Episode 04: Building real world economics with Steve Keen

This week we discuss the need to overthrow the current economic paradigm, and what a new one could look like, with Professor Steve Keen. Steve is a prolific writer, teacher, blogger and vlogger, known as one of few economists to have predicted the global financial crash and a thorn in the side of mainstream or neoclassical economics for over 50 years. A former professor of economics at Kingston university in the UK, today you’re most likely to find him on YouTube or one of his weekly online seminars talking about the crisis of capitalism and the various flaws in mainstream thinking that have led us here, as well as the new real world-tethered economics he is trying to build. I first came across his work when researching why the world had ignored the Limits to Growth. Steve had uncovered deep flaws in climate economics, the strand of mainstream economics used by to inform climate policies for governments around the world for decades, including to set spending priorities and carbon pricing. The godfather of climate economics, William Nordhaus, was also one of the core critics of the Limits to Growth. But while that study had warned of a potential collapse in civilisation this century, a trajectory we appear to be on track for, Nordhaus’ own model, developed two decades later model found quite the opposite. And yet it would be his model that would set the template for others, with Steve and I agreeing that this is a core reason for the decades and indeed ongoing delay in tackling the crisis. We talk about why economists in particular prefer the story that capitalism and technology will always save us even as they continue to exclude energy, without which no technology is possible, from their models. Let alone a habitable climate. We also link this to economists' misunderstanding of money creation which leads to chronic underinvestment in public goods, while private money creation (ie credit) stokes bubbles, inflates asset prices and will likely cause the next crisis. A health warning - this interview gets a bit technical in places, with Steve discussing some of the maths behind both mainstream models as well as the alternatives he is building. He even uses a software he’s developed, to explain his approach to real world economics. You can watch the video of this podcast on YouTube @invisible-handcuffs. I also include links to Steve’s Patreon site, his online course and other resources he mentions in the show notes. If this episode leaves you with more questions than answers do leave a comment on which ever platform you are viewing or listening to this episode. You can also subscribe and sign up for updates at invisiblehandcuffs.com. Many thanks to Steve for joining us for this insightful and wide-ranging episode.