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Host Steve Williams is joined by the author of Debunking Economics, Prof Steve Keen. Keen explains how the mainstream (neoclassicals) are isolated from the real world, rely on quasi-mathematical models (garbage in = garbage out), ignore money and energy, are insensitive to criticism, pervert the IPCC process, and more. As Keen says, the writer of the dominant economics textbook, at any point in time, rules the world (to paraphrase textbook writer Paul Samuelson)
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Host Steve Williams is joined by the author of Debunking Economics, Prof Steve Keen. Keen explains how the mainstream (neoclassicals) are isolated from the real world, rely on quasi-mathematical models (garbage in = garbage out), ignore money and energy, are insensitive to criticism, pervert the IPCC process, and more. As Keen says, the writer of the dominant economics textbook, at any point in time, rules the world (to paraphrase textbook writer Paul Samuelson)
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Professor Steve Keen, author of Debunking Economics, discusses the flaws and limitations of mainstream neoclassical economics. He argues that these economists rely on unrealistic mathematical models, ignore the role of money and energy, and are resistant to criticism. Keen also claims that they pervert the IPCC process and have a distorted view of capitalism. He highlights his own warnings about the financial crisis and the role of private debt in causing economic instability. Keen plans to revise his book to correct his previous misunderstandings about government money creation and the role of private banks. He also criticizes economists' handling of climate change and their failure to challenge mainstream economic theories. Keen explains that the neoclassical model, developed in the late 19th century, is flawed and fails to provide a comprehensive understanding of supply and demand dynamics. He criticizes the use of unrealistic assumptions and argues that economists cling to their pa Welcome to the Voices of Franklin podcast. I'm your host, Steve Williams. Today I'm joined by the author of Debunking Economics, Professor Steve Keen. Steve explains how the mainstream, which we call neoclassical economists, are isolated from the real world, rely on quasi-mathematical models, garbage in equals garbage out, ignore money and energy or get it wrong, are insensitive to criticism, pervert the IPCC process and more. It would have been far easier and quicker to ask Steve what the mainstream get right rather than ask him what they get wrong. And as Steve says, the writer of the dominant economics textbook, whoever that is at any point in time, rules the world. That's to paraphrase textbook writer Paul Samuelson. Well, I hope you enjoy the podcast. Steve Keen, welcome to the podcast. Good to be here, Steve. Steve, can you start off by letting the listener know basically who you are and what you're famous for in economics? Okay. Well, I'm a professor of economics. I've been an academic economist for coming up to actually 30 years if I recall when I started doing my master's, 27 years as an academic and about 15 of those as a professor. The first thing that brought me to public attention was a book called Debunking Economics. And I went through how the conventional theory of supply and demand analysis and all that jazz has been intellectually and empirically disproven, not just by critics of that paradigm, but even by the group itself. And yet it continues on and gets even more extreme and ideological, which they think is logical. So I've been fighting that basis for decades. I became very prominent in Australia when I started warning about the financial crisis starting in the late 2005. And of course, in the rest of the world, I've still got accolades for that because I was regarded as the economist who did the most to warn about the crisis and who's working to prevent another one by a group called the Real World Economics Review. But over here, I'm reviled because I predicted house prices would fall and they didn't. And I get the blame for that. And in fact, when I look at what actually happened, I was on the 7.30 report for half the show, literally 15 minutes, which you know is about three times the usual length that's held with Kerry O'Brien. He asked me about house prices and I made that comment. But the next day, the other stuff I was talking about, the crisis and so on, he interviewed and basically savaged Kevin Rudd saying, oh, what about King's Warning, blah, blah, blah. One week later, Rudd and his government came out with what they called the first-time buyers boost. And they doubled and trebled the amount of money they were giving the first-time buyers for existing and new homes. And in Victoria, the government in Victoria threw an extra $14,000 under the fire. So somebody in Victoria could get $35,000 from the government. So long as you're buying in the outer rim of Melbourne, $35,000. Well, that's where the recovery began. And what it meant was that the cause of the crisis was far too much private money being borrowed. That led to a bubble in America with nobody like me to warn as loudly as I did. They went from huge credit growing at a huge rate. So the increase in private debt in one year was equivalent to 15% of GDP there. And then it fell to minus five and that's what caused the crisis there. In Australia, it