We’re continuing the conversation about reimagining capitalism this week with Professor Steve Keen, one of the biggest names in alternative economics. What would society look like if we stopped believing in long-held economic fictions like meritocracy and the equilibrium system?
Steve Keen has spent his career working to develop an alternative, realistic economics. He is the author of Debunking Economics and the designer of Minsky, an open source dynamic modelling program that makes it possible for anyone to build and understand monetary models of the economy. He was one of the first economists to correctly predict the 2008 financial crisis and its causes.
Twitter: @ProfSteveKeen
Steve Keen’s work is funded through Patreon: https://www.patreon.com/ProfSteveKeen
Make sure you check out Majority.FM’s AM Quickie, the morning news podcast for progressives in the know: amquickie.com
Further reading:
Debunking Economics: https://www.goodreads.com/book/show/10303367-debunking-economics—revised-and-expanded-edition
Minsky download: https://sourceforge.net/projects/minsky/
Inequality, Debt, and Credit Stagnation: https://www.debtdeflation.com/blogs/2016/07/05/inequality-debt-and-credit-stagnation/
Website: https://pitchforkeconomics.com/
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
Annie:
Real quick before we get to the show, we wanted to take a second to make sure that you’ve heard about a new podcast from the hosts of The Majority Report. It’s Majority FM’s AM Quickie. It’s the morning news podcast for progressives in the know. Each morning, Sam Seder and comedian Lucie Steiner bring you the overlooked, underrated, and the otherwise forgotten stories that are essential to things like fighting capitalism, taking back democracy, and building a more equitable society, which is all stuff we love. And even better, it’s all in five minutes before you’re even out the door. In the lukewarm world of NPR and CNN, Majority FM’s AM Quickie lays out the day’s headlines with some heat, letting progressives know how to navigate the endless news cycle while knowing what’s right. Go to amquickie.com to subscribe on your favorite podcast platform today and brace yourself, because here comes the intro music.
Nick Hanauer:
Our guest today is the esteemed and beloved Steve Keen.
David Goldstein:
Why do I know that name? Hey, Annie, who is the number-one requested guest from our listeners?
Annie:
Professor Steve Keen.
David Goldstein:
It’s like talking to Nick, but with [crosstalk 00:01:02] an Australian accent.
Nick Hanauer:
Somebody who sounds a lot smarter. Yeah.
Steve Keen:
It’s just the Australian touch. No worry. Obviously, we’re stupid, given what’s happened with climate change down in the country recently, so don’t let it worry you.
Speaker 5:
From the offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer. It’s like Econ 101, without all the BS.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures. Nick, on the last episode we talked with Trevor Corson and Anu [Partnin 00:01:51] about re-imagining capitalism and the capitalism they imagine is the one which they live in under right now in modern capitalist Finland.
Nick Hanauer:
Yes.
David Goldstein:
A capitalist paradise as they describe it.
Nick Hanauer:
Yes, correct.
David Goldstein:
But as you know, when we say this a lot, in order to rebuild, build the new capitalism and a new economics part of that requires taking down the old one.
Nick Hanauer:
That’s right. Our guest today is the esteemed and beloved Steve Keen.
David Goldstein:
Steve Keen. Why do I know that name? Hey Annie, who is the number one request to guests from our listeners?
Annie:
Professor Steve Keen.
David Goldstein:
Professor Steve Keen, who’s been at this debunking capitalism thing so long. He actually has a book and a podcast called Debunking Economics.
Nick Hanauer:
It’s embarrassing that we haven’t had him on before, but here he will be. You know, he has a very similar diagnosis that we do in a lot ways that virtually all of the underlying assumptions of neoclassical economics are nonsense. That in order to understand economics in a useful way, you have to get rid of those assumptions and form new ones. It’ll be really interesting to hear from him what he’s working on right now and how he’s thinking about it and where he thinks the economics profession should go.
David Goldstein:
Right. Of course, big difference between him and us is that he’s an actual economist.
