Steve Keen, Economist HARDtalk

Now on BBC News, it is time for HARDtalk.

Welcome to HARDtalk, I'm Stephen Sackur.

Good to be an economist who swims against the tide of conventional

wisdom -- it is a good time to be an economist.

After all, the last decade has seen classical economics take a beating.

The great financial crash was not supposed to happen,

nor was prolonged eurozone stagnation.

Now, the liberal economic consensus is that Brexit will be a disaster,

We shouldn't, according to my guest, the acclaimed Economist Steve Keen.

Amidst all the arguments, do any economists deserve our trust?

Delighted to be here again. You describe yourself as an anti-

economist. Does that mean that you just listen to what all of the sort

of bastions of economic collective wisdom say, from the US Fed to the

UK Treasury, to the IMF, and you just think I will say exactly the

opposite? That wouldn't be a bad strategy, but no. There has been on

alternative strand in economics throughout its history, going right

back to the days before we even had what we call economics, back in the

days of William Petty and so on. And I have been part of the contrarian

tradition which can properly date back to about 1810. All right,

things have changed a little bit since 1810. Yes. The orthodoxy has

changed somewhat. It has changed radically, it has switched around,

the orthodoxy really began in the 1970s, but that has been towards

capitalism which tends towards equilibrium. It wasn't because the

people who believe the stuff believed it, I'm talking about

Marshall and so are back in those days. It wasn't possible to analyse

the economy unless you assumed it was an equilibrium. So what was

technical, became conventional wisdom on the 20 century.

Capitalism, whatever else it might have is a strength, equilibrium is

not one of them. But are you a capitalist? In a fundamental sense I

am. I'm a great fan of entrepreneurs and innovators, I think capitalism

is the second-best social system in for bringing about innovation. The

first was back in Cro-Magnon days, by the way. So it is dramatically

better than feudalism, certainly better than straight socialism, and

I think that is inherent. It is not just because of Stalin, capitalism

does give you more innovation but it also gives you financial bubbles and

Ponzi schemes. Right, and I want to get to the nitty-gritty of where you

see the particular problems and where you might see things like

Ponzi schemes developing again. But before we get there, just one more

question about your mindset. Because it does seem to be quite important

to establish how you think. You call yourself a contrarian, and they come

back to this idea that there is something knee-jerk and very

creditable about being a contrarian, because the whole idea is that you

take what the consensus is, right now the consensus, going back to the

beginning of my first question, the consensus is Lily around a form of

liberal economics that perhaps the IMF epitomises. Your knee-jerk

reaction is simply to think always that they are wrong. No, I can

analyse what they say and work out whether they are right or wrong.

They can be right eye accident, so in many ways the most commercial

economists are in favour of governments running Budget deficits,

for example, which is not what you see coming out of the political

class, so I find myself signing petitions that Paul Krugman might

also have his name on. It is a question of analysis, how do you

think about capitalism? What questions you ask yourself about the

social system, that directs what information you look forward to try

understand why it operates? They ask a question, can disaggregated,

system of economy produced results? My question is, what caused the

great depression and can we avoid having another one? I think that is

a better question. Right, well, it is a very big question. And I don't

want to ignore it and I want to start with something very specific

and then sort of actually get to the bigger picture. And the specific

thing I want to get to, because you have made quite a lot of noise about

it and you have swum against the tide in doing so, is Brexit. Why do

you believe, again, the collective wisdom from all the organisations

are mentioned, the UK government itself, the astute of fiscal studies

and elsewhere as well, they all say that the Brexit decision is going to

have a material and damaging effect on the UK economy. How can you be so

sure they're wrong? Well, I'm not. Actually, my reason for voting for

Brexit was not because I thought it was going to be better for the

British economy than remain. There are good arguments that they will be

a certain amount of damage to the economy from leaving, an

institutional structure like the European Union. My main reason for

voting for Brexit, I suppose it is the Groucho Marx question. I think

it is not only an ineffective club at a dangerous club for the health

of Europe. It is going to fall apart at some stage, it might as well

start by a polite exit by the English rather than a rude one by

the French. For a start we should set the British, not English. Sorry

about that. That's OK. I am still learning. But the point is we look

at the impact of Brexit, and all the surveys show it, from business

confidence to investment decisions, we see already that the impact of

uncertainty is quite profound. And that all of the growth forecast for

the future have been downsized. Britain is going to suffer as a

result. It is having some pain. I mean, some of that pain is

necessary. A large part of it is to unwind a housing bubble you've got

here, which is as is as bad as the one I come from back in Sydney.

