Steve Keen - Where I disagree

This post is about me capturing my thoughts about the work of Steve Keen and the those areas where I don't completely agree. It is because I largely agree that I am bothering to write this and explore the areas of weakness I think I see in his arguments and proposals. I don't intend to include a full summary of his main theories, there are numerous videos on Youtube that can be viewed that do a better job of explaining them than I would do and you can also find his manifesto (although some of the ideas may have progressed since then. I'm also in places going to suggest work that I think should be done, I have no expectation that Steve Keen or anybody else will do this work because I would like to see it but it is what I think would help convince others.

I'm a big fan of Steve Keen's work. Both `Debunking Economics` and `Can we Avoid Another Financal Crisis` are excellent, I support his Patreon and have been to a couple of his talks. I'm completely convinced of his core contentions about the nature of banks and their creation of money, necessity of government deficits and the critical importance of private debt and particularly it's rate of change to the economy. I especially like the data based work that showing the corelations and the simulations using highly simplified, understandable models that produce dynamic behaviour that seems to show similar behavior to the real world. His descriptions of mainstream economics are almost unbelivable to me, I struggle to understand how anyone puts up with the limitations of equilibrium analysis as anything other than a massively simplifying assumption to calculate limits of possibility and that they don't include banks and debt in their models is fundamentally incredible but does appear to be true.

I would be interested in critiques or alternative views that are well argued as I always look for ideas that challenge my current views even on the core ideas that I am currently convinced by.

My views of his preferred remedies are more mixed, and I remain to be convinced by his recent work on energy where I accept that it might be one major component but I am sceptical some of the stronger claims he has made at least verbally that it is THE principle element of the economy and of growth.

Further work on main theory and model

Steve's manifesto may not represent the very latest evolution of his thought but it is a good summary of his main theory of the impact of private debt and his key policy proposals to recover economies from debt.

I've very impressed by the effectiveness of the simple models Steve demonstrates. The key next step I'd like to see would be a model expanded to show how it holds up in a model that includes multiple economies with different currencies, varying exchange rates and trade (and investment) flowing between them. If available this could then be used to evaluate different policies in different economies to see they interact if different countries choose different policies around interest rates and QE etc. This is where I see the greatest risk that there is an issue with the main proposed policy of the Modern Jubilee. I can't as a purely mental exercise reasure myself that it is problem free (although I think it is).

Modern Jubilee aka People's QE (Quantative Easing)

This is the policy response that seems the most solid to me and it needs only some refinement before it could be applied. It is the idea that in a debt out of an overly indebted economy the governement could have the central bank issue addition money as it does for the current QE program but instead of giving it the banks and pushing up asset prices the money could be transfered to the public with the requirement that if they are in debt it must be used to pay it down but otherwise they could spend it (more recently he has suggested that they should have to invest in shares). I'm yet to be convinced about the investment in shares component, as I originally understood the proposal the boosting of demand into the economy to prevent recession although I see it might increase the chance the first spending doesn't immediately leave country for foreign imports.

Where I think that there could be valuable work would be some modelling (if it is already done it isn't part of the main arguement I've seen) around what levels might be appropriate in different scenarios. Also if there was explanation or demonstration of how it would work better than other forms of deficit funding or QE to the banks.

Where we are arguming that money can just be created (which is something many find incredible) I think we need to have an explanation of what the limit would be otherwise comparisions with hyper-inflation states will be raised. Or at least we need a full explanation as to why it is not a problem, the fact that it removes/destroy dates may be enough but we do need answers in this area to what the limit or constraints are. 

The Pill

This is the concept that mortgage size should be limited to a specific proportion of the rental value of the property rather than an income multiple of the buyer. This would reduce the ability for people to bid up the price of houses by competing for how much they can borrow so the house would instead go to the person able to add the biggest deposit.

I accept the principles behind this too, and largely agree although I think this would be even harder to accomplish politically than the modern jubilee as there are many home owners who would lose and some prospective home buyers who would think that the limits on borrowing would prevent them buying (for some it may although prices should fall so more can buy at reasonable prices over time). Risks do exists around foreign lending bypassing the rules but I think that could probably be mitigated by refusing to allow them to reposess or otherwise enforce repayment of the loan which should deter much of the lending.

