Steve Keen

Now, there are times when you can get such a degree of money creation like we had during COVID that other factors apply.

So the amount of money being created is so great that people who set prices think there's so much demand coming in, we can mark up our prices if we wish to.

I mean, central banks will say, oh, interest rates...

Central banks are stopped by neoclassical economists in part in the French.

They haven't got a fucking clue how the financial system actually operates.

So you have people who will make decisions about how to control the rate of inflation.

And what they're doing, they're controlling the rate of inflation in a mental model they have.

We call the dynamic stochastic general equilibrium model.

And in that model, putting up the interest rate reduces consumption.

because it inspires you to put aside money so that your future generations can go shopping.

It changes the time horizon of the consumption of your entire dynasty, by the way.

So when you go shopping at your local supermarket, you're considering the utility of your entire dynasty out to the year infinity.

That's built into the neoclassical models in what they call the Euler equation that's supposed to represent consumption decisions.

So they argue that consumption is volatile, where investment is stable.

That's the exact empirical opposite of the real data.

And they say that if you change the interest rate, you will change the trade-off between future and current utility that consumers have.

So consumers, when the interest rate changes,

changes will jump to a new location in terms of the balance between their savings, which leads to investment in their models, and their consumption.

And that's how they explain fluctuations.

And therefore, their interest rate works to control the rate of inflation in their mental models.