reached 20% but it fell to two, plus two. It never went negative. So I can be blamed for the house price bubble being continued here, but not for getting it wrong because basically the government put its hand on the roulette wheel and said, we're going to make sure the ball falls here, which I've got the power to do. I get rubbished for it, but if I hadn't been making the warnings, Australia would have had that crisis. Yeah. So we used to hear about you in the media a fair bit. So I'd say going back, well, 10 or 20 years, maybe you were a professor at the University of Western Sydney. I think that's when you were fairly prominent in the media, mostly about housing and real estate, but other things as well. No, I've got to correct you there. It was not about housing and real estate. It was all about the dangers of too much private debt and speculation and bubbles. And only when I got interviewed by Kerry O'Brien did house prices come up. And I made an analogy with Japan saying that when its bubble burst, house prices fall by 40% over 10 to 15 years. And I saw no reason why the same thing wouldn't happen in Australia because the reason was the government restarted the housing bubble. So my main rewarding was private. Otherwise, I wouldn't be recognized in the rest of the world. Yeah. Yeah, sure. Things can always change, such as government intervention, where you were talking about probabilities, not certainty. And of course, you did make that famous bet that some people might remember you for. But anyway, that's all. That should be water under the bridge. Your well-known book, Debunking Economics, I think came out in 2011, was it, when it was the first edition? That was the second edition. The first edition was 2001. Okay. I knew there was a one in there somewhere. And you did revise that book at some stage. There's a second edition. 2011. That's right. That was the second edition. Ah, that's what I'm thinking of. Yeah. Yeah. No plans to revise that again? Yes, there are plans. There were one mistake I made in that book was that I didn't properly understand the government money creation at the time or private money creation really properly at the time. That's the MMT thing. We'll get back to that later. Yeah. It's also the role of the private banks in creating money. And also when you repay private debt, that destroys money. That part I got wrong, so I have to correct that. And I want to add stuff on the work of economists on climate change, which is so, if I can use French on your program? Yeah. Okay. So fucking appalling. That's what led us into probably not taking climate change seriously. And they'll probably end up destroying capitalism in their attempt to preserve their theory about capitalism. We'll come back to climate change. So before we get on to some of the main things in Debunking Economics and how bad mainstream economics is, because people will find it hard to believe how bad it is, given what's reported on the ABC, and they never challenge it. So we have to, or you have to explain something about the culture and the nature of the economic profession and economic departments so that the listener can better accept how bad economics is, yet it doesn't reform itself. Yeah. The basic story is that the model that economists use was first developed in the 1870s and perfected by Alfred Marshall in the 1890s, which basically supply and demand determines everything. Whereas the previous theory called classical economics talked about supply setting the cost of production and demand setting the volume that was sold. And Alfred Marshall famously talked about, one might as well ask whether the upper or lower blade of a pair of scissors cuts the paper. There's a dispute whether prices are set by supplier or demand. And when he made the comment verbally, it was a reasonable proposition. What's happened since then is that mathematical economists, mainly neoclassical, have attempted to establish what causes the demand curve and what causes the supply curve. And in the former case, they failed completely on their own logic. Even though it's realistic to say, in general, if you want to sell more of something, its price should fall because for simple reasons, the poor can't afford to buy it. They have a theory based on what they call methodological individualism. And they try to explain everything from the point of view of a single agent maximizing their utility given a budget constraint. And using that mathematical model, they cannot prove that a market demand curve slopes downwards. And to get past that, rather than saying, oh dear, well, they're wrong and maybe the classical theory was right, which is what they should have done. They've made the most crazy assumptions you can possibly imagine. So my favorite one, there's probably two, but one of them, the first person to discover this back in 1953, the year of my birth, is how long this craziness has been going on for. He made up what he called an aggregate individual demand function. So individual demand function that all people have variations of. And he then said the necessary and sufficient condition quoted above is intuitively reasonable. This is the direct quote. It says in effect that an extra dollar of spending power is spent in the same way no matter to whom it is given. That's not intuitively reasonable. It's intuitively bonkers. It's saying if you give a single mom, unemployed single mom, a dollar, she'll spend that same