This content is an interview with heterodox economist Steve Keen, who argues that mainstream neoclassical and neoliberal economic theories are fundamentally flawed, empirically false, and based on unrealistic assumptions, leading to damaging policy prescriptions.
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The textbooks are teaching a lie.
>> You have taken on the world. Tell me,
Steve, why are you a rebel?
>> Why on earth are economists basing
themselves on theories which were
empirically false? This isn't to our
credit. They're still teaching that
nonsense to students. Now,
>> you you realize this is a con job. This
whole edifice that we were being taught
was underpinned by a series of
assumptions. And if any one of those
assumptions failed,
hang on. Everything I'm being taught
here is rubbish.
Hello and welcome everyone. This is a
podcast with Steve Keen. I've been
looking forward to doing this. Steve and
I have known each other for some time,
over a decade, and I've been reading his
work for longer than that. Many viewers
of this channel will know of Steve's
work and have probably been watching his
own channel where he puts out a lot of
really good material. But this is a
chance for the two of us to talk to each
other, talk about where we've arrived in
the world, how we've arrived in the
world, and I hope it's going to be the
beginning of a number of discussions
between the two of us, which are going
to lead on into things like his program
called Rell, how he developed it and
why, and things like that. And by the
way, if you want to use my proprietary
software, Ravvel, for economic analysis,
too, you get it as a free bonus inside
my 7-week Rebel Economist Challenge,
like over 600 people have already done.
To learn more, apply at steveken.com.
But really, let's come down to why I
know of your work.
>> You are a very notable hetradox
economist challenging the assumptions
which most people comply with. your most
notable book, and it's up on those
shelves behind me, is debunking
economics. I remember reading that way
before I ever thought we'd meet each
other and thinking, "God, this guy's a
geek in the best possible way that I can imagine."
imagine."
And I really like the way he thinks and
works and talks and explains just why
standard classical neocclassical
neoliberal economic thinking is wrong.
And that really is, I guess, the point
to begin to start our conversation. You
have taken on the world. Tell me, Steve,
why are you a rebel?
>> Uh, it's an interesting story. I mean,
if I probably go back a bit because this
I've had a couple of recent fights which
remind me of of some of my past
behaviors as well. The reason that it
that I became a critic of economics was
I copied it in 1961 1971 when I went to
university and they just appointed a new
lecturer from from I think from not for
which university he came from I look it
up Frank Stillwell and Frank uh was had
himself become a critic. He'd been done
a PhD and in the middle of the PhD I
think he himself started to see through
the theory. So when he gave his first
year lectures and he was a brilliant
lecturer his first year lectures he he
covered an issue called the theory of
the second best. Now this is something
which has sort of had its day in
economic theory but I think it it won a
Nobel prize initially for what its
developers Lancaster and I've forgotten
the other I think it's Lipy and
Lancaster. I'm not sure about Lipy but
it's definitely Lancaster and what they
said is that the standard economic
theory says the best possible situation
is perfect competition everywhere. So
you have the if you want to get a wage
the decent wage you want workers to get
what they deserve then what you want to
have is workers competing against each
other for employment and firms competing
each other against each other to hire
workers and no unions and no man no um
uh industrial organizations on the on
the management side but of course that's
the real world we do have trade unions
we do have industrial associations so
what the theory of the second best did
in Frank's hands was he said well let's
take the standard theory of how the wage
is set and you get a upward slope
downward sloping demand curve which
comes from the employers upward sloping
supply curve which comes from the
workers point of intersection is
equilibrium that's the best possible
situation you get uh you get no what
they call dead weight loss of of welfare
uh maximum possible utility for both
sides that's that's your ideal but if
you start uh if you bring in a monopoly
and most people would be aware of this
if you bring a monopoly uh that gives
another line called the marginal revenue
curve as opposed to the demand curve and
that will give you a lower uh wage and a
lower level of employment. If you put in
then on the same thing applies on the
supply curve. If you have a unions
rather than you know disagregated
workers, you get a what's called
marginal social product curve
using straight neocclassical uh
techniques and presuming equilibrium and
so on. It showed that theory showed that
if you abolish either the trade union or
the industrial organization without
abolishing the other, you make social
welfare worse.
