Revolution By Revulsion: How Mainstream Economics Is Leading Humanity to Our Extinction

In The New Economics: A Manifesto, Steve Keen presents both a scathing critique of the current dominant economic theory, neoclassical economics, and a compelling vision of a new economics. Neoclassical economics is an economic school of thought that focuses on supply and demand as the drivers behind production, consumption, and pricing. Keen argues that neoclassical economics makes numerous flawed assumptions in its core beliefs that are proven wrong with empirical evidence. Extra emphasis is placed on the fact that neoclassical economics downplays the dangers of climate change and is widely divorced from actual climate science. This especially is of critical importance because of the existential threat that climate change poses to humanity. If governments, politicians, and the public all base their actions and beliefs on neoclassical ideas that are false, then humanity may fail to act on climate change and may face devastating consequences and even extinction. Thus, the field of economics is due for a revolution.

His argument is especially timely with the growing numbers of young people today who are increasingly disillusioned with the state of the world, particularly on climate change. The New York Times reports that young Americans tend “to be passionate about issues including climate change” but they feel “anxious about their lives, disillusioned about the direction of the country and pessimistic about their futures” (Miller, 2024). Keen’s most powerful persuasive tool is anger and disgust at the current state of economics when his readers see the massive gap between neoclassical economic work on climate change and reality. Keen adds to the growing body of voices calling for a revolution in economics by striking a chord among young environmentally-conscious readers with his focus on climate change.

Keen, a Post-Keynesian economist, has criticized neoclassical economics in the past, as his 2001 book, Debunking Economics: The Naked Emperor of the Social Sciences, also covered some of the same material. However, in his new book, Keen draws on more recent evidence, expands on what a new economics should look like, and places a critical importance on climate change. In The New Economics, Keen explains that neoclassical economics has been the dominant school of thought for decades now and has been firmly entrenched in academia and policies by central banks and governments. Keen points out that up to 10% of economists are “heterodox”, or non-neoclassical economists, coming from different schools of thought like Post-Keynesian, Austrian, Marxian, or Biophysical economics (4).

While neoclassical economics is the mainstream school of thought, it is very often wrong with devastating consequences, as Keen illustrates with his analysis of the Great Recession or the Great Financial Crisis (GFC) in 2008. Neoclassical economists from the Organization for Economic Cooperation and Development (OECD) and even Nobel Prize winners had rosy predictions for the economy before the GFC and completely failed to predict the coming crisis. Keen says that he was one of only a dozen economists who correctly predicted the GFC, and notably, none of them were neoclassical economists (3). Bob Pisani writes for CNBC that in 2023, “Economic forecasts have been wrong lately, but that’s really nothing new”. Pisani describes how economic forecasts from economists at major banks and even the Federal Reserve have a long history of being inaccurate. Keen argues that these consistent failures to make accurate predictions is because neoclassical core beliefs are wrong about everything, from supply and demand curves to the effects of a government deficit on the economy.

Keen further criticizes neoclassical economists for their refusal to change or update their core beliefs when confronted with conflicting evidence. One example of this is with the neoclassical Law of Diminishing Marginal Productivity: “As a variable input is added to other fixed inputs, the marginal productivity of the variable input has to start going down at some point”. This essentially means that adding additional inputs like more workers will increase productivity until a certain point where additional workers will decrease productivity. The model below illustrates this (Personal Excellence, 2022):

However, a survey in 1946 by Richard Lester found that for 53 real-life firms, marginal costs and average variable costs tended to be constant per unit of product, all the way up to full production capacity (128). If marginal productivity was diminishing like the law states, then marginal costs should have risen as well, but they were constant instead, indicating that marginal productivity was constant. This empirical evidence contradicts the law, but Milton Friedman, who was a prominent neoclassical economist that advised former President Ronald Reagan, replied in response that “even if we know firms don’t behave as our model suggests, let’s model them ‘as if’ they do” (128). We can see that assumptions are made to protect the neoclassical model instead of trying to adapt the model to match reality. Friedman even claimed that “unrealistic assumptions were indicative of a good theory” (129). Keen argues that neoclassical economics makes these unrealistic assumptions time and time again and this leads to an economic theory that does not reflect reality.

