Debunking Economics

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Debunking Economics




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Slide1

Debunking Economics

Why is the world in economic chaos right now?

Because the experts on the economy are experts on a flawed model

Which ignores instability and assumes equilibrium

Which ignores money and debt and assumes away bubbles

Which treats government as “a business” when it is more “a bank”

The real expert—ignored before the crisis—was Hyman Minsky

capitalism is inherently flawed, being prone to booms, crises and depressions.

This instability, in my view, is due to characteristics the financial system must possess

if it is to be consistent with full-blown capitalism.

Such a financial system

will be capable of both

generating signals that induce an accelerating desire to invest

and of

financing that accelerating investment

.” (Minsky

1969)

Inherent flaws? Three

undeniable dynamic facts…

Slide2

Capitalism’s Inherent Financial Instability

The

employment rate

will rise if

economic growth

exceeds the sum of

population growth

and

growth in

labor

productivity

;

The

wages share of output

will rise if

wage

demands

exceed

growth

in

labor

productivity

;

and

The

private debt to GDP ratio

will rise if the

rate of growth of private debt

exceeds the

rate

of economic growth

.

First two facts can’t be ignored

Neoclassical economists deny relevance of 3

rd

fact:

“Think of it this way: when debt is rising, it’s not the economy as a whole borrowing more money.

It is, rather, a case of less patient people—people who for whatever reason want to spend sooner rather than later—borrowing from more patient people.” (Krugman 2012,

End this Depression Now

!

)

“Absent

implau­sibly large differences in marginal spending propensities among the groups …

pure redistributions

should have

no significant macro­economic effects

.” (

Bernanke 2000

)

By ignoring private debt, they saw “The Great Moderation”…

Slide3

The “Great Moderation”

“the past two decades has seen not only significant improvements in economic growth and productivity but also a marked reduction in economic volatility… dubbed

‘the Great Moderation’.” (Bernanke 2004)

Inflation & Unemployment Falling

Unemployment

Deflation

Slide4

Capitalism’s Inherent Financial Instability

When you leave the fact about debt out, this is what you see…

When you include it, this is what you see

Rising private debt caused the boom before the crisis & the crisis too…

Slide5

Capitalism’s Inherent Financial Instability

Rising inequality & rising private debt are directly related

Slide6

In the real world as well as in the model…

Slide7

Japan’s fate awaits unless we reform economics…

Slide8

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