Introduction
In this first podcast style interview between me and Steve Keen, the author of 'Debunking Economics', Steve recounts how early encounters with neoclassical and neoliberal economics, and the realities of firm behaviour, led him to reject economic fairy tales and become a rebel.
His politics shifted too, from Vietnam-era conformity to organising for a political economy curriculum.
Today his priority is climate change. Economists' models have trivialised existential risk and hobbled action with myths about government finance.
Steve broadly agrees with MMT's “spend first, tax later,” but challenges Warren Mosler's theories on trade, all of which mean that in the longer term he plans a wider assault on comparative advantage.
And, at the end of the interview, we made clear that this is the first of what might be a number of conversations with next up a discussion on double-entry as the missing economic grammar and how and why he created his RAVEL software to model it.
The audio version of this podcast is here:
This is a summary of our discussion. Given the length of the interview, we do not think that the transcript is useful.
Steve Keen: A Rebel Economist's Journey
“Why are you a rebel?” That was the question I put to Steve Keen in our recent conversation – and his answer is a story that throws light not just on his own career, but on the failures of mainstream economics, the importance of challenging orthodoxy, and the urgent need to rethink how we face crises like climate change.
Steve Keen, for those who don't know, is one of the world's most prominent heterodox economists. Author of 'Debunking Economics', he has spent decades dismantling the myths and false assumptions, and most especially the mythematics (as he calls it) of neoclassical theory. In our conversation, we explored how he came to that position, why he has refused to accept conventional wisdom, and where his attention is now focused.
The rebel's origins
Steve began life intending to be a physicist. But a bad science teacher and a brilliant economics teacher diverted him into economics.
Like many students, he initially accepted what he was taught: that free markets deliver efficiency, that equilibrium is the natural state of the economy, and that trade unions and governments simply distort what would otherwise be perfection. Yet very early on he encountered contradictions. At Sydney University in the early 1970s, the neoclassical “takeover” of the economics curriculum met resistance from a generation of heterodox lecturers. One of them, Frank Stilwell, taught a theorem that turned Keen's worldview upside down: the theory of the second best.
This theory showed that removing a so-called “distortion” like trade unions, without removing others like employer monopolies, could make social welfare worse, not better. The neat textbook diagrams collapsed. Steve recalls thinking: "what the hell is going on here?"
Discovering the lies in the textbooks
Steve did not stop there. He went to the university library, read the original papers, and realised that his lecturer was right.
More shocks followed. He came across Paul Samuelson, the Nobel laureate and great defender of orthodoxy, conceding in 1966 that the neoclassical measurement of capital was incoherent. Yet when Keen looked back at Samuelson's famous textbook, none of this debate appeared.
The conclusion was unavoidable: economics students were being given a mendacious education. They were taught a simple, sanitised parable about supply and demand curves, while the real controversies and empirical failures were swept aside. And when empirical evidence was examined – for example, surveys showing that most firms experience falling costs rather than rising ones – the results simply did not support the theory.
For Steve, this was the moment he became a rebel.
A parallel journey
I recognise Steve's story. I had been through a similar process myself: arriving at university, being told about perfect competition, perfect knowledge, and marginal cost pricing. Yet I had seen real businesses. I knew they didn't calculate marginal revenue or optimal output. They struck deals, guessed prices, and often pocketed cash off the books.
In other words, the theory and the reality were miles apart. Like Steve (but five years later than him, because I am that much younger), I concluded as a student that the economics we were being taught was, to put it bluntly, nonsense.
From rebellion to politics
For Steve, this intellectual rebellion was reinforced by politics.
He arrived at university in 1971, with Australia still involved in the Vietnam War. Initially supportive of the war, he began reading history and discovered it was in fact an anti-colonial struggle in which his country was on the wrong side. That realisation, combined with sympathy for the Palestinian cause and other radical movements, transformed his worldview.
By 1973, Australian students were striking over curriculum control. At Sydney, economics students demanded change, leading to the eventual creation of a Department of Political Economy.
Steve helped organise an early radical economics conference. The experience convinced him that if he wanted change, he had to confront neoclassical theory at its roots.
A contrarian's path
That contrarian instinct carried into his postgraduate work. With a group of students, he began reading Marx. He admired Marx's philosophical insight that use value and exchange value are incommensurable, and that surplus arises because labour (and indeed machines) produce more than the value they are paid for. But he also saw flaws. His Master's thesis showed where Marx contradicted his own labour theory of value.
As Steve joked, that means he has managed to annoy the neoclassicals, then the Marxists, and more recently even parts of the MMT community. His loyalty has never been to a school but to logic, empirics, and intellectual honesty.
