Steve Keen has pointed out that I actually got one thing wrong in the video 🤦♂It was in fact Keen who came up with the Godley Tables, and he chose to name them after Wynne Godley because of how they were influenced by Godley's work. In the video I mistakenly attribute them to Godley. So many hours writing and checking the script, but still some things slip through!
I’d see that as an honest slip in source attribution, as empiricism holds up…😅 Keen is one of many (!) who more or less lays bare a solid epistemological and holistic understanding - that barely has a place in general education or the public narrative. I’d posit that history “rhymes” (thanks Chomsky, eh… I think…?). The period we’re in, has a parallel to the end of medieval times (Europe & colonies), where the dissonance between dogma and existential experience becomes its own dynamic. Or, a smaller parallel like pre the Great War - these are early days. Culturally, either modernity fades out - or it may be upheld through “life support”, meaning extreme use of power (energy, resources, imperative policy). Both paths are visible at this point, at least in my tiny and biased research. Looking back, such paradigm shifts have taken a century or more - the full four generation cycle. Scientifically, we don’t have that time, and the outcomes are global this time around. Ontologically, we’re slow as snails in a fast paced horror show. Or, slowly adapting to ever-ongoing changes (thanks, Hegel…). How brave are we - in the (overlooked) dialectic of individuals and community…? Thanks for sharing this, at least that’s bravery to me. _(After all my nonsense, least I can do is sub, and thank the almighty algo…😅)_
I think the long term rhythms and rhymes of history are fascinating. I'm always curious about different takes on these ebbs and flows. But I also think we should always choose to believe in the possibility of our individual and societal agency to shift things in a better direction. We should learn about the tides, but know that we have oars and a rudder too! Thanks for the comment 👍
Hahaha! What a complete IDIOT! Total brain death. Or a lousy criminal fraudster looking for a sekt to loot, if there exists anyone stupider than him. The worst economist since Karl Marx who claimed that the more something costs, the more is it worth. A question this clown can't answerr: Why not print $10 billion trillion and give a trillion to each human being, making everyone super rich!?
People are saying it’s failed because it’s too abstract and doesn’t reflect the real world. It assumes that people act rationally and markets always find equilibrium, but clearly, that’s not what’s happening in the economy today
But in the real world, we’re seeing monopolies, unequal access to information, and emotional decision making driving markets. It's no wonder people say it’s out of touch.
but at the same time, neoclassical economics has provided a lot of useful tools and models for understanding certain aspects of the economy. I wouldn’t say it’s completely failed, it just has limitations. For instance, it’s good at explaining price mechanisms and supply demand relationships, but it’s not so good at addressing market failures, inequality, or financial crises
Yeah, I’m on the fence. I think neoclassical economics works well in theory, but when it comes to complex, real world issues like climate change, wealth distribution, or financial instability, it doesn’t give us enough insight. It feels like we’re trying to use outdated tools for modern problems.
Neoclassical economics doesn’t account for human behavior in a nuanced way. Behavioral economics has shown that people often act irrationally, driven by biases or emotions, which neoclassical models don’t explain
Except the politicians never commit to any theory at all. They pick and choose. They are like someone picking up a dozen diet plans and choosing to follow whatever advice from whatever diet that lets them eat what they want when they want. They are Keynesian’s only when there’s a downturn for example.
@@Go-Meta Hahaha! Hello stupid guy, I was also LMAO! Like child watching a clown fail ridiculously with everything he tries. You could make a tour with this freak show.
No, wrong. Resources are not infinite. And we don’t have all the same needs at the same time. Your comment is a communist argument which has created misery only.
You got the order wrong, its actually becasue of everybody's greed, that we make enough for everybody's need. This is the invisible hand of the market, that everyone working in their own self interest makes sure the things we need get produced, so everyone can get paid, selling them to those who need them.
My father recounts how the field of academic Engineering Control Theory was dominated by linear models until the mid 70s. This is when mini computers ( PDP8 etc ) became available in university departments and polynomial calculations, modelling,min / max and Monte Carlo simulation became realistically possible, and new more complex models could be posited. I wonder, how much economic theory faced the same, and arguable far more complex issue with the polynomial variables far greater in number, unpredictability and 'economic noise' You have just gained a subscriber, a fabulous first ( for me ) video and review.
@@tj92834 Hence why you only model the macroeconomic aggregates and the perturbations from long-term movements. Don't confuse the neoclassical neurosis of seeking equilibrium with modelling macroeconomic states and flows in general. To disregard their statistical predictability borders on intellectual insincerity. Prof. Steve Keen's claim to fame is precisely in abandoning this neoclassical condition, producing instead a double-entry model of cash flows in the economy.
And Clive Granger got the Swdish government's central bank's prize in economics at the tax payers expense without any kind of connection at all to Alfred Nobel, in 2003. For simply pointing out that linear regression (a trivial highschool math equation that is the most advanced that macro idiot economists ever use) logically requires that the data is stationary, obviously. Something known since Gauss first formulated linear regression in the 1790s. Stationary as in "regressing towards the mean", that data varies stochastically at a certain level. Data that trends infinitely like GDP, export incomes, stock prices, consumer prices, wages and neigh everything that is called "economic data" in a hyperinflating fiat fraud "planned" economy, cannot be used for linear regression. It's like dividing by zero. It says nothing about any correlation between the time series. So it turns out that MOST macro iditoic fake "research" ever done is worthless garbage already for that reason! Because economists are too uneducated an untalanted to deal with highschool math.
@@tj92834 I recommend Ludwig von MIses' Human Action. It describes what an economy consists of (the title is very revealing). It's an axiomatic logic that explains the real economy out there among the humans. The only numbers you find in his book are the page numbers. He uses logic and understanding. The fraudulent always failing fraudulent "economists" since the Great Depression simply pick whatever numbers that are easy to find, such as stuff written down in bookkeeping. Then then calculate (wrongly most of the time) the average of ll the numbers they have found and procaim that this is "The Price" in the economy. Then they repeat with all numbers they by chance lazily find and calculate their average too. If they differ, they proclaim that "The Price" has inflated. As if there only existed one good with one price in an economy. A forest with a single tree. Rubbish in-garbage-out. Or why did you think that all central banks and other government dictated reculations and "stimulus" always fail so totally catastrophically with devastating consequences for all of society? Because their fake "theory" is a bad joke, and they are uneducated and very low-IQ. Seem incapable of ever understanding anything. Like Paul Krugman, hahaha! The single most important phenomena in an economy is VALUE. Have you ever heard a macro idiot economist use that word? Not "economic activity" that generates those irrelevant numbers in the bookkeeping, but VALUE CREATION. Value is subjective and impossible for anyone to measure outside oneself. Values are moral, that's why good things are called "goods". Only each individual can make valuations and thus choices of alternative actions to achieve the creation of that which is better instead of that which is worse. A government bureacrat with numbers and a flawed fake "theory" cannot make any such choices. This is immediately self-evident to any sentient being, the distinction between what is subjective and what is objective.
@@kayakMike1000 These guys and girls studying Economics haven't understood that Neoclassical Economics is some theoretical tool to learn definitions and be able to discuss Economy with a common lexical glossary. They are in a book and they believe they are in the real world. For example you speak about Davos Inclusive Capitalism and they have no idea what you are talking about. If they can't see that what they learn in the classroom can't be the real way Economy works, first of all because Business requires too much time to be learnt at school, just imagine how difficult it would be for them to understand that neocapitalism and Inclusive Capitalism are Communism. Western universities and grandes Ecoles are factories to produce Marxists.
" I have studied and learnt so much about the world and yes, we need a better system" Actually there is a better system (bunch of systems). The Asia model set in motion by Edwards Deming in Japan. Luckily economists were not in the driver's seat. Read the (actually rather funny) World Bank book The East Asia Miracle where its humbled economists wake up to that fact.
@@peterquennellnyc Wake up to that fact what? What do you mean Economists wake up to that fact? What fact? Can you explain a little bit if you have 30 sec
@@stumac869 in their mind if growth slows you lower the debt standards to increase the leverage. They forget to mention not everyone has access to a printing press. But the masses eat that debt up so it’s a two way street that locks logical buyers out of the market.
@@nathanDrake-nd if you can think of a sustainable way to separate public finance from governments so it couldn’t be bastardized in 5000 page bills you’d be on the right track. The existing models all fail due to that flaw.
Some economic pundits warned of consumer debt in the early 2000s; however, the bubble kept growing. In about 2005, I heard a radio ad for an interest-only mortgage that assumed housing prices would continue to rise, creating equity. While I tend to lean toward neoclassical economics, it does not account for the irrational gluttony of the consumer, and I am mystified by economists ignoring this behavior.
Yeah, looking back at what was going on it's amazing that alarm bells weren't going off much louder at the time. But the people selling the debt had every incentive to keep on doing it until the music stopped. I kind of think of neoclassical economics as a first approximation to what is going on. A kind of economics that feels intuitive to understand and that people could do with pens and paper, but now, with computers and decades more understanding of dynamical systems thinking there really is no excuse to stick with these oversimplifications. It may be that the hardest task for getting to the next level of modelling the economy is to come up with the analogies and explanations that feel just at intuitively correct as the familiar narratives of neoclassical economics.
I would say it was a rational gluttony of speculators. Interest rates under Greenspan allowed borrowing at real interest rates close to zero so who would be afraid to borrow and invest. Hundreds of thousands of new houses were bought and flipped by speculators who would never have to make a mortgage payment. The Federal Reserve should have had the duty to choke off that speculation by raising interest rates high enough.
You say irrational gluttony, I say human nature being biased towards believing more is automatically better than less in everything. Yet as hairless apes, we can be captured by unquestioned assumptions, leading to negative consequences. One big question mainstream economics fails to consider is the distribution of resources. And it is a multidimensional issue that should have been at the heart of the discipline, but instead the Protestant Work Ethic veiled issues of fairness and desert, and escaped deep analysis. We know this because the original name of the discipline was Political Economy, and questions of distribution was, and still is, central to this perspective. Instead, the drive for Economics to be accepted as a natural science, basically avoided questioning distribution as a key function of an economy.
It's not that "economists" ignore it. it's that keynesians ignore it. If you don't know what a Keynseian is just picture Soviet economic structure. Academia was taken over by Marxists so naturally Keynsians are the only "economists" you hear from in the media.
Thanks for highlighting Steve's fearless, tireless & comprehensive scientific refutation of neo classical economics & the "discipline" lol as a whole, by trying to keep them honesty to economic history, models & actual historic data - with his open source approach {Minsky software model}. He & a handful of others {Kate Raworth, Nate Hagens & Gary's Economics etc} -but more each yr are putting economics of a better foundation to deal with the coming & current meta crisis. Im studying his Rebel Economics Challenge course now & bloody glad i signed up- don't understand the maths yet, but that our models we make species wide economic decisions on should at least include the reality of energy & environment costs in the equations beggars belief that they haven't been for nearly 100yrs.
Glad you enjoyed the video👍 It is interesting that neoclassical economics has remained so dominant for so long, but I think this is partly because for a long time linear maths was our best way to understand many phenomena and it's not a terrible first approximation - but it is clearly not good enough. In contrast, dynamical systems thinking is much more correct, but much harder to work with so it's taking us a long time to upgrade the mainstream, dominant paradigm. But I have little doubt it will change, we just need to speed up the process 🙂
07:33 If Jane wants to use her $1,000 credit line from her bank (Private Bank A) to make a payment to someone who banks at a different bank (Mary, who is an account holder at Private Bank B), then in order for this purchasing power to be exercised, Private Bank A must have (or borrow) $1,000 of central bank money (cash or reserves held at the central bank) to pay to Private Bank B. Otherwise Private Bank B will not act as counterparty to a transaction whereby it incurs a $1,000 liability to Mary without receiving an offsetting $1,000 asset on its balance sheet. So in practice the 'creation' of money by private bank lending is constrained by the ability of the lender to access the central bank money necessary to fulfil the credit line.
Yes indeed (well, except for the last sentence 🙂) As you say, there is an important link back to the central bank and the requirement to keep sufficient reserves ratios for the private banks to be solvent and overnight borrowing to remain liquid. However, I don't think it is quite right to describe this as the private banks needing to borrow money from the central bank to fulfil the credit line. The central bank's involvement in the case you describe is only a temporary loan until Private Bank A sells on the $1000 debt asset to someone and repays this loan. In the simplest possible scenario, when Jane makes the payment to Mary at Private Bank B, Private Bank A could immediately on that day also sell the $1000 debt asset to Private Bank B for $1000 cash. In effect both the assets and liability get transferred to bank B at the same time. If this were to happen then the central bank need not get involved at all and still the money would have been created and started flowing through the economy. But, in reality there will be transactions moving both ways between A and B (and C, D, E, etc) and so at the end of the day the banks just borrow the required difference overnight to ensure all of the books add up. And over time some of the banks will need to sell on their debt assets in order to remain solvent. ... but the video was already too long to include all of that too 🙂
@@Go-Meta Thanks for the reply. Maybe I should have been clearer in the final sentence. By "access the central bank money", I didn't mean to imply "borrow money from the central bank". I meant that the lender needs money created by the central bank (monetary base, i.e. cash + reserves held at the central bank), but it doesn't necessarily have to be lent directly by the central bank - it could be obtained via interbank loan or from depositors. That's my understanding, anyway. Or alternatively the debt asset could be sold, as you describe. Thanks again for the video.
