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Friday, May 06, 2016

Brainstorm with Dr. Steve Keen

Just a reminder that the open event will start in just over half an hour. It will begin at 7:00 PM  Eastern, and you can register for it here.

UPDATE: Dr. Keen was excellent. Apparently everyone thought it went rather well.  PA, for his part, sent an enthusiastic review:
This was... fucking amazing. I don’t even have high school economics, but I was utterly fascinated. I probably learned more in the last hour or so than in my entire previous existence. I don’t remotely pretend to have understood 90% of it, but I learned a ton. And having you there, as someone I trust, to make sense of it, was thoroughly awesome. This was worth most of the year’s subscription, and I am delighted at the added value. Thanks again.

Labels:

57 Comments:

Anonymous Rhys O'Reilly May 06, 2016 6:45 PM  

As an Australian I would like to ask Dr Keen about his prediction of an Australian recession. Unfortunately 7pm Eastern is mid morning saturday and I can't attend.

Could somebody ask Dr Keen what industries are going to be hit worst in the 2017 recession and what industries are going to be safest?

I am 30 and work in construction and expect to see the industry collapse in a recession so I would like to jump to a recession proof job now.

Could somebody also ask Dr Keen if the coming recession will finally burst the housing bubble in Australia?


Blogger praetorian May 06, 2016 6:54 PM  

mfw

Blogger praetorian May 06, 2016 6:56 PM  

If there is time and it isn't too autistic, I'd love to hear if he thinks forcing banks to duration match deposits and loans would help with system stability.

Anonymous Cash May 06, 2016 7:24 PM  

Nate gets called out. Steven Keen laughs.

Blogger praetorian May 06, 2016 7:29 PM  

Nate gets called out. Steven Keen laughs.

Best of all possible worlds.

Blogger Stephen Ward May 06, 2016 7:32 PM  

truly the borrower is servant to the lender

Anonymous Geretrudis May 06, 2016 8:06 PM  

Going to the Trump rally in Eugene tonight. Should be entertaining, seeing as how Eugene is heavily infested with SJW scum. Prayers invited!

Blogger Stephen Ward May 06, 2016 8:13 PM  

interesting but straightforward. Keen's ranking of the presidential candidates economics policiey - Bernie, Trump, Clinton

Blogger praetorian May 06, 2016 8:18 PM  

That was awesome. Thanks Vox, Thanks Prof. Keen.

Anonymous #8601 Jean Valjean May 06, 2016 8:25 PM  

@Geretrudi

Stay safe!

Blogger Noah B May 06, 2016 8:25 PM  

Owe the bank a little money, and the bank owns you. Owe the bank a lot of money, and you own the bank.

Anonymous JRL May 06, 2016 8:33 PM  

Brilliant. Thanks Vox and Dr. Keen!

Anonymous Dole May 06, 2016 9:35 PM  

Great chat.

I very much like the critique of the Neoclassical model. Also, it's about time somebody has considered the effects of money creation and debt in a theoretical setting.

However, I think there are a few problems with his theory, which are the same problems as the MMT school has. In summary, the problem is that the school does not understand coercion, or the nature of government (this is also the issue I have with Vox's critique of free trade, which should really be called voluntary trade - there is a huge difference between those two terms for the latter does not imply the first - which is where a great mistake lies). The MMT schools is very government oriented technical school, which ignores human behavior completely. It's rather useless to know how bubbles are formed, if you don't understand what generates economic growth (not arbitrary technical indicators having a specific value)!

Keen's comments regarding savings highlights a other issue. It matters whether the factories are producing capital (savings) or consumer goods (consumption) or government items (government spending) (or exports). Clearly savings aim to grow the future while consumption is just the consumption of today. Accumulated savings can also be used to serve the debt. So a rather important thing is to also consider the savings relative to the GDP to arrive at a net debt.

