Steve Keen: Marxism, Capitalism, and Economics

Steve Keen (01:59.560)

Well, it should be I understand how human civilization comes about and how it can be

Steve Keen (02:03.400)

maintained.

Lex Fridman (02:05.720)

And that's not what it's been at all.

Lex Fridman (02:08.160)

So we have a discipline which has the right name and the wrong soul.

Lex Fridman (02:12.360)

What is the soul of economics?

Steve Keen (02:13.680)

The soul of economics really is to explain how do we manage to build a civilization that

Steve Keen (02:20.400)

elevates us so far above the energy and consumption and knowledge levels of the base environment

Lex Fridman (02:30.280)

of the Earth?

Steve Keen (02:31.280)

Because if you think about—and this is actually work I've learned from Tim Garrett, who's

Steve Keen (02:35.600)

one of my research colleagues who's an atmospheric physicist—and his idea is that we exploit

Steve Keen (02:41.480)

these high grade energy sources from the sun itself to coal, nuclear, et cetera, et cetera,

Steve Keen (02:47.920)

which means we can maintain a level of human civilization well above what we'd have if

Lex Fridman (02:51.960)

we were just still running around with rocks and stones and spears.

Lex Fridman (02:55.400)

So it's that elevation above the base level of the planet, which is human civilization.

Lex Fridman (03:02.040)

And if we didn't have this energy we were exploiting, if we didn't use the environment

Steve Keen (03:06.480)

to elevate ourselves above what's possible in the background, then you and I wouldn't

Lex Fridman (03:10.840)

be talking into microphones.

Steve Keen (03:13.360)

We might be doing drumbeats and stuff like this, but we wouldn't be having the sort

Lex Fridman (03:17.140)

of conversation we have.

Lex Fridman (03:18.680)

So to explain how that came about, that's what the economics should be doing, and it's

Lex Fridman (03:22.480)

not.

Lex Fridman (03:23.480)

So this is the greatest thing that the Earth has ever created, is what you're saying,

Lex Fridman (03:26.280)

this conversation?

Steve Keen (03:27.280)

Yeah, we're the most elaborate construction on the planet.

Lex Fridman (03:31.040)

And that's not what we've done, we've denigrated the planet itself.

Steve Keen (03:34.680)

We don't have respect for the fact that life itself is an incredible creation.

Lex Fridman (03:38.560)

And my ultimate—if I had to see how humanity is going to survive what we're putting ourselves

Steve Keen (03:43.600)

through, then we'd have to come out of it as a species which sees its role as preserving

Lex Fridman (03:49.360)

and respecting life.

Steve Keen (03:51.360)

I like how you took my silly, incredible statement and made it into a serious one about how amazing

Lex Fridman (04:00.840)

life is.

Steve Keen (04:02.000)

Life is incredible, and we humans don't respect it enough, we trash it.

Lex Fridman (04:07.440)

And that's what economics, I think, has played a huge role in that.

Steve Keen (04:10.500)

Until I actually regard my discipline, I would never call it a profession, let alone a science.

Steve Keen (04:15.420)

My discipline has probably helped bring about the termination potential, the feasible termination

Steve Keen (04:22.780)

of human civilization.

Lex Fridman (04:23.780)

Strong words.

Steve Keen (04:24.780)

Okay, let's return to the basics of economics.

Lex Fridman (04:28.040)

So what is the soul and the practice of economics?

Lex Fridman (04:33.200)

What should be the goal of it?

Steve Keen (04:34.600)

Because you're speaking very poetically, but we'll also speak pragmatically about the tools

Steve Keen (04:41.520)

of economics, the variables of economics, the metrics, the goals, the models.

Lex Fridman (04:47.280)

Practically speaking, what are the goals of economics?

Steve Keen (04:50.200)

Well, in terms of the tools we use, we should be using the tools that engineers use, frankly.

Lex Fridman (04:55.940)

And that sounds ridiculously simple, because you would expect that economists are using

Steve Keen (05:01.000)

up to date techniques that are common in other sciences, where you're dealing with similar

Steve Keen (05:06.800)

ideas of stocks and flows, and interactions between the environment and a system and so

Steve Keen (05:11.880)

on.

Lex Fridman (05:12.880)

And that's fundamentally systems engineering.

Lex Fridman (05:15.080)

And that's what we should be using as the tools of economics.

Steve Keen (05:18.080)

Now if you look at what economists actually do, the sophisticated stuff involves difference

Steve Keen (05:22.440)

equations.

Lex Fridman (05:25.160)

And like difference equations, you know, if you've done enough mathematics as you have,

Steve Keen (05:29.160)

you know, difference equations are useful for like individual level processes.

Steve Keen (05:33.400)

If you're talking about autonomous, it'll go from state t to t plus one, t plus two,

Lex Fridman (05:38.600)

and so on.

Lex Fridman (05:39.600)

But not when you're talking at the aggregate level.

Steve Keen (05:41.400)

There you use differential equations to measure it all.

Lex Fridman (05:44.680)

Economists have been using difference equations.

Lex Fridman (05:46.600)

So there's like a book, I think it's by Sargent and one other, called Advanced Methods in

Lex Fridman (05:51.200)

Economics Using Python, two volumes set.

Steve Keen (05:54.760)

It's about close to 2,000 pages, and four of those pages are on differential equations.

Lex Fridman (06:00.760)

The rest is all difference equations.

Lex Fridman (06:03.060)

So they're using entirely the wrong mathematics to start with.

Lex Fridman (06:05.920)

For people listening, what is difference equations versus differential equations?

Steve Keen (06:10.000)

Difference equation is like you can do in a spreadsheet.

Steve Keen (06:12.600)

You'll have, this is the value for 1990, this is the value for 1991, 92, 93, 94.

Lex Fridman (06:18.360)

So you have discrete jumps in time, whereas the differential equation says there's a process

Lex Fridman (06:23.800)

moving through time.

Lex Fridman (06:25.800)

And you will have a rate of change of a variable is a function of the state of itself and other

Lex Fridman (06:32.600)

variables and rates of change of those variables.

Lex Fridman (06:35.780)

And that is what you use when you're doing an aggregate model.

Lex Fridman (06:38.440)

So if you're modeling water, for example, or fluid dynamics, you have a set of differential

Steve Keen (06:42.880)

equations describing the entire body of fluid moving through time.

Lex Fridman (06:47.520)

You don't try to model the discrete motion of each molecule of H2O.

Lex Fridman (06:52.440)

So at the aggregate level, you use differential equations for processes that occur through

Lex Fridman (06:56.360)

time.

Lex Fridman (06:57.520)

And that's economics.

Lex Fridman (06:58.520)

It occurs through time.

Steve Keen (06:59.960)

You should be using that particular technology.

Lex Fridman (07:02.380)

But some economists do learn differential equations, but they don't learn stability

Steve Keen (07:07.240)

analysis.

Lex Fridman (07:08.240)

So they simply assume equilibrium is stable, and they work in equilibrium terms all the

Steve Keen (07:12.280)

time.

Lex Fridman (07:13.280)

And the technical level, it's an incredibly complicated way of modeling the world using

Steve Keen (07:22.400)

entirely the wrong tools.

Lex Fridman (07:23.960)

OK, we'll talk about that because it's unclear what the right tools are.

Steve Keen (07:29.640)

Maybe it's more clear to you, but I've got to make it clear to an audience.

Lex Fridman (07:33.520)

Well, so this is a very complicated world.

Steve Keen (07:36.720)

It's a complex world.

Steve Keen (07:37.920)

You talk about there are some of the most complex systems on Earth are the human mind,

Steve Keen (07:46.920)

the economy and the biosphere.

Lex Fridman (07:49.600)

So we'll go, you know, we'll go to that place.

Steve Keen (07:53.920)

I'm fascinated by complex systems.

Lex Fridman (07:56.440)

I'm humbled by them, even at their simplest level of like cellular automata.

Steve Keen (08:03.080)

I'm not sure what the right tools are to understand that, especially when part of the complex

Lex Fridman (08:11.120)

system is like a hierarchy of other complex systems.

Lex Fridman (08:13.600)

So you said the economy is a fascinating complex system, but it's made up of human minds.

Lex Fridman (08:20.060)

And those are interesting.

Steve Keen (08:21.920)

Those are interesting, perhaps impossible to model, but we can try and we can try to

Lex Fridman (08:26.680)

figure out how to approximate them.

Lex Fridman (08:28.160)

And maybe that's the challenge of economics.

Lex Fridman (08:30.200)

OK, we'll keep returning to the basics.

Steve Keen (08:33.140)

Let us try to learn something from history.

Lex Fridman (08:36.360)

I also see as part of economics is us trying to figure out stuff.

Lex Fridman (08:40.600)

And there's a few smart folks that write books throughout human history.

Lex Fridman (08:46.360)

And sometimes they name schools of economics after them.

Lex Fridman (08:50.640)

So let us take a stroll through history.

Lex Fridman (08:54.560)

OK.

Lex Fridman (08:55.560)

Can you describe at a high level what are the different schools of economics, perhaps

Steve Keen (09:02.500)

ones that are interesting to you, perhaps ones that the difference between which reveals

Steve Keen (09:09.080)

something useful or insightful for our conversation.

Lex Fridman (09:14.080)

So you know, you could neoclassical, post Keynesian, Austrian, like the biophysical

Steve Keen (09:22.400)

economics and so on, other heterodox economic schools that you find interesting.

Steve Keen (09:26.760)

OK, I actually find interesting a school which went extinct about 250 years ago.

Steve Keen (09:32.080)

That's where I'd like to start from.

Lex Fridman (09:33.440)

And they're called the Physiocrats.

Lex Fridman (09:35.720)

And the name itself implies where the knowledge came from, because if you go back far enough

Lex Fridman (09:41.080)

in history, we didn't do autopsies.

Lex Fridman (09:43.760)

But when you started doing autopsies, they found wires, they found tubes, etc., etc.

Lex Fridman (09:49.480)

And they started seeing the body as a circulation system, and they applied the same sort of

Steve Keen (09:53.280)

logic to the economy.

Lex Fridman (09:55.300)

And they came out of an agricultural economy, which was France, and they saw that the wealth

Steve Keen (10:00.880)

came effectively from the sun.

Lex Fridman (10:03.140)

So their soil wealth comes from, like I said, the soil, but what they really mean is sun.

Steve Keen (10:06.940)

The soil absorbs the energy of the sun.

Lex Fridman (10:09.200)

One seed plants, a thousand flea seeds come back.

Steve Keen (10:12.100)

There is no surplus.

Lex Fridman (10:13.880)

We are simply mining what we can find out of the natural economy.

Steve Keen (10:17.600)

That's where we should have stayed and developed from that forward.

Steve Keen (10:20.820)

We then went through the classical school of economics, which comes out of Adam Smith.

Lex Fridman (10:24.920)

And Smith, coming from Scotland, looked at what the Physiocrats said, and what the Physiocrats

Steve Keen (10:31.720)

argued was that agriculture is the source of all wealth, and the manufacturing sector

Steve Keen (10:35.920)

is sterile.

Lex Fridman (10:37.240)

That's literally the term they used to describe the manufacturing sector.

Lex Fridman (10:39.800)

What does sterile mean?

Lex Fridman (10:40.800)

Sterile means you don't extract value.

Steve Keen (10:43.920)

You simply change the shape of value.

Lex Fridman (10:46.200)

So the value comes from the soil.

Steve Keen (10:49.120)

Yeah, it comes from the soil.

Lex Fridman (10:51.000)

That's the free gift of nature.

Steve Keen (10:52.520)

That's literally the phrase they used.

Lex Fridman (10:54.400)

And we then distribute the free gift of nature around, and we need carriages, which was the

Steve Keen (10:59.300)

manufacturing term they used at the time, as well as wheat.

Lex Fridman (11:04.360)

So to make the carriages, we take what's been taken from the soil, and we convert it to

Steve Keen (11:09.400)

a different form.

Lex Fridman (11:10.400)

But there is no value added in manufacturing.

Lex Fridman (11:13.040)

So Smith looked at that and said, well, I'm from Scotland.

Lex Fridman (11:16.600)

And we've got these industries, and we make stuff, and it's machinery.

Lex Fridman (11:21.640)

And he said, no, it's not land that gives us the source of value, it's labor.

Steve Keen (11:26.320)

Now, that led to the classical school of thought, and that said that all value comes from labor,

Steve Keen (11:33.080)

that value is objective, so it's the amount of effort you put in, that the price two things

Steve Keen (11:38.820)

will exchange for reflects the relative effort that's involved in the manufacturing.

Lex Fridman (11:42.920)

So this computer takes two hours to make, and this bottle takes two minutes to make,

Lex Fridman (11:47.120)

then this is worth 60 times as much as that.

Steve Keen (11:50.520)

They didn't talk about marginal cost.

Lex Fridman (11:53.620)

It was absolute cost, effectively.

Steve Keen (11:55.560)

They didn't talk about utility as a subjective thing, they ridiculed subjective utility theory.

Steve Keen (12:01.940)

That led to Marx, and Marx is probably the most brilliant mind in the history of economics.

Steve Keen (12:07.400)

The only other competitor I'd see is Schumpeter, possibly Keynes, but in my terms of ranking

Steve Keen (12:12.160)

of intellects, it would be Marx, Schumpeter, Keynes, in terms of the outstanding capacities

Steve Keen (12:17.600)

to think.

Lex Fridman (12:18.680)

But Marx then turned that classical school, which was pro capitalism and anti feudal,

Steve Keen (12:24.800)

into a critique of capitalism, which led to the neoclassical school coming along as a

Lex Fridman (12:29.360)

defense of capitalism.

Lex Fridman (12:31.320)

But they defended it using the ideas of the subjective theory of value, so that value

Steve Keen (12:36.520)

does not reflect effort, it's the satisfaction individuals get from different objects that

Steve Keen (12:42.580)

determines their value, marginal utility.

Lex Fridman (12:45.760)

It's the marginal cost that determines how much they sell for.

Steve Keen (12:50.040)

Capitalism equilibrates marginal cost and marginal utility, and the concepts of equilibrium

Lex Fridman (12:56.320)

and marginal this and marginal that became the neoclassical school, and that's still

Steve Keen (13:00.640)

the dominant school now 150 years later.

Lex Fridman (13:04.200)

That's the one that everybody learns.

Steve Keen (13:05.680)

When you first learn economics, if you don't have the critical background that I managed

Steve Keen (13:09.000)

to acquire, that's what you think is economics, the marginal utility, equilibrium oriented

Steve Keen (13:15.800)

analysis of mainstream economics, and for example, they ignore money.

Steve Keen (13:20.560)

People think economists, you must be an expert on money because you're an economist.

Steve Keen (13:23.680)

Well, in fact, economists learn literally in the first few weeks at university that

Lex Fridman (13:27.720)

money is irrelevant.

Steve Keen (13:29.520)

They say money illusion.

Steve Keen (13:31.960)

They represent people's tastes using what they call indifference curves, and they're

Steve Keen (13:37.040)

like isoquants on a weather map.

Lex Fridman (13:39.240)

If you look at an isoquant, it shows you all the points of the same pressure.

Lex Fridman (13:43.020)

So you can be here or you can be in Denver and the air pressure can be the same if you're

Lex Fridman (13:47.520)

in the same weather unit, so you just draw a cell that links together.

Steve Keen (13:50.640)

Well, they do the same thing with utility and say lots of bananas and very few coconuts

Steve Keen (13:55.080)

can give you the same utility as lots of coconuts and very few bananas, and you draw basically

Steve Keen (14:01.320)

like a hyperbola running down linking the two, and they'll say, well, that's your utility.

Steve Keen (14:06.660)

That describes your tastes, and then we have your income, and given your income, you can

Steve Keen (14:10.960)

buy that many bananas completely or that many coconuts or a straight line combination of

Steve Keen (14:16.800)

the two, and then if we double the nominal price of coconuts and double the nominal price

Steve Keen (14:22.320)

of bananas and double your income, what happens, and the correct answer is, oh, nothing, sir.

Steve Keen (14:27.920)

You stay at the same point of tangency between what your budget is and which particular utility

Steve Keen (14:34.120)

curve gives you the maximum satisfaction.

Lex Fridman (14:36.980)

So that gets ingrained into them, and they think anybody who worries about money suffers

Steve Keen (14:40.100)

from money illusion.

Steve Keen (14:42.480)

You are therefore ignorant of the deep insights of economics if you think money actually matters.

Lex Fridman (14:48.140)

So you have an entire theory of economics which presumes we exchange through barter.

Steve Keen (14:53.880)

Like I'll swap you that Microsoft Surface for, actually, I'll take two of those for

Steve Keen (14:58.280)

one of these.

Lex Fridman (14:59.280)

We do this bartering type arrangement.

Steve Keen (15:02.040)

In fact, that only works if money plays no creative role in the economy, and that's where

Steve Keen (15:08.160)

you find, reading Schumpeter, the insight that's the school of thought that I come from

Steve Keen (15:13.080)

that says money is essential.

Lex Fridman (15:15.260)

Money actually adds to demand, and we'll talk about that later on.

