Steve Keen on the financial crisis

Aussie economist Steve Keen, whom I have mentioned before in an investing context, has interesting recommendations for dealing with our economic meltdown.  His analysis distinguishes between capitalists and financiers, recognizing the former as labor’s allies in the production of wealth, and the latter as parasites who crashed the economy. His immediate solution for rebooting the economy now is that about 2/3 of the debt needs to be written off, tho he recognizes that legitimate savers must be protected in this process.

But long term, how to prevent something like this from happening again?  It seems that his key proposal is to restrict stock trading. Corporations could still issue stock, with voting and dividends as today.  And the stock could be traded.  However, as soon as a share of stock is traded, its “perpetual” life would be shortened to 30 years.  He says that would prevent people from leveraging the purchase of stock, which represents a big part of the debt that got us in this mess. Certainly it would require investors to look more closely at what their money is actually being used for, and would tend to make corporate ownership more focused on the long-term future.

His second proposal seems to be a restriction on the amount of debt that can be secured by real estate, limiting it to 10 times the rental value. (However, the video is truncated before he can discuss this point.)

How Georgist is this?

In a geoist world, privilege would be eliminated or taxed, including public collection of essentially all economic rent.  As a result, the value of stock could only represent real capital, which generally lasts less than 30 years.  And of course, with rent publicly collected, investors would (we expect) realize that real estate leverage cannot be profitable.  So I think Keen is proposing an alternative, more complicated way of achieving something similar to a Georgist reform.

There’s much more in the video, about his modeling work and the details of the mess we’re in.  Probably the most interesting part is near the end, where he makes his 30-year-limit-on-stock proposal.  The (New York) audience, probably people in the securities business, cannot accept this.  “Who would trade stock if doing so reduced its value?” “If people didn’t trade stock, how would traders know what it was worth?” “If I didn’t buy Microsoft stock when it was first issued, how could I buy it?”

Just as with land, everybody assumes that they will get rich off the stock market.  And that they should.

note: This link (repeated from above) takes you to Keen’s blog article, which includes  links to an MP4 video of the presentation as well as a pptx file (pretty much readable by Impress) of his slides.  There is also a paper (which I did not read).