There are elements like that that have to happen. At in terms of the

current impact it is all upon uncertainty. Now, we were trying to

say we are at certain before Brexit and uncertain after? It is the age

of uncertainty on that. Well, there are certain certainties that we

lived with and actually the British economy benefited from, one was the

single market. It meant tariff free trade right across Europe. And that

is hugely important because if we could negotiate the same deal the

Americans have we go from having no tariffs whatsoever... And that is

the nature of the uncertainty. You have said very confidently that I am

sure if we go into a third-party deal with the European Union, I'm

sure we are going to get a great tariff agreement with them and with

the rest of the world as well. It comes back to the credibility of

economist. Because tariff wars used to be a big issue in the 50s and 60s

and one thing my anti- profession has done is demolished tariff walls

around the world. Tariffs used to average about 30%, you know what the

average tariff is between Europe and the -- America and the European

Union? 3%. One of the most important experts from the UK says it leaves

10% on the price of cars, that is a really big deal. And our currency

has fallen by 15 or 20%. There are ups and downs in both of these

processors, and a large part of what has happened to England in the last

30 or so years, certainly in comparison to Germany, is the

deindustrialisation of the country. Now, partly that is because you have

had an overvalued exchange rate, in my opinion. That exchange rate

plunged after Brexit and is likely to remain low. So yes, you are going

to face a tariff on cars of maybe around 10% but you are looking at a

general reduction in your export prices of 20%. So there are swings

and roundabouts here which are taken into consideration by the

mainstream. Look at the way the British economy works. A very

significant chunk of the national GDP comes from the city of London

from the financial sector, banking, insurance and all that goes with it.

