Saturday, January 09, 2010

What's Steve Keen on about?

He sets it out clearly in the latest Journal of Australian Political Economy :

One of the many false assumptions that blinded neoclassical economists
to the approaching crisis was the proposition that money has no longlasting
impact on the real economy. In fact, we live in a fundamentally
monetary credit-based economy, and in such an economy, aggregate
demand is the sum of income
plus the change in debt.

When the debt to GDP ratio is small, so too is the contribution that an
increase in debt can make to demand, and changes in debt are relatively
unimportant. But as debt grows relative to GDP, then even a small
change in debt can constitute a major proportion of aggregate demand.

He fears that as debt contracts, from say 150 per cent of GDP to more like 75 per cent, our growth will slow to a crawl... for ages.

Here's the paper:

Jape64 Keen

The Reserve Bank Deputy Governor, from whom Keen sourced some of his data, is less pessimistic:

Battellino Debt

Here's Keen's Debt Deflation blog.

Related Posts

. Well what about private foreign debt then?

. What do we owe? The nation's entire GDP, that's what.

. The Systemic Failure of Economics