Agreeing and Disagreeing with Steve Keen

Steve Keen interview here

I agree that the crisis is due to a Minskian debt bubble....
I disagree that the solution is necessarily to write off the debt per capita with new money.

He is asked directly about the moral hazard problem and he simply restates what he always says - the is was a systematic problem not an individual problem and therefore moral hazard, implication being, shouldn't matter. There are two things, as I see it, wrong with that.

1. Moral hazard doesn't care if a problem is systematic or individual or not - it only matters what people think. And, as the interviewer notes, many people would think that 'bad actors' would be given the same handouts that the 'good actors' are given. To some, that's not fair - and that creates moral hazard moreover in so far as 'bad' debtors have some blame. And what about those that have no debts at all - Do they get nothing? ... which brings me to my next point.

2. Keen makes the assumption that creditors should take full blame for the systematic failure. This is not obvious to me. Credit / loans are a multiple-party transaction and while one can argue that relatively speaking the creditors should have known better and have more power in the relationship and therefore more responsibility, the fact nevertheless remains that many debtors should have known better and demanded funds well beyond their means. I find it somewhat ironic that Keen doesn't agree on this point since circuit theory explains that credit money expands, and bubbles are formed, due in part for the the demand for it.

I believe Prof. Keen is correct that the financial failure was a structural failure - but the structure arises from behavior of individuals and institutions, not some amorphous blob immune to moral hazard.

"Everyone gets a boost because we are not trying to boost individuals...."

It's that kind of statement that makes it clear to me that Keen has no ready answer for the question of fairness and moral hazard. I respect Prof. Keen and agree with him on many points, but I can't agree with his prescription on it's face.