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Diversity not specialisation

Now here’s a thought.  New research suggests that a strong industrial economy does not want to specialise in one thing but have lots of companies that specialise in related complex things.  So, for example,  the F1 industry in the UK should be a good thing for us and not just a “nice to have” add-on to our financial services sector.

Steve Keen’s post even has a pretty diagram to demonstrate the point, although I would like to know what all the green lines mean and why the UK comes so low when it produces so many products.  Look forward to the published research

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Steve Keen responds to a recent blog from Paul Krugman.  He paraphrases Paul Krugman’s post as:

No need for change, boys and girls: main­stream eco­nom­ics has every­thing under con­trol. We missed the cri­sis just because we failed to observe the shenani­gans in the shadow bank­ing sys­tem. Once we realised our obser­va­tional errors, we had all the nec­es­sary tools and knew what to do (oh, and what the rebels said would hap­pen didn’t any­way, so there!). The sta­tus quo is fine: move along folks, noth­ing to see here…

For a more complete look at the arguments (and the full blog from Paul Krugman) go to the full Australian Business Spectator article Why Krugman needs a new school of thought

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Keen on mortgages

The day before my post on house borrowing, Steve Keen posted this article.  In summary he is saying that in Australia there is a much closer link between the availablility of finance and house prices (his view) than between earnings and house prices (the main view held before the global debt crisis.

I have linked to his summary blog – if you want more detail he links through to a more detailed article in the Australian Business Spectator, which includes more figures and graphs.

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Why the US can’t escape Minsky

Steve Keen’s view of debt is that, now that we are moving out of recession, we are setting ourselves up for another crisis.  We need to rethink international debt instead of doing it all the same way – or we will end up with the same answer,

Here is how his article starts:

My call a few weeks ago that the global financial crisis is over was very much an Anglo-centric one, and a US-centric one in particular (Closing the door on the GFC, March 10).

Europe’s continuing own goal from the euro and austerity, and credit excesses in emerging economies, could still derail a global recovery. But the epicentre of the crisis was the US, and the indications are solid there that this particular ‘Minsky moment‘ is behind it.

It might be felt that Minsky is irrelevant, now that the economy has begun its recovery from this crisis. But in fact this period — in the immediate aftermath to a crisis, when the economy is growing once more, and debt levels are only just starting to rise — is precisely the point from which Minsky developed his explanation of economic cycles.

In his own words: “The natural starting place for analysing the relation between debt and income is to take an economy with a cyclical past that is now doing well.