Місяць тому
The books do not have to be balanced each day. Only when there is a public reporting period due. In the meanwhile the bank may have unbalanced books. So when they decide on the loan they do not care if there is something behind it. Once the loan is in their books, then they will try to balance. In most cases by transactions with other banks. The problem is when because of the risk environment changes the costs of such transactions, their interest rates increase, or if they do not find funding at all because such sources dry out. Then the bank will get into insolvency.
This is a fantastic explanation! The challenge with Prof. Keen's content is that it's not accessible due to the speed and complexity he explains concepts. His ideas are brilliant but the delivery and message needs to be refined in similar fashion to how you're doing it in this video. For example the way Prof. Kelton is able to communicate MMT to the average folk is brilliant.
I just stumbled upon this channel and really enjoyed how different ideas are connected through a book review. I especially liked the references to thermodynamic free energy and complexity. Looking forward to watching more videos!
There are good points but ones that ignore other parts of economic theory. - Like how the Austrians predicted the great recession, they even called it greenspans bubble. - Id also mention that supply and demand assume "all else equal" to keep the model simple and not scientismic. Being that all of them are approximations of human action, which is full of factors no one can ever know. - On banks, they operate with consumers assuming there will always be more, which is why bank-runs are rare. They are also insured and have a lender of last resort if they feel low. So they mostly get away with it. As long as they can handle the day to day transactions. But this is absolutely has an effect on the economy and the business cycle. - On the differences between people, this is why it's important to know why older economists tried to say they could not know everything in an economy, because and economy is based ultimately on human action. On energy, it's pretty clear that you're not taking into account innovation. The Simon-Ehrlich wager proved the ecologist wrong. The current ecological models of economics simply don't work next to the neoclassical theories. When it comes to solutions, I want to be clear that a slide into Austrian econ would be also flawed, but there is a huge advantage in avoiding scientism in economics and there is good reason many neoclassical economists try to avoid it.
Interesting comments, thanks 👍 Unfortunately I don't have time to engage with all your points (many of which I agree with), but I am curious why you say a slide into Austrian economics would be wrong (Austrian economics seems to elicit strong support by some people, so I'm also curious about the common doubts others have about it 🙂)
@@Go-Meta it's no problem, if this became a back and fourth this would be nothing but a ton of yelling past each-other in 5 paragraph essays On why I am not an Austrian. 1.The rejection of empiricism is methodologically flawed and it's one that is used by many Austrian economics (but not all, it varies). Of course Praxeology and human action is important, but it must be tested against real events. 2. Rejection of inanimately useful and true concepts in economics. Some examples off the top of my head - Public goods (varies, but it is very much rejected by thinkers like Rothbard reject it and although it is possible for private actors to fix the issue, I have not seen a more formal talk about the concept) - Indifference - Market failure (generally this is a concept poorly talked about) - Rejection much of math (Although economath is FAR from perfect, it can be a good language to communicate economic ideas) Plus probably many more. 3. The final point is a simple one that I imagine people like you into more niche economic theories will appreciate, there is NO Austrian school, there is ONLY good economics and bad economics. Papers like the use of knowledge in society and the economic calculation problem and ideas like the heterogeneity of capital are all ideas that do not require fully joining any economic school. I also want to clarify that the environment IS important, externalities (especially in extreme cases) are very much one of the most benign intervention I can think of in a market.
@Tommy-the-coffee-addict I totally agree that only limited discussion is possible in this format and indeed that there are good and bad ideas in all so called 'schools' of thought 👍 The trick is to keep looking for the golden nuggets wherever they may be. And, thank you for this useful response, you've given me lots of avenues to explore further 👍
Mind blowing, and a very necessary intervention of our time. I love the better use of Mathematical and Physics theories to a more robust modelling that can avert the oversimplification by sim-le averages instead of engaging the complex equations with the computerised power we have (maybe A.I. can assist too)
Oooooo - stop it - I like it! You have left me wallowing in an ecstasy of confirmation bias. Really glad I stumbled on your channel. It is only since retirement that I have taken an interest in economics and after a lifetime of strongly suspecting that there was something rotten in the state of world economics - it turns out I was right. Accordingly I have provisionally reinstated my original intention of living forever and ruling the universe... Since WW2 the world has been burdened by an economic theocracy so much more malign than is commonly recognised. Magnificent theoretician's castles in the air have been constructed by Hayek, Friedman et al, entirely without foundation in the material world of finite resources, irrational actors, corruption/greed, remorseless externalities etc. etc. Neoliberal/free market/laissez faire/globalised capitalism and untrammelled consumerism may well be the primary cause of our civilisational collapse and, hilariously, this may prove the aphorism that 'the meek shall inherit the earth'. Those with the least will suffer the least and those who are so far up the civilisational pole that they have lost the knowledge and resourcefulness necessary for survival will succumb - you cannot eat, drink or breathe wealth. Perhaps MIT's 2040 prediction needs wider consideration.
Actually you’re totally wrong, we don’t have capitalism anywhere on earth, the closest place was Hong Kong. Everywhere has mixed economies and the freer it is the wealthier and better it works. The whole system is messed up because it’s based on keynsianism and the ability of politicians to print money ad infinitum. Without Austrian economics we are going down a road to destruction for sure, but luckily we have bitcoin…..
@@tommyrich3155 Terms like capitalism, communism and socialism do tend to be thrown about a little too freely. Austrian/Chicago school economics is the road to serfdom - QED. The current state of the world economy is unquestionably messed up after 50 years or so of Austrian/Chicago school economics - Keynes hasn't had a look in since the immediate post-war period. There is no one settled economic model for all times and circumstances and we do stand in great need of fresh thinking to handle our new circumstances. Bitcoin smells strongly of Tulip mania.
USA and WEST bubble popping, (fenced in by speniding on nowt with no real return) However...there's a real world out there that works for a livin and will continue to do so, with or without Kabuki Theatre Incorporated.
1:37 Neoclassical economics depends on honest info. If S and P, Moody's and Fitch all gave faked ratkngs, and weren't punished, is this really a failure of neoclassical economics, either positively or normatively, or a failure of the judicial system?
Arguably the failure here of the neoclassical perspective is to model things as if people are going to have the information, when we know that it is much more likely that they will not! 🙂
@@Go-Meta They would have had the info if too big to fail didn't mean too big to jail. We're being set up for another round of overinvestment in real estate, partly based on a repeat of all that, and the usual Schedule A tax deductions for Property taxes, interest on mortgage, and state and lical taxes, all of which is socialism for the rich in the name of the middle class and at the expense ofxthe middle class and poor. No wonder the working masses are voting for Trump and the parasites at the top of the food chain support Harris with brainwashed support by the lumpenproletariat.
@@testboga5991there are lots of situations in physics where you have limited information/inaccurate measures and noise in the data, but can still make predictions, and there are statistical frameworks for dealing with this.
Great video. As a mathematician who works on nonlinear dynamics, I have always been struck by how crude most economic models seem to be, and how the assumptions usually appear deeply flawed just on common sense grounds.
well said... many of us who are fascinated and trained in Economics, as a "soft" science, have been patient; we've known for decades that the mathematics necessary to move past obviously simplistic "models" of yesteryear would need to wait for two developments: the accumulation of digitized data (aka Big Data) on our social behaviours (e.g., OUR consumption spending, OUR investments, OUR speculations); and AI's arrival. We've waited for Decades. And so, now we are arriving at the inflection point for scholars, a point at which we can actually "run the data" and implement far more sophisticated modelling; so, please DO bring your skills with nonlinear dynamics practiced in the "hard" sciences" over to "the soft side" like Economics. The host rightly conveys that Redistribution of the Wealth of OUR Society (albeit assigned piecemeal to individuals) is a necessary component of sustainable social order. That's a no brainer, that gets drowned out by the self-centered amongst us. So, we are now at the cusp. The host incorrectly suggests that the GFC "surprised" folks; what was surprising was that opacity and over-leveraging of the "system" hadn't triggered the landslide/avalanche/tsunami in 2003 or 2004. I suggest the host review Peter Garber's work on bubbles. We are as good at predicting earthquakes as we are at predicting when economic bubbles will burst. Also, the host could focus on economies-of-scale which are harnessed; they simply "are" and are exploited, and this leads to unmeasured externalities (e.g., wanton pollution or tragedy of the commons) as well as concentrations of wealth/widening inequities. Thanks. I look forward to more of these excellent books reviews.
@@TC2020-w8u tell you have never seen a climate model without telling us you have never seen a climate model. Climate models are very robust physical models, and those whose job is to build them will never shy away from the complexity of the world, quite the contrary, that's what excites them the most!
Thank you for the awesome review. I still don't believe that the Global Financial Crisis wasn't big enough for economists to predict, and by fact, no one held responsible for that. But humanity needs a way better economic model than Keynesian/MMT infinite money printing, and I'm glad that there are smart people who i looking for that.
You really don't understand the discussion at all. It's not about Kenysianism, MMT, or such labels. It's about how governments actually use the money they themselves create, and questioning what they do with it. MMT is not a prescriptive model. It's a descriptive one, and so is limited to describing how governments via central banks create money. That's it. What they do with that money, and should they being doing that with it, is a question MMT has never addressed. Conflating what is, with what ought to be is a logical error. So, forget about MMT. Rather ask yourself whether the State should be investing in its own economy, and then explain your answer. Then you can contribute something to the debate, instead of parroting someone else's undigested ideology.
@@CuriousCrow-mp4cx I bet you are right-I might not understand the discussion that deep. But the question you asked, I already asked myself. And I haven't come up with an answer better than yes, it should, but just because everyone else is doing the same thing. And in the case of refusing to do that, you are just falling off. Alexander Hamilton taught me well that it's protectionism, not a free market that drives the economy. And protectionism is impossible without the State's intervention.
" I still don't believe that the Global Financial Crisis wasn't big enough for economists to predict" Hahaha! Right. I was in Manhattan then (still am, ex UN) and around 2003 everybody here and their dog knew it was a house of cards. Everybody was thinking "I am just way too smart to be the last one out the door". Even ANGELO MOZILLO was warning of a bubble around then, the guy more than anyone who set the whole thing in motion. (Did you see the Oscar winner "Everything Everywhere"? That set with the stairs was his trading & bundling room.)
Man,listening to you feels like music. The way you speak is so subtle and with great tone. I could listen anything you tell me about! I will study your videos and style and implement on myself. Story telling!!!
What's the alternative because there's no doubt we're all much wealthier as a result and world poverty has decreased. In contrast where hard line socialism/communism has been imposed people have either starved to death and/or lived in absolute poverty.
@@stumac869I don't know, maybe return to the capitalism of the 1950s, before Reagan changed our economic policy to "billionaires p1ss on our heads and tell us it's raining (trickling down)"?
@@stumac869 Unfortunately I agree, I don't have an alternative other than a benevolent dictator but they are hard to find. It really comes down to some basics of humanity, greed, looking after no1, limited empathy and that a sizable percentage dont have the where with all to look after themselves and hence vote for the greater good.
Thank you and Steve Keen for explaining the ultimate solution to the climate crisis. I could only sense that accelerating consumption was our problem and feared that productivity was unstoppable before reaching a hard limit. Understanding is a massive step forward.
When I was a humble student in Math, I earned some money helping Economy student to understand their Math, learning some Economic concepts and theories in the process. Little by little I understood that economy theorists were mining the Mathematics of the 19. Century but only the easy parts and became more and more skeptical about the current use of Mathematics in Economy.. Later on I specialized in Dynamik Systems, Chaos and Bifurcation Theory, Statistical Mechanics. These mathematical Branches are more appropriate when doing Economics.
Hi, I like the idea but my channel is trying to cover a broader scope of ideas, so it is more likely that I'll be doing a set of videos about general concepts in the economy (e.g. money, inflation, productivity, UBI, impacts of AI, etc) ... where I will then reference Steve Keen's work where appropriate as I really like his approach. But thanks for the suggestion. And, indeed, are there specific kinds of topics that you think would be most interesting to hear more about?
Money is a promise of labor/energy that is energy/labour blind. A tree can only grow while the sunlight is shining. The power is dependent upon latitude and season. 16:30 There is a finite/limited supply of free energy!
