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Mainstream economics: distraction from inequality & breakdown

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

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Mainstream economics: distraction from inequality & breakdown

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  1. Mainstream economics: distraction from inequality & breakdown Steve Keen www.debtdeflation.com/blogs

  2. 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)

  3. Correlations: Level to Level: 0.945; Change to Change: 0.59 Acceleration to Change 0.4

  4. “Now it’s bad…” “Debt is good”

  5. Correlation -0.92

  6. 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

  7. 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…

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