Lex Fridman (15:19.140)

So that's the neoclassical school that ends up being subjective theory of value, nonmonetary,

Steve Keen (15:28.440)

as though everything happens in barter, and focusing on equilibrium, as though everything

Steve Keen (15:33.580)

happens in equilibrium, or if you get disturbed from equilibrium, you return back to it again.

Lex Fridman (15:38.120)

And that mindset describes capitalism.

Steve Keen (15:42.760)

Its most interesting feature is that it reaches equilibrium.

Lex Fridman (15:46.040)

Now what planet are we on to believe that?

Steve Keen (15:48.640)

Because if you look at the real world, the real exciting world of capitalism in which

Lex Fridman (15:54.080)

we live, change is by far the most obvious characteristic of it.

Steve Keen (15:59.400)

There's no equilibrium.

Lex Fridman (16:00.800)

There's no equilibrium.

Steve Keen (16:01.800)

It's unstable.

Lex Fridman (16:02.800)

And as a mathematician, it's easy to – you work with stability analysis.

Steve Keen (16:07.800)

You work out what the Jacobian is.

Lex Fridman (16:10.600)

You work out your Lyapunov exponents in a complex system.

Steve Keen (16:13.920)

You're used to the idea that equilibrium is unstable.

Lex Fridman (16:17.160)

But economists get schooled into believing that everything happens in equilibrium, and

Steve Keen (16:21.480)

they don't learn stability analysis.

Lex Fridman (16:23.360)

So all that stuff is missing.

Lex Fridman (16:25.240)

So onto the schools of thought, treating the economy as an equilibrium system, which was

Lex Fridman (16:32.360)

what the neoclassical school did, is what Keynes disturbed.

Lex Fridman (16:36.800)

And he really disturbed it by talking about, fundamentally, that uncertainty determines

Lex Fridman (16:41.660)

our decisions about the future.

Lex Fridman (16:43.600)

So when we consume, you know if you like Pfizer or whatever particular drink we want to have,

Lex Fridman (16:49.800)

you know the current situation.

Lex Fridman (16:51.960)

But to invest, you must be making guesses about the future.

Lex Fridman (16:55.120)

But you don't know the future.

Lex Fridman (16:56.700)

So what do you do?

Lex Fridman (16:57.740)

You extrapolate what you currently know.

Lex Fridman (17:00.460)

And as you said, this is a terrible basis on which to plan for the future.

Lex Fridman (17:05.420)

But this is the only thing you can do where there is no possibility of solid calculation.

Lex Fridman (17:10.760)

So investment is therefore subject to uncertainty, and therefore you will get volatility out

Lex Fridman (17:16.880)

of investment.

Steve Keen (17:17.880)

You will get fads, of course, booms and slumps coming out of that, because people extrapolate

Lex Fridman (17:22.800)

for the current conditions.

Lex Fridman (17:24.640)

And that's the normal state of a capitalist economy.

Lex Fridman (17:27.360)

And Schumpeter argued that that's what gives it its creativity as well, the fact that you

Steve Keen (17:32.600)

can perceive a potential demand, but first of all, you don't know whether that demand

Lex Fridman (17:37.160)

is going to work.

Steve Keen (17:38.160)

Secondly, you don't know who your competitor is going to be, whether somebody is going

Lex Fridman (17:41.120)

to be ahead of you or behind.

Steve Keen (17:42.760)

If there's a fad, you'll overinvest.

Steve Keen (17:46.720)

All this stuff is the real nature of capitalism, and that's what we're trying to capture,

Steve Keen (17:50.440)

the dynamic nonequilibrium monetary violence and creativity of capitalism.

Lex Fridman (17:57.080)

That's what we should be analyzing.

Lex Fridman (17:58.800)

And the post Keynesian school has gone in that orientation.

Steve Keen (18:03.800)

They've been, in my opinion, inhibited by learning their mathematics from neoclassical

Steve Keen (18:09.280)

economists, so they don't have enough of the technology of complex systems.

Steve Keen (18:12.840)

There's only a really tiny handful of people working in complex systems analysis in post

Steve Keen (18:17.680)

Keynesian economics, but that is, to me, the most interesting area.

Lex Fridman (18:21.040)

So their tools may be lacking, but they fundamentally accept the instability of things.

Steve Keen (18:26.160)

That's right.

Lex Fridman (18:27.160)

That's right.

Steve Keen (18:28.160)

That's interesting.

Lex Fridman (18:29.160)

So let me try to summarize what you said, and then you say how stupid I am.

Steve Keen (18:32.520)

Okay.

Lex Fridman (18:33.520)

So then there was the physiocrats that thought value came from the land.

Steve Keen (18:40.920)

Then there's Adam Smith, who said, nah, value comes from human labor.

Lex Fridman (18:50.440)

That was the classical school.

Lex Fridman (18:52.640)

And then neoclassical is value comes from bananas and coconuts, human preferences, like

Lex Fridman (19:01.640)

human happiness, how happy a banana makes you.

Lex Fridman (19:06.320)

And then the Keynesian and the post Keynesian were like, yeah, well, you can't, you can

Steve Keen (19:13.480)

never, the moment you try to put value to a banana and a coconut, you're already working

Steve Keen (19:19.040)

in the past.

Lex Fridman (19:21.800)

It's always going to be chaos and stability.

Lex Fridman (19:24.280)

And then you just, you're fishing in uncertain waters, and that's why we have to embrace

Lex Fridman (19:29.020)

that and come up with tools that model that well.

Lex Fridman (19:32.780)

And also Joseph Schumpeter, what school would you put him under?

Lex Fridman (19:36.840)

Is he a Keynesian or is he Austrian economics?

Steve Keen (19:41.000)

He's an Austrian.

Lex Fridman (19:42.000)

The Austrians deny.

Steve Keen (19:43.000)

Okay.

Lex Fridman (19:44.000)

That's the intriguing.

Steve Keen (19:45.000)

He's from Austria, but he's not an Austrian economist.

Lex Fridman (19:51.080)

There are elements of the Austrian school of thought, which are worthwhile.

Lex Fridman (19:54.240)

What is Austrian economics in this beautiful whirlwind picture that you painted?

Lex Fridman (19:59.080)

Okay.

Steve Keen (1:00:01.880)

He was a rouse about, he was a wild character.

Lex Fridman (1:00:05.240)

We'd probably fight like crazy, I imagine, if we met.

Lex Fridman (1:00:09.080)

Over the beers?

Steve Keen (1:00:10.080)

I'm slightly, even though I can be, I can get involved in an argument like nobody's

Steve Keen (1:00:16.760)

business.

Lex Fridman (1:00:17.760)

No, really?

Steve Keen (1:00:18.760)

No, really.

Lex Fridman (1:00:19.760)

But I'm a bit more peaceful of personality.

Lex Fridman (1:00:21.240)

Oh, you think Marx is feistier than you?

Lex Fridman (1:00:23.240)

He was feisty, but feisty with, he could be arrogant.

Steve Keen (1:00:27.600)

Like I've got an intellectual arrogance, I've come to accept that.

Lex Fridman (1:00:31.680)

But there's like a fundamental humility to you.

Steve Keen (1:00:33.920)

You're saying Marx is like, has ego that's hard to control.

Lex Fridman (1:00:37.160)

A bit too big ego, yeah.

Steve Keen (1:00:38.160)

I'm guessing.

Lex Fridman (1:00:39.160)

I mean, I'm never going to meet him.

Steve Keen (1:00:40.480)

Well, the beard says ego to me.

Lex Fridman (1:00:42.320)

The beard is huge, yeah.

Steve Keen (1:00:43.640)

That's huge.

Lex Fridman (1:00:44.640)

Okay.

Lex Fridman (1:00:45.640)

So this is interesting.

Lex Fridman (1:00:46.640)

So you went chronologically right through his works, the development of the human being

Steve Keen (1:00:51.000)

through his works.

Lex Fridman (1:00:52.000)

Yeah.

Lex Fridman (1:00:53.000)

And I was trying to find the point at which he discovered this use value exchange value

Lex Fridman (1:00:55.440)

idea.

Lex Fridman (1:00:56.520)

And it occurs in a footnote on page 267 to 268 of the Penguin edition of the Guindrisa,

Steve Keen (1:01:02.640)

which his notes he was taking literally not meant for publication, literally sitting at

Steve Keen (1:01:07.440)

a stall inside the British Museum, I think, reading all the classical authors in chronological

Lex Fridman (1:01:13.800)

sequence.

Lex Fridman (1:01:14.800)

And then somebody throws Hegel at him, and suddenly he's talking in Hegelian terms.

Lex Fridman (1:01:19.680)

And he suddenly says, is not, because it's whole value issues, what is value?

Lex Fridman (1:01:24.560)

Is it exchange value, use value?

Lex Fridman (1:01:26.120)

How do they relate to each other?

Steve Keen (1:01:27.440)

That's what he was thinking about.

Lex Fridman (1:01:28.440)

And he said, is not use value, which was left out of the classical school, a fundamental

Lex Fridman (1:01:34.200)

aspect of the commodity?

Lex Fridman (1:01:36.320)

Is there not a tension between the use value and exchange value?

Steve Keen (1:01:39.880)

Just so we're clear in that context, use value is kind of the subjective thing, exchange

Lex Fridman (1:01:44.680)

value is the objective thing.

Steve Keen (1:01:45.680)

Yeah.

Lex Fridman (1:01:46.680)

And Marx was, found a way to integrate the two.

Steve Keen (1:01:49.320)

He was focused on labor being the only thing that can generate both the use value and the

Lex Fridman (1:01:57.000)

exchange value.

Steve Keen (1:01:58.000)

But, no.

Lex Fridman (1:01:59.000)

If you look at the classical school, they focus on exchange value, objective.

Steve Keen (1:02:03.600)

Look at the neoclassical, they focus upon use value, subjective, or they call it utility.

Lex Fridman (1:02:09.280)

So Marx, coming from the Ricardian tradition, basically dismissed the role of utility.

Lex Fridman (1:02:14.920)

And then when he reads Hegel, he's suddenly starting to think in terms of unities.

Lex Fridman (1:02:20.480)

And exchange value and use value is the unity of the commodity.

Lex Fridman (1:02:24.680)

And he thinks, well, I can't ignore use value.

Lex Fridman (1:02:27.840)

So rather than leaving it out completely, which is what Ricardo and Smith does, I've

Steve Keen (1:02:31.760)

got to somehow bring it in.

Lex Fridman (1:02:32.920)

And this Hegelian insight occurs to him.

Lex Fridman (1:02:35.680)

And it's remarkable, I really recommend taking a look at the book, even just to look at that

Steve Keen (1:02:39.800)

particular page, because what it would have been, as shown as a footnote, but it would

Steve Keen (1:02:44.120)

have been him saying, oh, wow, and his asterisk, asterisk, is not use value, a fundamental

Lex Fridman (1:02:50.660)

aspect of the unity of a commodity.

Lex Fridman (1:02:53.480)

So in the notes, you see the discovery of an idea in the human mind, the integration

Lex Fridman (1:02:57.640)

of an idea.

Lex Fridman (1:02:58.640)

And it's beautiful.

Lex Fridman (1:02:59.640)

And he actually writes, does this have significance in economics, question mark.

Lex Fridman (1:03:02.200)

And then he probably went home that night, and that idea changed him.

Lex Fridman (1:03:06.760)

Yeah, it changed him completely.

Lex Fridman (1:03:08.880)

And from that point on, his writing was completely different.

Lex Fridman (1:03:11.120)

But he still had this idea from the Ricardian days of saying that labor is the only source

Steve Keen (1:03:15.920)

of value, using an exclusive argument to say there's something unique about labor that

Lex Fridman (1:03:20.840)

explains why it's a source of value.

Lex Fridman (1:03:22.640)

But suddenly, this insight occurs to him, and he thinks, I can get a positive derivation.

Steve Keen (1:03:26.920)

I can use use value and exchange value and the fact they're not related to each other

Steve Keen (1:03:31.960)

as a dialectical tension to explain surplus value.

Lex Fridman (1:03:35.040)

And that's what he does.

Lex Fridman (1:03:36.040)

So he goes from a negative explanation of where value comes from to a positive explanation

Lex Fridman (1:03:41.720)

on that page of the Guindarisa.

Steve Keen (1:03:44.480)

He then triumphantly uses it to explain why labor is a source of value.

Lex Fridman (1:03:49.460)

You buy it for its exchange value.

Steve Keen (1:03:51.360)

You use its use value.

Lex Fridman (1:03:52.840)

They're unrelated.

Steve Keen (1:03:53.840)

The use value will be bigger.

Lex Fridman (1:03:55.100)

That's where profit comes from.

Steve Keen (1:03:56.820)

Then he does exactly the same thing for machinery, about 30 pages on.

Lex Fridman (1:04:01.200)

He says it also has to be contemplated, which was not done before.

Steve Keen (1:04:06.760)

This is wrote nice to himself, by the way.

Steve Keen (1:04:09.320)

It's written really in a colloquial style, that the use value of a machine is significantly

Steve Keen (1:04:14.800)

greater than its exchange value.

Lex Fridman (1:04:16.200)

He actually left out the word is.

Steve Keen (1:04:17.760)

It's used to be a translation into English of the German, I'm sure.

Lex Fridman (1:04:23.000)

I don't know.

Steve Keen (1:04:24.000)

I haven't seen the original notes.

Lex Fridman (1:04:25.000)

I'd love to see them.

Lex Fridman (1:04:26.000)

But he says, he leaves out the word is.

Steve Keen (1:04:29.200)

It also has to be contemplated that the use value is significantly greater than its exchange

Steve Keen (1:04:34.720)

value, i.e. that the contribution of the machine to production exceeds its depreciation.

Lex Fridman (1:04:43.240)

That was an insight which undermined his explanation for revolution.

Steve Keen (1:04:48.840)

Okay.

Lex Fridman (1:04:49.840)

Can you say that again?

Lex Fridman (1:04:52.520)

The cost of production exceeds its depreciation?

Lex Fridman (1:04:57.600)

Can you linger on that?

Steve Keen (1:04:58.600)

Well, what Marx argued, and you read this in Capital, and I read this in Capital when

Lex Fridman (1:05:02.640)

I first saw the contradiction in his own thought.

Steve Keen (1:05:07.160)

He said that no matter how useful a machine is, whether it took a hundred hours to make

Steve Keen (1:05:12.840)

or cost 150 pounds, it cannot under any circumstances add more to production than 150 pounds, which

Steve Keen (1:05:22.680)

in his old exclusivist logic he could justify, and which in his post 1857 argument is bullshit.

Lex Fridman (1:05:31.520)

Can you steel man his case?

Steve Keen (1:05:33.320)

Can we go to the mind of Marx and thinking if a machine costs a hundred bucks, it can't

Lex Fridman (1:05:39.920)

be ever more, bring more value than a hundred bucks to the world?

Lex Fridman (1:05:43.280)

But that contradicts his previous logic, because what he said is commodities are the essential

Lex Fridman (1:05:49.720)

unity in capitalism.

Steve Keen (1:05:52.400)

Capitalism focuses upon the exchange value.

Steve Keen (1:05:54.960)

That pushes the use value into the background, and there's a tension between the two.

Lex Fridman (1:05:59.840)

What that means is the exchange value of a commodity sets its price.

Lex Fridman (1:06:04.200)

The use value is independent.

Steve Keen (1:06:06.580)

He called them incommensurable.

Steve Keen (1:06:07.960)

He literally used the word incommensurability between exchange value and a use value, whereas

Steve Keen (1:06:13.360)

neoclassicals make them commensurable.

Lex Fridman (1:06:15.480)

So he's saying exchange value and use value incommensurable, and that normally means that

Steve Keen (1:06:21.320)

exchange value is objective, like the number of hours it takes to make something.

Steve Keen (1:06:25.240)

Use value is subjective, how comfortable the chair is, the fact that you can sit in a chair.

Lex Fridman (1:06:30.240)

So that's incommensurability, but when you apply it in production, the exchange value

Lex Fridman (1:06:35.320)

of something is objective.

Steve Keen (1:06:36.800)

It's how many hours it takes to make a machine or how many hours it takes to make the means

Lex Fridman (1:06:40.920)

of subsistence for a worker.

Steve Keen (1:06:42.720)

The use value is also objective.

Lex Fridman (1:06:44.880)

You're making commodities for sale, and the worker does six hours.

Steve Keen (1:06:49.700)

Six hours of work will make the means of subsistence for the worker, but the worker will work a

Lex Fridman (1:06:55.920)

twelve hour day, and the six hours becomes a gap.

Steve Keen (1:06:59.640)

Now that's incommensurability between use value and exchange value of labor, but when

Steve Keen (1:07:05.000)

you look at what he said about no matter how long it takes to make a machine or how many

Steve Keen (1:07:09.840)

pounds it costs, he's saying they're identical, and that's contradicting his own logic.

Lex Fridman (1:07:15.280)

Well, what's the use value of a machine?

Steve Keen (1:07:17.880)

The fact that it can produce goods for sale, exactly the same as the worker.

Steve Keen (1:07:23.360)

Now in my modern reinterpretation of Marx, which brings in my work on energy, I see both

Steve Keen (1:07:30.280)

labor and machinery as a means to harness energy and produce useful work, and they can

Lex Fridman (1:07:36.800)

both do that.

