Steve Keen's Debtwatch

James Gal­braith has writ­ten a very good analy­sis of the cri­sis and why the poli­cies being fol­lowed in the USA (and, by impli­ca­tion, here) will not work.

I repro­duce some extracts here to give you a flavour of the arti­cle, but I rec­om­mend a read of the full paper in the Wash­ing­ton Monthly–thanks to blog mem­ber War­ren Raft­shol for bring­ing it to my atten­tion. The empha­sis added to some points is mine.

A new high per­for­mance hybrid car has recent­ly been released by a Ror­ing Motors, Inc. Accord­ing to Man­ag­ing Direc­tor Rory Robert­son, the new “GoFlow­Mo­bile” ™© achieves unpar­al­leled per­for­mance for a hybrid car, by apply­ing a sim­ple insight from eco­nom­ics to the hide-bound world of engi­neer­ing.

Mr Robert­son, an econ­o­mist, took over the firm in a hos­tile pri­vate equi­ty bid, because he saw an oppor­tu­ni­ty to bring eco­nom­ic think­ing to bear on the vexed issue of design­ing the world’s fastest hybrid car.

Bnet Aus­tralia has just post­ed an inter­view with me by Phil Dob­bie.

The inter­view is linked here, and I’ve also tried to post it to my pod­cast feed using a new Word­Press plug in.

Can sub­scribers to the Debt­watch pod­cast please let me know whether this turns up in their iTunes, etc.? I don’t get any con­fir­ma­tion of whether the post­ing suc­ceeds or not.

I’ve also embed­ded the talk here, so if you’d like to hear the inter­view ASAP, click below. The top­ics are the usu­al sus­pects: whether we’re going to expe­ri­ence a reces­sion (no, it’ll be a Depres­sion), why neo­clas­si­cal econ­o­mists and the RBA in par­tic­u­lar got it wrong, and so on.

Jon Stew­art at “Com­e­dy Cen­tral” put togeth­er a mas­ter­ful rip into the stock mar­ket spruik­ers on the CNBC net­work, expos­ing how their so-called exper­tise was lit­tle more than a blind exhor­ta­tion to join in the euphor­ic excess of the bub­ble, and to keep it alive as it died an inevitable death.

It’s both infor­ma­tive and very amus­ing. Click here to watch it.

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”.