Steve Keen: If states do not increase currency circulation to fight debt, there will be further crises here in three years

Foto by Clara Belles/Translation by Colleen Boland

This is my interview to Steve Keen, professor of the School of Economics, History and Politics at Kingston University (London), who has sacrificed his academic commitments and salary in order to work as an independent researcher supported by the public through the Patreon platform. It originally appeared in the February 11, 2018 edition of the online newspaper Público, Madrid.

In his work Debunking Economics, with its original version (2001) featuring the subtitle and cover art “The Naked Emperor of the Social Sciences” (in reference to the Andersen story the Emperor’s New clothes), Steve Keen prophesied the 2008 financial crisis. He has since offered alternatives to financial instability as a way to rectify the recent credit bubble burst in books like Can We Avoid Another Financial Crisis? (2017) with translations in Italian and French. He has scaled back his work as a university professor in order to engage in research funded directly by sponsors through the micro-financing platform Patreon.

Keen (Sidney, 1953), the son of a bank executive, obtained his Bachelors of Arts and Law in the 70s, and later a Master and PhD in commerce, economics and economic history at the University of New South Wales in the 90s. He resigned from his position as Associate Professor of Economics at Western Sydney University in 2013 to assume the position of Dean of the School of Economics, History and Politics of Kingston (London) in 2014. Although he remains professor at Kingston and holds an honorary title from UCL (University College London) he has reduced this position commitment to a quarter and sacrificed his salary. This is thanks to the 870 people that pay between one and three hundred dollars a month, at a total of $6,500 as of January’s figures, to support him with the time and resources to search for economic alternatives. He then communicates these ideas through the aforementioned website, in conferences like the Common Action Forum held in Madrid this past November, and via this telecommute interview.

How did you decide to reduce your university work and focus on research supported by subscribers?
I always envisioned remaining in the academic world until the age of 70 –I am currently 65—but in the past 40 years intellectual freedom has eroded due to mistaken proposals by politicians and bureaucrats. Everything is centered on making the University attractive to its “clients,”—recent graduates from secondary school that are drawn by the supposed prestige of each institution. Research fields and time are sacrificed, and resources are allocated towards achieving scores in tests of purported quality. I have had enough, and thanks to the impact of my publications, I have a public profile that allows me independently research via direct support from Patreon. The platform charges 12 percent of my income, but this income grows about 200 to 400 euros per month. Between 2018 and 2019, I will retire from university life. But thanks to this formula, I will investigate until I die!

What do you offer your patrons? Do you feel obligated to meet certain expectations in order to be financed, something like being “popular” to achieve “likes”?
They just want me to create a new economy. If it were about popularity, they would forget about me! They support me because they believe that I am key to bringing a genuinely realistic approach to the economy. The only things they receive from me include copies of books (those who pay at least $30 a month), two weekly podcasts (those who pay at least $10) and all of my blog posts.

You are considered one of the forecasters (as of 2005) of the 2008 financial crisis. What did you perceive that helped you to predict this?
The role of private debt and credit in the economy is largely ignored. As a proponent of Hyman Minsky’s Financial Instability Hypothesis, I see both as crucial. In December 2005, my work in a case of predatory lending made me realize that private debt was too high and was growing too fast in Australia and America. When it would come to a halt, as was inevitable, I knew that we would face the biggest economic crisis since the Great Depression, caused by the same phenomenon: a boom driven by credit in the 1920s that finally came to end, causing a collapse in demand. I assumed it would be a global phenomenon, but I was not sure because there was no available data for other countries. The Bank for International Settlements (also known as the Bank of Central Banks) has begun to publish this data, and it demonstrates that the crisis was similar throughout the world. The bubble in Spain was even worse than the one in the USA.
Your latest book is “Can We Avoid Another Financial Crisis”? Can we?
We could, if we were willing to tap into the government’s capacity to create money, with which we could reduce private debt in what I call a Jubilee of modern debt—cancellation or forgiveness. But since we will not do this, countries that avoided the 2008 debt crisis, via bank loans, will face another in two or three years. Money can be created by banks or the state. The former lend more than they receive and the latter spends more than the tax revenue. The Eurozone is preoccupied with the danger in this but does not see the first situation as an issue, and it is wrong in that assumption. Private debt causes problems when the debtor goes bankrupt and is unable to pay or refinance. By contrast, with public debt, the government can generate currency and avoid this problem as the Central Bank holds unlimited capacity to create money, as we have seen with QE (quantitative easing, i.e., generating currency and putting it into circulation).

Spain does not have the capacity to create its own currency.
As with many members in the Eurozone, possessing a loan in foreign currency is a problematic case when considering this solution. Another problematic situation is when spending greatly exceeds tax revenue and causes galloping inflation or a serious increase in the country’s deficit. But Europe is so far from this today that seems like a joke to ask: “What about hyperinflation?” Japan is instructive here. People are still awaiting a public debt crisis. But this only began to take shape after private credit collapsed, which since 1970 has multiplied more than ten times (as compared to the GDP), without causing a public debt crisis. Japan’s 1990 crisis was also caused by a private debt bubble, and government spending has softened the blow of this crisis.

