-inflationary, unless the punter is incentivised to borrow (say low interest rates ?!?) to maintain price (and chain volume) stability.

      • migtronixMEMBER

        @Rus the inflation thing is BS too, like you its how much is available – just like now. A la QE trillions were printed and quarantined not spent. The only thing spent was banker bonuses paid from the trillions. No inflation, just asset bubbles.

        It really doesn’t matter if it’s the government or anyone, if the confetti isn’t reaching the streets there’s no pull inflation

      • Re: bonds. It is effectively the same.

        Otherwise Rusty Penny nails it. Inflation is dependent on so many factors. The real conversation would should be having is about how to control inflation & what is considered excessive inflation under what circumstances.

        Until then deficit/surplus is just a bogey to control the superstition of a balanced budget (ref: Samuelson).

      • the inflation thing is BS too, like you its how much is available – just like now. A la QE trillions were printed and quarantined not spent. The only thing spent was banker bonuses paid from the trillions.

        Well the other important factor is velocity.

        Their bonuses are sitting there because there is nothing worth buying.

        Keynes pointed out, so simply, yet not simple enough for the neo-classicists or Austrians, that demand drives supply.

        When/if it changed that stuff is worth buying, you can be assured these stockpiled bonuses will bid outbidding competitors just like chinese outbid us on homes.

      • migtronixMEMBER

        @Rus Soooo… long gold for when holding their confetti become “expensive” (i.e. bail-in, bond taxes, corporate tax rises, companies getting taxed when they disburse dividends [not just the recipient in income tax).

        If that happened all those f#[email protected] will rushing to gold/art/property quicker than you can say “How much is really sitting at Fort Nox?”

      • The theory says gold and collectibles will attract a premium yes.

        However, it hasn’t always manifested itself properly right now.

        I personally have been scorched on some gold stocks.

    • Uggghhh. Just more oversimplified, consequence-ignoring bluff and bluster, combatting one economic falsehood with others.

      Her arguments are cringeworthy, platitudinous crap. “Government is not like a household” (Wow! Really? Colour me shocked!). “Deficits are good” … “It’s just government spending into the economy”.

      As usual, yet another in the conga line of ideologues with heads full of theoretical claptrap, a confirmation bias agenda (ie, career reputation) to push, and a complete absence of wisdom or the capacity to adopt a practical, holistic view, blathering on and completely ignoring the fact that the government running a deficit is (in Australia’s case) spending borrowed money, owing usury — an ever-rising extractive financial burden on the economy, unless, that is, the govt simply borrows even more, forever, to pay the lenders their usury clip out of ever more new borrowings — and most importantly of all, 70% of which debt + usury is owed to “non resident” lenders.

      Under the present monetary system, government deficits = continuing to sell out the nation’s real assets and collective labours, to foreign usurers, just using more government-issued IOU’s rather than relying on commercial bank-issued IOUs, and so achieving exactly the same end-game scenario.

      EDIT: addendum to rant … and of course, all this BS advocating more debt and usury is in the aiding and abetting of … yes, that’s right … pushing that precious GDP number up. Ignoring that endless “growth” is both impossible, and unwise, given a finite planet with finite resources with which to “produce” saleable sh!t.

      • migtronixMEMBER

        I agree Op8, the one thing these guys never talk about is a) how does the government create work for the unemployed? By throwing money at them?!?!? b) issuing debt (rather than…) is a ipso facto distortion! If they’re going to issue debt they should issued to the Treasury not anyone else, arse backwards (BTW “private” banks SHOULD NEVER be allowed to issue debt at usury — if they really want to “match term depositors to term borrowers” they can charge a fee known up-front and you should never be able to “pay back” the loan early — that’s what the term “Term” means in this case…

        It really sh!ts that these MMT types completely ignore the scourge that is private banking at usury in a government controlled fiat currency. Its f#@$ed up.

      • I don’t think Migtronix has ever read any Bill Black. Well worth looking into.

      • migtronixMEMBER

        @Sennex: Yes I’m aware of Prof Black – the slayer/restructurer of the S&L’s in the 80s.

        He is very good in what should be done to “keep the banks honest” but he does not say why they should exist in the first place…

  18. Don’t you just hate it when you submit a detailed debunking comment; it does not appear; you wisely Cmd C’d it before submitting just in case so resubmit it … and the browser rejects the second attempt as a “Duplicate comment detected”.

    • intertubernet

      This is why I stick to trite, ill-informed quips of little value.

      PS. Keep up the good work. If you can convince me (you have) I’m sure there are many more to follow.

      • migtronixMEMBER

        This is why I stick to trite, ill-informed quips of little value.

        ———> THIS GUY <————–

  19. Quite the Austrian – Neoclassical – Neo- Kantian thread parade above.

    Skippy… it sounds like the Boom and Bust band is playing is greatest hits as sung by the Grateful Dead band… make it up as you go thingy… shezzzz~

    • migtronixMEMBER

      Greatful dead sing now? From beyond the grave to boot. Graveful and dead perhaps?

      • As long as the university system exists in America… with well off kids to attend…. the grateful dead will keep on trucking… as will the royalties.

        skippy… old rare bootleg cassette tapes are another form of money… didn’t you know…. amongst the out of state vacationing prodigal…

      • migtronixMEMBER

        Oooooooh but I do know! I have some 8 tracks 😉

        Though for me its more about the electronica…