dollar the same way that Holmes the court would spend it or Rupert Murdoch. Bloody nonsense. But they put this bloody nonsense forward because they want to hang on to their paradigm. And that's the real thing. The paradigm itself is of a self-equilibrating, utility maximizing, cost minimizing system, which is a meritocracy. You get paid what you're worth. And that is such a seductive vision that the people who get sucked into this don't want to disbelieve it, even when they disprove fundamental elements of it. And that happens in the sciences as well. If you look at the work that took us from classical physics to the quantum mechanical physics, Max Planck was the person who did that. And Max, in his autobiography, literally said he has never convinced anybody of a new proposition by purely logical proof. And he said that what he relied upon was that the old people will eventually die and be replaced by young people who are open to the new vision. Now, in economics, that doesn't happen because the crises in physics are permanent. What's called the Michelson-Morley experiment, anybody can do that themselves. And then they know it doesn't go away. And therefore, you know that a light can't be a wave. And therefore, we got the quantum mechanical wave particle duality explanation. And once those professors who refused to abandon the wave theory had to retire or die, they were replaced by young students who put up with their lectures, but then say, OK, now I'm going to do research I want to do. So physics evolves by scientific revolutions. Economics doesn't do that because the crises are transitory. Pretty much nobody alive lives through the Great Depression. It's been forgotten. You have a crisis and forget about it. And then even if some people break away because they think it's just crazy to make the assumptions economists do, like Irving Fisher back in the 1930s. It's such a seductive view of a society, a perfect society, that that side of things attracts enough people who are willing to continue pushing the theory. And they get the job as professors rather than Irving Fisher and his descendants. And so the religion goes on. And it is basically a religion. So we could say there's a certain type of person in the main who's attracted to the profession of economics. They're not revolutionaries or social reformers. They tend to like the status quo. Is that right? Well, not necessarily, because it takes people and tell them this is an accurate model of capitalism. And you can hear people who are socially progressive. And that's a large part of the Labour Party. And I had interactions with people in the Labour Party way back when they went to neoliberalism after the Whitlam experiment. And it's seductive. And I think this is a great, marvellous system. All we have to do is reduce government regulations, abolish trade unions, control or reduce monopolies, which, of course, is always the last thing they try to do. And then we'll have a perfect system, and it'll all be self-managing. And that can take somebody's mind, even though it might be socially progressive, and then convince them this is an accurate model. So they end up campaigning what is actually a myth. And the term they use to describe themselves, and it was actually a term of abuse when it was first invented, is neoclassical economics. But I think a more accurate term, and I'm going to use it most of the time myself, is toll-make economics. It's like the earth-centric vision that existed back in the pre-Copernican days of the astronomy. And, of course, that was consistent with the religion. You'd believe it because, of course, the earth has to be the centre of the universe. We're the most important creatures alive. God put us here, blah, blah, blah. Along comes Copernicus with a telescope and points out that the heavens, which is supposed to be perfect and unchanging, according to the toll-make theory, have got craters on the moon and moons circling Jupiter. And, of course, what do the toll-make astronomers do? They refuse to look down the telescope. Now, in that same sense, that's what neoclassical economists like. So I think it's better to call them toll-make economists rather than neoclassical. They are heavily reliant on mathematical models. That's one thing. No, they're not. No, they're not. Because mathematics is logical and sensible. I call what they do mathematics. And a colleague of mine who's equally a critic of Pakistani Asad Zumair, he came up with a term which I also love, mathemagics. So they do what looks like mathematics, but they make absurd assumptions. Any decent mathematician would say you can't do that. They do it anyway. So it's dressed up with mathematics, but a decent mathematician can run a nuclear-powered ship through the middle of their theories. Well, that leads to the other point that economic departments, they're quite insular. They're not interdisciplinary. They pretty much ignore the physical sciences. You're saying they ignore good maths as well. They ignore or have ignored, say, psychology to a fair amount. They're stuck in their silos, probably more than most other. Yeah. I mean, all academic disciplines are siloed to some degree. That's what you specialise in. Physicists read other physicists, but economists are extreme on that front. So physicists read other physicists and normally do physics. Economists will read other economists and intervene in climate change where they have no knowledge whatsoever. And