There are significant institutions like Deutsche bank, who are already

saying they are on the mentally reviewing their investment

commitment, strategic commitment to the UK, because of the Brexit

decision. Financial services are going to take a real hit. Not as big

as people make out it was the main reason the financial sector is

located here is number one the language you and I are both using,

English, is the language of international trade. It won't become

German or French or Italian or anything else in the meantime also,

most contract negotiated in English law. That is major strength of

financial sector gets out of locating here that it won't get in

Frankfurt. They will talk about it, they are good at talking up how

deadly, the world is going to end if they leave the country tomorrow. The

financial sector is very good at causing a panic but in fact making a

final action in deciding to move all their facilities from here to

Frankfurt, I can't see it happening. I can see them changing their

waiting. And they have to take seriously the words that come out of

Paris, for example, or the words that come out of the mouth of the

German Finance Minister. These are people in Europe who are saying,

look, apart from anything else, to ensure the stabilisation of the rest

of the European Union, to ensure we stay together, we have two sent a

very clear message about Britain, that if you leave you suffer the

consequences. And look what they have done to Greece and Spain. That

is not the behaviour of a democratic system. That is autocratic

behaviour. You can call it what you like. You are not a politician, you

are an economist. I am not going to be an economic Chamberlain. What do

you mean? I am not going to say we have to stay there for the sake of

peace in our time and lock ourselves into a policy system which exactly

causing the collapse of Europe. That is what the European Union and in

particular the euro is doing. The sooner the euro is ended, the better

for the state of the global and the painful it will be in transition,

the better it will be for the countries of Europe. Just a final

point and then we will move on. One of your best friends in the world of

economic thinking is the former Greek Finance Minister. I have had

in the studio, and he said you know what, clearly I have a lot of

problems with the European Union but I still think fundamentally it would

be the wrong and a dangerous decision for the UK to leave the

European Union. That is where Yanis and I differ, on a political front,

not economic. Yanis is trying to find ways that currently

dysfunctional systems can be made to work. That is what he tried to do

with what he called his modest proposal for reforming the euro

which it had had a thin taken on board would have been far better for

Greece and most of Europe and what was actually done. I just don't

think you can pay Wolfgang Schauble to think outside the liberal

framework he is in sight. It is like telling somebody to reform a

marriage from inside, don't leave your husband, persuade him not to

bash you any more. I'm sorry, from what you're even saying here is they

will bash is more of we try to leave, so let's not leave. That is a

very failed strategy for the long-term if you are going to

continue getting bashed as a result of staying where you are. And your

analysis of the European Union and in particular the eurozone are

absolutely doomed, no question in your mind? IMac I believe so, going

back to another classic contrarian English economist who wrote in 1992

that given the way the euro has been defined, the only outcome is to be

immigration as an alternative to starvation or death. Now, he wrote

that in 1982, when the ink was still drying on Maastricht Treaty. And

people saw him as ludicrous. I had to be carrying on from his work in

saying we should never have joined, the euro should never have been

created, let's be created. Funnily enough, while you predict a meltdown

for the European Union, that isn't the real driver of your conviction

that there is going to be before too long another financial crisis across

the world. I mean, that is driven less by a particular political event

like the breakup of the European Union, for you. It is driven much

more by your analysis that the world is still drowning in debt. Private

debt, that's right. Yes. And that is what is ignored by the mainstream,

which is why I am an anti- economist. They fundamentally ignore

private debt and say government debt the problem. My argument, which

comes from Hyman Minsky's work and Fisher before him, is that private

debt causes demand in the economy, but there is a tendency in

capitalism for the debt level to rise over time to the point where

you have so much debt that you can't serve service at any more and you

have a crisis like we are going through. You say you can't service

at any more but it is quite easy to service because interest rates are

lower than they have been before, in some countries they are pretty much

negative, and governments are making the money supply more easy to get

your hands on than ever before. Actually, they are pumping up the

money and banking systems own internal circulation, not in our

actual pockets. Well, it has a knock-on effect, that is the

argument. No, it doesn't. Nothing like it, this is a bad argument.

Printing money as they do, it reaches the real economy. And they

are wrong, they are convinced by them and the Bank of England is now

saying that in its own research papers, if you go back to the thing

about money creation in the modern economy, they said boosting reserves

does not create extra money in the private monetary system, so it is

not a successful policy. Well, you are absolutely convinced they are

wrong, but let's be honest. You have been wrong as well. I was going to

say this session, that is rude, it is a preoccupation you have private

debt in the levels of private debt around the world. You have had it

for sometime. I mean, you had it in your home country, Australia, he

said back in 2010 Australia's body market heading to make heading for a

crash, he said prices were going to fall by up to 40% and because of the

degree to which Australians are leveraged into the property market

it is going to kill the Australian economy. You are dead wrong.

Australia hasn't had a recession for, what, 25 years.

We have borrowed an additional 50% of GDP than it had in 2008. And I

would say so what because the economy is growing at 3% growth,

inflation of 1%, Australians are quite happy. And so were Americans

in 2007 until July. These things come to a crunch and it isn't... You

said that six years ago. And they borrowed their way out of it. You

said, I am going to walk from Canberra to Australia's highest

mountain 225 kilometres if I am wrong on this issue. You were dead

wrong and you have to put your walking boots on. Take the expiry of

that bet as 2023. You have done the walk already. To shut up the

property lobby. It worked very effectively. They felt you were

saying the crash was coming and that is why you felt... When you say

property will fall over the lobby goes over you like a mad dog. I went

in as an academic expecting to have academic debates and they can be

nasty, but the property lobby to fight anyone who goes against their

mantra is to attack on any grounds. You told me you would never at ease,

you would never tailor your message... I didn't appease, I got

on the second page of the Sydney Morning Herald and rub their noses

in it. Let's talk China Vanke on the if we are going around Steve Keen's

predictions and the degree to which they are not coming true, you for a

while have said the Chinese economy is heading for a massive fall. Right

now it is growing at a steady 7%. Do you know what unemployment is? No

one knows. Exactly, 4.5%. It has been for seven years. The statistics

that matter are talking about a crunch and the government response

is to try to pump up the economy. They can manage to do that because

they have such an amalgam of a private and state system, they can

flit from private to government funding very easily, but they still

have massively over in vested and they are suffering a dramatic

decline in demand in many sectors of the economy and they can't sustain

the same amount of growth. What is for you an acceptable level of

privately held debt, individual and business held debt, in a sustainable

economy - what level can it be? 60- 80% of GDP. 60% - 80%? Most

countries are well over 100%. Exactly. They are not collapsing.

You are Mr doom and gloom but things are not as bad around the world

generally as you suggest. What has happened, and the reason they are

not so bad is because country outside Europe are doing government

spending despite running a surplus, and it is good they are doing our

spending. What has happened is credit demand has collapsed. If you

look at the rate of growth, that is running at 15% of GDP on average

before the crisis in the US, now it is 3% on average. There has been a

collapse in demand and that is why we have stagnation around the globe.