And I remember what the pardon the
French, what the what I've learned, the
conventional theory, you know,
everything's perfect, hunky dory. That's
that's the idea we're aiming to. And if
you're two steps from it and you take
one step towards it, you make the system
worse. I thought, this is crazy. There's
got to be something wrong with the
theory. So, I open up my textbook. Is
this theory mentioned in my first year
economics textbook? Not at all. I went
down to the university library and I
found the articles that Frank was basing
his work on. At this stage, I was doing
first year of pure and applied
mathematics. So, it was a breeze for me
to read the mathematics. So, there's
nothing nothing in most neocclassical
work that exceeds a first year
mathematics degree in terms of
mathematical n to read it. Frank was
completely correct. So, why wasn't this
been turning up on the textbooks? And
then I continued going and I I I thought
I'll read the economic journal. That was
that was my idea of the top journal at
the time. And I found an article by a
Marxist Baduri.
Surprised what's a Marxist doing in the
economic journal? That was a bit of a
surprise. Uh because all I heard about
Marxism was all the negative stuff at
this stage of course. And then I found out
out
>> were definitely in the economic journal
at the time. They definitely were.
>> They were. They turned up. Yeah. Turned
up in economic journal. But they would
no way they'd do it today. Including
people like me will never turn up in the
economic journal. Um, but then I found
an article by Paul Samuelson and this
was the title was a summing up and I
might I might actually if if you can do
a bit of editing I might actually bring
up that quote on on screen because it's
incredible because Samuelson involves
was involved in a debate called the
Cambridge controversies and there was no
mention of that debate in my textbook uh
that that it's loan was a a bit of a a
sign but in this article by Samuelson
written in 1966 he conceded defeat He
was defending the orthodoxy and then he
had a uh a debate over the uh the nature
of um of the measurement of capital and
he was quite cons quite confident that
he had solved the problem. He said,
"What we teach students is a parable,
but the parable reflects the fact that
there are fixed ratios of labor to
capital in each technology, but as the
price system changes
as as the interest rates rise or the
cost of capital rises, you lose less
capital and more labor. Vice versa, you
get a nice smooth function out of this
and and it all works well." Well, that
that paper he wrote was then attacked by
a guy called Garini and he showed that
you didn't get straight lines, you got
curves. And this leads to the technical
thing called re-switching. That was a
hell of a shock to Samuelson. He was
blown out of the water by another
mathematical economist. So this is this
is the conclusion he wrote to this
paper. He said pathology illuminates
healthy physiology. He says the critics
merit our gratitude for demonstrating
that re-switching is a logical
possibility. Then goes to say there
often turns to be no unambiguous way of
characterizing different processes as
more capital intensive, more mechanized,
more roundabout. And he finally says,
and this is the final sentence, if all
this causes headaches for those
nostalgic for the oldtime parables of
neocclassical writing, we must remind
ourselves that scholars are not born to
live in easy existence. We must respect
and appraise the facts of life. And I
thought, bravo >> indeed,
>> indeed, >> bravo.
>> bravo.
What is he written in his textbook,
which I had a copy of, not a mention?
And neocclassicals today think they won
that debate, you know. So I realized I
was getting a mendacious education.
Whether the economists who were doing
that were aware of it or not, most of
them just don't know this literature.
They basically think they won all the
controversies. Cam Krugman has said
that. He's categorically wrong. So I
realized that I was being given a
mandacious education.
>> Krugman have histories. Steve, you and
Krugman have history. >> Yes.
>> Yes.