Debunking economics
The culmination of this work was 'Debunking Economics', the book that made his reputation. It showed in clear terms why the mathematical underpinnings of neoclassical economics collapse under scrutiny. The discipline parades its use of equations as if it were Newtonian physics – but as Steve likes to say, much of it is “mathemagics”, a conjuring trick built on assumptions that bear no relation to reality.
The result is zealotry: students are trained to believe capitalism is the best of all possible systems, and then spend careers defending a perfection that never existed.
Where Steve is now
So where has the rebel arrived? Steve is blunt: his obsession is climate change. Economists, he argues, have trivialised the threat. Their models discount the risks, assume away catastrophe, and reassure policymakers that growth can continue unimpeded. That complacency, he says, has already cost us half a century of inaction.
His forthcoming book, 'How Economists Will Destroy Capitalism', will set out the case. But to win the argument, he also has to confront myths about government finance.
Neoclassical economics insists governments are like households: they must tax before they spend, they are constrained by budgets, they “cannot afford” to act. Steve, like me, knows this is false. Governments create money when they spend. Believing otherwise has meant cuts to education, health, and welfare – exactly when we need resources to fight the climate crisis.
Where MMT fits in
Steve broadly supports Modern Monetary Theory on this point. He accepts Warren Mosler's crucial insight: governments spend first and tax later. But he challenges another of Mosler's slogans: that “exports are a cost, imports are a benefit.” In Steve's view, this contradicts the first insight when set out in accounting terms. A government deficit adds net assets to the private sector; a trade deficit destroys them.
For now, he treats this as secondary – because climate change will soon swamp any neat trade logic – but he is preparing a more systematic critique. Comparative advantage, the foundation of trade theory since Ricardo, will be in his sights too.
The rebel's method
The thread running through Steve's career is his refusal to accept authority without proof. He does not just say “I disagree”; he works through the mathematics and the data to show why he disagrees. That is why he has become such a thorn in the side of the profession, and why he is respected by those who want realism back in economics.
His willingness to call out neoclassicals, Marxists, and MMTers alike comes from the same place: a belief that economics should be rooted in reality, not in a theology of markets.
Looking forward
Our conversation ended with an agreement to continue. Next time we will talk about double entry bookkeeping – yes, the supposedly dull discipline that is in fact the key to understanding how money flows through an economy – and about Keen's software project, RAVEL, which models those flows.
But for now, the lesson from this discussion is clear. If economics is to have any role in building a future fit for humanity, it needs rebels like Steve Keen – people who ask awkward questions, who refuse to be silenced, and who insist that both logic and evidence must matter because if we do not rebel against the nonsense still taught to students today, then economics really may help destroy capitalism, and with it, the planet.
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Very good, looking forward to the double entry bookeping a key concept. The Steve Keen and Phil Dobbie podcasts are also worth a look for others interested.
Debunking Economics is a great read as is The New Economics although that is quite technical. It’s great you’re going to do something on accounting/double entry. As I’ve said on here before you absolutely cannot get a thorough understanding of how money flows through the economy and how businesses work without that.
I too read ‘Debunking Economics’ when it was released, maybe before I ended up here. I was impressed with how he but the Chicago boys to the sword.
I am more uncertain on the issue of trade except to say that I think that trade is mishandled and dominated by issues like nationalistic views – an essentially individualisation of natural resources by states when in fact trade needs more co-operation and sharing between nations – Michael Hudson – a Marxist I think, sees current trade as warfare and I think he is right.
Resources belong to the world really – us! – we need more holistic practices concerning trade. To use resources to leverage etc., will not help us or the planet.
Ricardo talked utter nonsense…let me start with that
30 years I think that the common consensus was that trade was thought as an extension of domestic economic policy. That if you have a free market and home then why would you have a closed market to the world. Similarly why would you have an open market to the world when you have strict regulations at home to prevent markets from forming. However, this is not the case. Many on the right want hyper free markets that are closed to the world. They want to be free from china businessmen as much as big Sam. They want a mercantile system and believe that they will be the merchant. They want an undemocratic political system and believe that it will be to their benefit. And so on.
I’ll watch the interview with Steve Keene in the next few days. But some thoughts on the transcript and comments.
Michael Hudson’s work on finance, insurance and real estate (FIRE) is a must read. I live in Vancouver, BC and see the result of land speculation, ie. land and housing enclosure and rising homelessness. People with jobs living in their cars. Hudson mentioned Trotsky was his godfather when he gave a talk here about 10 years ago.
