LSE and BBC Radio 4 public conversation
“If we keep the parasitic banking sector alive, the economy dies,” warns radical economist Steve Keen.
For BBC Radio 4’s Analysis programme, Paul Mason interviews Professor Steve Keen about his diagnosis and proposed treatment for our current economic problems.
Professor Keen has an unconventional proposal for dealing with the financial crisis: a “Modern Debt Jubilee” that reduces private debt without disadvantaging savers, but which drastically reduces the income and power of the financial sector.
Professor Keen has also argued that though it professes to praise capitalism, mainstream “Neoclassical” economics poses a greater danger to capitalism than any number of left-wing revolutionaries.
“Its naive, money-less, equilibrium theory of capitalism provided the unwitting cover for the greatest Ponzi Schemes in human history,” claims Professor Keen. He argues that it’s in the interests not just of “Occupy LSX” to overthrow this theory, but the business sector as well.
If you’d like to attend, you can book a place here (This event is free however a ticket is required. The online ticket request form will be live on this listing after 10pm on Monday 26 March till at least 12noon on Tuesday 27 March.)
Selected highlights are below:
Neoclassical economists treat banks as irrelevant to macroeconomics—which is why banks are not explicitly included in their models—and regard a loan as merely a transfer from a saver (or “patient agent”) to a borrower (or “impatient agent”)…
With that model of lending, a change in the level of debt has no inherent macroeconomic impact: the lender’s spending power goes down, the borrower’s goes up, and the two changes roughly cancel each other out.
However, in the real world, banks lend to non-bank agents, giving them spending power without reducing the spending power of other non-bank agents.
In the real world, banks extend credit, creating deposits in the process, and look for the reserves later. (Holmes 1969, p. 73)
Unfortunately, neoclassicals continue to ignore it because it doesn’t fit their model. Well it’s time to ignore them—because their model doesn’t fit the real world.
Once we take the endogenous creation of money by banks into account, rising debt has a macroeconomic impact because it adds to aggregate demand. It also is the primary way in which speculation on asset prices is financed…
You can read the whole article here.