Mainstream economics: distraction
from inequality & breakdown
Steve Keen
www.debtdeflation.com/blogs
Distractions
• EMH: Debt does not affect value of firms
• NK Economics: Private debt only matters
when ZLB applies
• Distracted attention from greatest build-up of
private debt in human history (see Schularick
& Taylor)
M argin Debt and the Dow Jones Industrial Average
3
1500
2.5
Percent of GDP
2.25
2
1.75
1.5
Correlations:
Level to Level: 0.945;
Change to Change: 0.59
Acceleration to Change 0.4
1000
1.25
1
500
0.75
0.5
0.25
0
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
www.debtdeflation.com/blogs
2005
2010
0
2015
CPI-deflated DJIA (1915 = 100)
Margin Debt
DJIA
2.75
US Private Debt to GDP
320
MM Sha rpe
300
280
260
240
220
200
180
160
140
120
100
80
60
40
20
0
19501955196019651970197519801985199019952000200520102015
Percent of GDP
“Now it’s bad…”
“Debt is good”
www.debt deflat ion .com /blogs
T ot al
Househo ld
Business
Finance
30
12
25
11
20
10
15
9
10
Correlation -0.92
8
5
7
0
06
5
5
 10
 15
Debt Change
Unemployment
4
3
 20
2
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
www.debtdeflation.com/blogs
Percent of workforce
Percent of GDP p.a.
Change in Debt & Unemp loy ment
Minsky “Stability is Destabilizing”
• Structural extension Goodwin growth model
– Investment exceeds profit when profit rate high
– Banks lend to finance investment
• “Great Moderation” leads to “Great Depression”
• Workers pay for higher debt via lower wages share
– Rising inequality leads to economic collapse
Ignoring debt blindsides policy
• Employment, inflation & profit share give no
warning of crisis
• Debt dynamics must be included in macro
models
• Macroeconomics must be monetary…
Workers share and inflation in a strictly monetary M insky model
100
10
5
0
80
0
70
 5
60
 10
50
 15
40
 20
30
 25
20
 30
W orkers' share
Inflat ion Rat e (RHS)
10
0
0
10
20
 35
30
40
50
 40
60
P rofit Shar e of O ut p u t
7
6
5
Percent
4
3
2
1
0
0
 1
 2
 3
0
10
20
30
40
50
60
Rate of inflation p.a.
Workers' share of output
90