Steve Keen On Keynes And The Failings Of The Neoclassical School

Tyler Durden's picture

When it comes to economics, our ridicule of the underpinnings of the dismal voodoo science are well known. Only Ivy league professors can profess to predict the future based on special case equations that isolate a system in vacuum, completely oblivious of the fact that nothing in the world is linear and if anything, a system based on Lorenz attractors and Mandelbrott theory would be far better suited to demonstrate that as far as predicting the future is concerned, it is nothing short of an exercise in futility. That said, we do appreciate the work of those economists who are first to admit not only their own limitations but the limits of the art, not science, that they engage in. Chief among them is Australian Steve Keen, whose work and analysis we always enjoy. For those unfamiliar with Keen, we have attached the following just released interview with Ross Ashcroft of The Renegade Economist in which he deconstructs the failings of contemporary interpretations of Keynesianism (in essence the usurpation of theory by those in power to perpetuate their own greedy practical pursuits), and exposes the core of neoclassical economics that guide every day macroeconomics for the sham it is: "fundamentally neoclassical economists are the priests of Capitalism, but the priests don't necessarily know there is god. They have this model of god and ditto with neoclassical economics: they have a model of capitalism which is almost but not quite, completely unlike actual capitalism. And they don't even realize that they have erected a smokescreen behind which if people want to rip the system off, then there is plenty of avenues created by these guys." Just a thought, but perhaps it is time for #OccupyWallStreet to pay a visit and #OccupyNYUEconomicsDepartment...

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broke433's picture

But gold goes in a straight linear line!!! Buy buy buy buy buy!!! ;(

The Peak Oil Poet's picture




it's a daily trial to click and read
the blogs about investment
with a zillion other boomer babies
checking each assessment

the panic button's glowing red
we're ready to withdraw
but until then we're concentrating
hard on making more


ba-by boomer, ba-by boomer
we'll be dead in the end or maybe sooner
all our money will be gone
our investments all gone wrong
we'll have given up the ghost on just rumour

AldousHuxley's picture

Keynes said to save during booms and spend those surpluses during recessions. sounds like common sense to me.

However, in practice under unaccountable politicians, during boom times government spent more than they earned and during recessions, they spent even more. Thus we have perpetuating debt cycle. And fiscal conservatives get sick of it and want to cut any and all government services which end up being longterm benefit ones like education and science R&D versus short term like welfare for food. Repeat for 30 years and you have a country that is broke an full of dumbasses except the top elite who just want to squeeze any remaining middle class. system is fucked. time to reform. but there are too many idiots who haven't got  a clue what the heck is happening (see captured tea party koch suckers and redneck republicans who care more about religion than even their own jobs)

AnAnonymous's picture

Keynes said to save during booms and spend those surpluses during recessions. sounds like common sense to me.


No, in a US driven world, it is not common sense. It is the path to death.

The US has imposed on the world a game of consumption. It is about consuming the most the fatest possible.

Conservation in this context is mark for death.

In the US world order, common sense dictates to find ways to consume more during boom times, even more during recessions and again even more during the next boom time.

People who conserve just self elect to be the next foodstore to loot by US citizens.

Libya is just another Iraq. Libyans under the mad dog Quaddafi had not fully exploited their oil potential. They kept part of their soil unexploited. They had not fully opened the tap. They had conserved.

Big mistake. They got punished. Now they are going to consume and consume much more.

Dont conserve when the game is all about consumption. It is common sense.

Snidley Whipsnae's picture

AnAnonymous... Not saying you are totally correct in your vision of what is happening... But, no other human activity wastes more resources faster than war.

Or, as general Patton put it... "All other forms of human endeavour pale in comparison to war"

Whether or not the US can continue on it's current path of 'imposing on the world a game of consumption' is very much in doubt, imo.

Kudos to ZH for posting this video. I have been following Keen for a long time and was first made aware of his thoughts via Mish. Like Keen, I see this period going forward as a rich breeding ground for right wing lunatics. As we have seen in the past, all that is needed is an excellent orator that has the pulse of the poorly educated and out of touch have nots. Then we will see a neo version of the Brown Shirts and SS with the neo Hitler pointing to the 'new villians'... Who will the new villians be? The pulse of the have nots, as taken by the neo Hitler, will make that decision.

Hitler was sincere and the Germans that he addressed felt and responded to his sincereity. The world paid an enormous price for Hitler's sincereity.

There is nothing more dangerous to all mankind than a sincere, misguided person surrounded by well funded high profile enablers.


