Steve Keen Says Economists Get Everything Wrong (Especially About Climate Change)

Model Critique

Steve Keen argues that traditional economic models are fundamentally flawed, particularly in their treatment of money and deficits. He criticizes mainstream economists like Paul Krugman for ignoring the role of money creation in economic analysis, which he believes leads to incorrect conclusions about government borrowing and interest rates 1. Keen suggests that the current economic framework fails to account for real-world complexities and needs a complete overhaul. He states, "Economics does not progress one funeral at a time. We have to replace it, lock, stock and barrel" 2.

   

Money's Role

Keen emphasizes the importance of money as the starting point for economic analysis, challenging the traditional view that economics is primarily about people. He explains that both public and private sectors create money, but the impacts differ significantly, with government having a limitless capacity to create money through accounting operations 3. This perspective shifts the focus from the constraints of public debt to understanding the broader economic implications of money creation. Keen asserts, "It's not about money. Well, that's totally wrong. It is about money and how money affects people and how people affect money" 4.

   

Debt Dangers

Keen highlights the dangers of private debt, arguing that it poses a greater threat to economic stability than public debt. He points out that the financial sector's incentive to create debt leads to unsustainable levels of private borrowing, which historically precedes financial crises 5. Keen believes that the focus on public debt is misplaced, as private debt burdens future generations more significantly. He notes, "Every last one of them was caused by a runaway private debt bubble. And the only way out of it was to write that private debt off" 6.