Steve Keen's Debtwatch

The last quar­ter’s GDP fig­ures, show­ing that Aus­trali­a’s GDP con­tract­ed by 0.5% in the last quar­ter, end­ed the “pho­ny war” debate over whether we’re in reces­sion. The pre­vi­ous quar­ter’s 0.1% was so close to zero that it’s seman­tics to ques­tion whether we’ve seen six months of neg­a­tive growth or not: we are in a reces­sion.

Now that we’ve had our Dunkirk moment, it’s time to con­sid­er what pol­i­cy should be, giv­en that avoid­ing a reces­sion is no longer an option.

A first step there is see­ing why we recov­ered from pre­vi­ous reces­sions, and ask­ing whether we can pull off the same trick again this time.

The deci­sion of the RBA Board to leave the cash rate at 3.25% today con­firmed that its mem­bers don’t under­stand the econ­o­my.

There was an inkling of this in the state­ment by Board mem­ber War­wick McK­ib­bin ear­ly last month crit­i­cis­ing the Rudd Gov­ern­men­t’s stim­u­lus pack­age (“Reserve bank direc­tor oppos­es pack­age”, SMH Feb­ru­ary 6):

“A RESERVE Bank board mem­ber has expressed con­cern about the size of the Fed­er­al Government’s $42 bil­lion fis­cal stim­u­lus pack­age… Pro­fes­sor War­wick McK­ib­bin also accused the Gov­ern­ment of play­ing pol­i­tics with the eco­nom­ic slow­down and warned that this could shat­ter frag­ile con­sumer and busi­ness con­fi­dence.

 A quick quiz: when did Aus­trali­a’s biggest pri­vate debt bub­ble burst?

A young Gough Whit­lam

If you con­sid­er the rate of increase of debt, the cor­rect answer is “in mid-1973”. The bub­ble start­ed to expand a year before Whit­lam  came to pow­er, and its col­lapse dur­ing Whit­lam’s term was the real–but at the time, unappreciated–cause of the eco­nom­ic cri­sis that undid his gov­ern­ment.

Niall Fer­gu­son has just made the first call for wide­spread debt resched­ul­ing that I have seen pub­lished in a major newspaper–today’s Aus­tralian, and I am sure it is repro­duced in many news­pa­pers around the world (if your local paper is owned by News Lim­it­ed, there’s a good chance that you will find it there).

The arti­cle is linked here–The great repres­sion–and some excerpts are shown below. Read it and refer your friends to it. Final­ly the call has gone out that what is need­ed to get out of this cri­sis is not more debt, but less.

My rail­ing against the eco­nom­ics pro­fes­sion on this blog might give you the impres­sion that I’m a lone wolf, tak­ing on the eco­nom­ics pro­fes­sion sin­gle-hand­ed­ly. I’m pleased to say that’s not the case; though the rebels are out­num­bered by the True Believ­ers in neo­clas­si­cal eco­nom­ics, there are many aca­d­e­m­ic econ­o­mists who are crit­i­cal of the eco­nom­ic ortho­doxy.

Recent­ly some high­ly regard­ed econ­o­mists have made this emphat­i­cal­ly clear with an elo­quent and well argued doc­u­ment enti­tled “The Finan­cial Cri­sis and the Sys­temic Fail­ure of Aca­d­e­m­ic Eco­nom­ics”.

Alex Mitchell is one of the polit­i­cal writ­ers I’ve always enjoyed read­ing. Today he excels him­self in The New Matil­da, with a post on oth­er journalists–specifically eco­nom­ic journalists–that real­ly goes for the jugu­lar.

Over­all I think Ana­tole Kalet­sky is on the more impor­tant track, to destroy the unjus­ti­fied cred­i­bil­i­ty of the aca­d­e­m­ic neo­clas­si­cal econ­o­mists whose the­o­ries jus­ti­fied the non­sense that gave us this cri­sis, and whose inane the­o­ries “the bot­tom feed­ers” repack­aged for pop­u­lar con­sump­tion through the media (see Fab­u­lous attack on neo­clas­si­cal eco­nom­ics by Ana­tole Kalet­sky for my com­men­tary, and Econ­o­mists are the for­got­ten guilty men for the orig­i­nal arti­cle). But those bot­tom feed­ers also deserve to be whacked over the head too, and Mitchell does this in great style.

Aus­trali­a’s pre­vi­ous Lib­er­al Par­ty Prime Min­is­ter John Howard “came out swing­ing” last night in sup­port of the pol­i­cy agen­da his gov­ern­ment shared with the pre­ced­ing Labor Par­ty gov­ern­ment of Bob Hawke and Paul Keat­ing:  “neolib­er­al­ism” (for non-Aus­tralian read­ers, the Aus­tralian Lib­er­al Par­ty is clos­er to the US Repub­li­can Par­ty or the UK’s Tories than the US vision of the word “Lib­er­al”, while the Aus­tralian Labor Par­ty is akin to the US Demo­c­ra­t­ic Par­ty or the UK’s Labour Par­ty).

In Five great reforms are an essen­tial lega­cy, Howard defends “neolib­er­al­ism”, and argues that the finan­cial cri­sis was actu­al­ly the result of dis­tor­tions to the finan­cial sys­tem by well-mean­ing but ill-advised gov­ern­ment tam­per­ing with the finan­cial sys­tem:

As reg­u­lar read­ers of this blog know, I argue that the dom­i­nant school of thought in eco­nom­ics, “Neo­clas­si­cal eco­nom­ics”, is not only inca­pable of explain­ing this cri­sis, but actu­al­ly helped con­tribute to it by its delud­ed analy­ses of finance and mon­ey.

I wrote Debunk­ing Eco­nom­ics eight years ago to explain why Neo­clas­si­cal eco­nom­ics was inher­ent­ly flawed and should be aban­doned. In that book I was mere­ly col­lat­ing the many com­pelling cri­tiques that have been devel­oped by econ­o­mists of this the­o­ry over the years, that this school of thought has blithe­ly ignored (I unex­pect­ed­ly added one of my own, cri­tiquing the the­o­ry of the firm, and also dis­cussed flaws in con­ven­tion­al Marx­i­an eco­nom­ics, but that’s by the bye here).

Front­line is run­ning a spe­cial on the finan­cial cri­sis:

http://www.pbs.org/wgbh/pages/frontline/meltdown/

It should make inter­est­ing view­ing. It will be avail­able from 9pm New York time on Feb­ru­ary 17th–which I think means mid­day or there­abouts on the 20th, Syd­ney time.

I’m off to work with the CSIRO for a few days on mod­el­ling, and I may not be able to keep up with blog com­ments as well as I’d like to.

I’ve also had a cor­re­spon­dent who is pre­vent­ed from post­ing to the blog by a too-strict Inter­net cen­sor­ing pol­i­cy in the coun­try he’s cur­rent­ly in. I sug­gest­ed that per­haps some­one on the blog would be will­ing to “shad­ow” for him: i.e., sign on to the blog with an addi­tion­al alias, and copy any emails from him as posts to the site.