JW n FL's picture



Decay - The Collapse in Slow Motion

Uploaded by on Nov 29, 2010

The Madness of a Lost Society: As the world spins into self destruction, the consumer horde claim cheap imports as their victory. You know better. Prepare now. Stock up on storable food for the rough road ahead. I've got mine, how about you? Failure to prepare is preparing to fail

JW n FL's picture

Severe police action as thousands of Occupy protesters fill Times Square

Uploaded by RussiaToday on Oct 16, 2011

Tens of thousands of people in hundreds of cities around the word have been venting their fury against the greed of the big banks - and the debt management inflicted by their governments. Inspired by the 'Occupy Wall Street' movement in Manhattan, protests took hold in Europe, Asia, and around the U.S. - with some turning violent. In New York, there were dozens of arrests as police moved to contain the rally. Here's RT's Lucy Kafanov.


Anti-Terrorism Units (meter maids dressed up like Marines) in body armor trying to SCARE "We the People" into not exercising our 1ST! Amendment Rights!


Why is NO ONE Covering the FACT that all those New York's Finest surrounding the NYSE are off duty and privately hired THUGS! that "We the People" will end up having to pay for when they hurt little girls?


Iran is on the Hit List to distract Americans.. but I don't think that will do the trick! it is time! for Americans to TAKE BACK the Country! This is a County of the People and Our Country should be Governed by THE PEOPLE! NOT! paid for, LOBBY WHORES!!!



Seer's picture

Decay isn't necessarily bad.  In this case think of it as a pair of decaying handcuffs!

Seer's picture

I really respect Keen, but I have to wonder whether ANY centralization can EVER keep from being corrupted.  Yes, I realize that good intent, and even some good "products" _can_ occur, but in the long run...  And this is why I eventually saw anarchism as the ONLY way to meet the dynamics of the future: diversification is the key to life; some make it, some don't; it's nature's model, we can no longer pretend that we're separate from nature (and nature's laws).

I also see the rise in Brown Shirts.  These are ALWAYS the troops that the elites deploy.  OWS is going to roust them out of their rat holes.  Gott mit uns!

damage's picture

I find it kinda interesting your comment has absolutely no ups and no downs. At least so far.

I didn't feel like pressing either button... cause I do feel like Keynes was hijacked even if I disagree with him on many things.  I'm wondering if that is the general sentiment or not. I agree with the guy above me that in reality it is just the path to death because the government can't be trusted.

But it is barely over an hour old at 4:30am... so maybe that is why...

Raging Debate's picture

It is hard to vote An Anonymous down because he/she is focused on an obvious flaw in the model.

You want to fix up a house, start with the foundation and stop blaming the workers building a deteriating house. Prior An Anon's commentary assigns blame to the citizenry specifically of the US.

The frustrating part of our human nature is the encapsulation effect. Human beings mostly evolve by pain (a shame the next generations forget and don't learn from history).

I am all form reform and restoration of the rule of law. However, we muat use caution when it comes to revenge. It will be very easy for the world to swing as a pendulum and 1/3 of all mankind dies off.

The Malthusian leadership doesn't care about any of the 99% and that includes their own enforcers. I didn't like where An Anon's intent was heading. Rape victims should not be strangled be them white, yellow, red or brown. It is about time Americans woke up en masse to the MIC and how it is really funded. It is about time we (I am an American) consider defense of the oppressed and realized we became empire. It happened very fast and so few of us know or knew that whichever nation becomes the reserve currency peg of the globe also inherits the job of protecting trade, the global policeman. The Central Bank model will evolve and of course the kicking and screaming to prevent that has started.

Seer's picture

"However, we muat use caution when it comes to revenge."

Thank you for stating that [assuming you meant to type "must" rather than "muat"].  At the end of that revenge button is a pile of nukes.

"The Malthusian leadership doesn't care about any of the 99% and that includes their own enforcers."

Enough with bashing Malthus!  Just because he warned us (seems that you can find similar warning way earlier, and in religious texts) that the world really is finite and that we couldn't have endless growth, it doesn't mean that he should be castigated for anyone else's leveraging (as you and others might suggest) for "evil purposes."  Lashing back at Malthus is an easy way out of discussing just what we are supposed to do when we're becoming short of resources.  Happens all across the board in nature (and we ARE part of nature).  Humans hide all of this (in an attempt to be compassionate- read Mutual Aid by Peter Kropotkin [it's available on-line, for free]) by engaging in wars (again, happening WAY before Malthus).  Blaming Malthus is like stepping off a cliff and blaming gravity for your demise: before you stepped off you weren't acknowledging the positives of gravity keeping everything anchored down!