I think you “glossed over” some fairly important things there. While the loan to Jane is initially just a book entry when Jane goes and spends the “money” someone will be asking for payment, thus the bank will meet that through the deposits it has taken or loans it takes out itself. The bank essentially makes a margin on loans out to deposits or loans in.
Yes I did simplify it, but the next part of the story gets complicated because it depends on who Jane is paying. If it's someone with an account at the same bank then it's just more double entry changes within the bank. But if it is to a person at another bank then the banks net off all of the exchanges between all of their clients at both banks over the day. They'd only actually transfer the difference, and even this is just an update to each of their reserve holdings at the central bank (as far as I know). But I felt these further details were too complicated for such a short video 😀 And, it's very rare these days that someone would actually want to take out large sums of actual cash.
Isaac Newton worked for about 30 years as head of gold coin minting. He was meant to control counterfeiting and "clipping". These days there are more gold shares than there is physical gold. Physical assets such as gold and silver are also a form of fiat currency. The prices are randomly set by the most extreme gamblers. Any investment that doesn't pay dividends is a complete loss until you sell to someone who will pay you more than you did. In other words, ya gotta find somebody more desperate than you were. Topic change: the 2008 disaster was initiated in 2003 by the "American Dream Downpayment Initiative". Then the federal comptroller dictated that predatory lending claims were not to be investigated. Next Collaterized Debt Obligations (which were none of this terms) tranched it all into various grades of nearly untraceable "sausage." Of course, the computerized reinsurance house of cards was the final straw. Hubris destroys. Gibbon, " History is indeed little more than the register of the crimes, follies, and misfortunes of mankind." A fit economic model must factor in irrationality.
We are highly intelligent people. We need to exude very regularly. And the English language if used with enough eloquence makes it all happen like magic.
I'm going to buy it; I'll let you know. (I'm a fan of Keen, Kelton, Mosler, etc., in explaining the mechanics of money, though the theory of how and what to do with this new money is a whole other subject.)
Neoclassical economics has definitely failed to deliver the goods to we the workers anymore, but has certainly succeeded to deliver spectacularly to corporate wealth.
I read Debunking Economics for the first time many years ago and have been a Keen fan ever since. Read his New Economics manifesto last year and am looking forward to his latest Rebuilding Economics from the Top Down which he wrote earlier this year while he was in Hungary. Keen’s iconoclastic writing and lecturing style is very accessible to non-economists. I recommend signing up for his Rebel Economics course, which has the bonus of giving access to his Minsky modelling and Ravel data management software both of which are brilliant.
You're an interesting person. Good on Prof. Keen's and his associates in developing economic complexities and predictive formats from a System Dynamics engineering perspective.
whoa, finally someone who talks about energy and economics . I have stated in other economic blogs that this simple posit - Resources + Energy = Utility which breaks down to waste, ie landfill and heat .* Arthur C Clark ( Sci Fi writer ) I beleive stated that heat is the final waste product that civilizations will have to deal with, its the fundametal limit to all work. * give your daughter $10 to buy some landfill from the shopping mall.
I think an important sale for young students is that the new empirical politico-economics is fun, powerful and a real science. Converting theory to tests. And making spectacular discoveries about inequality, taxation, political interference and most importantly inter grating social sciences it never should have been divorced from.Btw Long Term Capitals failure not 2008 and Kahneman’s Nobel followed by a string of Nobels for discoveries of new market pathologies changes the field for most aggressive poly-trained scholars already.
The actual basis of the economy could be found in the physiocrats, in the meditations of Turgot and Quesnay, along with Adam Smith's first book, 'The Theory of Moral Sentiments.'
I remember the stir that Limits to Growth created and I've been watching five decades for world economies to hit the wall. As time has passed, however, it seemed to my untrained eye as though growth wasn't conforming to predictions and the concept was all but forgotten. There is, of course, an entire industry of pundits, forecasters, analysts and crystal-ball gazers whose careers are fueled by predicting market vicissitudes, and bulls are more popular than bears. But it's tough to argue against the physics you describe. Maybe I just gave up too soon.
I don't want to criticize Keen for he writes simply, and Oli explains simply as well. But most of it can be explained in simpler ways without complicated and boring tables, e.g. if people borrow to speculate on Nvidia and banks are willing to lend to earn more money, then the risk of default is high (it peaks at "Minsky moment") and a chain of defaults, staring with a few bank runs, leads to panic. Since you don't whether your bank will be next (i.e. imperfect info), you rush to withdraw your funds as well, and it spirals down. Most people (economists included) have given up on neoclassical economics over the last two decades; they only appear in useless textbooks and journals. Practical men are not slaves of defunct economists (as Keynes would have it); instead, it is the other way around. Neoclassical economics fails on many counts: equilibrium, cultural desert, lack of political considerations, and absence of institutions. Most developing countries are more keen on the alternative state-led East Asian model.
Yeah, I do get the sense that Keen (and therefore me in this video too!) is pushing at an open door in terms of critiquing neoclassical economics. But, it's interesting that it is still being taught, unless, of course, it is explicitly being taught as a historical, first approximation that is now superseded. I'm kind of starting to see it like Newton's laws compared to General Relativity (although neoclassical economics may well be more wrong than Newton's laws 🙂 ) The other problem is that politicians and influential capitalists will pick and promote the economics that suits them, rather than the economics that most in the field consider to be the most accurate. So, there is also a contest of narratives and analogies to capture the political minds of voters. And I do not think that economists have yet found the right ways to talk about the latest ideas in economics.
@@Go-Meta is it possible that..?.. like Newtonian laws, the gravitational centers of motion are akin to our economies-of-scale, as arising in each globalized sector (e.g., banking, shipping, manufacturing, tech)? Big firms arise, and with this we have concentrations of control and wealth. Yes, the narratives are used as you suggest.
Steven Keen's work is an important extension of a long list of economists (and before them, political economists) who came to understand that the most significant and false assertion of neoclassical writers is that nature (i.e., the factor of production historically referred to by the term "land") possesses the same characteristics as the capital goods we humans produce. Land has a zero cost of production in terms of labor and capital goods. It is also true that price does not clear the market for natural assets because the supply of natural assets is inelastic. Nor do natural assets generally depreciate in functional utility absent some type of widespread natural disaster. Henry George understood these dynamics when he wrote in the late 19th century. His solution mirrored that proposed by the French political economists of the 18th century: public capture of the rent of land and eliminate the taxation of labor, capital goods and commerce. Capture the full potential annual rental value of natural assets and there is no imputed net income stream to capitalized into a selling price for those assets.
This video accurately explains what we already know: Creating money is fine, as long as you don't cause inflation. We all know this. The problem is politicians can't help themselves and will always spend as much money as they can, and then they want to spend more.
Yes, the clinging on to disproven ideology is what is so annoying and frustrating. I think at least the 2007 stock market crash debunks neoliberal economics. I mean, I think everyone should agree that it was a failed experiment and we must move on. But it's amazing that a lot of people, including economists who ought to recognize what's wrong, do not give up their ideas. It's at that point that it is like a religion.
Fascinating! I've heard of this book. The critique seems valuable and makes sense. Based on the author's view of economies being based off energy, economies like Russia or Canada should be the most powerful in the world. I'll definitely be giving this a read. Something about our current understanding of economics never sat well with me.
What happens when debt is created in a currency outside of the jurisdiction of the central bank that issues that currency? For example, debt contracts around the world are drawn up in US dollars. It's the US central bank that has to provide liquidity into the global banking system.
I have to admit I have only recently learned that some dollars are maybe created outside of the USA by institutions that are doing this without an explicit license from the USA, but I still find this hard to believe. I'm going to look into it more one day. But, if one person with $1000 agrees to lend their $1000 to someone else and sets up a debt contract around that, this kind of lending does not create any new dollars. So, not all dollar denominated debt contracts create new dollars. Anyone with dollars can create this kind of dollar debt anywhere in the world.
@@Go-Meta If you cut-n-paste my query into ChatGPT as a prompt, then the first point in its response relates to swap lines that have to be set up by the US central bank, the Federal Reserve, which is what happened during the GFC of 2008-2009 when there was a US dollar liquidity crisis requiring a $700bn injection into the global financial system: "If significant global debt is denominated in a currency like the US dollar, entities in other countries may face liquidity shortages. These shortages occur because they lack direct access to the issuing central bank's facilities, such as the Federal Reserve's discount window. To alleviate such shortages, the Federal Reserve provides liquidity through mechanisms like central bank swap lines, enabling foreign central banks to exchange their currency for US dollars to support local financial institutions."
Interesting. This demonstrates the degree to which USA benefits from being the world's hegemonic reserve currency, such that the functions of its central bank have to be extended outside of the territory of the USA. My assumption is that the theory of what is going on will be *roughly* the same, it is 'just' extending beyond the nation state boundary, but this does mean that it is beyond the official regulatory powers of the USA central bank. I'm assuming, therefore, that this liquidity is only offered to jurisdictions that are considered to have equivalent levels of regulatory oversight. It also sounds like this is the USA central bank trusting and supporting the functions of the other countries' central banks. Interesting.
This is a great video. I have subscribed, started making a reading list from suggested authors, and followed you on Linkedin. We need more educational videos like this, which should be the goal of social media, not more cat videos. Unless the cats are teaching us about math and science.
The reason for the crash was not the amount of debt but the lending of money to people who could not service the interest AND the banks had created assets on a humongous scale which bundled these loans with other perfectly or reasonably perfectly good loans so no one knew what anything was really worth. The insolvency of Lehman brothers demonstrated that the value of any asset is determined by supply and demand. Lehman had to sell no one wanted to buy. Value negligible. In any market the value of an asset is determined by reference to what a similar asset is selling for. Result: huge quantities of debt on bank balance sheets now of negligible value and a credit contraction destroys the real economy. All explainable by classical economics and criminal psychology.
The reason for the crash you cite is spot on; that is Economics applied with 20/20 hindsight; it is with hindsight that "liquidity traps" become obvious for many if not all of us. The insolvency of Lehman isn't macro-economics; and it's failure demonstrated ...what? It demonstrated the need for relevant guardrails. It's a failure that was predicted years in advance...predicted that the management team there would fail- the-firm, and that firm would eventually fire-sell for (give or take) about a Jefferson-per-share. That outlook was based on post-action "lessons learned" from LTCM. The failure of Enron was also predicted. Lehman was a long-standing firm that had employed many many fine people; they were just working within the wrong leadership/governance system. so, it is partially explained -- not at all fully explained -- by the two branches you name. See Krugman's work on liquidity traps.
@ yes indeed a regulatory failure, but the neoliberals argue that regulation restricts enterprise and wealth creation. Very well. Those who live by the sword should die by the sword. However the policy response deprived the world and particularly to my chagrin the UK of such an outcome. When the dominoes fell the banks should have been allowed to fail. The UK government should have frozen all bank accounts above a limit of £40k the then deposit guarantee I seem to recollect. The savings of the vast majority of the population would have been protected. It would however have led to a monumental collapse of the real economy. This would have been of a very temporary nature because the government which can print unlimited amount of money would announce that they would buy any loan and any insolvent company at market value through a new reconstruction bank. Result: the State would own a large part of the economy and banking system which it had purchased for a song and the economy particularly employment and production would have continued.. the losers in all this would have been rich people and particularly the neoliberals denizens of the City. These assets could then have been sold at leisure for a vast profit and paid down the National debt. What actually happened was that a socialist prime minister bailed out the banks and the rich and lumbered us with the debts which the next neoliberal government proceeded to pay off by cutting public services and investment and initiated quantitative easing with the disastrous consequences we see today..
That energy as a basis for economics is illustrated well by Frank Kapras 1956 movie " Our Mr Sun", which predicts when we run out of cheap fossil fuels we will return to the hard labour economy of the middle ages. Model that!
mainstream economists haven't been able to predict the 2008 recession because most of them are Keynesians. There are economists who predicted the crash in sense that they saw the perversion of incentives and knew something like that was going to happen. Nobody in the mainstream pays those people any attention except, maybe, to ridicule their small government ideas. I'm referring to the Austrian school of economics.
You obviously have no grounding in the history of economic thought. The vast number of economists working in financial institutions are not ideologues. They are econometrists, wedded to the needs of Finance, rather than social economics, or political economy. It's the lack of attention to those disciplines, that has ignored human nature. And we are paying the price of that. Market ideology was touted as a self organising system that could regulate it itself, without paying attention to the fact that markets are made up of people, who are tend to be more subjective than objective, and who can be captured by vice as well as virtue. Economic History is punctuated with conflicts between greed and wisdom. It is we who have not learned from the errors of our ancestors. Just because we have more tools, it does not remove the duty to use them wisely. And a short skip through economic thought just over the last hundred years illustrates that. Human folly never goes away. It must be constantly kept in the forefront of our minds, especially as the tool we use - capitalism - is double edged. It can kill as well as cure. And no-one in it is immune from folly. We all have our biases, but they are no substitute for thinking.
