A leading heterodox economist, Steve Keen is Professor of Economics at University College London and a member of the Earth4All’s Transformational Economics Commission. In this interview, he discusses new economic thinking to design new, just ways of living.

What is heterodox economics?  

Heterodox economics refers to anything that isn’t a part of neoclassical economics – which is the dominant paradigm in economics since 1870. 

As I argue in my book, The New Economics Manifesto, economics is not a science. It does not undergo the scientific revolutions that genuine science undergoes. Else, the neoclassical paradigm would have died out.  

Already in the 19th century, there was awareness that growth can’t go on forever. Yet, the neoclassical school divorced the physical world, with models of production that do not consider the ecosystem and the regeneration of natural resources – instead, they created nebulous elements that they called capital, labour and technology, and combined them into a Cobb Douglas production function. But it doesn’t reflect the reality of the world. 

There are many breakaway groups that criticise neoclassical economics, and these groups with newer schools of economic thinking, are heterodox economics. They analyse the economy on the basis of realistic assumptions, ie anchored in biophysical reality. 

In your opinion, what should an economic system work towards? 

The proper approach to economics is to see the economy as a component of ecology. The economy depends upon the continuing existence of ecosystems. As such, our roles should be to preserve the only planet, so far as we know, in the universe that hosts life. That should be our main responsibility, and then satisfying human nature comes secondary to that.  

 How can heterodox economics help to face the challenges of our time? 

Heterodox economics bring an alternative vision to the neoclassical economic paradigm. The heterodox group is trying to re-anchor economics into the real world, by for example considering the role of energy, and of physical inputs and outputs. Without these, what we have is an unrealistic theory which can ultimately lead to environmental catastrophe.  

Heterodox economists now combine economic and ecological change, and are fighting against the neoclassical discourses that infiltrated everything, including politics and as a result – the climate crisis. We need a concerted effort against the influence of neoclassical economics – and this is what we do in the Earth4All Transformational Economics Commission, we co-design an alternative, realistic future.  

Where do we start? What kind of measures could we implement now, to move towards a stable economy within the biosphere limits? 

The biggest risk comes with continuing on our tracks, which corresponds to business-as-usual.  

I am in favour of a mechanism we call universal carbon credits. The idea is that everything in the economy in priced in two ways: money, as it is now, but also universal carbon credits. These carbon credits are allocated per person. It can be done at the national level to begin with, since international agreements are one reason why nothing gets done about fossil fuels. At the country level, everyone would have a universal carbon credit, and everyone would have the exact same amount of these credits. Now add to the concept the incredibly skewed distribution of income: the poorer 95% of people would not exhaust their share of the universal carbon credits, but the richer 5% would – halting their consumption possibilities. Once running out of universal carbon credits, they would have the opportunity to buy some off people who did not consume theirs.  

What we would then have is an immediate market-based redistribution mechanism, with a cost of adjustment imposed on the richest parts of the population, which would work as a financial incentive to reduce their carbon footprint in the first place. 

The report The Limits to Growth was published 50 years ago. Where are we at today compared to that, what has changed and what has not changed? 

The model on which The Limits to Growth report is based generated a number of different scenarios, the variable across all scenarios being human behaviour.  

Today, we can see that the science behind the model was pretty much spot on. The business-as-usual path – where not enough action has been taken, has been shown to be remarkably accurate. We are now seeing the breakdowns against which we were warned. We are now wearing the consequences of ignoring the alarm – and it will take more effort to exit the crisis. 

What makes you optimistic about the future?  

Extinction Rebellion, Greta Thunberg, and the student revolts make me hopeful. The trouble is, of course, that they can’t take on the power structures that are involved. And this is why it is so important to also get behind the right individuals who are truly aware of the situation and of the measures that need to fall into place. There is realistic hope – and it comes with the right people. 

Further resources to explore heterodox economics:  

Steve Keen (2021). The New Economics: A Manifesto.

Steve Keen (2011). Debunking Economics – the Naked Emperor Dethroned?

Prof. Steve Keen’s Patreon page

Minsky : open-code systems dynamics programme with additional features for economics. Link