Prof Steve Keen’s presentation to the UMKC Post Keynesian conference in 2012.
Paul Krugman would argue that Income = Aggregate Demand when the economy is in equilibrium.
Steve Keen shows that the economy is not in equilibrium when aggregate debt is rising or falling:
Income = Aggregate Demand + Change in Debt
He illustrates (at 13:20) how, while GDP fell from $14.5 to $14.0 trillion, the US economy went from $18.5 to $11.5 trillion because of private debt contraction.
This does not seem entirely accurate as my earlier chart of US Debt shows that Domestic (Non-Financial) Debt growth slowed but at no stage contracted during the GFC. I suspect that Steve has omitted Government Debt which acted as an important counter-weight to Private Debt contraction during the GFC.

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
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