BrocilyBeef's picture

voted down after reading the ramble at the bottom. you are the greater fool.

Tyler Durden's picture

Gold is, more than anything, a bet on people's (and economists') stupidity. Since stupidity and its manifestations are endless, especially at systemic tipping points such as the one we are experiencing currently, you are absolutely right.

Gief Gold Plox's picture

That is by far the best definition of gold I've ever heard. I'm gonna use that. :)

spiral_eyes's picture

I'd actually throw that definition on its head. Gold is not a bet on the stupidity of economists, but a bet on the non-stupidity of reality. Debt-based money is a house of cards. A financial system based on inter-connected leverage is a house of cards. Statistical arbitrage is a house of cards. Quantitative (linear) analysis is a house of cards. Central planning is a house of cards. And so many more of humanity's "great ideas".

Reality kills all of those birds with one stone, such that gold — an inert and quantitatively limited lump of supernova-remnant — holds its relative purchasing power, while everything else does not. 

sqz's picture

Is it me mishearing or did he say at the end (23:12):


Q. What will be the societal effect in Australia, in your view?

A. I hope a return to the sort of mentality that existed just after the Great Depression and the Second World War when the emphasis was on the income status of the general population rather than promoting the wealth of the very few at the top. We've gone down the elite road - the Macquarie bank vision of the world, promoting the speculators and the spivs rather than the working people. I give my students a quote from the white paper on employment that came out in 1945 to show what the mindset was like after the last great crisis. That whitepaper had the following statement, "The object of economic policy is to maintain such a pressure on employment as as to guarantee a shortage of jobs, rather than a shortage of men."


Did he misquote and mean a "... shortage of men, rather than a shortage jobs"? Otherwise, that pretty much IS the effect of neoclassical policy, as he defines it. :)

Anyway, pretty interesting discussion. This guy should link up with Nouriel Roubini, should make for interesting discussions.

Schmuck Raker's picture

You heard right. And there is nothing inconsistent between what you quoted and - "that pretty much IS the effect of neoclassical policy, as he defines it. :)"

I'm afraid I don't understand why you would take exception. All due respect...

sqz's picture

Because that quote was a representation of the state of policy he hoped the world would return to, according to the first part of the response.

It is clearer in the video after the quote, I think.

So, unless I've missed something completely from start of that response to its finish, the white paper must have been misquoted.

BadKiTTy's picture

With you on this this one. There is a fundamental inconsistency unless he got the quote wrong.


Schmuck Raker's picture

I still disagree. Listen more carefully, his accent makes this difficult.

This is not really something we need to spend anymore energy on, though.

Even if you are correct, it still seems to me we (BadK,sqz,I) agree with what he is trying to argue as a solution.

Paul E. Math's picture

I did a double-take on that section of the interview too.  I agree with sqz and k@ - I think he accidentally flipped the quote.  He was explaining that the mind-set in 1945 was to use economic policy to improve the living standards of the masses rather than the elite and that would occur where there was a shortage of workers (men), where everyone who wanted a job could find one, rather than a shortage of work and high unemployment.


honestann's picture

Exactly correct.  Of course, in practice, gold is simultaneously a bet on reality AND a bet on the corruptness of the predators-that-be and predator class AND a bet on the stupidity of "economists", virtually all of whom are inherently authoritiarians.  I say this about economists even though it is possible for a purely observational science of economics to exist in a world of completely free markets (no government involvement, no fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-money).

What is important to remember [at certain stages as the economy plays out] is that gold is not the only form of "reality" that we can accumulate.  In fact, the most important form of reality to accumulate is "productive equipment and supplies", for THAT is what directly causes and endless stream of goods over long periods of time.

In gold we trust.
In silver we trust.
In platinum we trust.
In palladium we trust.
In productivity we trust.

Raging Debate's picture

Ya, your right too Spaulding but it is far easier to explain to a layman Tylers explaination as to why they should hedge their bets. I tell people that are scared to buy three months food, water and methods to defend onself from violent crime first.

RSloane's picture

Absolutely. Those of us in currencies always take into account stupid government moves designed to protect wealth that isn't there. If you think of governments as comprised mostly of mouth breathers, determining where the best play is going to be is quite simple.

Ghordius's picture

It's a GOOD bet

I'd just wish we could go back to INVESTING instead of BETTING

Some of the betting cohorts are starting to look and sound like surf champions realizing that the waves are DOUBLING every month

How big will your last wave be?

Raging Debate's picture

Well put. I prefer placing my bets in reform first though or
we never get back to five year plans.

