We need good new economics, and what it could be, Part 3

Image of the book cover" The New Economics: A Manifesto" by Steve Keen
This entry is part 3 of 3 in the series Book launch: The New Economics: A Manifesto

Professor Steve Keen states we need new economics because neoclassical economics does such a poor job of modeling how the world and how economies really work.

It trivializes the role of energy in economics and ignores that while a transition to a carbon-free energy system will be expensive, it’s not something we can ignore or avoid.

But like WW2, mitigation DOES need to be paid for

Fiscal realities

The basic insights of MMT (Modern Monetary Theory) become useful here:

  • Currency issuing government deficits create money and reserves
  • Reserves buy bonds
  • Bonds sold to the public reduce public consumption, rather than finance construction

This IS the basic strategy Keynes laid out for the UK government on how to pay for the war.

And guess what? It worked.

But… It’s the resources stupid!

A transition from a fossil fuel energy system to a renewable energy system is going to require minerals, lots of minerals.

Minerals needed to make batteries, minerals needed in manufacturing, etc.

And we are at serious risk of running out of Zinc, Silver, Neodymium, Helium, and Phosphorus.

And with current energy storage methods and capabilities, if we do run out of any of that stuff, we are truly f***ed.

Yet economics is still pre-scientific

“a new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it”.

Max Planck (discovered of the quantum nature of reality)

So why isn’t economics advancing “one funeral at a time”?

In science, anamolies help create new theories

Geo vs helio centric “universe”

Ptolemy’s earth-centric model explained much, but anomalies bugged some people.

To explain the anomalies, Copernicus moved the sun to the center.

Haley then used that helio-centric model to predict when a comet would return.

The comet returned as predicted.

Which confirmed that Copernicus was right.

But this did NOT swap Ptolemaic astronomers.

The luminous aether

Pre-relativity, the “aether” is the thing light waves travel through (as all known waves travel through SOMETHING).

Michelson-Morley experiment: There is no “aether”. SERIOUS anomaly.

Relativity/Quantum: Light CAN travel through a vacuum, no medium is needed.

Pre-relativity scientists did NOT start teaching relativity. They stuck to their old ways.

But the students know, and confirm it experimentally themselves.

Eventually, the old guard retires or dies.

The students committed to the new paradigm take their places.

“Science advances one funeral at a time”.

The ways paradigms shift occur in science

The philosopher Thomas Kuhn devised an interesting model of how scientific paradigms shift that seems to describe the real world.


This does NOT happen in economics

Why? Because anomalies CAN be ignored.

  • Empirical anomaly (Great Depression, Great Recession) occur once and are never repeated
  • New events (World War 2, Covid) come along and are immediately more important than the accumulated anomalies.
  • Theoritical failures are ignored or glossed over.
  • Existing adherents WANT to ignore the anomalies.

In economics, this creates new parallal schools of thought

  • Some students refuse to forget the anomalies
  • For example, Hyman Minsky: “Can the Great Depression happen again”? And if so, “Why hasn’t it”?
  • To answer these questions, new economic theories are developed.
  • But the neoclassical model doesn’t die, and the new models remain marginalzied.
  • And some students DO stick to the old pardigms.
  • While critics of it become outsiders and form “heterdox” schools which are poorly funded.
  • These students work at lower ranking universities, business/marketing schools, and finance sector thinktanks.

Which effectively makes economics NOT a science

Questions and Answers part

This is generally where the most interesting and useful information is found, but after the depressing presentation which I just summarized, I’m too braindead to do it justice here.

It starts at 42:39 in the video, and if you want to jump to the Q&A session, you can do so in the video below.

Series Navigation<< We need good new economics, and what it could be, Part 2

Leave a Reply

Your email address will not be published. Required fields are marked *