Steve Keen

Debunking Economics - Revised and Expanded Edition: The Naked Emperor Dethroned? Cover of Developing an economics for the post-crisis world

Steve Keen calls himself a Post-Keynesian. Not to be confused with new, neo or real Keynesians,  Post-Keynesians are probably the largest group of non mainstream economists, not least because they are a very mixed bunch. Keen is famous for being one of those who did see the 2007 crisis coming, for his “Debunking Economics”, and his Minsky inspired model which frightens main streamers because the math is more demanding than DSGE. Unsurprisingly he is marginalized, belittled and not allowed to publish in mainstream journals

NEW BOOK 12-2021 The New Economics: A Manifesto – by Steve Keen

In 1517, Martin Luther nailed his 95 theses to the wall of Wittenberg church. He argued that the Church’s internally consistent but absurd doctrines had pickled into a dogmatic structure of untruth. It was time for a Reformation.

Half a millennium later, Steve Keen argues that economics needs its own Reformation. In Debunking Economics, he eviscerated an intellectual church – neoclassical economics – that systematically ignores its own empirical untruths and logical fallacies, and yet is still mysteriously worshipped by its scholarly high priests. In this book, he presents his Reformation: a New Economics, which tackles serious issues that today’s economic priesthood ignores, such as money, energy and ecological sustainability. It gives us hope that we can save our economies from collapse and the planet from ecological catastrophe.

Performing this task with his usual panache and wit, Steve Keen’s new book is unmissable to anyone who has noticed that the economics Emperor is naked and would like him to put on some clothes.

see also > Krugman vs Keen – Savings&Loans   2021  From finance to climate crisis:  An interview with Steve Keen   by Jamie Morgan

… “Steve Keen is Distinguished Research Fellow at the Institute for Strategy, Resilience and Security, University College London. Steve is one of the more publicly engaged PostKeynesians and first came to prominence with the publication of his book, Debunking Economics (Keen, 2001, 2011), which provides a wide-ranging critique of the assumptions, mathematical incoherencies, conceptual inconsistencies, and adverse socio-economic consequences of “neoclassical economics” – a dominant strain of mainstream economics whose influence spreads further than merely those who self-identify as neoclassical economists. In terms of his own theoretical contributions, he is best known for his work on the macroeconomic significance of private debt – banking practices, financial asset expansion and debt-deflation in the tradition of Hyman Minsky, Irving Fisher etc. Work from this perspective proved particularly timely – putting Steve in a position to identify the underlying tendencies that would eventually manifest as the “Global Financial Crisis” (GFC), 2007-8.

Steve first started to draw attention to problems in late 2005 and readers of Real-World Economics Review voted him recipient of the “Revere Award” for this in 2010 (and Alan Greenspan was awarded the matching “Dynamite Award”). Steve’s subsequent Minsky software package project (see provides a free, Open Access alternative to mainstream macroeconomic modelling tools like Dynare and GAMS.2  Steve has published numerous papers (e.g. Keen, 2017a; Gallegati et al., 2006; Keen, 2014; Keen, 1993).

Some of this work is collected in Developing an Economics for the Post-Crisis World (Keen, 2016). He has also published a further book on his central themes – Can We Avoid Another Financial Crisis? (Keen, 2017b). In recent years, Steve has become increasingly interested in mainstream environmental economics and increasingly influenced by its alternative, ecological economics.

His most recent work provides a systematic critique of mainstream economic work on climate change, particularly “Integrated Assessment Models” (IAMs), of which the best known are the “Dynamic Integrated Model of Climate and the Economy” (DICE) variety (e.g. Keen, 2020a; Keen et al, 2019; Asefi-Najafabady et al., 2020). These models have influenced the Intergovernmental Panel on Climate Change (IPCC) and play a role in informing policy for mitigation and adaptation. Many climate and Earth system scientists (and increasingly so) are sceptical regarding these models, but it was mainly for his work on them that  William Nordhaus received the “Sveridges Riksbank Prize  for Economic Sciences in Memory of Alfred Nobel” (jointly with Paul Romer) in 2018.

Steve’s blog and Twitter activity have made him something of a controversial, perhaps maverick figure in economics circles and his route into academia and subsequent career have been atypical. He attended University of Sydney in the 1970s, graduating Bachelor of Arts in 1974 and Bachelor of Law in 1976, before completing a Diploma in Education in 1977 at Sydney Teaching College. Having worked as a school librarian, NGO education officer, computer programmer and journalist he turned to economics, completing a Masters of Commerce in economics and economic history in 1990, followed by a PhD in economics in 1998, both at University of New South Wales. He was professor of economics at University of Western Sydney (UWS) until 2013, moving to Kingston University, London in 2014, following the closure of the economics program at UWS. He then took the unusual if not unique step in 2017 of initiating a crowdfunding project to free him from the administrative burden that came with his full-time higher education post. In December 2018 he announced he was now fully “retired” from Kingston. …” 2019 The Minsky Model by David Orrell

The Minsky model was developed by Steve Keen as a simple macroeconomic model that illustrates some of the insights of Hyman Minsky. The model takes as its starting point Goodwin’s growth cycle model (Goodwin, 1967), which can be expressed as differential equations in the employment rate and the wage share of output.

