Monday, 6 February 2012

My favourite Economist - Steve Keen

Promise not to get technical here, but due to going to University to study Economics I still have a more than passing interest in the development of its theories and practices. Today my favourite economist (Steve Keen) got a huge boost when he featured in Forbes magazine today.

In it John Harvey points some of the spotlight of blame for the financial crisis on the lack of skills of the leading economic thinking / thinkers of the time. Its been said before but not in the mainstream press. Faulty thinking by economists gives the political fools the power to justify their crazy schemes. And so you get Mervyn King and Alan Greenspan justifying low interest rates to spur demand, people like Gordon Brown selling the family gold and mortgaging the country to the hilt because he believes in an efficient market and no more 'booms and busts', and Larry Summers successfully dismantling the checks and processes that had been put in place to prevent financial collapses. All because the economic thinking of the time claimed the market was always rational and always efficient. It would work perfectly and no-one would act irrationally in a way that could ultimately doom their company, their bank, or indeed their country because, well, that would be STUPID. Mr Harvey pontificates that economists should have been the first to call time on this nonsense, should have been asking the questions, and using their influence to adjust the poor thinking of the time.

If you have even a passing interest in the current disaster we are living through, you will have seen Inside Job, the Oscar winning documentary from 2010. There's a clip above of prize fool and Colombia professor Frederic Mishkin who is used as just one example of the faulty thinking in place at academic institutions across the world. When asked to defend himself against his taking of money to write complimentary papers about how well Iceland's economy was doing, he promptly ends the interview claiming he had been set up. He looks an idiot. A well paid idiot though. He later tried to defend his behaviour in the FT. It's a great read, especially the comments. How the heck this guy hasn't been strung up along with all the feckless central bankers, chancellors, investment bankers, and finance ministers is beyond me.

Which brings us to Steve Keen. Steve, is the very antithesis of most Australians. He's quiet, unassuming, and thoughtful. He's also damn clever. Nothing like a normal Australian at all then. He first brought to light some of the issues that he saw coming in 1995, but didn't hit his straps until 2005. Harvey credits him with being one of the few economists to foretell the coming economic crisis, but also the only one to define why it was going to happen with his definition of a balance sheet recession.

You can follow Steve's thinking here - It's easy to read stuff, full of very simple graphs and lots of nice pdfs to download for your fancy e-readers. As economics goes it's very approachable stuff and probably the reason why he's the only bloke in the world to have figured out what's gone wrong and developed explanations for it.