- Format: Kindle Edition
- File Size: 1966 KB
- Print Length: 153 pages
- Publisher: Polity; 1 edition (9 May 2017)
- Sold by: Amazon Australia Services, Inc.
- Language: English
- ASIN: B071HNZT49
- Text-to-Speech: Enabled
- Word Wise: Enabled
- Customer Reviews: 82 customer ratings
- Amazon Bestsellers Rank: #170,943 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
Can We Avoid Another Financial Crisis? (The Future of Capitalism) Kindle Edition
|Length: 153 pages||Word Wise: Enabled||Enhanced Typesetting: Enabled|
|Page Flip: Enabled||Language: English|
Kindle Monthly Deals
New deals each month starting at $1.49. Learn more
Customers who bought this item also bought
"No one is more qualified than Steve Keen to answer the question "Can we avoid another financial crisis?" with more than a single word. Read this book!"
—Yanis Varoufakis, former Finance Minister of Greece
"In this compelling essay, Steve Keen shows that the "Great Moderation" was in fact a great delusion and documents, to brutal effect, the foolish complacency of mainstream macroeconomists."
—James K. Galbraith, University of Texas at Austin
"Steve Keen explains why the financial crisis it occurred, and why it can't just get better on its own, along its present track. He also explains – in a hilarious and absolutely justified takedown – why mainstream economists have a "trained incapacity" in being unable to understand why the economy has broken down – and hence, why they don’t have a real solution. We are still living in the aftermath of the 2008 crisis. It’s all about debt. But economists fear they will lose their jobs if they say that debts must be written down. Keen asks what is more important: to save the economy, or to save the jobs for economists whose prestige rests on their not understanding why economies are in trouble today."
—Michael Hudson, author of Killing the Host and The Bubble and Beyond
"Non-academics interested in economic or financial markets should, if they read ony one book on the topic, absolutely read this one."
"Mr. Keen is surely right to argue that growth fuelled by the continuing expansion of private debt is highly risky for the overall economy, and that which cannot continue indefinitely will come to a sticky end sooner rather than later. We should heed his advice..."
—Globe and Mail
About the Author
What other items do customers buy after viewing this item?
Review this product
There was a problem filtering reviews right now. Please try again later.
Makes excellent use of the sectoral flow balance of accounts model.
Our ability to successfully manage our lives is dependent on our understanding of the functioning of the systems of which we are a part. If we want to be healthy it is important to understand how our body works and the effect that various kinds of food will have on it. If we want to live in a safe environment we may need to know about geological systems to tell us if our home is built in an area prone to earthquakes. Our national economy is a system on which our wellbeing is dependent and that system is a subsystem of the global economy. Our ability to make wise decisions depends on our understanding of this system.
I’ve never had any economic training. If Keen is right, this may not be entirely a disadvantage as his central argument is that classical economic theory is founded on reductionist assumptions which have little relationship to the real world. Just as you can’t deduct the behaviour of a human being by analysing the behaviour of a single cell, making assumptions about the economic transactions of an imaginary consumer doesn’t enable us to better understand a national economy. It’s all about relationship. A change in the behaviour of one individual in a system will change the behaviour of others. This doesn’t mean that predictions can’t be made, but they are made by studying the behaviour of the system as a whole and looking for patterns.
The conclusion Keen comes to is that the key factor in financial crises, like the Great Depression and the GFC of 2008, is private debt. It makes sense. A boom in the economy is fed on credit. We feel optimistic so we take out a loan and buy more stuff. This provides income for companies to employ more people. But if this process continues and we run up more and more debt, eventually it proves unsustainable. We have to spend less because more of our income is taken up paying off bank interest. This is how I see it in my imagination, but Keen illustrates it with graphs which document the process in various countries.
This has political implications. We tend to blame our current politicians for the current state of the economy. In fact, both booms and busts are inherited, and the political decisions which contribute to them are those of people who left office a decade or more ago. Keen argues that the person most responsible for the economic troubles blamed on the Blair/Brown Labour government in the U.K., was Margaret Thatcher, who deregulated the banks and thus opened the door for a private debt funded economic boom for which Britons are now paying the price. The argument conventional economists are making is that the current problems are the result of too much government spending and that cutbacks are the answer. Keen argues that an increase in government spending is the result of the economic problems brought on by too much private debt, rather than the cause of the problem. The more people are unemployed, the more the government spends on welfare payments, but it was not the spending on welfare payments which made the people unemployed. An increase in the government deficit is far less of a problem than too much private debt.
I haven’t read many books on economics, so if there are serious flaws in Keen’s reasoning I might not be the one to see what they are, but this is a short book which I would recommend to anyone trying to gain a better understanding of the problems facing us.
Top international reviews
The first couple of chapters review the weaknesses of the traditional economic model which informed the government policies which created the 2008 crisis (and that in the 1930s). Then, in the main sections of the book, Prof Keen lays out what, in his own view, is the core mechanism driving the worlds economies and explains, country by country, how that mechanism produced the economic picture we see today.
The book refers to ideas by other economists but you do not need to be familiar with those ideas to read this book. It is not a trivial read but neither is it laborious and Prof Keen scatters rye humour in amongst the economics to lighten the tone.
