This is from Australian Prime Minister Scott Morrison’s press conference on December 22^nd, 2021:

JOURNALIST: Not everyone can afford rapid antigen tests.

PRIME MINISTER: Some people can, and some can’t.

How on Earth can you make sense of this, when it comes out of the mouth of someone who loudly and frequently professes to be “Christian”?

Though I have been an agnostic ex-Catholic for the last 50 years, I learnt my ethics from good Catholic parents, and moral Marist Brothers and Priests (though I knew some of both who weren’t). So, when I hear someone describe themselves as “Christian”, my mind still goes to the “Good Samaritan“: the type of person who helps someone in need, with no judgment of them, and expectation of reward in return.

But “some people can, and some can’t”, as an answer to a question about the availability of testing kits during a pandemic? In what remote sense is that “Christian”?

This conundrum enabled me to finally appreciate what this so called “Prosperity Gospel    ” of the church Morrison belongs to really means:

Other doubts would surface. What about unsuccessful healing attempts? I learned that it was the sick person’s fault for doubting God. (Costi Hinn ,”Benny Hinn Is My Uncle, but Prosperity Preaching Isn’t for Me“)

In the context of this pandemic, it means that if you’re a good person, you’ll be rich and able to afford a Rapid Antigen Test. If you’re a bad person, you’ll be poor and won’t be able to. The righteous survive the pandemic, the unworthy die of it. The righteous can find a chemist (or a Harvey Norman store!) stocking the test, and can afford the asking price.

It justifies government inaction, because that is doing God’s work.

This is even more of a distortion of what “Christian” used to mean than the current Liberal Party of Australia is a distortion of the original meaning of the word “Liberal”. The Liberal Party’s own history page highlights this quote from its founder Robert Menzies:

…what we must look for, and it is a matter of desperate importance to our society, is a true revival of liberal thought which will work for social justice and security, for national power and national progress, and for the full development of the individual citizen, though not through the dull and deadening process of socialism.

So, where’s the “social justice” in “some people can, and some can’t”? It’s in the belief that society is a (God-given) meritocracy where those who deserve have already acquired wealth and power, and those who are unworthy are deservedly dying by the roadside.

Not only is this sickeningly inhumane, it’s sickeningly stupid during a pandemic. A rich person won’t necessarily go to the chemist who hasn’t run out of RATs—though maybe the rich person calls his rich mate who’s cornered the market and gets some anyway…

In his tome of an article The Politics of Cultural Despair, US journalist Chris Hedges posits that the social decay that’s happening in his country is resulting in the rise of Christian fascism, which he describes as “an emotional life raft for millions”, underpinned by the prosperity gospel.

“Capitalism, in the hands of the Christian fascists, has become sacralised in the form of the prosperity gospel, the belief that Jesus came to minister to our material needs, blessing believers with wealth and power,” the journalist proclaims.

“The prosperity gospel is an ideological cover for the slow-motion corporate coup d’état.”

Hedges explains that the corporate oligarchy doesn’t pay heed to the prosperity gospel, but it’s glad the Christian right does. He further states that while the corporates consider the Christian fascists “buffoons”, their doctrine of belief allows for greater profits and the erosion of workers’ rights.

The former war correspondent lays the prosperity gospel bare, when stating its major implication is that if a person is poor, they lack medical care, they’re paid low wages or they’re a victim of police violence, this can all be explained away as them not being “a good Christian”. (“Morrison and the Prosperity Gospel: License to Torture Refugees and Damn the Poor“)

You can’t just reduce this to Morrison though. The Liberal Party selected this guy to be its leader—even if it was in a Steven Bradbury kind of way. The Party itself is rotten, and deserves not only to be turfed out at the next election, but to go extinct.

That’s the ambition of The New Liberals, for whom I am the lead Senate candidate for NSW. We’re only running in Liberal-held electorates, and we’ll put the Liberal-National Coalition last in every electorate. This sort of Christianity belongs in the gutter, not in Parliament.

Yesterday, Greg Jericho of The Guardian posted this tweet about the movie Don’t Look Up, and I lost the plot:

Figure 1: https://twitter.com/GrogsGamut/status/1475997904342896641?s=20

You don’t need to subscribe to read The Guardian—unlike many major newspapers—but I have been doing so since 2017. I’d been thinking about ending it for some time, and this was the trigger:

Figure 2: https://twitter.com/ProfSteveKeen/status/1475999567690682368?s=20

Greg took this as a juvenile reaction—which, without any background, was a reasonable interpretation:

Figure 3: https://twitter.com/GrogsGamut/status/1476156247573286916?s=20

In fact, this was just the catalyst to throw in the towel on something I’ve been trying to do for about forty years: to improve how the media handles complex issues like climate change—though when I started, in 1978, the focus was on how it tackled news from developing countries.

I threw in the towel on that activity—which I’ll detail below—a long time ago. But I still continued trying to support journalism directly. I subscribed to three newspapers—The Guardian, The Sydney Morning Herald, and The New York Times, and also a news aggregation service called Inkl.

After Greg’s tweet—but not only because of it, by any means—I decided to throw in the towel on my personal financial support for old-fashioned journalism as well. I’ll extricate myself from the SMH and the NYT at some point—as a correspondent pointed out, The Guardian deserves credit for making it dead easy to unsubscribe—and I’ll just use Inkl when I want to read a newspaper article, as opposed to a tweet or blog.

I’ve been thinking of doing this quietly for a year or more now. What led to me doing it noisily was the incredibly polarized way that different audiences have reacted to Don’t Look Up.

The public, it appears, has embraced it: it’s the most highly watched movie of 2021—and if you haven’t yet watched it, I do recommend adding to its numbers.

Climate scientists and activists, many of whom I know personally—though only a handful face-to-face, thanks to Covid—have been strongly moved by it, and that applies to me too.

Journalists and movie critics, on the other hand, have—like Greg—tended to pan it. This included The Guardian’s movie critic in a review entitled “Look away: why star-studded comet satire Don’t Look Up is a disaster“. I was willing to ignore movie critics on this, but there were also many similar reactions from other journalists. Why the divide?

I think it’s because the movie triggered the two very different perspectives that journalists on the one hand, and climate scientists and other experts on the other, have of today’s media process. The astronomer Neil deGrasse Tyson summed up the feelings of my side of this divide very nicely:

Figure 4: https://twitter.com/neiltyson/status/1476293956153581578?s=20

Tyson was right: anyone who has been on the scientist’s side of today’s media circuit felt the message of the movie deeply, and were moved by it. But many people who sit on the other side of that circuit—the media side—felt caricatured by the movie, and were insulted by it.

This is not to personally disparage any of the journalists I’ve dealt with in the many media interviews, daytime talk shows, morning and evening business programs, blah blah blah, that I have undertaken over the last two decades. There’s quite literally not one person I’ve interacted with in the media who was anything like the profoundly shallow hosts of the TV show that DiCaprio, as “Professor Mindy”, interacted with. It’s “the system”, rather than the individuals, that generates the shallowness. But Blanchett and Perry had to personally embody that systemic shallowness, to effectively convey what it feels like for climate scientists, to raise the alarm and not be heard, within the confines of a 2 ½ hour movie.

I did have one gripe, which also involves The Guardian, and which was the reason I pulled the trigger on my views on this issue with them rather than, say, the Sydney Morning Herald or the New York Times. That was that I had discussed my paper exposing the real shallowness of the economic analysis of climate change with George Monbiot, sent the paper to him pre-press, and then heard nothing back—until he responded to my dummy spit yesterday:

Figure 5: https://twitter.com/GeorgeMonbiot/status/1476185955287633924?s=20

As I wrote back, this is absolutely fine. George had the time to correspond with me beforehand, but was overwhelmed with other correspondence, and didn’t get the time to look at the paper after I sent it to him. I know the feeling—to a lesser degree—with the 1-5 requests I get a week from young academics to comment on their research. I just can’t: if I did, I’d never get my own work done.