>> Uh so that that that history came came
later. But uh but what what I found was
economics it's superficial treatment of
economics you know supply and dem
intersecting supply and demand Bob's
your uncle intersection where everything
happened uh let's go on to the next
theorem you know uh but if you then say
what's the backstory to the shape of the
demand curve what's the backstory to the
supply curve you drill down and find
that both of those backtories fail and
uh for example the the the supply curve
the theory for the supply curve is that
there's rising diminishing marginal
productivity. Uh you add more workers to
a fixed amount of machinery, you get
less output per worker even though the
workers are identical in quality yada
yada yada. And that then gives you
rising marginal cost. But when you
empirical studies were done, there are
71 empirical studies that have been
done. 71 of them have found the majority
of firms have declining marginal cost.
They don't experience diminishing
marginal productivity at all. Uh and and
it's not just a few firms. It's between
89 and 99% of firms report constant or
falling marginal cost depending on the
survey. So I thought the textbooks are
teaching a lie. So that's why I became a
rebel. I didn't enjoy being lied to.
>> If I get to a point here, Steve,
>> and I sort of recognize your journey.
Obviously, we didn't know each other at
the time. I was 5 years behind you going
to university.
>> I arrived at university and was told at
the time that there was this thing,
perfect competition. There was perfect
information. Everybody knew what the
product was. It was a uniform product.
Everybody was bidding for the same
product. They knew all of all the
suppliers. They knew all their prices.
Therefore, there would be an optimal
outcome and all that sort of nonsense. >> Yep.
>> Yep.
>> And I'd had the advantage of going of
before I went to university
doing some accounting,
>> right? And I had seen small businesses
>> and I turned up at university knowing
damn well that they did not know what
their optimal pricing was.
>> They did not know what their marginal
costs were. They had never thought about
it. They didn't know not know what their
marginal revenues were. They had never
thought about it.
>> But they did know how to strike a deal.
And that was the best thing that you
could say was they did a deal. And at
that stage in life, if this is in the
1970s, I'm quite sure quite a lot of
them were putting a fair amount of cash
in their back pocket because there
wasn't much way to catch them back then.
But the point I'm making is that I
arrived at the same point in my career
realizing, hang on, everything I'm being
taught here is rubbish. First year
undergraduate economics, we had that
same realization. And I think that's
really interesting that at the same
points in our career we realized that
this whole edifice that we were being
taught was underpinned by a series of
assumptions and if any one of those
assumptions failed and you've just
explained a way in which they can fail
and I found other ways in which I
thought they'd failed from a different
route practical experience in a sense
>> I wasn't as academic as you at that
stage Steve I wasn't going off to read
the papers to prove the point but you
were I used my real worldview and came
to the same conclusion We were being
taught nonsense and I think that's where
but as a rebel that's where you were
born wasn't it >> exactly
>> exactly
>> what happened next
>> well I I became a realist like when I
began university I mean I swallowed the
whole thing I was anti- trade union this
actually is almost automatic for being a
neocclassical economist regard trade
unions as distorting the competitive job
market and therefore they should be
abolished and the amount of pressure
that economists have put on to destroy
trade unions over the last 50 years is
huge and they've been successful
uh uh but it it's not supported it's
supported by the superficial level of
the theory where you make all those
crazy assumptions when you say those
assumptions are crazy then you get the
results like I got logically out of the
theory of the second best and like you
got by saying look I haven't seen a firm
that even knows it's marginal cost uh it
becomes you realize this is a con job uh
what why on earth are economists basing
themselves on theories which are
empirically false and assumptions which
are empirically 50 years later, Steve,
50 years later,
>> this isn't to our credit.
>> They're still teaching that nonsense.
>> I know. I know. It's because, and this
is this is what I I realized when I
broke away. I mean, I I I went from
being anti-trade union to the first
thing I did when I got a part-time job
at the end of first year was joining up
to the trade union. Okay. U so I I
realized they were there to protect
workers and it was part of the
bargaining power of workers in what is
actually a bargaining contest. It's not
something about bloody marginal
productivity. So there was a complete
political conversion and at the same
time I've got to say that there were
political circumstances in Australia
that made me more likely to be a rebel.
