...against fictions and other tall tales

Saturday, 16 February 2013

Steve Keen on interest and capitalism's main dilemma

A few fine words from Steve Keen:
Interviewer: On a broader topic, is interest a kind of rent in the classical sense? Is it income without a cost of production?  
Steve Keen: Absolutely. This is why...I see the main dilemma in capitalism as being the conflict between financial capital and industrial capital. Industrial capital is ultimately productive. And if you look at workers and capitalists, they both ultimately benefit out of the technological developments over time and demands over wages. If unemployment is not gigantic, they benefit out of the improvements in current technology and out of productivity at the time as well. The real albatross around the neck of capitalism is financial capital [inaudible] when you let it get beyond the level necessary to simply finance working capital in some new investment. And it’s what happens every time capitalists take over...
...The thing I think we’re both in agreement on is we have to stop people, and particularly social classes, becoming dependent upon unearned income. Ultimately the only way to get a functioning capitalist society—or a society in general—is to have one where the source of income is earned, not unearned. And when you look at land speculation, or you look at any other form of speculation, people are trying to get income without earning it. That’s the real dilemma in capitalism. And if we direct ourselves toward that particular principle then we’re both on the same side. (Renegade Economists, April 21, 2010, at 13:30)
There's lots of good insight here. A fine glimpse of "Keensian" economics.  And I totally agree with the general point of the last sentence: "...then we're both on the same side". There's plenty of commonalities out there. We just need to focus on these.

PS: I'm entering a busy period at work. Posting will be limited and mainly consist of short thoughts on and snippets from economists I find interesting.


  1. Nice 'snippet'. I especially like your concluding comment: There's lots of good insight here. A fine glimpse of "Keensian" economics. And I totally agree with the general point of the last sentence: "...then we're both on the same side". There's plenty of commonalities out there. We just need to focus on these.

    The problem is that economists forget that pragmatism is not just trying anything to entice policy, but like most things in life, think through the data so that the ensuing policy is feasible. You can only suffer so much trial and error until the public gives up on you.

    There is a lot of common ground and the brilliant economist will size up the particular and integrate it into a larger economic framework. What's also encouraging is that more economists are starting to realize that economics is really about making political economies work. Here circuit, you've done a great job by soliciting policy that can be fruitful and appeal to public sensitivities.

    Some of the better progressive thinkers stall creatively by adhering vehemently to a political platform. This type of intellectual restriction or compartementalization is not conducive to effective policy formation. I think Keen, excellent in his passion for the field, exemplifies the danger of 'inappropriate loyalty'. Sometimes you have to change your mind as the older book says when the facts don't conform. Good find!

    1. It's very true that there's some good in everything.

      On an another note, why then is policy so unfruitful if government insists on being pragmatic.

    2. I apologize for the delay KP. The essential purpose of policy is to accommodate the public's need without endangering the future of the polity. For many, the public good is synonymous to the historically thicker concept- which I refrain from using: the common good. It's essential to caution on the ideological connotations that the term common good generates. But to some extent, Governments spend and depend on good sources of information to execute policy in regard to the common good, and that information is based on relevant data. Not all data is pertinent to the need at hand-a truism that is often neglected. Data generated is dependent on the assumptions of the data-gatherers and the specific models they have developed. One of the brilliant minds of our century Harold Wilensky cautions that complex systems, especially multivariate national sectoral economies, require a high degree of OI to function and evolve properly-the latter attribute is also thick and value-laden. Organizational Intelligence in the case of governments spreads throughout the knowledge system, and nowadays is global in scope and range. As a result it seems to me that it can neither be subsumed nor integrated effectively into any decision-making resource-including the better models. In such a case, pragmatism, on the part of government reps and agents, requires a humble disposition to attend to a large degree of uncertainty while aspiring and attempting to ensure elements of rationality and consistency in public policy both ingredients which I consider intrinsic to sound policy. Obviously, no policy can please everyone, and not every legislator is prone to biding time for The Answer. The pragmatic policymaker must then adhere to his common sense: does it feel good, does it sound good, does it look good, does it taste good and most of all, and most primitive of all does it smell good. If the policymaker considers good as too normative-then replace it by right. It sounds better, and when written looks better. Policy is no simple decision. The world of public policy is inspiring, awesome and most difficult. Think of the personal/political dilemmas faced by Pres. Johnson and Chairs Volcker and Bernanke Feds to appreciate its complexity. So the failure of pragmatism within government is usually a result of ambitious assumptions by policy-makers and their resources on 'what' constitutes 'public acceptance' of results and outcome. For good policy there is no answer to a problem; there is hopefully only an improvement to a problematic situation-a degree of sensible betterment.

    3. GC, as usual, this is an awesome comment! I appreciate your insight into these issues. I'm especially pleased with the following: "For good policy there is no answer to a problem; there is hopefully only an improvement to a problematic situation-a degree of sensible betterment". This is so true. One of the challenges I find today is that in an environment of 24/7 news coverage, leaders are forced to think of policy responses and strategies (solutions) in terms of their effectiveness to address media concerns (*the* key problem of elected leaders) instead of their effectiveness in improving the lives of citizens (I'm probably overstating the influence of the media somewhat but right wing talk radio seems be setting the agenda these days). I am, however, optimistic. I detected lots of pragmatism in Pres. Obama's State of the Union address. I liked the part where the President said the US would have to learn to live with some "red ink". That was encouraging to hear.
      Also, here is a good excerpt from Harold Wilensky's Organizational Intelligence, 1967:

      "To read the history of modern intelligence failures is to get the nagging feeling that men at the top are often out of touch, that good intelligence is difficult to come by and enormously difficult to listen to; that big decisions are very delicate but not necessarily deliberative; that sustained good judgement is rare. Bemoaning the decline of meaningful action, T.S. Eliot once spoke of a world that ends 'not with a bang but a whimper'. What we have to fear is that the bang will come, preceded by the contemporary equivalent of the whimper - a faint rustle of paper as some self-convinced chief of state, reviewing a secret memo full of comfortable rationalizations just repeated at the final conference, fails to muster the necessary intelligence and wit and miscalculates the power and intent of his adversaries."