Figure 6: https://twitter.com/ProfSteveKeen/status/1476249676558991361?s=20

This raises the issue of why the media is not fit for purpose.

Some of this relates to the failure of the mainstream print and broadcast media to respond to the challenge of the Internet. The obvious thing to do was to establish a micro-payments system, so that, if you read an article, you paid a very small fee to the media outlet providing it. But there were and still are enormous technical difficulties with making that possible, and even today—almost 40 years after the birth of the internet—a viable micropayments system for media consumption doesn’t exist. It should be possible to pay a tiny amount—a cent or so—for every article you read, with the individual cents developing into a substantial revenue flow for the media company and its journalists. But it still isn’t: Inkl is about the best I’ve seen out there, and I’ll continue to support it, but it hasn’t developed the following amongst either media consumers or producers to make the media itself a viable business once again.

The end result of this has been a drastic fall in the funding of mainstream media from news alone—or rather, from selling advertisements alone. This is probably the nub of the problem that mainstream media had in adapting to the Internet. Its business model was to sell you, the media watcher, to the advertisers. You never were the media’s consumer: you were instead, its product: they sold eyeballs to advertisers. The Internet required a 180° flip to see the media watcher as the consumer, and to sell content to you, rather than to sell you to the advertisers (this is an argument that I first heard put, very entertainingly, by the Australian historian and commentator Humphrey McQueen).

Since it never managed to make the flip, media companies adopted various mixtures of three losing strategies:

• Paywall your content so only subscribers can see it, just as only buyers of physical newspapers in the past could read them;
• Make it free, but continue selling eyeballs to advertisers; and
• Make it free and encourage a body of loyal supporters as well.

Since none of these schemes has come anywhere near approaching the “rivers of gold” that used to flow from having a monopoly of classified advertisements in the pre-Internet days, today’s newspapers are a shadow of their former selves. Some star journalists make a decent living still—I hope George Monbiot is one, and Larry Elliott another, to mention my two favorite journalists at The Guardian. But they have to do their research with far less support than they could have counted on in the pre-Internet days. Hence George has to scan his own mail, and misses a paper showing that economists have made up their own numbers on climate change.

That’s not to say that everything was perfect in the media in the pre-Internet days, however. One obvious weakness—to me—of media coverage then was the focus on “events” rather than “issues”. The media would report that “the peasants are revolting” (or starving); they wouldn’t report on “why the peasants are revolting”.

From my perspective as the newly hired Education Officer for the Australian Freedom from Hunger Campaign (AFFHC) in late 1977, this was one reason why the Australian public had such a dim view of developing countries, even though Australia was the anomaly of a predominantly white, developed nation, in close proximity to a predominantly brown, under-developed region of the world.

I developed several campaigns to address this, in concert with my colleagues at the AFFHC, and activists in various other overseas aid charities including Community Aid Abroad (CAA), Australian Catholic Relief (ACF), and the Australian Council of Churches (ACC). These included a very successful letter-writing campaign, a submission to the Australian Broadcasting Tribunal—which showed that Channel Ten, then owned by Rupert Murdoch, did not report the invasion of Cambodia by Vietnam until ten days after it started, when the capital Phnom Penh fell—and (of most relevance to my dummy spit yesterday), a series of seminars on coverage of Third World news in the Australian media, which I established with the assistance of Ranald MacDonald (no, not Ronald), then the Managing Director of Melbourne’s paper of record, The Age.

Ranald was committed to what he called “Issues Oriented Journalism”, and he and his right-hand person Sally White teamed up with me to run the first seminar for journalists on a key issue at the time, the unexpected collapse of India’s fledgling Janata (“People’s”) Party in 1977, and the return to power of the authoritarian figure of Indira Gandhi.

Figure 7: 1st page of the Janata Party comparative press coverage seminar

The seminar was a great experience (with one hiccup, which I won’t elaborate upon here), and I gave a talk on it to a conference at Griffith University in 1979. The audience included Jocelyn Chey, then Director of the Australia-China Council, and she approached me to run a similar seminar between Australian and Chinese journalists in Beijing in the winter of 1981/82. To prepare for it, I produced a dossier covering every article in the leading Australian newspapers on China in the period from July of 1980 till June of 1981—which, as the Australian Journalists’ Association noted, ran to over 3,000 pages.

 

 

 

Figure 9: The Australian Journalists’ Association note on the dossier on Australian coverage of China that I assembled for SAPS in 1980/81

The seminar was a great success.

Figure 10: The Australian and Chinese delegates to SAPS in Beijing, 1981/82

But a subsequent one on Southeast Asia, held in Australia, was not—probably because there wasn’t the same appeal to journalists of a sponsored trip to China during the very early days of China’s abandonment of socialism (the trial of the Gang of Four occurred while the seminar was being held).

I am sure that if I had established this venture in the USA at the time, then the much larger media there would have enabled a viable market, and I could have turned improving the media into a successful business—which the Internet would have then ruined. But that wasn’t possible in Australia, so I went on to other activities before I finally decided to go back to university and do a PhD in Economics, to challenge Neoliberalism at the source.

That career change didn’t extinguish my interest in, and to a degree, love for the media though.
I used my media knowledge to raise awareness of the approaching Global Financial Crisis between 2006 and 2008—and then saw Kevin Rudd respond to my warnings by restarting the Australian housing bubble.

That is also one of the messages of Don’t Look Up. The fictional scientists in the movie, like actual climate scientists in real life, also felt that by alerting politicians (starting with The President, no less), and then by alerting the Press, that the People in Charge would Do Something!

Which they did: they developed a scheme to mine the comet for minerals (while—spoiler alert—also building an escape rocket just-in-case). Watching the movie just played back the message that experience has given me that everything about our society—our media, our political system, our economy—is dysfunctional in the face of a systemic crisis.

I had this realization before seeing Don’t Look Up, which is why I decided to accept Victor Kline’s invitation to become the primary Senate candidate for The New Liberals at the next Australian election. If getting the ear of politicians (via the media) hasn’t worked, why not see what I can do if I get the mouth of one instead?

But trying to change the trajectory we’re on, simply by informing the media that economists don’t know what they’re talking about, and the threats from climate change are far, far greater than a few percent fall in GDP some time in the distant future? Someone tell me I’m dreaming.

So, was my dummy spit over Greg Jericho’s tweet immature? For a 68-year-old, probably yes. But after 50 years of seeing the deterioration of the media, from both its own internal weaknesses and its ineffective response to the rise of the Internet, it was an immature way to admit to myself that my hope for a substantial media is probably forlorn.

The twitter storm over Don’t Look Back was as good a time as any to end my subscription to old-time media outlets.

Firstly, before I hit the miserable stuff, thank you so much to my Patrons—all 1465 of you (plus those who have been bumped off by Patreon’s troublesome payments system, but I digress). For over four years now, you have enabled me to work full-time as an independent scholar. Without your support, I’d be at best a part-time researcher, with either the infuriating administrative overhead of a university position getting in the way, or with the worries of a retired person trying to do something meaningful, while surviving on a pension.

When I was a university academic, I used to joke that I couldn’t wait till I could retire, so that I could get some serious work done. You have made that joke a reality, and I couldn’t be more grateful. I sometimes get daunted by the amount of work I am doing, and the seemingly endless demands on my time. But it’s what I want to do, and it’s no-one’s fault that there are only 24 hours in a day. The fight against the insanity of Neoclassical economics is more important now than it ever was, as is the construction of a realistic, alternative economics, and you enable me to be a full-time warrior in both those battles. So once again, thank you.

Now let’s start with the positive aspects of the approaching year. But if you’d rather just check out the “Hold My Beer” parts of my expectations for the next year, click here.

Looking Forward—Politics

Next year promises to be my biggest battle of all: as many of you know, I am standing as a candidate in the next Australian elections for a new party, The New Liberals.

