Why didn't economists predict the global financial crisis? Because they couldn't, but Dr. Steve Keen did. He won the Revere Award for most clearly and accurately predicting the global recession.
In the final of four segments, Dr. Keen discusses how almost all economists believe in a false model of economics called the neoclassical model. These economists believe they are the only economists, and that the neoclassical model is the only economic model, which is false. Other models, or schools of economics, include the behavior model, the Austrian school, the chartelists, the post-Keynesians (of which Dr. Keen is one).
Keen explains that economists (of the neoclassical persuasion) exist along a neoclassical axis from the strict neoclassicals and modified neoclassicals. This is akin to two thousand years ago when there were strict earth center of the universe philosophers (geocentric speakers) vs. those that attempted to explain the motions of the planets due to epicycles (the Ptolemic model). Just as the geocentric model of the universe was false, so too is the neoclassical model of economics, and for the same reasons: neither the geocentric model, nor the neoclassic model, can predict and explain certain observable events.
One very general but clear point that Keen makes in this part is that flipping houses is not a reasonable thing for people to do, because the economy, as currently structured, will always have housing bubbles, which will leave many with enormous debt burdens. Homes should not be purchased for speculation, and they should not be purchased for investment; they are places to live, and are thus consumption items.
Dr. Keen is author of the 2001 book Debunking Economics, and professor of economics at the University of Western Sydney in Australia.
Keen is interviewed by mathematician and speaker Aaron Wissner, founder and executive director of Local Future, a non-profit educational organization based in the the USA.
For more exclusive content with Dr. Keen, search the NewCulture YouTube channel for Keen:
This interview was recorded in high-definition in July 2012 at the Fields Institute for Research in Mathematical Sciences at the University of Toronto in Ontario, Canada.
Dr. Keen maintains an ongoing blog which documents his research into accurate economic understanding:
Dr. Keen discussed many concepts, and mentioned many individuals in the full interview.
Below is a list of terms and articles mentioned:
Tags: downturn, bubble, Savings and Loan Crisis, receivership, banks, economic depression, flip that house, derivatives, mortgages, asset prices, leverage, positive feedback loop, cycle, 1987, private debt, gross domestic product, public debt, mortgage debt, capitalist, property, leverage, housing bubble, Case-Shiller Home Price Indices, real terms, consumer price index, CPI, Japanese asset price bubble, stagnation, speculators, investment, innovation, debt, demand, change in debt, declining sales, Japanese economic stagnation, non-orthodox economist, John Cochrane, Robert Lucas, Thomas Sargent, John Prescott, model, geocentric model, Brad DeLong, Mark Talmer (?), behavioral economics, external shock, Nouriel Roubini, macroeconomic, Dean Baker, epicycles, competition, marginal cost, wages, Robert Solow, business cycle, Federal Reserve, Ben Bernanke, debt bubble, downturn, market economy, speculative bubble, flipping, intellectual framework, Post-Keynesian, put option, collar, speculation, chaotic distribution, variation, five sigma, fat tails, expectations, rational, prediction, irrational exhuberence, derivatives, hedge fund, leverage, feedback, housing bubble, subprime crisis, capitalism
* Hyman Philip Minsky -
* Charles Kindleberger - Manias, Panics and Crashes: A History of Financial Crisis
* Steve Keen - Debunking Economics (second edition, newly revised)
* John Maynard Keynes - General Theory of Employment (1937)
* John Maynard Keynes - The "Ex-Ante" Theory of the Rate of Interest (1937)
* Gerd Gigerenze - Rationality for Mortals: How People Cope with Uncertainty (Evolution and Cognition)