So I went to university in 1971.
Australia was still involved in the
Vietnam War at the time. I supported the
Vietnam War, but I wondered why I was
being conscripted to fight for freedom.
So as well as attacking the
neocclassical theory, I started reading
as much as I could on the history of
Vietnam. And I finally realized that
what was going on in Vietnam was a war,
anti-colonial war in which America and
Australia were fighting on the wrong
side. And so that also completely
flipped my political views. I met people
from the Palestinian movement at the
time. Uh I'm, you know, that so there's
so many ways which my worldview was
flipped in 1971. And then from that
point on, having been a rebel initially,
uh I was just dissatisfied with what I
was being taught. And then I found that
I wasn't the only one. there was uh
about half the staff were up in arms
about what they'd been done to them by
changing the curriculum and anti the
neocclassical analysis and so I I became
friends with the staff and I finally
organized I think in 1972 or the
beginning of 1973 I organized a
conference on radical economics. It was
an extremely badly organized conference
that was a waste of time. Okay. Uh it
was I learned a lot about conferences by
running a bad one initially. Uh one one
of my favorite sayings is that success
is the first step on the ladder of
failure and vice versa. So having a
failure early on and I damn well knew
how to run conferences after that and I
run several extremely good ones but that
one was very poor but nonetheless there
was other students who turned up and we
found ourselves into it, you know,
chatting about how frustrated we were by
what we're being taught and the
entrangence of the professors about it.
And then in I finally gave up. I thought
I'm I'm just I'm a I'm a weirdo. on the
side of people like Frank and Gavin
Butler and Evan Jones and the staff who
were anti them the the the professors
but there was no chance of changing the
rest of the students and then 72
Australia pulled out of the Vietnam War
at the very end that's why I didn't
become a draft resistor um formally I
was one technically but I didn't have to
run away from the police as a result
because by the time I would have been
arrested for be resisting the draft the
the draft had ended and so had
Australia's involvement in the war And
all this energy that students had had to
fight the Vietnam War was suddenly being
directed at what they were being taught.
And it wasn't just in economics, it was
in Italian. The very first strike in
students at Sydney University was in the
architecture department in 1972, I
think, or early 73. Yeah. So it was
it was a wonderful time to be a student,
I must say. Uh because 71 to 73 were the
absolute peak of the postwar boom. Uh
and so there we all basically thought we
couldn't fail to get a job so we can do
what we want. Uh you universities
>> I remember that really
>> universities were free so you didn't
have to pay fees. Uh you could therefore
you went to learn uh rather than getting
credentialism. You thought a credential
was not a problem. Uh so it was a really
fantastic time to be an active student.
And the the trigger for change in at
Sydney University which then triggered
what I've done in economics since was
two young uh PhD students in the
department of philosophy Liz Jackaran
and Kerthoys wanted to put a course on
what they called philosophical aspect of
feminist feminist thought. So the
department was democratically run at the
time and they voted in favor of the
course but the professor guy called
Anderson uh was an old-fashioned
philosopher and he opposed it and the
vice chancellor Bruce Williams who was
uh an economist from Manchester
University UK he supported Anderson and
finally this philos philosophical philos
philosophy staff said we want a general
strike. So in 1973
something of out of 17,000 students at
the university I think ultimately 8,000
were on strike quite a remarkable time
and then that triggered uh in economics
we had our own meeting about you wanting
to change economics and uh much to my
amazement the bunch of students that I
thought were apathetic were in favor of
a a day of protest over what we're being
taught. So we organized the day of
protest we shut down the the standard
lectures. We didn't shut them down. just
basically said don't turn up. We gave
our own lectures at the time. Uh >> y
>> y
>> it was a huge huge and that led to the
dispute arguing for the creation of a
department of political economy. Now
I've got my own problems about what
political economy turned into. It's more
political science than economics these
days in my opinion. But that that change
that that battle with the professors led
to me uh ultimately becoming a professor
myself and saying I've got to take them
on at the the source of their ideas
which is how economic theory is
developed and that's you know that that
dates me right back 18 years old.