that's why they're dangerous because there's a mycenaic side to a neoclassical economist. And that means I think they can apply their analysis anywhere. And as a result, they don't read climate change papers pretty much, but they write about climate change and that's making them especially dangerous. Yeah. We'll get on to William Nordhaus in a minute. But I hope we're giving the listener a fair impression of these cultural problems within mainstream economics, at least, not the other schools of economics. The general listener doesn't hear about these debates within economics. They're given the impression, at least in the mainstream media, that it's all kind of settled. We don't need to hear. So how do you break through as a heterodox economist? It's really hard. It's really hard. I mean, there was a movement after the stock market crash in 2000. And that led the experience there, which of course wasn't warned about by mainstream economics, led a bunch of French students to start what they called the campaign against autistic economics. And that then led to the French Academy. Some people who are like me, a personal friend, Danny Lang initiated this. They tried to create a rival division for economics inside France, and they called themselves the Society of Appalled Economists. And in France, quite a strange system compared to the rest of the world. You register as a, once you finish your PhD, you register as an academic economist, and then you are assigned to a university somewhere in France. You don't apply for a job, you're assigned. So we know how many economists there are in France. And at the time that this campaign occurred to start a separate heterodox wing, there were 1800. Now 300 of those registered economists signed up to bring about this new division, not called mainstream economics, I've forgotten the term they used. And they were then blocked by a Nobel Prize winner. The unit was about to be created. And one of the French Nobel Prize winners fought vigorously to stop the government doing that. But we know that there were 300. I'd say roughly about half of those were economic historians. So it means of the order of eight to 10%, the population of economists are non-mainstream. Now what it means is we end up in shitty little universities. So Western Sydney is of course a pretty good place, but still far below Sydney and New South Wales in status. When I got a job in the UK running a department, it was Kingston, which is one of the third tier of universities. And it was a pretty, I'm afraid, a pretty shitty university. So you end up getting the heterodox people work at the low-ranked universities, the mainstream dominate the prestigious universities. And we have our own journals, our own publications, discussions, conferences, and so on. But we're excluded from the mainstream and they ridicule and rubbish us in pretty much the same way the Tall Macca astronomers rubbished Galileo and Copernicus. Yeah. They have less emphasis on actual evidence and more on their beautiful model where they garbage in, garbage out. Yeah. So, okay. Big problems with that culture because, let's face it, economics, whether people know it or not, affects our daily lives in profound ways every minute of the day. And if you control the economic journals in those prestigious universities, you control the big textbooks, you pretty much control the world. That's what Samuelson himself said. Paul Samuelson, who was the person who did the most to establish the post-World War II manifestation of neoclassical economics. And he basically wrote, I don't care who writes a country's laws, so long as I can write its economic textbooks. And that's true. What you get is left-wing and right-wing parties competing to impose neoclassical theories on the real world. And it's basically like imposing, again, Tall Macca astronomy on rocket attempts. So you'd have Elon Musk and his friends being told they've got to calculate epicycles when they try to get a rocket to Mars. We'd never get off the bloody ground in engineering. But of course, because the economy exists, whether economists exist or not, the economy continues on. But they actually stuff it up very, very badly by what they think are reforms to make it work better. Yeah. And so there's a bunch of particular things they get wrong. I'll start you off with their ideas about equilibrium, how everything balances out beautifully. Yeah. When equilibrium modeling was first done by neoclassical economists back in the 1870s, and if you read Jevons and Balrar and Menger and so on, what they said was, and Jevons said it best, if we were able to do it, it'd be far better to do this as a question of dynamics rather than statics. Because the economy is always changing. So you need to use dynamic equations for that. But he said it would be ever so foolish to not do the static modeling when we can't really do the dynamic. So we'll do the statics first and then our successors will do the dynamic modeling. Now, these days, they talk about what they call dynamic stochastic general equilibrium models. Equilibrium is still there in the term. And in my considered opinion, their model is neither dynamic nor general. They're stochastic equilibrium models. So equilibrium still rules when the real framework for analyzing the system like capitalism is evolution. Things are always changing. And evolutionary dynamics are far from equilibrium. Now, because they get locked into this