Nick Hanauer:
He is.
David Goldstein:
And we don’t mean that as a pejorative in this case.
Steve Keen:
Well, I’m professor Steve Keen. I’ve been a critic of mainstream economics. My entire academic and pre academic career. I wrote the book called debunking economics. What I’ve been trying to do is build a realistic economics, not caught up with what I call the neoclassical disease of believing you can make a simplifying assumption when your entire conclusions depend upon the assumption being true. My current work is focusing upon climate change and the outrageously bad worked on by neoclassicals like William Nordhaus on that front and tried to build a realistic, monetary model of capitalism.
David Goldstein:
Excellent. Well, let’s start out with a general question, which is your careers focused largely on debunking neoclassical economics. In broad terms, can you explain to Pitchfork Economics listeners how those bad theories became the basis for modern capitalism?
Steve Keen:
Well, you have to go back to the 1970s which was when Marx had just published [inaudible 00:04:31] capital. What he’d done is turn the previous classical school of economics that were the school derived from Adam Smith and David Ricardo from a defense of capitalism against feudalism to an attack on capitalism from the point of view of immiserated working class with the argument that capitalism would necessarily fail and give way to socialism. What that meant was that the analytic tool that had really dominated economics for a century from Adam Smith suddenly became toxic for capitalism instead. There was a very rapid raising of the significance of a minority school of thought which originated and people like Jean Baptiste say and to some extent [kono 00:05:12] in France, where they argue that capitalism is all about the maximization of utility and the whole idea of marginal this and marginal that which we’re sitting back with [sei 00:05:24] who also ran in the 1820s and became the focus of economics.
Steve Keen:
There were three people who largely contributed to that. William Jevons in England, Menga in Austria and Vollara in France and with Vollara and Jevons you had an attempt to mathematize the discipline and that rapidly eliminated the classical school and you had instead of this version of capitalism as a utility maximizing the system or the design of achieving an equilibrium to maximize the best wealth within the maximum number of people. That would be nice if it were true. In the 70s there was no reason why you would reject that theory out of hand. But ever since the 1870s every attempt that economists have made, neoclassical economists have made to formalize the system, ends up generating contradictions, which they treat in the time and manner of completely ignoring them and going on anyway with the original beliefs. That’s what say irritated me so much because they keep on hitting mathematical conundrums and say, “Oh well let’s assume X and jump over that conundrum.” And you’ve ended up with this ridiculously elaborate vision of capitalism being inhabited by gods.
Steve Keen:
Otherwise known as rational agents and their definition of rational if you gave it to an insane human being and said, “Please provided me a word that fits this definition.” They’re answering big, “Capable of accurate prophecy.” A prophet and yet because it’s become such a persuasive, explains everything type discipline. It’s rabidly believed by its adherence and they simply reject out of hand all the criticisms that half the time they themselves have generated in the past.
David Goldstein:
Yeah, it is a fascinating bit of work. Are you telling us it’s not a science, a hard science lab? Physics?
Steve Keen:
Well, it’s a science like Ptolemaic astronomy.
David Goldstein:
Yeah, exactly.
Steve Keen:
You have a system with which you have observations, to which you can fit in a model which fits the data and it’s completely wrong.
Nick Hanauer:
Exactly.
David Goldstein:
See Nick, you even use the same metaphors.
Nick Hanauer:
I know, that we use the same metaphors.
David Goldstein:
It’s like talking to Nick, but with an Australian accent.
Nick Hanauer:
With a better accent. Somebody who sounds a lot smarter.
Steve Keen:
Yeah. It’s obviously Australia in touch now worry. Obviously we’re stupid given what’s happened with climate change down in the country recently, so don’t let it worry you.
Nick Hanauer:
What we wanted to do was zoom in on the ways in which these bad economic models, this misunderstanding of how the economy works infected the institution of capitalism. Where did it go wrong and how do we get it right?
David Goldstein:
Because one of the repeated themes of this podcast is that bad theories, bad stories lead to bad outcomes. You’ve made it clear, it’s these are a bunch of bad theories. How did this take us wrong and leave us where we are today?