>> So where did you go in your PhD because
you looked at marks in your PhD.
>> No I looked the marks on my master's
thesis. So this this is a bit of
background. I'm I'm a contrarian of
contrarians and this is like my first
response was seeing through
neocclassical economic theory and then
at the end of the uh 1973 when there'd
been successful strikes in all these
departments and education was changed
progressively in each of those
departments um we a bunch of lefties got
together and what a bunch of lefties do
they decide to read KL okay so we had a
KL Marx reading group and this was in
December of 1973 now you know you know
that Sydney is pretty good weather.
Okay, this was a marvelous summer. We
spent the bloody summer in a cold
sandstone building in a in a in the
middle of the main quadrangle at Sydney
University reading Karl Marx and u I
remember walking
>> What did I say earlier? What did I say earlier?
earlier?
>> I'm a nerd. Yeah.
>> What did I say early?
>> No argument there. It taken me a long
time to come to terms with that and also
a jock. I was a weight I was in the
weightlifting club at Sydney University.
I held the state record for bench
pressing and in powerlifting and I was a
when I could have turned professional
tennis player so I sort of but I was
short. I never thought of myself as a
jock cuz I'm too small. Okay. But you
know those days I was ridiculously
athletic as well. Anyway, um with the I
remember walking to the meeting to read
marks and we Sydney University is on a
bit of a hill and it actually overlooks
the whole of the Sydney CBD to some
extent and the whole CBD was covered in
what are called kangaroo cranes. If you
know the the the cranes that have got
the long straight bars, they're an
Australian invention. Yeah, they're an
Australian invention. And you everywhere
you look there was a kangaroo crane. So,
it was a huge construction boom. And
we're walk I was walking across with a
fellow law student because I was doing
arts law at the time and noticed them
and I said I want a very good
explanation by from Markx as to why
those things don't add value.
So I then read dash capile looking for
Marx's explanation as to why labor is a
source of value as Markx claimed and not
capital. And I found a brilliant
philosophical explanation of Marx's
theory of value which involved uh rather
than saying marginal utility and
marginal cost and they're equal which is
the neocclassical approach Mark said
utility and exchange value are
incommensurable they're different and he
said if you if you if you imagine that
the utility of the buyer and the seller
are part of the sale process then you're
imagining a primitive e economy trading
with another primitive economy. I mean
whether one one economy makes something
the other one doesn't and like you all
see these glass beads and think how
fabulous the glass beads are. I must
give away the island I'm on to get the
glass beads that sort of thing. The
utility does affect. So K Mark said in
the primitive state of society yes the
utility of the buyer and the seller is
part of the transaction because uh the
the seller has to give away something
they can get utility from uh to get
something they get more utility back
from. So utility will play a role in
that calculation. But he said once you
get established systems of trade the the
both sides start producing excess of
those two commodities for trade so that
they can there's stuff specifically
traded for the purpose of trade. You're
not giving away something you can use
yourself. You're giving away something
you produce specifically for exchange.
He said in that world the exchange value
becomes disconnected from use value. And
therefore said there's a not he said
they're inccommenurable. So use value is
fundamentally qualitative. exchange vows
fundamentally quantitative and I thought
this is a brilliant alternative to the
neocclassical argument but he then said
when you apply it to production a
capitalist must find a commodity which
is a source of more value than it
contains and he said the the worker is
paid their exchange value which is their
means of subsistence what the buyer
capitalist exploits is their use value
which is their capacity to produce
commodities for exchange they're in
dimensional, but they're both
quantitative and Markx literally uses
the word quantitative magnitudes. Um, so
they're different magnitudes and that's
the explanation for the source of
surplus. I thought that was brilliant
and it also applies equally to
machinery. So machinery has you pay its
cost of production, you get its capacity
to produce you
goods for output. They're
incommenurable. They'll be different.
