Will COVID-19 kill the EU?

The EU is debating whether funding to protect economies from the ravages of the Corona virus should come from centrally issued Corona Bonds, or from country-specific debt. In short, should Italy and Spain pay the price of their own misfortune and be landed with the bill to pay off for years to come, whilst totally sovereign nations, like the US, simply issue bonds which can be paid for by the central bank and for which the government has no intention of ever repaying. In this edition of Debunking Economics Phil Dobbie asks Prof Steve Keen whether the inflexibility of the Euro at a time like this will mean countries like Italy will no longer want to be part of it. Could this crisis expedite the demise of the Euro, and, perhaps, the EU itself? If so, is that a good thing?

This podcast is FREE, but you'll get access to many more, in full, if you become a paying subscriber - either here, or by becoming a supporter of SDteve Keen on Patreon patreon.com/profstevekeen

TRANSCRIPT

PHIL DOBBIE [00:00:01] If you were Italy right now, or Spain, suffering thousands of deaths from the Corona virus and the EU, that body was there is there to unify Europe, was quibbling about how we should fund that support, wouldn't you be wondering whether EU membership was worth it? In fact, when this is over, and you are possibly riddled with more debt as a consequence from all of this, wouldn't you be thinking what is the point of staying in the EU? And could Italy and Spain and others quickly follow the UK on the back of the way the EU has dealt with the Corona virus? That's today on the Debunking Economics podcast.

PHIL DOBBIE [00:00:38] I'm Phil Dobbie and Steve Keen is with me again, of course. The EU is meeting this week to discuss Corona Bonds, which is something Steve talked about weeks ago on this podcast - funding what could be generated through bonds which are bought by the European Central Bank and issued in large volumes to help countries suffering the most, that need the resources basically, to manage their way through this crisis. But some in the ECB, like Germany and the Netherlands, still see the funding coming through loans, just so those southern European countries don't get used to the idea of lots of free money. So they come out of this crisis with more austerity as they try and pay back those loans, just to add to the general sense of misery. Oh, Steve. The joys of the EU. Well, it is a joy for those who who live in the north of the EU anyway, because they don't have to go through all this austerity.

STEVE KEEN [00:01:33] Yeah, it's incredible how the ideology can be sustained when reality is slapping it in the face and kicking in the balls. But that's what's going on. Particularly this is this is just particularly Germanic dedication to what's known as ordoliberalism, which is a combination of the sort of extreme libertarian attitude you'll find with a lot of American libertarian Austrian types combined with this Germanic idea that uou've got to enforce it, so that's where the ordo comes from. And they're saying we've got to get right back to austerity as soon as we finish this without thinking, well, if we didn't have austerity maybe we'd have enough beds right now in the hospitals and enough intensive care units to be able to cope, which we don't.

PHIL DOBBIE [00:02:16] But Germany is covered, of course. I mean, they've got a it's very sad, but they've got almost 2000 deaths in Germany. But compare that to Italy, where it's over 17000, almost 18000 deaths. So, yeah, I mean, they're in a much better position.

STEVE KEEN [00:02:31] Yeah, they've got the capacity to some extent. But having a decent public health system helps. They haven't destroyed that, whereas the Americans didn't have one to begin with.

PHIL DOBBIE [00:02:41] And they've got they've got a government surplus (in Germany). So if they need to spend more money, they can dip into it.

STEVE KEEN [00:02:47] That has no relevance whatsoever. But yes, I'll let you get away with that one.

PHIL DOBBIE [00:02:50] But from from their point of view they're saying, yeah, we've got the government money. We can spend it.

STEVE KEEN [00:02:57] Yeah, that's true. That's the reasoning they'll use unfortunately.

PHIL DOBBIE [00:02:59] And Italy doesn't have that surplus. So people in the south aren't gonna buy this. When this is all done and dusted once this is all over, people in Greece and in Italy and in Spain and Portugal, they're all going to say, hang on a second, the EU didn't work for us in this occasion. There was no funding coming. We didn't get to make any extra funding. You didn't help out. What? What are we getting for our membership,.