Type "mainstream economics" on google and search the wikipedia page. Read the first paragraph. Mainstream Economics *IS* Orthodox Economy by definition. That is literally the opposite of the Keynesians economy. The confusion you are doing here might be from the fact that we have now 16 years from the 2008 economics and perhaps you think that whatever happened in the last 16 years are the new mainstream?
@@danilolima9268 For how long must something be normal until it's considered mainstream? This keynessian crap has become normal for at least 16 years as you say or a lot longer, but transformed a bit during the 80s after the stagflation of the 70s. Definitions means nothing when they fail to describe reality.
The the idea that that supply and demand tend towards equilibrium is rooted in the science in Smith’s time that all systems tend towards equilibrium. Which is true-ish, but chemistry and physics sophisticated their math to take into account the messiness of reality. Classical Economists optimistically believed that we will all reach a point of perfect agreement thereby creating universal opulence and putting an end to wars and slavery. Wild.
Not really, Alfred Marshall used the equillibrium with full disclaimers that this was to be a theoretical half-measure until something better is developed. But neoclassicals don't bother to read the sources they laud, and took it as gospel.
Hi, I think we have to be careful not to see prediction as an all or nothing concept. Most things we care about have some chaotic aspects, but just like with the weather, we get huge benefits from making reasonable predictions of what might happen, even if these predictions are really a range of scenarios with percentage probabilities. And, different timescales have different trends that dominate, so sometimes we can forecast likely long term trends (e.g. climate change) even when precise shorter term details are impossible to predict. I actually made a video about the rational limits to prediction: ua-cam.com/video/3JCBugtM5Pk/v-deo.html Regarding predictions of economics, my understanding is that the key difference between the kind of view Keen takes and the more traditional view, is whether or not crises are seen to be triggered by external shocks to the system, or whether they are considered to be self-generating from internal dynamics (which is Keen's view).
I haven't yet read the book but can predict that in it William Nordhaus' work will be absolutely excoriated. Keen appears to harbour an intense resentment towards Nordhaus, possibly motivated in part by the latter's undoubtedly undeserved Nobel Prize in economics. And I have much sympathy for Keen's disgust at this award: Nobel prizes in economics have generally been awarded, not to those whose work objectively enhances our understanding of money and trade, but rather to those whose work endorses existing economic orthodoxies.
Both the idea of limitless growth and the idea of equilibrium have long been abandoned by ecologists. Neither limitless growth nor equilibrium actually exist. Since economics is just a description of a particular type of ecology, I suggest economists try to do some wholesale reworking using the ideas of ecology. Specifically, economics needs to address economic birth, senescence and death, economic reproduction, and some equivalent to niche theory to have any hope of actually describing a real economy at any stage other than the early resource exploitation stage.
Yup, I think you are absolutely right here. The one detail I haven't got to the heart of yet is whether there is any meaningful way in which an economy could have limitless growth in the numerical size of the economy while keeping limits on the growth of the material resources being used.
The problem begins fundamentally with the lack of definition of money as a measure of value. This gives rise to the prectice of utter absurdities such as ineterest. Financial instability is a certainty under money's misrepresentation. Adopting sound systems science would be very helpful. Without a well defined unit of value, all exchange becomes utterly flawed. Mind you that the centimeter or the kilogram need not to be backed by power. They are precise.
Interest can exist without money, it's just not as precise. A well defined unit of value is still not a universal unit of value, as grams and meters are.
Any physicist should be able to decompose any physical measurement into SI units. Energy, for example can be expressed in terms of mass, distance, and time. I would love to see an economist decompose *money* into SI units, or an economic equivalent thereof.
The equity market maniacal view of perpetual growth (an alternative of "greater fool theory") are insane. Equity markets and share trading are based on insane logic.
I'm relatively old for an economics grad. student (35 yo and counting) and one of the things that didn't make sense to me was the way ppl tend to talk about energy and waste. I think it felt misleading. The ideas you exposed on the video calmed me 'cause none of my teacher ever placed energy consumption into account or analysis and that felt hollow, but as the calculus, linear algebra and statistics mountains of studies went on, I've lost track of what was missing and I was just feeling that all what was being taught was too fragile and tender when compared to the material reality. Imma try to read that book, tho I feel late on my timing to start studying, it also feels like a crossroad but you gotta look very carefully to identify all the other paths connecting to our temporal node. Thanks you for the video!
I don't know that book, but I've taken a look and added it to my (all too long!) list of books that I'd like to read. So, thanks for the tip! (obvs unsure if I'll actually have time to review it though 🙂)
The solution has to involve reducing the size of the economy and moving on to a zero physical growth economy. Any growth can only be allowed if it's achieved through increased efficiency.
Robert J. Shiller (and actually all economists, including those working for banks and venture capital) knew very well that we were in a housing bubble. It is, however, impossible to forecast when it bursts. If that was possible, you would see a lot of short selling popping up on the market. Which we didn't. The problem with the 2007 housing bubble is not money or debt. It's overvaluation of houses, such that they could not serve as collateral to the huge credits given out by banks, Fanny Mae, and Freddy Mac. It is a failure of capitalist mark-to-market accounting ideology. Capitalists and their lackey economists believe that (observable) prices are equilibrium prices, which indeed they are not. If houses were valued at their fundamental value (cost of rebuilding), there would have never been a subprime crisis. Neoclassical economics can well explain that. In contrast, neoliberal economics contradicts neoclassical findings. Neoclassical economics is about general equilibria and deviation thereof, not about macro-economical issues, like growth. As micro and macro is often taught to undergrads with the same text book, this is often mixed up. The growth ideology is with neoliberals, not with neoclassical economics. I agree with Keen that energy is a more important production factor than labour, capital and land, and a simplified one-factor model would be using energy rather than the classical three. Anyway, the big feudalist digital platforms have very little of them.
I sometimes wonder if neoliberalism is at its roots a theory built to advance the status of its advocates rather than adequately explain real things. Milton F was an impressive speaker and prof but on the face of it, the theory seems intended to confirm the self-image of trust fund kids and their pet kissasses. Then again, maybe I'm just sick of hearing from airheads who wax poetic about cutting state spending while utterly relying on massive state spending for their profits.
Hi, no, not yet. But I do have a video that covers the more general problem of why it is so hard to accurately predict the future, a video that mentions the Lorenz equations again: ua-cam.com/video/3JCBugtM5Pk/v-deo.html
@Go-Meta there's another content creator, @fractalmanhattan that has some good videos on the Lorenz attractor, chaos theory, and how it applies to stock markets but he's pretty narrowly focused from a quant perspective. I'd love to see a broad application to macro-markets as a whole. This is really fascinating stuff.
I would agree with the idea that economy does not tend towards equilibrium, and this is because it rests on human psychology. Hype cycles that lead to investment booms and collapse, and cycles of excessive debt fueled growth and the crash of debt deflation. However, I don't think this is adequate to support keynesian economics which appears to be Steve Keen's goal. I'm more sympathetic to the Austrian school, you need recessions to wipe out the poor choices in the hype cycle, long term keynesian efforts to counter the market cycle will tend the system towards stagnation because they don't clear out malinvestment as effectively as a proper recession does. Recessions are painful but moderating them in the long term can be more painful than allowing the business cycle to do what it does. I'm Australian as is Keen, and the analogy I would make is the cycle of bushfires and regrowth that nature in Australia has, that a forest that is allowed to undergo this cycle is more healthy than one where there is an attempt to protect it.
I think Krugman is wrong about government debt. When you borrow, you borrow from future generations. Easy to see, who eventually pays. Krugman has an agenda. He wants to argue that debt is innocuous.
@@willnitschke of course, but krugman is referring to government debt, that's why he advocates deficit spending as far less harmful than argued by the neo-classical.
@@user-wr4yl7tx3w Government debt is closer to buying that Ferrari than constructive investment, though. If government debt was productive, GDP would be outpacing debt as productive investments are profitable. What we see in the real world, is the exact opposite. As for Krugman, he is usually wrong about everything, like how inflation wasn't going to be a problem ever again.
@@willnitschke Krugman is brilliant; you may be unfair in interpreting him; we have to accept that he is accepting and contending with the difficulties of nudging the donkeys collectively forward.
Money swirls around in two buckets. One is the real economy where my bank account lives. This moves in response to my desire for economic activity, but it lacks the power to settle transactions. The other is the banking system where it rushes around settling transactions but doesnt do much else. As long as banking sector solvency is between the upper and lower limits, banks can freely create and erase money via lending in response to demand from the economy. As solvency decreases, banks become reluctant to lend and interest rates go up. As solvency goes up they become reluctant to accept deposits and rates go down. Solvency can become inadequate for many reasons such as a change in banking regulation or a downward revaluation of a significant tranche of financial assets. The result is that the money previously created has to erased or the central banks have to prop up bank solvency by printing money. One downside of this is that it transfers credit risk to the central bank and so they need a plan to extricate themselves. QT must follow QE. The 2008 financial crisis is far from over.
Another flaw is that in order to grow, not only the aggregate supply must grow in a sustainable way ... but also the demand. It is very different for this demand to grow only based on debt, by enslaving people ... than for it to be based on savings, creating money on the microscale through local banks with a direct community commitment (with no bailouts). Diversification should be the priority, not only to maximize aggregate output (which is the only God in neoclassical economics)
Capital and labour are two sides of the same coin. Thermodynamics is the most interesting, challenging and mind-blowing subject. It’s also basic maths because Growth demanded is exponential Growth. Like continuous acceleration. Impossible and mad.
Steve Keen has pointed out that I actually got one thing wrong in the video 🤦♂It was in fact Keen who came up with the Godley Tables, and he chose to name them after Wynne Godley because of how they were influenced by Godley's work. In the video I mistakenly attribute them to Godley. So many hours writing and checking the script, but still some things slip through!
I’d see that as an honest slip in source attribution, as empiricism holds up…😅
Keen is one of many (!) who more or less lays bare a solid epistemological and holistic understanding - that barely has a place in general education or the public narrative.
I’d posit that history “rhymes” (thanks Chomsky, eh… I think…?). The period we’re in, has a parallel to the end of medieval times (Europe & colonies), where the dissonance between dogma and existential experience becomes its own dynamic.
Or, a smaller parallel like pre the Great War - these are early days.
Culturally, either modernity fades out - or it may be upheld through “life support”, meaning extreme use of power (energy, resources, imperative policy). Both paths are visible at this point, at least in my tiny and biased research.
Looking back, such paradigm shifts have taken a century or more - the full four generation cycle. Scientifically, we don’t have that time, and the outcomes are global this time around.
Ontologically, we’re slow as snails in a fast paced horror show. Or, slowly adapting to ever-ongoing changes (thanks, Hegel…).
How brave are we - in the (overlooked) dialectic of individuals and community…? Thanks for sharing this, at least that’s bravery to me.
_(After all my nonsense, least I can do is sub, and thank the almighty algo…😅)_
Preface Paradox
Paper isn't money. It's fraud.
I think the long term rhythms and rhymes of history are fascinating. I'm always curious about different takes on these ebbs and flows. But I also think we should always choose to believe in the possibility of our individual and societal agency to shift things in a better direction. We should learn about the tides, but know that we have oars and a rudder too!
Thanks for the comment 👍
Hahaha! What a complete IDIOT! Total brain death. Or a lousy criminal fraudster looking for a sekt to loot, if there exists anyone stupider than him. The worst economist since Karl Marx who claimed that the more something costs, the more is it worth. A question this clown can't answerr: Why not print $10 billion trillion and give a trillion to each human being, making everyone super rich!?
People are saying it’s failed because it’s too abstract and doesn’t reflect the real world. It assumes that people act rationally and markets always find equilibrium, but clearly, that’s not what’s happening in the economy today
One of the biggest issues is that neoclassical economics relies so heavily on perfect competition, perfect information, and rational decision making
But in the real world, we’re seeing monopolies, unequal access to information, and emotional decision making driving markets. It's no wonder people say it’s out of touch.
but at the same time, neoclassical economics has provided a lot of useful tools and models for understanding certain aspects of the economy. I wouldn’t say it’s completely failed, it just has limitations. For instance, it’s good at explaining price mechanisms and supply demand relationships, but it’s not so good at addressing market failures, inequality, or financial crises
Yeah, I’m on the fence. I think neoclassical economics works well in theory, but when it comes to complex, real world issues like climate change, wealth distribution, or financial instability, it doesn’t give us enough insight. It feels like we’re trying to use outdated tools for modern problems.
Neoclassical economics doesn’t account for human behavior in a nuanced way. Behavioral economics has shown that people often act irrationally, driven by biases or emotions, which neoclassical models don’t explain
Economics is Philosophy masquerading as Science while giving Politicians an excuse for bad behavior.