We are all getting ourselves in that situation. Australia and China are

approaching it now. Funnily enough your list of the countries we should

expect the crisis to beginning, including China and Australia as

number one and two, then other countries many would find

surprising, sweet and you say, South Korea, Canada and perhaps most

bizarre of all Norway. One of the richest countries in the world with

a massive sovereign wealth fund and oil reserves and gas reserves to die

for. I know. What I am going on is the level of debt they have

accumulated, how faster debt is growing, and the trend in the credit

which is negative in most countries. The interesting one is South Korea

which I did not expect to see. South Korea has had a housing bubble. And

the housing bubble has got it over the collapse Internet it is getting

for its exports to China right now. How long until this catastrophe

strikes? It won't be a catastrophe on the scale of the American one,

because it is more diversified. If some of the seven went at the same

time... We are talking about countries which are equivalent of

about one third of the global GDP. They won't all go at the same time

but if they did it would be of the scale of the American downturn in

2008. Is that a possibility or are you enjoying the popularity of

saying this? I think it is a possibility and I put my neck out on

this, the book is coming out next year, so if I am wrong... Another

walk, you go up another mountain? I am going to do an English one, they

are as low as they go. Before we end, your prescription for what

works. You say quantitive easing... If we generalise, around the world,

central banks have essentially used quantitative easing to try and

stimulate their economies. You say that doesn't work, it doesn't

trickle down and filter through to real people making real spending

decisions. So what does work? People's quantitative easing, like

with Positive Money in England, rather than buying bonds from the

banks, which puts money in their reserve account that the central

bank, purchase debt or however you get hold of it... You have talked

about writing off debt. You say governments should go to his people

have spent too much money buying new TVs and whatever else and you say,

give them a pass and write off their debt? I am saying it goes to people

whether or not they are in doubt, because if you do people who go into

debt you are rewarding moral hazard, which is a good point. Imagine what

Wolfgang Schauble would say to you when you say to him, you know what,

we are going to give... Wolfgang Schauble doesn't understand money,

and mainstream economists in particular are still coming to grips

with... How do you say that to the man who has overseen the most

successful period in the German economy... (CROSSTALK). The euro has

given them a 90 cents trade surplus. They are caught are rising southern

Europe. -- 90%. Fewer litres and parasites, you mean? Their surface

went from 0% to 90 cents during the time of the euro, so without that

they would be in a different situation -- 9% you can't duplicate

it. OK, well, not everybody can. People have got to buy as well as

sell. That is why the balance for trade is zero. So you are saying we

don't write off people's private debt but we give money to everybody.

Is that what we call helicopter money? People in debt would have to

use it to pay down their debt and those not... You would force them?

You would go through bank accounts and put it into somebody's bank

account. If there is debt, it cancels the debt, and if there is

debt, it cancels. Balancing this, to stop the large increase in money

supply are occurring, you use that to boost domestic activity and

reduce debt. I am sorry, forgive me for sounding puzzled, but this works

for governments which are running massive public deficits and indeed

massive national debt as well? (CROSSTALK). Government still give

out money to everybody. The danger is the trade deficit, the most

important deficit to control. Government should run a deficit most

of the time. The mistake we make is believing government should run a

surplus or be balanced but governments have one of two ways of

creating money and the banks are the other way. If the government doesn't

create money we borrow from the banks and end up in the crisis we

are in now. You would have to admit that at the moment this idea of

helicopter money being the key to getting governments, well, not

governments but nations out of slow growth, it is somewhat

controversial. It would not be as successful if Milton Friedman didn't

invent the phrase 40 years ago, so I have to thank him for that. What I

am getting at now at the end of the interview is whether anyone should

take anything any economist says seriously? Good question and in my

book, Debunking Economic, if we all did that we would be in a better

place. You are cheeky in that you slag off all other economists and

say that the profession you are part of has been wrong for so long, that

is why you are in anti- economist, but you're still an economist in the

end. I am trying to get us to think in a modern complex systems wait,

catch up on what's happening genuine science, adopting the world as a

complex system, and thinking about things which are dynamic, out of

equilibrium and god sakes take money out of economic theory, which we do

not do. There is a serious problem about whether we can afford to

listen to experts any more. Good point. During the Brexit debate,

Michael Gove, senior Brexit politician from the Conservative

Party said, you know what, we been listening to experts for too long.

And in particular in economics, where, you know, it is nominally a

science but it is so much predicated on human behaviour. It seems that

forecasting the future is pretty much impossible. It is chicken

entrails stuff. It is not presented that well. . I know when you hop on

the plane you trust the engineers who know how to design something to

take off and land safely and you don't even need to think about it

because every time it works. Engineers are experts. Scientists

are experts, climate scientists are experts, economists unfortunately

without having the mantle have earned it. Whether they write a good

or bad theory there is a momentum to the economy. They have led us into a

bad alley which have led us into a bad decade. We need to reform

economics first. We can agree on that. And then look at how to reform

it and then it comes to the question of modelling the macroeconomy.

Economics can learn from other sciences that has been neglecting in

particular what I have called complex systems analysis which has

grown up in the last 40 years since a guy called Lorenz built the first

non- equilibrium complex model of the weather which we know what on

grand detail on TV every night for the weather report. -- now watch. It

has improved dramatically over the last five decades. Economics has

ignore what happened. They should borrow and apply that in the

structures of the economy. Interesting thought to end on. Steve

Keen, thank you very much for being on HARDtalk.