Steve Keen:
I’ll choose my two favorite. Now these are working most in the last 20 or 30 years. One is the idea that the level of private debt doesn’t matter, and this is, you can find this in Ben Bernanke, Page 24. I’ve quoted the bloody thing so often I know the page reference by heart. Page 24 of his book Essays on the Great Depression. In that he dismisses Irving Fish’s explanation for the great depression, which was the debt deflation theory that said it was caused by too much debt and too low level of inflation leading to a runaway process of debtors paying off their debt, and by doing so, reducing the money supply and actually causing the economy to continue going down even further. Bernanke rejected that on the basis that, I know it off by heart, “Pure re-distributions should have no significant macro economic effect.” In other words, they interpret a private debt as a exchange between two non-bank entities where one non-bank lends and other non-bank dollars.
Steve Keen:
The Lender has less money to spend and therefore their demand falls. The borrower has more to spend and therefore theirs rises.
David Goldstein:
It cancels each other out.
Steve Keen:
It works in reverse as well. When you’re paying the debt down, the person who gets repaid, it has more to spend. You can forget about it. Now that’s their vision, which meant they completely ignored the increase in private detriment, about 30% of GDP in America and not in 45 to 170% shortly after the crisis. The reason the crisis occurred was because it’s banks that lend money, banks create money when they lend. They also create additional aggregate demand because the person who borrows then spends that money and that their credit becomes a significant and ever rising component of demand as the level of private debt rises and it will [inaudible 00:10:08] plus 15% of GDP to minus five over the financial crisis. That’s what caused it. Not only did they let us walk into a blind folded, they haven’t realized that it was a cause of it after the crisis. Even after the crisis occurred.
Steve Keen:
We’re still got to high level of private debt in the aftermath, which is why we have so called secular stagnation. That’s what I thought would be the most outrageous example, but it gets even worse when I look at climate change.
David Goldstein:
You said so called secular stagnation. What is it really?
Steve Keen:
Yeah I mean it’s not secular stagnation, it’s credit stagnation. If you look at where credit stagnation came from, that was the theory that Alvin Hansen came up I think first within that in 1933 or ’34 and then again in ’37 and the reason it became current was that that was the explanation he had for the great depression. It really comes down to saying that the reason the crises occurred was parents stopped having enough babies and engineers stopped having enough ideas and therefore the rate of growth dropped. That’s really … That’s a slang summary of the theory. He came up with the second time in 37 because what really happened is that Roosevelt had been persuaded to go from running a budget deficit and stimulating the economy through the new deal to try to bring the government books back into balance again. By doing that a talk about 3% of demand out of the economy. The response of the private sector, which still had too much debt, was to start deleveraging as well on the double whammy of the, to reduce demand once more.
Steve Keen:
You went from 11% unemployment, which is where it had fallen to from the peak of 25% in ’33 11% back to 20% again. They just gave their hands up in horror and say, we don’t know what the hell’s going on. That’s when canes turned up and they started calling themselves Keynesians. But it was an explanation blaming non-economic factors for an economic crisis to lower population growth rate to a lower level of technical change. Of course after the second world war, that became nonsense. The idea was [inaudible 00:12:03]. Then we go through another financial crisis and what did we do? A bit of Larry Summers dreaming up yet again, secular stagnation, blaming engineers and parents for not enough ideas and not enough kids. The reality is the capitalist economy normally has credit as part of its aggregate demand. When you get … If you keep the debt levels at a lower level then the credit can continue being part of a positive contribution demand most of the time.
Steve Keen:
But when you’ve got this massive runaway like a fivefold increase in level of private debt then credit … I define debt as the dollars you owe and credit is the change in the debt you owe. Credit is change in debt per year. When it went from plus 15% back in 2007 to minus 5 in 2010 that drastic cut, that’s what caused the great recession.