Except the politicians never commit to any theory at all. They pick and choose. They are like someone picking up a dozen diet plans and choosing to follow whatever advice from whatever diet that lets them eat what they want when they want.
They are Keynesian’s only when there’s a downturn for example.
Climate Science is even worse.
Depends on which economics you're pointing to.
Economics is mathematics
@@bullet4707 Math is math. Economics is philosophy which we can examine using math.
I am astonished how entertained I was by a video about economic theory
Wow, thanks, that's lovely to hear 🙏
@@Go-Meta Hahaha! Hello stupid guy, I was also LMAO! Like child watching a clown fail ridiculously with everything he tries. You could make a tour with this freak show.
I am pleased to hear of your interest in economics. But please do not overlook the work and theories of the Austrian School if economics.
It's fundamentally wrong. Go study Austrian Economics and make you mind up after that; it's revolutionising Argentina.
Exactly!
Nice discussion. I am not a economics guy, but there is a saying,
"There's enough for everybody's need but there's not enough for everybody's greed".
Well said
No, wrong. Resources are not infinite. And we don’t have all the same needs at the same time.
Your comment is a communist argument which has created misery only.
You got the order wrong, its actually becasue of everybody's greed, that we make enough for everybody's need. This is the invisible hand of the market, that everyone working in their own self interest makes sure the things we need get produced, so everyone can get paid, selling them to those who need them.
@@sprinkle61 ..good observation. but it creates a "rat race".
@@nickharrison3748It is what it is. It's still best of the worst.
Economic theory can predict the past with accuracy but rarely the future.
astonishing!
Then your naive if you think anyone can predict the future. Only God knows the future. as murray rothbard used to say
I think probabilities is the most useful way to assess in general. Many projections are taken as predictions though
@@MrTeeri4equations in phydics predict the future otherwise we could not build satelites.
@@MrTeeri4 If you read the Bible or listen to William Donahue who quotes the Bible, you would know we are Gods.
My father recounts how the field of academic Engineering Control Theory was dominated by linear models until the mid 70s. This is when mini computers ( PDP8 etc ) became available in university departments and polynomial calculations, modelling,min / max and Monte Carlo simulation became realistically possible, and new more complex models could be posited.
I wonder, how much economic theory faced the same, and arguable far more complex issue with the polynomial variables far greater in number, unpredictability and 'economic noise'
You have just gained a subscriber, a fabulous first ( for me ) video and review.
@@tj92834 Hence why you only model the macroeconomic aggregates and the perturbations from long-term movements. Don't confuse the neoclassical neurosis of seeking equilibrium with modelling macroeconomic states and flows in general. To disregard their statistical predictability borders on intellectual insincerity. Prof. Steve Keen's claim to fame is precisely in abandoning this neoclassical condition, producing instead a double-entry model of cash flows in the economy.
And Clive Granger got the Swdish government's central bank's prize in economics at the tax payers expense without any kind of connection at all to Alfred Nobel, in 2003. For simply pointing out that linear regression (a trivial highschool math equation that is the most advanced that macro idiot economists ever use) logically requires that the data is stationary, obviously. Something known since Gauss first formulated linear regression in the 1790s.
Stationary as in "regressing towards the mean", that data varies stochastically at a certain level. Data that trends infinitely like GDP, export incomes, stock prices, consumer prices, wages and neigh everything that is called "economic data" in a hyperinflating fiat fraud "planned" economy, cannot be used for linear regression. It's like dividing by zero. It says nothing about any correlation between the time series. So it turns out that MOST macro iditoic fake "research" ever done is worthless garbage already for that reason! Because economists are too uneducated an untalanted to deal with highschool math.
@@tj92834 I recommend Ludwig von MIses' Human Action. It describes what an economy consists of (the title is very revealing). It's an axiomatic logic that explains the real economy out there among the humans. The only numbers you find in his book are the page numbers. He uses logic and understanding.
The fraudulent always failing fraudulent "economists" since the Great Depression simply pick whatever numbers that are easy to find, such as stuff written down in bookkeeping. Then then calculate (wrongly most of the time) the average of ll the numbers they have found and procaim that this is "The Price" in the economy. Then they repeat with all numbers they by chance lazily find and calculate their average too. If they differ, they proclaim that "The Price" has inflated. As if there only existed one good with one price in an economy. A forest with a single tree. Rubbish in-garbage-out. Or why did you think that all central banks and other government dictated reculations and "stimulus" always fail so totally catastrophically with devastating consequences for all of society? Because their fake "theory" is a bad joke, and they are uneducated and very low-IQ. Seem incapable of ever understanding anything. Like Paul Krugman, hahaha!
The single most important phenomena in an economy is VALUE. Have you ever heard a macro idiot economist use that word? Not "economic activity" that generates those irrelevant numbers in the bookkeeping, but VALUE CREATION. Value is subjective and impossible for anyone to measure outside oneself. Values are moral, that's why good things are called "goods". Only each individual can make valuations and thus choices of alternative actions to achieve the creation of that which is better instead of that which is worse. A government bureacrat with numbers and a flawed fake "theory" cannot make any such choices. This is immediately self-evident to any sentient being, the distinction between what is subjective and what is objective.
spot on. perfect.
Finances and economics are not the same thing, but people working on portfolio optimization theory are pretty much doing control theory these days.
I'm glad I studied Economics, I have studied and learnt so much about the world and yes, we need a better system
Suggestions? If I am not allowed to own stuff, your system will suck worse than the current system.
@@kayakMike1000 you can own stuff just not the means of production
@@kayakMike1000 These guys and girls studying Economics haven't understood that Neoclassical Economics is some theoretical tool to learn definitions and be able to discuss Economy with a common lexical glossary.
They are in a book and they believe they are in the real world.
For example you speak about Davos Inclusive Capitalism and they have no idea what you are talking about.
If they can't see that what they learn in the classroom can't be the real way Economy works, first of all because Business requires too much time to be learnt at school, just imagine how difficult it would be for them to understand that neocapitalism and Inclusive Capitalism are Communism.
Western universities and grandes Ecoles are factories to produce Marxists.
" I have studied and learnt so much about the world and yes, we need a better system" Actually there is a better system (bunch of systems). The Asia model set in motion by Edwards Deming in Japan. Luckily economists were not in the driver's seat. Read the (actually rather funny) World Bank book The East Asia Miracle where its humbled economists wake up to that fact.
@@peterquennellnyc Wake up to that fact what? What do you mean Economists wake up to that fact? What fact? Can you explain a little bit if you have 30 sec
It doesn’t matter which economic model you choose if they can be corrupted from within.
Which is exactly what caused the 2008 liquidity crisis.
So model the corruption too?
@@stumac869 in their mind if growth slows you lower the debt standards to increase the leverage. They forget to mention not everyone has access to a printing press. But the masses eat that debt up so it’s a two way street that locks logical buyers out of the market.
@@nathanDrake-nd if you can think of a sustainable way to separate public finance from governments so it couldn’t be bastardized in 5000 page bills you’d be on the right track. The existing models all fail due to that flaw.
well, every new tool can be used for good, and new tools are used by classic "tools" for bad.
Some economic pundits warned of consumer debt in the early 2000s; however, the bubble kept growing. In about 2005, I heard a radio ad for an interest-only mortgage that assumed housing prices would continue to rise, creating equity. While I tend to lean toward neoclassical economics, it does not account for the irrational gluttony of the consumer, and I am mystified by economists ignoring this behavior.
Yeah, looking back at what was going on it's amazing that alarm bells weren't going off much louder at the time. But the people selling the debt had every incentive to keep on doing it until the music stopped.
I kind of think of neoclassical economics as a first approximation to what is going on. A kind of economics that feels intuitive to understand and that people could do with pens and paper, but now, with computers and decades more understanding of dynamical systems thinking there really is no excuse to stick with these oversimplifications.
It may be that the hardest task for getting to the next level of modelling the economy is to come up with the analogies and explanations that feel just at intuitively correct as the familiar narratives of neoclassical economics.
I would say it was a rational gluttony of speculators. Interest rates under Greenspan allowed borrowing at real interest rates close to zero so who would be afraid to borrow and invest. Hundreds of thousands of new houses were bought and flipped by speculators who would never have to make a mortgage payment. The Federal Reserve should have had the duty to choke off that speculation by raising interest rates high enough.
You say irrational gluttony, I say human nature being biased towards believing more is automatically better than less in everything. Yet as hairless apes, we can be captured by unquestioned assumptions, leading to negative consequences. One big question mainstream economics fails to consider is the distribution of resources. And it is a multidimensional issue that should have been at the heart of the discipline, but instead the Protestant Work Ethic veiled issues of fairness and desert, and escaped deep analysis. We know this because the original name of the discipline was Political Economy, and questions of distribution was, and still is, central to this perspective. Instead, the drive for Economics to be accepted as a natural science, basically avoided questioning distribution as a key function of an economy.
It's not that "economists" ignore it. it's that keynesians ignore it.
If you don't know what a Keynseian is just picture Soviet economic structure.
Academia was taken over by Marxists so naturally Keynsians are the only "economists" you hear from in the media.
Hah! “irrational gluttony” = “American dream”
Definitely have to pick this book up. Thanks for the excellent overview.
Thanks for highlighting Steve's fearless, tireless & comprehensive scientific refutation of neo classical economics & the "discipline" lol as a whole, by trying to keep them honesty to economic history, models & actual historic data - with his open source approach {Minsky software model}. He & a handful of others {Kate Raworth, Nate Hagens & Gary's Economics etc} -but more each yr are putting economics of a better foundation to deal with the coming & current meta crisis.
Im studying his Rebel Economics Challenge course now & bloody glad i signed up- don't understand the maths yet, but that our models we make species wide economic decisions on should at least include the reality of energy & environment costs in the equations beggars belief that they haven't been for nearly 100yrs.
Glad you enjoyed the video👍
It is interesting that neoclassical economics has remained so dominant for so long, but I think this is partly because for a long time linear maths was our best way to understand many phenomena and it's not a terrible first approximation - but it is clearly not good enough. In contrast, dynamical systems thinking is much more correct, but much harder to work with so it's taking us a long time to upgrade the mainstream, dominant paradigm. But I have little doubt it will change, we just need to speed up the process 🙂
07:33 If Jane wants to use her $1,000 credit line from her bank (Private Bank A) to make a payment to someone who banks at a different bank (Mary, who is an account holder at Private Bank B), then in order for this purchasing power to be exercised, Private Bank A must have (or borrow) $1,000 of central bank money (cash or reserves held at the central bank) to pay to Private Bank B. Otherwise Private Bank B will not act as counterparty to a transaction whereby it incurs a $1,000 liability to Mary without receiving an offsetting $1,000 asset on its balance sheet. So in practice the 'creation' of money by private bank lending is constrained by the ability of the lender to access the central bank money necessary to fulfil the credit line.
Yes indeed (well, except for the last sentence 🙂)
As you say, there is an important link back to the central bank and the requirement to keep sufficient reserves ratios for the private banks to be solvent and overnight borrowing to remain liquid. However, I don't think it is quite right to describe this as the private banks needing to borrow money from the central bank to fulfil the credit line. The central bank's involvement in the case you describe is only a temporary loan until Private Bank A sells on the $1000 debt asset to someone and repays this loan.
In the simplest possible scenario, when Jane makes the payment to Mary at Private Bank B, Private Bank A could immediately on that day also sell the $1000 debt asset to Private Bank B for $1000 cash. In effect both the assets and liability get transferred to bank B at the same time. If this were to happen then the central bank need not get involved at all and still the money would have been created and started flowing through the economy.
But, in reality there will be transactions moving both ways between A and B (and C, D, E, etc) and so at the end of the day the banks just borrow the required difference overnight to ensure all of the books add up. And over time some of the banks will need to sell on their debt assets in order to remain solvent.
... but the video was already too long to include all of that too 🙂
@@Go-Meta Thanks for the reply. Maybe I should have been clearer in the final sentence. By "access the central bank money", I didn't mean to imply "borrow money from the central bank". I meant that the lender needs money created by the central bank (monetary base, i.e. cash + reserves held at the central bank), but it doesn't necessarily have to be lent directly by the central bank - it could be obtained via interbank loan or from depositors. That's my understanding, anyway. Or alternatively the debt asset could be sold, as you describe. Thanks again for the video.
The books do not have to be balanced each day. Only when there is a public reporting period due. In the meanwhile the bank may have unbalanced books. So when they decide on the loan they do not care if there is something behind it. Once the loan is in their books, then they will try to balance. In most cases by transactions with other banks. The problem is when because of the risk environment changes the costs of such transactions, their interest rates increase, or if they do not find funding at all because such sources dry out. Then the bank will get into insolvency.