Keen then claims that neoclassical economics is a threat to humanity, especially its work on climate change. William Nordhaus, a neoclassical economist, is a clear example of how flawed and dangerous neoclassical economic work on climate change can be. He was awarded the Nobel Prize in economics in 2018 for his work in analyzing how climate change would affect the global economy in the long-run. Nordhaus claimed that a “6°C increase in global temperatures over pre-industrial levels would reduce global economic output by a mere 8.5 per cent” (113). Keep in mind that the Paris Agreement, an international climate change treaty signed in 2015, sets goals to limit global warming to 1.5°C-2°C over pre-industrial levels and the climate projection for our current global policies is 3.5°C over. The graphic below illustrates climate change projections:

Keen points out that Nordhaus’ conclusions are absolutely ridiculous for numerous reasons. One is that it is completely divorced from climate science, which estimates that a 5.5°C increase would expose 74% of the world’s human population to 60 days per year of potentially fatal temperatures (114). Such an increase in temperature would also drastically reduce wildlife populations globally and disrupt weather patterns in the Northern Hemisphere (114). Nordhaus’ analysis is also inherently flawed because he does not consider tipping points, which contradicts climate scientist Tim Lenton, who writes that there are tipping points in the climate like the melting of the Arctic ice that would accelerate climate change once passed and could even set off other tipping points in a cascade that leads to a “hothouse Earth… with vastly higher temperatures than today, and a climate no longer conducive to human civilization” (117). Another blatantly false assumption by Nordhaus is that his analysis considered climate change as damaging only the 13% of economic activities that occur outdoors, such as agriculture (119). Nordhaus assumed that all other economic activity such as manufacturing that takes place indoors would be completely unaffected by climate change. It seems impossible to assume that climate change effects such as natural disasters, food scarcity, water shortages, and mass migration would not take its toll on 87% of global economic activity just because it takes place indoors. Nordhaus himself noted that climate scientists “expected damages ’20 to 30 times higher than mainstream economists’” (122).

Despite all this, Nordhaus is considered a leader in the field of climate change economics, even winning a Nobel Prize for it. Keen points out that other neoclassical economists have given similar opinions that also blatantly contradict climate science. We can even see a similar prediction in the earlier climate change graphic, predicting a relatively small loss of 2% of the U.S. GDP with a 4°C rise in temperatures. Keen argues that this is where neoclassical economics is most dangerous, as it severely downplays the dangers of climate change. Considering that climate change is potentially an existential threat to humanity, we cannot afford to be wrong about it. It would be disastrous for humanity if governments around the world based their policies off of Nordhaus’ flawed analysis. For this reason, Keen says, “I regard Neoclassical economics as not merely a bad methodology for economic analysis, but as an existential threat to the continued existence of capitalism — and human civilization in general. It has to go” (155).

Defenders of neoclassical economics may argue that it must have some redeeming features or that it is improving on these flaws with renewed focus on fields like behavioral economics to explain the gap between theory and observations. Keen is uncompromising in his attack on neoclassical economics, saying that “I would keep as much of Neoclassical economics as modern astronomy kept of Ptolemaic astronomy — which is to say, nothing at all… All the Neoclassical arguments about money are invalid: there is nothing left to keep” (74). He meticulously picks apart multiple neoclassical core beliefs and arguments in his book, sweeping their feeble defenses away by referencing, again and again, empirical evidence that contradicts neoclassical theories. No matter what counter argument neoclassical defenders use, Keen is ready with evidence and data to refute them. Thus, it does not matter if neoclassical economics is attempting to reform itself if its core beliefs are still fundamentally wrong. It must rid itself of those mistaken core beliefs, but then it would no longer be neoclassical economics.

The solution to all this is we need to teach a new economics to students today that reflects reality and acknowledges the dangers of climate change. Keen says that the new economics should: “Be fundamentally monetary…, Acknowledge that the economy is a complex system…, Be based on the techniques of system dynamics…”, and most importantly, “Be grounded in empirical realism, rather than the fantasy of ‘as if’ assumptions about reality” (18). He advocates for young students today to reject neoclassical economics and learn alternatives like Post Keynesian economics or Modern Monetary Theory instead, eventually replacing neoclassical economics entirely. Keen identifies as a Post Keynesian economist, but he does not specifically argue that Post Keynesian economics is the only correct theory. Rather, he advocates for students to learn any economic theory that is based on empirical evidence and can be used to accurately predict financial crises.

Keen says that there are several factors that make this revolution in economics more likely today. One is the widespread use of social media, allowing students to connect and create movements that are critical of neoclassical economics. Another is the growing acceptance of competing theories like Post Keynesian economics and Modern Monetary Theory. These are not quite mainstream, but they are becoming increasingly well-known and offer alternative perspectives that challenge neoclassical dominance. Keen also mentions another author, Kate Raworth, the creator of Doughnut economics. Her Doughnut economics envisions a balance between social economics needs and environmental sustainability. Her work represents an increasing focus on an economic perspective that addresses social welfare and the environment. Furthermore, Keen hopes that the public will see that the gap between mainstream economists’ work on climate change and actual climate science is so vast that it will inspire a “revolution by revulsion” (112).

