Steve Keen takes on the dominant deluded school of economics, Neoclassicism

36 comments on “Steve Keen takes on the dominant deluded school of economics, Neoclassicism
  1. Karl Max says:

    People can probably easily model these PDEs themselves, in software like Wolfram’s Mathematica. This looks like an extremely good way to demonstrate the nature and velocity of capital moving through an economy over time periods, to just about everyone.

    Good job, Commander Keen.

  2. Jayme says:

    Effectively, what this argument tells me is that neo-classical economics is based on a set of over simplified equations and assumptions that are tweaked to fit a few select data sets. As the models diverge too far from the real statistics, the extend and pretend statistics reported by the banks and governments are consequently breaking down and confidence is failing. It would be interesting if he had provided a comparison of the predictive errors between the neo-classical and the Walras-Schumpeter-Minsky law, with measured data.

    Cool. His two ‘solutions’ to the debt problem (Jubilee and the PILL) is self-regulating (no expensive bureaucratic regulators). I like the modern debt jubilee concept for preserving confidence in the system. Too many people would be screwed over for most any other solution. Maybe he could modify his equations to compute a minimum ‘pain index’ for the different solutions for minimization and comparison?

  3. Just George says:

    The only thing I don’t like about his two solutions is that they ignore the blatant criminality of the bankers who perpetuated this massive fraud, meaning that those who caused this mess get away with having enjoyed their lavish lifestyles all these years, while members of the productive economy are not compensated for their lower standard of life. I think it more equitable to simply claim all bank and banker assets as proceeds of crime, send all those complicit to prison, and THEN implement Mr Keens strategies with a new foundation of sound, publically owned banks.

  4. Danny Cunnington says:

    Very interesting data. Central to this model is the seven year cycle for debt based assets which can multiply 7 times. Then there’s one jubilee year to end the cycle of 7×7= 49 + 1 jubilee year. This is nothing new and is outlined in the old testament of the bible as a sustainable model.

    It’s easier to understand when you correctly define money as organisational energy because if you think about it that’s what it is. It’s the flow that creates goods and services whereas savings or assets are like an energy ridge or battery.

    If you have an interest rate of 5% PA and have repayment periods of 7 years you avoid a situation where the interest rate becomes ever larger eventually leading to a debt crisis.
    This is the seven years of tribulation, the seven liberal arts, Etc. All debts must be settled 7 years after their inception meaning that no further interest payments are outstanding on old debt. You can do this seven times and then add a year zero or golden jubilee. In this reset year all debts and interest payments go to zero.

    This system then ensures no ponzi scheme of compounding interest rate debt can build up and the whole system once broadly understood needs very little regulation. It also means that bankruptcies and failed projects can only stay in the system for seven years. Why 5% interest? Because 5% X 7 years mean the maximum interest on any debt peaks at 35% of the capital. Allowing interest rates to consume more than a third of capital would be unsustainable and amounts to taxation without representation. The Irony is that this was all known thousands of years ago.

    This model works perfectly well and can be started at any time by starting with a year zero (Jubilee) followed by 7×7 years of money following it’s proper function. The trick is to realise that the 5% PA interest is really more an insurance premium than a profit for bankers. This takes care of debt failures and it’s the bank’s due prudence that dictates their profits as in the balance left over after debt provisioning every 7 years.

    To start this cycle all we need is a modern day jesus type who can kick the dishonest rent seekers out of the (Public utility) temple without getting nailed to a tree for doing so!

  5. SnakeEater says:

    It seems he never hit the nail. The flow of digits and simulation has been disconnected from physical world. He better eat his digits himself and self hypnotised.

    The real issues is not about how fair or how perfect the flow of the digits. It is the power to manipulate the flow, the power to create mire digits, the power to manipulate price of all values, the power to stop and start but all lead to disaster with selfish gain.

  6. Mother Earth says:

    Keen, the weapon of mass boredom…The systen us a fraud mr. Keen. It has no mechanics, but if you keep guesing you keep coming up with a theory.

    Its a bird!
    Its a plane!
    It’s me being patently insane!

  7. Flopot says:

    @Mother Earth

    Steve Keen tackles the bulls**t that fuels the fraud. The Western world is churning out generations of deluded or ultra-cynical economists based on the lies of neo-classical economics. These charlatans then turn up at all levels of government, business and media to either justify fraud or actively promote it.

    But I agree that even most alternative economists skirt around the issue of fraud or ignore it completely. They certainly allude to it in their books but never seem to want to speak about it “on air”.

  8. Robert Mockan says:

    @ Just George

    I agree except prison is too good for them. A more appropriate punishment is needed.

  9. Robert Mockan says:

    @ Just George

    In legal terms justifiable homicide would be a good defense for people taking any such action against the international banking cartel and monetary authorities. How many millions of deaths can be attributed to the actions of the insane oligarchs?
    When the only way to stop serial mass murder is to physically stop the perpetrators, what jury in a subsequent trial would not acquit those who did what needed to be done to stop them? Of course, the government would see differently, but then it is on the take.