Going Loco's picture

I agree with this manifestation of Tyler that gold is a bet on stupidity but I don't agree with Broke433 that gold moves in a straight line. I smell liquidity crunch. I am watching the chart like a bloody hawk. I sold my gold at a profit because I smell liquidation here.

Straight line? Phooey. No asset moves in a straight line. Not one. Ever. Not even gold. (Especially not silver). @Broke 433: good handle that, well chosen IMHO. Any time you think you see a straight line trade I'll be your counterparty.

Unprepared's picture

For your information, there is a new ETF under symbol STPDX, which tracks the amount of stupidity in the economy. Due the large success of the fund, you have various choices: STPDX-P for political stupidity, STPDX-M for markets, STPDX-US, STPDX-EU, STPDX-EM ...

The purchase and redemption of fund shares are made in creation units. To purchase STPDX shares, investors have to deliver the equivalent of 1,000 shares with the same composition of the fund in the previous working day (which can be found on website, read prospectus for further information) For example, for STPDX-P fund, investors should deliver a mix of either votes for Cain or reelection of Obama (whichever is stupider), signed agreement to all bail outs, attack Iran, a BLS report …

Shorting of STPDX is not yet open. STPDX shares are listed and traded in all major markets: NYMEX, NASDAQ, CONGREX, WHEX (White House Exchange) and your local Saturday market.

Thunder Dome's picture

The gold price is a measure of confidence in government.

disabledvet's picture

And i imagine "Love over Gold" is right around the corner, too.
Have no fear...your catastrophe is here as always.

raki_d's picture

So, whats the difference between dollar & gold?

AldousHuxley's picture

first one, you wipe your ass with.

AldousHuxley's picture

Gold is, more than anything, a bet on people's (and economists') stupidity


half of population have IQ lower than average of 100 by definition. so half of people are born stupid an you have shitty education system that barely developed the upper half, I'd say 90% of the world's population are ignorant. Less than 1% even know what money really is. Given that, gold is a good bet.



Republicae's picture

Gold, indeed, is a good bet, not because of the increase in its fiat price, but because it is a recognized commodity of exchange. Additionaly, while there are those who say" "you can't eat gold", the truth of the matter is that even in the most difficult times, gold will still maintain a marketable exchange or barter power. Gold is money, the better money, despite Mr. Bernake's insistence that it is not. It can be certain that less than 1% of the population are aware of what money is, much less what money does in a market economy and how it should function as a medium of exchange...I dare say that the obtuse politicians in Washington don't have a clue about either the meaningful economic power of gold as money nor the incredible damages brought about by a fiat monetary substitution of gold.

Paul E. Math's picture

The only thing that scares me about gold is that it is a bet AGAINST the powers that be.  When you fight authority, authority always wins.

Politicians may indeed be stupid and so may be 99% of the population.  But those that benefit from government fiat currency are not stupid.  And they will not relinquish this benefit without a fight.

So far they haven't done much more than jaw-boning and hiking the margin requirements.  But I don't think there are many acts too heinous for the parasites that be.

Gold is an existential threat to very powerful and avaricious interests.  And they know it.

Republicae's picture

The problem for those who have and are benefiting from fiat currency is that fiat monetary systems have an inherent self-destruct mechanism. As such, those who have benefited and depended upon it for their power and wealth will ultimately pay they price for their treachery. They will make every attempt to keep the system afloat, but to no avail, once critical mass is reach and the monetary/economic "super nova" takes place, they will find themselves at the mercy of an economic collapse where their power, their wealth and their security no longer exist and they will be exposed to a life they are not well prepared to live. Plus, they will probably be hunted with bounties on their heads.

Keep your powder dry!

duckhook's picture

as the old joke goes %99 of people are brilliant the other %1 are economists

Seer's picture

I do and don't like this comment.  I like it because it informs us of the importance/power of gold (over the corrupting influence of fiat).  I dislike because it places more blame on people rather than the systems that have programmed them.

Not all of us were born understanding all this crap.  Some of us have de-programmed ourselves, others (MANY) have yet to do so, and some will NEVER be "fixed."  My point is that people are more likely "fixable" (via deprogramming) than are systems, and that it's more the fault of the systems than people themselves: people can change, but as we're seeing, systems not so much...

I strongly recommed reading Creeds versus Deeds (  He's an exceprt discussing my very point (NOTE: if "anarchism" bothers anyone then just read this and drop this word/term, the points are still valid to reasonable-thinking people):

[Start of excerpt]

One thing ideologues of all stripes share is a negative view of human nature -- they see us all as basically bad, and in need of improvement (achieved by a period of indoctrination, naturally, which they offer). Further, ideologues hold themselves exempt from this principal of negative human nature -- that is, they are okay, but the rest of the world is screwed.