The equations for Goodwin’s model are determined by assuming simple linear relationships between the variables (see Keen’s paper for details). …

… So how realistic is this model? The idea that employment level and wages are in a simple (linear or nonlinear) kind of predator-prey relation seems problematic, especially given that in recent decades real wages in many countries have hardly budged, regardless of employment level. Similarly the notion of a constant linear “accelerator” relating output to capital stock seems a little simplistic. Of course, as in systems biology, any systems dynamics model of the economy has to make such compromises, because otherwise the model becomes impossible to parameterise. As always, the model is best seen as a patch which captures some aspects of the underlying dynamics.

In order to experiment with the model, I coded it up as a Shiny app. The model has rate equations for the following variables: capital K, population N, productivity a, wage rate w, debt D, and price level P. (The model can also be run using Keen’s Minsky software.) Keen also has a version that includes an explicit monetary sector (see reference), which adds a few more equations and more complexity. At that point though I might be tempted to look at simpler models of particular subsets of the economy.

Screenshot of Minsky app

References: 1) Goodwin, Richard, 1967. A growth cycle. In: Feinstein, C.H. (Ed.), Socialism, Capitalism and Economic Growth. Cambridge University Press, Cambridge, 54–58. 2) Keen, S. (2013). A monetary Minsky model of the Great Moderation and the Great Recession. Journal of Economic Behavior and Organization, 86, 221-235.  2013  …”Non-economists were given a nice insight into the state of the profession when Professor Steve Keen, on video link from Australia to argue that austerity had failed, spent part of his talk attacking Paul Krugman – surely the patron saint of all those who argue that austerity has failed… Along with Sushil Wadhwani, Professor Keen was in favour of a helicopter drop of money – £500 or $500 to be paid to everyone on condition they used it to pay down debts. He was rather dismissive of my pettifogging questions about the details – how would you check whether they paid down the debt? To whom would it be paid – all residents, all those on the electoral roll, all those with bank accounts – but any government that adopted this policy would find the details were all-important. Giving £500 to Russian oligarchs, or illegal immigrants, or prisoners? Imagine what the tabloid press would say…”… 2012 Steve Keen: Why Economics is Bunk  2009 buttonwood

ECONOMISTS are a notoriously prickly lot as anyone following the debate over current policy options will attest. ( 404 eg: this response to Paul Krugman’s recent article in the New York Times magazine.)

There is a tendency for one school to think the others are fools or knaves, or even to deny that there can be any other schools at all. Remember that this is a profession that has yet to agree on what caused the Great Depression or what pulled the economy out of the slump.

As a consequence of this uncertainty, the response of authorities to the credit crunch has been a very mixed bag. Both monetary and fiscal policy have been used, what Niall Ferguson, the historian, has described as a Friedman/Keynes double whammy. Perhaps the effects will be all the greater for being combined. Perhaps they will counteract each other. Either way, when we do pull out of the crisis, it will be very difficult to tell which of the two approaches has worked.

Keynesians (add the prefixes neo- or post- if you like) criticise monetary policy as failing to deal with a liquidity trap; central banks can create new money but cannot guaranteee it will be spent or lent. It may simply be “hoarded” in bank accounts or central bank reserves. Thus quantitative easing has yet to show up in the broad money measures. The problem, in the Keynesian mind, is a lack of confidence among entrepreneurs, combined with the paradox of thrift; we all want to save more, and thus cut our spending. But since our spending is someone else’s income, the result is that incomes fall across the economy. We end up saving less. Governments can break the downward spiral by using fiscal deficits to boost employment; the workers thus employed will spend money, adding to the income of business etc.

The free market/freshwater/neoclassical school (take your pick) argue that government action is foolhardy. The deficit financing will either lead consumers to expect future tax rises, and thus postpone spending, or it will cause bondholders to raise the yield they demand for holding government debt. That will push up the cost of finance for business and thus depress economic activity. (Yes, I have skated over some details here but that’s 80 years of economic debate condensed in two paragraphs.)

Steve Keen has a very good blog post on this subject, posted on Sunday, in which he berates the neoclassical school for failing to understand credit creation.

I’m not sure how closely the markets follow this debate in the economics discipline but it is quite important. Up until a week ago, the markets seemed to be implicitly assuming a V-shaped recovery, perhaps on the basis that the authorities know what they are doing. I think the authorities are throwing darts in the dark and trying to hit something, as do many of the bears profiled in our latest issue.

Incidentally, we probably have to hope that the neoclassicists are right. It seems likely that monetary policy will stay loose for a good while. But political pressure is likely to force governments to rein back the fiscal stimulus – remember that, to count as a stimulus, the deficit has to get bigger every year. If the US runs a deficit of just 8% of GDP in 2010, that will count as a tightening.  2009 buttonwood

…”NICE piece from Steve Keen, an Australian economist, on why the fiscal and monetary bailouts might not work. The second half of the paper is a bit technical but the key insight, it seemed to me, was this. Aggregate demand consists of the change in nominal GDP plus the change in debt levels. Historically, the latter factor has been relatively small. but now debt levels are huge; America entered the credit crunch in 2007 with debt of 275% of GDP, compared with 175% in 1929, before the Great Depression. With the proportion that high, the effect of consumers’ attempts to reduce debts (see yesterday’s post) may overwhelm the impact of fiscal reflation packages, no matter how large they sound in dollar terms. And the money created by quantitative easing may simply end up being hoarded by the banks (see article in last week’s Economist)….”…