Any one who has studied economics - or even just perused it - finds a gap when they try to tie theory to history: Between theory and observation there always seems to be a fogy layer of special cases and external factors. Not so in this book. This view of economics ties theory to observation in a straight forward and convincing way. No special cases or external factors needed.
Keen's central thesis is that mainstream economics failed because it ignores the role of private debt creation by the financial system. This grew unsustainably in many countries in the decades prior to the crisis and drove a boom in the real economy and, even moreso, in asset prices (stock markets and housing). Credit expansion in economies such as the US and UK started growing consistently more rapidly than GDP in the 1980s, following the deregulation of the financial sector. Although it was subject to cycles, the trend in private debt as a share of GDP was upward. When its growth slowed or even went into reverse, the result was a severe recession and the aftermath is still with us both economically and politically.
This explanation of the GFC is handy, because it is fairly simple and can be easily understood by the non-economist. It is therefore disconcerting that much of the focus of political debate since the crisis has been on public (government) deficits and debt, and the necessary degree of austerity required in order to 'live within our means'. The level and growth in private debt tends to be neglected. This is surely due to its neglect in mainstream macroeconomic theory and neoliberal thinking among particular elites which deifies the market and decries government 'meddling'.
Keen criticises the use of a 'representative agent' in neoclassical micro and macroeconomics, and argues that instead of beginning with 'microfoundations', macroeconomics should begin with the analysis of larger units, such as classes (workers, capitalists, bankers etc), which have 'emergent' properties. The behaviour of such groups is not reducible to that of individual representative agents. It is thus more helpful to start with macrofoundations when engaging in macroeconomic analysis, and Keen explains how the latter benefits from drawing on some of the methodology found in complexity and chaos theory.
The author then describes his dynamic model of the economy, which was first set out back in 1995. He shows how, remarkably, it predicted the following potential outcomes: low inflation and unemployment alongside stable growth, which could stimulate rising private debt, rising inequality and the increasing dominance of the financial sector (known as financialization), eventually giving way to a severe financial crisis and recession, sharply rising unemployment and slower growth after the recession due to the debt burden among households and firms. In short, it predicted many of the aspects of the GFC. Summing up the model, and in the words of one of Keen's major influences, the late Hyman Minsky, 'stability is destabilizing'. The apparently good performance of the global economy over a number of years led policymakers to ignore the unsustainable accumulation of private debt.
Keen shows that private debt levels in many economies are still at historically high levels relative to GDP. As a policy response, he calls for a 'Modern Debt Jubilee', which would aim to drastically reduce the debt ratio to sustainable levels while avoiding another collapse or long stagnation in GDP growth. Without this, economic performance in the affected countries is likely to be poor for many years. He even predicts fairly imminent financial crises for his home nation of Australia (which avoided recession in 2008-9), as well as in China, Canada, South Korea and elsewhere. These are his 'Debt Zombies'.
In sum, the book is an informative read, and definitely recommended for its enlightened and iconoclastic thinking by an economist who actually saw 'it' (the GFC) coming. My only criticism would be its neglect of the role of global financial imbalancesin the GFC, which are explored by Michael Pettis in his book The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy .
It would surely be a positive if Keen's (and Pettis's) work becomes more influential among citizens and policymakers; this would ultimately help to resolve the defects afflicting our economies and societies. Sadly, and echoing the title of the book's final chapter A Cynic's Conclusion, this may only happen, if at all, with the advent of further serious crises. But this book remains well worth reading for all those interested in exploring the flawed nature of both mainstream economics and our financialized economies.
Concise explanation of how mainstream "neo-classical" economics has been wrong. And has been building inequality as a consequence for decades with the help of regulatory and legislative capture leading neatly to the 'cynic's conclusion'.
If you also read "Treasure Islands" by Nicholas Shaxson and "Debt: The First 5000 years" by David Graeber then you will have a good idea of how and why we are in our current debt-loaded situation.
Then join Positive Money (UK) or the American Monetary Institute (USA) to do something about it.
I gave it 5 stars because, in my view, any book book explaining the central role of money creation in our economy is a good thing. However I knocked off a star because he does not mention the role of energy in the economy. No energy means no goods and services and hence no economy. In that, Steve Keen has the same views as 99% of other economists, namely that there will always be enough energy when you need it to drive economic growth to infinity.
It is most refreshing to read an economics book which is predicated on empiricism and clear arguments, as opposed to dodgy epistemology and almost religious assumptions about the unfettered free market.
As usual, Keen makes clear and persuasive arguments which will appeal to non-economists as well as professionals.
I look forward to the predictions made herein to be vindicated in the coming years.
P.S. Absolute goldmine of a bibliography at the end, worth buying the book just for that!
The start of the book is like an extremely condensed version of his Debunking Economics book, if you are not familiar with that or otherwise with the economic characters mentioned it my prove quite a tough read. It then goes on to update the situation and predict a future for countries based on their private debt levels and the growth rates of that debt. It isn't a pretty situation.
I think the weakest area was that it doesn't give enough space to what could be the solution if political will could be found. There is some but I would have liked that fleshed out a little more with some more predications for their effects.
This book was so good that I immediately reread it after finishing.
Great work Steve.