  10. Flopot says:

    For example, take RT’s interviews with the economist Patrick Young. He never, ever, ever mentions financial fraud or rigged markets and his criticism amounts to lambasting the banksters for being amateurs.

    So Mr Young is a good example of the neo-classical economist – he is either deluded or cynical. He is obviously bloody smart but never mentions the fraud word. Why?

  11. flicks says:

    For morons like me a total ‘arse about tit’ explaination would be the way to go. When ever I see an equation of any kind I start to feel faint.

  12. Banking Thiefs says:

    PILL Property Income Limited Leverage – Yeah, the UK used to have that, it was called no loan more than 3.5x income. Who removed it? The French still have it.

  13. I_Cant_Believe_Its_Just_a_Dip says:

    Is that like a version of Simulink I see at the beginning-(a powerful graphical multi-variable tool for mathematical modeling).
    I agree the herding people/fraud/war factor isn’t taken into account or even mentioned-possibly additional differentials inside the equation to be added but I doubt such variables can be factored into the over simplified models of the first and second order equations. An analogy am reminded of, is with virtual modeling of analogue electronics with PSpice techniques-it looked good on the computer,worked well and gave nice charts but when you actually built it all sorts of strange+wierd things could happen, and thats an isolated well known simple electronics circuit for gods sakes!! (failing for totally different reasons but they do use similar modeling techniques)
    Interesting correlations with the 1930’s regarding private debt, it would seem to suggest we are sort of coming out of the recession but with a longer timeline-but I doubt it myself-a double dip anyone?
    Thanks for the headups on the UK, Steve, its good to know we are in at least 2.5 times more doggy dodo than the Americans are.

  14. MirrorMirror says:

    Well done Steve …. taking the mysticism out of banking.
    Everything is in the numbers …. Classical Economists & Politicians would have you believe it’s an “Art” …. which allows them to blind you with “non science” 😆

  15. Spaniard says:

    Once again, I agree with Mother Earth. There is no system we can fix. Where do economists think food comes from? An economic diagnosis with no comment on water and energy is just another fable driven thread of thought. Keep making numbers in the air pal.

  16. MirrorMirror says:

    @Spaniard …. We (society) are the REAL Creditors , not the Bankstas !

  17. pm says:

    Usury is the part of the equations from which all the problems arise. Why we are being charged for the use of something that the banks don’t really possess and should be free is the mathematical doublethink here. Sovereign money self regulates even better than seven year jubilees.

  18. Danny Cunnington says:

    I think the bottom line is that banking and money creation has to be a public utility for it to work sustainably. This is because of what is backing it, namely “the full faith & good credit” of the aggregate productions of it’s users meaning the public.

    Foe something to have full faith & good credit it has to have an equitable foundation to begin with. The currency after all, is only an enabling medium to allow the free flow of goods and services throughout the society that uses it. The bank can still make a profit but it can no longer wield unaccountable power. Keen’s math models are just a more complicated way of stating the old testament system of 7 years x 5% x 7 seven year periods + 1 year. 50 year monetary cycles which start and end debt free. This way all the real goods and services left over from 50 years of commerce become legacy debt free assets.

    To this very day seven years is the actual generational cycles. A new born to a child is seven years. Three cycles is adulthood and the start of a new cycle of new borns and so on. 50 years in when those in it from the beginning get to keep the assets that they have earned tax and debt free.

    They don’t need to pay tax because through having a couple of children they have replaced themselves as tax payers if they produced the new borns between the ages of 21 -29 years. The government also goes debt free every 50 years so there’s no need for them to levy taxes on the over 50 because there’s no legacy interest payments to make.

  19. F. Beard says:

    Steve Keen is great and Stacy is great for recognizing that.

    Here’s a great post by Dr. Michael Hudson:

  20. F. Beard says:

    @Danny Cunnington | April 22, 2012 at 3:25 pm |,

    Interesting (no pun intended) stuff!

  21. Hegelian Dialectic says:

    Gee, Steve, could ya go through that a little faster? I think I understood it all a little too much the first time around.

  22. Tritone says:

    When the last Eskimo put on those “rubber boots” it was the beginning of the end
    for humanity, cheers!

  23. Jayme says:

    Keen’s model still doesn’t consider poles and zeros. It appears to be an exponential model bounded with feedback. I do find it hard to believe that economists use such simple systems of equations and assumptions in modeling the real economy. Unlimited wealth aggregation and finite, unevenly distributed resources, and inhomogeneity of the population’s behavior (it assumes a objectified, continuous, homogeneous ‘mass’ of consumers) will all act to create a much less linear, more complex dynamically varying model. However, if I’m understanding Keen’s correlation numbers (which he doesn’t compare with any neo-classical correlation numbers) then there is nearly 80% correlation between his model and the macroeconomy’s recent and historical performance in the several sectors he’s shown. This degree of correlation is good and may work to stabilize the global economy for a while but it does look like the model is still oversimplified for an anthropocentric eco-eco system.

    I’m not very familiar with John (Forbes) Nash’s work and how it applies to economics but I thought Nash’s work was more representative of human behavior? Perhaps it is too specialized and not sufficient to describe macroeconomic phenomena.