Machinery can be a source of value as
well. Now that went down like a lead
balloon with my fellow Marxist readers.
uh and I then did my master's thesis
finding where Markx came up with an
argument and I found where he actually
contradicted labor theory of value. That
was my master's thesis. So I was on a
good fitting. Yeah. Uh having annoyed
neocclassicals. Next thing I annoyed
Marxist and my god I seem to be annoying
some MMT these days as well.
>> So let's move to that. you come a long
way and debunking economics was in a
sense pivotal to your recognition
internationally because of the way in
which you actually laid out these ideas
that the underpinning of neocclassical
and neoliberal economics just don't
work. I mean the maths is just literally
absurd. It just doesn't back up. I mean
I'm not being
>> impolite to them to say that. It just is
totally illogical maths. Um it isn't
even really maths at all. It's just a
set of assumptions which
>> I call it I call it mathematics. Okay.
And Assad
>> quite a good one actually. I like that.
>> Well, Assad Assad Zaman is a good friend
of mine, Pakistani non-orthodox
economist. He came up with with
mathematics. So I think the
>> Yeah. Okay. That'll do as well.
>> So mythagic that's what they practice.
>> All these supposed proofs, all those
papers that they start off with, let's
assume the standard assumptions of
neocclassical economics. In other words,
the world is perfect. Um, so why are we
bothering to do anything else was always
my question. If the world's perfect, why
>> Yeah, exactly.
>> Yeah. Why can't I change it, guys? I'm
already in bliss. This is it. The best
I'll ever be. I It's why I never
accepted the concept of equilibrium
because I always thought, nah, there's
got to be something better than this.
>> Exactly. See, what has actually happened
and this is why they're so dangerous is
that they humans have a tendency to to
want to have an ideal system. Okay.
We've got this belief in in um you know
perfect systems a part of our belief. We
we'll explain that the king the king is
is king because he's the son of god you
know etc etc. We all want to justify
situations. Well when you look at
neocclassical theory what it says is
capitalism is the best of all possible
social systems. And what happens is
people who swallow that stuff and they
think it's all logically grounded become
zealots for their vision of capitalism.
Now, it's got nothing to do with
existing capitalism, but that zealatry
explains a huge part of their behavior
and why they are immune to um logical
and empirical contradictions.
>> I mean, that is going back to literally
where I was back in 1976.
I've seen the real world of business.
I'm very young, but I've seen some real
businesses and I've seen what economists
say, and the two do not coincide with
each other. And nothing has ever
persuaded in me in all the years that
have elapsed since then that actually
economists are even trying to explain
the real world out there. And all their
prescriptions are just totally
artificial in that sense. >> Yeah.
>> Yeah.
>> So where are you now, Steve? We could
talk all day. We know we can talk all day.
day.
>> Totally good.
>> We have done it and we're going to talk
again very soon. But where now? Where
has the rebel got to? What's your
current obsession, desire, geek,
whatever it might be?
>> It sounds like Lucifer. Um, well, the
fundamental thing I want to be working
on is attacking economists on climate
change. That's what I want to be doing
because economists have completely
trivialized the dangers we face and my
next book, which I'm writing for Polity
Press and massive delays in writing it
for various reasons. The working title
of that is how economists will destroy
capitalism. So that's what I want to be
working on because of my personal
situations and the uh the state of
politics. I'm largely working on things
like how does government financing work?