On trade, Mosler’s idea that exports are costs, imports are benefits, is intuitive, otherwise why did Europe (and US) have colonies? To import energy, resources, food and cheap labour and to export their surplus poor population and surplus aristocracy (2nd, 3rd sons). The colonies gained their political sovereignty in the 1960s but not not their economic independence, meaning they can’t exercise their sovereignty. The money we send to the global south is to buy our industrial surplus which we dump on them. This is unfair competition with their local business. GATT used to forbid dumping.
Ex. DW documentary on export of subsidized German milk put African dairies out of business. And German farmers also suffer from this arrangement. Canada still uses a much better system of supply management for milk, eggs and poultry rather than subsidies. It’s under threat, not just from the Americans. Yes, our supply management system needs reform (ex. price of quotas and farm land are astronomical, we need smaller farms, allow regenerative production methods, mixed farming). I say extend supply management to all commercial livestock farming. Set quotas by the county in accordance to ecological capacity of the county’s watershed and have farmers pay the county a small yearly price for those quotas. Transfer farm land to farming community land trusts in perpetuity. Farms feed people. Quotas and land are now speculative assets.
The global south needs its resources, educated workers and middle class more than they need our money, more than they need our surplus goods. Ex. A Haitian doctor is more useful treating patients in Haiti than driving a taxi in Montréal.
Jason Hickel estimates that a net $2.2 trillion is transferred from the imperial periphery to the imperial core every year and a total of $152 trillion since 1960. That certainly is a cost to the global south and a gain for rich countries, especially the 1%. Rich countries can’t take everything.
I know trade can be exploitative.
But you do know Warren effectuveky ignores finance when he talks about it, don’t you? That’s weird for someone promoting MMT. Why would he want to do that?
Ricardo got a great deal wrong about trade, but Warren has not got his answer right. I am poleased Steve is looking at this.
Super video, really accessible to somebody who has not studied Economics, and it has certainly engaged my enthusiasm for the follow up discussions, thanks!
Thanks
Very pleased to see more collaborative discussions between heterodox economists! It seems to me that your stories show that individually you won’t make any impact on the orthodoxy, even though you are right, because you are fighting embedded institutions, who hold the grip on the operating model and its dominant assumptions. I do hope these beginnings of collaboration will move forward into a ‘counter-orthodoxy’ that has more widely accepted tools and models. It would be great to escape the critique of the ‘institutional economists’, see https://www.geoffreymhodgson.uk/future-for-heterodox-economics. It seems a multi-disciplinary approach to the complexity of the economy is very overdue and with the combined experience and understanding of you guys, there’s a opportunity to embrace the new, in the form of powerful compute in a digital ‘petri-dish’ by making some links with the ‘computationally capable economists’ like Rob Axtell, are working on. https://www.youtube.com/watch?v=bi1Bqo-GSGk The UK BoE and HMRC, with RTI has a lot of the data needed. It’s interesting that Russian and Chinese economists seem to be ahead of the UK in this sort of agent-based modelling at very large scale.
Thanks
I didn’t watch the video*, but I thoroughly enjoyed the summary so thanks for providing it. Did you use AI to write it?
How’s it doing on YouTube, where I imagine Steve has his own following?
Looking forward to more of these!
*I almost never do as I much prefer to read information.
I did use ChatGPT to assist the drafting of this summary. I entered the entire text, and then asked it to summarise our discussion because I felt that would be the most accessible way for a reader to understand the flow of what we were talking about. I did, then, of course edit it to make sure that the nuances were correct, and that means that the final result was by no means the same as ChatGPT drafted.
I would pay good money to watch Steve and Richard discuss/argue macroeconomics with proponents of neoclassical economics and to show them the failures of their ways. Could be ground breaking. Can it be arranged?
If you can arrange it…
My actual statement is that exports are real economic costs and imports real economic benefits.
Keen stated the following, which applies to financial assets, missing the distinction between real and financial:
A government deficit adds net assets to the private sector; a trade deficit destroys them.
I agree with this restatement:
A government deficit adds net FINANCIAL assets to the private sector; a trade deficit destroys them.
I urge him to reconsider his objections.
We have.
Your statement does not, and never will, make sense, Warren.
In fact your failure to recognise that trade is not barter, as your latest comment implies, in itself makes no sense and makes a mockery of MMT. Of course financial assets are involved. That is how the world is. Why are you trying to deny it?
Richard,
Very interesting.
Steve has done a video titled Housing Crash 2025. The video explains the role of bank lending driving house prices.
Steve’s suggested limiting bank lending to some limit of the rental yield/price to return Housing markets to being a less speculative business for banks and thus restoring over time house prices to something people on middling wages can afford.
Given your recent work on UK rents I wondered whether rent controls could deliver similar outcomes?
Maybe a collaboration opportunity?
We could add it to the list to discuss…