For non-Australians, the ruling Liberal-National Coalition is a right-wing party, similar to the USA’s Republicans and the UK’s Tories. Consequently, the word “Liberal” in Australia connotes “conservative”—the opposite of its meaning in the USA and UK, and most of the rest of the world.

The New Liberals hope to appeal to so-called “small-l” Liberals who are appalled by the Coalition’s drift to the right over the last 40 years. In particular, they want to unseat the COALition J, and enable the opposition Labor Party to form government. They are running in Coalition-held seats only, and aim to draw votes away from Coalition to help defeat Coalition politicians.

In office, and assuming a Labor Party victory, we hope to pressure the Labor Party government to (a) introduce an ICAC—”Independent Commission Against Corruption” which will be stronger than the one the Labor Party has proposed; (b) accept deficit spending as a necessary aspect of a well-functioning fiat money system; (c) undertake significant action on climate change, rather than the wishy-washy proposals Labor has made to date; (d) end refugee detention; and (e) a whole range of progressive social and economic policies. To be effective, we need to hold the balance of power in the Senate, and the party’s founder, Victor Kline, was initially standing for the Senate in NSW.

I took Victor’s place on the Party’s ticket in a roundabout way. I had first agreed to be an economic advisor after Victor approached me. He had a firm grasp of Modern Monetary Theory, and had also read Debunking Economics, so he was aware that the Neoliberal policies that dominates mainstream political parties across the world were based on nonsense analysis. That alone impressed me. Then I undertook due diligence on him by reading his autobiography (The House on Anzac Parade), and I was sold: he was a person of principle, who was disgusted by the state of politics in Australia, and wanted to do something about it.

Though Victor was originally running as a candidate for the Senate (Australia’s Upper House, which has a proportional voting system which makes it feasible to win a seat with as little as 14% of the vote), as with the US system, the real power resides in the House of Representatives. With the party’s rising profile on social media, Victor decided to take a punt at winning North Sydney, the seat in which he lives, which is currently held by a “progressive” Liberal Party member, Trent Zimmerman. Despite Zimmerman’s progressive personal credentials, he has never “crossed the floor” on any issue, so his voting pattern is 100% conservative.

Victor’s decision left the top Senate position vacant, and he asked me to fill it.

I thought, why not? I’ve had limited success in raising awareness about bad economics and the dangers of climate change because I can’t get the ear of politicians: why not see what happens if I can get the mouth of one instead?

Better than Average

So, what are my odds of success? Better than zero, given the Australian electoral system.

For starters, there are 6 successful candidates for every Senate election in Australia: it’s a “State’s House”, and every State has 12 Senators, each of whom serves two terms. Voting is proportional, so a “Quota” is effectively 14.5% of the total vote (1/7^th of the total vote plus 1).

Secondly, unlike the American system, voting in Australia is compulsory. I imagine that some might see that as an affront to “freedom!”. To me, it’s a way to stop politicians ignoring segments of the electorate because they either don’t vote, or can be discouraged from voting—or even prevented from doing so. Not so in Australia: politicians have to pay at least lip service to every segment of society, because every segment can and will vote. To me, this is a necessary constraint on the behavior of politicians, not an assault on individual freedom.

Thirdly, also unlike the US system, voting is “preferential”. Rather than simply marking “Democrat” or “Republican” or “Green” or “Ralph Nader”, you have to rank the parties in order, and make at least six choices. If your first preference doesn’t get enough votes to score a Quota, then your second preference is checked. Voters must provide at least six preferences, so in effect your vote has six “bites at the cherry” before it can be either finally allocated, or discarded.

It’s even more complicated—and representative—than that, because if one of the major parties scores, say 2.4 Quotas, then its first two candidates are elected, while the superfluous 40% of a Quota is then distributed according to voter’s second, etc., preferences.

Given my profile in Australia, and the rising visibility of The New Liberals, it might be possible for me to get a significant first vote—say 5% of the vote. That is well short of a Quota, but then (a) 2^nd and lower preferences from other candidates who get knocked out without achieving a Quota, and (b) 2^nd and lower preferences from people who voted for the major parties—Labor and Liberal—but whose votes were excess to the 2 Quotas needed to elect two of their candidates to the Senate, might just get me over the line.

Wish me luck! And if you can afford it, once I’ve established a GoFundMe campaign to raise funds for my political campaign, please donate.

Looking Forward to 2022—Academic and Economic

I have almost finished writing the Modelling with Minsky book; I keep being waylaid from it by other work, and there are a couple of features we need to add to round out the program before I can finish the manual. But that will surely be finished and published for free download by early January. I’ll store it at http://www.profstevekeen.com/minsky/; there is already an early draft there for those who wish to learn how to drive Minsky, and undertake complex systems modelling in general.

I will start work—or rather recommence it—on the 3^rd
and final edition of Debunking Economics, which will be published by Castalia House. This will reorganize and fill out the opening chapters somewhat (I’ll start with “the supply curve” rather than “the demand curve” as the 2^nd edition does), drastically improve the chapters on money (I hadn’t invented Minsky before finishing the 2^nd edition, and I’ve learnt so much about money courtesy of building Minsky that I need to do an almost total rewrite of that chapter); and add a substantial section on the travesty of Neoclassical “climate change” economics. I hope to finish the book by the end of the year.

I will also continue working on the economics of climate change with my team of co-authors. We plan 3 new papers: one on tipping points, in response to the delusional nonsense in Dietz et al.(Dietz, Rising et al. 2021); one working backwards from Dietz and two other ridiculous 2021 paper by economists (Kahn, Mohaddes et al. 2021, Warren, Hope et al. 2021); and one working forward from Nordhaus’s absurd “simplifying assumptions” to today.

We are also almost at the end of the refereeing process for our letter to PNAS critiquing the delusional paper on tipping points by Dietz and co. I hope to see that published early in 2022.

Plus, I’ll keep writing blog posts and occasional papers on monetary dynamics and complexity, developing Minsky—especially if we can secure funding from somewhere to continue its development (suggestions appreciated!), and in general working my typical 12 hour day, 7 days a week. There is no time to lose: I’ll relax after I’ve died.

Which brings me to why I think we’ll come to regard 2020 as the “Hold My Beer” decade, if ever we get to enjoy the luxury of hindsight.

The 2020s: the “Hold My Beer” Decade

When David Graeber died, probably of complications from Covid (we’ll never know, but that’s the opinion that both I and David’s widow Nika Dubrovsky have come to), I wrote that maybe the cliché and optical measure of “20-20 vision” was a warning from a time-traveler about what the year 2020 was going to bring.

Then along came 2021. I didn’t lose any more close friends, so that at least is a bonus over 2020, but what a pig of a year it was—and what a shitty ending it is having as well.

With the exception of the tragedy of losing David in 2020, personally I had a reasonable enough year. I lost my mother, but that was at the age of 94, after she had lived a great and well-loved life. And I moved to Thailand with my Thai wife Nisa, and that was wildly successful at avoiding Covid—the whole country had less than 5,000 cases in total up until mid-December 2020.

Then all hell broke loose. The Thais let their guard down, once in December with a Covid outbreak amongst migrant workers, secondly in a high-class nightclub in March. In mid-2021 Delta emerged, and hit the whole globe with another large wave, thanks to its higher transmissibility. Now we have the omicron variant, which appears to be the most contagious human disease since measles.

Covid in general played havoc with global supply chains. Inflation began courtesy of both the supply chain disruptions and the huge increase in household deposits thanks to the government deficit spending that, however poorly, got the market economy through the first two major waves of Covid.

Climatic disasters, which had begun with unprecedented fires in Australia in 2019, were followed by unprecedented fires in the western USA and southern Canada, the unprecedented flooding in the USA and Europe, followed by unprecedented….

We’re going to see a lot of that word this decade. We are relieved to see each year disappear down the calendar’s gurgler, only to find that the one that follows it is even worse. Who could ever have predicted this, eh?

