Invited lecture by Professor Steve Keen * in the ‘London Thinks’ series at Conway Hall, 1st September 2015
In a packed hall, Keen reminded us of the complacent attitudes of influential mainstream economists before the 2008 crash, such as Bernanke in the US, who believed the post-2000 boom in asset prices would reach an equilibrium or a ‘soft landing’ through market forces. These economists had failed to take account of all the factors involved, especially the effects of escalating private debt. The views of economists predicting disaster had been dismissed. Keen deplored the stranglehold that orthodox classical economics has on teaching in western universities. He suggested that classical economics resembles a religion, where ‘heresies’ are suppressed by sincere believers. He called for more openness to alternative economic frameworks and critical thinking.
He explained why economies of the developed world are subject to repeated financial crashes, taking in historical examples and analysing the underlying causes by means of data-based dynamic models that could follow the evolution of crisis scenarios under differing economic conditions. When private debt rises to unsustainable levels, Keen’s solution is to reduce it through a Jubilee: a social dividend of perhaps £1000 to every person’s bank account (instead of QE payments to banks that then choose not to invest in the economy). Such a one-off dividend is not dissimilar to the role a Citizen’s Income could play in the longer term, by temporary increases in amount when necessary for the economy.
To control the level of private debt in future, Keen’s solution overlaps with that of Positive Money: the creation of new money by private banks as loans must be curbed, limiting mortgage loans to a low multiple of secure household income, as before the 1980s. He commented that workers don’t realise that it is the finance industry (rather than capitalism as a whole) that is ‘screwing’ them and creating repeated crises with consequent unemployment and austerity. Public spending is not only essential for providing adequate infrastructure for all, but also facilitates innovation more effectively than private enterprise.
* Kingston University. Books include Debunking Economics. See Keen’s website for more information on his work.