| Aspect | Mainstream Economics | Steve Keen’s New Economics |
|---|---|---|
| Foundations | Based on neoclassical economics, emphasizing equilibrium, rationality, and efficiency. | Based on post-Keynesian economics and complexity economics, focusing on disequilibrium, uncertainty, and dynamic systems. |
| Assumptions | – Rational, utility-maximizing agents. – Markets tend toward equilibrium. – Perfect information. |
– Bounded rationality and behavioral complexity. – Markets are inherently unstable. – Imperfect information and uncertainty. |
| Role of Money | Money is neutral; it is a medium of exchange with no significant impact on real economic outcomes. | Money is endogenous; it is created by banks through lending and plays a central role in economic dynamics. |
| Debt and Credit | Debt is largely ignored or treated as a secondary factor in economic models. | Debt and credit are central to understanding economic cycles, crises, and instability. |
| Mathematical Modeling | Relies on static equilibrium models (e.g., supply and demand curves). | Uses dynamic, non-linear models (e.g., system dynamics, agent-based modeling). |
| Economic Growth | Growth is driven by supply-side factors (e.g., labor, capital, technology). | Growth is driven by demand-side factors (e.g., investment, consumption, credit creation). |
| Role of Government | Government intervention is often seen as inefficient; markets are self-correcting. | Government intervention is essential to stabilize the economy and address market failures. |
| Financial Crises | Crises are rare and caused by external shocks or policy mistakes. | Crises are inherent to capitalist systems due to debt accumulation and financial instability. |
| Labor Markets | Labor markets clear through wage adjustments; unemployment is voluntary or temporary. | Labor markets are prone to persistent unemployment due to insufficient demand and wage rigidity. |
| Income Distribution | Income distribution is determined by marginal productivity of labor and capital. | Income distribution is shaped by power dynamics, institutional factors, and financialization. |
| Role of Banks | Banks are intermediaries that transfer savings to investment. | Banks create money through lending, which drives economic activity and instability. |
| Investment | Investment is determined by interest rates and expected returns. | Investment is driven by expectations, credit availability, and animal spirits. |
| Uncertainty | Assumes probabilistic risk, which can be quantified and managed. | Emphasizes fundamental uncertainty, which cannot be quantified or predicted. |
| Policy Implications | Favors deregulation, free markets, and minimal government intervention. | Advocates for regulation of financial markets, debt restructuring, and active fiscal policy. |
| Critique of Mainstream | N/A | Critiques mainstream economics for ignoring money, debt, and instability, and for relying on unrealistic assumptions. |
Key Differences
- Money and Debt:
- Mainstream economics treats money as neutral and debt as secondary, while Keen emphasizes the central role of money creation and debt in driving economic cycles and crises.
- Market Stability:
- Mainstream economics assumes markets are inherently stable and self-correcting, whereas Keen argues that markets are inherently unstable due to financial dynamics.
- Mathematical Approaches:
- Mainstream economics relies on static equilibrium models, while Keen uses dynamic, non-linear models to capture the complexity of economic systems.
- Role of Government:
- Mainstream economics often favors minimal government intervention, while Keen sees a critical role for government in stabilizing the economy and addressing inequality.
- Uncertainty:
- Mainstream economics assumes risks can be quantified, while Keen highlights the importance of fundamental uncertainty in economic decision-making.
