Introduction
Traditional economics often resembles a map that has nothing to do with the territory. Steve Keen, a leading critic of the mainstream, deconstructs these illusions by pointing to fundamental omissions: the role of private debt, energy, and the non-linear dynamics of systems. This article explains why equilibrium models fail in the face of crises and how radical reforms—from debt jubilees to curbing real estate speculation—can restore economic stability within the planet's physical limits.
Banks, debt, and money creation
Unlike the loanable funds model, where banks are merely intermediaries, Keen points to money creation ex nihilo. Banks create money through double-entry bookkeeping, simultaneously creating an asset and a liability. Credit is not a transfer of savings, but a pump that increases demand. Private debt is the primary driver of instability: when it rises, it drives demand beyond income; when it falls, it destroys money in circulation, triggering crises. DSGE models are inadequate because they ignore the banking sector and treat money as a neutral veil, which Keen calls "mathematical ignorance."
Thermodynamics and the limits to growth
Economics must become a science of energy flows. Keen reminds us that capital without energy is just a sculpture. A decline in the EROI (Energy Return on Investment) ratio means that an increasing share of resources must be used to maintain the metabolism of civilization, which slows down growth. In this context, Boulding's spaceman economy replaces the "cowboy economy"—the Earth is a closed system, not an infinite reservoir. The critique of Nordhaus concerns the erroneous assumption that the economy is climate-resilient thanks to building "roofs," while in reality, climate change is a systemic risk with tipping points that cannot be described by marginal damages.
System reform: Jubilee and stability
Keen proposes a debt jubilee—paying off private obligations with newly created state money, which reduces leverage without destroying banks. The PILL mechanism limits mortgage credit to a multiple of rent, curbing real estate bubbles. Jubilee shares, which expire over time, are intended to discourage speculation in the secondary market. The Minsky environment, based on flow-of-funds accounting, allows these processes to be modeled with mathematical rigor. The barriers remain academic dogmatism, which defends equilibrium models, and the asymmetry in the global internalization of climate risks by supervisory institutions.
Summary
Are we ready to abandon the illusion of unlimited growth? Steve Keen argues that financial stability requires acknowledging the planet's physical limits. Instead of chasing the utopia of equilibrium, we must manage the system as a dynamic process in which debt and energy are key variables. True innovation is not creating new markets, but wisely managing resources in a world where every mistake echoes back to us. Can we transition from a cowboy economy to a responsible spaceman economy before the fuel runs out?
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