STEVE KEEN [00:03:24] Particularly Italy? Yeah. And in Spain, too. I mean, that's the situation with them is absolutely appalling .When the Italians can rely upon the Cubans and the Chinese more than they can upon their own neighbours, the whole idea of European solidarity ain't looking so crash hot. It's not solidarity. They've been locked into a death cult.

PHIL DOBBIE [00:03:48] And the euro is the big problem here, isn't it? Because we've got one central bank. The one central bank issues the bonds. They determine if they are going to embark on quantitative easing. If they if they changed the regulations of the EU, which they have loosened, there's nothing to stop the Europeans agreeing that the the central bank will issue a mass of new debt, new bonds, and that will go to funding the crisis in Italy. There's nothing at all to stop that happening. As you say it's just ideology.

STEVE KEEN [00:04:23] Yeah. And it's also that it's been set up in such a way that it can't make a decision, unles its a decision to increase austerity. Remember I voted for Britain leaving the EU. At the time I made the arguments in favour of it, not on the point of view of what would benefit Britain, but ultimately, it was an organisation that shouldn't they shouldn't exist given its policies. Somebody said, look, you can't say it's not Democratic. Look at this democratic structure here. The Democrat structure I saw was, first of all, the European Commission, a bunch of economic dominated bureaucrats, tthey draught the laws, not the parliament. The parliament cannot draught laws. The law is sent to the parliament for ratification or objection. And if the parliament votes against the law, it can also be voted for by the 19 finance ministers who meet independently and no records are kept at their meetings. That's why Yanis Varoufakis recent move to release all the recordings he made I think is a brilliant move because it shows us how stupidly and badly they behave. So the whole thing is set up in such a way that, whatever the commission wants to happen will happen. What everybody else wants to happen, you can get it can get ... well, I was only the words starting with F,.

PHIL DOBBIE [00:05:38] Stuffed. Let's go to with stuffed.

STEVE KEEN [00:05:41] Consequently, there is there is no capacity to make a decision unless it's a decision which supports the direction of the Maastricht Treaty and makes it even more difficult to spend or create government money in even more difficult to rescue people than in the dire circumstances of the Corona virus. So this could be the death knell. What I'd like to see happen is Italy to say, we've had enough, every bank account in Italy is now a Lira account, the new lira is worth one euro, we repudiate its national debts, including the German and French banks, you guys can get stuffed and we're starting our own monetary system again.

PHIL DOBBIE [00:06:18] Do you think that will happen? I mean, Greece came so close to it, didn't they? I mean, Yanis was was on the verge of pushing that button, if he could have got support within his within his own government. Do you think Italy will, and if Italy does then obviously, Greece and Spain are not going to be far behind.

STEVE KEEN [00:06:34] It's possible. I mean, Italy's got an apalling trajectory in terms of the number of deaths right now.And with the leader of being a populist right wing populist as well, it's a possibility. We actually discussed in a previous podcast, what would shift after this? Would people say we overreacted, but think Italy is one country where peole are going to say, right, this went really badly and we've got to do something about it, and we're not taking Belgium bullshit anymore. If weare going to do something Belgium doesn't like anymore, because Belgiumbeing the centre of the EU, then we're going to do it. And so I think there's a possibility that the fracture could come through Italy over the Corona crisis.

PHIL DOBBIE [00:07:19] It's interesting when you look back at the foundation of the EU. It really came out of a crisis, that crisis being that the Second World War. Then we had, the Marshall Plan, and it was America pumping large amounts of money into Germany to industrialize Germany and the concerns from the French that Germany was going to become too dominant, which is why that, early on, France wanted to share a currency to try and avoid the the imbalance. Of course, Germany had all that debt to the US, written off. How quickly they forget.

STEVE KEEN [00:07:49] And they also do not let's not forget German debt to Greece, for God's sake, which the Greeks wrote off. So it is remarkable how fast we fail to learn from history. And this will be on the level of the Second World War, by the way. The impact is so great, so rapid, whether it can be avoided or not, whether we could have reacted in a different fashion or not, that doesn't change it. It will be the biggest economic crisis since since the Great Depression and the fastest shut down of productive resources since the Second World.