  24. Jayme says:

    @Danny Cunningham – good observations and interesting to note that they didn’t need any differential equations to figure that out.

  25. El_Puerco says:

    I got this from a Professional Adviser>>jajaja ….C/P: { He’s only half a degree better than Krugman. He thinks he’s the new economic messiah and he doesn’t grasp that money needs to be backed by real assets, and not a government stamp of approval. Steven is ultimately just another dysfunctional economists, but hubris is part and parcel with the professional economic profession.}….So What do you think?…

  26. Jayme says:

    Hoarding is a problem with trans-generational wealth accumulation. Much of this wealth is placed into institutions, foundations or trusts, that are even further removed from public access and scrutiny. These institutions guarantee segregation of the classes for generations. Such institutions are hypothetically ‘our heritage’ but in fact are just edifices of the generations of wealthy elite. I expect these centers of wealth aggregation act as poles (pillars of the community) within any mathematical solution and finite resource availability act as zeros. In any case, it really doesn’t take a math model to figure out that criminal behavior that concentrates wealth at the expense of the environment from which it was extracted, produces a highly unstable system. I expect that there will be some wild and erratic oscillations in the solutions to any economic model that is better correlated with reality than what Keen presents.

  27. Tao Jonesing says:

    @Mother Earth,

    Well said. While I am a big fan of Steve Keen, he ultimately (and unwittingly) seeks to perpetuate a system that is an outright fraud. His proposed “solutions” merely make it easier to extend the Ponzi scheme that is modern capitalism.

  28. JonnyJames says:

    Neoclassical economics, as Keen points out in Debunking…is not science. It is not rigorous academic study. It is based on absurd assumptions, does not reflect reality, and has proven time and again to utterly fail in its predictive powers.
    In short, neoclassical economics is not economics – it is political ideology dressed up as an academic “discipline”.

    Mainstream economics, law, politics and journalism are Orwellian. They have little or nothing to do with reality.

    The same goes for “political science”.

  29. JonnyJames says:

    For those who want an economist who points out the Fraud (“crimonogenic” environment) see: Dr. William K. Black

    Also, Prof Hudson talks about fraud, crime, kleptocracy and I believed he coined the term “Neo-Feudalism” years ago.

  30. JonnyJames says:

    I am not sure if I can go as far as y’all in your criticism of Keen. When you read the new Debunking Economics, he offers some very harsh criticism.

    If you want a critique of capitalism in general, I would recommend reading Prof. R. D. Wolff.

  31. Mother Earth says:


    No he does not. He is right when he says the debt determines investment, and that is the key, it’s a blunt control mechanism to make sure you can tune liquidity to the carbon supply (defining productivity).

    Also he goes on about velocity making it untrue that more money is asked than loaned out.This is only true if banks don’t have to pay interest themselves, and they do!

    The key to the economic system is that you have an excuse to do whatever you want, because you are giving carbon away to an ungreatfull lot of numbskulls.

  32. Kevin Eshbach says:

    @Karl Max

    I wonder if Steve was wearing his helmet during the presentation?

  33. Eric says:

    Banks + firms + customers + money = stable.
    A nice simple stable model when you we use fixed “constants”.
    So why are real systems unstable?

    I don’t buy the “acceleration of flows” as cause but symptom. The model is missing several nodes: greedy bugs (a.k.a thieves, kleptocrats, …). The most obvious missing destabilizing force is government waste, fraud and abuse though taxes, inflationary money printing/debasement and regulatory f-ck ups. No theoretical model can be dynamically stable where government or central banks can dilute money, vary stable constants though changes of regulations or suck wealth out of proportion to the services they provide.

    What we have now is academic morons with nice little models befitting their myopic theoretical views while ignoring elephantine size leaches.

    What is obvious is that government bonds (sovereign debt) are turning into worthless paper. They are the ultimate bubble and when they blow , then we will have a reset.

    Are economists so pucking stupid they keep ignoring and greedy robbers

  34. Jayme says:

    As much as I like Keen’s proposed solution and enjoy mathematical models, I do think that in the long run, the criticisms are correct. Essentially, models have become tools for exploiting the unwitting rather than building robustness and efficiency into the system. The bankers have attached themselves into and tax every transaction like a parasite draining the life essence out of the host’s potential for the sake of control by the parasite. This parasite looks like it’s going to kill the host. Keen’s proposal does simply propagate the status quo and will not substantively change the way we engage with the environment and our fellow human beings.

    If we all get bailed out, those of us who have been savers are supposed to what? Buy more stuff to ‘get the economy growing’ again? This will simply plunder the environment even faster. No, I think those who are critical of these abstract academic solutions are correct. Save the earth burn and eat a banker. I hear they’re held together by meat glue so you have cook them well done so you don’t get poisoned by the meat glue toxin. 😉

  35. Daidalos says:

    Every time I watch this, my seatbelt comes off at M2-M1= BRAKE BRAKE!!!

    I’m glad I drink.

Watch the latest Keiser Reports:

Buy Gold Online
Buy Gold Online