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Steve Keen
Kingston University London
IDEAeconomics
Minsky Open Source System Dynamic
s
www.debtdeflation.com/blogs
Employment
EmploymentRate
LabourProductivity
Population
Wages
WagesShare
Output Cant be disputedjust definitions
Can only dispute relevance
Debt
Neoclassicals dispute relevance of 3rd
DebtRatio
definition
Output
D
YR
d
in
debt
r d equal
N
S
&
KR Some
& S N
fundamental
nonlinearities
apply
r d
1
r d
d& S
N 1 r d d
v
v
v
KR
P ercent
of GofD G
P Dper
year
P ercent
Pemployed
P ercent
of population
100
66
80
64
90
60
62
80
40
60
70
20
58
60
0
56
54
50
20
00
0
50
50
50
100
100
100
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Stable
150
150
150
200
200
200
120
400
70
300
100
65
200
60
80
100
55
60
0
100
50
40
000
Unstable
20
20
20
40
40
40
60
60
60
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80
80
80
100
100
100
Objective of my
1995 JPKE
paper was to
model Minskys
Financial
Instability
Hypothesis
Original paper
written in
August 1992
Well before
Neoclassicals
discovered (and
misinterpreted)
the Great
Moderation
Wages
Instability at 4.6%
0.9
0.8
0.9
0.8
Employment
0.7
Crisis
Crisis
14
25
12
20
Percent
Percent
10
15
8
10
6
5
4
0
2
5
0
10
2
Inflation
Unemployment
Inflation
Unemployment
15
4
1920 19821922
1980
1984 19861924
1988 1990
19261992 1994
19281996 1998
1930 20001932
2002 2004
1934
2006 2008
1936
2010 2012
19382014 2016
1940
www.debtdeflation.com/blogs
Percent of GDP
140
160
Debt Ratio
Debt Change
Crisis
Crisis
80
80
70
70
130
150
60
60
120
140
50
50
110
130
40
40
100
120
30
30
90
110
20
20
80
100
10
10
70
90 0
00
60
80
10
10
50
20
70
20
1920
1926
19281996 1998
1930 2000 1932
1934
1936
19382014 2016
1940
1980 19821922
1984 19861924
1988 1990
1992 1994
2002 2004
2006 2008
2010 2012
www.debtdeflation.com/blogs
150
170
Employment rate ()
de v
0
S
Debt ratio (d)
v2
Profit share of output () se v N 0
S
Wages share directly
d
e
se
e
negatively related to debt
Relationship
ratio
persists in model dynamics
If model converges to good equilibrium, then inequality
stabilizes
If model diverges to bad equilibrium, then inequality
rises
Falling workers share offsets rising bankers share
equations)
s 1 t r t d t ; r s
v
r t if inflag
Inflation-adjusted
nominal
interest
t 0,rb inf
lag t ,rb rate
st
1
1
inf
t
determines
P
1 d
dt
Ifn r
Kr
1 d
waffects
inf t share
Inflation
fn wages
dt
Ifn r
s
debt
v affects
Ifn r growth
1 d
Inflation
d
Kr inf t
d dt
d
v
inf t
1
d
1
inflag t rate
reaction
1
to inflation
Lagged
interest
inflag t dt
inf
inflag t
MinskyPrivateOnlyBreakdown.mky
Falling workers
share
Capitalist are
the last ones
to know that
capitalism is
coming to an
end
Percent of GDP
180
160
140
USA
UK
Euro Area
Australia
Japan
China
120
100
80
60
40
20
0
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
35
30
25
20
JapanCrisis
USA
UK
Euro
Aust.
Japan
China
GFC
15
10
5
0
0
5
10
15
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
Liabilities
Saver
Investo
r
Equity
Bank
Nothing
From
To
on Asset Shuffling $ on Liability Side
To
From
Side
To
From
Lending
as originator of loans
Bank Fee as
for money
arrangingcreation; bank From
To
Assets
Liabilities
Equity
&
Reser Loan Saver Investo
Bank
ves
s Liabiliti
r
Lending
From es Rise To
Assets From
Paying interest
To
&
IsRepaying
To
Fromclaims?...
there no essential difference,
as Krugman
Liabiliti
es Fall
loan
Assets
Is it any different?
