Thus Spoke The Merchant Of Gloom

by Nick Glossop on November 30, 20116 comments

Write off the debt, bankrupt the banks, nationalize the financial system and start all over again.

Debts that can’t be repaid won’t be repaid. We’ve got to work out how we don’t repay them.

It is not the way to manage an effective society, to be caught in a trap like this…

I am opposed to capitalism parasiting itself, which happens when you let the financial sector take over and generate far more debt than we need.

… you don’t get into as disastrous a situation as we are in now without extraordinarily bad thinking, and the economics departments were the source of that bad thinking…

…the creditors of the world were dominant politically. They certainly set the political agenda for the last 20 or 30 years. The debtors have been down at the bottom of the pile. Now we need to reverse that and turn the power back towards the debtors rather than the creditors.

If you have been paying attention to the crisis in the Euro zone you might be led to believe that the economic woes besetting the western world are primarily a matter of sovereign debt, the specter of Greek default on its debt being only the most currently precarious example. If, on the other hand, it’s the on-going Wall Street debacle that’s been on your mind, then you might well believe that the issue is largely a matter of ill-considered deregulation, financial sector malfeasance, credit-default swaps, casino speculation overwhelming the markets in essential commodities, predatory lending and so on. In either case, economist Steve Keen would assure you that you are wrong. In his view the root cause of the current crisis of western capitalism is the level of private debt, more specifically the ratio private debt to GDP which, he was first to observe, has been rising exponentially in his native Australia, in North America and in Europe for decades.

An additional and related scourge is the neo-classical school of economics which everywhere prevails in think tanks, universities, and ministries of finance, but which is, in Keen’s opinion, catastrophically flawed and misguided. He lays out his debunking of economics in greater detail in the lectures after the break.

His notion of a modern, intelligent, systemic jubilee (a wiping of debt) is, as he readily concedes, a political non-starter for the moment. There isn’t the vision, there isn’t the will, there isn’t the competence in our political institutions to undertake anything so bold. But, as the merchant of gloom observes, this problem, this depression, isn’t going away any time soon; we’ll all have plenty of time to think it over.

A Crash Course in Capitalism in three parts


Matthew on December 1, 2011 at 8:49 am. #

Keen is right on all of this and for anybody trying to understand just how horrible economically illiterate the prevailing wisdom is, just Google “the treasury view” or “the paradox of thrift.” Economics does not work as some sort of cheap morality play as we’ve understood since at least Say’s time. There is, of course, a way to get a good jubilee effect without having a jubilee (hey, let’s not kid ourselves–with the Fed giving banks 7.7 trillion with a “t” in absurdly low interest loans we have had a jubilee, but only for the absurdly incompetent and wealthy rentier class), and that would be to impose moderate inflation targets of 4-5%. Since wages are “sticky” (they tend to go up, not down) and entitlements are tied to cost-of-living increases, this would be a socially responsible way to ameliorate the debt overhang. Once house debt was reduced the real savings rate would increase. This strategy is deadly, however, to the “sit on their asses and arbitrage a few basis points” hedge fund types so it won’t happen. Instead their plan, working swimmingly so far, is the Lithuanian-model–cause disinflation and even real deflation in things like wages–to drive up capital extraction. In a word, to create a society of debtor peons while syphoning off huge capital flows for themselves. With the proportion of GDP devoted to wages down a stunning 5% in the US and, not surprisingly, the profit rate nearly double its 70-year average of 5% of GDP (you know, now at 10%), the rentier class is pocketing all that consumption fund quite literally from wage earners. They are not “creating value” they are stealing consumption primarily by labor arbitrage and other sophisticated methods of exploitation. This is horribly inefficient for an economy (like most of Europe, Canada, US and Australia) where upwards to 70% of the GDP is based on consumer spending, but the rentier class doesn’t care because they are making spectacular money. Thus the travesty of the UK economy where the genius Tories think that shrinking the economy will magically, you know, grow the economy. Unfortunately, the economy isn’t magical and the UK GDP will shrink for perhaps a generation significantly impoverishing an aging and less and less healthy population for the benefit of the new oligarchs (see Russia, Yeltsin and Putin). Only a powerful labor movement which turfs any neo-liberal elements from its political alliances can rein this in but that approach is unlikely to stave off repeated and increasingly nasty crises. Keen’s analysis is spot on but the solution is not so politically impractical. Higher inflation targets and pro-union legislation are the only things that can reverse this downward spiral.

Nick Glossop on December 1, 2011 at 12:16 pm. #

Observing the austerity chorus in action, I have often wondered what it is about the conservative brain that it cannot grasp anything so nuanced as the paradox of thrift. The truth is that it can probably grasp it, it just can’t bear it in mind when ‘cheap morality play’ thinking is so much more gratifying. It’s rather like an emotionally abusive parent for whom every trial, every setback and defeat a child may suffer is a golden opportunity to play the Scold, and to carp on about the virtues of Münchhausen boot straps. War’s over, Lebowski, the bums lost!

In his work on the corrosive effects of inequality, Richard Wilkinson stresses that it is RELATIVE inequality that does the damage. But the flip side of this is also true for two segments of our population, both of them chiming in with the austerity chorus: those who want everyone to be as miserable as they are, and those for whom the owning of some shiny thing is always second best to knowing that others want it or need it, but will never have it. Ah, the unrequited coveting of the great many – now there is a dish to be served on ice.

Matthew Payne on December 1, 2011 at 6:58 pm. #

Yeah, especially when what they covet is a roof over their heads.

Matthew Payne on December 1, 2011 at 7:12 pm. #

Such as these ladies (

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