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TOPIC: Discussion Thread - Steve Keen Episode 61

Discussion Thread - Steve Keen Episode 61 3 months 1 week ago #1

  • Arthur Itarian
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Near the end of the interview, Erik asked why academic finance is out of touch with reality. Professor Keen responded that universities are dominated by anarchist zealots who drive out opposing viewpoints. Here's a clip, starting from 55:30 in the podcast. I couldn't tell which economist Keen is referencing here:
... what he saw was the vision of a perfectly self-regulating economy with no concentration of power and no need for coercion. Now fundamentally that is a vision of an anarchist society saying the market is the ultimate anarchist governing system, you don’t need politicians, you don’t need regulations, you don’t need compulsion, leave it to the market that will reach lovely equilibrium, and that becomes a beautiful seductive vision for young ... male, nerdish men who end up going into doing an economics degree and they actually love that vision. They become dedicated to it. They really become zealots for that vision of capitalism rather than analysts of what actually exists as capitalism, and given that nature, they drive out anything which is an alternative perspective.

Keen goes on to disparage the anarchist viewpoint as "incredibly stylized" and a "religion." He asserts that if you want exposure to more useful or reasonable perspectives such as Karl Marx, you'll need to seek out the information on your own.

I'm several years removed from university, but I have a different impression of the academic climate. I also don't view anarchism as utopian.

I know he's a popular guest, so I'm probably confused, but was anyone else puzzled by Keen's comments?
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Discussion Thread - Steve Keen Episode 61 3 months 1 week ago #2

  • Michael Gebhart
    Michael Gebhart
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He may be referring to Milton Friedman. Keen is a post-Keynesian. By far the most prevalent economics field taught today is Neo-Keynesian, neo-classical micro combined with Keynesian macro, so he is self-servingly telling a half truth. What Keen is referring to about neo-classical is the former monetarist school of thought which uses the Efficient Market Hypothesis (EMH) which assumes that all information is priced in the market, and therefore is in equilibrium.

Post-Keynesians use Hyman Minsky's Financial Instability Hypothesis (FIH) which assumes money is one hundred percent endogenous. The problem with one hundred percent endogenous money is that it doesn't describe the modern banking system, but rather how the current system would work if there were only one commercial bank.

Banks don't just have to worry about cash withdrawals from customers but also reserve adjustments from other banks. This is ignored. If a bank were to expand credit beyond the point its redemptions allow then it would have to borrow additional reserves which bids up interest rates pushing out marginal borrowers thus halting credit expansion. Investors alone cannot then bid up all assets via optimism without a braking mechanism of higher interest rates. An injection of reserves by the central bank is needed to allow this expansion: mises.org/library/do-central-banks-reall...-say-post-keynesians ; mises.org/blog/it-banks-fault

The Austrian school argues it is this central bank expansion which creates the distortions as it distorts the interest rates and thus a key price in the structure of production. This misleads entrepreneurs who need natural prices to know whether future outputs are more valuable than the investment inputs. The Austrian school accounts for the fact that production takes time and thus savings for investment; unlike Keynesians who treat productivity as an instantaneous process of currency flows, hence Keen's assertion "a dollar of spending is a dollar of GDP."

Academia is far more to the left than the general public, particularly in the humanities and thus favor Keynes. While some of his observations are correct and useful, some of his proposed causations are not and politically motivated. I don't find him to be intellectually honest but few people in economics are.
Last Edit: 3 months 1 week ago by Michael Gebhart.
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