Uh because we have again neocclassical
myth mythical views about the government
that are what constrain government
behavior that mean we haven't built
anything like the resources we need to
both have educated civilized societies
and also to combat climate change. So um
my my preferred area of work would be
attacking them on climate change and
pointing out just how dangerous they are
and how close we are to catastrophe
thanks to them. We did nothing for the
last half century. Uh but also to do
that I've got to explain uh how
government finances work because the
people who have swallowed without
knowing they've swallowed it, they've
done a PPE course, you know, one year of
economics and they become chancellor. Uh
they're the ones who are doing the
damage because they're saying we can't
afford it. uh when you know that as you
and I both know the government creates
money when it spends uh it's it's got
the power uh it is not constrained by
its budget and because of that false
belief we've done we've reduced the
quality of education we've reduced the
quality of health we've reduced the
quality of welfare as if that's going to
make the world a better place and of
course it's making the world a worse place
place
>> listeners to this channel will have
heard me say very many similar things on
many occasions we are at a point on that
where and let's be honest I also do work
on climate change. I have promoted ideas
around accounting change there whereas
you're promoting it economic changes but
they obviously coincide.
>> But there's another point that we have
in common that we are both in a sense
believers in what modern monetary theory
says about the way in which money is
created. You just said it. Governments
create money.
>> We both know that. We believe that's
true. It's you know those who say
otherwise in economics I think are like
geographers who still swear that the
world is flat.
>> Absolutely. I I call I call
neocclassical tomic economists these
days. It's a more accurate description.
Though of course it's an insult to Tommy
because at least the Tomics predict
where the planets were going to be
fairly accurately.
>> Okay, that's pretty fair. But also
they're well they're not even Newtonian
yet in physics terms, let alone
recognizing there might be quantum. You
know they're so far away from reality.
But you just hinted that you don't agree
with everything in MMT. I want to pick
up that point. This is our first
conversation. We're going to have
others. And the best thing about this
conversation is I want to leave more
almost more questions unanswered than answered.
answered.
>> What is your problem with some of MMT?
Because that's an issue which is
definitely going to be of interest to
people on this channel.
>> Well, the fundamental point is their
theory of trade. um the because the
their theory of uh of government money
creation comes out of Warren Mosler's
observation that the government doesn't
tax to spend, it spends to tax. Okay?
And and that was like a oneliner, but
you can then put that into accounting
framework, which of course I've invented
with Ravel and it's 100%.
>> We'll talk about it soon. We'll talk
about it soon. I know. Okay. So, that's
one side. The other side is that trade
comes out of another oneliner from
Warren, which is exports are a cost,
imports are a benefit. Uh and I argue
that that one contradicts the other.
When you put the two in in a double of
entry terms, you get one argues the
government should run a deficit which
creates net financial resources for the
private sector. Uh and the other argues
that the government should run the
country should run a a trade deficit
which actually destroys net financial
assets for the private sector. Yes,
>> they haven't realized that
contradiction. And uh so I'm I just want
to I didn't want to attack that because
my attitude basically was they're
completely right about government
spending. That's a huge contribution on
on that front. You have to agree to
Warren getting the Nobel Prize for it.
Okay. Not that he will, but it's it's
it's valid. It's huge valid
contribution. Um, but on the other one,
uh, I didn't worry about it so much
because I thought, well, what global
warming is going to do to any country
that can't produce its own goods in the
meantime will swamp anything about
trade. Any country that is isn't largely
self-sufficient is going to be destroyed
when climate change comes along. So, I
can treat the other part as a secondary
issue. But, uh, some events have
happened in the MMT circle that
basically provoked me to saying what I
think about that second one. And what
I'm doing over time, I won't be doing it
in a hurry because it's going to take
quite a while to build, but I've worked
out how to critique not just the MMT
attitude on trade, but comparative
advantage as well, which is the
neocclassical attitude on trade. And a
lot of MMT
>> needs to be
>> Sorry. Yeah.
>> I mean, comparative advantage needs to
be deconstructed.