Sector -(A + B)
A
B
1
C
-(C+D)
D
Expenditure Sector
(Exp.)
2
Negative sum of diagonal elements is aggregate demand
Sector
E
F
-(E+F)
Sum of off-diagonal elements is aggregate income
3
ADSL A B C D E F
AYSL A B C D E F
Sector
-(A +
A
B+b
1
B+b)
Expenditure Sector
C-b/2
-(C+D-b)
D-b/2
(Exp.)
2
Aggregate outcome clearly the same as without borrowing
Sector
E
F
-(E+F)
Sound logical basis of Bernankes Absent implausibly large
3
differences in marginal spending propensities among the
groups, it was suggested, pure redistributions should
Loans
Secto S1
S2
S3
r
S1
A
B+b
b
ADEM A B b C D(A+B+b)
E F
S2
C
D
AYEMExpenditure
A BbC D E F
(C+D
0
(Exp.)
Aggregate outcome
greater (if b>0) than without)borrowing
S3
EincreaseFin
Increase in debt causes equivalent
0
(E+F
expenditure
and income
)
D
dt
interest)
Income
side of identity needs amendment too:
Total
expenditure
therefore
Vast
majority
of debtistoday
finances asset purchases
Modern monetary theory must integrate
macroeconomics & finance
d
d
Income
GDPside
is
P therefore
K V M Income
D r M
plus
r Dcapital gains
Y
dt
dt
GDPY
dt
dt
PK K
V M D rD M
dt
dt
rL D
12
16
11
14
10
12
10
03
2
4
Debt Change
Unemployment
6
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
www.debtdeflation.com/blogs
Percent of workforce
80
60
40
20
00
0
2
20
40
60
80
10
12
Debt Acceleration
Unemployment Change
100
120
14
140
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
www.debtdeflation.com/blogs
15
12
00
Mortgage Acceleration
House Price Change
12
5
15
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
www.debtdeflation.com/blogs
Acceleration in mortgage debt & house price change 1980NowUS Mortgage acceleration & House Price Index change (Correlation 0.7)
60
1.6
48
1.2
36
0.8
24
0.4
12
00
0
0.4
12
0.8
24
1.2
36
1.6
48
2
60
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
www.debtdeflation.com/blogs
7500
2.5
7200
2.4
Shanghai Index
6900
2.3
6600
2.2
Margin Debt
6300
2.1
6000
2
5700
1.9
5400
1.8
5100
1.7
4800
1.6
4500
1.5
4200
1.4
3900
1.3
3600
1.2
3300
1.1
3000
1
2700
0.9
2400
0.8
2100
0.7
1800
0.6
1500
0.5
1200
0.4
900
0.3
600
0.2
300
0.1
0
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
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Shanghai Index
M axM argin
28
24
1.4
1.2
20
16
1
0.8
12
8
0.6
0.4
4
0
0.2
00
4
8
0.2
0.4
12
16
0.6
0.8
20
24
28
32
2014
Index Change
Margin Debt Acceleration
2014.25 2014.5 2014.75
2015
1.2
1.4
2015.25 2015.5 2015.75
2016
32
1.6
2017
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Process
Structural Top-Down
Identities
Economics is about
whatindividualsdo: not classes,
not correlations of forces, but
individual actors.
This is not to deny the relevance
of higher levels of analysis, but
they must be grounded in
individual behavior.
Methodological individualism is of
the essence. (Krugman)
Methodological Equilibration
Percent of GDP
180
160
140
120
USA
UK
Euro Area
Australia
Japan shifted to GFC
China
100
80
60
40
20
0
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
GFC
USA
UK
Euro
Aust.
Japan shifted to GFC
China
40
35
30
25
20
15
10
5
0
5
10
15
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
230
220
210
Percent of GDP
200
190
180
170
160
150
140
130
120
110
100
10
15
20
25
www.debtdeflation.com/blogs
30
35
40
45
40
35
Percent of GDP
30
25
20
15
10
5
0
5
10
15
20
10
15
20
25
www.debtdeflation.com/blogs
30
35
40
economics
Come to
London