In fact having just written that I wonder if there is a mechanism to largely implement the whole policy indirectly by placing limits on the amounts of loans or mortgages that could be enforced and enable a review to be triggered that would automatically write off a portion of the mortgage if prices/rental incomes fall to deter lending [this isn't fully thought through and would probably need interest rate caps too.]

Jubillee Shares

This is the idea that shares should, after changing hands a particular number of times, be given an expiry date and that they would then earn the dividends until that date only.

This is where I properly part ways. I understand that the aim is to limit speculation (especially leveraged) but I think this is riddled with issues that may or may not be fixable, and as Steve himself points out the bond markets and derivatives are where the real money moves about and the shares are less significant so my inclination would be drop this proposal or rework it comepletly. Restricting banks (and non-banks) from lending against shares or adding a very small transaction tax. On the jubille shares I see other problems and open questions:

Basic Questions

  • How do voting rights work?
  • How do millions of different shares with different expiry dates get managed? And priced?
  • Does that also limit liquidity, if so are shares less valuable genrally and raising money may be harder.
  • What about relationships between voting rights and expiry dates?
  • Interests in timing of dividends are going to vary between shareholders and differ from the actual interests of the company.
  • How do company takeovers work? And mergers etc?
  • Does it apply to all shares or only the publicly listed ones?


  • Can companies / institutions own the shares? If so then you could avoid the process by wrapping share ownership in a nested stack of companies like Russian dolls and whenever shares were getting close to their transaction count a company could be formed specifically to own those shares and only shares in the holding company would be traded from that point forwards.

In conclusion my current view is that the Jubilee Shares concept should be dropped. There may need to be alternative proposals to limit levaged speculation and I don't have them to offer but from the sketch I'm aware of this concept there seem to me to be some major complications that at least need thinking through much more thoroughly before pushing this as a policy option.

Energy Theory of Value

Many of Steve's points are very valid about the limits of growth of material goods but I think in this area he is following the error of others in the past in trying to create a single theory of value for all labour, goods and services. I would say that Steve's energy theory probably provides a floor to the cost of any good or service but it cannot explain all value in the market.

One of the things missing is valuation of intangible goods, software, music, films etc. where the energy to deliver an additional copy or receive a broadcast is negligible. A full modern theory of value needs to consider these things. Such products are currently included in GDP.

I think there may need to be a set of components of theory of value, one would be energy which may be the absolute floor, secondly may be a labour theory or a local wage floor or minimum wage, then there will be a series of imperfect markets for people of certain skills and other essentially price fixed markets for goods with monopoly supplier (copyright or otherwise unique goods). I'm really not sure that an attempt to create a single theory of value will ever be fruitful but there will be many different markets for micro-economists to explore

As a slight aside Steve is very keen on Elon Musk and other creators of ideas (mentioned on podcast about high executive pay) but I think he somewhat overestimates the importance of the idea and underestimates the importance of the delivery and of building new business. The idea of an electric car isn't new but delivering at quality is tricky. Delivery and getting the details right are critical for companies that want to create real additional value.


This disagreement is more political than economic.

Steve Keen was in favour of Brexit (I haven't seen recent comment on this topic) for reasons mostly related to the problem with the Euro which as a shared currency removed the a necessary release value of exchange rate fluctuations if there aren't financial transfers between the member states to rebalance trade inbalances. Obviously the UK is not a a Euro group member but I think Steve thought tha the shock of Brexit to the EU might trigger reforms or complete breakup of the EU and the Euro. I think that he also believes tariffs to not necessarily be harmful (and I don't hold a position on that) but I don't see how the likely non-tariff bariers that are likely to come can be positive.

My perspective is that that Steve's analysis underestimates the political and cultural harm of Brexit and ripping the EU apart. While the EU is far from perfect and the Euro may be fundamentally flawed in its current state I am both more optimistic about the possibilty of reform and more fearful about the nationalist and authoritarian forces that may be unleashed across Euro, especially in the East without the presence of the EU reinforcing democracy and the the rule of law. I'm more with Yanis Varoufakis and DiEM25 on these issues.

Also while the shock of Brexit may help encourage the EU to adapt and reform into a more stable state I fear it will do great harm to the UK and that matters to me as a Brit. Apart from anything else it has made us nastier and more insular, inflicting our disfunctional Home Office and draconican and unreasonable immigration laws on many who came lawfully to the country without prior expectation of that being necessary and potentially tearing families apart, removing freedoms to travel, work and study.