>> Absolutely. Yeah. So, the question is
>> a completely
absurd notion in its own right. In fact,
I'm going to be doing
>> I'm going to be doing some discussions
on my this channel about the history of
economic thought um over the next weeks,
months. And of course, comparative
advantage is one of the things we're
going to be talking about, but
fundamentally the assumptions yet again
are well well they were flawed at the
time, but to pretend that they have any
relevance today is just completely
absurd. I agree with you, by the way. I
entirely disagree with Warren's
observations on trade. They make
absolutely no sense in accounting terms.
They make no sense in economic terms. I
cannot see where he's getting to. I
don't buy it. And I don't think we're
alone in the MMT community in thinking
that. But there is a certain feeling in
the MMT community that if Warren said
it, it's got to be right. And there's
not too much questioning. And I guess
that's the point that I'm going to reach
because we've been talking for over half
an hour now. And I tend to like to keep
these to half an hourish or so.
You've not been frightened to challenge people.
people. >> No.
>> No.
>> If there's one thing I'd say about you,
that's definitely what you've done.
>> If there's an opportunity to get on a
soap box and say, "But you're wrong and
this is the reason why you're wrong
because you don't just say you're wrong.
You actually work out why they're
wrong." That's what's characterized your
career. Is that fair?
>> Yeah. I'm never I'm never willing just
to say I disagree. Okay. I've got to
show why I disagree. And that ends up in
getting involved in mathematical proofs
uh and and and empirical data as well.
So, and we desperately need that because
economics is is has this has the
pretense of science. It's scientism not
science and we need to replace it with
we can't make it a science like the
physical sciences. We don't you don't
have the same conservation laws and so
on that that apply there. uh but we can
make it a lot more scientific in how it
behaves and that applies not just to
neocclassicals but to Marxist and MMT at
the same time and what I've found is all
three will defend their turf in terms of
making uh rejecting anybody who
criticizes the underlying assumptions or
criticizes the analysis. So I'm that
makes me an enemy of a large part of
economics. Uh that's why they're like in
postcynesian terms that the the most
people who call themselves postcanesians
got there for the same reason that you
and I became critics because they think
I'm sick of these crazy assumptions. I
want some realism. So overall the
postcanesian school has got much much
greater foundation in realism and
there's more willingness more ability of
postcanes to say oh I got that wrong so
I'll change the theory. Whereas of
neocclassical say oh we got the
diminishing marginal productivity wrong.
If they change that the whole damn thing
falls apart and they can't do it. So you
get this you know resistance to change
and improvement and you know I hate to
say it but I'm seeing the same in the
MMT mob uh that on the trade there are
you know 99% of the contribution is
valuable that's on the government
spending the 1% is the stuff on trade
which is contradictory and I'm going to
prove it uh but it's going to take me
about a year to write the proof.
>> Okay Steve we've arrived at the point
where first of all you've opened up an
opportunity for a second discussion
between us. Mhm.
>> And that is your discussion about data
there. And I really want to have a
conversation next about why
>> why you have become a convert to double
entry bookkeeping. Y
>> allelujah I say but then it's my 50th
anniversary this year at first coming
across the discipline u which I find
quite extraordinary. How can I have been
doing debits and credits for 50 years
and secondly data of course. So
>> thank you for this podcast.
>> We've had a discussion. It's an opening
shot in what I hope will be a series of
discussions. It's been great to talk to
you. We will be back again very soon.
We're going to talk about double entry,
accounting, economics, and your software
rebell. So, thanks a lot, Steve. Much
appreciate your time.
>> Did mate definitely like many other
trend seekers and want to learn 50 years
of real economics from me in only 7
weeks, you'll love my new 7we rebel
economist challenge as well. To apply,
go to stevekang.com. If you qualify, you
can attend my lectures, ask me questions
personally every week, and make friends
with a great group of like-minded
people. So again, like many others, go
to stevek.com to apply as well for the
7-week Rebel Economist Challenge. Good luck.
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