David Goldstein:
I substantially agree with your analysis, but there’s another couple of trillion dollars per year in the American economy alone that can be accounted for in the upwards redistribution of of wages from ordinary Americans to the top 1% and that accounts for 10% of aggregate demand on a $20 trillion economy. What I find frustrating about Larry Summers’ analysis is he doesn’t account for 40 years of wage stagnation in his analysis because of course the system is [inaudible 00:13:36] to optimal and equilibrium and people are getting paid what they’re worth, right?
Steve Keen:
Yeah, exactly. Including him.
David Goldstein:
Exactly. If you believe all that nonsense, then you can’t conceive of a world people who are presently being paid $7 and 25 cents because that’s a national minimum wage. Instead we’re earning $30 an hour and could actually afford to buy themselves the things that let them get by in life.
Steve Keen:
Yeah, I completely agree with that. Ironically that I … I first spotted this too when I did my model of Minsky’s financial instability hypothesis back in 1992, published in ’95 and in that model, I’ve had a very stylized system having firms that borrow money to invest in factories. No Ponzi investing. Directly in producing extra capital equipment. Workers simply receiving a wage and spending the wage, bankers receiving interest in spending the interest. The firms were borrowing the money. Now when I had the model run in such way that the economy had headed towards an equilibrium, then there was a stabilization of income distribution shares as well. You’ve got capitalists getting a set percentage, workers a set percentage and banking is getting the remainder. When you had the debt bubbling up every year, levering up in the way that Minsky’s hypothesis talked about it. You had a boom and bust and during the boom firms were borrowing more money than they could repay during the bust. So you had a ratcheting up of debt over time.
Steve Keen:
In that process, even though the firms are the ones during the borrowing of the money, the social class that lost income share were the workers. It isn’t just that there’s … Look they’re not two independent factors. Partly the crushing of work through share of wages has been through the crushing of the union movement, which was another part of neoclassical economics, but it’s also the increase in private debt through the complex dynamics of capitalism leads to the decline in workers share of income. There are tied together. Definitely, you’re quite right with the income distribution shift as well is a major reason why the economy is so sclerotic.
David Goldstein:
Right, but, I’ll just play devil’s advocate here or neoclassical economics advocate here. When people like Nick get wealthier, don’t they just reinvest that in the economy and creating great jobs for people like me?
Steve Keen:
Well they spend their … Their rate of investment, the rate of turnover of money is far lower than the workers. I’m just actually building … I’m doing a cartoon book on money right now for a Kickstarter campaign. As part of that I’ve got a simple model of building my Minsky software of workers spending the money. They’ve got capitalists spending their money, yadi, yadi, yada. When you look at the rate at which workers are spending, they spend their bank accounts … About 17 times their bank accounts per year because they’re in [inaudible 00:16:22] model they’ve got 20 billion in their account in this mythical economy, but they’re spending 300 billion in terms of spending all their wages. Capitalists who’ve got 100 billion, are spending 50. What you get is the wealthy spend their money more slowly. If you change the distribution of income, you dramatically increase how much money is turnover and-
David Goldstein:
Yeah, the velocity goes way, way up.
Steve Keen:
Yeah, absolutely. And we’ve seen a dramatic decline in the velocity over the last 30, 40 years.
David Goldstein:
Right? what the professor is telling you, Nick, is for the good of the economy, you need to give us all raises.
Nick Hanauer:
I should double your salary. I know, I know.
David Goldstein:
Okay, so-
Nick Hanauer:
Every day I hear that.
David Goldstein:
Speaking of improving the economy, let’s move on to given the how erroneous neoclassical economics is and the policies that we’ve built on it, let’s pivot here to what we need to do differently to address challenges like climate change and the growing inequality and all the other problems we’re facing in the economy in the world today. What would a new economics start to look like?