      No doubt a faint rustle of paper was heard when the austerians went over the case for fiscal retrenchment a few years ago.

  2. That's a great comment, GC. Talk about plenty of good insight! Yes, I think it's important to point out as you do that policy requires us to "we think through the data", as you wrote. Your comment also reminds me about how in public policy, theory should be deduced from practice. This contrasts with the popular scientific hypothesis-testing approach in which social and economic phenomenon are studied primarily in order to test a theoretical framework. The so-called empirical-inductive approach forces us to keep our 'eye on the ball' -- the data! The approach also tends to reduce the risk of misinterpreting the data as a result of focusing too much on a specific theory. This tends to be my preferred way of looking at policy -- my analyses on the Canadian economy tend to fit that broad perspective.

    As for your point on intellectual restriction, this is where the problem is, I'm afraid. As KP writes, there's some good in everything. But I think things are changing. I recently heard Paul Krugman talk about how his views have changed. This is good to hear. By the way, his columns and blog posts have been really great recently. His take on the minimum wage was excellent!

    @KP: One problem I've noticed is that governments aren't always pragmatic when it comes to significant and visible (from a media standpoint). Take for instance, Canada's current federal politicians and their attack on statistics. Canada's statistical agency is one of the best (if not the best) such agencies in the world and somehow, Canadian leaders want it to do things differently -- all that at the risk of losing lots of useful data. It's mind-boggling to me why they're doing this...Also, I'm very skeptical of the view that claims austerity measures were somehow justified given the evidence that existed at the time. I continue to think that austerity (as policy) was more ideologically driven then anything else.

    1. Circuit! The situation at StatsCan is very unfortunate, especially when one considers its reputation within the global community.

    2. Nicely put Circuit!
      I like to emphasize that the easiest thing for economists to prescribe to a central banker or Treasury is a belabored solution-in other words a policy proposal that skirts the empirical and appeases the theoretical. A good example is Greenspan's reluctance to directly .eyeball. full employment as a policy framework because he felt that the latter could unlock inflationary pressures. Well, there was and is absolutely no empirical evidence for his caution, and most serious studies conclude(d) quite the contrary to Greenspan's posture. So where and when does that cautionary tale unfold. It leads to less than optimal monetary policy. It unfolds into unproductive economic output, staggered growth and tremendous lags in innovation and research vis-a-vis one's competitive potential. It unfolds into decades of slow mitigated economic growth, the worst of which is the last 2007-201x period: hopefully it won't be a decade.

      As far as the nonsense that some Congressmen, political pundits and media zealots elicit concerning 'compromising' our grandchildren and future generations by engaging in deficit spending, which they should recall is public spending because it is the public's finance-a similar cautionary tale as Greenspan's unfolds.

      It is this type of ignorance and drowsiness of sound economic thought that paralyze our economic options that has historically led the uninformed to admonishing good minds as in the case of M. Stod Eccles who suffered the slight of a member of Congress. In passing, both Republicans B&C should remember that the Fed Reserve is housed in the Eccles Building. I have never heard a tainted whisper of someone wishing to change the name!

      They should have consulted your recalls on Vickrey, Domar, read the recent Krugman, and multitudes of others including the IMF's Blanchard-to his great merit, and of course James Tobin.

      Hopefully the 'fiscal cliff' and the 'sequester' will not turn into further examples of cautionary tales.

    3. Again GC, I sense a certain pessimism in your comment:
      "It unfolds into decades of slow mitigated economic growth, the worst of which is the last 2007-201x period: hopefully it won't be a decade." Why do you suggest that the situation we are in could extend so far out.

      A second point that's perplexing is that if the solution is so evident, why aren't more policymakers advocating deficit spending?

    4. KP -- good questions but I have no problems believing the situation could extend for the remainder of the decade. One thing we know is that balance sheet recessions and the slow growth that follows take longer to recover. But another reason is actually tied to your second question.

      In fact, it's important to point out that some policymakers *are* advocating deficit spending (although in somewhat coded language). One example is Ben Bernanke. So, I think what GC is getting at is that the Congress is currently filled with people who have a faulty understanding of the way economies work. As GC wrote, it's the "drowsiness of sound economic thought that paralyzes out economic options".

      On the other hand, I'm very happy to hear that Eccles is still regarded with much respect. BTW, MMTers view him as a hero. This is encouraging in itself!

    5. I always forget that Ben Bernanke is among the most important policymakers in the world. You are absolutely correct that he does not waver from promoting deficit spending, although he does hesitate from telling us when we'll be out of this recession. Anyways your decade-long horizon is frightening to consider and hopefully the good news out of the US on unemployment will inspire more corporate initiative in hiring rather then terminating workers.

      On the other hand, having FRB around for another decade is a very pleasant thought.