PHIL DOBBIE [00:08:23] So, at the same time, we had all this fear, didn't we, during the Brexit campaign that the EU was going to allow Turkey into the EU? We did allow Hungary into the EU. Janos Ader say now is basically a dictator. He's got full powers. He's enacted no sunset clause on on when that power might end. He's still a member of the EU. So basically dictators are allowed in the EU now.

STEVE KEEN [00:08:51] Yeah, well, they always were. The whole idea that its a democratic institution as a joke and the joke is being exposed right now because, what would people want on the ground, they want, for example, they want masks. Now you can't have them. They want ICU units. No you can't have them all. This is democratic, isn't it?

PHIL DOBBIE [00:09:09] So it goes one way or the other, doesn't it? It either falls apart or it becomes, which is perhaps more dangerous, it pulls together more. And we've spoken about this before. If the EU acts as one nation, then one nation would not allow the southern part of the country to have such a massive death threat. That would be people like people in London laughing in cocktail bars while people in the north of England died of starvation. You can't allow that to happen. So Europe isn't behaving like one country. It wants to be more integrated, but it's still going to be a series of sovereign nations. And each of those nations is still going to be in it for what they can what they can get out of it.

STEVE KEEN [00:09:49] Yeah, that's the trouble. I mean, there's is a certain sense of European commonality, not quite that dire, but nonetheless, the Europeans identify Swiss and Germans and Dutch, et cetera, et cetera, first, then European second. Americans identify as Americans first and Alabamans and Californians and so on, second. So this is thing even Milton Friedman realised was when he wrote in opposition to the formation of the euro in the very first instance, that you don't have the degree of commonality you need. Also, in a very important point, which even again, even Milton Friedman realised this, you don't have a common treasury. Without a common treasury the expenses get passed from one effectively state treasury to another, which are spending constrained. And they resent, therefore, people moving from one state to another because you impose the burden of the wealth in that person on their recipients state. So all these things just argue against the EU and the Euro from the very first outset. And the whole thing about it, is was supposed to strengthen Europe. Well, great. What's fabulous strengthening this has been. This has. First of all, it amplified the impact of the crisis back in 2008. Now its having a debilitating impact upon its capacity to respond to the Corona virus. They'd be better off by separating. And this is the great tragedy of the European Union.

PHIL DOBBIE [00:11:05] Well, so will it then? If if Italy says that's it, as you say, we're going we're not going to pay off our debts, so you can get stuffed. So they pull out of the euro, even if they don't pull out of the EU, and they went back to to the to their own currency, the lira, the that would pretty quickly devalue. They would have a competitive edge against Germany. They could build a manufacturing base to challenge Germany over time and a far healthier future for Italy. So why wouldn't they do it and why wouldn't everyone else follow them?

STEVE KEEN [00:11:49]  I can still see people sticking on saying that we've got to maintain the euro. I wish people would learn from these sort of experiences. But again, as I've said in the last podcast, experience has made me rather pessimistic about the capacity of people to learn from experience. However, if the Italians did pull out and did go back to the Lira and could devalue against the euro, then they would lose one of the two main problems have had fromthe euro to begin with, which is, with a lower inflation rate than Germany, necessarily their goods got more expensive over time because they were not able to devalue. Once they can devalue, the difference in inflation rates doesn't matter. And therefore, the competitiveness that Lamborghini and Ferrari and Fiat have lost against Mercedes Benz and BMW would disappear and they could restrengthen their manufacturing sector. So it would be an amazing lesson in how how bad an idea was to form the euro in the first place, to get out of the damn thing and see the economy do quite well. And by the way, if they did actually write off all their debts, it's quite possible they could revalue against the euro and still do well, because they wouldn't be carrying any debts, whereas the rest of the European Union would.

PHIL DOBBIE [00:13:01] And they could do that. Can they?

