1. Debunking Economics Why is the world in economic chaos right now? Because the experts on the economy are experts on a flawed model –Which ignores instability and assumes equilibrium –Which ignores money and debt and assumes away bubbles –Which treats government as “a business” when it is more “a bank” The real expert—ignored before the crisis—was Hyman Minsky –“capitalism is inherently flawed, being prone to booms, crises and depressions. –This instability, in my view, is due to characteristics the financial system must possess if it is to be consistent with full-blown capitalism. –Such a financial system will be capable of both generating signals that induce an accelerating desire to invest and of financing that accelerating investment.” (Minsky 1969) Inherent flaws? Three undeniable dynamic facts…

2. Capitalism’s Inherent Financial Instability The employment rate will rise if economic growth exceeds the sum of population growth and growth in labor productivity; The wages share of output will rise if wage demands exceed growth in labor productivity; and The private debt to GDP ratio will rise if the rate of growth of private debt exceeds the rate of economic growth. First two facts can’t be ignored Neoclassical economists deny relevance of 3 rd fact: –“Think of it this way: when debt is rising, it’s not the economy as a whole borrowing more money. –It is, rather, a case of less patient people—people who for whatever reason want to spend sooner rather than later—borrowing from more patient people.” (Krugman 2012, End this Depression Now!) –“Absent implau­sibly large differences in marginal spending propensities among the groups … pure redistributions should have no significant macro­economic effects.” (Bernanke 2000) By ignoring private debt, they saw “The Great Moderation”…

3. The “Great Moderation” “the past two decades has seen not only significant improvements in economic growth and productivity but also a marked reduction in economic volatility… dubbed ‘the Great Moderation’.” (Bernanke 2004) Inflation & Unemployment Falling Unemployment Deflation

4. Capitalism’s Inherent Financial Instability When you leave the fact about debt out, this is what you see… When you include it, this is what you see Rising private debt caused the boom before the crisis & the crisis too…

5. Capitalism’s Inherent Financial Instability Rising inequality & rising private debt are directly related

6. In the real world as well as in the model…

7. Japan’s fate awaits unless we reform economics…