Steve Keen (1:07:37.800)

In fact, they do it together.

Lex Fridman (1:07:39.400)

It's a collective enterprise.

Steve Keen (1:07:40.680)

Okay, so, and we'll go to that.

Lex Fridman (1:07:44.360)

So there's no fundamental difference from an exchange value and use value perspective

Steve Keen (1:07:48.820)

between a human and a machine.

Lex Fridman (1:07:50.280)

And therefore, they're using the same logic that can both be a source of surplus, which

Steve Keen (1:07:54.160)

is what Marx contradicted because his explanation for where socialism would come from is that

Lex Fridman (1:08:00.040)

only profit comes from, like profit comes only from labor.

Steve Keen (1:08:03.000)

Over time, we'll add more machinery than labor that will mean a falling rate of profit and

Lex Fridman (1:08:08.160)

therefore a tendency towards socialism.

Lex Fridman (1:08:11.120)

And what he did in that insight in 1857 is contradict his own idea about what would lead

Lex Fridman (1:08:16.580)

to socialism, and he couldn't cope with it.

Lex Fridman (1:08:19.600)

Okay, what's the difference between Marxian economics and Marxist political ideology?

Lex Fridman (1:08:30.280)

The gap between the two, the overlap, the differences, what?

Steve Keen (1:08:34.520)

The real foundation of Marx's political philosophy was the economic argument that there would

Lex Fridman (1:08:39.360)

be a tendency for the rate of profit to fall.

Lex Fridman (1:08:42.880)

And that tendency for the rate of profit to fall would lead to capitalists battening down

Steve Keen (1:08:48.520)

on workers harder, paying them less than their subsistence, a revolt by workers against this,

Lex Fridman (1:08:55.720)

and then you would get socialism on the other side.

Lex Fridman (1:08:58.420)

So what he called the tendency for the rate of profit to fall played a critical role in

Steve Keen (1:09:03.920)

his explanation for why socialism would have to come about.

Lex Fridman (1:09:07.080)

He was saying it would have to come about, or is it a good thing for it to come about?

Steve Keen (1:09:13.000)

He had a should, but he was trying to say it must.

Lex Fridman (1:09:16.620)

So if you look at Marx in the history of radical thought, he was preceded by what were called

Steve Keen (1:09:22.720)

utopian socialists.

Steve Keen (1:09:24.440)

Saint Simon, even the Cadbury's company came out of utopian socialist, and they had an

Steve Keen (1:09:30.040)

idea about a perfect society in the future where people were properly rewarded, were

Steve Keen (1:09:34.400)

treated as human beings rather than cogs in a machine and all this sort of stuff.

Lex Fridman (1:09:38.400)

And they said socialism should come about because it treats humans better than capitalism

Lex Fridman (1:09:42.840)

does.

Steve Keen (1:09:43.840)

Marx said, I can prove that socialism must come about.

Lex Fridman (1:09:47.660)

So he preferred, he had a utopian vision of a future society, but he thought he could

Steve Keen (1:09:53.280)

prove that it had to come about.

Lex Fridman (1:09:55.080)

And the proof relied critically upon tendency for the rate of profit to fall, and that relied

Steve Keen (1:10:01.720)

upon labor being the only source of profit.

Lex Fridman (1:10:06.040)

What was his utopian view?

Lex Fridman (1:10:07.800)

So this idea from each according to his ability to each according to his needs.

Lex Fridman (1:10:13.160)

Is that the utopian?

Steve Keen (1:10:16.000)

I think it's utopian in the context of our modern world.

Steve Keen (1:10:21.080)

It says that rather than being rewarded, like Jeff Bezos gets enormous fortune, you get

Lex Fridman (1:10:27.520)

what you need, not what you want, necessarily.

Lex Fridman (1:10:32.280)

All needs is fulfilled.

Steve Keen (1:10:33.680)

It was a vision of utopia where you could be a fisherman in the morning, a poet in

Lex Fridman (1:10:38.280)

the afternoon, and a chef at night, this paraphrasing one of his phrases.

Lex Fridman (1:10:43.820)

So he did have a utopian vision of a future society, and he did think human creativity

Lex Fridman (1:10:48.480)

would be much, much greater under socialism than it was under capitalism.

Steve Keen (1:10:52.320)

He was wrong.

Lex Fridman (1:10:54.400)

So let's explore in different ways where he was wrong.

Steve Keen (1:10:57.120)

You're saying there's a fundamental flaw in the logic, but also if we can explore high

Lex Fridman (1:11:04.360)

level philosophical concepts of socialism too, like the dreams of a utopia.

Lex Fridman (1:11:10.120)

So first of all, what is socialism?

Lex Fridman (1:11:14.800)

That's another loaded term.

Steve Keen (1:11:17.640)

Socialism particularly in America is a very loaded term.

Lex Fridman (1:11:19.800)

What Americans call socialist is a large amount of provision of services by the state, which

Steve Keen (1:11:26.480)

is commonplace in Europe.

Lex Fridman (1:11:28.280)

It's still moderately commonplace in my own home country of Australia.

Lex Fridman (1:11:34.360)

And that Americans will call public education socialist.

Lex Fridman (1:11:38.700)

It's a total parody of the word.

Steve Keen (1:11:42.360)

Strictly speaking, what socialism meant is the public ownership of the means of production,

Lex Fridman (1:11:46.920)

no private ownership of the means of production.

Lex Fridman (1:11:49.900)

What is the means of production?

Lex Fridman (1:11:51.680)

Machine factories.

Steve Keen (1:11:52.680)

Factories.

Lex Fridman (1:11:53.680)

So all the goods that are produced in factories, no, the means of producing the goods is owned

Steve Keen (1:11:59.920)

by a centralized entity.

Lex Fridman (1:12:01.680)

Yeah.

Steve Keen (1:12:02.680)

Centrally planned.

Lex Fridman (1:12:03.680)

This is what actually was done under Gold's plan under the Soviets.

Lex Fridman (1:12:07.640)

And even with the collective farms as well.

Lex Fridman (1:12:09.880)

You no longer own your land.

Steve Keen (1:12:11.520)

The state owns the land.

Lex Fridman (1:12:13.420)

You worked on the land.

Lex Fridman (1:12:15.200)

And this was supposed to be a utopia.

Lex Fridman (1:12:16.680)

Now it didn't turn out to be one.

Lex Fridman (1:12:19.400)

And we'll talk about maybe your ideas of why it didn't turn out to be one.

Lex Fridman (1:12:23.480)

So the fascists did the same.

Lex Fridman (1:12:25.880)

So is this fascism also central?

Lex Fridman (1:12:28.120)

Fascism, so called national socialism.

Steve Keen (1:12:31.120)

It's also a kind of socialism.

Lex Fridman (1:12:32.680)

So yeah, but there was no, it wasn't a public owner, there was public direction.

Lex Fridman (1:12:36.840)

So the state would tell factories what to do, but there's still a private profit.

Lex Fridman (1:12:40.760)

And a large part of why the Nazis succeeded was the extent to which they managed to coopt

Steve Keen (1:12:44.900)

major manufacturers in Germany.

Lex Fridman (1:12:47.680)

So it's, you know.

Steve Keen (1:12:50.240)

Direction versus ownership.

Lex Fridman (1:12:51.240)

Yeah.

Steve Keen (1:12:52.240)

A dictatorial, I mean, that's a very particular implementation.

Lex Fridman (1:12:56.520)

So you have to consider the full details of the implementation, but it's basically dictator

Steve Keen (1:13:01.120)

guided.

Lex Fridman (1:13:02.120)

Yeah.

Lex Fridman (1:13:03.120)

And if you want to take a proper vision, then you have to say it's the ownership of the

Lex Fridman (1:13:09.200)

means of production by the state.

Steve Keen (1:13:11.280)

Okay.

Lex Fridman (1:13:12.280)

Versus the ownership by private.

Steve Keen (1:13:14.100)

That rules out the Nazi period.

Steve Keen (1:13:16.700)

Use the word that, again, they're bastardizing as much as Americans do in the opposite direction.

Lex Fridman (1:13:22.520)

Well, what does ownership exactly mean?

Lex Fridman (1:13:26.840)

Well, it became incredibly complicated.

Lex Fridman (1:13:31.080)

And this is actually the best work on this is done by recently deceased Hungarian economist

Lex Fridman (1:13:36.680)

called Janos Kornai.

Lex Fridman (1:13:38.680)

And Kornai tried to explain why socialism failed.

Lex Fridman (1:13:42.880)

Because why did socialism fail in your view?

Steve Keen (1:13:45.320)

In his view, in Janos's view, in your view.

Lex Fridman (1:13:47.360)

I think Janos is 100% correct.

Steve Keen (1:13:49.600)

It's a brilliant piece of work, so I'm going to be really paraphrasing his view.

Lex Fridman (1:13:53.860)

And he imagined an ideal socialist society, and there wasn't a Stalin, there weren't

Steve Keen (1:13:59.560)

purges, and you lived up to all the ideals that Marx had for socialism.

Lex Fridman (1:14:04.440)

So he said, but you do it in a context of an economy which is incredibly primitive,

Steve Keen (1:14:09.440)

Russia.

Lex Fridman (1:14:10.440)

Okay?

Steve Keen (1:14:11.440)

Because if you look at Marx's own vision of the revolution, it was going to happen

Lex Fridman (1:14:13.360)

in England.

Steve Keen (1:14:15.420)

The advanced economies would be first to go through the revolution.

Steve Keen (1:14:18.920)

The socialist, the primitive economies would have to go through a capitalist transition.

Lex Fridman (1:14:23.420)

And this is the difference between the Mensheviks and the Bolsheviks.

Lex Fridman (1:14:26.740)

So the Mensheviks, when Hyman Minsky came out of the Menshevik family, the Mensheviks

Steve Keen (1:14:30.780)

believed you had to go through a capitalist phase.

Lex Fridman (1:14:33.360)

Russia had to go through a capitalist period before it becomes socialist.

Steve Keen (1:14:36.600)

The Bolsheviks believed they could get there in one go, bypass the capitalist phase, do

Lex Fridman (1:14:42.360)

the development under socialism rather than under capitalism.

Lex Fridman (1:14:47.240)

And this is what Yanis was actually analyzing.

Steve Keen (1:14:50.040)

You start from a primitive feudal economy, very little industrialization, and you want

Steve Keen (1:14:57.120)

to jump to an advanced industrial society from that foundation.

Lex Fridman (1:15:04.560)

So he said what you have then for is a whole range of industries, all of which need as

Steve Keen (1:15:10.080)

much resources as you can get for them.

Lex Fridman (1:15:12.880)

So you want to develop agriculture, mining, industry, every little division of it.

Steve Keen (1:15:19.680)

They all have legitimate demands on the resources of the country and the state.

Steve Keen (1:15:24.300)

That means that all your resources are fully employed and are probably over employed.

Lex Fridman (1:15:29.320)

So you have a resource constraint in that society.

Steve Keen (1:15:33.020)

The easiest way to cope with a resource constraint is to produce last year's commodity, not to

Steve Keen (1:15:38.720)

innovate, not to make change.

Lex Fridman (1:15:40.840)

So what they will give you is as you start to add, you invest so you now have the beginnings

Steve Keen (1:15:46.140)

of a steel industry, beginnings of a car industry, and so on, you start investing, but you continue

Lex Fridman (1:15:51.160)

producing the same product you made last year.

Lex Fridman (1:15:54.560)

And I have a perfect personal example of that, which I'll throw in now if you like a pretty

Lex Fridman (1:15:59.040)

heavy conversation.

Steve Keen (1:16:00.040)

I know my first major girlfriend had a brother who wanted to get a motorbike, but he couldn't

Lex Fridman (1:16:08.000)

afford a Honda or a Kawasaki.

Steve Keen (1:16:11.320)

At the time, they cost about $3,000 for a 650 cc Japanese motorbike.

Lex Fridman (1:16:17.000)

He found he could buy a Cossack for $650, $1 per cc.

Lex Fridman (1:16:23.440)

So I was there when he got this is in suburban Sylvania waters in Sydney.

Lex Fridman (1:16:30.320)

So this crate arrives with a Cossack motorbike inside it.

Lex Fridman (1:16:35.320)

So we take it apart, it's then got all these wooden palings, we have to pull off the wooden

Lex Fridman (1:16:38.840)

palings to open it up.

Steve Keen (1:16:40.400)

Then there's oil soaked rag over this thing, which is tied on a wooden base.

Lex Fridman (1:16:44.780)

We take the oil soaked rag off and we stare in all its glory in a 1942 BMW.

Steve Keen (1:16:50.560)

It was exactly the same as Steve McQueen in The Great Escape.

Lex Fridman (1:16:55.200)

So the Russians for 30 years were making the same bloody motorbike.

Steve Keen (1:16:59.320)

It had a bicycle seat.

Lex Fridman (1:17:02.440)

And that's how they cope.

Steve Keen (1:17:03.960)

They've just made the same damn machine every year.

Lex Fridman (1:17:06.200)

And he said, so that's the outcome.

Steve Keen (1:17:09.240)

You actually want the best possible world.

Lex Fridman (1:17:10.920)

You're trying to build as fast as possible.

Steve Keen (1:17:13.080)

You're paying workers as high wages as you possibly can.

Lex Fridman (1:17:16.480)

And that leads to a world where you don't innovate.

Lex Fridman (1:17:19.360)

But he said capitalism, on the other hand, pure capitalist economy, you're trying to

Lex Fridman (1:17:24.640)

pay workers as little as possible.

Steve Keen (1:17:26.940)

You have competitive industries.

Lex Fridman (1:17:28.560)

You're trying to take demand away from your rivals.

Steve Keen (1:17:31.280)

You have Kawasaki versus Honda versus BMW, et cetera, et cetera.

Lex Fridman (1:17:37.360)

The way you get demand away from your competitors is by innovating.

Lex Fridman (1:17:41.780)

So what you will get is cycles and booms and slumps, but you'll innovate and change over

Lex Fridman (1:17:46.200)

time.

Lex Fridman (1:17:47.200)

So what you find was this huge gap between socialist volume production with no innovation

Lex Fridman (1:17:52.880)

and capitalism with innovation.

Lex Fridman (1:17:55.860)

So that was the fundamental failing that Janos Korneis saw, so why did socialism not innovate?

Steve Keen (1:18:02.200)

Because if you go back to this famous historical incident with Khrushchev in the United Nations,

Steve Keen (1:18:08.600)

bangs Texophe Shewan, bangs the desk, says, we will bury you.

Lex Fridman (1:18:12.420)

He literally meant we're going to bury you in commodities.

Steve Keen (1:18:15.200)

We're going to produce more output than you are.

Lex Fridman (1:18:17.580)

And he was wrong.

Steve Keen (1:18:19.920)

Because fundamentally, in the long term, to bury somebody in commodity production, you

Lex Fridman (1:18:25.480)

have to innovate.

Steve Keen (1:18:26.480)

Yeah.

Lex Fridman (1:18:27.480)

And there's also another remarkable Soviet engineer who was given the job of interpreting

Steve Keen (1:18:33.680)

Marx's ideas of industrial sectors.

Lex Fridman (1:18:36.560)

So he had the commodity sphere, the industry sphere, sector one, sector two, sector three.

Steve Keen (1:18:42.640)

Sector one producing consumer goods, sector two producing capital goods, sector three

Lex Fridman (1:18:46.060)

producing luxury goods for capitalists.

Lex Fridman (1:18:49.000)

And so he had a three sector model of the economy, and he was talking about the dynamics

Lex Fridman (1:18:53.160)

between them.

Lex Fridman (1:18:54.600)

And what Feldman did was reinterpret this as an engineer would reinterpret it, which

Lex Fridman (1:18:59.040)

was brilliant work.

Lex Fridman (1:19:00.920)

So what he said was, you need to produce the means of production.

Steve Keen (1:19:05.520)

If you want to grow quickly, you focus on producing the means of production rather than

Steve Keen (1:19:09.920)

commodities.

Lex Fridman (1:19:10.920)

So you don't make cars, you make car factories.

Lex Fridman (1:19:13.080)

Okay?

Steve Keen (1:19:14.080)

You make a few cars, but most of the effort goes into expanding how many factories you

Steve Keen (1:19:17.480)

have.

Lex Fridman (1:19:18.480)

And what he did was do a mathematical model where you start off with very low levels of

Steve Keen (1:19:21.880)

consumer good output, but then you would just go exponential.

Lex Fridman (1:19:24.960)

Okay?

Steve Keen (1:19:25.960)

Now, I took a look at that back when I was doing my master's degree.

Lex Fridman (1:19:29.520)

And the training in mathematics, I took Feldman's equations and then looked at what was actually

Steve Keen (1:19:35.960)

driving it was he was imagining correctly a huge pool of unemployed labor.

Steve Keen (1:19:40.960)

If you go back to the earliest stages of Soviet industrialization back in 1917, post the Second

Steve Keen (1:19:46.280)

World, post the First World War, you had all these unemployed workers, you had all these

Lex Fridman (1:19:50.520)

peasants you could take off the land and put into factories.

