Tuesday, May 19, 2015

Steve Keen debunks naive austerity economics of Lab, Lib and Con

Every Investor: Steve Keen criticises naïve austerity economics

If the government is to run a surplus to pay down national debt, it does so by reducing private sector savings. So a permanent surplus policy involves economic contraction or increasing private debt (which eventually can't be sustained). Simples, with a minor caveat about velocity of circulation. The only thing I'd take issue with is his claim that increasing public sector deficit is expansionary - it depends how the finance is raised, and in the UK it's generally through the bond market, and such that no new credit is created.

Posted by nickb @ 06:08 PM (4500 views)
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1. icarus said...

Economic stagnation is caused by more than just the private sector's running into debt (and thereby being unable to generate more economic activity) in order to pay down the government deficit. He says nothing about the huge funds in the hands of the private sector in the form of more and more multi-billionaires, and the ways this growing inequality causes stagnation (e.g. less spending by one billionaire than by 10,000 people worth £100k each, and the ultra rich investing more in asset bubbles, less in the real economy).

Thursday, May 21, 2015 09:28AM Report Comment

2. nickb said...

@1 True dat. But I guess one can't talk about everything at once.

Thursday, May 21, 2015 09:05PM Report Comment

3. icarus said...

He's not being asked to talk about everything at once. If you're going to talk about the lack of funds or indebtedness of the private sector you have to account for the fact that there are growing numbers of the very rich in the private sector. He's operating with a very limited model.

Friday, May 22, 2015 12:09AM Report Comment

4. nickb said...

I guess, but I don't know what his full model is. What he says is not inconsistent with what you are saying. Also, if tax payments are being used to pay off bondholders on a net basis, and bondholders reinvest those funds, I guess you also need to know how likely it is that the money is reinvested abroad or offshore.

Sunday, May 24, 2015 12:25PM Report Comment

5. icarus said...

He argues that austerity reduces spending power in the private sector and that this in turn causes stagnation. Given that (a) the ultra-rich (private sector) are accumulating more and more and that (b) this is arguably a major cause of stagnation (for the two reasons given @1) I'd say at the very least that he's missed the elephant in the room.

(His model applies globally rather than just to the UK or some other country, so maybe the question of where bondholders park their dividends is not so important.)

Sunday, May 24, 2015 07:38PM Report Comment

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