I think there is a lot more to say, but for full critique(s) of MMT you can refer here: http://www.pragcap.com/modern-monetary-theory-mmt-critique/

From what I have seen arguing with the MMT people, they are batshit insane (I mean at least the neoclassical people that I know don't actually take their theory seriously - these people do to the extremes!). The problem with the MMT people is that they suffer from the general leftist delusion, that all leftists seem to be suspicable to, to an incredibly delusional degree. Namely, they really seem to think that there is all these free goodies somewhere and government can just bring them forth by creating a deficit or whatever. Also the community has extremely many proponents that do not understand their own theory, nor just extremely basic common sense economics. I always get the feeling that these guys are in reality after everyone's money... I get the feeling that the only purpose of their ideology is to get power and your money. Sorry to say...

Speaking of that... it's rather dumb to try formulate theory describing capitalism, when government controls 40-60% of the economy in the West.

Blogger Jon M May 06, 2016 9:52 PM  

This comment has been removed by the author.

Blogger Jon M May 06, 2016 9:54 PM  

Well that was humbling. You think you've got a decent handle on these things, and then you hear a couple of experts talk, and they just start tossing whole boxes of grenades around the economics wing of your memory palace. "Draining" was a good word for it. Can't wait to download and see how far into Keen's book I can get. Thanks for this, Vox.

OpenID paworldandtimes May 06, 2016 10:33 PM  

I'm not familiar with any alt-Right commenter/reader who goes by PA, other than me. I'm the "PA" who's regularly commented at Heartiste's and at related blogs since 2007 and with some frequency here as well. The "PA" whose enthusiastic review is featured in the Update in the original post is not me.

PA

Blogger allyn71 May 06, 2016 10:44 PM  

I registered but then realized that I had dyslexia and that 7:00 EST was 5:00 MDT not 9:00. So I canceled my registration in case there was a # limit. Was it recorded? Will it be available? Sad to miss this one, sounds like it lived up to the hype.

Blogger Dave May 06, 2016 11:07 PM  

Audio recording to be made available free to annual members and for purchase at Castalia House.

Blogger Nate May 06, 2016 11:22 PM  

"Nate gets called out. Steven Keen laughs."

It wouldn't be the first time a socialist laughed at an Austrian.

That said I have a ton of respect for Keen.

Blogger praetorian May 06, 2016 11:37 PM  

That said I have a ton of respect for Keen.

How could you not? What a hugely interesting person.

Being able to read Keynes, Marx, Hayek, Fisher and Minsky and then synthesize them into an entirely new economics, with the intellectual confidence to dismiss large parts of each of their work while still retaining the parts that are worthwhile?

Not one intellectual in a thousand has that ability.

When he said "Oh, right, chapter 17 of the general theory, and parts of chapters..." I was laughing out loud.

Anyway, Prof. Keen, if you are reading, thank you again.

Blogger Were-Puppy May 07, 2016 12:05 AM  

After that, i was thinking "Did I just watch that for free?"

Thanks Vox and Mr. Keen.

Blogger Nate May 07, 2016 12:35 AM  

i love his likes... Unlike most X I have read Y... Unlike most Z I have read A. and unlike most austrians I can't quote chapter and verse of Mises Human action, but I have read it.

Freaking hilarious.

Blogger L' Aristokrato May 07, 2016 12:40 AM  

Dammit! I missed it!

Anonymous SingSling May 07, 2016 1:07 AM  

@1

I am curious as to why you feel the construction industry will collapse in Australia? What city are you talking about or just in general if you don't mind me asking.

The reason I ask is I know a few people planning to buy, one has held of for ages thinking the market is a bubble but they are running out of time and might be forced into buying and the other is looking to gain FX gains and is looking for somewhere stable to store money for a few years.

Anonymous Rhys O'Reilly May 07, 2016 1:23 AM  

@23: Construction is a boom and bust industry. A recession leads people to be cautious with their money and put off building or renovating when they are not certain their income is stable. I could be wrong which is why I wanted someone to ask Dr Keen about it while I was working.