The answer to that question is, of course, the authors of The Limits to Growth (Meadows, Randers et al. 1972). Using a sophisticated system dynamics model, which had been calibrated to reproduce the trends between 1900 and 1970 in five fundamental system stress—population, capital, food, nonrenewable resources, and pollution—and then run forward in time in a model that attempted to capture all the major feedback effects between these five variables, they foresaw a serious prospect of overshoot and collapse in the early to mid-21^st century.

Figure 1: An example of the feedback loops in the Limits to Growth system dynamics model

This model was ridiculed out of contention in economics, by economists who don’t have a clue about either climate or system dynamics modelling (Forrester, Gilbert et al. 1974). This was a tragic error, because as aggregated and stylized as the model was, its predictions for trends in those system states in its “Business as Usual” model have largely matched the subsequent 50 years of economic and environmental data (Turner 2008, Turner 2014, Herrington 2021).

Figure 2: Key Limits to Growth graphs reproduced by Gaya Herrington “Update to limits to growth” (Herrington 2021)

The authors of The Limits To Growth were very careful to emphasize that they were not attempting to make precise predictions about the future:

The output graphs reproduced later in this book show values for world population, capital, and other variables on a time scale that begins in the year 1900 and continues until 2100. These graphs are not exact predictions of the values of the variables at any particular year in the future. They are indications of the system’s behavioral tendencies only. (Meadows, Randers et al. 1972, pp. 90-91)

That said, their main simulation runs showed Industrial output, population and food all peaking around about … 2020 to 2030. The “Hold My Beer” decade.

Scientific opinion on tipping points, and some modelling of tipping point processes, also implies that one major element of the Earth’s climate—the sea-ice in the Arctic during summer—could tip into an ice-free state at 1.5°C above pre-industrial temperatures (see Figure 3).

Figure 3: The OECD’s estimation of temperatures at which major tipping points will be triggered (OECD 2021, p. 121)

We are already at about 1.3°C above, and it could be that the crazy weather events we have already seen in the 2020s are to a substantial … degree (sorry!) caused by this. Paul Beckwith made the point that, when this happens, during summer there could be a dramatic shift in the coldest spot in the Arctic from the North Pole to Greenland—a 17° shift. This could cause incredible instability in the weather patterns of the Northern Hemisphere—which is what we are seeing right now.

The amplifying effect on global warming of losing the reflectivity of Arctic summer sea-ice is mind-boggling as well. One fact that I’m still wrapping my head around is that the amount of solar radiation energy that lands on the Arctic during summer exceeds that which hits the Equatorial band of the planet. The reason, fairly simply, is that while the angle of the sunlight at the North Pole is more oblique than at the Equator, the Arctic is in sunlight for 24 hours during summer, the Equator for less than 12.

Consequently, if the Arctic summer sea-ice disappears, the Arctic will go from reflecting 90% of this energy to absorbing 80% of it, and the effect will be equivalent to 40 years additional CO2 production: a trillion tonnes of CO₂.

It may be that the ridiculous weather events we have started to experience since 2019 are a product of both the loss of the Arctic’s summer sea-ice, and the feedback effects outlined by the Limits to Growth all those years ago—50 years next year.

Eat, drink and be merry, for tomorrow…

I expect 2022 to be worse than 2021, which was worse than 2020… and so on till the end of this decade. So, what to do?

At least for the next week, I intend partying with my extended family, now that I’m back in Sydney for the first time in 21 months. We are eating outdoors (easy to do when it’s over 25°C), and we will be surrounded by fans to amplify the ventilation effect of the open air. I hope that you also get the chance to party with your family and friends too, though safely, given the contagiousness of omicron. If all else fails, there is still love for those closest to you, and that may be all we have to get us through this Hold My Beer decade.

References

Dietz, S., J. Rising, T. Stoerk and G. Wagner (2021). “Economic impacts of tipping points in the climate system.” Proceedings of the National Academy of Sciences
118(34): e2103081118.

Forrester, J. W., W. L. Gilbert and J. M. Nathaniel (1974). “The Debate on “World Dynamics”: A Response to Nordhaus.” Policy Sciences
5(2): 169-190.

Herrington, G. (2021). “Update to limits to growth: Comparing the World3 model with empirical data.” Journal of Industrial Ecology
25(3): 614-626.

Kahn, M. E., K. Mohaddes, R. N. C. Ng, M. H. Pesaran, M. Raissi and J.-C. Yang (2021). “Long-term macroeconomic effects of climate change: A cross-country analysis.” Energy Economics: 105624.

Meadows, D. H., J. Randers and D. Meadows (1972). The limits to growth. New York, Signet.

OECD (2021). Managing Climate Risks, Facing up to Losses and Damages.

Turner, G. M. (2008). “A comparison of The Limits to Growth with 30 years of reality.” Global Environmental Change
18(3): 397-411.

Turner, G. M. (2014). Is Global Collapse Imminent? An Updated Comparison of The Limits to Growth with Historical Data. Melbourne, Melbourne Sustainable Society Institute.

Warren, R., C. Hope, D. E. H. J. Gernaat, D. P. Van Vuuren and K. Jenkins (2021). “Global and regional aggregate damages associated with global warming of 1.5 to 4 °C above pre-industrial levels.” Climatic Change
168(3): 24.

 

This is not my usual post: I’m recommending a donation to a community group in Uganda. I posted about this last year, but without details about how to assist them financially. To cut to the chase here, these are the bank details:

Bank Name: DFCU Bank Tororo Branch

Organization Name : Associated Reporters For Development, Organisation & Cooperation (ARDOC)

Account Number : 01261118264604

When I tried a test donation, my banking application required a personal name, so I used “Keko Mary Stella”, the manager of ARDOC—pictured below.

ARDOC stands for “Associated Reporters for Development organization and Cooperation”, and is a women-led community based organization in the Tororo district of Uganda. It engages rural women and youth in tree planting program aiming at transforming their lives and mitigating climatic change in the Tororo district. They also train rural women and youth in vocational skills training in tailoring, hair dressing, bakery, modern farming and  mechanics, so as to equip them with modern skills and knowledge that can guarantee them a improved livelihood.

I received an email from Keko last year, and was about to delete it as suspected spam until I saw the final line:

We have been watching your analysis on CGTN TV from Uganda.

OK, this was potentially genuine: I am regularly interviewed on the China Global Television Network (versus almost never on mainstream Western media, but that’s another story), so there was some substance here.

Keko has since copied me numerous photos of ARDOC’s work, and I now accept that this is a genuine community organisation, working directly with disadvantaged people in Uganda. So I’m going to make a small donation ($100), and I’d be pleased if my supporters also chipped in. In the chaotic world we live in today, it’s extremely hard for a small organisation like ARDOC to get attention and support from outside, and I admire Keko’s persistence and energy in enlisting my assistance here.

Some of ARDOC’s training classes.

This is a house ARDOC built for a previously homeless family.

Over the last few days, a mystery in which I have a cameo role has been solved on Twitter: “which famous wit made the observation that white Anglo-Saxon Australians, as well as being descended from convicts, were also descended from warders—Clive James or Peter Ustinov?”

Matthew eventually concluded—correctly—that it was Peter Ustinov. I know he was correct, because Ustinov first used that line on me, on September 11 1978.

At the time, I was Education Officer for the Australian Freedom From Hunger Campaign (FFHC), and worked in its innovative library The Ideas Centre, which was housed in a since-demolished 4-storey building on the corner of Clarence and Margaret Streets, on the periphery of Sydney’s Central Business District.

Ustinov had been a famous actor—and tasted fame once more very shortly afterwards, as Hercule Poirot in Agatha Christie’s Death on the Nile and several subsequent movies.

But at the time, he was best-known as the Goodwill Ambassador for UNICEF, the United Nations Children’s Fund. For some reason, FFHC’s then public relations manager Mary Leggett thought that it would be a good idea to bring Ustinov out to Australia to promote Freedom from Hunger. I thought it was a silly idea: at the time Ustinov was Mr UNICEF, and we’d effectively be giving UNICEF some free publicity. But my misgivings were ignored, and the tour went ahead.