Steve Keen:
The first thing it has to do is based on the physical world. Because the neoclassical economists live in what I think are Mark Louv described as a Blackboard economy, where they use terms like a GDP and wages and profits and stuff like that, that sounds like the world. The model they build is utterly and scandalously unrepresentative any actual real economy. The fundamental way they do that, and it’s not just neoclassicals who are guilty or take it right back to Smith and I include the classical school and include Marxists and I include post Kansians as well. None of us are properly included. The role of energy in production. What that means is we imagine you can produce output where data energy is an input. Now that is … [inaudible 00:18:16] described it as total garbage. Nonsense. With no energy input, you get no output.
Steve Keen:
The only people, the on;y school of thought that actually had that intelligently was the physio credit school with people like [inaudible 00:18:27] Cantillon before Smith came along and insect Smith managed to distort their theories. If you look at Smith’s wealth of nations, it’s exactly the same as Richard Cantillon’s essay on, on production. Where Cantillon talks about wealth coming from the land. Smith talks about it coming from division of labor. Now that simple shift meant that we ignored the role of nature and making it possible to produce output in the modern world. They have models of production involving labor and capital, but no energy. Now, the way that I’ve realized a way to formalize the role of energy and bring it back in the way that the physiocrats had it in a more up to date way was a little vision, a little two-liner that labor without energy is a corpse and capital without energy is a sculpture.
Steve Keen:
If you want to activate them, but you’ve got to have energy inputs into them. That then means that first of all, you see you’ve got to be taking stuff out of nature, the mining, the coal and everything else, to activate the machinery. Secondly, when you do that, you’re going to have waste. And the combination of the two means that you tie economics and ecology together right from the outset. That’s absolutely essential. The second element is you have to get away from this fetish on equilibrium. What was an intellectual crutch in the 19th century has become a fetish and the 20th and 21st for economists. The last way you’d ever describe capitalism is being an equilibrium. You ask anybody to describe the system, they’re not going to say equilibrium. They’re going to say change, volatility. The mental construct when they make it possible to do mathematics of intersecting lines in the 19th century has completely corrupted the way economists think about the actual economy and they pretend that it reaches equilibrium, which is nonsense.
David Goldstein:
We love to remind our listeners that if you want to imagine a true equilibrium system, it’s the surface of the moon, right?
Steve Keen:
No, no, no, that’s at least two or three degrees Kelvin, too high. You’ve got to be at absolute zero to be in genuine equilibrium.
Male:
Exactly.
David Goldstein:
essentially the old economics is based on the first rule of thermodynamics and the new economics should be based on the second rule. It’s all about entropy.
Steve Keen:
You’re being too generous. I didn’t even know what the first law is. I’ve literally … I’ve had a conversation with United nations environment program once shape economist at one when I was showing a research Kroger with Australia’s CSRO, the Commonwealth scientific and industrial research search organization on future prospects for the Southeast Asian economy. At one point he said, well, if you don’t have enough energy, we can make it use in labor and capital. Now only a PhD in economics can make you that stupid.
David Goldstein:
It’s beautiful. You know, Steve, we want to keep your grinding on how to change the world, but I do want to append one thought to your criticism of equilibrium, which is that it’s worse than being wrong. I mean, it’s just an objectively inaccurate way of describing a human economy. But worse than that, it’s evil because the most powerful idea ever invented by economic elites to enforce the existing status constructs was the notion of equilibrium. That the economy was this parade, a optimal equilibrium system that was efficiently allocating resources in a way that was best for everyone and any change to it would decrease welfare for all is the ultimate way to protect the status quo, to ensure that rich people stay rich and poor people stay poor. Because-
Steve Keen:
If you’re in equilibrium why change?
David Goldstein:
Why change? In fact, it’s worse than why change. It’s that we are all at risk if we change.
Steve Keen:
Yeah, exactly.
David Goldstein:
That idea is so pernicious and damaging to increasing justice in the world and making a society that can actually solve its problems for the majority of its citizens.
Steve Keen:
I completely agree. The whole idea that their income is meritocratic as well, which is the marginal productivity theory of income distribution. That was torn apart by [shraffer 00:22:46] right back in 1926 and then demolished and not in 1960. The mathematics of it falls apart again. So many of these things, when you look at them properly, you find that they’re mathematically incoherent. But of course, again, they are classicals ignore that result and they even think they won that debate with Shraffer even though Paul Samuelson conceited defeat.