Anonymous SingSling May 07, 2016 1:43 AM  

@24
Thanks. To clarify are you seeing a drop off in constructions, less projects starting or less projects selling. Domestic buyers starting to get tapped out and not willing to buy etc.

The idea a lot of people seem to have is the Chinese will just keep coming and buying everything up and if there is a decline both the political parties will open up the market to foreign buyers like they did in the GFC to help inflate the boomers and their investment properties.

Anonymous SingSling May 07, 2016 1:50 AM  

OT @VD:
I read your debate with heatstreet and you mentioned that mass migration has almost always lead to war and political breakdown. I agree however is there any examples of when it hasn't as I have been thinking about it and can't think of any?

Maybe the French Protestants into Germany, but I believe that was after the 30year war so probably there was not many Germans left alive in the areas they moved to.

Anonymous 4600 May 07, 2016 3:25 AM  

Missed most of it. Damn... just damn. PA's comment goes for almost all the year's past brainstorms. Thank you indeed Vox

Anonymous Tom S May 07, 2016 5:13 AM  

Vox, what do you make of Keen's likening the goverment to a bank? I have to confess not having heard that proposition before.

Have only just started the book, will be curious to see the data he uses to explain his opinion re: government budget surpluses vs deficits...

Anonymous Dole May 07, 2016 6:05 AM  

Tom S when he is talking about deficits I think he means government should keep the debt fixed relative to GDP. Central bank owned bonds should not be calculated as debt, as the profit flows right back to government (Ie. it owns the bond itself - so it's just created money). Increasing debt relative to GDP will eventually lead to a disaster as detailed by the likes of Reinhart and Rogoff,

I posted a longer post here and it seems to have disappeared, I thought I pressed the preview button anyway... Anyway perhaps there is a better forum for discussing Keen's theory?

Blogger Salt May 07, 2016 6:14 AM  

That was a fascinating discussion. Thanks to Dr. Keen and Vox.

Blogger Stilicho May 07, 2016 6:46 AM  

Did Keen offer anything beyond his valid criticisms of other economic theory or is he still calling for MOAR Socialism!

Blogger Durandel Almiras May 07, 2016 9:10 AM  

Will the transcript or a copy be available? How do I find past brainstorms? I've never noticed a link on the blog to the archive.

Blogger Nate May 07, 2016 10:30 AM  

'Did Keen offer anything beyond his valid criticisms of other economic theory or is he still calling for MOAR Socialism!'

pretty much. its a different brand of Keynesianism.

so the banks are how we normally inject money into the system and they are broken and not working... so we need to dump money into the system through direct government spending.

This is precisely what Keynes wanted.

Keen does valuable work but he's more valuable in isolating and evaluating problems than offering solutions.

Blogger praetorian May 07, 2016 11:12 AM  

so the banks are how we normally inject money into the system and they are broken and not working... so we need to dump money into the system through direct government spending

Right, but at least he sees the over-production of credit money by the banking system as the problem. His steady-state was monetary expansion at about the rate of the economy, with base and credit money growing at 2-3%, which seems reasonable.

Keen does valuable work but he's more valuable in isolating and evaluating problems than offering solutions.

That's one question I should have posted: OK, so here we are. What would you, Prof. Keen, have us do?

I guess he hinted at a debt jubilee, but I have a hard time seeing that happening even if america felt the bern.

Blogger VD May 07, 2016 11:13 AM  

Will the transcript or a copy be available?

For the members. I'll need to get Steve's permission to sell it at the Castalia store.

Blogger VD May 07, 2016 11:14 AM  

Did Keen offer anything beyond his valid criticisms of other economic theory or is he still calling for MOAR Socialism!

His prescription is what I would call "credit monetarism". The government controls the credit money supply rather than having the central bank control the interest rate. Not ideal by Austrian standards, but certainly a vast improvement.