Inexplicably, no plans were made to greet Ustinov at the airport, and he was left to get a taxi to my office, before flying to Canberra the next day. So, as a 25-year-old, I rehearsed several greetings for the most famous person I’d ever met—none of which I got to use. Instead, my first words were

“What on Earth happened???”

Ustinov, who was a bear of a man, had simply collapsed into the chair next to my desk, in obvious distress. “I’ve just had the worst taxi drive of my life!”, he exclaimed.

This was in the days when the main road linking Sydney’s CBD to its airport was O’Riordan Street, a narrow, twisting 4 lane road running through an industrial area, with 2 of its lanes full of parked cars and its bitumen cracked by countless heavy vehicles. I had visions of Ustinov sitting fearfully on the back seat as a kamikaze driver ran intersections and overtook trucks.

But that wasn’t it at all, as Ustinov explained:

As soon as I sat in the cab, the driver took one look at me in the rear vision mirror, saw that I was white, thought that since I was white I’d have the same opinions as him, and launched into the most vile racist diatribe I’ve ever heard. He said how he had flats in the suburbs that he rented out to “Wogs”, and how he’d happily smash their TV sets when he came to collect the rent, and otherwise terrorise them.

Then he took another look in the rear vision mirror, and saw that I was appalled. His whole demeanour changed, and he suddenly snarled:

(Ustinov put on a rough Australian drawl and said) “I suppose you don’t give a fuck what I think. I suppose you think all us Australians are descended from fucking convicts!”

“What did you say?”, I asked. Ustinov replied:

I said “On the contrary, my dear man, I’m convinced you’re descended from one of the warders”.

Magnificent, I thought! What a brilliant way to summarise the weird schism in the Australian psyche, between the larrikin willing to give authority the finger, and the authority figure imposing order upon the rabble.

I first recounted this story in 2011, in disgust at the police shutting down the Occupy Sydney protest: “Australia: beautiful one day, police state the next“. What I didn’t add then is that, a couple of years later, I got a taxi ride from the same racist driver, en route to my resignation party from Freedom From Hunger.

Though I loved the work and the community of overseas aid activists I worked with, I was sick of our initiatives being blocked by the useless SOBs (“Sons—and daughters—of the Bourgeoisie”) who chaired the governing committees of organisations like Freedom From Hunger. Bill Hobbin, FFHC’s President at the time, satirised them as OBEs: people who take the credit for “Other Buggers’ Efforts”. They had turned down one too many of my proposals—this time, to run a seminar between Australian and Chinese journalists on the coverage of each country in the other’s press—so I resigned to do it myself.

I decided to leave Freedom from Hunger with a bang rather than a whimper. I sent out an invite that parodied the tribes that inhabited overseas aid organisations—the libertarian leftists, the do-gooders hanging out for a knighthood, the bureaucrats and the revolutionaries:

I produced suitable drink coasters:

And I wore a provocative take on the “black silk pyjamas” of the Vietcong:

There was no way that I was going to take public transport wearing that getup, so I called a taxi.

Because I was wearing this gear, I sat in the back seat—back then (and still to some extent today), the Australian custom was to sit in the passenger seat next to the driver, but I wasn’t going to freak my driver out by plonking down next to him wearing this gear.

And the driver took one look at me in the rear vision mirror, saw that I was white, thought that since I was white I’d have the same opinions as him, and launched into the most vile racist diatribe I’ve ever heard.

It was not merely word perfect for what Ustinov had recounted two years earlier, it was pitch perfect as well. Ustinov was a brilliant linguist and mimic, and he had captured this arsehole’s voice brilliantly. So I listened as he told me how he had flats out west that he rented out to “Wogs” (and “Chinks”), how he’d bust their TV sets up when he went to collect the rent… The whole damn thing.

Unlike Ustinov, I managed to keep a straight face—probably partly in shock that this was happening at all, let alone on the day that I was leaving this caring career for good.

When he deposited me at 69 Clarence Street, I said “Thank you, for reminding me why I did the work I’ve done for the last three years”, and went in to party with the good people who were the polar opposite of this despicable descendant of a warder.

My partner in crime at the Ideas Centre, Sarah Sargent, arranged a priceless farewell present for me: a Patrick Cook cartoon:

 

So raise a glass to toast Peter Ustinov, one of the wittiest, nicest, and wisest humans ever.

This is something I never expected to blog about: I’m running for election as a Senator for the new Australian Party The New Liberals.

The name was chosen because Australia’s so-called Liberal Party government is actually arch-reactionary, and dominated by religious-nutjobs (the Prime Minister, Scott Morrison, is a Pentecostalist). Ironically, while in America, “Liberal” means “progressive” to Democrats (and “Commie” to Republicans), in Australia, “liberal” has the colloquial meaning of “right-wing conservative”. The ambition of the founder of The New Liberals, Victor Kline, was to rescue the word by forming a party which was Liberal in the philosophical and dictionary sense of the word.

He explains the formation of the party this way:

Remember Peter Finch in Network, when he leaned out the window and shouted: “I’m mad as hell, and I’m not going to take it anymore.” I think there is a time in everyone’s life when they feel that way…

My second “mad as hell moment” was when I realised that I couldn’t have a coffee with any of my friends, whatever their political persuasion, without us bitching about how frustrating, self-serving, and just plain ignorant all our politicians were, and how impotent we felt at having nowhere to go…

So I drafted a Charter of Core Values for a new political party and showed it to everyone I knew… And so The New Liberals was born. Politics without politicians. A grass roots team aiming to get us back to a place of justice all our citizens could be proud of, and all our visitors and neighbours would approve.

Victor is a barrister by profession—though he’s also been a State prosecutor, a language teacher in London, a school teacher in Papua New Guinea, an actor, playwright, director, and an author. When he decided to take the plunge and actually form a political party in October 2020, he knew he’d need to school himself on economics as well. Ultimately he discovered both MMT and my work, and in April of this year, he asked me to be their chief economic advisor.

I had to “do my own research” before I would agree, and found that he had written an autobiography, covering his life up until about 2017. Called The House on Anzac Parade, it was a remarkable read. It began with an experience which was the polar opposite of the life I had been born into. I was blessed to have a loving, intelligent, witty mother, and a responsible, if too serious, father. Not so Victor. This is the opening paragraph of The House at Anzac Parade:

At night she would come to the door of my bedroom. As she stood there drawing back on her cigarette, the hot red tip would flare and tell me: ‘It’s time to be loved again’. It was different every time of course. But the core ritual stayed the same. She would stand for a long time in the doorway, and I would watch the tip glow and recede, glow and recede. Then she would start to make patterns in the air, circles or figures of eight. And in the dark the hot red tip would leave shapes for me to ponder.

I was glad, once I had read that confronting paragraph, that I had decided not to tell him how to suck eggs by warning him that he’d better be ready to have his personal life combed through by the major political parties, looking for secrets. Victor had none.

He is a man of great integrity and courage, who had over time overcome his appalling start in life, conquered his demons, and become someone that I would be proud to see as Australia’s Prime Minister, should the party ever get that far. After I finished this remarkable book, I got back in touch and happily agreed to be his economic advisor.

Since then, the party has gained a lot of traction. Primarily via the use of social media—overwhelmingly, Twitter—it has gathered about 20 candidates and a substantial membership. And some blunders by Australia’s blundering Prime Minister, Scott Morrison, have helped.

Firstly, the current Liberal Party decided to challenge the name The New Liberals under Australia’s electoral laws, and lost. That gave The New Liberals plenty of free publicity.

Then, in cahoots with the Labor Party, they changed the law to stop any new party using a word that was already used by an existing party with representatives in Parliament, and trebled the number of people needed to register a party, from 500 to 1500. One day later, The New Liberals went from about 800 to 2200 members. But we were also forced to change our name, at least for the ballot sheets, and Victor chose the acronym alone: TNL.