David Goldstein:
Let’s talk about energy and the real world. For example, in relation to climate change, neoclassical economists often look at weather events as exogenous shocks, but given the feedback loop with the human economy, what’s happening in Australia now, that’s an indigenous shock, isn’t it?
Steve Keen:
Absolutely. I’ve been a critic of neoclassical economics for pretty much 50 years now and I have never seen garbage as bad as in the work of William Nordhaus and these other so-called climate change economist colleagues. Because they came at it literally to deny the dangers of climate change. They’re not deniers in the sense that they say that there is no … Carbon dioxide is not causing a temperature increase. They’re saying that’s happening. But what they’re saying is we’re going to assume that the temperature increase caused by global warming. We can get data on that now by comparing temperature and JDP in different parts of the United States. By seeing how much temperature varies GDP today we can predict the impact of climate change. Now that is stupid beyond belief because it’s saying that because new York is a bit warmer than a Dakota, North Dakota and wealthier and Florida is warmer than New York and poorer, we can approximate the impact of climate change by using a simple quadratic to measure the impact of increasing a temperature on GDP.
Steve Keen:
Therefore, Nordhaus in his one of his most recent papers, 2018 I think it was in the American Economic Review said that a six degree increase in temperature would cause an 8% fall on JD pay. Now if you’ve read any realistic books about climate change, Michael [inaudible 00:24:48] Six Degrees is the one I’m thinking of. Six degrees will be pretty much enough to drive most of the species on the planet extinct and therefore they haven’t denied that climate change is happening. They’ve trivialized it. That is a major reason why we’ve done nothing about it of any significance until we’re starting to see events like those in Sydney.
David Goldstein:
One of the questions we always love to ask folks on the podcast is the benevolent dictator question. Which is if Steve Keen was the benevolent dictator of the planet.
Male:
Of the planet. We’ll give you the whole point.
David Goldstein:
Usually just the United States. But with you-
Male:
Since we’re talking about climate change, let’s make it the whole planet.
David Goldstein:
Or just global economic system. What would you do?
Steve Keen:
First of all I’d shut down all the economics departments and burn the books that have been the last piece of [inaudible 00:25:32] adding to the atmosphere.
David Goldstein:
Yeah, we could just bury the books carbon sequestration.
Steve Keen:
That’s true actually. [inaudible 00:25:38] the economist as well, that it worked pretty good too. After that. I think we were already seeing the impact of a one degree increase in temperature on the planet. I think you may have seen in studies today saying the increase in the temperature of the ocean is equivalent to blowing five Hiroshima bombs per second, which is, like in other times that’s 100,000 at the of the bagasse a day that we’re adding to the temperature level of the planet, and not expecting it to change the mechanics all that much. We’ve massively overshot the capacity of the planet to cope with the load we’re putting on the biosphere. We have to go into rationing and I’d bring in a carbon rationing scam, which would rather than carbon pricing, which I think has been a complete failure and being politically outmaneuvered as well by the [inaudible 00:26:27] interests and so on. I’d bring in a parallel currency where every purchase was made using both money and carbon credits.
Steve Keen:
You would initially start just to make it something which would be popular and you use a central bank digital currency to give everybody an annual allocation of carbon credits. You can give the … The amount given per person could be far higher than the current average. Meaning poor people would never exhaust their carbon credits, but rich people would and therefore they would have to buy carbon credits off the poor. That would be a system which would immediately mean that the wealthy are paying for the carbon costs they’re putting on the planet. Even before you started bringing the level down to the point to start reducing aggregate consumption. That had to be the first thing. Both first two things I’d do.
Male:
That’s an interesting idea.