STEVE KEEN [00:13:03] Yeh. Plenty of countries have written off their foreign debts in the past and as soon as they do it, people say your currency is going to plunge in value, because the market won't trust you. 30 seconds later, the bond traders absorb the whole experience and they're now buying your currency because you're no longer debt encumbered.

PHIL DOBBIE [00:13:21] So what does it do to the banking sector in the in that process, though?

STEVE KEEN [00:13:25] Well, again, you've got you've got to be ready at the central bank. There is actually an Italian central bank. Every European country has its own central bank. It just doesn't have a power to issue a currency. Suddenly you've got the power and you can therefore provide as much in the way of assets to the banking sector, so that its liabilities don'texceed the assets and therefore they don't go bankrupt, you can do that instantly. Then they would they would enable the banking sector to continue operating.

PHIL DOBBIE [00:13:52] So say Italy and others then say, well, we're going to follow the same path - if that threat is made to the EU, is the EU going to look for a halfway house? Maybe the idea that everyone can have their own independent currencies, their own independent bank, and we just have a common trading currency, like we used to with the ECU. That is stripping back the EU so it becomes more like the common market. You get to that stage, then Britain might say, well, you know what, we don't want to be in the EU, but we might be part of this.

STEVE KEEN [00:14:31] The common market was a relatively sensible idea. It gave you a chance to have economies of scale across the whole continent, which was the objective of the European Union in the first instance. The mistake was forming the Euro as well. So, yes, you could be quite effective. And my argument always been, use the euro for international trade, to trade between countries of the European Union, use your own currency domestically. And that the real appeal to the public of the euro, and I've experienced this with the amount of travelling I've done in the European Union, is you follow exactly the same currency - you face no currency loss when you go from Germany to France, Italy to Spain and so on. And that's personally a very attractive advantage of the euro. My argument has been ,let the European Central Bank take over the currency conversion responsibilities. So you give all the private institutions impossible competition. The government bureaucracy converts the currency at exactly the exchange rate. If you have a thousand lira and that's worth two thousand Francs, you walk in with a thousand lire, you walk out with two thousand francs, you suffer zero currency loss going from one country to another. That'd be a central role for also the European Central Bank. And then with that there's no need to have the same currency across the whole of the continent. As a community, you ensure that no individual loses out of the ridiculous mark-ups that these companies make for exchanging currency.

PHIL DOBBIE [00:15:59] But you know what? I wonder whether, in fact, that that becomes less of an issue going forward as we have more technology and more competition for that side of the banking sector for foreign exchange, which we're seeing quite a lot of. So you have a you have a card. You don't you don't really care. You go from you go from Germany into Italy. You switch currencies. You've got a vague awareness of what the exchange rate may be. And you've signed up to a bank or a card which is going to give you the best possible exchange rate. Does it really matter?

STEVE KEEN [00:16:31] Well, I'm a heavy user of transferwise, for example. An unsponsored advertisement. it's a fabulous service transferwise and it saved me a large amount of money.

PHIL DOBBIE [00:16:42] Other ones are available. WorldFirst and OFX.

STEVE KEEN [00:16:45]  It's brilliant. They totally undercut the incredible mark-ups and the made in all those foreign to currency changes. I don't really worry about the cost going from one currency to the right anymore. I use the same card everywhere.

PHIL DOBBIE [00:16:57]  So the idea of the euro being one unified currency to make it easy as you move around and as you trade. I'm just wondering whether that selling proposition is rapidly disappearing, so one of the key reasons for the euro, perhaps as is not such a key reason anymore.

STEVE KEEN [00:17:13] Which it was a key reason back in 2000, maybe, or 1999, obviously. But you're right, now that that's there's the technology and the fact that is an enormous financial incentive there for people to move into that particular space, that's a classic case of capitalism innovating to take advantage of a large discontinuity in the economy.

PHIL DOBBIE [00:17:31] So if was to happen, if the euro did disappear, could the EU survive without it? And what form would that take, do you think?

STEVE KEEN [00:17:37] Well, to go back to being a common market, that's all we need it to be. A common market, and you'd have a forum resolve disputes between states. And it should be one where where the states have representatives, the Italian, the French, the German, etc, governments coming together just to have conversations, not having idea of a bloody parliament, which itself is a farce. The parliament, as I said before, only decide to do what the European Commission tells it to do. Nothing like a democracy. The whole idea of the European Union, from the ordinary Europeans point of view is to end the old internecine warfare of the European continent. But from the point of view of the bureaucrats, who is it getting people out of the way and let the bureaucrats run everything. Because obviously with democracy that gave us fascism.

PHIL DOBBIE [00:18:23] But it also gave us Donald Trump.

STEVE KEEN [00:18:27] So, you know, I'm not saying democracy is perfect by any stretch. And I want to get rid of it and replace it with a set of skilled individuals who don't want to do the job, who are system dynamic specialists and united by intelligent software. That's what we really need to run the complex system of the world we're in these days rather than the popularity contest of standard democracy.

PHIL DOBBIE [00:18:46] Right. Okay. Are you going to be the head of that government as well? I mean, you.

STEVE KEEN [00:18:51] So please, please, please.

PHIL DOBBIE [00:18:57] Herr Keen. My arms in the air, as I talk to you,.

STEVE KEEN [00:18:59] I'm tickling y our underarms.

PHIL DOBBIE [00:19:02] I'm loving it.

STEVE KEEN [00:19:09] Let's let's let's listen to a podcast on that particular issue - democracy versus versus systemic governance. That's that's an important point later on.

PHIL DOBBIE [00:19:18] Gee. All right. So back to the EU, though. I mean, what we're describing then, really is that it's a common market. There has to be agreement on standards. Do you do governments then say, well, we're gonna have this common common market, we need to make sure you're not subsidizing your products and dumping products on our market because you've given so much state subsidy. I guess you still need regulations like that, don't you? So that you've got a level playing field.

STEVE KEEN [00:19:50] You know, some sort of commonality. It's common market, it has to have common regulations. So that's okay. It's the imposition of the budgetary noose of the Maastricht Treaty and the inability of any decision to be reached that isn't something the European Commission wants. It's having bureaucrats, who are mainly trained economists and that's the bloody problem. Trained engineers would be a damn sight better.

PHIL DOBBIE [00:20:18] Right. But a lot of it is just finding commonality of a level playing field for competition isn't it? so setting setting standards. I mean you're not going to do that by parliament. Someone's got to establish what their standards are going to be.

STEVE KEEN [00:20:30] Equally, at the same point, there's also one thing I hope we learn out of this crisis, is that the whole year of a globalised integrated economy is a mistake at a biological level. You need to have regionalized economies. I've been arguing for a long time that we need a biological approach to economics in general, and that would never have had us having globalised production systems, because globalised production systems are great for pathogens. They are not fabulous with humans. So I hope we learned that lesson that we don't go back to the obsession about bigger and bigger trading blocks, and more and more free trade, and more and more transportation around the planet, etc, etc. More and more consumption of oil.

PHIL DOBBIE [00:21:08] But that is a good reason for making sure that the trade within the EU continues then isn't it? So that the UK is not shipping a whole load of stuff across the ocean from the US or from South America or from China. We are better off eating fruit, for example, that comes from the south of Europe

STEVE KEEN [00:21:29] Exactly. You try to divine a regional trading bloc. I'm not my actual principle here is what's called the von Neumann machine. Had ever heard of that one?

PHIL DOBBIE [00:21:36] I think I had one but I couldn't work the instructions.

STEVE KEEN [00:21:39] No, you didn't. A von Neumann machine is a machine, that can make other machines and also make itself. One of the most brilliant men of all time, von Neumann, came up with the concept of this. He said humanity needs to create a machine which is capable of making all of the other machines needed, as well as reproducing itself. And then you'd send that inter outer space and you could colonize the entire galaxy. But the idea, we should think in terms of creating regions of the planet, which are von Neumann machines, meaning they create everything they need as well being able to reproduce themselves over time. So you say, what scale do we need for this region to be self-contained and have multiple self-contained regions lik,e that which don't need to trade with others. You don't go for this obsession with a globalised approach because that works in favour of the pathogens, that works in favour of humans overloading the planet, completely ignoring the other species, and then we get the biological venereal disease coming back at us.

PHIL DOBBIE [00:22:43] But I mean, all the more reason for the EU to, in some form, even if it is just a common market working to common standards, but everybody has their own central bank, they determine the way they operate, how much they borrow, how much that their debt to GDP ratio is they are that totally independent sovereign nations, but they have a common agreement on what they're going to sell and the standards between them. That's gotta be the utopia, hasn't it? Because it does create that trading bloc that the EU could then say, well, we really don't need anyone else.

STEVE KEEN [00:23:19] To reach that Utopia we've had to go through a dyspotian experience was necessary. But, yes, treating it as a regional production system, intending to achieve overall self-sufficiency across all the products that are necessary to sustain a decent high human society and a decent environment, not just for ourselves, but for the other species on the planet. That's the way we should be thinking in the future.

PHIL DOBBIE [00:23:46] Is that going to happen, though? Will the EU survive the way it is? Could, for example, if Italy say we want out of the euro, but we'll stay in the EU, to which that the payoff would be you can't write off all your debt, you don't have to pay it up back after off over over 20 years. You're gonna have to live in austerity and and perhaps more people will die from malnutrition than died from from the virus as you attempt to pay all this back. That seems more likely than Italy pulling out totally and the EU collapsing, doesn't it, sadly?

STEVE KEEN [00:24:21] Yeah. I mean, the thing is, though, lets remember there have been other Pan European and pan global organisations which have disappeared. For example, what's the most recent announcement of the League of Nations?

PHIL DOBBIE [00:24:33] Yeah, they have been very quiet lately, haven't they?

STEVE KEEN [00:24:36] Died about 80 years ago. It was killed by the First World War. So these organisations have failed in the past. And I can think of no better organisation to fail than the European Union.

PHIL DOBBIE [00:24:49]  But we don't. But we don't want it to disappear and then just have a series of independent nations do we?

STEVE KEEN [00:24:58]  Yanis Varoufakis has finally come around to saying he reckoned the British did the right thing for the wrong reasons when leaving the European Union. It's very hard to expect somebody to who's you whose entire life has been around trying to globalise everything and trying to minimise trade barriers, and letting competition rip and ignoring sustainability while pushing efficiency, it's very hard to have a person suddenly flip over to a biological way of thinking. You have simply got the wrong people in there and getting rid of them is impossible in a bureaucracy. So. It may be that it has to fail to be replaced by something more sensible.

PHIL DOBBIE [00:25:41] I wonder what would replace it. Could we in fact get a group of countries like perhaps France, maybe we'll include Germany, the UK and Ireland and Spain and Greece saying, well, okay, let's if that's all fallen apart, but we need to trade with each other because we've got so much trade across all on across our borders, so let's at least agree some standards and let's form the new EU.

STEVE KEEN [00:26:03] That's definitely what happens, I think. And the emphasis has to be on the ecological and social sustainability of the society, not this obsession with competition and efficiency. So it could happen, but I certainly can't see the bureaucrats in Brussels being the ones who lead the charge.

PHIL DOBBIE [00:26:20] And how quickly is it going to fall apart? Then, do you reckon? Is that going to be after this, after over this virus, the second half of this year, is this gonna be the big story?

STEVE KEEN [00:26:28] No, again, because of my cynicism about people's capacity to learn from experience. I think we'll go through this, there will be in aftermath. We will continue on and then something else will hit us. I mean, 2020 has been a one and a dog of the year. We had the fires in Australia and the floods in Australia, then the locust plagues in Africa, which we've stopped talking about but is probably still happening, now the Corona virus. We're only one third of the way into the year. What the hell's going to come along next?

