#134 - Steve Keen - How Modern Economics Became Ideology

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Dec 9, 2025

Steve Keen, a heterodox economist noted for his critique of mainstream economic theories, dives deep into the flaws of modern economics. He argues that real-world complexities are overlooked in favor of ideology, emphasizing how debt, banking, and housing crises play pivotal roles in economic instability. Keen dismantles the myth of equilibrium economics, analyzes the evolution of capitalism, and explains the true nature of money creation. His insights reveal the dangers of private debt and the pressing need for a reality-based economic model.

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ANECDOTE

WWII Lesson: Governments Create Money

Beardsley Ruml's 1946 paper argued taxes aren't needed to fund government spending in wartime.
Keen recounts how post-war economists then unlearned that lesson and revived myths about borrowing.

INSIGHT

Money Is A Promise Backed By Trust

Money is best understood as a third‑party promise, not a barter commodity like gold.
Graziani's triangular model (seller, buyer, bank) explains modern monetary transactions.

INSIGHT

Two Channels Of Money Creation

Loans create deposits: private banks create money when they lend.
Government deficits also create money by increasing private sector deposits through treasury negative equity.

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Modern economics is built on competing theories that often describe the world in very different ways. In this conversation, economist Steve Keen sets out his explanation for how money works, why he believes mainstream economic models fail, and why debt, banking and housing play a far greater role in economic crises than most policymakers acknowledge.

Keen's perspective challenges the assumptions of neoclassical, Keynesian and Austrian economists alike.

In this episode we discuss: – How economics became political ideology – Why neoclassical theory broke the West – The Left vs Right illusion in economic policy – What money really is (and how banks actually create it) – Why inflation is misunderstood by almost everyone – How private debt fuels instability and inequality – Housing, mortgages & the destruction of the middle class – Why equilibrium economics is fantasy – What a sane, reality-based economic model looks like – How young people can survive a debt-driven system

Economics didn't fail by accident — it failed because ideology replaced reality.

Steve Keen is one of the world's leading heterodox economists, known for his critiques of mainstream theory and his work on private debt, banking, financial instability and the 2008 crisis, which he warned about years in advance.

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TIMESTAMPS: 00:00:00 – Introduction 00:03:12 – Why Economics Became Ideology 00:09:04 – Economists vs Reality 00:14:47 – How Money Actually Works 00:21:18 – Banks, Loans & Money Creation 00:33:44 – Inflation: What Really Drives It 00:38:59 – Wages, Markups & Bargaining Power 00:47:55 – The Housing Crisis Explained 00:54:03 – Deregulation & the Death of Affordability 00:59:22 – Middle Class Collapse 01:04:48 – Left and Right Get Economics Wrong 01:11:02 – Neoclassical Economics 01:17:26 – The Problem With Economic Models 01:22:31 – Why Economists Misunderstand Production 01:28:08 – AI, Automation & The Future of Work 01:44:28 – Structural Failures 01:55:46 – Can Government Use Good Economics? 02:01:23 – Global Debt, Fragility & Future Crises 02:06:40 – What Would Real Reform Look Like? 02:13:28 – Why Young Generations Feel Hopeless 02:19:47 – Can We Build a Post-Ideological Economics? 02:25:10 – Final Thoughts

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CONTACT PETE › Website – http://petermccormack.com › Feedback – https://www.petermccormack.com/contact › Email – me@petermccormack.com › Instagram – /mccormack555 › X/Twitter – https://x.com/petermccormack/

CONNECT WITH STEVE KEEN › Website – https://www.patreon.com/ProfSteveKeen › Twitter – https://x.com/profstevekeen

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FILMED BY CURTIS TAYLOR › https://www.curttaylor.co.uk/ › https://x.com/curttayloruk/

EDITED BY CONOR MCCORMACK › https://x.com/ConorM04

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