Summary of a radio interview with Australian economist Steve Keen

Keep the parasitic banks alive and the economy dies

Steve Keen talks to Paul Mason – Analysis, BBC Radio 4, June 2012
(This is a 30 minute interview with a live audience at the London School of Economics.)

This has now become the July 2013 meeting for Café Economique: Keep the Parasitic Banking Sector Alive and the Economy Dies

Steve Keen was one of the few economists who predicted the financial crash. (In 2005 he noted that Australia’s debt to GDP ratio had been increasing exponentially.)

In this interview he argues that the big failure of economists is that their models ignore the impact of money, banks and debt. This is only valid in a world where there is no credit, no debt and no banks.

Banks make profits out of money which they generate – as long as they can persuade people that debt is good for them. But eventually the mountain of debt becomes unsustainable – a massive Ponzi scheme. [This echoes a main campaign objective of the Positive Money campaign which wants to remove the right to create money from private banks.]

Now that the financial crash is requiring the private sector to reduce debt, that reduces GDP and creates austerity – which will continue until debt levels have been brought down. This is not the time for the public sector to also reduce spending.

To avoid the 20 years austerity which could be necessary, Keen advocates a ‘Modern Debt Jubilee’. The government should create money to put into people’s bank accounts – with a requirement for it to be used to pay down debt as a first priority – quantitative easing for people not the banks. This would reduce the profitability of the banks but help to restore the economy.

He also suggests that shares traded on the stock market should have a limit on how many times they can change hands – to reduce speculation. Challenged that this would reduce the dynamism of capitalism, he argues that capitalism was dynamic when it was led by engineers producing things, with the support of banks. When bankers take the lead it causes asset bubbles.

Keen was predicting a further crash in the UK in 2012 – because our debt levels are higher than the US. The Treasury’s own figures suggest the UK debt to GDP ratio peaked at 450% (compared to 300% in the US), and for the financial sector alone 250% (120% in the US). He estimates that 60% of the rise in aggregate demand in the UK in recent years has been from debt. Reducing this debt could cause a crash worse than Lehman in the US.

For background to this discussion, see Chapters 13 & 14 of Steve Keen’s ‘Debunking Economics’, 2nd edition (2011), Zed Books. A summary of Keen’s analysis of the UK debt problem is at:

For a more detailed explanation of debt jubilee see Brian Davey’s blog, including a reference to Keen and a link to a similar idea put forward by Martin Wolf of the Financial Times, and a suggestion that it could be used to invest in green projects as well as paying down debt: