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We Were Totally Wrong About France Riots and Europe Collapse: Top Economist — Transcript

by ProfSteveKeen · 2,356 words · 381 segments · language en · Watch on YouTube

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0:00For over 51 consecutive years, the state
0:03has run budget deficits, always spending
0:06more than it collects [music] in taxes.
0:08Now, the bill is coming due.
0:10>> Responsible governments should run
0:12deficits because that is how fiat money
0:15is created.
0:15>> Meet Steve Keen, the economist who
0:18predicted the 2008 crash before it
0:20happened while everyone swore the system
0:22was fine. He studied debt for decades,
0:25and he says that story about France is
0:27backwards. The deficits aren't the
0:29problem. The real danger is the one
0:31nobody names.
0:33>> Why do economists and politicians
0:35demonize the smaller one and ignore the
0:37larger one? A realistic, empirical, and
0:39logical analysis leads to several
0:42heretical conclusions about how to end
0:45Europe's decline. The euro I should be
0:47abolished, and all European countries
0:49should return to their pre-euro national
0:52currencies.
0:54There are many factors that have led to
0:55this winter of discontent in Europe.
0:57These include Europe's lack of domestic
0:59energy sources and the impact of siding
1:01with America in its never-ending
1:03conflict with Russia. I'm putting those
1:05aside to focus on two key factors that
1:08this student revolt can actually change.
1:10European economic policy and the euro
1:12itself. To put it simply, European
1:15economic policy is based on
1:16neoliberalism, and that's a bad idea.
1:19The euro puts neoliberalism into
1:20practice, and it's a bad system. The
1:23French riots in response to yet more
1:25cuts to government funding of education
1:28may be the force which finally ends both
1:30an economic philosophy which has failed
1:32the test of time and an economic system
1:35which should never have been created in
1:37the first place. A realistic, empirical,
1:39and logical analysis leads to several
1:42heretical conclusions about how to end
1:45Europe's decline. It'll take many words
1:47and many videos to put the full argument
1:50that I need to make, but to summarize my
1:52conclusions, they are firstly that the
1:55euro should be abolished, and all
1:57European countries should return to
1:59their pre-euro national currencies.
2:01Secondly, the contrary to conventional
2:03wisdom and the rules of the Eurozone,
2:05responsible governments should run
2:07deficits because that is how fiat money
2:10is created. Thirdly, these deficits
2:12should fund the construction of the
2:14infrastructure that a modern society
2:16needs and this includes providing a
2:18quality education for all students. And
2:21finally, while neoliberalism and the
2:23Maastricht Treaty demonized government
2:25debt, private debt is the main cause the
2:28economic crisis and that is what should
2:30be kept under strict limits, whereas
2:33conventional economic policy has let it
2:35explode. Now, in this video, I'll focus
2:38upon the empirical data which shows that
2:40neoliberalism and the euro have been
2:42economic failures. In the next video in
2:45this series, I'll explain how the
2:47economic theory behind neoliberalism is
2:50based on numerous logical fallacies.
2:52Neoliberalism itself is the belief that
2:54the private sector does almost
2:56everything better than the government
2:57and therefore that market mechanisms
2:59should be used in preference to
3:01administrative systems in almost all
3:03cases. Now, I've heard plenty of people
3:05argue that neoliberalism itself is a
3:07myth, a concept dreamt up by economic
3:10radicals like me to undermine good
3:12government and so on. And so often the
3:14best way to defend a bad idea is to
3:16claim that it doesn't even exist in the
3:18first place. So, how can you oppose it?
3:21Well, let's go with the Encyclopedia
3:23Britannica's definition of neoliberalism
3:26and it's as follows. Neoliberalism is a
3:28political and economic ideology that
3:31prioritizes free market capitalism,
3:33private enterprise, limited government
3:35intervention in the economy,
3:37deregulation, privatization, free trade,
3:40and individual economic freedom. It
3:43holds that competitive markets allocate
3:45resources more efficiently than state
3:47planning and that sustained economic
3:49growth is a primary path to human
3:52progress. Now, these beliefs are
3:54commonplace amongst politicians and
3:57they're hammered all the time by the
3:59mainstream media. So, neoliberalism
4:01definitely does exist. Its intellectual
4:04foundation is known as neoclassical
4:07economics. And this economic theory is
4:09believed by almost all politicians and
4:12journalists and most people as well,
4:14even if they've never formally studied
4:16economics. The meme of nearly
4:18neoclassical economics is the supply and
4:20demand diagram. And this diagram that
4:22asserts that in the absence of
4:24government intervention, the market will
4:26reach an equilibrium which maximizes
4:28utility at minimum cost. Any attempt by
4:31the government to intervene will drive
4:33the system away from this equilibrium
4:35and therefore make social outcomes
4:37worse. Therefore, for society to
4:39function well, government must be
4:41constrained while the private sector
4:44should be unleashed. This is where the
4:45euro comes in. A major objective of the
4:48euro system was to put neoliberalism
4:50into practice by making it almost
4:52impossible for the state to do anything.