However, this view is incompatible with anarchism, and entirely appropriate to authoritarian ideologies -- authoritarians all view people as basically bad, and in need of education, supervision, and above all, control, which they are all too willing to provide.

The anarchist, conversely, holds that human beings are basically good and not in need of guidance, coercion, and control -- indeed, we hold steadfastly to the idea that the only evils in society come about when some seek to control and coerce others, and that the mechanisms of power, privilege, and control turn even the saintliest stalwart into a connniving manipulator.

In other words, anarchists view people as good, and systems of control as bad, whereas ideologues hold the other view -- that people are bad, and systems of control are good (so long as THEY control those systems -- if someone else controls them, then they're bad -- that's how they seem anti-authoritarian when out of power -- but just wait until they do get a measure of power, and you'll see). It's an important difference, and determines the nature of the organization that arises from these foundations.

The organization based on a negative view of human nature will focus on power and control, centralizing these things in as few hands as possible -- the people who can be trusted with such power (meaning, the most obedient and doctrinally sound), whereas the organization based on a positive view of human nature will seek to disseminate power and eliminate control, decentralizing and dispersing these in as many hands as possible.

The most pernicious threat of the ideologue is that they exempt themselves from their own rules -- again, stemming from the notion that THEY have "seen the light" and the rest are either: 1) idiots; or 2) evil (for turning their backs on the Truth). Thus, they can never be reasoned with, because they are irrational themselves -- if you object to their program, regardless of the reason, then you are at fault, not them.

That's why a natural corollary of the ideologue is the use of force -- because they are dogmatic and irrational, all they can ultimately rely on for legitimacy is force, which necessitates centralization and control of force -- e.g., the State, in a newer, more pernicious form.

In a sense, the ideologue is a closeted authoritarian, which is why they are so treacherous. They seem anarchistic because they reject authority that exists when they have no part in it; however, they are really objecting to being disempowered themselves, rather than rejecting authority itself. When they attain a position of authority, they turn as despotic as anyone who preceded them.

Their Authority is in their ideology itself--their Big Idea--which you resist at your own peril. It was this that caused the Galleanists (Italian anarchist followers of Luigi Galleani) to engage in several bombing campaigns, even against innocent passerby--to the Galleanists, anyone who didn't get The Idea wasn't innocent.

[End of excerpt]

kaiserhoff's picture

You can't eat gold.... Well, you can, but you usually don't unless you're just trying to get through customs. 


Going Loco's picture

You can eat gold, and people do. I was walking through the back streets of Varanasi (Benares) some years ago and heard the chink of hammers. In the gold beaters quarter loincloth-clad urchins steadily hammered away at gold, turning it into gold leaf so thin it was almost transparent. Why? To decorate sweetmeats at wedding festivals.

(Why didn't they use roller mills? Urchins cheaper than machinery, that's why)

AldousHuxley's picture

you can drink it also....goldschalger


although I'm sure these days gold flake content is lower.

BorisTheBlade's picture

So many assets wouldn't pass this simple test:

- can you eat USTs?

- can you eat AAPL?

- can you eat real estate?

- can you eat USD?

- can you eat EUR?

The answer is: probably you can, at least for the fiat currency. But, that's not the purpose of buying, is it...

However, yes, you can eat gold, but with my recipe only once: dissolve gold in aqua regia, serve it as a side dish with freshly shredded Zimbabwe dollars.

Seer's picture

"can you eat real estate?"

Given that real estate generally includes land (OK, I know of instances where the surface is really water [but there's land underneath water!], but this still applies), one can grow food on [in] it.  I suppose that one could also grow food ON fiat, ON gold etc, but that's a bit messy (less stationary).

Real estate is also the only asset out of the above list that is an "end-product" (all others mean nothing, have really no value, if held indefinitely).

BorisTheBlade's picture

Not the land itself, but the land yield is edible. So, strictly speaking it still wouldn't pass the test. Looking forward to an edible currency: chocolate or meat dollars. Food-backed currency is already here: foodstamps!

Republicae's picture

Gold will, even under the most ardent circumstances, still provide the value of exchange and while you might not be able to sustain yourself on a diet of gold, the fact is that it will still be recognized as a value during and after the collapse of the global fiat monetary regime. You might not be able to eat it, but you will be able to use it to buy something to eat. It will retain it's barter power. That being said, I would also stock up on other trade goods to use as mediums of exchange.

technovelist's picture

They'll be discussing that clip for decades, maybe centuries.