It occurs to me that we’re going to need a new name for this debt-based economics that is gradually coming to the intellectual fore. And we’re going to need an introductory book to it, given that Steve Keen’s severing of the link between micro and macro renders almost completely irrelevant all those Robinson Crusoe stories meant to illuminate the first foundations of the microeconomy.
Everything you know about economics is wrong. Also, everything the professional economists know about economics is wrong.
That may sound arrogant. That may sound crazy. It is certainly a very strong statement. Nevertheless, it is true, because math does not lie.
You see, professional economists make one single very important assumption that underlies their entire profession. This one assumption underlies all of their models, all of their statistics, and all of their fundamental understanding of their studies of human action. They assume that demand is cumulative. What that means is that they assume your preferences, and my preferences, and everyone else’s preferences, can be added together to make one giant set of preferences which can then be utilised in their calculations.
Or, to put it in a way that those of you with an economic background will recognize, they assume that all individual demand curves are a) stackable and b) follow the same downward-sloping trajectory.
As it happens, this is not true. What is more, this has been known to not be true since 1974.
Of course, it would be excessively brutal to follow that up by dropping the Sonnenschein–Mantel–Debreu theorem on them without warning and a considerable amount of explanation.
I have elected to call this debt-based economics “kraonomics”, from the Greek χρέος, or chréos, which means “debt, duty, indebtedness”. Why that particular spelling? For one, English-speakers will instinctively read the pronunciation correctly. For two, never use accents when you can avoid it. For three, as Psykosonik fans are aware, I always prefer using a “k” to a hard “c” or “ch”. And for four, it suggests just a hint of the chaos theory that it almost certainly requires.
On a tangential note, I wonder how many people noticed perhaps the most intellectually exciting note of the recent Brainstorm with Steve Keen. The professor mentioned, almost off-hand, that he was currently reading the work of one Robert Prechter. It strikes me that whatever comes out of the meeting of those two brilliant minds is almost guaranteed to be significant, revolutionary, and mind-blowing.
Just for starters, it may well be that outstanding private debt is a more useful metric for measuring social mood than the stock markets.