PHIL DOBBIE [00:27:00] Well, we've got a lot more of this to go havcen't we? I think this is going to keep us going for the rest of the year. But the idea that this will be almost swept under the carpet, and its oging to take something else to disturb the EU, I wonder if that's the case, because, look, it's over 17000 deaths now in Italy, less than 2000 in Germany and 14000 in Spain. There's such a huge difference, a huge disparity, between nations. And surely people are going to be looking at that and saying, how did we allow this to happen? I mean, we're talking about the price on human life. Surely there's going to be some recompense from all of this.

STEVE KEEN [00:27:36] Yeah. Yeah. And I mean, just looking at the doubling rate, by the way, for Germany is not looking as healthy as a doubling rate for Spain right now, strangely enough. So maybe, maybe there'll be a price to pay in the future.

PHIL DOBBIE [00:27:52] And that's the bad news, because if Germany gets hit as much as everybody else, then that argument that there's a disparity on this disappears. To which the conclusion will be in Germany and from the powers behind the EU, that that was a crisis that we all faced, we all paid the price for it, now, let's carry on as normal.

STEVE KEEN [00:28:14] This was a crisis nobody expected except anybody who'd read Laurie Garrett's 'The Coming Plague.' And these are people who've been completely sidelined with the redesign of society. These are epidemiologists, the specialists in humans as a biological species, not humans as the dominant economic force on the planet. They're the ones who saw this coming. They've been sidelined. The one thing I hope to happen is, is that we pay much less attention to bloodyeconomists and a damn sight more to epidemiologists, engineers, physicists and atmospheric scientists. They're the people we need to listen to, not bloody economists. The EU was built by economists. That's one of the best reasons to get rid of it.

PHIL DOBBIE [00:28:55] We should leave it there. But one final question is, I mean, a lot of it does relate to the acceptance of debt, doesn't it? That's the core of all of this. So German debt to GDP is 60 or 70 percent government debt versus 200 percent in Japan. The US is shooting up there as well. Greece, I think, is less than 200 percent. Italy is relatively low. If you ijust said, well, okay, let's accept 200 percent as acceptable. Then you would have allowed a massive increase in spending.

STEVE KEEN [00:29:28] Yeah. Government deb is not the problem. We've had many talks on this issue in terms of the financial issues as well, but the whole obsession with government debt has always been wrong. It's always come out of neoclassical economics and applying a household analogy to an overall economy. It's the private debt that matters. That's what's caused all the dilemmas. That's what has led to the boom beforehand and the bust as well. Hopefully, some of that understanding will get through during this crisis as well.

PHIL DOBBIE [00:30:00] Right. So if the EU survive, but they accepted that point, could it could it survive and do good rather than be evil. If it if it accepted the fact that we should allow countries to run much heavier debt.

STEVE KEEN [00:30:14] Potentially, but again, that means countries would have divergent inflation rates. The euro should not survive. That's the one thing, the euro should not survive. The European Union potentially could survive, if it if it learns from this crisis and fundamentally changes its direction. But that's like expecting a Ptolemaic astronomer to suddenly understand Copernicus and stop drawing epicycles and start thinking about ellipsis centred on the sun. People's minds a rereshaped by the belief systems they have, and that reshaping means they are simply incapable, their neurones are wired their own way. It is it is not possible for someone to change the neurological wiring as fast as it is for a new person to come along with a fairly open neural network and relearn these issues. So in many ways we just got to retire the people who currently run the European Union. If we could keep the buildings and send the people off to retirement homes, we might get somewhere.

PHIL DOBBIE [00:31:14] Generational change is what you're talking about, isn't it? And they're all looking pretty old. Time to shuffle on and do your next thing. Good to talk Steve. 

PHIL DOBBIE [00:31:25] And talking about neoclassical economics, we are going to look at Adam Smith next time. Is there anything good that came out of Adam Smith's work? Anything that we can take and say, well, that was all right. We'll look at that next time on the Debunking Economics podcast with Professor Steve Keen. I'm Phil Dobbie. See you then.