Blogger praetorian May 07, 2016 11:15 AM  

And given that private debt bubbles are the problem, it seems like thinking about how to prevent them would be job #1. He didn't really touch on any possible ways to do that.

Anonymous #8601 Jean Valjean May 07, 2016 11:46 AM  

Keen's prescription is a modern debt jubilee. See his blog.

The Austrians in the audience will likely hate it for moral reasons. But that doesn't mean it wouldn't work.

Anonymous JI May 07, 2016 11:56 AM  

So if Sanders has the best economic plan, I suppose a combination of Trump with Sanders' economics would be the ideal candidate.

Anonymous #8601 Jean Valjean May 07, 2016 12:03 PM  

@39 is it too late for a Trump/Sanders 2016 ticket? They'd win in a landslide.

@7 Geretrudis, did you make it back safely from the Trump rally night. Please check in.

Blogger bob k. mando May 07, 2016 12:14 PM  

39. JI May 07, 2016 11:56 AM
So if Sanders has the best economic plan, I suppose a combination of Trump with Sanders' economics would be the ideal candidate.



so, after Hillary gets done stealing the nom from Bernie ... Carson should choose Sanders as Trump's VP?

Anonymous EH May 07, 2016 12:28 PM  

Building up a macroeconomic model from the interactions of microeconomic agents seems like a promising area of research.
Eurace@Unibi Model:
> The Eurace@Unibi model provides a representation of a closed macroeconomic model with a spatial structure. The main objective is to provide a micro-founded macroeconomic model that can be used as a unified framework for policy analysis in different economic policy areas and for the examination of generic macroeconomic research questions. In spite of this general agenda the model has been constructed with certain specific research questions in mind and therefore certain parts of the model, e.g. the mechanisms driving technological change, have been worked out in more detail than others.

>The Eurace@Unibi model presented here is based on the agent-based macroeconomic simulation platform developed within the EURACE project. After the completion of the EURACE project in Nov. 2009 a group consisting of Herbert Dawid, Simon Gemkow, Philipp Harting, Michael Neugart and Sander van der Hoog has extended and altered the model substantially in numerous directions leading to the current version of the model.

>The model can be executed in the ETACE Virtual Appliance.

>The ETACE Virtual Appliance is a stand-alone Linux-based simulation platform that provides a full suite of programmes for (large-scale) agent-based modelling and simulation. It builds on the core Flexible Large-scale Agent Modelling Environment (FLAME), adding programs such as Graphical User Interfaces, an editor for agent-based model design and an integrated solution for data visualisation using R. [endquote]

I'd like to try running this on EC3 cloud systems. It would be great if it supports FLAMEGPU. Beyond the potential economic forecasting and policy testing potential, it might be adapted to other applications such as gaming or even automation.

Blogger VD May 07, 2016 12:34 PM  

Building up a macroeconomic model from the interactions of microeconomic agents seems like a promising area of research.

No, it doesn't. Dr. Keen has shown, mathematically, that it will not work.

Blogger FCRFCDRTCDR May 07, 2016 12:54 PM  

The socialist are making their ultimate mover to corrupt america. You need to do this now http://infowars.com/theendtimes87

Anonymous EH May 07, 2016 1:14 PM  

Here's a paper using the Eurace@Unibi model relevant to Prof. Keen's work, applying Hyman Minsky's ideas about the credit-driven financial instability: van der Hoog S. The Limits to Credit Growth: Mitigation Policies and Macroprudential Regulations to Foster Macrofinancial Stability and Sustainable Debt (Working Papers in Economics and Management. Vol 8. U. Bielefeld: Faculty of Business Administration and Economics; 2015.)