This revolution by revulsion will be built on Keen’s masterful appeals to logic and emotions. He backs up his arguments with detailed models and empirical evidence, but also relies heavily on evoking anger at neoclassical economics. Keen is clearly angry when he says, “Whether Samuelson and Nordhaus were simply bullshitting — yes I know this is an academic book, but what else can you call what Neoclassical economists routinely do?” (131). Much of the book is technical information, but Keen also often uses emotionally charged language to express his frustration.

Keen’s emotional appeals are likely to resonate especially with younger generations of economists who share their peers’ discontent with the current state of affairs. A Pew Research Center survey in 2021 found that “Younger Americans — Millennials and adults in Generation Z — stand out… particularly for their high levels of engagement with the issue of climate change. Compared with older adults, Gen Zers and Millennials are talking more about the need for action on climate change; among social media users, they are seeing more climate change content online; and they are doing more to get involved with the issue through activities such as volunteering and attending rallies and protests” (Tyson, Kennedy, Funk). Furthermore, the survey found that 69% of Gen Z respondents felt anxiety about the future when viewing climate change content on social media. Anger was another emotion that was commonly felt because not enough was being done about climate change, and many also felt motivation to learn more and do something about it.

Even more prominent is Greta Thunberg, a climate activist who became famous when she was just 15 years old for beginning a school strike and attacking governments and world leaders for their inaction on climate change. One of her most famous speeches was at the UN Climate Action Summit in 2019, where she said, “You have stolen my dreams and my childhood with your empty words. And yet I’m one of the lucky ones. People are suffering. People are dying. Entire ecosystems are collapsing. We are in the beginning of a mass extinction, and all you can talk about is money and fairy tales of eternal economic growth. How dare you!”. Greta Thunberg is the face of youth anger at climate change inaction and her words encapsulate what many young people today feel about climate change and government policies in general. Thunberg and Keen would probably agree that neoclassical economists’ work on climate change is absurd and dangerous and Thunberg even attacks the neoclassical fantasy of unlimited economic growth.

I think Thunberg and Keen both successfully appeal to the disgust and anger of young people to inspire change. We can see how Keen’s idea of a “revolution by revulsion” may come to pass as more and more people realize that neoclassical economics is divorced from reality and yet is used to justify government policies that bring us closer to extinction. Keen’s appeal to these powerful emotions resonates especially with younger readers and this makes his argument unique and far stronger. His technical analysis is convincing as well, but his connection of neoclassical economics with the fate of humanity makes his argument a compelling moral imperative to fix this issue not only for our own sake, but for the sake of all future peoples.

Works Cited:

Bob Pisani. (2023, October 25). Jamie Dimon is right: Economic forecasts have been wrong lately, but that’s really nothing new. CNBC. https://www.cnbc.com/2023/10/25/economic-forecasts-have-been-very-wrong-lately-but-thats-really-nothing-new.html#:~:text=really%20nothing%20new-,Jamie%20Dimon%20is%20right%3A%20Economic%20forecasts%20have%20been%20wrong%20lately,but%20that’s%20really%20nothing%20new&text=The%20U.S.%20Federal%20Reserve%20Building%20in%20Washington%2C%20D.C.&text=Forecasters%20have%20been%20really%20wrong,They’ve%20always%20been%20wrong.

Keen, S. (2022). The New Economics: A Manifesto. Polity Press.

Miller, C. C. (2024, January 29). Today’s teenagers: Anxious about their futures and disillusioned by politicians. The New York Times. https://www.nytimes.com/2024/01/29/upshot/teens-politics-mental-health.html

The law of diminishing returns. Personal Excellence. (2022, July 3). https://personalexcellence.co/blog/diminishing-returns/

The Paris Agreement: Is the world’s climate action plan on track? Visual Capitalist. (2021, May 21). https://www.visualcapitalist.com/sp/the-paris-agreement-is-the-worlds-climate-action-plan-on-track/

Tyson, A. (2021, May 26). Gen Z, millennials stand out for climate change activism, social media engagement with issue. Pew Research Center Science & Society. https://www.pewresearch.org/science/2021/05/26/gen-z-millennials-stand-out-for-climate-change-activism-social-media-engagement-with-issue/