VIDEO: Steve Keen criticises naïve austerity economics

Economist Steve Keen explains why austerity policies are naïve

In an exclusive interview with Every Investor, Professor Steve Keen from Kingston University has warned that politicians who promote austerity economics are naïve.

The economist, who was one of the few who predicted the Great Recession, warned last year that the US and UK economies wouldn’t make a sustainable recovery due to the problem of high levels of private debt – public debt being more a symptom than a cause of this economic malaise.

In this interview he gives a detailed explanation as to why the austerity-heavy economic policy of the Conservatives (and the Liberal Democrats), and the austerity-lite version from Lab is naïve and will lead not to economic growth but to economic stagnation.

Indeed, while not endorsing any political party, he does acknowledge that the economic policies of the SNP and Greens make more sense.

This is a video that needs to be watched. It will give you insights that most professional economists appear to lack. (Hence, their evident surprise at news that the UK and US are slowing down).

It should also encourage investors to be in ‘risk-off’ mode, which seems very sensible given likely market volatility that will follow the election and the grave economic news that we can expect this year.


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About Author

Christopher Menon

Every Investor Editor Chris Menon is a financial journalist who has written regularly for national newspapers, magazines and websites about personal finance, with particular emphasis on investing.

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  • casandra

    What about the huge corporations “sucking” billions from sales and hording them ?
    Money has to circulate as Steven said and it does not then the whole thing slows down or have to print more money = inflation? deflation?

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  • Anthony Harms

    No argument which is so saturated by contempt for his opponents can be convincing.You need to engage with your opponents aguments, not just castigate them.

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  • sacicr

    Steve Keen is a deficit owl. There are others watch Steve Hail and read Bill Mitchells billy blog.

    These economists are the best. Also Warren Mosler and Jamie Galbraith

    • Stephen Ferguson

      Absolutely agree. Hail is spot on appealing to the Greens as they more than any party should understand that its the real world that matters, not numbers on a spreadsheet.

      Unfortunately the Greens have, stupidly, chosen to ignore him and stick with the false – and politically self-defeating – ‘government is like a household’ paradigm.

      Thats in Australia, as for UK Greens they are just as clueless, whilst at same time wasting intellectual capital by backing the Positive Money banking reform dead end.

      PS Better copy of that video can be found here…

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  • Every Investor

    Well, now we count prostitution and drug dealing in the GDP figures so it is a flawed measure.

  • Simon Franke

    How can a society become wealthier if the government takes $100 out of the hands of the people to buy a hammer for instance? It shows up in GDP but please explain how that creates wealth?

    • Duncan_McFarlane

      I’m sure there are flaws in GDP as a measure of wealth, but there is no doubt that government spending can increase standards of living. Would the economy grow faster if we had no government, no welfare state, no police, no courts, no public spending whatsoever? In reality no business except mafia run ones could operate at all without police and courts. If people who are unemployed or disabled have less money than they would spend on basic essentials each month, how is that going to help sales of private sector goods and services? It’s not – the lower welfare payments are the lower the demand for private sector goods and services will be, so the lower their profits and the number of people they employ and the tax revenues the government receives from them will be.

      Government can also spend on providing effective regulation which stops markets collapsing due to fraud and unrealistic beliefs in infinitely increasing profits of the kind that caused the banking crisis, which caused the subsequent recession, both of which made most people and the government much worse off. Deregulation in the US over decades removed the Glass-Steagall Act and other regulations from Nixon to Clinton. In the UK the process really kicked up a gear from Thatcher’s 1986 ‘Big Bang’ deregulation of the city of London and was never reversed by governments of either main party either. This allowed the banks to create almost fraudulent ‘financial products’ such as ‘Collateralised Debt Obligations’ (thousands of debts each unlikely to ever be repaid, packaged together so no one could check each ones individual creditworthiness). The private Credit Ratings Agencies assessed and guaranteed the value of each. Then when enough people realised they were actually worthless and that hundreds of billions of dollars or pounds worth of these “assets” were actually worth nothing, the banking crisis happened.

      Canada and Norway, which had both regulated their banks properly, suffered no such crisis and no recession – only seeing their economies slow down by much less and much later due to their main trading partners like the UK and US having suffered recessions due to banking crises.

      So spending a bit more on regulation could have saved the entire costs of the banking crises and bail outs and the subsequent recessions.

      A public education system provides employers with an educated workforce.

      Public spending on providing health services is by far the cheapest and most efficient way to provide them – the NHS beats the US system hands down in efficiency and costs. And healthier people means

      And every person employed in the public sector is spending their wages on private sector goods and services too.

      Government can provide good ideas for scientific research, or good business ideas, with low interest loans which banks and private investors refuse to give them – as banks and private investors want to make safe investments that give rapid returns. And for instance private Pharmaceutical companies are failing to invest in developing new antibiotics because there isn’t enough profit or on a short enough timescale for them. That could lead to epidemics of antibiotic resistance diseases which would cost not only money but large numbers of lives.

      So the public and private sector each benefit from the other. Spending on one is not automatically detrimental to the other.

  • Simon Franke

    More GDP centric BS. For instance we would all be better off if total debt decreased by 70% and GDP decreased by 50%. Do the math.

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  • Ryan Brown

    Very insightful look in to the state of the current economy.