the ‘Protest Against Autistic Economics’ in 2000, which had somewhat more traction, but no changes in economics teaching occurred: its main legacy was an online journal called the Real World Economic Review.
The real breakthrough came with a protest by economics students at the University of Manchester12 in the UK in 2012, in response to the failure of their teachers to take the GFC seriously in their macroeconomics courses. As they put it, ‘The economics we were learning seemed separate from the economic reality that the world was facing, and devoid from the crisis that had made many of us interested in economics to begin with’. Their Post-Crash Economics movement in turn spawned the international Rethinking Economics campaign, which now has groups in about 100 universities across the world (you should join one, if you’re not already a member), and inspired the Institute for New Economic Thinking to fund the Young Scholars’ Initiative.
There are therefore students eager for approaches to economics that break away from the Neoclassical mainstream, methods of analysis which can easily supplant the dated equilibrium methods used by Neoclassical economics, and rival schools of thought with an intellectual tradition spanning almost a century, on which an alternative paradigm can be constructed. What we lack is a university system in which these conditions can foment a paradigm shift, as has occurred several times in physics in the last one and a half centuries, but not once in economics.
Fortunately, the GFC was such an extreme shock to the policy bodies around the world, which were and are still dominated by Neoclassical economists, that at least some of them – such as the OECD, which established the unit New Approaches to Economic Challenges (NAEC) in 2012 (see https://www.oecd.org/naec/) – have started to explore alternative approaches, including the application of ideas from other disciplines (largely physics, engineering and computer programming) to economics. Change is more likely to come from these institutions than from within academic economics itself, though even here, the alternative approaches experience hostility from entrenched Neoclassical economists.
There is also one negative factor that may finally force the change needed in economics, which is closer to the Reformation of a degenerate religion than a standard scientific revolution (Elliott 2017). Climate change is the dominant issue for the human species – and all other species – during the twenty-first century, and the work that Neoclassical economists have done on climate change is, in my considered opinion, the worst work they have ever done (Keen 2020a). And yet Neoclassical economists gave their highest accolade, the deceptively named ‘Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel’, to the chief proponent of this work, William Nordhaus. When reality exposes how low grade and utterly misleading this work has been, the revulsion that policymakers and the public will feel at how they have been deceived by economists may finally terminate Neoclassical economics.
I don’t want you to be on the wrong side of this stage in history. If you are a potential or current student of economics, I want to reach you before you embark on, or get too deeply into, a university course of study that will attempt to inculcate a near-religious belief in the Neoclassical paradigm, and that will drive you away if you can’t accept it. I want you to arrive at university knowing of the modern methods of analysis that are commonplace in the sciences and engineering, but which have been excluded from economics by the hegemony of Neoclassical economics. Then, perhaps, there will be a chance for a real revolution in economics, and it can become, if not a fully-fledged science, then at least more like a science and less like a religion.
It’s not possible to state ahead of time what the entire new paradigm will be, but the following features are fundamental. The new paradigm will:
be fundamentally monetary, in contrast to the false, moneyless barter model that underlies Neoclassical economics;
acknowledge that the economy is a complex system, not an equilibrium system;
be consistent with the fundamental physics known as the Laws of Thermodynamics;
be grounded in empirical realism, rather than the fantasy of ‘as if’ assumptions about reality; and
be based on the techniques of system dynamics and related non-equilibrium analytic approaches.
I explore each of these theses in the following chapters. What follows is a Manifesto, both because it is a call for change in economics every bit as emphatic as Martin Luther’s call for the reform of the Christian religion, and also because it states my own distinctive approach to economics. However, this approach has been guided by the genuine giants of economics, philosophy and mathematics who influenced me, and I hope I do them justice in both the text and the many references on which it is based.
Lastly, this book makes heavy use of the modelling program I have designed, which I named Minsky in honour of the great Post Keynesian economist Hyman Minsky. I encourage you to download Minsky yourself, and use it to run the models in this book as you read about them here. The Minsky program (which runs on Windows, Apple and Linux PCs), all the models in this book, and a free manual, Modelling with Minsky, are available at http://www.profstevekeen.com/minsky/.
Notes
1 1 It is often also called ‘mainstream economics’. There are divisions within Neoclassical economics, especially between self-described ‘New Classicals’ and ‘New Keynesians’. Even more confusingly, some ‘New Keynesians’ claim that they are not ‘Neoclassical’, and in fact use it as a term of abuse towards ‘New Classicals’.
2 2 The campaign was supported by 300 of the registered 1,800 academic economists in France, one-third of whom were economic historians, while the rest were economists.
3 3 The one exception was Robert Shiller, recipient of the Economics Nobel Prize in 2013. But Shiller’s prediction relied not upon a Neoclassical economic model, but on his excellent historical and statistical research, which diverges substantially from mainstream Neoclassical thinking.
4 4 Axel Leijonhufvud’s ‘Life among the Econ’ is a brilliant satire of the discipline of economics. If you haven’t yet read it, put this book down now and do so. As well as giving you a good laugh, it will prepare you for the pompous dismissal that this book will receive from Neoclassical economists.
5 5 This is not to suggest that physics always achieves the resolution implied here, nor that the process is fast or straightforward, as Peter Woit details in his critique of string theory in the book Not Even Wrong (Woit 2006), and on his blog.
6 6 I’m also partial to the arguments of Feyerabend and Lakatos on this topic, but Kuhn’s masterful analysis of the scientific method is the reference to read if you are interested in how science progresses.
7 7 IS-LM stands for ‘Investment-Savings-Liquidity-Money’.
8 8 Hicks abandoned his Neoclassical beliefs in later life, and explained that his misinterpretation of Keynes arose from his Neoclassical model (developed in Hicks 1935) having a time period of a week – a period over which expectations could be assumed to be constant. Keynes, however, worked in terms of years, a period over which expectations were bound to change. This invalidated Hicks’s LM curve, because ‘there is no sense in liquidity, unless expectations are uncertain’ (Hicks 1981, p. 152). He also strongly rejected the use of equilibrium modelling techniques.
9 9 The obsession with equilibrium as a mathematical state of the economy has led to exalting it as desirable as well. Certainly, as I explain in the next chapter, the financial instability of capitalism is a serious weakness. But as Schumpeter argued almost a century ago (Schumpeter 1928), instability is one of the strengths of industrial capitalism, not a weakness: it leads to the innovation and change that is the essential strength of capitalism, compared to other social systems. The fact that the system is out of equilibrium all the time is partly because of, and partly the motivation for, entrepreneurial activity.
10 10 There were and still are Austrian