Lex Fridman (1:19:53.540)

So you had a huge supply of workers.

Lex Fridman (1:19:57.240)

What you had to do was build the factories.

Steve Keen (1:19:59.200)

See building the factories, but at a certain point you exhaust the supply of lowly employed

Lex Fridman (1:20:06.280)

or unemployed labor.

Lex Fridman (1:20:07.940)

And so rather than having this exponential takeoff, you hit a ceiling and then you can

Lex Fridman (1:20:12.920)

only grow as fast as the population because you're not innovating.

Lex Fridman (1:20:16.800)

So that's what actually hit the Soviet system.

Lex Fridman (1:20:20.340)

And it's why they never buried the Western consumer goods.

Lex Fridman (1:20:23.880)

And instead why Western consumers looked in envy at the goods being purchased by their

Lex Fridman (1:20:28.860)

Western people and said, if that's exploitation, we want exploitation.

Lex Fridman (1:20:33.920)

So okay, there's a lot of interesting stuff to ask here, which is, so Marx's vision for

Lex Fridman (1:20:40.620)

the socialist utopia is you have to go through capitalism.

Steve Keen (1:20:48.000)

The Mensheviks were true to Marx's original idea.

Lex Fridman (1:20:50.520)

So is there a case to be made that in the long arc of human history on like human civilization

Steve Keen (1:20:57.560)

on earth that we're going to live out Marx's vision for utopia, which is like, will we

Lex Fridman (1:21:05.480)

run into a wall with capitalism?

Steve Keen (1:21:07.320)

I think we are running into a wall with capitalism.

Steve Keen (1:21:09.200)

In fact, I think we've already gone through the wall and we haven't yet realized we've

Steve Keen (1:21:11.800)

smashed our skulls.

Lex Fridman (1:21:16.240)

But on the other side, we're bleeding and everything like that.

Lex Fridman (1:21:22.360)

Does Marx have any insights on what the other side of capitalism, what is beyond capitalism?

Steve Keen (1:21:26.480)

I think that beautiful phrase of from each according to his ability to each according

Steve Keen (1:21:30.680)

to his needs describes what we should end up with.

Lex Fridman (1:21:36.140)

And I think that's actually, if I think about, you know, I'm an Elon Musk fan.

Steve Keen (1:21:40.580)

That's what I think is partially going to be the nature of society if we build one that

Lex Fridman (1:21:45.160)

functions on Mars.

Steve Keen (1:21:47.240)

Because and I've actually seen the interview with the Italian who's involved in designing

Lex Fridman (1:21:52.460)

what the future colony will look like.

Lex Fridman (1:21:54.800)

He was actually asked this question, can there be enormous inequality in Martian civilization?

Lex Fridman (1:22:00.320)

The guy said, absolutely not.

Steve Keen (1:22:02.440)

Because the resources, again, resource constraint applies.

Steve Keen (1:22:06.080)

You simply can't give somebody underground bunker 100 times the size of somebody else's

Steve Keen (1:22:11.560)

100 underground bunker.

Lex Fridman (1:22:14.920)

Because the scarcity of resources imposes a need for equality overall.

Lex Fridman (1:22:22.240)

Is that always?

Lex Fridman (1:22:23.240)

That's interesting.

Steve Keen (1:22:24.240)

I mean, the scarcity of resources, wait, but I feel like that's a contradiction.

Lex Fridman (1:22:28.200)

I thought.

Lex Fridman (1:22:29.200)

Are you thinking neoclassical about scarcity?

Lex Fridman (1:22:32.120)

I'm barely thinking at all.

Lex Fridman (1:22:37.480)

So wait, I thought scarcity, the best way to build on top of scarcity is a capitalist

Lex Fridman (1:22:44.120)

type of machine.

Steve Keen (1:22:45.120)

No, this is where, again, our vision of what scarcity is, is wrong.

Lex Fridman (1:22:50.400)

Because and Ricardo said this, but it's actually better than Marx.

Steve Keen (1:22:54.480)

Because Ricardo said, there are some products whose value is determined entirely by their

Lex Fridman (1:23:00.240)

scarcity.

Steve Keen (1:23:01.240)

Yeah.

Steve Keen (1:23:02.240)

Paintings, rare wines, et cetera, et cetera, they are things you cannot reproduce in a

Steve Keen (1:23:08.040)

factory.

Lex Fridman (1:23:09.040)

He said, the essence of capitalism is what you can make in a factory.

Lex Fridman (1:23:12.780)

And therefore, for these unique objects, these rare objects, Picasso painting a beautiful

Steve Keen (1:23:19.960)

bottle of wine, et cetera, et cetera, then the utility, it can't be reproduced easily.

Lex Fridman (1:23:25.860)

So its price will be determined by subjective valuation.

Steve Keen (1:23:28.520)

He said, what we're talking about in capitalism is the stuff you can make en masse.

Lex Fridman (1:23:33.160)

And that is the true focus of the capitalist economy.

Lex Fridman (1:23:37.680)

And that is not about scarcity.

Steve Keen (1:23:39.040)

That is about, the only scarcity applies when you don't have the resources to make them

Steve Keen (1:23:43.920)

anymore or you can't use the energy involved because you'll damage the biosphere too much,

Steve Keen (1:23:48.880)

which we've already done.

Lex Fridman (1:23:50.800)

But fundamentally, the scarcity that neoclassicals have been able to think about and Austrians

Steve Keen (1:23:55.880)

think about as well is nonreproducible.

Lex Fridman (1:23:59.040)

But the essence of capitalism is the commodity, the backscratcher, the two buck backscratcher,

Steve Keen (1:24:03.140)

anybody can, you know, the cheapest chips to make, and that's why it can make a profit

Lex Fridman (1:24:06.920)

out of them.

Steve Keen (1:24:09.020)

Not the elaborate gold thing with diamonds and rubies that only the king gets.

Lex Fridman (1:24:13.460)

So we think our vision of scarcity has been perverted by neoclassicals analyzing the exception

Steve Keen (1:24:19.600)

to capitalism and calling it capitalism.

Lex Fridman (1:24:22.200)

Okay.

Steve Keen (1:24:23.200)

Fair enough.

Steve Keen (1:24:24.200)

So, you know, let's put Mars aside because I think there's a lot of strange factors that

Steve Keen (1:24:29.720)

have to do with a whole nother planet, civilization, that we don't quite understand.

Steve Keen (1:24:37.360)

Think how economics works with different geographic locations, one of which have new challenges,

Steve Keen (1:24:47.120)

which is what essentially this is.

Lex Fridman (1:24:48.200)

I don't know if you can apply the same economic theory.

Steve Keen (1:24:50.800)

No, I'm saying your question, I think we'll be forced into that ultimately by having to

Lex Fridman (1:24:55.560)

make a compromise with the ecology.

Lex Fridman (1:24:58.380)

And we've been ruthless about the ecology of this planet, and we're going to pay the

Lex Fridman (1:25:02.080)

price for it.

Lex Fridman (1:25:03.660)

So if you have a planet where you can't be ruthless, okay, you have to mind it as carefully

Steve Keen (1:25:11.520)

as possible, then that utopian might be imposed upon you for the needs for survival on that

Steve Keen (1:25:19.000)

planet.

Lex Fridman (1:25:20.000)

Back here, Marx's utopia was still the one that ignored the ecology.

Lex Fridman (1:25:25.520)

And I think if I have a vision of a utopia in future, it's got bugger all to do about

Lex Fridman (1:25:31.740)

what humans get out of it.

Steve Keen (1:25:34.120)

It's what humans respect.

Lex Fridman (1:25:36.280)

They have to respect life.

Lex Fridman (1:25:38.040)

So I see that as a one eyed utopia, a utopia for a single species, as if it can exist on

Lex Fridman (1:25:44.940)

its own, which we should know it can't.

Lex Fridman (1:25:47.800)

Quick bathroom break?

Lex Fridman (1:25:48.800)

Yeah, that would be great.

Steve Keen (1:25:51.340)

We took a little bit of a break and now we're back.

Steve Keen (1:25:54.520)

We needed to take a break because my brain broke and I'm piecing it back together.

Steve Keen (1:25:58.600)

You mentioned ecology and life and the value of all of that.

Lex Fridman (1:26:02.240)

We'll return to it if we can.

Lex Fridman (1:26:05.080)

But first, we said why this kind of, this idea of why socialism failed, can we linger

Lex Fridman (1:26:16.320)

on this a little bit longer in how did the ideas of Karl Marx lead to Stalinism?

Lex Fridman (1:26:23.520)

So this particular implementation, is there something fundamental to these ideas that

Lex Fridman (1:26:31.800)

leads to a dictator and that leads to atrocities?

Steve Keen (1:26:36.720)

There's something about the mechanism of the bureaucracy that's built that leads to a human

Lex Fridman (1:26:43.680)

being that's able to attain, integrate absolute power and then start abusing that power?

Steve Keen (1:26:53.480)

All that kind of stuff.

Steve Keen (1:26:54.480)

Like some of the history of the 20th century, is that inextricably connected to the ideas

Lex Fridman (1:27:00.560)

of Karl Marx?

Steve Keen (1:27:01.560)

I think to some extent it is, but I'm going to also say that if it hadn't been for the

Steve Keen (1:27:05.240)

Bolsheviks interpreting Marx and saying we can reach socialism without going through

Lex Fridman (1:27:09.880)

capitalism, then it might not have happened.

Lex Fridman (1:27:15.480)

So if you look at the, like the Mensheviks were a rival political group in Russia and

Lex Fridman (1:27:22.120)

that's where Hyman Minsky, who's a huge inspiration for me.

Lex Fridman (1:27:24.680)

So he's an economist who was maybe, can we take a little attention, who was Hyman Minsky?

Lex Fridman (1:27:29.440)

Yeah.

Steve Keen (1:27:30.440)

Hyman Minsky was the person who developed an analysis of capitalism based on financial

Lex Fridman (1:27:36.600)

instability.

Lex Fridman (1:27:38.520)

And he was actually the PhD student of Joseph Schumpeter and an Austrian economist as well

Lex Fridman (1:27:45.720)

whose name I've forgotten temporarily.

Lex Fridman (1:27:48.900)

And he asked him, his parents were both refugees from Russia during the Stalinist period because

Steve Keen (1:27:57.640)

the Mensheviks were being wiped out in Russia, just like any other opponents to the Bolsheviks

Steve Keen (1:28:05.240)

were being eliminated.

Lex Fridman (1:28:06.960)

So I think his parents met in Chicago, still remain socialist, still remain politically

Steve Keen (1:28:12.960)

active, and he was educated in a family that was just imbued with Marx as his vision.

Steve Keen (1:28:20.800)

He ended up fighting in the Second World War on the American side, coming back to America

Lex Fridman (1:28:27.880)

and studying mathematics and then also doing an economics degree leading to a PhD.

Lex Fridman (1:28:34.640)

And the question he posed for himself is what causes Great Depressions?

Lex Fridman (1:28:39.400)

And he put it beautifully, he said, can it happen again, it being the Great Depression?

Lex Fridman (1:28:44.840)

And if it can't happen, then what has changed between the society before the First and Second

Lex Fridman (1:28:50.560)

World War and after that makes a depression impossible?

Lex Fridman (1:28:54.120)

What's the answer to those two questions?

Lex Fridman (1:28:56.440)

Can it happen again?

Steve Keen (1:28:57.440)

His answer was yes, it can happen again, but what has prevented it happening by the time

Steve Keen (1:29:02.520)

he started writing about it, which was the late 50s to the mid 80s, late 80s.

Lex Fridman (1:29:10.000)

We met once, but only once.

Lex Fridman (1:29:11.840)

Over a beer?

Lex Fridman (1:29:13.520)

Over a beer?

Steve Keen (1:29:14.520)

No, he gave a seminar at New South Uni and he's a bit of an obstreperous bastard.

Lex Fridman (1:29:18.800)

What?

Lex Fridman (1:29:19.800)

A stripper?

Lex Fridman (1:29:20.800)

Obstreperous.

Steve Keen (1:29:21.800)

Wow.

Lex Fridman (1:29:22.800)

What is it?

Steve Keen (1:29:23.800)

It means argumentative and likely to dismiss you.

Lex Fridman (1:29:26.520)

So like a good mate of mine was the guy who brought him out to Australia, a guy called

Steve Keen (1:29:29.880)

Graham White.

Lex Fridman (1:29:30.880)

G'day, Graham.

Steve Keen (1:29:31.880)

We're still good mates.

Lex Fridman (1:29:32.880)

G'day, Graham.

Steve Keen (1:29:33.880)

I love your language and your accent.

Lex Fridman (1:29:35.800)

It's a great...

Steve Keen (1:29:36.800)

Actually, there's a really good TikTok I saw earlier today with an Aboriginal guy saying

Lex Fridman (1:29:40.520)

he loves the Australian language because it's absolutely ironic.

Steve Keen (1:29:43.400)

You ask an Australian a question and he'll give you an answer, which is the opposite

Lex Fridman (1:29:47.560)

of what he means, and you've got to work out the rest for yourself.

Steve Keen (1:29:50.080)

Yeah.

Lex Fridman (1:29:51.080)

So he goes up to another Aboriginal mate and says, G'day, mate.

Lex Fridman (1:29:53.200)

He says, how are you?

Lex Fridman (1:29:54.200)

Oh, not bad.

Lex Fridman (1:29:55.200)

What have you been doing recently?

Lex Fridman (1:29:56.200)

Oh, not much.

Lex Fridman (1:29:57.200)

When are we going?

Lex Fridman (1:29:58.200)

Not too far?

Lex Fridman (1:29:59.200)

Not too soon?

Lex Fridman (1:30:00.200)

Yeah.

Lex Fridman (1:30:01.200)

Where is it?

Lex Fridman (1:30:02.200)

Oh, not too far away?

Steve Keen (1:30:03.200)

Yeah.

Lex Fridman (1:30:04.200)

All negatives.

Lex Fridman (1:30:05.200)

And he's a beautiful, beautiful rendition.

Lex Fridman (1:30:07.200)

Yeah.

Steve Keen (1:30:08.200)

Yeah, that's the cool thing about the internet culture.

Lex Fridman (1:30:10.760)

They appreciate that ironic side.

Steve Keen (1:30:13.360)

Like for example, the best compliment you can give as an Aboriginal to somebody else

Lex Fridman (1:30:17.480)

is that's deadly.

Steve Keen (1:30:18.480)

That's deadly.

Lex Fridman (1:30:19.480)

That's a compliment.

Steve Keen (1:30:20.480)

That's deadly.

Lex Fridman (1:30:21.480)

Okay.

Steve Keen (1:30:22.480)

Yeah.

Lex Fridman (1:30:23.480)

I've got another mate of mine and this comes to the Australian language.

Steve Keen (1:30:24.480)

If I call you a bastard, that's a compliment.

Lex Fridman (1:30:26.480)

Yeah.

Steve Keen (1:30:27.480)

Depending on how I insinuate the word bastard.

Lex Fridman (1:30:29.480)

Bastard.

Steve Keen (1:30:30.480)

Bastard.

Lex Fridman (1:30:31.480)

Bastard.

Steve Keen (1:30:32.480)

That's deadly.

Lex Fridman (1:30:33.480)

Yeah.

Steve Keen (1:30:34.480)

I love that.

Lex Fridman (1:30:35.480)

And there's something, unfortunately, there's something about the British accent that makes

Steve Keen (1:30:40.480)

people sound maybe brilliant, maybe sophisticated, wise.

Lex Fridman (1:30:47.840)

But actually pompous.

Steve Keen (1:30:48.840)

Yeah.

Lex Fridman (1:30:49.840)

No, that's unfortunately the downside of that is you can sound pompous.

Steve Keen (1:30:55.760)

There's something about the Australian accent that you just can't sound brilliant.

Lex Fridman (1:31:03.200)

It humbles you.

Steve Keen (1:31:04.400)

You sound like you're having a lot of fun.

Lex Fridman (1:31:06.720)

There's wit.

Steve Keen (1:31:07.720)

There's all that good stuff.

Lex Fridman (1:31:08.720)

Yeah.

Steve Keen (1:31:09.720)

Yeah.

Lex Fridman (1:31:10.720)

But you just can't be like Karl Marx in an Australian accent would just not come off.

Steve Keen (1:31:13.720)

That is a very good point.

Lex Fridman (1:31:14.720)

He would not be able to pull off the beard.

Steve Keen (1:31:16.200)

That's like, yeah.

Lex Fridman (1:31:17.200)

I mean, I just, yeah.

Steve Keen (1:31:18.640)

It's fascinating that the accent determines something about the person.

Lex Fridman (1:31:25.740)

Maybe it's the chicken and the egg too.

Steve Keen (1:31:27.640)

It drives the way of the discourse.

Lex Fridman (1:31:29.640)

Obviously there's a lot of brilliance.

Steve Keen (1:31:30.640)

There's a lot of brilliance in your work, but it sounds like you're always having fun.

Lex Fridman (1:31:33.920)

Yeah.

Lex Fridman (1:31:34.920)

And look, this, Pat Poncho has got a lot of Australian mates here.

Lex Fridman (1:31:38.280)

Yeah.

Lex Fridman (1:31:39.280)

He spent, what about, how long in Australia?