This is a fantastic explanation! The challenge with Prof. Keen's content is that it's not accessible due to the speed and complexity he explains concepts. His ideas are brilliant but the delivery and message needs to be refined in similar fashion to how you're doing it in this video. For example the way Prof. Kelton is able to communicate MMT to the average folk is brilliant.
That's an excellent summary. Thanks.
Thank you!
Wow this was refreshing! Might have to pick up Keen’s book! Thank you!
I just stumbled upon this channel and really enjoyed how different ideas are connected through a book review. I especially liked the references to thermodynamic free energy and complexity. Looking forward to watching more videos!
There are good points but ones that ignore other parts of economic theory.
- Like how the Austrians predicted the great recession, they even called it greenspans bubble.
- Id also mention that supply and demand assume "all else equal" to keep the model simple and not scientismic. Being that all of them are approximations of human action, which is full of factors no one can ever know.
- On banks, they operate with consumers assuming there will always be more, which is why bank-runs are rare. They are also insured and have a lender of last resort if they feel low. So they mostly get away with it. As long as they can handle the day to day transactions. But this is absolutely has an effect on the economy and the business cycle.
- On the differences between people, this is why it's important to know why older economists tried to say they could not know everything in an economy, because and economy is based ultimately on human action.
On energy, it's pretty clear that you're not taking into account innovation. The Simon-Ehrlich wager proved the ecologist wrong. The current ecological models of economics simply don't work next to the neoclassical theories.
When it comes to solutions, I want to be clear that a slide into Austrian econ would be also flawed, but there is a huge advantage in avoiding scientism in economics and there is good reason many neoclassical economists try to avoid it.
Interesting comments, thanks 👍
Unfortunately I don't have time to engage with all your points (many of which I agree with), but I am curious why you say a slide into Austrian economics would be wrong (Austrian economics seems to elicit strong support by some people, so I'm also curious about the common doubts others have about it 🙂)
@@Go-Meta it's no problem, if this became a back and fourth this would be nothing but a ton of yelling past each-other in 5 paragraph essays
On why I am not an Austrian.
1.The rejection of empiricism is methodologically flawed and it's one that is used by many Austrian economics (but not all, it varies). Of course Praxeology and human action is important, but it must be tested against real events.
2. Rejection of inanimately useful and true concepts in economics. Some examples off the top of my head
- Public goods (varies, but it is very much rejected by thinkers like Rothbard reject it and although it is possible for private actors to fix the issue, I have not seen a more formal talk about the concept)
- Indifference
- Market failure (generally this is a concept poorly talked about)
- Rejection much of math (Although economath is FAR from perfect, it can be a good language to communicate economic ideas)
Plus probably many more.
3. The final point is a simple one that I imagine people like you into more niche economic theories will appreciate, there is NO Austrian school, there is ONLY good economics and bad economics. Papers like the use of knowledge in society and the economic calculation problem and ideas like the heterogeneity of capital are all ideas that do not require fully joining any economic school.
I also want to clarify that the environment IS important, externalities (especially in extreme cases) are very much one of the most benign intervention I can think of in a market.
@Tommy-the-coffee-addict I totally agree that only limited discussion is possible in this format and indeed that there are good and bad ideas in all so called 'schools' of thought 👍 The trick is to keep looking for the golden nuggets wherever they may be.
And, thank you for this useful response, you've given me lots of avenues to explore further 👍
So, synthesising neoclassical with Austrian theory can help.
Mind blowing, and a very necessary intervention of our time. I love the better use of Mathematical and Physics theories to a more robust modelling that can avert the oversimplification by sim-le averages instead of engaging the complex equations with the computerised power we have (maybe A.I. can assist too)
spot on.
Incredibly approachable and informative, thank you
Oooooo - stop it - I like it!
You have left me wallowing in an ecstasy of confirmation bias. Really glad I stumbled on your channel. It is only since retirement that I have taken an interest in economics and after a lifetime of strongly suspecting that there was something rotten in the state of world economics - it turns out I was right. Accordingly I have provisionally reinstated my original intention of living forever and ruling the universe...
Since WW2 the world has been burdened by an economic theocracy so much more malign than is commonly recognised. Magnificent theoretician's castles in the air have been constructed by Hayek, Friedman et al, entirely without foundation in the material world of finite resources, irrational actors, corruption/greed, remorseless externalities etc. etc.
Neoliberal/free market/laissez faire/globalised capitalism and untrammelled consumerism may well be the primary cause of our civilisational collapse and, hilariously, this may prove the aphorism that 'the meek shall inherit the earth'. Those with the least will suffer the least and those who are so far up the civilisational pole that they have lost the knowledge and resourcefulness necessary for survival will succumb - you cannot eat, drink or breathe wealth.
Perhaps MIT's 2040 prediction needs wider consideration.
Actually you’re totally wrong, we don’t have capitalism anywhere on earth, the closest place was Hong Kong. Everywhere has mixed economies and the freer it is the wealthier and better it works. The whole system is messed up because it’s based on keynsianism and the ability of politicians to print money ad infinitum. Without Austrian economics we are going down a road to destruction for sure, but luckily we have bitcoin…..
@@tommyrich3155 Terms like capitalism, communism and socialism do tend to be thrown about a little too freely. Austrian/Chicago school economics is the road to serfdom - QED. The current state of the world economy is unquestionably messed up after 50 years or so of Austrian/Chicago school economics - Keynes hasn't had a look in since the immediate post-war period. There is no one settled economic model for all times and circumstances and we do stand in great need of fresh thinking to handle our new circumstances. Bitcoin smells strongly of Tulip mania.
USA and WEST bubble popping, (fenced in by speniding on nowt with no real return) However...there's a real world out there that works for a livin and will continue to do so, with or without Kabuki Theatre Incorporated.
1:37 Neoclassical economics depends on honest info. If S and P, Moody's and Fitch all gave faked ratkngs, and weren't punished, is this really a failure of neoclassical economics, either positively or normatively, or a failure of the judicial system?
Arguably the failure here of the neoclassical perspective is to model things as if people are going to have the information, when we know that it is much more likely that they will not! 🙂
@@Go-Meta They would have had the info if too big to fail didn't mean too big to jail. We're being set up for another round of overinvestment in real estate, partly based on a repeat of all that, and the usual Schedule A tax deductions for Property taxes, interest on mortgage, and state and lical taxes, all of which is socialism for the rich in the name of the middle class and at the expense ofxthe middle class and poor. No wonder the working masses are voting for Trump and the parasites at the top of the food chain support Harris with brainwashed support by the lumpenproletariat.
@@Go-Metayeah sure, but how are you going to model this case?
@@testboga5991I don't know, but surely not using neoclassical theory.
@@testboga5991there are lots of situations in physics where you have limited information/inaccurate measures and noise in the data, but can still make predictions, and there are statistical frameworks for dealing with this.
Probably one of the most brilliant videos I've watched - ever.
Thank you, much appreciated!!
Great video. As a mathematician who works on nonlinear dynamics, I have always been struck by how crude most economic models seem to be, and how the assumptions usually appear deeply flawed just on common sense grounds.
Double that for climate change models
well said... many of us who are fascinated and trained in Economics, as a "soft" science, have been patient; we've known for decades that the mathematics necessary to move past obviously simplistic "models" of yesteryear would need to wait for two developments: the accumulation of digitized data (aka Big Data) on our social behaviours (e.g., OUR consumption spending, OUR investments, OUR speculations); and AI's arrival. We've waited for Decades. And so, now we are arriving at the inflection point for scholars, a point at which we can actually "run the data" and implement far more sophisticated modelling; so, please DO bring your skills with nonlinear dynamics practiced in the "hard" sciences" over to "the soft side" like Economics. The host rightly conveys that Redistribution of the Wealth of OUR Society (albeit assigned piecemeal to individuals) is a necessary component of sustainable social order. That's a no brainer, that gets drowned out by the self-centered amongst us. So, we are now at the cusp. The host incorrectly suggests that the GFC "surprised" folks; what was surprising was that opacity and over-leveraging of the "system" hadn't triggered the landslide/avalanche/tsunami in 2003 or 2004. I suggest the host review Peter Garber's work on bubbles. We are as good at predicting earthquakes as we are at predicting when economic bubbles will burst. Also, the host could focus on economies-of-scale which are harnessed; they simply "are" and are exploited, and this leads to unmeasured externalities (e.g., wanton pollution or tragedy of the commons) as well as concentrations of wealth/widening inequities. Thanks. I look forward to more of these excellent books reviews.
Embarrassing economic models too.
@@TC2020-w8u tell you have never seen a climate model without telling us you have never seen a climate model.
Climate models are very robust physical models, and those whose job is to build them will never shy away from the complexity of the world, quite the contrary, that's what excites them the most!
@mmarques2736 what are you talking about?
You wrote absolutely nothing!
Well done.
Very, very good video, really impressed by your explanation.
Thank you! 🙏
Thank you for the awesome review. I still don't believe that the Global Financial Crisis wasn't big enough for economists to predict, and by fact, no one held responsible for that. But humanity needs a way better economic model than Keynesian/MMT infinite money printing, and I'm glad that there are smart people who i looking for that.
You really don't understand the discussion at all. It's not about Kenysianism, MMT, or such labels. It's about how governments actually use the money they themselves create, and questioning what they do with it. MMT is not a prescriptive model. It's a descriptive one, and so is limited to describing how governments via central banks create money. That's it. What they do with that money, and should they being doing that with it, is a question MMT has never addressed. Conflating what is, with what ought to be is a logical error. So, forget about MMT. Rather ask yourself whether the State should be investing in its own economy, and then explain your answer. Then you can contribute something to the debate, instead of parroting someone else's undigested ideology.
@@CuriousCrow-mp4cx I bet you are right-I might not understand the discussion that deep. But the question you asked, I already asked myself. And I haven't come up with an answer better than yes, it should, but just because everyone else is doing the same thing. And in the case of refusing to do that, you are just falling off.
Alexander Hamilton taught me well that it's protectionism, not a free market that drives the economy. And protectionism is impossible without the State's intervention.
" I still don't believe that the Global Financial Crisis wasn't big enough for economists to predict" Hahaha! Right. I was in Manhattan then (still am, ex UN) and around 2003 everybody here and their dog knew it was a house of cards. Everybody was thinking "I am just way too smart to be the last one out the door". Even ANGELO MOZILLO was warning of a bubble around then, the guy more than anyone who set the whole thing in motion. (Did you see the Oscar winner "Everything Everywhere"? That set with the stairs was his trading & bundling room.)
Man,listening to you feels like music. The way you speak is so subtle and with great tone. I could listen anything you tell me about! I will study your videos and style and implement on myself. Story telling!!!
Yep the trickle down effect works really well and the idea of continuous growth is so obvious as to be an axiom in mathematical terms
What's the alternative because there's no doubt we're all much wealthier as a result and world poverty has decreased. In contrast where hard line socialism/communism has been imposed people have either starved to death and/or lived in absolute poverty.
I often said only oligarch piss trickles down.
@@stumac869I don't know, maybe return to the capitalism of the 1950s, before Reagan changed our economic policy to "billionaires p1ss on our heads and tell us it's raining (trickling down)"?
/s
@@stumac869 Unfortunately I agree, I don't have an alternative other than a benevolent dictator but they are hard to find. It really comes down to some basics of humanity, greed, looking after no1, limited empathy and that a sizable percentage dont have the where with all to look after themselves and hence vote for the greater good.
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
Interesting!
So it is not knowing, and not knowing that you don't know that creates a problem?
Thank you for this easy to understand book review! I am totally intrigued!
Thank you and Steve Keen for explaining the ultimate solution to the climate crisis. I could only sense that accelerating consumption was our problem and feared that productivity was unstoppable before reaching a hard limit. Understanding is a massive step forward.
When I was a humble student in Math, I earned some money helping Economy student to understand their Math, learning some Economic concepts and theories in the process.
Little by little I understood that economy theorists were mining the Mathematics of the 19. Century but only the easy parts and became more and more skeptical about the current use of Mathematics in Economy..
Later on I specialized in Dynamik Systems, Chaos and Bifurcation Theory, Statistical Mechanics. These mathematical Branches are more appropriate when doing Economics.
Can you please do a series on the Economics of Steve Keen. I would be very interested. I hope others will be too.
Steve Keen is on youtube himself if you're interested. You'll find a trove of great information there (@ProfSteveKeen)
Hi, I like the idea but my channel is trying to cover a broader scope of ideas, so it is more likely that I'll be doing a set of videos about general concepts in the economy (e.g. money, inflation, productivity, UBI, impacts of AI, etc) ... where I will then reference Steve Keen's work where appropriate as I really like his approach.
But thanks for the suggestion. And, indeed, are there specific kinds of topics that you think would be most interesting to hear more about?