equilibrium way of thinking, most of the time they don't even learn the mathematics you need to learn to do dynamics properly. So they learn difference equations. Time is discrete. T plus one and T plus two and so on. For example, there's a leading textbook. I think it's done by a guy. I think it's by Sargent. I'm not quite sure right now. And that's a 2,000-page online course called Advanced Macroeconomics with Python. And in the 2,000 pages, there are four pages on differential equations, which are the essential mathematics for dynamic systems. All the rest are difference equations. So they think they're sophisticated. It's extremely complicated stuff to do. Because they're working so hard, they think it must be science. But so is doing epicycles back in the days of Ptolemaic astronomers. Incredibly complicated to work out now, which deferent do you put this planet on? And what epicycle do you have? And what are your offsets, et cetera, et cetera. Bloody complicated. Really hard to make it fit the data. Finally, you do it. Hooray, hooray. You're one of thousands of models that fit the data, and they're all completely wrong. Now, how about things like energy and money? Do the mainstream economists get those things correct? They don't even know they exist. This is the bizarre thing. And I bumped into a guy on a train up to Newcastle a couple of days ago. I thought I'd test out my theory here, because he hadn't done economics, and he was asking me what I was writing on the train. And I said, well, what do you think? Are you economists experts on money or not? He said, of course, they're experts on money. I said, no, they actually have models that explain why money doesn't matter. And their macroeconomics models completely exclude money and banks and debt. So that means they're trying... And my vision of that is that's like trying to explain how birds fly while ignoring that they've got wings. Now, you're going to come up with some pretty crazy theory to explain why birds remain suspended in the sky if you don't consider that they've got wings. And that's the sort of thing they do. And I'm actually writing a critique of yet another paper like that right now. And in energy, this is partly an accident that I blame on Adam Smith rather than on the neoclassicals, but they continued on down Adam Smith's line. Before Smith, we had a school called the Physiocrats, and they were in France, which is a much more rural agricultural society than Scotland. And if you plant a seed in the ground and you know that there'll be more seeds than you planted, whether you do any husbandry as they call it or not. So they saw wealth coming, what they call the free gift of nature, which we would now call energy. And that's quite accurate. But Smith came along and looking at that, the way the Physiocrats looked at manufacturing, they saw manufacturing, it does not create a surplus. Manufacturing does not add, it just changes the form of things. And of course, Smith coming from industrializing Scotland couldn't handle that. Now, he could have said, oh, well, what we put into the blast furnaces is coal and that comes from the ground. And if he'd known that was, you know, they had no idea what coal was when it was first discovered, you know, stored solar energy. So it wasn't something that they could easily comprehend. So Smith simply said, labor, the division of labor is the source of all value. And then that was turned by Marx into an argument for socialism. So the neoclassical said, now it's labor and capital together that create value. And energy has just disappeared from the equation. Now, I've been part of a group of economists, non-economists, physicists, so people like Bob Ayers, who died just recently, but Bob was a close friend, was a physicist who tried to bring sensible biophysical concepts into economics and didn't quite manage to get there and was always rejected by the mainstream anyway. I worked out how to do that. And my little line on that front was to say, labor without energy is a corpse, capital without energy is a sculpture. So energy is needed to motivate both labor and capital so that they can produce output. Now, when you do that, you get an energy-based biophysical model of the economy, which takes seriously the fact that energy can run out, which takes seriously the fact that using energy creates waste. None of that exists in the neoclassicals. And they actually published papers in which they say that a 100% increase in energy would cause a 4 or 5% increase in GDP. And that's ridiculous. When you look at the data, and you can look at the data, it's just simply screamingly obvious. 100% increase in energy would be 100% increase in GDP. GDP fundamentally is energy transformed into useful work. None of that exists in their minds. And yet we're taking them seriously about climate change, which is fundamentally being caused by using fossil fuel energy. Yeah, there's a very strong correlation between GDP, which is the total production in a nation, basically, and energy use. If you're going to increase or decrease GDP, energy use is going to go up and down. I better qualify, that's at the global level. So if you look at individual countries, you can find huge divergences now. That's pretty much because of ship production off to the third world. At the aggregate global level, what they call gross world products and gross energy consumption, the correlation of those is ridiculous. So if you look at