Steve Keen:
They’ll also have a debt Jubilee [inaudible 00:27:18] a modern debt Jubilee. I’d use the state’s capacity to create money to give everybody an equivalent amount of money which had to be used to pay that down. If you in debt, if you weren’t in debt, you got a cash injection. Now if you had an economy which is already moderately okay in terms of aggregate demand and employment and so on and in a sort of peripheral way that’s true of the American economy right now. You can specify that the people who got the money and didn’t have debt would have to buy shares, which were newly issued by corporations, which would be used to reduce corporate debt and you democratize capitalism at the same time as reducing the debt level. It’ll eliminate the debt, reduce the debt by a factor of four or five from the say 150% now back to about 40% of GDP, which is a sustainable level.
Steve Keen:
I’d make that a major policy objective to keep private debt down. I’d also use carbon rationing to be ready to … Both to redistribute from the wealthy to the poor at the moment, and also to be ready to bring the rationing down when we realize just how badly we’ve damaged the biosphere.
Male:
This would be good for the economy, right?
Steve Keen:
Well, yes in one sense, but I think we’ve, we’ve, we’re using far too much energy and we haven’t built the facilities for non carbon generating energy production to make up for the extent to which we need to drop the carbon logo putting into the plant. We need to get the zero carbon now. That’s if you look at the genuine climate side is not the twerps, you’re write in economics, but the genuine scientists, are the Michael Manns of the world and so on. We have to hit zero carbon now to have any chance of avoiding two or three degree increase in temperature and that will eliminate human civilization, but it’s this garbage that will cause a couple of percent fall on GDP. Now at wind, it’ll cause a total breakdown of our production systems.
Steve Keen:
Again, it’s things like you’re saying happening in Australia right now with wildflowers wiping out agricultural regions, and destroying and killing billions of animals, et cetera, et cetera. We have to be ready to drastically drop our energy consumption and that might have be a factor of looking at the current level of label. Putting on the planet that could be a factor of two or three reduction in energy consumption. That is not a booming economy. I’m not going to pretend that.
Male:
Another question we all we ask of all our guests, why do you do this work?
Steve Keen:
Because I believe in reality and the one thing humans have added to the planet that other species haven’t done is accumulating knowledge over time. I’m enraged to see something pretending to be knowledge, which is actually a myth. That’s neoclassical economics and [inaudible 00:29:59] extreme marks in economics too. I want to get a realistic approach to economics first and foremost. I just realized that we’ve got people stuck in group think and both the extreme left with the Marxist world and the extreme right with the neoclassicals that are giving us fantasies rather than understanding of reality. I want us to understand the world we live in and I want us to preserve it as well.
Male:
I’m curious, what do you think is more likely to survive capitalism or the planet?
Steve Keen:
The planet. There’s actually a wonderful book on economics that I read about 30 years ago or so, thereabouts called Dynamic Economic Systems by a mathematician called John BlaT. In the beginning of the book he was castigating economist in [inaudible 00:30:40] dynamics. He said some would say that capitalism itself may cease as a social system before economists understand its dynamics. At the time that I read it first I thought that was great hyperbole. I now think it’s probably going to come true. They’ve so much pushed this idea of a market approach to everything. Don’t touch inequality, don’t touch energy and so on and so forth. But when we realize that we’ve been totally hoodwinked by that, we’re going to have to go into a command economy, pretty much a militaristic economy to reduce the damage we’re doing to the planet and have any hope of having human civilization survive.
Steve Keen:
That’ll be a war economy. It won’t be a capitalist one. So neoclassical economists will kill capitalism.
Nick Hanauer:
Well, on that happy note, we’d love to thank you for being on and I hope that we get to have many more conversations like this. It was absolutely fascinating.
Steve Keen:
I’d definitely love to follow up on that front as well.
Nick Hanauer:
I want to be on your podcast.
Steve Keen:
Yeah, that’s a deal. That’d be great fun.
Nick Hanauer:
I love it. I love it.
Steve Keen:
Thanks Nick.
Nick Hanauer:
Okay man.
Steve Keen:
Thanks mate, Bye, bye.