Lex Fridman (1:31:41.280)

Year and a half.

Steve Keen (1:31:42.280)

Year and a half.

Lex Fridman (1:31:43.280)

And he's got all these mates here who play Aussie rules football in Austin.

Steve Keen (1:31:46.040)

You should join them one day.

Lex Fridman (1:31:47.240)

I will.

Steve Keen (1:31:48.240)

It's actually, it's a very creative sport.

Lex Fridman (1:31:50.520)

It's much more fun.

Lex Fridman (1:31:51.520)

It's different than rugby?

Lex Fridman (1:31:52.520)

Oh, very.

Steve Keen (1:31:53.520)

Rugby is hopeless.

Lex Fridman (1:31:54.520)

Rugby is two morons smashing their bodies against each other.

Steve Keen (1:31:58.640)

Easy now.

Lex Fridman (1:31:59.640)

Easy now.

Steve Keen (1:32:00.640)

Sorry.

Lex Fridman (1:32:01.640)

Sorry.

Steve Keen (1:32:02.640)

We did not mean to offend the rugby fans in the audience.

Lex Fridman (1:32:04.280)

Well, okay.

Steve Keen (1:32:05.280)

What's, so it's too simplistic.

Lex Fridman (1:32:07.520)

It's too simplistic.

Steve Keen (1:32:08.520)

It's easy.

Lex Fridman (1:32:09.520)

It's, I mean, there's skill in it.

Steve Keen (1:32:10.520)

I've seen some really skillful rugby union and rugby league players in my day.

Lex Fridman (1:32:14.400)

Yeah.

Lex Fridman (1:32:15.400)

But it, fundamentally, if you hit somebody hard enough, they go down.

Lex Fridman (1:32:18.360)

Yeah.

Steve Keen (1:32:19.360)

Okay.

Steve Keen (1:32:20.360)

Whereas in Aussie rules, it's about catching the ball and then kicking the ball and pass.

Steve Keen (1:32:23.520)

More skill, less pass.

Lex Fridman (1:32:24.520)

More skill.

Lex Fridman (1:32:25.520)

And it's, and the bodies of the athletes, I can actually get off and measure what a sport

Lex Fridman (1:32:31.080)

is like by the bodies it creates.

Lex Fridman (1:32:33.040)

And you get these incredibly elegant lithe muscular forms out of Aussie rules.

Lex Fridman (1:32:39.040)

Such beautiful words you have in your vocabulary, lithe, I don't even know.

Lex Fridman (1:32:42.960)

But I'll assume you know what it means and maybe somebody in the audience.

Lex Fridman (1:32:47.480)

Okay.

Steve Keen (1:32:48.480)

So, all right, fine, fine.

Steve Keen (1:32:51.160)

We should also mention that you, in your youth, you know, like last year, have had Olympic

Steve Keen (1:32:58.320)

weightlifting as part of your life.

Lex Fridman (1:33:01.080)

So you're...

Steve Keen (1:33:02.080)

A long time ago.

Lex Fridman (1:33:03.080)

And like you said, tennis.

Steve Keen (1:33:04.080)

I also played tennis for many, many, many, many years.

Lex Fridman (1:33:06.240)

Okay.

Steve Keen (1:33:07.240)

Yeah.

Lex Fridman (1:33:08.240)

It's a fascinating game.

Steve Keen (1:33:09.240)

It's a wonderful game.

Lex Fridman (1:33:10.240)

Yeah.

Steve Keen (1:33:11.240)

That's my favorite game.

Lex Fridman (1:33:15.560)

Karl Marx and Stalin.

Steve Keen (1:33:17.680)

Yeah.

Lex Fridman (1:33:18.680)

So how do we get onto Aussie football in Australia and the accent?

Steve Keen (1:33:22.840)

I'm not really sure you talked about the way I said something about Karl Marx and with

Lex Fridman (1:33:27.280)

Karl Marx.

Steve Keen (1:33:28.280)

Anyway, we got there.

Lex Fridman (1:33:29.280)

Yeah.

Steve Keen (1:33:30.280)

We got there and now we return.

Lex Fridman (1:33:31.560)

But back to Marx.

Steve Keen (1:33:32.560)

I think...

Lex Fridman (1:33:33.560)

It's not the destination.

Steve Keen (1:33:34.560)

It's the journey.

Lex Fridman (1:33:35.560)

I think Marx, the failure of socialism with Janos Kornei captured beautifully.

Steve Keen (1:33:40.280)

This idea already called demand constrained versus resource constrained economies.

Lex Fridman (1:33:44.800)

And capitalism is demand constrained.

Steve Keen (1:33:47.800)

Okay.

Lex Fridman (1:33:48.800)

And this is, again, where neoclassical theory is completely wrong, empirically completely

Steve Keen (1:33:52.560)

wrong.

Lex Fridman (1:33:53.560)

So the neoclassicals have a vision of capitalism being resource constrained, and it's about

Steve Keen (1:33:58.040)

maximizing your usage of resources subject to constraints.

Lex Fridman (1:34:02.680)

And as Kornei said, that's really what happened to socialism.

Lex Fridman (1:34:05.440)

What happens under capitalism is that you have 15, 20 companies producing automobiles.

Lex Fridman (1:34:12.760)

They are all trying to capture as much of the market as they can.

Steve Keen (1:34:15.680)

If you add up their marketing plans, you're going to get 120, 130% of the actual market.

Lex Fridman (1:34:20.840)

So they're all going to have excess capacity.

Steve Keen (1:34:23.080)

When you build a factory, you're building it with a plan for it to exist for five, 10,

Lex Fridman (1:34:27.080)

15 years.

Steve Keen (1:34:28.080)

You have to have excess capacity in the factory.

Lex Fridman (1:34:30.420)

So that means that capitalism has far greater productive capacity than it actually uses.

Lex Fridman (1:34:35.560)

And then the way that you manage to get demand into your factories to innovate and produce

Steve Keen (1:34:39.640)

something nobody else does, or you're producing in volume and when somebody produces like

Steve Keen (1:34:44.480)

a bung tire, comes out of Firestone, then Goodyear is ready to expand its production

Lex Fridman (1:34:49.240)

and take advantage of that.

Lex Fridman (1:34:50.940)

So that's the actual nature of competition in capitalism.

Lex Fridman (1:34:54.360)

And that means that we get a cornucopia of goods, even if we're lowly workers.

Steve Keen (1:34:59.240)

The variety of goods in capitalism is overwhelming, and that just doesn't happen in socialism.

Lex Fridman (1:35:05.040)

You get your 1942 Cossack as your motorbike, that's it.

Steve Keen (1:35:09.040)

When you put your money down to buy a refrigerator, it'll arrive in 10 years because the factory's

Lex Fridman (1:35:13.640)

already fully constrained.

Lex Fridman (1:35:15.640)

So all these resource constraints mean that people aren't happy under socialism.

Lex Fridman (1:35:21.480)

And if you've got a whole bunch of people that aren't happy, then the best way to control

Steve Keen (1:35:26.600)

them is to suppress them.

Lex Fridman (1:35:29.020)

So I think in that sense, ultimately, yes, it does lead to something like Stalinism.

Lex Fridman (1:35:33.040)

So it's easier to give happy people freedom.

Lex Fridman (1:35:36.480)

Yeah, I mean, happy people get pretty silly outside.

Steve Keen (1:35:39.600)

I'm not particularly, the extent to which Americans overuse and distort the word freedom

Lex Fridman (1:35:43.800)

drives me balmy.

Steve Keen (1:35:47.680)

All of these words can be distorted, but they all, at the core, have some fundamental power

Lex Fridman (1:35:52.800)

and beauty, and then we just distort on the surface for the fun of it, just to start battles

Steve Keen (1:35:57.620)

on Twitter and so on.

Lex Fridman (1:35:59.160)

But what citizens of the Soviet world didn't feel was freedom.

Steve Keen (1:36:02.880)

Not just in, first of all, it wasn't freedom to buy commodities.

Lex Fridman (1:36:06.400)

The commodities that were supposed to be on the shops weren't there.

Steve Keen (1:36:09.640)

The volume couldn't be produced.

Lex Fridman (1:36:11.440)

And what you then got out of that as well was the classic Soviet joke, they pretend

Steve Keen (1:36:15.720)

to pay us and we pretend to work.

Lex Fridman (1:36:17.520)

Okay.

Steve Keen (1:36:18.520)

Yeah, so you're not motivated.

Lex Fridman (1:36:20.320)

Oh, look, I went to Cuba about eight years ago, invited to give a talk there.

Lex Fridman (1:36:26.120)

And staying in a hotel itself, the hotel's a story.

Steve Keen (1:36:28.920)

There was one day my meetings were canceled, so I thought I might go down to the beach.

Lex Fridman (1:36:33.700)

And in the hotel, they had a wing, which is the tourist office, and there were three women

Lex Fridman (1:36:38.120)

working inside the office.

Lex Fridman (1:36:39.120)

So I thought I'd just go up and ask them, you know, how do I get to the beach?

Lex Fridman (1:36:42.720)

And one of them says to me, and I stood there, just stood in the room, waiting to see if

Steve Keen (1:36:48.640)

they'd make eye contact with me.

Lex Fridman (1:36:50.560)

Three women, nobody else in the place.

Steve Keen (1:36:52.760)

None of them looked at me.

Lex Fridman (1:36:53.760)

So I finally went up to one of them and said, I want to go to the beach and do some surfing

Steve Keen (1:36:57.640)

work.

Lex Fridman (1:36:58.640)

She said, I can get a taxi outside.

Steve Keen (1:36:59.640)

Now, fundamentally, she was saying, well, I'm being paid shit money here, I don't want

Steve Keen (1:37:05.600)

to work, I'm not going to do anything apart from sit here and qualify for my time.

Lex Fridman (1:37:13.080)

And as much as there are reasons the Cubans have suffered from American embargoes and

Steve Keen (1:37:16.640)

all that sort of stuff, you've still got that fundamental shortage economy that Cornet spoke

Steve Keen (1:37:22.360)

about coming out of the structure of central ownership and central control of distribution

Lex Fridman (1:37:27.880)

and investment.

Steve Keen (1:37:28.880)

It breaks my heart because I think some of the effects of that persist throughout time.

Lex Fridman (1:37:35.000)

It become part of the culture too.

Steve Keen (1:37:36.600)

Yeah.

Lex Fridman (1:37:37.600)

Yeah.

Steve Keen (1:37:38.600)

It's very interesting.

Lex Fridman (1:37:39.600)

Negative culture.

Steve Keen (1:37:40.600)

Yeah.

Lex Fridman (1:37:41.600)

Yeah.

Steve Keen (1:37:42.600)

Well, from the Western perspective.

Lex Fridman (1:37:43.600)

Well, even from the people living through it.

Steve Keen (1:37:44.720)

I mean, I had enough conversation with Cubans, you know, meeting them on the street, hopping

Lex Fridman (1:37:49.400)

in a cab.

Steve Keen (1:37:50.400)

There was one guy I was talking to, he was an industrial chemist and he'd got a bit of

Steve Keen (1:37:55.600)

money being a cab driver because he could make money out of taking foreign tourists

Steve Keen (1:37:59.840)

from the airport to the city.

Lex Fridman (1:38:01.560)

By the way, this episode is brought to you by delicious Coca Cola.

Steve Keen (1:38:06.480)

That's why I didn't want to have it on camera, but anyway.

Lex Fridman (1:38:10.520)

No, maybe they'll actually sponsor.

Steve Keen (1:38:12.000)

You want to make sure you rotate the label to show, this is capitalism.

Lex Fridman (1:38:16.120)

What are we talking about here?

Steve Keen (1:38:18.400)

Even though it's red.

Lex Fridman (1:38:19.400)

Red and black is actually anarchist.

Steve Keen (1:38:24.280)

I should tell you, I don't know if you know who Michael Malice is.

Lex Fridman (1:38:27.240)

Michael.

Steve Keen (1:38:28.240)

Michael Malice.

Lex Fridman (1:38:29.240)

He's an anarchist and he lives next door.

Lex Fridman (1:38:30.880)

Does he?

Lex Fridman (1:38:31.880)

Okay.

Steve Keen (1:38:32.880)

Now, I've lost touch with anarchist philosophy.

Steve Keen (1:38:34.920)

I actually used to read, you know, Kropotkin and Bakunin and so on, and I enjoyed their

Steve Keen (1:38:40.560)

philosophy and then I helped organize an anarchist conference once, and that was the

Lex Fridman (1:38:44.800)

biggest antidote possible to being an anarchist.

Steve Keen (1:38:48.440)

That sounds like an entry point to a joke, helped to organize an anarchist party.

Lex Fridman (1:38:53.480)

It is.

Steve Keen (1:38:54.480)

I mean, we literally spent three days arguing over whether there should or should not be

Lex Fridman (1:38:59.520)

a chairperson for conversations.

Steve Keen (1:39:01.880)

Yeah.

Lex Fridman (1:39:02.880)

Well, that may be that.

Steve Keen (1:39:07.080)

Monty Python's Life of Brian lived out live.

Lex Fridman (1:39:12.880)

Look at the bright side of life.

Steve Keen (1:39:15.160)

All right.

Lex Fridman (1:39:16.160)

So part of that explains why, for example, even to this day, in some of those parts of

Steve Keen (1:39:20.680)

the world, entrepreneurship does not flourish.

Steve Keen (1:39:26.480)

There's not a spirit in the people to start businesses, to launch new endeavors and all

Steve Keen (1:39:30.720)

those kinds of things.

Steve Keen (1:39:33.560)

We're just taking all kinds of strange little strolls, but how do you explain the mechanisms

Steve Keen (1:39:40.560)

of China today, where there's quite a bit of sort of flourishing of businesses and so

Lex Fridman (1:39:47.720)

on?

Steve Keen (1:39:48.720)

It's a very peculiar kind of entrepreneurship.

Steve Keen (1:39:51.240)

They got away from central control, but they still manage central political control, but

Steve Keen (1:39:57.200)

diversified economic control.

Lex Fridman (1:39:59.360)

So you could, it is possible to draw a line between politics and economics.

Steve Keen (1:40:03.280)

It is possible, and I think in some ways, China's more likely to survive as a society

Lex Fridman (1:40:06.560)

going into the future than Western capitalist societies are.

Lex Fridman (1:40:12.360)

So it's like, if we do the Karl Marx, the foreground and the background, you can centralize

Steve Keen (1:40:22.440)

the politics, the humanity, the subjective stuff, and then distribute the objective stuff.

Steve Keen (1:40:31.200)

You've got to have the goods, and the big change from Mao Zedong Xiaoping was the characterizing

Steve Keen (1:40:38.040)

that little saying that I don't care whether you have a black cat or a white cat, so long

Steve Keen (1:40:41.880)

as it catches mice.

Lex Fridman (1:40:44.000)

And there was a level of pragmatism to the Deng Xiaoping revolution over Mao and Madame

Steve Keen (1:40:49.360)

Mao in particular, and that was manifest in the desire to get as much of those Western

Lex Fridman (1:40:55.280)

goods as possible.

Lex Fridman (1:40:56.960)

And I was actually in China in 1981, took a group of journalists there, as I mentioned

Steve Keen (1:41:01.320)

earlier, for a tour, and we ended up going to the Sichuan Free Trade Zone, and that gave

Steve Keen (1:41:07.920)

us an idea of why China was going to succeed, because they had a rule that you couldn't

Steve Keen (1:41:15.280)

just come in and exploit the cheap wages, you had to also have a Chinese partner, and

Steve Keen (1:41:20.440)

within five years, the Chinese partner had to earn 50 percent of the business, which

Lex Fridman (1:41:25.240)

is huge.

Lex Fridman (1:41:26.240)

And that gives you an idea of the reduction in wages these American corporations were

Lex Fridman (1:41:30.480)

looking at.

Steve Keen (1:41:31.480)

They'd shut down the factory in what's now the Rust Belt of America that might be paying

Steve Keen (1:41:35.380)

somebody there at that time maybe $2 an hour, and they come across to China and they're

Steve Keen (1:41:41.360)

paying two cents an hour.

Lex Fridman (1:41:43.560)

So the enormous amount of wages that they dropped, they were willing to forego half

Steve Keen (1:41:49.160)

the profits and the ownership of the firm.

Lex Fridman (1:41:52.200)

So what the Chinese were doing wasn't just exploiting their labor force, it was also

Steve Keen (1:41:57.360)

building a capitalist class, and that meant that you had this, that's where all the Chinese

Lex Fridman (1:42:02.400)

corporations have come from.

Lex Fridman (1:42:04.280)

So they were building a capitalist system within a socialist command political system,

Lex Fridman (1:42:11.240)

and that worked, and it's still working.

Lex Fridman (1:42:14.440)

So there was the centralization of the economic stuff, the Gosplan approach.

Lex Fridman (1:42:18.320)

I think that was where the Soviets failed.

Lex Fridman (1:42:21.920)

And what the Chinese realized after what they went through under Mao was you have to have

Steve Keen (1:42:26.760)

that capitalist period, but they weren't going to abandon the communist control politically

Steve Keen (1:42:31.060)

of the country at the same time.

