Aspect |
Mainstream Economics |
Steve Keen’s New Economics |
|---|---|---|
Foundations |
Based on neoclassical economics, emphasizing equilibrium, rationality, and efficiency. |
Based on post-Keynesian economics and complexity economics, focusing on disequilibrium, uncertainty, and dynamic systems. |
Assumptions |
– Rational, utility-maximizing agents. – Markets tend toward equilibrium. – Perfect information. |
– Bounded rationality and behavioral complexity. – Markets are inherently unstable. – Imperfect information and uncertainty. |
Role of Money |
Money is neutral; it is a medium of exchange with no significant impact on real economic outcomes. |
Money is endogenous; it is created by banks through lending and plays a central role in economic dynamics. |
Debt and Credit |
Debt is largely ignored or treated as a secondary factor in economic models. |
Debt and credit are central to understanding economic cycles, crises, and instability. |
Mathematical Modeling |
Relies on static equilibrium models (e.g., supply and demand curves). |
Uses dynamic, non-linear models (e.g., system dynamics, agent-based modeling). |
Economic Growth |
Growth is driven by supply-side factors (e.g., labor, capital, technology). |
Growth is driven by demand-side factors (e.g., investment, consumption, credit creation). |
Role of Government |
Government intervention is often seen as inefficient; markets are self-correcting. |
Government intervention is essential to stabilize the economy and address market failures. |
Financial Crises |
Crises are rare and caused by external shocks or policy mistakes. |
Crises are inherent to capitalist systems due to debt accumulation and financial instability. |
Labor Markets |
Labor markets clear through wage adjustments; unemployment is voluntary or temporary. |
Labor markets are prone to persistent unemployment due to insufficient demand and wage rigidity. |
Income Distribution |
Income distribution is determined by marginal productivity of labor and capital. |
Income distribution is shaped by power dynamics, institutional factors, and financialization. |
Role of Banks |
Banks are intermediaries that transfer savings to investment. |
Banks create money through lending, which drives economic activity and instability. |
Investment |
Investment is determined by interest rates and expected returns. |
Investment is driven by expectations, credit availability, and animal spirits. |
Uncertainty |
Assumes probabilistic risk, which can be quantified and managed. |
Emphasizes fundamental uncertainty, which cannot be quantified or predicted. |
Policy Implications |
Favors deregulation, free markets, and minimal government intervention. |
Advocates for regulation of financial markets, debt restructuring, and active fiscal policy. |
Critique of Mainstream |
N/A |
Critiques mainstream economics for ignoring money, debt, and instability, and for relying on unrealistic assumptions. |
Key Differences
- Money and Debt:
- Mainstream economics treats money as neutral and debt as secondary, while Keen emphasizes the central role of money creation and debt in driving economic cycles and crises.
- Market Stability:
- Mainstream economics assumes markets are inherently stable and self-correcting, whereas Keen argues that markets are inherently unstable due to financial dynamics.
- Mathematical Approaches:
- Mainstream economics relies on static equilibrium models, while Keen uses dynamic, non-linear models to capture the complexity of economic systems.
- Role of Government:
- Mainstream economics often favors minimal government intervention, while Keen sees a critical role for government in stabilizing the economy and addressing inequality.
- Uncertainty:
- Mainstream economics assumes risks can be quantified, while Keen highlights the importance of fundamental uncertainty in economic decision-making.