Nick Hanauer:
Okay bye.
David Goldstein:
Bye, bye. Incredibly fun wonky conversation, the kind that we like to have currently office, but a little depressing diagnosis near the end where professor Keen says that a neoclassical economics is going to end up undermining capitalism.
Nick Hanauer:
Correct?
David Goldstein:
Will it?
Nick Hanauer:
Yeah. I think he’s right. He also made a point about climate change.
David Goldstein:
Okay, so podcasts over capitalism is dead. Marx was right. Grave diggers and all that.
Nick Hanauer:
Yeah, exactly. No, and he also made an interesting point about climate change, right? Being the other big threat. And you know, Goldie, it’s interesting because my first call this morning for an hour was with a person I cannot name, but a very important person on planet earth who has a lot to do with deploying resources to fix things. He and I were talking about the intersection between climate change and neoliberalism and inequality and whether the interaction between these two things was changing people’s minds. As we talked about it and I reflected on it, what seemed really clear to me is that the neoliberal framing of the climate crisis is exactly the same. Of course as the neoliberal framing of the inequality crisis. It either doesn’t exist or to fix it means to take a step backward, not forward. Right? That the William Nordhaus this … And this is unconsciously when a Nobel prize for this nonsense, which is ridiculous, this analysis that there’s this cost benefit.
David Goldstein:
Right. You’re going to do a cost benefit analysis of whether or not to save the planet.
Nick Hanauer:
Yes.
David Goldstein:
Right? It’s too, expensive. Let it die.
Nick Hanauer:
Exactly. We could address climate change, but then we would be poor is exactly the same line of argument is well we could raise wages but then we’d be poor. Right? Then we’d lose jobs and his question was that changing the culture and I … Upon reflection, I really think it is because particularly among younger people who are experiencing these two lies simultaneously who have been told that the less they make, the better off they’ll be and the less we address climate change, the better off the world would be. these are both obviously lies and neo-liberalism therefore is being revealed as a lie from essentially two angles if you will, from the climate angle and the political economy angle although they’re inextricably intertwined in some ways. I think that this is really worth surfacing and thinking about. But you know, we really never did get from Steve what the alternative is.
Nick Hanauer:
We didn’t have enough time. But I do think that, it is well one-
David Goldstein:
The alternative is A, not neoclassical economics.
Nick Hanauer:
Yes. But I mean what the glorious future could be. The glorious future is a future in which instead of the median wage for an American worker is $36,000 a year is if they’d fully participated in productivity growth, it’d be more like $60,000 a year. Under that scenario we wouldn’t have a housing affordability crisis. A person who worked in a restaurant could lead a dignified life and raise a family and-
David Goldstein:
Take vacations.
Nick Hanauer:
Take vacation.
David Goldstein:
Eat in restaurants.
Nick Hanauer:
That’s right. If we had a healthcare system equal in quality to let’s say Singapore’s, we’d spend five or 7% less GDP on healthcare than we presently do and could deploy those resources.
David Goldstein:
A couple trillion dollars.
Nick Hanauer:
A couple trillion dollars-
David Goldstein:
To spend on other things.
Nick Hanauer:
Like education or infrastructure or whatever it is. Plus of course if people made $60,000 rather than $30,000 you think about the tax receipts the government would receive, they’d be twice or three times as high and we wouldn’t have a federal deficit either. Again, this is not an impossible future for us. This is something that we could choose to have. If we can surmount the forces that don’t want it to happen.
David Goldstein:
Instead of you being a thousand times wealthier than me, you might only be 500 times wealthier than me. My God, what would you do?
Nick Hanauer:
In the next episode of Pitchfork economics, we’re going to talk about the barriers to having an inclusive economy. Should be really interesting.
Annie:
Pitchfork economics is produced by Civic Ventures. The magic happens in Seattle in partnership with the young Turks network. If you liked the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer follow our writing on Medium at Civic Skunkworks and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always, from our team at Civic Ventures. Thanks for listening. See you next week.