the change in energy and change in gross world product, one goes up, the other goes up, one goes down, the other goes down. The correlation coefficient for those who know those sorts of things is 0.86. Now that's so far from zero, it's ridiculous. But a neoclassical thing is 0.03 or 0.04. They don't even look at the data. That's what they're like. Look at the data, it's 0.86. They simply can't explain that, so they don't even look at the data. And of course, the main plan is to increase GDP back to the national level again, increase GDP by, say, 2% or 3% per annum. They think that's normal. That's exponential growth. Can you explain exponential growth to people? Yeah, it's actually percentages. If you understand percentages, you understand exponential growth, but most people don't. It's quite hard. The same thing applies to me. I have to use mathematical programs to actually manifest what it means. But an exponential rate of change says that the rate of change of something is, the simplest case, a constant times its current value. So if you have a bunch of tadpoles in a pond, and the rate of growth of tadpoles is 100%, and they're going to double every year, they're going to have two times in year two, four times in year three, eight times in year four, et cetera, et cetera. And if you keep that going on, you're going to have a number of tadpoles that will fill the earth. So exponential growth can't go on indefinitely, and it has to taper if you're living inside a contained system. And that awareness, even though they obsess about economic growth, they never think about the exponential consequences of that. And you'll find economic papers by people like Solow and Stiglitz and so on, saying that economic growth can continue without using resources. Now that, I'm going to use another French word, that's total bullshit. But again, they make this hypothesis, they don't look at the data. Yeah, no evidence for that. And this is the great danger that we're heading for a cliff and they're not looking at the data. In fact, they're making up their own numbers. This is what I've got heavily involved in recently with attacking their work on climate change. Because William Nordhaus- Your paper on that, William Nordhaus and others. Yeah. If you can summarize that in, say, two minutes. I'll give a, there's a paper I wrote called Loading the Dice Against Pensions, which is probably the most accessible version of that. So just search the word Loading the Dice Against Pensions. Nordhaus assumed that you could divide the industry into three categories, severely exposed to climate change, moderately exposed, and negligibly exposed. He put 87% in the negligibly exposed industry, all of manufacturing, all of wholesale and retail services, all of the government sector, all of finance, and even mining, which is hilarious. Okay. Now somebody pointed out to the moron, and pardon me, but I think he is a moron. Nobel Prize winner, of course. We'd better tell people that. And he has had a big influence on the IPCC, him and his cohort. Huge, huge. Yeah. So that 87%, somebody points out, there's open cut mining, William. So the next paper said underground mining and reduced the number from 87% to 85%. He's still basically confusing climate change with the weather. If you're exposed to the weather, you're exposed to climate. If you're not exposed to the weather, you're not exposed to climate. That's how simplistic the work is. They've come up with a couple more superficially sophisticated ways of trying to estimate what's government going to do. But the end result is they think that global warming will reduce future GDP by X percent compared to what it would have been in the absence of global warming. When you work out what that X is in terms of rate of economic growth, most of their predictions are that the impact of up to seven degrees of global warming over the next two centuries will be to reduce the rate of economic growth by 0.02%. Now that's one fifth of the accuracy with which we currently measure change in GDP. So it's saying it's trivial. And that unfortunately, the IPCC has reproduced that nonsense within the economic chapters. Of course, the real scientists are having extreme warnings and say it's quite unlikely humanity can survive a five degree increase in temperature. And the economists are saying four degrees will reduce GDP by between 10 and 23% in 2100. And that's what the politicians read. That's why we've done so little about climate change. And reality is about to prove them spectacularly wrong now. And unfortunately, that's my biggest fear. That's going to make the financial crisis look like a picnic, because the financial crisis didn't cause people to starve to death or die because of heat exhaustion from wet bulb temperatures. This is going to cause awful amount of catastrophes. And the people who can blame us for it really aren't necessarily even the fossil fuel companies. It's the economists who've given them the ammunition to fight action on climate change. I see them as most responsible. Yeah. And with those IPCC reports, which are voluminous, most people would only look at the summary for policymakers. And that's where these mainstream economists have a big influence on what's printed and what's not printed in the summary for policymakers. Yeah. There's a political process into studying what goes into summaries as well. But I'll give people a chapter and verse. Working group two, chapter 