At this stage, Victor was going to run for the Senate—Australia’s Upper House—where six Senators are elected each year in each State. With six positions up for grabs, it takes 1/7th of the vote plus 1 to get elected in your own right. Compulsory preferential voting—which requires electors to vote 1st for Party A, 2nd Party B, right down the roll to Party Z—lowers this requirement. If Party W gets the lowest outright vote, it is eliminated, and its votes (say 1% of the total) get allocated according to the voters’ second preferences. This process continues until six candidates are left: no vote or preference is wasted.

The final tally after all preferences have been allocated usually results in a split 3:3 or 4:2 between the two major parties (Labor, equivalent to the US Democrats; Liberal, who are virtually equivalent to Trump’s Republicans now), but sometimes a minor party gets enough first, second, third etc. preferences to score a quota ( 1/7th of the vote plus 1) to get elected.

However, the party had been doing so well in raising awareness of its existence that Victor decided to take a punt and run for the Lower House instead. This would be a first: since the Lower House (House of Representatives) is a compulsory preferential voting system for a single candidate per electorate, it takes a much higher fraction of the vote to be elected.

If the major parties get 40% of the vote each, then minor parties get 20%, and lose. To win, he’ll need to get sufficient votes (in the same compulsory preferential voting system) to get ahead of Labor (the party is only running in seats currently held by the Liberals). So if Liberals get 39% and Labor gets (say) 30%, he needs to get 31% to be elected—so long as most of the people who voted for Labor put TNL before the Liberals in their preferences. He will then get 61% of the vote to 39% for the “Liberals”, and be elected.

It’s a gamble, but it’s also necessary if the Party is to have substantial impact. But that left the first spot on the Senate ticket for NSW vacant, and Victor asked me to fill it.

I said yes, so come the next election, I will be the leading candidate for the Senate in the state of New South Wales. The chance to actually be able to speak truth to power in the corridors of power was too good a one to decline.

I’ll still keep doing my economic and climate change analysis of course, though the demands of politics will mean that I have even less time than I do now. And I’d appreciate your support in this political campaign, especially if you happen to live in New South Wales. Please let your family and friends know that The New Liberals (TNL on the ballot paper) is a genuine progressive party, committed to the economics that you support by supporting me here, and driven by ethics and principle rather than self-interest and opportunism.

My fellow Post-Keynesian economist and good friend Dany Lang is speaking on French radio today at noon about debt dynamics in France. I’ve prepared these plots to assist him. With Covid dominating everything, this issue has been pushed into the background, but it still affects everything too, from how we respond to Covid, to what the economic situation will be like if there ever is a life after Covid.

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I am working with 5 co-authors from climate science, mathematics and non-equilibrium economic modelling on an explanation for scientists of how badly economists have underestimated the possible economic damages from global warming. We’re in the final stages now of writing up the analysis, which of course is slowed down by having to coordinate and edit the inputs of six people into one document; I hope we’ll submit the paper to the journal that invited me to write it by the end of July.

We repeat parts of my paper for Globalizations on the idiotic empirical estimates that Nordhaus, Tol, Mendelsohn and friends have made up (this is a similar open access paper for those who don’t have access to University library databases), but since we’re writing for scientists we’re also delving into the technical details of Nordhaus’s DICE model (“Dynamic Integrated Climate and Economy”) as well.

You need a proprietary economics/optimization program called GAMS to run DICE. We’re using GAMS in the paper itself, but to make it easier for others to play with the core economic equations in DICE, I produced a cut-down version that could be coded into any mathematics program (I use Mathcad, but this could be implemented easily in Mathematica, R, Python, etc.). Figure 1 shows a stylized version of the production components of DICE.

Figure 1: A flowchart explanation of DICE’s economic forecasts

Figure 2 shows the fit of my simplified version to the original in GAMS. I tried to match the model to the outputs of Nordhaus’s DICE for the first 200 years (DICE runs for 500 years), while using much simpler equations. The fit is pretty good for the first 200 years. The only component of my version that differs substantially from Nordhaus’s is the level of CO₂ emissions, and even there the fit is pretty spot on for the first 75 years—which takes us to 2090 in real time.

Figure 2: Comparison of non-optimised DICE in GAMS to my simplified model

Equation is my simplified version of DICE (with the most significant deviations in model structure and parameter values highlighted in blue). DICE has several very messy iterative equations to generate changing growth rates in technology and population, and about a dozen equations describing the carbon cycle (with the atmosphere divided into 2 bands and the oceans into 3). I worked in continuous time rather than DICE’s klunky 5 year discrete time steps; used a sigmoidal function to replace the iterative loops for A and L, and a simple exponential for ; a constant savings rate rather than a variable; and some constants and a linear equation for temperature change, and adjusted my parameters so that the results conformed, as closely as possible, to the results of a non-optimised run of DICE.

         

One thing that I’ve noted about Nordhaus’s empirical work applies to his modelling work as well: every choice he makes results in a lower estimate for damages from climate change, rather than a higher one. That is obvious in the design of DICE: the sole impact of global warming on the model economy in DICE is that it reduces output by the factor . Figure 1 makes the obvious point that damages from global warming should affect the inputs to production—technology (A), labour (L) and capital (K) —as well as the output from production. With my simplified version of DICE, it was easy to amend the model to include damages affecting technology and labour (by reducing the growth rates and the long run maxima for both functions) and capital (by adding to the depreciation rate):

         

Figure 3 shows the results, and they are—as much as this is possible with DICE—dramatic. Gross output falls substantially (I’ll explain this shortly), capital plunges, emissions and temperatures are lower and, most importantly for this economics-oriented model, rather than output being a mere 12% less in 2215 (200 years from the start of the model) as in DICE, it’s 40% lower.

Figure 3: DICE with damages to the inputs to production as well as the outputs

This point is more obvious in Figure 4, which reproduces the bottom right plot in Figure 3. The blue line shows what my simplified model shows as the damages from climate change—and this is virtually identical to the predictions from DICE itself: a 5% fall in GDP after 100 years of unabated climate change, and a 12% fall after 200 years. The black line shows the prediction if damages are applied to the inputs to production as well as the outputs: 22% fall in output after 100 years and 39% after 200 years (the orange line makes a comparison to a run in which damages are zero, since as DICE is set up, “gross” output is affected by climate change since the reduced level of net output affects the level of investment).

Figure 4

My point here (which we’ll make in the paper using DICE itself in GAMS) is that even with his trivial damages function (highlighted in Equation ; the damage coefficient in the 2016 version on Nordhaus’s website; in 2018 he reduced this to 0.00227), had Nordhaus made damages affect the inputs to production as well as the outputs, he would have generated predictions for the economic impact of global warming which would have been troubling. Instead, he trivialized the dangers and let us sleepwalk into the horror story that, it seems, is starting to unfold this decade.

         

His claim that “carefully controlled environments” would mean that factories, wholesale and retail trade and government would be “negligibly affected by climate change” is looking rather lame this week, with nature giving us some pretty interesting examples of how those “carefully controlled environments” cope with climate change. These “carefully controlled environments” are carefully controlled for the existing climate—not one turbocharged by global warming and everything else we are doing to damage the biosphere.