@@Go-Meta Mainly Dynamic Systems approach for Economics and non classical / mainstream view points on the subject.
@@Go-Meta Another area is that is the potential role of the Government and Government Intervention.
@@Go-Meta Also what capitalist 2.0 or even post capitalist societies should be organised.
Money is a promise of labor/energy that is energy/labour blind. A tree can only grow while the sunlight is shining. The power is dependent upon latitude and season. 16:30 There is a finite/limited supply of free energy!
The consumers value the dopamine of consumption.
Brilliant overview,
Thank you
I think you “glossed over” some fairly important things there. While the loan to Jane is initially just a book entry when Jane goes and spends the “money” someone will be asking for payment, thus the bank will meet that through the deposits it has taken or loans it takes out itself. The bank essentially makes a margin on loans out to deposits or loans in.
Yes I did simplify it, but the next part of the story gets complicated because it depends on who Jane is paying. If it's someone with an account at the same bank then it's just more double entry changes within the bank. But if it is to a person at another bank then the banks net off all of the exchanges between all of their clients at both banks over the day. They'd only actually transfer the difference, and even this is just an update to each of their reserve holdings at the central bank (as far as I know). But I felt these further details were too complicated for such a short video 😀
And, it's very rare these days that someone would actually want to take out large sums of actual cash.
Isaac Newton worked for about 30 years as head of gold coin minting. He was meant to control counterfeiting and "clipping".
These days there are more gold shares than there is physical gold.
Physical assets such as gold and silver are also a form of fiat currency. The prices are randomly set by the most extreme gamblers.
Any investment that doesn't pay dividends is a complete loss until you sell to someone who will pay you more than you did. In other words, ya gotta find somebody more desperate than you were.
Topic change: the 2008 disaster was initiated in 2003 by the "American Dream Downpayment Initiative". Then the federal comptroller dictated that predatory lending claims were not to be investigated. Next Collaterized Debt Obligations (which were none of this terms) tranched it all into various grades of nearly untraceable "sausage." Of course, the computerized reinsurance house of cards was the final straw. Hubris destroys.
Gibbon, " History is indeed little more than the register of the crimes, follies, and misfortunes of mankind."
A fit economic model must factor in irrationality.
We are highly intelligent people. We need to exude very regularly. And the English language if used with enough eloquence makes it all happen like magic.
I'm going to buy it; I'll let you know. (I'm a fan of Keen, Kelton, Mosler, etc., in explaining the mechanics of money, though the theory of how and what to do with this new money is a whole other subject.)
Neoclassical economics has definitely failed to deliver the goods to we the workers anymore, but has certainly succeeded to deliver spectacularly to corporate wealth.
I really support your ending statement.
brilliant review, thanx !!!!!!!!!!!
I read Debunking Economics for the first time many years ago and have been a Keen fan ever since. Read his New Economics manifesto last year and am looking forward to his latest Rebuilding Economics from the Top Down which he wrote earlier this year while he was in Hungary. Keen’s iconoclastic writing and lecturing style is very accessible to non-economists. I recommend signing up for his Rebel Economics course, which has the bonus of giving access to his Minsky modelling and Ravel data management software both of which are brilliant.
You're an interesting person. Good on Prof. Keen's and his associates in developing economic complexities and predictive formats from a System Dynamics engineering perspective.
Great video! Please do more in-depth videos please!
Excellent iteration of economics and how they now fall short due to expectations of following the Adam Smith model now. outmoded.
whoa, finally someone who talks about energy and economics . I have stated in other economic blogs that this simple posit - Resources + Energy = Utility which breaks down to waste, ie landfill and heat .*
Arthur C Clark ( Sci Fi writer ) I beleive stated that heat is the final waste product that civilizations will have to deal with, its the fundametal limit to all work.
* give your daughter $10 to buy some landfill from the shopping mall.
WHOA...try the SUN's CYCLES and MAG field reduction and you may be getting WARMER. Put that literally in your pipe and smoke it.
I think an important sale for young students is that the new empirical politico-economics is fun, powerful and a real science. Converting theory to tests. And making spectacular discoveries about inequality, taxation, political interference and most importantly inter grating social
sciences it never should have been divorced from.Btw Long Term Capitals failure not 2008 and Kahneman’s Nobel followed by a string of Nobels for discoveries of new market pathologies changes the field for most aggressive poly-trained scholars already.
The actual basis of the economy could be found in the physiocrats, in the meditations of Turgot and Quesnay, along with Adam Smith's first book, 'The Theory of Moral Sentiments.'
I remember the stir that Limits to Growth created and I've been watching five decades for world economies to hit the wall. As time has passed, however, it seemed to my untrained eye as though growth wasn't conforming to predictions and the concept was all but forgotten. There is, of course, an entire industry of pundits, forecasters, analysts and crystal-ball gazers whose careers are fueled by predicting market vicissitudes, and bulls are more popular than bears. But it's tough to argue against the physics you describe. Maybe I just gave up too soon.
I don't want to criticize Keen for he writes simply, and Oli explains simply as well. But most of it can be explained in simpler ways without complicated and boring tables, e.g. if people borrow to speculate on Nvidia and banks are willing to lend to earn more money, then the risk of default is high (it peaks at "Minsky moment") and a chain of defaults, staring with a few bank runs, leads to panic. Since you don't whether your bank will be next (i.e. imperfect info), you rush to withdraw your funds as well, and it spirals down. Most people (economists included) have given up on neoclassical economics over the last two decades; they only appear in useless textbooks and journals. Practical men are not slaves of defunct economists (as Keynes would have it); instead, it is the other way around. Neoclassical economics fails on many counts: equilibrium, cultural desert, lack of political considerations, and absence of institutions. Most developing countries are more keen on the alternative state-led East Asian model.
Yeah, I do get the sense that Keen (and therefore me in this video too!) is pushing at an open door in terms of critiquing neoclassical economics. But, it's interesting that it is still being taught, unless, of course, it is explicitly being taught as a historical, first approximation that is now superseded. I'm kind of starting to see it like Newton's laws compared to General Relativity (although neoclassical economics may well be more wrong than Newton's laws 🙂 )
The other problem is that politicians and influential capitalists will pick and promote the economics that suits them, rather than the economics that most in the field consider to be the most accurate. So, there is also a contest of narratives and analogies to capture the political minds of voters. And I do not think that economists have yet found the right ways to talk about the latest ideas in economics.
@@Go-Meta is it possible that..?.. like Newtonian laws, the gravitational centers of motion are akin to our economies-of-scale, as arising in each globalized sector (e.g., banking, shipping, manufacturing, tech)? Big firms arise, and with this we have concentrations of control and wealth. Yes, the narratives are used as you suggest.
Steven Keen's work is an important extension of a long list of economists (and before them, political economists) who came to understand that the most significant and false assertion of neoclassical writers is that nature (i.e., the factor of production historically referred to by the term "land") possesses the same characteristics as the capital goods we humans produce. Land has a zero cost of production in terms of labor and capital goods. It is also true that price does not clear the market for natural assets because the supply of natural assets is inelastic. Nor do natural assets generally depreciate in functional utility absent some type of widespread natural disaster. Henry George understood these dynamics when he wrote in the late 19th century. His solution mirrored that proposed by the French political economists of the 18th century: public capture of the rent of land and eliminate the taxation of labor, capital goods and commerce. Capture the full potential annual rental value of natural assets and there is no imputed net income stream to capitalized into a selling price for those assets.
This video accurately explains what we already know: Creating money is fine, as long as you don't cause inflation. We all know this. The problem is politicians can't help themselves and will always spend as much money as they can, and then they want to spend more.
Yes, the clinging on to disproven ideology is what is so annoying and frustrating. I think at least the 2007 stock market crash debunks neoliberal economics. I mean, I think everyone should agree that it was a failed experiment and we must move on. But it's amazing that a lot of people, including economists who ought to recognize what's wrong, do not give up their ideas. It's at that point that it is like a religion.
Not an economist, but as I understand it, not only did Neo-classical economists fail to predict the 2007 crash, they unwittingly engineered it.
great book report, thanks
Thanks for the content, sir.
Fascinating! I've heard of this book. The critique seems valuable and makes sense. Based on the author's view of economies being based off energy, economies like Russia or Canada should be the most powerful in the world. I'll definitely be giving this a read. Something about our current understanding of economics never sat well with me.
The irony of Keen discussing Keynes
re-examining the "why".
What happens when debt is created in a currency outside of the jurisdiction of the central bank that issues that currency? For example, debt contracts around the world are drawn up in US dollars. It's the US central bank that has to provide liquidity into the global banking system.
I have to admit I have only recently learned that some dollars are maybe created outside of the USA by institutions that are doing this without an explicit license from the USA, but I still find this hard to believe. I'm going to look into it more one day.
But, if one person with $1000 agrees to lend their $1000 to someone else and sets up a debt contract around that, this kind of lending does not create any new dollars. So, not all dollar denominated debt contracts create new dollars. Anyone with dollars can create this kind of dollar debt anywhere in the world.
@@Go-Meta If you cut-n-paste my query into ChatGPT as a prompt, then the first point in its response relates to swap lines that have to be set up by the US central bank, the Federal Reserve, which is what happened during the GFC of 2008-2009 when there was a US dollar liquidity crisis requiring a $700bn injection into the global financial system:
"If significant global debt is denominated in a currency like the US dollar, entities in other countries may face liquidity shortages. These shortages occur because they lack direct access to the issuing central bank's facilities, such as the Federal Reserve's discount window. To alleviate such shortages, the Federal Reserve provides liquidity through mechanisms like central bank swap lines, enabling foreign central banks to exchange their currency for US dollars to support local financial institutions."
Interesting. This demonstrates the degree to which USA benefits from being the world's hegemonic reserve currency, such that the functions of its central bank have to be extended outside of the territory of the USA. My assumption is that the theory of what is going on will be *roughly* the same, it is 'just' extending beyond the nation state boundary, but this does mean that it is beyond the official regulatory powers of the USA central bank. I'm assuming, therefore, that this liquidity is only offered to jurisdictions that are considered to have equivalent levels of regulatory oversight. It also sounds like this is the USA central bank trusting and supporting the functions of the other countries' central banks. Interesting.
This is a great video. I have subscribed, started making a reading list from suggested authors, and followed you on Linkedin. We need more educational videos like this, which should be the goal of social media, not more cat videos. Unless the cats are teaching us about math and science.
Thanks! 🙏 ... and cats teaching maths and science sounds fun! 😀
The reason for the crash was not the amount of debt but the lending of money to people who could not service the interest AND the banks had created assets on a humongous scale which bundled these loans with other perfectly or reasonably perfectly good loans so no one knew what anything was really worth. The insolvency of Lehman brothers demonstrated that the value of any asset is determined by supply and demand. Lehman had to sell no one wanted to buy. Value negligible. In any market the value of an asset is determined by reference to what a similar asset is selling for. Result: huge quantities of debt on bank balance sheets now of negligible value and a credit contraction destroys the real economy. All explainable by classical economics and criminal psychology.
The reason for the crash you cite is spot on; that is Economics applied with 20/20 hindsight; it is with hindsight that "liquidity traps" become obvious for many if not all of us. The insolvency of Lehman isn't macro-economics; and it's failure demonstrated ...what? It demonstrated the need for relevant guardrails. It's a failure that was predicted years in advance...predicted that the management team there would fail- the-firm, and that firm would eventually fire-sell for (give or take) about a Jefferson-per-share. That outlook was based on post-action "lessons learned" from LTCM. The failure of Enron was also predicted. Lehman was a long-standing firm that had employed many many fine people; they were just working within the wrong leadership/governance system. so, it is partially explained -- not at all fully explained -- by the two branches you name. See Krugman's work on liquidity traps.
@ yes indeed a regulatory failure, but the neoliberals argue that regulation restricts enterprise and wealth creation. Very well. Those who live by the sword should die by the sword. However the policy response deprived the world and particularly to my chagrin the UK of such an outcome. When the dominoes fell the banks should have been allowed to fail. The UK government should have frozen all bank accounts above a limit of £40k the then deposit guarantee I seem to recollect. The savings of the vast majority of the population would have been protected. It would however have led to a monumental collapse of the real economy. This would have been of a very temporary nature because the government which can print unlimited amount of money would announce that they would buy any loan and any insolvent company at market value through a new reconstruction bank. Result: the State would own a large part of the economy and banking system which it had purchased for a song and the economy particularly employment and production would have continued.. the losers in all this would have been rich people and particularly the neoliberals denizens of the City. These assets could then have been sold at leisure for a vast profit and paid down the National debt.
What actually happened was that a socialist prime minister bailed out the banks and the rich and lumbered us with the debts which the next neoliberal government proceeded to pay off by cutting public services and investment and initiated quantitative easing with the disastrous consequences we see today..