Lex Fridman (1:42:33.060)

And that worked out brilliantly, and there's a huge amount of innovation taking place in

Steve Keen (1:42:36.280)

China today.

Lex Fridman (1:42:38.160)

And they also will do gigantic infrastructure projects, breathtaking planning going into

Steve Keen (1:42:44.480)

that.

Lex Fridman (1:42:45.480)

You would have seen videos of building a skyscraper in a day.

Steve Keen (1:42:49.620)

The planning that has to go into that, the pre preparation that's necessary is enormous.

Lex Fridman (1:42:54.280)

So there's a real respect for engineers as well in that society, which does not apply

Steve Keen (1:42:57.480)

on the West.

Lex Fridman (1:42:58.480)

What do you think about, from the Western perspective, the destructive effects of centralized

Steve Keen (1:43:04.760)

control of the populace, of the ideas of the discourse, of the censorship and the surveillance,

Lex Fridman (1:43:09.880)

all those kinds of things?

Steve Keen (1:43:10.880)

It's a bit like we were talking about Russia to some extent beforehand, with centralized

Lex Fridman (1:43:16.520)

versus decentralized corruption.

Lex Fridman (1:43:21.040)

And when you had the centralized political stuff, it means you know you can't criticize

Lex Fridman (1:43:27.200)

within China.

Lex Fridman (1:43:28.600)

But so long as you don't criticize, you can do what you like.

Lex Fridman (1:43:31.760)

And how destructive is that to the human spirit?

Steve Keen (1:43:35.160)

From the American perspective, that feels destructive.

Steve Keen (1:43:39.200)

I've been to China quite a few times over my life, a lot in the last, not for about

Steve Keen (1:43:45.260)

four years, but for the six years before that, a few visits.

Lex Fridman (1:43:48.960)

And staying in second and third and fourth tier cities, so populations of only four million

Steve Keen (1:43:55.680)

people, which is quite small on Chinese standards.

Lex Fridman (1:43:59.080)

And I had a lot of happy people that I was interacting with.

Steve Keen (1:44:02.240)

My girlfriend at the time, her social circle.

Lex Fridman (1:44:06.400)

And you can feel when people can't discuss a political issue.

Steve Keen (1:44:09.800)

For example, in Thailand, you can't discuss the king.

Steve Keen (1:44:13.040)

They still have, you know, les majestes laws, so you can actually be jailed for discussing

Steve Keen (1:44:18.480)

the king.

Lex Fridman (1:44:19.480)

And you can feel that to some extent, and it is a political issue in Thailand now.

Lex Fridman (1:44:24.280)

But in China, what I got back from most people, it was a bit like a benevolent big brother.

Lex Fridman (1:44:31.080)

But then when you get things out like the lockdown, which was applied recently, then

Steve Keen (1:44:34.760)

you get the failings of the Soviet system is still there in the Chinese system.

Steve Keen (1:44:40.940)

In that, the easiest way to avoid criticism as an underling carrying out instructions

Steve Keen (1:44:47.680)

of people above you is to carry those instructions out to the letter beyond what the people actually

Lex Fridman (1:44:54.200)

want you to do at the top.

Lex Fridman (1:44:56.120)

So we had a classic illustration of that when I took these journalists.

Steve Keen (1:45:00.320)

There was a news report saying that China's output of light industry had grown by 17 percent

Steve Keen (1:45:06.220)

in the previous year, but heavy industry had fallen by 7 percent.

Lex Fridman (1:45:10.240)

We just don't compute.

Lex Fridman (1:45:12.560)

So we kept on asking, why did this happen?

Steve Keen (1:45:14.460)

Every time we asked a question, this is back in 1981, the answer would be the initial answer,

Steve Keen (1:45:18.400)

we followed the directive of the Central Committee of the Communist Party of China.

Lex Fridman (1:45:23.380)

We finally got a guy to elaborate and say what that was.

Steve Keen (1:45:26.220)

He said, well, the Central Committee sent out a directive to promote light industry.

Lex Fridman (1:45:30.580)

So what did you do?

Steve Keen (1:45:31.800)

Quote unquote, we stripped heavy industry factories and turned them into light industry.

Lex Fridman (1:45:37.620)

Now that's destructive of everything.

Lex Fridman (1:45:40.400)

And that's the overlay that you've still got sitting over the top of China.

Lex Fridman (1:45:44.360)

But a huge part of the industrialization was simply saying, produce whatever you can, make

Steve Keen (1:45:50.920)

goods, market them, sell them.

Lex Fridman (1:45:53.580)

And you get that innovative component of humanity is respected and the goods turn up and everybody's

Steve Keen (1:45:59.760)

well fed.

Lex Fridman (1:46:00.760)

Food in Russia is far better than food in America.

Lex Fridman (1:46:04.600)

So in terms of material satisfaction and freedom, for example, enjoy dancing.

Steve Keen (1:46:12.600)

We went to, I think, somewhere in Shanghai, and there's this line of people involving

Steve Keen (1:46:19.080)

a woman who would have been close to her 90s and a kid who was about six or four.

Lex Fridman (1:46:24.440)

Partying it up?

Steve Keen (1:46:25.440)

Partying it up in the open air and doing this Chinese collective dance.

Lex Fridman (1:46:27.840)

You have to be really careful about that kind of thing.

Lex Fridman (1:46:31.520)

So in terms of measuring the flourishing of a people by looking at their happiness, I

Lex Fridman (1:46:44.640)

have so many thoughts on this, but I'm imagining North Korea.

Lex Fridman (1:46:48.480)

And if you talk to people in North Korea, I think they would say they're happy.

Lex Fridman (1:46:55.720)

No.

Steve Keen (1:46:56.720)

Well, let me try to complete this argument, not an argument, but a sort of challenge to

Steve Keen (1:47:04.280)

your thought, which especially in the bigger cities, because they don't know the alternative.

Lex Fridman (1:47:12.720)

So what else do you need?

Lex Fridman (1:47:14.520)

There's enough food on the table.

Steve Keen (1:47:16.520)

We have a leader that loves us and we love him.

Lex Fridman (1:47:22.280)

Our hearts are full of love.

Steve Keen (1:47:24.360)

Our table is full of food, they would say, because it's enough food.

Lex Fridman (1:47:33.580)

What else do you want from life?

Steve Keen (1:47:34.720)

No, I think, okay, like that's...

Lex Fridman (1:47:36.360)

So let me sort of chat, because like...

Steve Keen (1:47:38.160)

That's an alternative.

Lex Fridman (1:47:39.160)

I mean, I've spent time in Romania.

Lex Fridman (1:47:41.580)

So let me sort of complete that, sorry.

Lex Fridman (1:47:44.240)

Because I'm taking the most challenging aspect.

Steve Keen (1:47:47.520)

When there's centralized control of information, that you don't know the alternative, that

Lex Fridman (1:47:53.600)

you don't know how green the grass is on the other side.

Lex Fridman (1:47:57.000)

And so your idea of happiness might be very constrained.

Lex Fridman (1:48:00.960)

So you could also argue that is happiness, if you don't know.

Steve Keen (1:48:06.680)

Ignorance is bliss.

Lex Fridman (1:48:07.680)

Ignorance is bliss.

Lex Fridman (1:48:08.680)

And then so is happiness really the correct measure for the flourishing?

Lex Fridman (1:48:13.800)

It's not.

Lex Fridman (1:48:14.800)

But I mean, there's actually a classic book, a movie as well, called Mao's Last Dancer.

Lex Fridman (1:48:22.560)

And that is a young man explaining his progression from being a dancer in the Cultural Revolution

Steve Keen (1:48:28.720)

through to a leading dancer in American and ultimately Australian ballet.

Lex Fridman (1:48:33.720)

And he explicitly says at one point that he's told that the Chinese people have the highest

Steve Keen (1:48:39.200)

standard of living in the world.

Lex Fridman (1:48:41.120)

And the reaction of him and his kids, like his fellow six year olds, is, God, it must

Steve Keen (1:48:44.680)

be miserable elsewhere in the world then.

Lex Fridman (1:48:47.440)

So they knew.

Steve Keen (1:48:48.440)

They still know.

Lex Fridman (1:48:49.440)

They still know.

Steve Keen (1:48:50.440)

There's no such thing as that complete ignorance.

Lex Fridman (1:48:52.620)

But what I'm talking about is experiences in China say back in about 2016, 2014, there

Steve Keen (1:49:01.120)

was a feeling of freedom within limits that you didn't want to transgress because the

Lex Fridman (1:49:07.360)

system was working.

Lex Fridman (1:49:09.360)

So if you like, it's kind of like marriage, it's kind of like marriage, hey, that's a

Lex Fridman (1:49:13.240)

good example.

Steve Keen (1:49:14.240)

There's limits.

Lex Fridman (1:49:15.240)

There's limits.

Steve Keen (1:49:16.240)

You can have fun within those limits.

Lex Fridman (1:49:18.000)

That's right.

Steve Keen (1:49:19.000)

Okay.

Lex Fridman (1:49:20.000)

And people did have fun and they did feel free, but they didn't want to go and get divorced.

Lex Fridman (1:49:24.160)

But that dilemma was accommodated because the boundaries, until you started hitting

Lex Fridman (1:49:30.040)

restrictions were wide.

Steve Keen (1:49:32.240)

Okay.

Lex Fridman (1:49:33.240)

And like when you look at it, I mean, look at the, again, with the Chinese Communist

Steve Keen (1:49:37.000)

Party, the administrators of that are often highly qualified engineers who can then make

Lex Fridman (1:49:43.240)

intelligent decisions about what should be done as infrastructure and so on.

Lex Fridman (1:49:47.720)

And you go to China and you've got incredible high speed rail, fantastic infrastructure,

Lex Fridman (1:49:54.520)

internet, telecommunications and so on, rapidly evolving solar.

Steve Keen (1:49:59.800)

There's a range of things there that are so well done that reflect the fact that the selection

Steve Keen (1:50:06.240)

process that gives you your political elite is partially focused upon sucking up, et cetera,

Steve Keen (1:50:11.600)

et cetera.

Lex Fridman (1:50:12.600)

It's still there, but it's also focused upon your skill levels.

Lex Fridman (1:50:16.840)

And you get people making decisions who damn well know what they're talking about.

Lex Fridman (1:50:20.560)

Like Australia's got a classic example, the internet in Australia sucks.

Steve Keen (1:50:25.000)

The reason it sucks is that the Labour Party, which is our version of the Democrats, was

Lex Fridman (1:50:31.840)

in control during the global financial crisis.

Lex Fridman (1:50:34.560)

And as part of that, they wanted to bring in optical fiber connections to the house.

Lex Fridman (1:50:41.600)

So you'd have an optical fiber backbone and an optical fiber right to your T100 output

Steve Keen (1:50:48.400)

from your home.

Lex Fridman (1:50:49.760)

And the Liberal Party fought that and said, that's going to be too expensive, it'd take

Steve Keen (1:50:54.360)

too long to do.

Steve Keen (1:50:55.700)

We're going to do cable to the node and then have a copper network linking from a node

Steve Keen (1:51:01.240)

on a street to all the houses in the street.

Lex Fridman (1:51:03.520)

It's going to be cheaper and faster, have it more soon, blah, blah, blah.

Steve Keen (1:51:07.040)

It was a total technical fuck up.

Lex Fridman (1:51:09.840)

And Australia now has internet that's about 50 or 60 years fast in the world.

Steve Keen (1:51:13.880)

It's dreadful for the internet.

Steve Keen (1:51:16.040)

Two political figures made that decision, Tony Abbott and Malcolm Turnbull, rivals and

Steve Keen (1:51:22.880)

leaders of the Conservative Party we call Liberal over there.

Steve Keen (1:51:27.880)

Now that was shitty decisions that wouldn't happen in a country like China because you've

Steve Keen (1:51:34.560)

got actual engineers making the decisions.

Lex Fridman (1:51:36.720)

They say you can't get decent speed if you link optical fiber to copper.

Lex Fridman (1:51:42.360)

So what you get is even though you can't make the decisions yourself, a vast majority of

Lex Fridman (1:51:48.400)

the decisions are made intelligently and therefore you expect it.

Lex Fridman (1:51:52.320)

It's interesting, but don't you worry about the corrupting aspects of power?

Lex Fridman (1:51:59.240)

Oh yeah.

Steve Keen (1:52:00.240)

That you start, you know, you have engineers making intelligent decisions, but at which

Lex Fridman (1:52:05.000)

point does the fat king start saying, oh, these engineers are annoying.

Steve Keen (1:52:11.640)

I have good internet.

Lex Fridman (1:52:12.760)

I don't understand.

Steve Keen (1:52:14.360)

Bring me the grapes.

Lex Fridman (1:52:15.360)

Well, that's, you know, you get your colligular effects.

Steve Keen (1:52:18.640)

That can happen.

Lex Fridman (1:52:19.640)

Like Z from what I've seen has got elements of that.

Lex Fridman (1:52:22.280)

So friends of mine who are Caucasians can get away with it.

Steve Keen (1:52:26.480)

They have a game that they play at conferences, scoring how often people use with Z's name

Steve Keen (1:52:31.080)

in a presentation and giving extra points for the number of photographs of Z that turn

Lex Fridman (1:52:35.000)

up in the whole thing.

Lex Fridman (1:52:36.360)

So you've got this sort of personality cult coming along as well.

Lex Fridman (1:52:40.200)

But at the same time, the planning for the infrastructure that's being built, the social

Steve Keen (1:52:44.720)

services, the general freedom that exists is so great.

Lex Fridman (1:52:50.240)

And like any Chinese person alive today, like somebody who's Chinese my age, would have

Steve Keen (1:52:56.200)

been an adult under the early period of, the late period of Mao.

Lex Fridman (1:53:02.440)

And God almighty, the change, the improvement they've seen in their lives, that's what they

Steve Keen (1:53:05.900)

think about.

Lex Fridman (1:53:06.900)

So.

Lex Fridman (1:53:07.900)

But it's the, if you just look at the history of the 20th century, your intuition would

Steve Keen (1:53:13.820)

say that some of the mechanisms we see in China now will get you into trouble in the

Steve Keen (1:53:18.360)

long term.

Lex Fridman (1:53:19.760)

So it seems to be working really well in many ways in terms of improving the quality of

Steve Keen (1:53:25.640)

life of the average citizen in China, but you start to get worried about how does this

Lex Fridman (1:53:30.280)

go wrong?

Steve Keen (1:53:31.280)

Well, yeah.

Lex Fridman (1:53:32.280)

But at the same time, maybe, I mean, often people will say, you know, what's your vision

Lex Fridman (1:53:35.600)

for the future?

Lex Fridman (1:53:36.600)

And what they mean is what vision for the future do you have that I'm going to like?

Steve Keen (1:53:40.680)

Right.

Lex Fridman (1:53:41.680)

Okay.

Lex Fridman (1:53:42.680)

What if you have a vision of the future that you don't like?

Lex Fridman (1:53:45.560)

It's dreadful.

Steve Keen (1:53:46.560)

I mean, that's the ecological crisis I think we're walking blindfolded into.

Lex Fridman (1:53:52.080)

Well, that's right.

Steve Keen (1:53:54.880)

That part of the picture we'll have to talk about how fundamental of a problem that is.

Lex Fridman (1:54:00.000)

Okay.

Lex Fridman (1:54:01.000)

But what does that have to do with the future of China?

Lex Fridman (1:54:02.560)

What it has to do is that if you wish to impose dramatic controls on the consumption of the

Steve Keen (1:54:06.800)

rich, which would be necessary to reduce our consumption burden so that we can get closer

Steve Keen (1:54:13.640)

to the ecological envelope we've destroyed already, then you're going to make more likely

Steve Keen (1:54:19.080)

successful doing that with a centralized system where people accept centralized political

Lex Fridman (1:54:24.280)

control.

Steve Keen (1:54:25.280)

Then you're in a country where it's all diversified and you scream freedom between every point

Lex Fridman (1:54:29.760)

in a tennis match.

Lex Fridman (1:54:30.760)

And I've literally seen that when I was in Philadelphia some time back.

Lex Fridman (1:54:35.340)

So the ideology that accepts a collectivist attitude may be more successful in controlling

Steve Keen (1:54:41.960)

our reducing human consumption levels.

Lex Fridman (1:54:44.520)

Because when we talk about democracy, I mean, who's voting here?

Lex Fridman (1:54:49.280)

How many horses and elephants and birds get to vote?

Lex Fridman (1:54:56.120)

It's very...

Lex Fridman (1:54:57.120)

What's a bird?

Lex Fridman (1:54:58.120)

Yeah.

Steve Keen (1:54:59.120)

You don't see them around here.

Lex Fridman (1:55:01.200)

It's a very human centric vision we have of this planet.

Lex Fridman (1:55:04.840)

And we're going to pay a price for that.

Lex Fridman (1:55:07.160)

Okay.

Lex Fridman (1:55:08.160)

So you're saying to deal with global catastrophic events, centralized planning might be...

Lex Fridman (1:55:14.800)

I think will work better, period.

Lex Fridman (1:55:18.760)

But there is some centralized stuff in the United States, for example.

Lex Fridman (1:55:22.440)

Oh, your military.

