ŷ������

Mainstream “Economics�� is made to hide crises...

Preamble:
--Mainstream (Neoclassical) economics has silently purged reality from Economics departments more successfully than any “authoritarian�� state could manage, since the best censorship is naturalized in social imagination (“there is no alternative��) rather than primitive Orwellian forms that we are distracted with (see Vijay Prashad on and Chomsky's Necessary Illusions: Thought Control in Democratic Societies).
--3 noteworthy Western academics (esp. on financial crises) who have left mainstream academia are Yanis Varoufakis, Michael Hudson, and Steve Keen. I’ve focused on the first 2 because of their synthesis of geopolitics with political economy, and Varoufakis�� superb writing style.
--However, I was delighted to see Keen has recently shifted his talents (esp. in analyzing financial crises) to analyzing the economics of the climate/ecological crises! All hands on deck! This has been sorely missing in the other 2’s theoretical works (particularly Hudson; Varoufakis at least is politically pushing the Green New Deal in Europe via DiEM25).
…Keen’s shift has started with deconstructing how mainstream economics completely trivializes climate change (ex. 90% of GDP won't be affected by climate change because it happens indoors!, see Keen's and with Tim Lenton etc.), while us Patreon Keeners anticipate more construction towards biophysical economics (i.e. inputting energy into economics) with a Post-Keynesian (money/state/private debt/banking) framing (and hopefully ). This shift is not covered in this book (later published as The New Economics: A Manifesto); I decided to read this as a concise review of Keen’s previous works (as Debunking Economics: The Naked Emperor Dethroned is extensive and I’m already buried in related works by others).
--Also, for those who love David Graeber (RIP), here’s a between Keen and Hudson remembering Graeber.

Highlights:
--Clearly, these 140 pages are dense, so beginners should start with Varoufakis' Talking to My Daughter About the Economy: or, How Capitalism Works—and How It Fails.

1) Mainstream (Neoclassical) Economics as deception:
--The trap with “debunking economics�� is you spend a lifetime in a deliberate labyrinth, losing time to build alternatives (see Varoufakis�� experience: ). This section is not about “capitalism�� vs. “socialism��; it’s about how mainstream economics cannot even describe capitalism. Mainstream economics is not a science to understand the economy; it is an institutionalized religion to defend the status quo of capital.
--Keen (bless him) has tried to systematically untangle this doctrine, revealing some insights on the pathology of capitalism’s idealism:
a) Micro simply aggregated to Macro:
--Ex. taking an individual’s supposed (i.e. lower prices means more consumption) and simply aggregating this to form the (macro) market demand curve. This conveniently assumes uniform individuals and commodities, obscuring the distribution of incomes between classes as well as necessities vs. luxuries for commodities.
--This becomes more problematic when we add in time, because it turns out reality is not static (nor equilibrium). After all, this fails the complex systems framework adopted by actual sciences that seek to model reality. A complex system is not just the summation of its parts, because the parts interact with one another to create non-linearity, emergence (properties from interaction not observed in the parts), feedback loops, etc. (You can start to see why mainstream economists are also failing at considering climate change, and why Keen is so furious with them!) Thinking in Systems: A Primer
--If we return to our example, decreased prices on a macro level can result from a recession thus decreased wages, an interaction which clearly does not result in increased consumption! The ridiculous thing is “complex systems�� models can have simple parts (thus understandable + useful), since the “complexity�� is in the interactions; meanwhile, mainstream models (i.e. DSGE) quickly become a mess while remaining useless. It gets worse��

b) No money, banks, credit-money and private debt:
--Mainstream models obscure the role of money, as if we live in a barter economy where money is just an intermediary in market exchange (which is obsessed over as if this moment is the totality of the economy). It is increasingly toxic (and convenient) to have Finance be absent in the age of Finance Capitalism, given that money (interest payments) is both income (for creditors) and cost (for debtors), and accumulated (money power).
--Next, private banks are assumed as just intermediaries lending someone’s savings to someone else (redistribution rather than money creation). Or, private bank lending is assumed as restricted by State money-creation because of a bank reserve ratio requirement. Both are dangerous illusions (see below).
--Obscuring Finance/private banks means omitting the mountain of private debt from speculation (ex. housing prices, corporate debts) and focusing the blame on “public debt�� (and always on spending for social needs, not the military). There are plenty of myths on State money creation/inflation/taxation not explored in this book:
-an Americentric intro: The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
-a dive: Where Does Money Come From?: A Guide To The Uk Monetary And Banking System and