4:55Government spending was limited by the
4:57rules of the stability and growth pact,
4:59otherwise known as the Maastricht
5:01Treaty. Governments that joined the
5:02eurozone were required to keep
5:03government deficits below 3% of GDP and
5:06to limit government debts to only no
5:08more than 60% of GDP. To join the
5:11eurozone, countries also had to give up
5:13their own currencies so they could no
5:15longer have independent exchange rates.
5:18They also gave up independent monetary
5:20policy. Before the euro, Germany could
5:23have a different interest rate to
5:24Greece. After the euro, there was one
5:26official interest rate for the entire
5:29eurozone. Now, finally, European states
5:32even gave up on political control of
5:35politics. Well, if this video has
5:36alerted you to the fact that what you
5:38thought you knew about economics is
5:40wrong, you'll thoroughly enjoy the free
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6:01an invite to join that course as well.
6:03In every other so-called democracy on
6:05the planet, politicians are the ones who
6:07put proposed new laws before parliament.
6:10But in the European Parliament, the
6:12politicians do not draft the laws. The
6:14European Commission does that. All the
6:17politicians can do is debate and perhaps
6:19amend laws drafted by the bureaucrats in
6:22the European Commission. The logic
6:24behind this procedure is that
6:25bureaucrats in the European Commission
6:27can be expected to have been trained in
6:30economic theory, whereas politics might
6:32throw up candidates who had not been so
6:34trained. So, don't let the politicians
6:36draft laws. Leave those to the economic
6:39experts instead. So, the Eurozone was
6:41designed to get democracy out of the way
6:44of conventional economic thought. And
6:46the designers of this system thought
6:47that it would lead to both stability and
6:49prosperity for Europe. Hence, the title
6:51of the Stability and Growth Pact. But in
6:54practice, they've delivered neither.
6:56This is obvious when you look at the
6:58empirical data of the last 25 years.
7:01I'll start with the facts on the level
7:03of government spending in France. Since
7:05the creation of the era, the French
7:07budget deficit has averaged 4.3% of GDP.
7:12It is currently at about 6%, whereas
7:14according to the rules of the Eurozone,
7:16it is not supposed to exceed 3%. To try
7:19to reduce the deficit to conform to
7:21these rules, the French government has
7:23slashed its social expenditure,
7:25including its spending on education. And
7:27this is what triggered the student
7:29riots. Students report that they have to
7:31endure classrooms without teachers,
7:34school buildings wearing down because of
7:36inadequate maintenance, science classes
7:39that are canceled because of a lack of
7:40equipment or raw materials, and many
7:43other ignominies. They've had enough,
7:44and frankly, rightly so. Now, at the
7:47same time, given its support for
7:49Zionism, the French government is
7:51expanding military expenditure, which
7:53all European governments treat as
7:55sacrosanct. No politician has ever
7:58asked, "Where's the money going to come
7:59from?" when it comes to weapons of war.
8:01But, the same question justifies letting
8:04school buildings decay, and lessons
8:06going untaught, because not exceeding
8:08the 3% deficit limit is more important
8:11than educating French children. Are
8:13these, frankly, bizarre government
8:15priorities are the product of an
8:17economic system which has failed the
8:19test of time. Neoliberal economic
8:22policies and the euro itself was
8:24supposed to bring stability and growth
8:26to Europe. They have, in fact, delivered
8:28the exact opposite. Now, Europe can
8:30claim to have price stability now, in
8:33stark contrast to the 1970s, when
8:36Italian and French inflation rate were
8:38in the double digits, and were far
8:40higher than Germany's inflation rate.
8:43But, that inflationary convergence
8:44predates the euro, which formally
8:46commenced electronically in 1999, with
8:50the currency commencing in 2002. In
8:53December 1998, the month before the euro
8:56commenced, France actually had a lower
8:58inflation rate than Germany. Both
9:00countries were on the verge of
9:01deflation, and even Italy had a lower
9:04inflation rate than the target central
9:06banks aspire to these days of 2% per
9:09annum. Now, the main reasons for this
9:11fall in the inflation rate were the fall
9:13in oil prices after the huge rises
9:16during the 1970s, and the growth of
9:19China as a manufacturing powerhouse,
9:21which reduced the cost of many
9:23manufactured goods. So, though Europe
9:25does now have stability in terms of
9:27prices, in comparison to what happened
9:30before the euro, this stability really
9:32has nothing to do with the stability and
9:34growth pact itself. In terms of its
9:37second objective, that of economic
9:39growth, the Maastricht Treaty has been
9:40an abject failure, as World Bank data on
9:43per capita economic growth rates
9:45confirms. There is clearly a downward
9:47secular trend to France's rate of
9:48economic growth. But all the same, the
9:50Stability and Growth Pact was intended
9:53to reverse this trend, but in fact, if
9:55anything, it has accelerated it.