Abstract:
We study an economy with a high degree of financialization in which (non-financial) firms need loans from commercial banks to finance production, service debt, and make long-term investments. Along the business cycle, the economy follows Minskyan dynamics with firms traversing various stages of financial fragility, i.e. hedge, speculative and Ponzi finance (cf., Minsky, 1978, 1986). In the speculative finance stage, cash flows are insufficient to finance debt repayments, and banks are willing to provide roll-over credits in order to prevent a default on the debt. In the Ponzi finance stage, banks are still willing to keep firms alive through ”extend and pretend” loans, also known as zombie-lending (Caballero et al, 2008). This lending behavior may cause credit bubbles with increasing leverage ratios. Empirical evidence suggests that recessions following such leveraging booms are more severe and can be associated to higher economic costs (Jorda et al, 2011; Schularick and Taylor, 2012). We therefore study policy measures that might mitigate the severity and intensity of the economic losses ensuing from such severe downturns. We investigate micro- and macro-prudential regulations aimed at: (i) the prevention and mitigation of credit bubbles, (ii) ensuring macro-financial stability, and (iii) limiting the ability of banks to create unsustainable debt. Our results show that the use of non-risk-weighted capital ratios have slightly positive effects, while cutting-off funding to all financially unsound firms (speculative and Ponzi) has very strong positive effects. However, merely cutting-off funds to Ponzi financed firms has hardly any effect at all.

Anonymous EH May 07, 2016 1:19 PM  

>>Building up a macroeconomic model from the interactions of microeconomic agents seems like a promising area of research.

VD@43
>No, it doesn't. Dr. Keen has shown, mathematically, that it will not work.

Sorry, didn't see your reply. I thought he had shown that the idea of having a single or a small number of representative agents does not work. Having a close to 1:1 ratio of agents to real people and firms each with different knowledge, situations, and varying priorities and values is quite a different matter.

Anonymous EH May 07, 2016 3:41 PM  

I'm starting to watch Dr. Keen's video "Trancending the Lucas Critique with Minsky. My Talk in Manchester Economics for Everyone" (With Minsky being his credit simulation program, not Hyman.)

tl;dr: Economists have lots of variables with units of monetary value, these are all actually fuzzy quantities that can't be represented at all accurately by single numbers.

Though he says several times that his assumptions are inarguable and definitional, as usual in economics, the symbols hide important assumptions.

He says:
Employment rate = Employment/population
= (Output/Labor Productivity)/Population

but
Labor Productivity = (Output/Hr.),
so that's just saying Employment rate = Hours/Population.
To be a dimensionless ratio, Employment rate should be
Employment rate = Hours worked/(Population hours),

(Usually with an arbitrary choice of how much it is practically possible to work and who to count as being in the workforce.)

Treating everyone as a fungible unit of employment is exactly the sort of bad assumption that has made economics so wrong. It matters whether that n% unemployed are at the top or the bottom of the distribution of ability, if they are buggy-whip makers or robot designers. It matters whether hours spent not working are dispersed or concentrated, whether all workers have enough rest time vs. some working 15-hour days and others being completely unemployed. There is no one meaningful employment rate.

In the case of Employment rate, Output cancels out, but not in Dr. Keen's next axioms:
Wage share = Wages / Output
Debt ratio = Debt / Output

Net output is not a definite, precisely knowable number. It depends upon what is subtracted as an input, which will not fully account for externalities. The valuation of output consisting of technological improvements and information creation is not credible, if even attempted. Household productivity (chores, homemaking etc.) is generally not measured.

But all that is a bit nitpicky.
A fundamental issue with all economics is the false idea that things have definite monetary values even when they aren't actually changing hands. Actual values are fuzzy, take on a range of values even over short periods of time, depend on who is doing the valuing or the population of people doing the valuing. Each sale price is a pseudo-random pick from a non-stationary and only partially-known distribution of values. Therefore using real numbers to represent economic quantities is formally invalid. Perhaps interval arithmetic or Bayesian / maximum entropy methods would do better. So far as I know, no attempt at economic math or simulation deals with this problem at its root, instead bolting on statistical methods at the end, after defining everything in the model to have single real values.