That energy as a basis for economics is illustrated well by Frank Kapras 1956 movie " Our Mr Sun", which predicts when we run out of cheap fossil fuels we will return to the hard labour economy of the middle ages. Model that!
Probably best to read Keen as well as Keynes.
excellent, thank you
mainstream economists haven't been able to predict the 2008 recession because most of them are Keynesians. There are economists who predicted the crash in sense that they saw the perversion of incentives and knew something like that was going to happen. Nobody in the mainstream pays those people any attention except, maybe, to ridicule their small government ideas. I'm referring to the Austrian school of economics.
Totally agree, but this thinking is changing SLOWLY, bitcoiners know keynsianism is junk and there are a growing number of bitcoiners
You obviously have no grounding in the history of economic thought. The vast number of economists working in financial institutions are not ideologues. They are econometrists, wedded to the needs of Finance, rather than social economics, or political economy. It's the lack of attention to those disciplines, that has ignored human nature. And we are paying the price of that. Market ideology was touted as a self organising system that could regulate it itself, without paying attention to the fact that markets are made up of people, who are tend to be more subjective than objective, and who can be captured by vice as well as virtue. Economic History is punctuated with conflicts between greed and wisdom. It is we who have not learned from the errors of our ancestors. Just because we have more tools, it does not remove the duty to use them wisely. And a short skip through economic thought just over the last hundred years illustrates that. Human folly never goes away. It must be constantly kept in the forefront of our minds, especially as the tool we use - capitalism - is double edged. It can kill as well as cure. And no-one in it is immune from folly. We all have our biases, but they are no substitute for thinking.
@@CuriousCrow-mp4cxYou're literally arguing for Austrian economics.
Type "mainstream economics" on google and search the wikipedia page. Read the first paragraph.
Mainstream Economics *IS* Orthodox Economy by definition. That is literally the opposite of the Keynesians economy. The confusion you are doing here might be from the fact that we have now 16 years from the 2008 economics and perhaps you think that whatever happened in the last 16 years are the new mainstream?
@@danilolima9268 For how long must something be normal until it's considered mainstream? This keynessian crap has become normal for at least 16 years as you say or a lot longer, but transformed a bit during the 80s after the stagflation of the 70s. Definitions means nothing when they fail to describe reality.
The the idea that that supply and demand tend towards equilibrium is rooted in the science in Smith’s time that all systems tend towards equilibrium. Which is true-ish, but chemistry and physics sophisticated their math to take into account the messiness of reality. Classical Economists optimistically believed that we will all reach a point of perfect agreement thereby creating universal opulence and putting an end to wars and slavery. Wild.
Not really, Alfred Marshall used the equillibrium with full disclaimers that this was to be a theoretical half-measure until something better is developed. But neoclassicals don't bother to read the sources they laud, and took it as gospel.
If economics is indeed sufficiently chaotic, we may as well stop predicting anything except the immediate short term future.
Hi, I think we have to be careful not to see prediction as an all or nothing concept. Most things we care about have some chaotic aspects, but just like with the weather, we get huge benefits from making reasonable predictions of what might happen, even if these predictions are really a range of scenarios with percentage probabilities. And, different timescales have different trends that dominate, so sometimes we can forecast likely long term trends (e.g. climate change) even when precise shorter term details are impossible to predict.
I actually made a video about the rational limits to prediction: ua-cam.com/video/3JCBugtM5Pk/v-deo.html
Regarding predictions of economics, my understanding is that the key difference between the kind of view Keen takes and the more traditional view, is whether or not crises are seen to be triggered by external shocks to the system, or whether they are considered to be self-generating from internal dynamics (which is Keen's view).
Thank You.
I haven't yet read the book but can predict that in it William Nordhaus' work will be absolutely excoriated. Keen appears to harbour an intense resentment towards Nordhaus, possibly motivated in part by the latter's undoubtedly undeserved Nobel Prize in economics. And I have much sympathy for Keen's disgust at this award: Nobel prizes in economics have generally been awarded, not to those whose work objectively enhances our understanding of money and trade, but rather to those whose work endorses existing economic orthodoxies.
Both the idea of limitless growth and the idea of equilibrium have long been abandoned by ecologists. Neither limitless growth nor equilibrium actually exist. Since economics is just a description of a particular type of ecology, I suggest economists try to do some wholesale reworking using the ideas of ecology. Specifically, economics needs to address economic birth, senescence and death, economic reproduction, and some equivalent to niche theory to have any hope of actually describing a real economy at any stage other than the early resource exploitation stage.
Yup, I think you are absolutely right here. The one detail I haven't got to the heart of yet is whether there is any meaningful way in which an economy could have limitless growth in the numerical size of the economy while keeping limits on the growth of the material resources being used.
The problem begins fundamentally with the lack of definition of money as a measure of value. This gives rise to the prectice of utter absurdities such as ineterest. Financial instability is a certainty under money's misrepresentation. Adopting sound systems science would be very helpful. Without a well defined unit of value, all exchange becomes utterly flawed. Mind you that the centimeter or the kilogram need not to be backed by power. They are precise.
Interest can exist without money, it's just not as precise. A well defined unit of value is still not a universal unit of value, as grams and meters are.
Very good.
well explained
Thank you!
Loved it. Can you post the paper and the source for the eqs mods?
Just read it. Fascinating but needs a 2nd read to understand it all. Lots of new ideas
Any physicist should be able to decompose any physical measurement into SI units. Energy, for example can be expressed in terms of mass, distance, and time. I would love to see an economist decompose *money* into SI units, or an economic equivalent thereof.
Steve Keen knows!
I really enjoyed this. Wonderful review and summary with a wonderful presentation. Rene Geunon may be an author that interests you.
Hi, thanks!
Is there a particular book that you would suggest of Rene Geunon? (preferably one that's not too long 😃)
@@Go-Meta The Crisis of the Modern World is a short read. Guenon was a 20th century metaphysician.
The equity market maniacal view of perpetual growth (an alternative of "greater fool theory") are insane. Equity markets and share trading are based on insane logic.
I'm relatively old for an economics grad. student (35 yo and counting) and one of the things that didn't make sense to me was the way ppl tend to talk about energy and waste. I think it felt misleading.
The ideas you exposed on the video calmed me 'cause none of my teacher ever placed energy consumption into account or analysis and that felt hollow, but as the calculus, linear algebra and statistics mountains of studies went on, I've lost track of what was missing and I was just feeling that all what was being taught was too fragile and tender when compared to the material reality.
Imma try to read that book, tho I feel late on my timing to start studying, it also feels like a crossroad but you gotta look very carefully to identify all the other paths connecting to our temporal node. Thanks you for the video!
Will you be reviewing Markets in the Name of Socialism by Johanna Bockman?
I don't know that book, but I've taken a look and added it to my (all too long!) list of books that I'd like to read. So, thanks for the tip! (obvs unsure if I'll actually have time to review it though 🙂)
The solution has to involve reducing the size of the economy and moving on to a zero physical growth economy. Any growth can only be allowed if it's achieved through increased efficiency.
Yeah, we definitely need to try to find a way to detach GDP economic growth from material resource use growth. Hard, but we must try.
Robert J. Shiller (and actually all economists, including those working for banks and venture capital) knew very well that we were in a housing bubble. It is, however, impossible to forecast when it bursts. If that was possible, you would see a lot of short selling popping up on the market. Which we didn't.
The problem with the 2007 housing bubble is not money or debt. It's overvaluation of houses, such that they could not serve as collateral to the huge credits given out by banks, Fanny Mae, and Freddy Mac. It is a failure of capitalist mark-to-market accounting ideology. Capitalists and their lackey economists believe that (observable) prices are equilibrium prices, which indeed they are not. If houses were valued at their fundamental value (cost of rebuilding), there would have never been a subprime crisis. Neoclassical economics can well explain that. In contrast, neoliberal economics contradicts neoclassical findings.
Neoclassical economics is about general equilibria and deviation thereof, not about macro-economical issues, like growth. As micro and macro is often taught to undergrads with the same text book, this is often mixed up. The growth ideology is with neoliberals, not with neoclassical economics.
I agree with Keen that energy is a more important production factor than labour, capital and land, and a simplified one-factor model would be using energy rather than the classical three. Anyway, the big feudalist digital platforms have very little of them.
I sometimes wonder if neoliberalism is at its roots a theory built to advance the status of its advocates rather than adequately explain real things. Milton F was an impressive speaker and prof but on the face of it, the theory seems intended to confirm the self-image of trust fund kids and their pet kissasses.
Then again, maybe I'm just sick of hearing from airheads who wax poetic about cutting state spending while utterly relying on massive state spending for their profits.
Care to take on John Boyd Destruction and Creation? Or his Discourse on Winning and Losing?
Interesting, thanks for the suggestion. I'll take a look, but my schedule for video ideas is pretty full up for a while.
Manufacturing output is down, bonds are up
Man I like you. Do you have a deeper dive into the lorenze non-linearity of the economy?
Hi, no, not yet. But I do have a video that covers the more general problem of why it is so hard to accurately predict the future, a video that mentions the Lorenz equations again: ua-cam.com/video/3JCBugtM5Pk/v-deo.html
@Go-Meta there's another content creator, @fractalmanhattan that has some good videos on the Lorenz attractor, chaos theory, and how it applies to stock markets but he's pretty narrowly focused from a quant perspective. I'd love to see a broad application to macro-markets as a whole. This is really fascinating stuff.
Goood video!
I would agree with the idea that economy does not tend towards equilibrium, and this is because it rests on human psychology. Hype cycles that lead to investment booms and collapse, and cycles of excessive debt fueled growth and the crash of debt deflation.
However, I don't think this is adequate to support keynesian economics which appears to be Steve Keen's goal. I'm more sympathetic to the Austrian school, you need recessions to wipe out the poor choices in the hype cycle, long term keynesian efforts to counter the market cycle will tend the system towards stagnation because they don't clear out malinvestment as effectively as a proper recession does. Recessions are painful but moderating them in the long term can be more painful than allowing the business cycle to do what it does.
I'm Australian as is Keen, and the analogy I would make is the cycle of bushfires and regrowth that nature in Australia has, that a forest that is allowed to undergo this cycle is more healthy than one where there is an attempt to protect it.
I think Krugman is wrong about government debt. When you borrow, you borrow from future generations. Easy to see, who eventually pays. Krugman has an agenda. He wants to argue that debt is innocuous.
Depends on what type of debt. Going into debt on a good investment is not the same as going into debt to buy a Ferrari.
@@willnitschke of course, but krugman is referring to government debt, that's why he advocates deficit spending as far less harmful than argued by the neo-classical.
@@user-wr4yl7tx3w Government debt is closer to buying that Ferrari than constructive investment, though. If government debt was productive, GDP would be outpacing debt as productive investments are profitable. What we see in the real world, is the exact opposite. As for Krugman, he is usually wrong about everything, like how inflation wasn't going to be a problem ever again.
Biden is killing children. Who will pay then if there are fewer children left for the govt to collect?
@@willnitschke Krugman is brilliant; you may be unfair in interpreting him; we have to accept that he is accepting and contending with the difficulties of nudging the donkeys collectively forward.
You should go over “Unsettled” by Steve Koonin
Money swirls around in two buckets. One is the real economy where my bank account lives. This moves in response to my desire for economic activity, but it lacks the power to settle transactions. The other is the banking system where it rushes around settling transactions but doesnt do much else. As long as banking sector solvency is between the upper and lower limits, banks can freely create and erase money via lending in response to demand from the economy. As solvency decreases, banks become reluctant to lend and interest rates go up. As solvency goes up they become reluctant to accept deposits and rates go down. Solvency can become inadequate for many reasons such as a change in banking regulation or a downward revaluation of a significant tranche of financial assets. The result is that the money previously created has to erased or the central banks have to prop up bank solvency by printing money. One downside of this is that it transfers credit risk to the central bank and so they need a plan to extricate themselves. QT must follow QE. The 2008 financial crisis is far from over.
It's so crystal clear that economics is not a science.
What about the green Solow Model???
Excellent 👌
Thank you!
Another flaw is that in order to grow, not only the aggregate supply must grow in a sustainable way ... but also the demand.
It is very different for this demand to grow only based on debt, by enslaving people ...
than for it to be based on savings, creating money on the microscale through local banks with a direct community commitment
(with no bailouts).
Diversification should be the priority, not only to maximize aggregate output
(which is the only God in neoclassical economics)
Any critiques? While it seems to be an interesting line of work, are there any critiques from classical, or historical economists?
Capital and labour are two sides of the same coin.
Thermodynamics is the most interesting, challenging and mind-blowing subject.
It’s also basic maths because Growth demanded is exponential Growth.
Like continuous acceleration.
Impossible and mad.
The solution is always more freedom -moral freedom.