Then how do we avoid another financial crisis and overcome the effects of the previous?
The Jubilee of Modern Debt can restore the wealth distribution that existed before the crisis and allow for growth potential. The government could generate currency and put it into circulation via transferring it to people per capita, with the condition that those with debt would pay it and those without debt would buy shares in companies that would use the money to reduce corporate debt. This would eliminate the burden of private debt in economies and allow them to flourish without the ball and chain of private debt and interest clasped around their ankles. However, confronting the environmental crisis would still remain.

Is this why you theorize about the “role of energy in production?” And in what sense?
Economists have ignored the role of energy, contending that it can only be produced with labor and capital. Nothing is produced without energy, and work and capital are means to take advantage of the Universe in order to produce goods and useful work. The side effect of using energy is to create waste. This is the Second Law of Thermodynamics, that disorder grows with time: we dump more waste than we extract. The economy (which consists of performing useful work) and ecology (which deals with protection from damage to the environment) are related. Progress has consisted of using more and more energy, so that today even the poorest uses more than the wealthiest did two centuries ago. But we have exceeded the limits of the energy exploitation, and now can cause irreparable damage. In the next 50 years we must address rationing, and transition from fossil fuels to renewables, thus using energy to preserve life.

You support Brexit. You do not think the EU and/or the United Kingdom will experience any negative impact?

Brexit has much less effect on the United Kingdom’s economic health than the detrimental austerity policies implemented, largely without debate, for the past ten years. I supported Brexit because I believe that the EU is a failed institution, and the sooner it ends, the better off Europe will be, especially in doing away with the euro. But United Kingdom politicians have handled everything so poorly that it has paralyzed the government.

What is the post-Keynesian of hegemonic capitalism?
Capitalism as the relative freedom of companies to do what they want, in a system dominated by private finance, definitely faces great challenges in the next three decades. Economic growth will be slow, while private debt will remain as high as it is now. Economic growth will be dangerous for the environment thanks to increasing CO2 levels and exploitation that destroys the outer layer of the planet.

Given this, would you say that capitalism works or not?
Both. We tend to think that capitalism as an extreme, involving private property and control of the means of production, and in opposition to centralized planning by the government. In reality, we have always operated in a mixed economy. In the past 40 years, however, the pendulum has swung in favor of private power. Inequality and environmental damage are unsustainable, and it will be easier to address them via the public rather than private sector.

The Norwegian communist-feminist novelist Torborg Nedreaas wrote in ‘Nothing grows by moonlight’: “It is not unusual for everyone to agree that things are going to be bad, but no one undertakes necessary change.” Why do you think this is?
It is true that humans have always pushed past the unsustainable limits of their civilizations. Think of slavery in Rome, or the feudal societies of the Middle Ages. But our civilization exceeding its limits has an impact of catastrophic damage for the entire biosphere. The option of a new civilization is eliminated if the destructive trajectory of capitalism runs its course.

Is there an alternative to capitalism, and in that case, what would it be like and what would it be called?
Capitalism has been characterized by a large social majority earning decent wages at private companies that could not produce without them. If we survive the environmental crisis, technology will require almost no work. The only way to survive would be universal basic income, independent of work. It could be financed by a government issuing currency which, at the same time, allows entrepreneurs to earn large amounts via innovation. Such a society would have private factories – subject to strict anti-pollution regulation – and a publicly administered income distribution system, rather than of salaries. It could be called State Capitalism.

Would you consider taking on a political role? Have politicians ever been interested in your research or asked for advice?
I’ve seen enough backstabbing and conformism in politics to want no part in it. I would be happy to advise, but I would not seek a position as Minister of Finance or anything similar. The Green Party has expressed some interest, but more dominant parties tend to avoid me.

Are “sharing economy companies” like AirBnB, Uber, Cabify or Deliveroo, profitable for their owners? Do they drive economic development?
They exploit the weakened state of the workforce and foreshadow the elimination of work in the near future, especially in the area of transportation. Their business model involves passing business risks on to the employees, and in three or five years, they will eliminate the worker entirely, via autonomous cars without human drivers.

Do you think a progression towards a better global governance is more likely, or rather a regression towards the Chinese model of political dictatorship and ultra-capitalism?
I hope that the Chinese state model can compel its citizens to do whatever necessary to repair the environment with more success than a democratic system.

As an Australian living in London, are you considered an immigrant worker?
I am an immigrant in Europe for professional and political reasons. Australia is a great place to live, but at a distance from the political and social problems that determine our future. I need to be in Europe to remain a part of this debate.

What are your thoughts on Australia detaining asylum seekers on the island of Nauru?
I hate it. Reactionary policy is pervading Australia, and the measures involved are repulsive.

Will robots and cyborgs improve human life or increase the gap between the third and first worlds, between poor and wealthy?
If used correctly robots could have a positive impact, in a way where we stop exploiting each other in order to exploit the energy of the Universe. But political will is required to produce an egalitarian result rather than a totalitarian one. A universal basic income is required. Without it, robots will disempower anyone who needs to work to make a living.

At the start of 2018 they advertised and sold the first apartment paid in Bitcoins in Spain. What do you think about this virtual currency? Is it the future?
Bitcoin cannot serve as money unless it allows large-scale transactions, but its architecture only enables it to manage a small number of transactions per second, from 10 to 20, as compared to the hundreds of thousands that occur every second in the world. As such, it cannot operate as money. Instead, it is a speculative vehicle that consumes a huge amount of energy, just when we should be minimizing energy use. Other forms of blockchain technology could provide an alternative to fiduciary currencies. Bitcoin will not survive.



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