Another problem with attributing values to goods is inflation adjusting in a market where goods vary in price relative to each other and have differing and changing demand curves. This is further exacerbated by present and future value calculations which depend on differing risk aversion and different interest rates available to different people, with PV and FV even getting turned upside-down in the case of negative interest rates.

Agent-based simulations with millions of agents with realistically varying decision methods and circumstances get around the problem of non-stationary and fuzzy value distributions (to a degree) by effectively sampling those distributions as they emerge from complex interactions among the agents with a Monte Carlo-like method. Still, the initial input conditions are falsely definite, which is an additional and deeper problem beyond their just being poor estimates of the real situation.

Blogger Stilicho May 07, 2016 4:12 PM  

@ VD, govt controled credit supply? Isn't that effectively moving Yellen from Fed to Treasury and telling her to issue greenbacks to the banks or otherwise telling them how much credit they can issue?

Blogger RobertT May 07, 2016 4:28 PM  

2017 Recession?

The numbers I'm seeing in my practice would indicate that may have bumped up a bit to 2016. I've been practicing nationally (US) for about ten years, and in that entire time I have not seen profits collapse across the board they way they're collapsing right now. I represent closely held businesses, not the behemoths.

Blogger RobertT May 07, 2016 4:33 PM  

11. Noah B

Owe the bank a little money, and the bank owns you. Owe the bank a lot of money, and you own the bank.

Owe the bank a little money and they have you by the balls; owe them a lot and you have them by the balls.

But it has to be a hell of a lot. The kind that takes a bank under if there's a default. The way my client took Continental Illinois Natl Bank under when he defaulted. That's about the only time I've ever seen it. But that proves the point.

Blogger RobertT May 07, 2016 4:36 PM  

13.

Yes, how do you fit a theoretical model around that?

Blogger RobertT May 07, 2016 4:42 PM  

25.

Which drives up the market just in time for another recession. That never used to be true. It used to be owning a home was like a piggy bank for buying your next boat, but it's beginning to look increasingly like that's the future.

Blogger RobertT May 07, 2016 4:58 PM  

46. EH "We study an economy with a high degree of financialization in which (non-financial) firms need loans from commercial banks to finance production, service debt, and make long-term investments."

There are two ways to raise funds, borrowing and investment. Right now multinationals are buying back equity (e.g. Apple). Plus, I've read numerous places that businesses are over-valued. That's what all the bubble talk is about. They don't need the debt, they prefer debt. When you're in that position, it's a simple decision. Debt may be dangerous, but right now, it's cheap.

Anonymous Rhys O'Reilly May 07, 2016 5:21 PM  

@26: No drop off or slow down yet. If Dr Keen is correct I would not expect one until after the effects of the recession are obvious and that will be late 2017 I think.

Selling all our land to foreigners is becoming increasingly unpopular with the general public. Look at the backlash against the sale of the Kidman properties to the point that arsehole Morrison is refusing to admit he he is going to rubberstamp the Chinese takeover before the election for fear he will lose his seat. Add to that the entire generation of young Australians who may never afford to buy their own house. If One Nation still existed I would expect them to take a significant chunk of vote this election, maybe even 30%. Unfortunately One Nation no longer exists and there is no viable third party in this country.

Blogger Joshua Sinistar May 08, 2016 10:19 AM  

Neither a borrower or a lender be. Running a business with debts is called bankruptcy. Economists can claim that debts are liabilities can be offset with assets, but only if you go out of business or get bought by vulture capitalists like Mitt Romney.
There is no economics really. Life is about cost vs benefits. Running businesses at a loss by using credit is still bankruptcy. Japan was going to rule the world by buying it, all it had to do was dump its products at a loss to kill their competitors.
Oh look twenty years of stagflation, and no way out of debt. Economics is Math for Sociologists, dude.

Blogger Joshua_D May 08, 2016 12:00 PM  

Vox, do you record the brainstorms? And if so, are the available to watch after the event?

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