Figure 5: A German factory during this week’s floods

“Carefully controlled environments”?:

Table 5 shows a sectoral breakdown of United States national income, where the economy is subdivided by the sectoral sensitivity to greenhouse warming. The most sensitive sectors are likely to be those, such as agriculture and forestry, in which output depends in a significant way upon climatic variables. At the other extreme are activities, such as cardiovascular surgery or microprocessor fabrication in ‘clean rooms’, which are undertaken in carefully controlled environments that will not be directly affected by climate change. Our estimate is that approximately 3 0 of United States national output is produced in highly sensitive sectors, another I 00% in moderately sensitive sectors, and about 87 % in sectors that are negligibly affected by climate change. (Nordhaus 1991, p. 930. Emphasis added)

Figure 6: Nordhaus’s classification of US Industry by exposure to climate change

Nordhaus WD (1991) To Slow or Not to Slow: The Economics of The Greenhouse Effect. The Economic Journal 101 (407):920-937. doi:10.2307/2233864

 

I have been following Julian Assange’s story since he established Wikileaks in 2006. I applauded, and still applaud, the concept behind Wikileaks, which was to provide whistleblowers with a secure site through which they could release documents providing evidence of wrongdoings by powerful interests—primarily governments, but also corporations.

Recent events in our shared country of origin, Australia, show how important it is to the public that whistleblowers have a safe outlet through which they can expose wrongdoing by powerful institutions.

In 2004, the recently independent nation of East Timor was negotiating with Australia over the division of oil resources in the Timor Sea, which is on the continental shelf between the two countries. East Timor had only recently become independent after a brutal occupation by Indonesia, and the prospect of oil revenues was an enticing prospect for a seriously underdeveloped economy.

Australia had, in various ways, supported East Timor’s campaign to achieve independence, and you might have expected Australia to be generous in how it approached these negotiations. Instead, it went so far as to bug the office of the Prime Minister of East Timor.

We know about this because the Australian Secret Intelligence Service (ASIS) operator who planted the bugs let his conscience get the better of him, and he revealed the crime.

His name is “Witness K”. No, his parents weren’t Hollywood celebrities with a penchant for weird child names: that’s the only way in which he can be described without committing a crime according to Australia’s security laws.

Rather than Australia being prosecuted for crime of bugging a foreign leader’s office, the Australian government put “Witness K” on trial. That has just concluded, with him pleading guilty as charged. Fortunately, he received the reprieve of the last resort of the just, when the judge gave him a suspended sentence for the “crime” with which he had been charged.

Do I think Julian Assange will be as lucky as Witness K if, as it clearly wishes, the United States security apparatus gets their hands on him? No, I have not had a lobotomy. They will surely lock him up and throw away the key—if he is lucky. Given the USA’s record with Guantanamo Bay, his fate will be a lot worse if he is “unlucky”.

Julian has had a similar reprieve to Witness K, in that a member of the judiciary blocked his extradition to the USA on the grounds of his mental health and risk of suicide in the US. She stated that:

“The overall impression is of a depressed and sometimes despairing man fearful for his future. Faced with the conditions of near total isolation without the protective factors which limited his risk at HMP Belmarsh, I am satisfied the procedures described by the US will not prevent Mr Assange from finding a way to commit suicide and for this reason I have decided extradition would be oppressive by reason of mental harm and I order his discharge.”

But the legal judgment still conceded that Assange had broken US law. He is still in jail in Belmarsh Prison, almost six months after his trial concluded. He could be freed if Biden dropped the charges—which were started by Trump, despite his declaration during his campaign that he “loves Wikileaks”—or if the UK government ended the extradition proceedings.

It feels silly to say “I urge Biden and Johnson to show clemency”: it feels a bit like the cliché “We Warn the Tsar!“. Why should they care what I, or you, think here?

But I’ll say that anyway. The objective of the persecution of whistleblowers like Assange and Witness K is to send a warning to future whistleblowers by breaking the spirit of current ones. It’s a bonus to those in authority when the whistleblowers end up behind bars for exposing other people’s crimes.

They got their bonus with Chelsea Manning, but the quirks of the separation of powers between the State, the Judiciary, and the Police—that aspect of Western democracies which is supposed to make them superior to the despots of the East—have blocked them with Witness K, and have almost blocked them with Julian Assange.

So tough shit Joe and Boris, you missed out on the icing of imprisonment. But you’ve clearly broken the man, so you got the cake. Leave what’s left of the man to enjoy his second half-century, which begins on July 3^rd. Let him be.

Their roles are opposite in any crisis, like two sides of a see-saw: private debt causes crises, and public debt, to some extent, ends them. But conventional economic theory gets this completely wrong, by ignoring private debt, while seeing government debt as a problem rather than a solution.

The conventional economic argument is firstly, that private debt simply transfers spending power from one private person to another—the debtor has more money to spend when money is borrowed, the creditor has more to spend when debt is repaid. In the aggregate, this cancels out: the borrower’s spending power rises when debt is rising and falls when it is falling, but the lender’s spending power goes in the opposite direction. They claim, therefore, that changes in the level of private debt have very little impact on the economy. As Ben Bernanke put it in his book Essays on the Great Depression, “pure redistributions should have no significant macroeconomic effects” (Bernanke 2000, p. 24).

On the other hand, they see government debt as “crowding out” the private sector, by competing with private borrowers for the available stock of “loanable funds”, and thus driving up the interest rate—the price of borrowed money. Excessive government deficits add to the demand for money, drive up interest rates, and therefore reduce private investment, and hence the rate of economic growth. As Gregory Mankiw puts it in his influential textbook, “government borrowing reduces national saving and crowds out capital accumulation” (Mankiw 2016, pp. 556-57).

This is why the Maastricht Treaty put limits on government debt and deficits, but completely ignored private debt and credit. Spain shows the impact of this conventional attitude to debt: while government debt halved from 72% to 36% GDP from the introduction of the Euro until just after the Global Financial Crisis in 2007, private debt almost trebled, from 88% of GDP to a peak of 227% of GDP in 2010.

The USA shows a similar pattern—unrestrained growth in private debt until the crisis, government debt growing after it in response to the collapse of demand as credit turned negative.

Looking at the annual change in debt, the same picture emerges: while Spain congratulated itself for staying below the Maastricht target of government deficits being below 3% of GDP, credit (the annual change in private debt) rose from zero before the Euro began to as much as 35% of GDP during the boom. It then fell to as low as minus 20% of GDP in 2014.

Ditto for America, with credit turning negative during the GFC for the first time since WWII.

If conventional economics were correct, then there shouldn’t have been a crisis at all in 2007—and this is exactly what mainstream economists said at the time. In June 2007, two months before the crisis began, the Chief Economist of the OECD predicted that “sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment” (Cotis 2007 , p. 7).

Since there was a crisis—the worst since the Great Depression before Covid hit—there must be something wrong with conventional economic thought. And there is, because it asserts that the actual details of money don’t matter to macroeconomics—that the macroeconomy can best be understood by ignoring money, and treating the economy as a barter system. To quote a Neoclassical economist on Twitter:

Most people who teach macro do it by leading people through simple models without money …You can even do banks without money [yes!]. And it’s better to start there. Then later, study money as it superimposes itself and complicates things, giving rise to inflation, exchange rates, business cycles.

With this belief, they have never built a framework for analysing how money is actually created. Instead, they developed a “supply and demand” model of lending called “Loanable Funds”, where savers lend more when interest rates are high, and borrowers demand more when interest rates are low, and the market sets both the quantity lent and the interest rate. In this model, banks act as “intermediaries”, taking in deposits from savers and lending them out to borrowers. In their model, if the government enters the market as a borrower, then it adds to the demand for money, thus driving up interest rates and “crowding out” private investment, which lowers the rate of economic growth.

In 2014, the Bank of England categorically declared that this model was wrong: banks do not take in deposits from some customers and lend them out to others, but instead, “Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits” (McLeay et al. 2014, p. 1). This means that private lending doesn’t cancel out, as the mainstream still believes. Instead, rising bank debt creates new money and causes a rising amount of spending, while falling bank debt destroys money and contracts spending. This is obvious in the data: when credit is positive and rising, unemployment falls; when credit is negative and falling, unemployment rises.

America shows the same pattern: rising credit, falling unemployment; falling credit, rising unemployment.

It’s also obvious when you look at the actual way in which money is created: I invented a software program to enable that, called Minsky. It very easily shows that mainstream economics have things backwards: rather than bank loans shuffling existing money between savers and borrowers, bank lending increases the money supply; and rather than government deficits adding to the demand for money, they add to the supply of money.