2) Real-world Economics on Capitalism’s Volatility:
--Before we start this section, it’s important to realize the actual history of global capitalism’s volatility (routine market crises including the Great Depression which was only resolved by the greatest war in human history, WWII) and to consider how such crises can even occur if capitalism is truly about matching supply to demand in a progressive equilibrium. Now, onto capitalism’s volatility:
a) Private banks:
--Mentioned above, private banks create money via bank loans and this is not restricted by Central banks (especially since deregulation of Finance during Neoliberalism). This is the theme of the documentary ��97% Owned�� (97% of money created by private banks: ).
...This means private banks direct social spending, which results in massive speculative bubbles in assets (mortgages/rents + stock/bond prices) for debt interest payments (a bank’s product is debt) + capital gains rather than long-term investments (including corporate profits based on innovations).
--Just as banks create money, this money gets destroyed once the debt is repaid or wiped via bankruptcy (more on this later).

b) “Financial Instability��:
--Building on Hyman P. Minsky, we can first consider a medium-term cycle in capitalism: risk-taking and optimism during stability leads to innovations/more investments and a positive feedback loop of euphoria building a bubble of speculation and debt-leveraging risk-taking.
…The key sign here is the private-debt-to-output ratio, where debt interest and risk build until it bursts (for Finance’s exponential growth vs. real production’s S-curve growth, see The Bubble and Beyond). There is also the related profit squeeze from the rising debt-ratio as well as wage/raw materials costs.
--Then, there’s the long-term tendency to build up private debts: this was apparently missed by Keynes�� The General Theory of Employment, Interest, and Money; the next medium cycle builds on residual private debts.
--If we consider demand = existing money turnover + credit, the flow of credit can easily seize/turn negative as private banks panic and stop lending while paying down debt/deleveraging/bankruptcy destroys money as mentioned above and curiously decreases demand (Keen brings up Irving Fisher’s “Fisher Paradox�� here, although I prefer Hudson’s clear point that paying “bad debts�� takes away from paying for goods/services).

--For politics/geopolitics, Keen applies the above by touching on only the end of the “Great Moderation�� (which started in the mid-1980s but Keen focuses on the Bill Clinton bubble era 1993-2001), Japan’s continued lost decades as a debt zombie, and China’s contradictions with its reliance on global capitalism while the State controls its Finance. All three topics (indeed the entire book) require a broader view of post-WWII geopolitics to consider not just the how? but also the why?:
-Varoufakis�� engaging The Global Minotaur: America, the True Origins of the Financial Crisis and the Future of the World Economy and follow-up And the Weak Suffer What They Must? Europe's Crisis and America's Economic Future
-Hudson is a treasure trove but less readable: Super Imperialism: The Origin and Fundamentals of U.S. World Dominance
-Vijay Prashad providing the decolonization/Global South perspectives (although less economics): The Darker Nations: A People's History of the Third World
--In “political economy of private debt��, Keen (in a splendid systems-theory manner) explains how the political theatre of presidential terms distracts from the structural cycles of capitalism: the politicians lucky enough to reign during a boom get the triumph (while building the next bust as confidence builds private debts) and the hapless politicians during the bust get blamed for it (esp. “government deficit�� as the cause rather than a necessary response).
...This should give pause for those who imagine “e���𳦳پ��DzԲ��� as the pinnacle of “democracy��, when so much power has migrated from the political sphere and into the economic sphere (private banks, autonomous Central banks, multinational corporations, intergovernmental organizations esp. WTO/IMF/World Bank, etc.).

3) Alternatives?:
a) “Modern Debt Jubilee��:
--Keen updates the historical “jubilee�� (debt forgiveness, see Hudson/Graeber) with “helicopter money�� (Central bank creating money and giving it directly to individual accounts), resulting in money given universally which must first be used to pay down any debts. This resolves the social tension of debt forgiveness supposedly favoring debtors instead of savers.
…This makes sense in certain cases, although it should still be combined with Hudson’s “bad debts�� position where certain debts are blatantly criminal/parasitic/immoral (regardless of whether they were “legal�� at the time) and paying them would be rewarding criminals. Hudson uses the modern example of debt forgiveness in Germany after WWII which targeted debts owed to Nazis (leading to the German economic miracle), and suggests the same needs to be done to entities like Goldman Sachs etc. And of course Graeber's Debt: The First 5,000 Years is a must-read on challenging the morality of debt.

b) “Entrepreneurial Equity Loans��:
--Keen considers alternatives restricting private bank lending, such as credit based on a ratio of the asset’s income potential (to limit debt-leveraging) and MMT (Modern Monetary Theory) promoting a state monopoly on money creation while private banks just profit from arbitrage (as a true intermediary).
…However, Keen concludes the former is insufficient to keep banks profitable and the latter still does not promote lending to entrepreneurs (the current system does not either), thus adding the “Entrepreneurial Equity Loans�� where banks take an equity stake in business ventures instead of a loan.
…But the only reason we care about profitable private banks is because our current monetary system is so rigged that private banks create the vast majority of the money, so shutting them down abruptly would collapse our irrational economy. We should connect Keen's proposals with public banking and other community-based schemes (Another Now: Dispatches from an Alternative Present). Paraphrasing Paul A. Volcker in 2009: the main useful “financial innovation�� by private banks in the past 20 years is the ATM, and it’s more a technical innovation rather than a financial one.