Steve Keen (1:55:23.440)

Yeah, I know.

Lex Fridman (1:55:24.440)

No, no.

Steve Keen (1:55:25.440)

Okay.

Lex Fridman (1:55:26.440)

All right.

Steve Keen (1:55:27.440)

Now there's that feisty Australian.

Lex Fridman (1:55:31.040)

So besides the military, that's the ideal of the federal government in the United States

Steve Keen (1:55:35.560)

is that there is some centralized infrastructure building.

Lex Fridman (1:55:40.680)

There's some big...

Steve Keen (1:55:41.680)

There's not enough of it, yeah.

Lex Fridman (1:55:43.240)

But there's some.

Steve Keen (1:55:44.240)

There's some.

Steve Keen (1:55:45.240)

The question is, when you deal with greater and greater global catastrophic events, like

Steve Keen (1:55:50.400)

the pandemic that we're just living through, that the government would be able to step

Steve Keen (1:55:53.480)

up and impose enough centralized planning to allow us to deal, sort of enable, empower

Steve Keen (1:56:01.400)

the citizenry to deal with these catastrophic events.

Steve Keen (1:56:04.620)

In the case of the pandemic, a lot of people argue that the, first of all, the world, but

Steve Keen (1:56:09.200)

also the United States failed to effectively deal with the pandemic.

Steve Keen (1:56:15.640)

On the medical side, on the social side, on the financial side, the supply chain, everything.

Steve Keen (1:56:21.600)

In terms of communication, in terms of inspiring the populace with the power of science and

Lex Fridman (1:56:29.360)

all the fronts.

Steve Keen (1:56:30.360)

Yeah, yeah.

Lex Fridman (1:56:31.360)

They failed.

Lex Fridman (1:56:32.360)

But the ideal is that we'd be able to succeed.

Steve Keen (1:56:34.680)

You would have to have a small, efficient, the ideal, the American ideal is you have

Steve Keen (1:56:38.840)

a small, efficient government that's able to take on tasks precisely like the pandemic.

Lex Fridman (1:56:43.960)

But the thing is, maybe it shouldn't have been as small as it was.

Steve Keen (1:56:46.480)

I mean, my favorite instance of that actually involves the UK because the whole neoliberal

Lex Fridman (1:56:51.240)

approach is about small, efficient government.

Lex Fridman (1:56:53.800)

Okay?

Steve Keen (1:56:54.800)

Well, small, efficient government works when you face small, efficient challenges.

Steve Keen (1:56:58.600)

When you face something systemic rather than episodic, then it's going to break down.

Lex Fridman (1:57:03.880)

And like this is, I mean, one of the things I greatly respect is Taleb's idea of antifragile.

Steve Keen (1:57:08.980)

You want a society which is antifragile, not easily broken, whereas neoliberalism has pushed

Lex Fridman (1:57:13.240)

us towards this vision of efficiency, but it's easily snapped.

Steve Keen (1:57:16.480)

Like in the UK, I've forgotten the government minister involved, but she was, she asked

Steve Keen (1:57:22.440)

her expert committee, how many, this is before, well before the pandemic, how many masks should

Lex Fridman (1:57:28.160)

we have on hand in case of a pandemic?

Lex Fridman (1:57:31.120)

And the answer from the experts was about a billion.

Steve Keen (1:57:33.640)

Okay.

Lex Fridman (1:57:34.640)

That's 50 masks, that's 20 masks per person.

Steve Keen (1:57:37.680)

Okay.

Lex Fridman (1:57:38.680)

Oh, that's too many.

Steve Keen (1:57:39.940)

Let's just make 50 million masks.

Lex Fridman (1:57:42.400)

That's one mask per person.

Steve Keen (1:57:43.660)

It was gone in a matter of a day.

Lex Fridman (1:57:45.920)

Okay.

Lex Fridman (1:57:46.920)

And therefore that's why they told us, well, masks don't work.

Steve Keen (1:57:48.820)

You know, what they meant was we don't have enough masks for our health people, let alone

Steve Keen (1:57:53.280)

for you and the public.

Lex Fridman (1:57:54.280)

So we're going to bullshit you and tell you those masks don't really work.

Lex Fridman (1:57:58.120)

And then people don't wear masks and then we've got enough masks, we rush up the production

Lex Fridman (1:58:01.840)

job.

Lex Fridman (1:58:02.840)

And by the time it comes along, people have got the skepticism about masks.

Lex Fridman (1:58:05.960)

So who does, can you elaborate, who does the blame in that case go on to?

Steve Keen (1:58:10.120)

The blame comes down to the philosophy that says government should always be small.

Steve Keen (1:58:13.720)

No, but do you, do you really think that bigger government would be the solution to the mask

Lex Fridman (1:58:18.280)

issue?

Lex Fridman (1:58:19.280)

No.

Lex Fridman (1:58:20.280)

So let me, let me push back.

Lex Fridman (1:58:21.280)

Sort of it's possible that that's capitalism solves that problem.

Steve Keen (1:58:24.600)

Well, not, not if there's no money in really longterm planning and capitalism.

Lex Fridman (1:58:30.320)

Okay.

Steve Keen (1:58:31.320)

There's money, there's money in the, isn't it possible to construct, isn't possible for

Lex Fridman (1:58:37.580)

capitalism to construct the system that ensures against catastrophic events?

Steve Keen (1:58:42.840)

Not when they're systemic, you can ensure against episodic events.

Steve Keen (1:58:47.500)

If you occasionally have a really bad storm, but in general the weather's not so bad that

Steve Keen (1:58:52.440)

all the infrastructure is being destroyed, then you can share that around on a percentage

Lex Fridman (1:58:56.400)

basis.

Steve Keen (1:58:57.400)

If you have a Gaussian distribution for your events and you don't, the mean doesn't move

Steve Keen (1:59:02.040)

around too much and the standard deviation doesn't change all that much, then insurance

Steve Keen (1:59:06.520)

works fine.

Lex Fridman (1:59:07.520)

But if you have an, if that's episodic, if you have systemic stuff where the climate

Steve Keen (1:59:11.400)

is changing completely and you're going to wipe out your agricultural capabilities, you

Lex Fridman (1:59:17.840)

simply can't do insurance on that front.

Steve Keen (1:59:20.180)

You can't make a profit out of catastrophe and capitalism.

Lex Fridman (1:59:24.080)

Okay.

Lex Fridman (1:59:25.080)

So that example of climate change, let's talk about it.

Lex Fridman (1:59:29.920)

Okay.

Lex Fridman (1:59:30.920)

So you mentioned that the human brain, the economy, and the biosphere are three of the

Lex Fridman (1:59:37.360)

most complex systems we know.

Steve Keen (1:59:40.080)

Okay.

Lex Fridman (1:59:41.880)

And you also criticize the economics community for looking at the effects of climate change

Steve Keen (1:59:51.400)

when measured as the effect on the GDP.

Lex Fridman (1:59:55.240)

So you're saying it's a catastrophic thing that the biggest challenge our society, our

Steve Keen (20:00.080)

Austrian economics grew out of the rebellion against the classical school.

Lex Fridman (20:04.280)

So you had three intellects who mainly led the growth of the neoclassical school back

Steve Keen (20:09.440)

in the 1870s.

Steve Keen (20:10.440)

It was William Jevons from England, Menger, who's from Austria, and Vollras from France.

Lex Fridman (20:17.600)

And Vollras tried to work out a set of equations to describe a multiproduct economy where there's

Lex Fridman (20:26.400)

numerous producers and numerous consumers.

Steve Keen (20:29.840)

Everybody's both a producer and a consumer, and you try to work out a vector of prices

Lex Fridman (20:34.040)

that will give you equilibrium in all markets instantaneously.

Lex Fridman (20:37.720)

And that's his equilibrium orientation.

Steve Keen (20:40.360)

Jevons is also one about equilibrium, but he worked more at the aggregate level.

Lex Fridman (20:44.040)

So there's a supply curve and a demand curve, and that's what Marshall ultimately codified.

Steve Keen (20:48.880)

Menger was pretty much saying that, well, yes, there might be an equilibrium, but you're

Steve Keen (20:52.600)

going to get disturbed from it all the time.

Lex Fridman (20:54.480)

You'll be above or below the equilibrium.

Lex Fridman (20:56.080)

And what came out of the Austrian school was an acceptance of that sort of vision that

Steve Keen (21:00.560)

a market should reach equilibrium, but then said, well, you'll get disturbed away from

Steve Keen (21:04.400)

the equilibrium.

Lex Fridman (21:05.720)

And that's what gives you the vitality of capitalism, because an entrepreneur will see

Steve Keen (21:10.960)

an arbitrage advantage and try to close that gap, and that will give you innovation over

Lex Fridman (21:15.840)

time.

Lex Fridman (21:16.840)

And Schumpeter went beyond that and saw the role of money and said that an entrepreneur

Lex Fridman (21:21.240)

is somebody with a great idea and no money.

Lex Fridman (21:25.120)

So to become a capitalist, you've got to get money.

Lex Fridman (21:28.860)

And therefore, you've got to approach the finance sector to get the money, and the finance

Steve Keen (21:32.840)

sector creates money and also creates a debt for the entrepreneur.

Lex Fridman (21:37.440)

And so you get this financial engine turning up as well, and you will get movements away

Steve Keen (21:42.860)

from equilibrium out of that.

Lex Fridman (21:44.800)

You won't necessarily head back towards the equilibrium.

Lex Fridman (21:47.460)

So Schumpeter has a rich vision of capitalism in which money plays an essential role, in

Lex Fridman (21:54.200)

which you will be disturbed from equilibrium all the time.

Lex Fridman (21:59.200)

And that is really, I think, a much closer vision of actual capitalism than anything

Steve Keen (22:04.240)

by even the leading Austrians, Hayek, et cetera, et cetera, and certainly Rombardo, I find

Steve Keen (22:13.840)

totally like reading a cardboard cutout version of The Wealth of Nations.

Lex Fridman (22:20.840)

I find his work trivial.

Lex Fridman (22:23.680)

But Schumpeter was rich, but with the same foundations as the Austrians.

Lex Fridman (22:28.040)

But because he talked about the importance of money that took him away from the Austrian

Steve Keen (22:31.520)

vision, which is very much based on a hard money idea of capitalism, Schumpeter said

Steve Keen (22:36.480)

you needed the capacity of the financial sector to create money to empower entrepreneurs.

Lex Fridman (22:42.700)

And that's a very important vision.

Lex Fridman (22:44.880)

So Schumpeter's argument is the deviation from equilibrium, that's where all the fun

Steve Keen (22:48.800)

happens.

Lex Fridman (22:49.800)

That's where all the magic happens.

Steve Keen (22:50.800)

That's the magic of capitalism.

Lex Fridman (22:51.800)

And like the Austrians, because they focus on the deviation from equilibrium, they're

Steve Keen (22:55.160)

better than their classicals, but they still have this belief in the, you'll reach equilibrium

Steve Keen (23:00.000)

ultimately or you'll head back towards it, whereas they don't have an explanation of

Steve Keen (23:06.160)

capitalism that gives you cycles apart from having the wrong rate of interest.

Lex Fridman (23:11.160)

So there's no role for an accumulation of debt over time.

Lex Fridman (23:13.840)

So what Schumpeter gave us was a vision of the creativity of capitalism being driven

Lex Fridman (23:20.080)

by entrepreneurs who are funded by money creation by the finance sector.

Lex Fridman (23:25.160)

And that's fundamentally the world in which we live.

Lex Fridman (23:29.000)

So there's also the kids these days are all into modern monetary theory, what's that

Lex Fridman (23:36.400)

about?

Lex Fridman (23:37.400)

Okay.

Steve Keen (23:38.400)

Modern monetary theory is accounting.

Lex Fridman (23:39.400)

I want to summarize it bluntly.

Steve Keen (23:42.280)

It's simply saying let's do the accounting because what money is, is a creature of double

Lex Fridman (23:46.600)

entry bookkeeping.

Steve Keen (23:47.600)

Okay.

Lex Fridman (23:48.600)

What's double entry bookkeeping?

Steve Keen (23:50.600)

This was invented back in the 1500s in Italy.

Steve Keen (23:53.080)

I've forgotten the particular merchant who did it based on some Arabic ideas as well.

Lex Fridman (23:57.920)

But the thing is, if you want to keep track of your financial flows, then you divide all

Lex Fridman (24:06.480)

the financial claims on you.

Steve Keen (24:08.280)

You divide into claims you have on somebody else, which are your assets, claims somebody

Steve Keen (24:12.200)

else has on you, which are your liabilities, and the gap between the two is your equity.

Lex Fridman (24:17.200)

So you record every transaction twice on one row.

Lex Fridman (24:20.200)

Okay.

Lex Fridman (24:21.200)

So for example, if you and I do a financial transfer, you have a bank account, I have

Lex Fridman (24:26.440)

a bank account, your bank account will go down, mine goes up.

Steve Keen (24:30.480)

Okay.

Lex Fridman (24:31.480)

And that's the sum of the operation is zero.

Steve Keen (24:34.200)

Okay.

Lex Fridman (24:35.200)

But on the other hand, if I go to a bank and borrow money, then my account goes up, they

Steve Keen (24:38.440)

put money in my deposit account, the bank's assets go up.

Lex Fridman (24:41.600)

Okay.

Lex Fridman (24:42.600)

And there's still the same sum applies, assets minus liabilities minus equity equals zero.

Lex Fridman (24:47.000)

Now that's simply saying money is an accounting, a creature of accounting.

Steve Keen (24:51.960)

It's not a creature of a commodity.

Lex Fridman (24:54.000)

So if you think about how Austrians think about money, and how gold bugs think about

Steve Keen (24:58.000)

money and Bitcoin enthusiasts, if there are any left, think about money, what they see

Lex Fridman (25:02.980)

is money is an object.

Steve Keen (25:04.600)

Okay.

Lex Fridman (25:05.600)

And you and I can both have more gold, if we're both willing to go to this mine somewhere

Lex Fridman (25:11.840)

and dig a few holes and get a few specks of gold out.

Lex Fridman (25:14.820)

So there's no competition or no interaction between you and me if money is gold.

Lex Fridman (25:20.420)

And they think money should be an object, a commodity.

Lex Fridman (25:23.140)

But money fundamentally is not a commodity.

Steve Keen (25:25.800)

It's a claim on somebody else.

Lex Fridman (25:28.260)

That's money's essence.

Lex Fridman (25:29.640)

So when you do it, you must use double entry bookkeeping to do it.

Lex Fridman (25:32.660)

And then when you do, you find all the answers that come out of thinking of money as a commodity

Steve Keen (25:36.200)

are wrong.

Lex Fridman (25:37.480)

So for example, and I've got Elon on this one.

Lex Fridman (25:39.300)

So I want to get this with Elon because I saw him making a comment about this a few

Lex Fridman (25:43.000)

weeks ago on Twitter.

Steve Keen (25:44.420)

He said that it's wrong for the government, effectively it seems wrong for the government

Lex Fridman (25:47.380)

to always be in deficit.

Steve Keen (25:48.960)

Okay.

Lex Fridman (25:49.960)

Now, when you look at it and say, well, how is money created?

Lex Fridman (25:54.440)

How does money come about when it's not a commodity like gold, which you dig up out

Lex Fridman (25:59.460)

of the ground, when it's actually social relations between people that create money?

Steve Keen (26:03.960)

Well, money is the fundamentally the liabilities of the banking sector.

Steve Keen (26:11.400)

If we make a transfer between us, your deposit account goes down, my deposit account goes

Steve Keen (26:17.360)

up.

Lex Fridman (26:18.560)

Deposit exchange is on the liability side of the banking sector.

Lex Fridman (26:23.640)

But if we have a transaction with a bank, then if the bank lends us money, as its loans

Lex Fridman (26:28.400)

go up, its deposits go up, again, that same balance.

Lex Fridman (26:32.100)

So you've got to look and say, money therefore is fundamentally the liabilities of the banking

Lex Fridman (26:36.680)

sector.

Lex Fridman (26:37.760)

So how do you create additional liabilities?

Steve Keen (26:40.480)

You must have an operation which occurs both on the liability side and the asset side of

Steve Keen (26:45.760)

the banking sector.

Lex Fridman (26:46.920)

So if you and I make a new transaction, no money is created.

Steve Keen (26:51.840)

Existing money is redistributed.

Lex Fridman (26:53.520)

But if you go to a bank and take out a bank loan, then money is created by the bank loan.

Lex Fridman (26:58.400)

So the liabilities of the banking sector rise, the assets rise, they're balanced, but more

Lex Fridman (27:02.480)

liabilities of the banking sector means more money.

Lex Fridman (27:06.080)

So that's how private banks create money.

Lex Fridman (27:08.840)

And that's what I first started working on when I became an academic about 35 years ago,

Steve Keen (27:15.000)

the actual dynamics of private money creation.

Lex Fridman (27:17.040)

But the government has the same sort of story.

Steve Keen (27:19.540)

If the government runs a deficit, it spends more money on the individuals in the economy

Lex Fridman (27:26.560)

than it taxes them, which means their bank accounts increase.

Lex Fridman (27:31.440)

So a government deficit creates money for the private sector.

