Several people have commented on the speech by Glenn Stevens (for international readers, Stevens is the Governor of Australia’s central bank, the Reserve Bank of Australia) yesterday in which he commented, inter alia, that:
“I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts. What we have seen is truly a ‘tail’ outcome – the kind of outcome that the routine forecasting process never predicts. But it has occurred, it has implications, and so we must reflect on it.”
As one member of this blog commented:
Has anyone heard Glenn Stevens ‘press club’ address yesterday? he said in his opening remarks “… I do not know anyone in the world who has predicted this economic crisis…”
Wow what arrogance! I was flabbergasted after reading this blog for the last couple of years!! stunned!!
Indeed; but I’m not the only person who did predict this crisis–other prominent commentators who warned about it include Nouriel Roubini and Peter Schiff. I hope there were plenty in the audience who were thinking “but,… but…” when they heard Stevens utter those words.
Of course, a central bank governor can’t be expected to be browsing the web looking for commentaries all the time; there are other more serious things to be done. But one would at least hope that some research was done before such a statement was made.
For the record:
- I first publicly predicted this course of events in December 2005–albeit in the rather obscure spot of an interview on Perth radio (and then subsequently the ABC Radio current affairs PM);
- I started publishing my DebtWatch Report in November 2006 to make a stronger analytic case in the public arena;
- The Centre for Policy Development published my report Deeper in Debt (click here for the PDF) in September 2007;
- As any reader of this blog knows, my argument that we were likely to experience a severe economic downturn as a consequence of debt deleveraging has been extensively reported in the Australian media; and
- My first academic paper describing the dynamics of debt deflation, and modelling Minsky’s Financial Instability Hypothesis, was published in the academic (but non-mainstream!) journal the Journal of Post Keynesian Economics in 1995.
The latter at least a Central Bank governor could be expected to know about–were it not for the bifurcated nature of economics, that the mainstream is dominated by the “Neoclassical” school of thought, and this school completely ignores other “Heterodox” approaches to economics.
One might also hope that he reads the occasional newspaper, or watches the odd current affairs program.
Finally, and also for the public record, I wrote to the RBA on June 15 1998, offering to present a seminar on the Financial Instability Hypothesis. The offer was declined. The text of my letter is below:
Dr. Steve Keen
Department of Economics & Finance,
University of Western Sydney Macarthur
PO Box 555 Campbelltown NSW 2560
Email s.keen@uws.edu.au
WWW: http://btwebsh.macarthur.uws.edu.au/steveK/
Ph 61 2 4620 3016 Fax 4626 6683
The Secretary,
Reserve Bank of Australia,
Martin Place Sydney NSW 2000
Dear Sir/Ms,
My colleague Trond Andresen and I would like to present two related papers to Reserve Bank research and policy staff:
- A dynamic model of debt deflation
- A model of stock market behaviour with long-term cycles and panics
While the Australian dollar’s devaluation has supplanted direct concern about the Asian crisis and Wall Street’s massive over-valuation, we believe that the issues highlighted by these two models are of significant medium term relevance to researchers and policy makers. We argue that the Asian crisis is a debt-deflationary process (overlaid with the impact of volatile flexible exchange rates), and that the eventual crash on Wall Street may have significant implications for the US economy, and hence the world.
The former paper presents a model of cyclical growth with debt accumulation, price dynamics, an inflation-adjusted interest rate and a counter-cyclical government sector (two papers presenting non-price precursors to this model are enclosed). The latter paper (copy enclosed) applies systems engineering concepts to produce a behavioural model of stockmarket cycles and crashes. It has not yet been presented for publication.
I would be able to present my paper at any time, however Mr Andresen (of the Norwegian Institute of Technology) is a sabbatical leave visitor who will leave Australia in late July and will only be available between June 24th and July 10.
Yours sincerely,
Steve Keen
When I have the time to rummage through my paper files back at UWS, I will scan and publish the RBA’s very brief reply here. I have forgotten who signed the letter; it will be interesting to see who it was.