9:57France's average per capita growth rate
9:59before the euro was 2.9% per annum.
10:02After the euro, it has fallen by almost
10:052/3 to 1% per annum. France has also
10:08never met the debt rule. The lowest
10:10level of French government debt since
10:12the euro was created was 62% of GDP in
10:152001.
10:17It is currently almost twice the maximum
10:19level at 118% of GDP. Now, this might
10:23sound really dangerous in isolation.
10:25This is the same data in comparison to
10:28the level of French private debt. So,
10:30ask yourself, why do you never hear
10:32about the level of French private debt
10:34when it is almost 100% of GDP higher
10:38than public debt? Why do economists and
10:40politicians demonize the smaller one and
10:43ignore the larger one? Why do they turn
10:45heaven into hell to restrain the growth
10:47of government debt, while ignoring the
10:49rate of growth of private debt, which on
10:51average has been twice as high as the
10:53rate of government debt since the start
10:55of the euro? Meanwhile, China is running
10:58deficits which, on average, are 50%
11:01higher than France's and twice the
11:03Maastricht Treaty's limit. And China's
11:05government deficit is currently twice as
11:07large as France's. Now, these Chinese
11:10deficits are not leading to the economic
11:12crises that European politicians
11:15foresaw. The conventional wisdom taught
11:17by economic textbooks is that government
11:20deficits reduce the rate of economic
11:22growth. This is how Mankiw's influential
11:25macroeconomic textbook puts it. A budget
11:27deficit crowds out investment. The
11:29resulting reduction in the capital stock
11:31is part of the burden of the national
11:34debt on future generations. So, budget
11:36deficits, according to economists,
11:38reduce private investment and hence
11:40reduce the rate of economic growth. If
11:43so, then why is China growing so much
11:46faster than France? Because China really
11:49does give the lie to this conventional
11:51wisdom. It's average rate of economic
11:53growth since 1999 has been eight times
11:57what France has achieved. And this rate
11:59of growth means that it would take
12:01France seven decades to double per
12:03capita income, whereas China has been
12:05doubling per capita income every decade.
12:08And whereas the benefits of growth have
12:10gone overwhelmingly to the wealthy in
12:12the West, all social classes in China
12:15have shared to some extent in the rapid
12:17growth of national prosperity. But
12:19China's rate of growth has predictably
12:21slowed down as it approaches the income
12:23level of a developed economy. But it's
12:26relative outperformance is now even
12:27higher. France's per capita growth rate
12:30in 2025 was 0.6% per annum, whereas
12:34China's was 5.1%. But China's admittedly
12:37slowing rate of economic growth is now
12:39almost nine times France's growth rate.
12:42Now, paradoxically, given the belief
12:44that budget deficits reduce the rate of
12:46economic growth, the conventional wisdom
12:48also claims that higher rates of
12:50government money creation will lead to
12:52higher rates of inflation. China also
12:55shows that this is a fallacy. China's
12:57average inflation rate since 2000 was
13:00only slightly higher than France's,
13:02while both were well below the 2% target
13:04that the central bank set today. Since
13:06COVID, which I date from 2020, China's
13:09inflation rate has averaged under 1% per
13:11year, while France's have been 2.4% and
13:14this is despite, or maybe it's because
13:16of, China's government deficit being far
13:19higher than France's across this time
13:21period. So, if the empirical data is so
13:24strongly in China's favor, why haven't
13:26European politicians given up on their
13:28policies and copied China instead? Well,
13:31here economic theory raises its
13:33susceptible pretty head. The true
13:35foundation of these policies is
13:37mainstream neoclassical economics. And
13:40European politicians cling to this
13:43theory because it tells them that their
13:45policies are better than China's, even
13:47though the evidence speaks to differ.
13:49The basis of the errors of European
13:50economic policy is thus Western economic
13:53theory. Now, their economists will claim
13:55their theories are scientific. This is
13:57an abject lie. Neoclassical economics is
13:59based upon numerous lies, and these lies
14:02are showing what happens when economic
14:04policies are based on intellectual lies.
14:07I'll cover these lies and how they're
14:09hiding in plain sight in the academic
14:11literature in the next video in this
14:13series. In the meantime, if you'd like
14:15to join me in my online course and learn
14:17my approach to economics in great
14:19detail, click on the link below to sign
14:21up to my school program.

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