Flawed Foundations: Keen argues that neoclassical economics, which dominates mainstream economic thought, is based on unrealistic assumptions (e.g., rational actors, perfect competition, equilibrium) that do not reflect real-world complexities.
Ignoring Money and Debt: Traditional models often ignore the role of money, credit, and debt in shaping economic dynamics, which Keen considers central to understanding modern economies.
Misleading Policy Prescriptions: Keen criticizes the policy recommendations derived from neoclassical models, such as austerity measures and deregulation, which he believes exacerbate economic instability and inequality.
2. The Role of Money, Credit, and Debt
Endogenous Money: Keen emphasizes that money is created endogenously by banks through lending, rather than being exogenously controlled by central banks. This process drives economic activity but also creates instability.
Debt Dynamics: He highlights the importance of debt in modern economies, arguing that excessive private debt (rather than public debt) is a primary cause of financial crises, as seen in the 2008 Global Financial Crisis.
Financial Instability: Keen builds on Hyman Minsky’s Financial Instability Hypothesis, which suggests that capitalist economies are inherently prone to booms and busts due to the cyclical nature of credit expansion and contraction.
3. Complexity and Systems Thinking
Non-Equilibrium Economics: Keen advocates for a shift away from equilibrium-based models to dynamic, non-equilibrium approaches that better capture the complexity and unpredictability of real economies.
Agent-Based Modeling: He promotes the use of agent-based models (ABMs), which simulate the interactions of individual agents (e.g., households, firms, banks) to study emergent phenomena like financial crises and economic cycles.
Feedback Loops: Keen stresses the importance of feedback loops and nonlinear dynamics in economic systems, which traditional models often overlook.
4. Inequality and Power
Wealth Concentration: Keen critiques the growing concentration of wealth and power in the hands of a few, which he attributes to the structure of modern capitalism and the financial system.
Rent-Seeking Behavior: He highlights the role of rent-seeking (e.g., monopolies, speculation) in exacerbating inequality and distorting economic outcomes.
Redistribution and Reform: Keen calls for policies to address inequality, such as progressive taxation, wealth taxes, and reforms to the financial system.
5. Climate Change and Sustainability
Ecological Blind Spots: Keen criticizes mainstream economics for failing to account for environmental limits and the ecological costs of economic growth.
Degrowth and Steady-State Economics: He advocates for a shift away from GDP-driven growth models toward sustainable and equitable economic systems that prioritize well-being and ecological balance.
Green Investment: Keen supports large-scale public investment in green technologies and infrastructure to address climate change and create jobs.
6. Policy Proposals
Modern Monetary Theory (MMT): Keen aligns with some principles of MMT, arguing that governments with sovereign currencies can and should use fiscal policy to achieve full employment and address social and environmental challenges.
Debt Jubilees: He proposes debt relief or “jubilees” to reduce the burden of excessive private debt, particularly for households and small businesses.
Financial Regulation: Keen calls for stricter regulation of the financial sector, including limits on speculative activities and reforms to the banking system to prevent crises.
7. A New Role for Economists
Interdisciplinary Approach: Keen encourages economists to draw insights from other disciplines, such as physics, biology, and sociology, to develop more realistic and holistic models of the economy.
Public Engagement: He emphasizes the need for economists to engage with the public and policymakers to challenge entrenched ideas and promote alternative approaches.
Education Reform: Keen advocates for reforming economics education to include heterodox perspectives and critical thinking, moving beyond the dominance of neoclassical theory.
8. Key Takeaways
Rejecting Orthodoxy: Keen’s work is a call to reject the orthodoxies of mainstream economics and embrace a more pluralistic and realistic approach to understanding the economy.
Focus on Dynamics: He emphasizes the importance of dynamic, systems-based thinking to address the complexities and instabilities of modern economies.
Prioritizing Sustainability and Equity: Keen’s vision for a “new economics” prioritizes sustainability, equity, and well-being over growth and profit maximization.
