An overview of my work
The wonderful discussion I had with Lex Fridman has led to a lot of people being exposed to my approach to economics for the first time. About 250,000 have watched the main 3 ½ hour video, and about 330,000 have watched one of the fourteen shorter clips. Lex covered an amazing amount of ground, but there were also many topics we didn't get to. This is an overview for those who hadn't heard of my work before my conversation with Lex.
My latest book
My latest book is The New Economics: A Manifesto. It's short—25,000 words, and 155 (200 including footnotes, bibliography, index etc.)—but it covers a lot of ground, bringing together most of the work that I've done in my 35-year career as an academic economist. Topics include how money is created and why this matters; the complex dynamics of a monetary economy that lead to financial crises; how to derive macroeconomics directly from macroeconomic definitions; the role of energy in production, and how the failure to understand this has led economists to drastically underestimate the dangers of climate change; and what is it about economics that leads it into being a quagmire of ideology, rather than a dispassionate analysis of our society and its relationship with nature?
It's written for a general audience, so there's not an equation in it (though there are lots of figures). If you're looking for the technical stuff, check out the free online book Modelling with Minsky.
Critiques of mainstream economics
I became a critic of mainstream economics in 1971, when my first year lecturer at Sydney University taught us about "the theory of the second-best". This theory, developed by mainstream economists, showed that if you were two steps from what mainstream economists think is perfection, then moving one step closer will make things worse.
I was stunned by this: simply by admitting that we were at least two steps away from perfection, what seemed obviously a good idea from the pure theory—where you simply assumed that both labor and capital were not organized—became false. This was ridiculous, I thought: surely economic theory should be more robust than this? I also became suspicious. This material was not in our textbook—even though it was well-established theory (the key paper was written in 1956). What else was my textbook not telling me? This quest led to my most well-known work, the book Debunking Economics (2nd edition 2011).
Existing critiques—Debunking Economics
From the outside, economics looks so well-constructed: utility-maximizing consumers meet profit-maximizing firms in an anonymous marketplace that sets an equilibrium price where supply equals demand, and where your income reflects your contribution to society. But when you take a closer look, every element of the conventional theory is false—and has been known to be false for in some cases more than a century. But economists simply ignore these fundamental critiques of their beliefs.
Debunking Economics explains the conventional theory, and then goes behind it to explain why it is wrong.
There are a multitude of problems. To mention but three:
The unit cost of production falls as output rises, the opposite of what economists assume. This means that there is no "supply curve" as mainstream economists define it;
Individual consumers don't maximize utility: their shopping behaviour violates all the axioms that economists claim define rational behaviour;
Even if there was a well-defined supply curve, and even if individual consumers did behave as mainstream economics assumes they do, the market demand curve can have any shape at all: it doesn't have to fall as price rises.
Theory of competition
All but two chapters in Debunking Economics explain critiques of economics developed by other people. I added one new chapter when I realized that the level of output that was supposed to maximize profits for individual competitive firms led to market output that exceeded the profit-maximizing level. This led to a series of papers explaining how what economists describe as profit-maximizing behavior doesn't maximize profits—even if all the pre-conditions assumed by the theory hold, which they don't.
Marxism
My initial academic research was into Marx's economics, and why it was wrong on Marx's own terms. I discussed this topic at length with Lex. I did this research for my Masters thesis, and it led to my first two published papers in economics, "Use-Value, Exchange Value, and the Demise of Marx's Labor Theory of Value" and "The Misinterpretation of Marx's Theory of Value".
Climate change economics
The work done by Neoclassical economists on climate change is, by far, the worst work I have encountered in my entire academic career. It deserves not commendation, like William Nordhaus's "Nobel Prize", but condemnation.
They have simply assumed that climate change is "small potatoes", and they have made up "data" to support their assumption. I cover this in two papers, "The appallingly bad neoclassical economics of climate change" and "Estimates of economic and environmental damages from tipping points cannot be reconciled with the scientific literature".
Other contributions
Modelling financial instability
I built a mathematical model of a financial bubble and collapse in August 1992, and then watched the key features of this model turn up in economic data: a rising ratio of private debt to GDP, falling workers' share of GDP, and a period of diminishing cycles before the crisis. This research was published in 1995 in the paper "Finance and Economic Breakdown: Modelling Minsky's `Financial Instability Hypothesis"
The role of energy in production
Without energy, nothing can be produced, and yet energy is ignored in the "production functions" used by mathematical modellers from all schools of economics—and not just the dominant Neoclassicals. I worked out how to properly include energy in production functions in 2018, and this was published with two co-authors in 2019: "A note on the role of energy in production".
Software
I have developed two software packages (in collaboration with a brilliant coder and close friend, Dr Russell Standish), one for dynamic modelling (Minsky) and the other for data analysis (Ravel).
Minsky
Minsky is Open Source and free: you can download it from here.
It's a "system dynamics" program, and there are many other programs in this space—Stella, IThink, Vensim, Simulink, etc. Minsky's specialty is its capacity to model monetary dynamics using double-entry bookkeeping.
Any question you have about how money works can be answered using Minsky. Its manual is Modelling with Minsky.
Ravel
Ravel is not yet released, and it will be commercial software when it is made available (hopefully version 1.0 will be released later this year). It makes Pivot Tables obsolete by replacing them with a far more intuitive tool—the "Ravel". It also replaces thousands of cumbersome and impenetrable spreadsheet cell formulas with a few easy to audit "No Code" flowchart expressions.
I will give my supporters on Patreon and Substack a pre-release version of Ravel shortly before the commercial release. So, if you'd like a copy—and you'd like to keep in touch with and support the work I do—please consider signing up to one or the other:
Lex's Interview
Steve Keen: Marxism, Capitalism, and Economics | Lex Fridman Podcast #303 (3.5 hours)
Lex's Clips
Lex has produced an incredible 14 excerpts on different topics. This is the list, sorted in the order of the number of views as of Wednesday 20th July 2022, 1pm London time.
Human civilization is headed toward an economic crisis (16:58 minutes; 328K views)
Why China is winning (20:08 minutes; 70K views)
Advice for young people: Don't study economics (4:06 minutes; 68K views)
Economics summarized in 10 minutes (10:58 minutes; 61K views)
Why Karl Marx was a genius (18:35 minutes; 43K views)
What is socialism? (14:57 minutes; 30K views)
Stalin vs Marx: Why communism failed in the Soviet Union (12:04 minutes, 22K views)
What Karl Marx got wrong (17:17 minutes; 22K views)
Marxism Explained (2:55 minutes; 16K views)
Difference between Fascism and Socialism (1:18 minutes; 17K views)
Austrian Economics Explained (3:56 minutes; 13K views)
Modern Monetary Theory Explained (9:58 minutes; 11K views)
Marxism is misunderstood (3:24 minutes; 10K views)
What is economics? (6:59 minutes; 7K views)
Finally, thank you Lex for the invitation onto your podcast, the opportunity to engage with your formidable intellect and warm human nature, and the excellent discussion that ensued.