Thursday, February 16, 2012

Steve Keen, Google Talk

A video here of Steve Keen, which appears to be a Google talk. The quality is not the best, but still worth watching.


  1. Dear LK, I had a query. Austrian Economists say that Recessions are caused by the State, not by Capitalism. Thus, an anarcho-cap argued with me that we need to abolish it and there won't be any recessions or depressions! When argued that data doesn't suggest so, they say its a "Logical truth", thus needs no verification.

    Could you refute this argument? (I know you might not find this worthy enough to be refuted, but still it would be great!)

    1. "Logical truth"; perhaps you refer in "deductive proof?" Yes; a logically tested diagram that confirms a deductive proof is the ONLY truths that are irrefutable. Aristotle, and all greater thinkers in last 2000 years philosophically share the consensus that that can be obtained is through the elimination of the impossibile, or contradictions. thinkers outside heterdox new age pragmatism accept that objective analysis eliminate subjective opinions and overcome human tendencies to reach to fallacies.

  2. "Thus, an anarcho-cap argued with me that we need to abolish it and there won't be any recessions or depressions!"

    This anarcho-capitalist is talking nonsense.
    First, on the absurdity of the apriorist method of Misesian praxeology, see here:

    Secondly, the belief that under anarcho-capitalism there would be no recessions is a sheer delusion:

    (1) capitalists cannot escape Knightian uncertainty: there is no way to ensure that their capital goods investments will yield a profit and mesh with consumers' consumption decisions. Both Knightian uncertainty and subjective expectations destroy any reliable, long term stability of investment.

    (2) even under a system where fractional reserve banking is abolished, there could still be asset bubbles or severe malinvestments. E.g., foreign money could flood into a country via the capital account and cause asset bubbles, which, when they collapse, would lead to debt deflationary spirals.

    (3) the presence of secondary financial asset markets and secondary real asset markets allows the diversion of income money streams from aggregate supply from the purchasing of final goods and services. Thus Say's law - in either the strong or weak form - is ridiculous myth:

    (4) other "equilibrating" mechanisms imagined by Austrians an neoclassical are a myth:

  3. Bubbles would exist even under the Rothbard fantasy capitalism.

    Tulips were first introduced to Europe around 1550, and, by 1607, these exotic bulbs became all the rage. Future traders drove prices sky high. By 1634, the demand for tulips created a boom and future traders went into speculative mode never before seen in Europe.

    The fact is that capitalism can turn even tulips into a bubble. During tulip mania, one low grade bulb could purchase over 12 acres of land. By 1635, a sale of 40 bulbs for 100,000 florins (Dutch guilders) was recorded. (According to the International Institute of Social History, one florin had the purchasing power of €10.28 in 2002.)

    This all seems humorous, but it was very serious and real in the 17th century. If the value is sufficiently inflated, people use their wealth to obtain it. After enough people sell their homes, spend their money, and the prices stabilize, the economic backlash can be debilitating.

    So there is tulip mania. There is also the long depression. Economies are more like ecosystems in the sense that they tend towards disequilibrium.

    Humans tend to think that if that guy made money on tulips, why should I not get rich on tulips? As a result of this, many in vest in this item, which increases demand. When demand increases, price increases. The price will rise higher than the value of the item, and eventually the demand gets to an unsustainable height. The price falls, and investors start to panic. This reduces the price more and the bubble bursts. Perhaps this can be explained as herd mentality business cycle theory.

    Classical economics and the EMH is more like religion, but even Irving Fisher said that when depressions occur they are "somewhat like the 'capsizing' of a ship, which, under ordinary conditions, is always near stable equilibrium but which, after being tipped beyond a certain angle, has no longer this tendency to return to equilibrium, but, instead, a tendency to depart further from it." Says Posner: "So it is not really the initial shock to a robust system that is the main culprit in a depression; it is the vulnerability of the process by which the system adjusts to a shock. This makes the adequacy of the institutional response to that vulnerability critical."

    And so bubbles would occur even with a gold standard and a ban on FRB, and they don't need merely uncertainty or a flow of money or goods either:

    "while many explanations have been suggested, it has been recently shown that bubbles appear even without uncertainty,[4] speculation,[5] or bounded rationality.[6] It has also been suggested that bubbles might ultimately be caused by processes of price coordination[7] or emerging social norms.[6] "
    --wikipedia entry, bubbles


    1. Quite right. Thus, this saga of abolish the state is only an excuse for the apologia of unbridled Capitalism. The part of your reply is especially important. Bubbles can occur under various circumstances.

      I really wonder why did Rothbard write such a work that spreads such dangerous misconceptions. It is like a religion for its adherents who argue that its the truth and undeniable, etc.

      The moment you bring in scientific argumentation, they reject it as logically incoherent, etc. & thus maintain their stance.