Thursday, September 21, 2017

Steve Keen on How Austerity Works

Steve Keen on how austerity works at the micro (or individual) level as opposed to the macroeconomic level:



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11 comments:

  1. Great video!

    This also highlights the fallacy of composition in loanable funds thinking. Since one's spending is another's income, an increase in one's savings can only be met by a reduction in another's. In other words, saving financially is a zero-sum game. Transactions inside a sector do not change the net financial assets of that sector.

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  2. Steve Keen, Michael Hudson, MMT, Ellen Brown's Public Banking all have merit and have an aspect or aspects of the problem identified. They have all been advocating one of the policies (universal dividend) and coming to the conclusion about the dominance and instability of the business model of finance. C. H. Douglas of course isolated the exact dimensions of the problem almost 100 years ago (the rate of flow of total costs and so total prices inherently exceeds the rate of flow of total individual incomes in technologically advanced capital intensive economies) and suggested not only a universal dividend, but also a rebated back to enterprise discount given to consumers by retail merchants. But even Douglas's Social Credit still had the stench of the orthodoxies of austerity and general equilibrium hanging around it, and also did not have a complete exegesis of the concept upon which Social Credit was based, namely the NATURAL philosophical concept of grace as in gifting. My Wisdomics-Gracenomics is the fully iconoclastic break with the above orthodoxies and the scientific and cutting edge quantum physics aligned policy extensions of Social Credit and the full philosophical fleshing out of its underlying concept.

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  3. Hi there !
    It sounds like prof. Keen is not in total agreement with other fellow p-keynesians.
    Does anyone know of a clear exposition of the argument between him and whomever ?

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  4. The accounting in the video is incorrect.
    at 11.41 " if the government run a surplus it puts us in a deficit." Is incorrect.
    It may be useful to divide the private sector into tax payers and bond holders. But that is not done in the video.
    The presentation shows a government surplus as a negative figure reducing private sector income. That is wrong. In fact the surplus is paid back to the private sector, to bond holders. The accounting used in the video does not include this circulation of income to the private sector.

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    1. In order to circulate the surplus back to bond holders the government would need to spend it on debt repayment, thus eliminating the surplus. If the surplus is not spent on such repayment (or something else) it just sits idle in the treasury, thus reducing the total amount of currency in circulation.

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    2. Interesting observation on a hypothetical scenario , but in actual practice when a government has a budget surplus it is in fact paid to to bond holders. This can be seen in 2000 in the UK and USA where there was a surplus and national debts when down . And it is stated government policy ,as documented on the UK Debt Management office website, that government borrowing spending and taxation " does not affect the monetary conditions in the economy "
      If money temporarily dwelt in the treasury account instead of the CB accounts of commercial banks the interest rate would vary wildly during the day.
      Concerning spending and saving, a more accurate statement would be , that when there are less government bonds coinciding with a desire in the private sector to hold the same amount of saving in either government bonds or cash then there is less saving in the private sector overall.

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    3. The debt went down since debt repayment is part of the expenses however no new debt been issued in the time of surplus.

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    4. Less government bonds are issued which with the natural turn reduces the number of government bonds in issue which reduces the net financial assets of the private sector.

      Government bonds can be seen as deposit accounts that pay interest. There's nothing particularly special about them.

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    5. There are less government bonds but , still the statement at 11.41, " if the government run a surplus it puts us in a deficit." is incorrect.

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  5. Interesting vid, but I do wonder if Keen doesn't stick too much with trying to explain complex processes using a model. For example, and correct me if I'm wrong since I'm not much of an expert, doesn't the first model of accounting presuppose a closed economy?

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    1. The financial circuit of any currency area is a closed system.

      That's what non-convertible floating rate currencies imply.

      A currency area is those currently holding the currency - wherever they are physically located.

      If you hold Sterling in Namibia it isn't much use at the local petrol station.

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