16, page 65, you'll find the economists saying that four degrees of warming by 2100 will reduce global GDP by 10 to 23% compared to what it would have been in the absence of climate change. Now, GDP in 80 years from now of being 10 to 23% lower is about a 0.2 or 0.3% fall in the annual rate of economic growth. And that's what politicians think we're actually facing. Instead, if you read the climate scientists, they say one and a half is dangerous, which have already reached one and a half. Three is catastrophic and five is existential. Yeah. There's a massive miscommunication there between the economists and the scientists. But we've only got five minutes left, Steve. I want to get on to the ALP's response to the housing crisis in Australia. In particular, this idea where they've set up a fund, an investment fund. I think they've thrown $5 billion into it. And the proceeds of that fund is going to, in turn, pay for a few houses that they're going to build. Does the Australian government need any investment funds because they're short of money? No. This is the other nonsense. The modern monetary theory has become the only non-mainstream theory that's broken to under the media in general. The government creates money when it spends. If the government spends more than it takes back in taxation, it creates money. And it finances its operations not by borrowing, but by creating money. When they sell bonds, they're giving banks the opportunity to convert reserves into bonds. And you get a higher income earning asset, which you can trade, which is what the banks do in the bond market. So it's got nothing to do with financing government spending. They don't borrow. In fact, when they pay interest on that debt, they provide more income for the finance sector. So it's completely wrong-headed. Again, mainstream economists are responsible for us not understanding this. What the government should be doing, one of the obvious needs Australia has is more housing. It should be building it and building costs with local. The whole thing, you want to make sure that's made with local products rather than you don't want to have a balance of trade dilemma coming your way. People like Julie Collins is the housing minister. She's completely wrong when she thinks the government's short of money, when actually what they're short of is suitable land for housing. They're short of timber, sustainably sourced. They're short of concrete, steel, all the other things that go into houses. What economists call real resources, that's always going to be the shortage, particularly as time goes on, never about the money. And yet the solution is, well, we're short of money. We better get an investment fund and hope that the money will flow. And of course, the real resources, which is what you need, including the land, will magically appear as long as we've got the money. You couldn't be more wrong, Steve. It's arse about tit. Absolutely. It's arse about tit. And this is the whole of neoclassical theories, which is like that. They get you to focus on things that aren't a problem, make them into one, and that are a problem, they ignore. And so, my argument back when I was talking about housing, that the government should use its money-creating capacity to cancel private debt, because a huge part of Australia's and global economic problems is far too much private debt. Most of what's being spent driving up house prices, it hasn't actually created real resources. We need to get rid of that overburden of private debt. And then, as you say, devote resources, both private and public, to building houses, and just make sure it doesn't cause a balance of trade blowout. And the government create their money via the central bank, which is a part of the government. And you could explain precisely those monetary operations, how the treasury tells the central bank to credit certain bank accounts, and the central bank does, and the money's created instantly. But we haven't got time for that. We could perhaps do a separate show, Steve, on those precise. And then we'll get to talk about your Minsky software, which I think details how the various balance sheets throughout the accounts, double entry, bookkeeping, all those balance sheets, public and private, cancel each other out. And there's no magic involved in it at all. It's just good accounting. Okay, Steve Keen, we're going to have to leave it there. Thank you so much. Stephen, thanks for that fabulous question. You've obviously researched my work quite a bit, so I really appreciate that. Okay, Steve, that's it. Thanks so much. Can you tell your mate, Nate Hagans, who I do like him on the whole, can you tell him to get someone on his show who actually knows what MMT is? Because it's so frustrating, because he is good, Nate Hagans. He is good, yeah. Clueless on MMT. I mean, get an expert on. Yeah, I'm the expert. I would say Stephanie Kelton is a good friend. You've been on the heaps. Yeah, pop in an email and I can forward it to Nate and say, look, you need an expert there. Get myself or Stephanie and we can do some serious stuff. Yeah, and he'd be doing himself a huge favor because he's confused. I didn't realize he was shitty on that front. I haven't actually checked. Yeah, I'll send you an email. Okay, we've got to go. Thanks so much, and we'll be in touch. Definitely, Steve. Look forward to doing it again with you. Bye. Okay, bye.
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