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Hoo, Boy,

Governments running a surplus are not upstanding and responsible, but governments with nothing to invest in. Furthermore, as the economist Steve Keen says: “People think it means a government saving money, when in fact it destroys money. Running a 1% surplus is a plan to destroy 1% of the money supply every year.” The prevailing logic of debt, in which all the moral obligation lies with the debtor and none with the creditor, has been demolished by key figures such as David Graeber –

If you’re going to get your macroeconomic views from Keen and your monetary economics from Graeber then you’re in for a world of pain when reality hits. Here:

Once again, Graeber appears to betray himself by his total innumeracy and inability to keep from writing bullshit.


Debt peonage is when there is one and only one person from whom you have to buy–the patron, the latifundista–one and only one person to whom you can sell–again, the patron–and, soon and inevitably, one and only one person to whom you try to pay the interest on your debt. What does debt peonage have to do with the creation of great capitalist empires? Very little. How does debt peonage require a great capitalist empire to support it? It doesn’t. How do great capitalist empires depend on debt peonage? They don’t.

Keen’s point is even simpler. Neoclassical economics is all wrong because there never is an unlimited number of buyers and sellers and therefore every buyer and or seller affects the price.

Well, yes, OK. So, at what number of buyers and sellers does the marketplace asymptotically approach the no market power status of the neoclassical free market model? If it’s only when there are many millions then he’s got a point. If it’s half a dozen then he’s still got a point but not one that we have to care about very much.

And the answer is very much closer to that half a dozen that it is the millions. Thus we can ignore Keen.

2 thoughts on “Hoo, Boy,”

  1. “Running a 1% surplus is a plan to destroy 1% of the money supply every year.”

    There is so much wrong with this phrase I don’t even know where to begin. For it to be true, government revenues have to equal money supply. Which it can’t be, since we know there is money that doesn’t belong to the government. And then nothing has to happen with that surplus, ever. Not paying down debt, not putting into a rainy day fund (which, unless physically locked in a vault somewhere will be circulating around the economy).

  2. I don’t think what you say about keens views has anything to do with a government running a surplus destroying money.

    I also don’t see how running a surplus destroys money unless the bonds you repay happen to be held by the central bank *and* the bank wants the money supply to fall (otherwise bank can buy some bonds to ensure the size of its balance sheet is whatever it desires)

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