The process of money creation is actually very simple, as the Bank of England pointed out. Most money today is in the form of bank deposits. To create money therefore, you have to do something that adds to bank deposits. Both bank lending and government deficits qualify, but in different ways.

Bank lending increases deposits while repaying debt reduces deposits, so if net lending is positive, bank deposits increase, and hence so does the money supply.

Since people borrow in order to spend, rising private debt stimulates aggregate demand and asset prices, making the economy—and the government—look great to conventional eyes. The economy booms, unemployment falls, and booming tax receipts make the government look like it is responsible by running a surplus. But if the rate of growth of private debt—otherwise known as credit—turns negative, then everything unravels. The economy goes into a recession, unemployment rises, asset prices fall, and government debt increases—and if it didn’t, the recession would be far deeper.

This is because, as well as being wrong about what banks do, the mainstream is also wrong about government deficits and government debt. Rather than deficits meaning that the government has to take money away from the private sector—which is what the mainstream thinks the government does when it sells bonds to cover a deficit—the deficit creates money by increasing the bank deposits of the private sector.

In simple terms, by not studying the accounting involved in government deficits, they have wrongly classified them as increasing the demand for money, when in fact they increase the supply of money. So all the arguments they make have it back the front: deficits crowd in private spending and investment by increasing the supply of money and, if anything, they drive down the interest rate, rather than driving it up.

The bonds that Treasury issues to cover the deficit are also sold in the first instance to the banking sector, and this lets them swap the excess Reserves that the deficit creates with Bonds. Bonds earn interest income, while normally Reserves don’t. So it’s a sensible thing for banks to buy them when Treasury offers them for sale: they get to swap a non-tradeable and non-income earning asset (Reserves) for a tradeable and income-earning asset (Bonds). That’s why bond issues by governments of countries that have their own currencies are always oversubscribed.

Unfortunately, governments belonging to the European Union gave up both these differences when they created the Euro. Draghi’s “whatever it takes”, and the EU ignoring its own silly rules on the maximum levels of government debt and deficits during the crisis, meant that the ECB reduced the severity of the crisis to some degree, but nowhere near as much as did America, which ran huge deficits because it wasn’t subject to the EU’s silly rules.

So the short answer to your question is that excessive growth of private debt will cause the next financial crisis, and government debt growth during the crisis will reduce its severity. But the long answer is that private debt is so high now, in virtually all Western countries, that credit—the annual change in debt—is likely to be small, while people will spend the money they currently have slowly because they want to hang onto whatever money they currently have to service their existing debts. The result is what I call “credit stagnation” rather than a crisis.

After the covid crisis, debt seems to be uncontrollable. What is the best way to take control of the current situation?

The first thing to focus on is that it’s the private debt level that is the real problem. Secondly, it’s not the absolute level of debt that is the problem, but the ratio of debt to GDP. So we have to do something that reduces that ratio.

Conventional thought focuses on either reducing debt directly—paying the debt down—or somehow increasing GDP while leaving the level of debt constant. But paying the debt down doesn’t work, because each dollar of debt that is paid off means one less dollar of money circulating in the economy. It’s quite possible that the fall in debt can cause an even larger fall in GDP: as Irving Fisher put it:

the very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed. Then we have the great paradox which, I submit, is the chief secret of most, if not all, great depressions: The more the debtors pay, the more they owe. (Fisher 1933, p. 344)

The other obvious method is to increase GDP—to grow our way out of debt—but excellent historical research by the American philanthropist Richard Vague found that this has only ever worked when the country involved benefits from an export surge—as Saudi Arabia did when the oil price quadrupled in 1980. The only method he found that had worked was writing off the debt: debt cancellations of some description.

My proposal is a twist on an ancient practice: a Modern Debt Jubilee. In ancient societies, regular household debt jubilees freed people who had become debt slaves to go back and work on their own land, and prevented society dividing into one class of creditors and another class of debt slaves. We can’t do the same thing today—simply cancel all household debt—because it would bankrupt the banks. But we can use the power of the government to create money to do a modern version of a Jubilee which doesn’t benefit those who speculated over those who didn’t, which keeps the banks solvent, and which doesn’t increase the money supply—instead, it replaces credit-based money with fiat-based money.

To take the case of the USA, the Treasury would give every adult an equivalent amount of money—say $100,000 in the USA—which had to be used to pay down debt. If the recipients don’t have debt, then they would be required to buy newly issued shares, and the firms that sold them would have to use that new equity to pay down corporate debt. This could reduce private debt by 110% of GDP—bringing it back to the 50-60% of GDP it was in the 1960s, which were regarded as the “Golden Age of Capitalism”.

Of course this involves a large increase in government debt of precisely the same scale—110% of GDP. But when I modelled this in Minsky, there was an unexpected side-effect: the level of GDP rose substantially because the velocity of money rose dramatically.

The explanation is simple: because workers are the vast majority of the population—the 99%, so to speak—the Jubilee goes far more to workers than it does to capitalists or bankers. Workers spend their savings much more rapidly than capitalists or bankers do, simply because they have far less money and have to spend what they’ve got more quickly.

 

The result was that all debt ratios ultimately fell because of the Jubilee—even government debt.

So it looks like it could be done and would work, but I think the political chances of something like this being tried are basically zero.

Is the financial system acting in favor of society’s needs?

Far from it! As Marx once put it, the finance sector is a good servant but a terrible master, and that’s what the Neoliberal obsession with deregulation has actually allowed to happen: finance has become the economy’s master, rather than its servant. We need to return it to its servant role: it should provide the money that firms need for working capital, that households need for large consumption items, and that entrepreneurs need to finance innovation, and that’s it. Instead, what it has been doing ever since the 1970s is financing asset bubbles. These can make some people extremely wealthy—or make homeowners think they are wealthy—but in the end it only enriches the finance sector itself.

The only way to stop this happening is to regulate finance: to limit the power that a banking licence grants to create money to ways of creating money that are beneficial to society, as well as profitable for the banks. Without those controls, banks end up financing asset price bubbles, as we saw vividly in the Spanish housing market. The huge increase in household debt from the introduction of the Euro caused spiralling house prices, only to come crashing down into Spain’s worst recession since the Great Depression afterwards.

It’s of course no surprise that the USA shows a similar pattern:

Behind all housing bubbles is the same story: since supply is inflexible, demand determines price; the source of demand for housing is new mortgage debt; and the change in demand, which is change in new household debt, drives the change in house prices.

I have a number of ideas about how to stop this happening again, such as a rule I call The PILL for “Property Income Limited Leverage”. Rather than being able to effectively lend as much as they like for housing, a bank loan would be limited to some multiple of the income earning potential of the house. If a house would rent for 30,000 Euro, then the most that anyone could borrow to buy it would be 300,000 Euro. This would break the amplifying feedback that currently exists between house prices and household debt: if you and I have the same income and are competing to buy a house today, the winner will be the one that takes out the higher amount of debt. But with the PILL in place, the only way to beat another potential buyer would be to save more money.

Basically, we need to be smarter than the banks, because by letting them become the “Masters of the Universe” in the last 40 years, they have made fools of us.

Bernanke, B. S. (2000). Essays on the Great Depression. Princeton, Princeton University Press.

Cotis, J.-P. (2007). Editorial: Achieving Further Rebalancing. OECD Economic Outlook. OECD. Paris, OECD. 2007/1: 7-10.

Fisher, I. (1933). “The Debt-Deflation Theory of Great Depressions.” Econometrica
1(4): 337-357.

Mankiw, N. G. (2012). Principles of Macroeconomics, 6th edition. Mason, South-Western, Cengage Learning.

McLeay, M., A. Radia and R. Thomas (2014). “Money creation in the modern economy.” Bank of England Quarterly Bulletin
2014 Q1: 14-27.