Lex Fridman (27:36.860)

So that's where money creation occurs from the government.

Lex Fridman (27:39.320)

So it puts more money into people's bank accounts by spending, by welfare payments than it takes

Lex Fridman (27:47.240)

out by taxation.

Lex Fridman (27:49.080)

So that's creating new money.

Lex Fridman (27:50.920)

And then on the other side on the bank, the money turns up in the reserve accounts of

Steve Keen (27:55.800)

the banks, which are basically the private bank's bank accounts at the central bank.

Lex Fridman (28:00.480)

So rather than the asset of private money creation being loans, the asset of government

Steve Keen (28:06.780)

money creation is reserves.

Lex Fridman (28:09.880)

Okay?

Steve Keen (28:11.360)

Right.

Lex Fridman (28:12.360)

Money creation.

Steve Keen (28:13.360)

Money creation.

Lex Fridman (28:14.360)

It's a good thing.

Lex Fridman (28:15.360)

So you mentioned a bunch of stuff like private money creation with the liabilities in the

Lex Fridman (28:19.200)

banks and then how the government is doing, the reserves, blah, blah, blah.

Steve Keen (28:24.120)

At the end of the day, there's a bunch of printers that are printing money.

Lex Fridman (28:29.120)

And then you also said something interesting, which is social relations between humans is

Lex Fridman (28:33.680)

what creates money.

Lex Fridman (28:35.480)

I think my mind was blown several times over the past minute.

Lex Fridman (28:40.440)

So it's difficult for me to reconstruct the pieces of my mind back together.

Lex Fridman (28:44.720)

But basic question, is money creation a good thing or a bad thing?

Steve Keen (28:50.920)

Money creation is a good thing because money creation is what allows commerce to happen.

Lex Fridman (28:56.840)

Isn't there a conservation of...

Steve Keen (28:58.320)

No, there isn't.

Steve Keen (28:59.320)

I had to have arguments with physicists over this and it took me a long time to answer

Steve Keen (29:03.160)

it.

Lex Fridman (29:04.160)

So the sum total of all money is zero.

Steve Keen (29:05.840)

Yeah.

Lex Fridman (29:06.840)

Okay.

Steve Keen (29:07.840)

It's the sum total of all assets and liabilities is zero.

Lex Fridman (29:10.720)

So if you imagine your assets minus your liabilities is your equity and your asset is somebody

Steve Keen (29:18.040)

else's liability and your liability is somebody else's asset.

Steve Keen (29:21.720)

When we're talking about financial assets, and this is another mind blowing thing that

Steve Keen (29:24.960)

I've just recently solved myself.

Lex Fridman (29:27.920)

So the sum total of all financial assets and liabilities is zero.

Steve Keen (29:31.840)

Okay.

Lex Fridman (29:32.840)

Wait, wait, wait.

Steve Keen (29:33.840)

I'm sorry to interrupt you rudely.

Lex Fridman (29:36.000)

What are assets?

Lex Fridman (29:37.300)

What are liabilities?

Lex Fridman (29:38.480)

Assets are your claims on somebody else.

Steve Keen (29:41.120)

So...

Lex Fridman (29:42.120)

Specific.

Steve Keen (29:43.120)

Give me an example of an asset.

Lex Fridman (29:44.680)

Okay.

Lex Fridman (29:45.680)

Do you have a mortgage for this house?

Lex Fridman (29:46.680)

No.

Steve Keen (29:47.680)

I'm renting.

Lex Fridman (29:48.680)

You're renting.

Steve Keen (29:49.680)

There you go.

Lex Fridman (29:50.680)

Well, if you had a mortgage, that'd be your liability.

Steve Keen (29:51.680)

That would be my liability.

Lex Fridman (29:53.160)

Okay.

Steve Keen (29:54.160)

The mortgage with the bank's asset.

Lex Fridman (29:55.400)

Right.

Steve Keen (29:56.400)

Okay.

Lex Fridman (29:57.400)

If you add the two together, you get zero.

Steve Keen (29:58.400)

Okay.

Lex Fridman (29:59.400)

So that's zero.

Steve Keen (2:00:01.360)

world is facing.

Lex Fridman (2:00:02.840)

Why?

Steve Keen (2:00:03.840)

If the economists disagree with you, the effects on the GDP will be minor.

Lex Fridman (2:00:10.000)

So we'll deal with it when it comes.

Steve Keen (2:00:14.080)

That's the argument against, that's the devil's advocate.

Steve Keen (2:00:16.120)

You're saying, no, it is a thing that will change our world forever in ways that we should

Steve Keen (2:00:23.160)

really, really, really be thinking about.

Lex Fridman (2:00:25.520)

Okay.

Steve Keen (2:00:26.520)

Okay.

Lex Fridman (2:00:27.520)

Make the case of why you disagree with the economists.

Steve Keen (2:00:28.520)

The case is simple.

Lex Fridman (2:00:30.040)

Economists have made up their own numbers to say that it's trivial.

Lex Fridman (2:00:34.120)

And you didn't.

Lex Fridman (2:00:35.120)

No, I haven't even tried to make the numbers.

Steve Keen (2:00:37.600)

I'm reading what the scientists write.

Lex Fridman (2:00:39.320)

Okay.

Steve Keen (2:00:40.320)

Okay.

Lex Fridman (2:00:41.320)

And what the economists have done, and like this is William Nordhaus in particular, Nobel

Steve Keen (2:00:45.160)

Prize winner, ex president of the American Economic Association, literally assumed that

Lex Fridman (2:00:50.200)

a roof will protect you from climate change.

Lex Fridman (2:00:52.280)

And he didn't say it in those words.

Lex Fridman (2:00:54.880)

What he said was 87% of American industry occurs in carefully controlled environments,

Steve Keen (2:00:59.960)

which will not be subject to climate change.

Steve Keen (2:01:02.360)

Now the only things that all of manufacturing, all of services, he included mining as well,

Steve Keen (2:01:08.200)

meaning about open cut mining, government activities, and the finance sector, all they

Lex Fridman (2:01:13.760)

have in common is they happen beneath a roof.

Lex Fridman (2:01:16.120)

So he's basically saying climate affects the weather, climate is weather.

Lex Fridman (2:01:20.800)

Okay.

Steve Keen (2:01:21.800)

Okay.

Lex Fridman (2:01:22.800)

Now that is not at all what is meant by climate change.

Steve Keen (2:01:25.920)

It's changing the entire pattern of the weather system of the planet.

Steve Keen (2:01:32.140)

For example, the most extreme form of climate change would be a breakdown in the three circulation

Steve Keen (2:01:37.600)

cells that exist in each hemisphere.

Steve Keen (2:01:39.840)

The Hadley cell, the Ferrer cell, I think it's called, and the polar cell, 0 to 30,

Steve Keen (2:01:44.480)

30 to 60, 60 to 90, those are the main bubbles, if you like, in the atmosphere.

Steve Keen (2:01:50.520)

Now if we get enough increase in the energy in the atmosphere, just like you turn the

Steve Keen (2:01:56.760)

temperature up on a stove and you have nice bubbles occurring in a pot of soup and then

Steve Keen (2:02:01.220)

turn the temperature up and they all break down and you've got bubbles everywhere, that's

Steve Keen (2:02:05.240)

called the equitable climate.

Steve Keen (2:02:06.600)

If that happens, then most of the rainfall is going to occur between 0 and 20 and 70

Lex Fridman (2:02:12.320)

and 90, and the middle is going to be dry, except for extreme storms.

Steve Keen (2:02:18.420)

We built our societies in a period of extreme stability of the climate, and when you look

Steve Keen (2:02:24.620)

at the long term temperature records, it's up and down like a seesaw, like a sawtooth

Steve Keen (2:02:31.520)

blade between, say, one degree warmer than now and four degrees or six degrees cooler

Steve Keen (2:02:36.720)

over the last million years.

Steve Keen (2:02:39.000)

When you look at where we evolved, it's just at a turning point on the peak of one of those

Steve Keen (2:02:43.700)

ups and downs.

Steve Keen (2:02:44.700)

I've forgotten the name of the cycles, but the cycles are caused by changes in the Earth's

Steve Keen (2:02:48.760)

rotation around the sun, and so we evolved our civilization just at the top, so coming

Steve Keen (2:02:57.240)

up from a cold period, and then we're going to head down to another cold period, and that's

Steve Keen (2:03:02.860)

when human civilization came along.

Lex Fridman (2:03:04.560)

It's about a period of about 12,000 years.

Lex Fridman (2:03:07.020)

So across that period, the temperature has changed by not much more than half a degree

Lex Fridman (2:03:11.960)

up and down.

Steve Keen (2:03:12.960)

Now, we're blasting it well and truly out of those confines, and my way of interpreting

Lex Fridman (2:03:20.600)

what climate change means is the stability of that climate that enables to build sedentary

Steve Keen (2:03:25.180)

civilizations and not be a nomadic species is being destroyed.

Lex Fridman (2:03:30.220)

So the challenge, and by the way, I'm playing devil's advocate right here.

Steve Keen (2:03:38.060)

The question is, is there something fundamentally different now about human civilization that

Steve Keen (2:03:42.280)

we're able to build technology that alleviates some of the destructive effects that we have

Lex Fridman (2:03:51.480)

on the climate?

Lex Fridman (2:03:52.480)

We don't know.

Steve Keen (2:03:53.480)

We're going to find out the hard way.

Lex Fridman (2:03:56.340)

And the uncertainty, you think, would be very costly.

Steve Keen (2:03:58.920)

Extremely.

Steve Keen (2:03:59.920)

Like, many of the trajectories we might take would be much more costly than they're profitable.

Steve Keen (2:04:05.800)

Yeah.

Lex Fridman (2:04:06.800)

And like, when we're seeing some of the storms that are happening now in Europe, the ones

Steve Keen (2:04:10.440)

that washed away a village in Germany some time ago, the firestorm that hit Canada of

Steve Keen (2:04:15.840)

all places, I've forgotten the name of the town that was burnt down, but enormous temperatures

Steve Keen (2:04:19.980)

in Canada, again, the storms that have been happening back in Australia.

Steve Keen (2:04:24.920)

These are all manifestations of a complete shift in the weather patterns of the planet.

Lex Fridman (2:04:29.400)

And they can wipe out, like a village just disappears, just wiped out by unprecedented

Lex Fridman (2:04:35.000)

rains, and this keeps on happening.

Steve Keen (2:04:39.280)

We are still living in a sedentary lifestyle when we're a nomadic species.

Lex Fridman (2:04:44.200)

So to be able to maintain that sedentary lifestyle, we do need to engineer the planet.

Steve Keen (2:04:49.420)

We need to keep it within that range of plus half a degree Celsius, minus half a degree,

Steve Keen (2:04:56.760)

which is really what it's been like for the last 10,000, 12,000 years, instead we're blasting

Steve Keen (2:05:01.260)

it right out of that range.

Lex Fridman (2:05:03.360)

And we know some of the past climates that have existed then.

Steve Keen (2:05:07.360)

We can model what they imply for our food production systems, for example.

Lex Fridman (2:05:12.560)

Not the only example, but obviously crucial.

Lex Fridman (2:05:15.320)

So when you look at what are called global climate models produced by scientists, one

Steve Keen (2:05:20.880)

of the examples, and it was published by the OECD last year, 2021, in the chapter on what

Steve Keen (2:05:27.480)

would happen if we lose what's called the Atlantic Meridional Overturning Circulation,

Lex Fridman (2:05:32.360)

or AMOC, and people would colloquially know that as the Gulf Stream.

Lex Fridman (2:05:35.920)

And that's what distributes heat around all the oceans of the planet.

Lex Fridman (2:05:39.680)

It's part of a huge chain called the thermohaline circulation.

Lex Fridman (2:05:43.720)

But the part that goes across from the equator to the North Atlantic, that's called the AMOC

Lex Fridman (2:05:49.680)

and Gulf Stream colloquially, if that disappears in the context of a two and a half degree

Steve Keen (2:05:56.520)

Celsius increase in average global temperature, then the proportion of the Earth's surface,

Lex Fridman (2:06:02.960)

which is suitable for producing wheat, will fall from 20% to 7%.

Steve Keen (2:06:09.320)

Proportion for corn, similar sort of fall.

Lex Fridman (2:06:11.980)

The proportion suitable for rice will go from 2% to 3%.

Steve Keen (2:06:15.760)

Now that means a catastrophic, and that's the word used in the report, catastrophic

Lex Fridman (2:06:19.200)

collapse in food production.

Lex Fridman (2:06:22.080)

So that's what we're toying with.

Lex Fridman (2:06:24.900)

And we are one and a half, we're actually less than, we're about halfway there to that

Steve Keen (2:06:29.200)

two degrees, 2.5.

Lex Fridman (2:06:32.520)

And economists, on the other hand, and this is Richard Toll, published a paper 2016, claiming

Steve Keen (2:06:40.200)

using what he calls an integrated assessment model that economists developed, that losing

Lex Fridman (2:06:45.920)

the Gulf Stream would increase global GDP by 1.1%.

Steve Keen (2:06:51.080)

Now his model, this is what really pisses me off about these people, it's the worst

Lex Fridman (2:06:55.040)

work I've read in 50 years of being a critic of neoclassical economics.

Steve Keen (2:07:00.360)

The GCMs, the one scientists produce, of course include precipitation as well as temperature.

Steve Keen (2:07:06.560)

The IAMs that the economists produce, and this is stated yet again in a paper in 2021,

Steve Keen (2:07:12.420)

do not include precipitation, they simply have temperature.

Lex Fridman (2:07:17.120)

So they assume that if temperature improves by moving towards a temperature which is better

Steve Keen (2:07:22.180)

for producing aquaculture, okay, then so will precipitation.

Steve Keen (2:07:26.120)

Now that's completely wrong, they've left out a crucial, imagine trying to model the

Steve Keen (2:07:30.780)

climate while ignoring the fact that there's rainfall.

Lex Fridman (2:07:33.920)

That's what they've done.

Lex Fridman (2:07:35.000)

So their work is so bad, so dreadfully bad, it should never have been published.

Lex Fridman (2:07:39.200)

So they over, all right, all right, okay.

Steve Keen (2:07:40.680)

I'm not gonna go for them, sorry, this is...

Steve Keen (2:07:42.680)

Well, no, no, 100% as they deserve it, so it's an oversimplification, but I also want

Steve Keen (2:07:48.520)

you to steel man people you disagree with and criticize people you agree with, if possible,

Lex Fridman (2:07:55.160)

to be sort of intellectually honest here.

Steve Keen (2:07:57.400)

You do say, sort of to push back on the catastrophic thinking about climate change, that the ecology,

Lex Fridman (2:08:07.960)

the biosphere is a complex system, economics, the economy is a complex system.

Lex Fridman (2:08:18.300)

So how can we make predictions about complex systems?

Lex Fridman (2:08:22.080)

How can we make a hope of having a semi confident predictions about the complex system?

Lex Fridman (2:08:28.920)

So the scientific community is very confident about the complex system that is the biosphere

Lex Fridman (2:08:36.280)

and the crisis that's before us on the horizon.

Lex Fridman (2:08:43.040)

And then the economists are, as a community, I don't know, I don't know what percentage,

Lex Fridman (2:08:47.840)

but...

Steve Keen (2:08:48.840)

Too much.

Steve Keen (2:08:49.840)

Too much, that part of the community is very confident looking at the economics complex

Steve Keen (2:08:58.560)

system in saying that, no, this system we have of labor and money and capital and so

Lex Fridman (2:09:07.840)

on, we'll be able to deal with that crisis and any other crisis.

Lex Fridman (2:09:12.040)

And they kind of construct simplified models that justify their confidence.

Lex Fridman (2:09:19.340)

So how do we know who to believe?

Steve Keen (2:09:21.480)

For a start, if you believe the economists, you need your head read.

Lex Fridman (2:09:26.520)

Because when you...

Steve Keen (2:09:27.520)

It's not an argument.

Lex Fridman (2:09:28.520)

No, it's not an argument.

Steve Keen (2:09:29.520)

It's a summary of an argument.

Lex Fridman (2:09:30.520)

And that is the...

Steve Keen (2:09:31.520)

No, that sounds a lot like an opinion and an emotional...

Lex Fridman (2:09:32.880)

I know.

Steve Keen (2:09:33.880)

I know.

Lex Fridman (2:09:34.880)

I'm so angry about it.

Steve Keen (2:09:35.880)

Listen, I'll tell you where I stand.

Lex Fridman (2:09:39.040)

And I've begun looking, studying the climate change much more.

Steve Keen (2:09:44.160)

I used to be on things I don't understand, have not spent time on.

Steve Keen (2:09:52.080)

I have so many colleagues that are scientists that I deeply respect, and I trust their opinion.

Steve Keen (2:10:01.880)

I have seen the lesser angels of my colleagues on the pandemic side, on the COVID side.

Steve Keen (2:10:12.160)

The confidence, the arrogance that in part blinded, I believe, the jump between basic

Steve Keen (2:10:20.060)

scientific research to public policy.

Lex Fridman (2:10:25.220)

And then, so I've become a little bit more cautious in my trust on climate change.

Steve Keen (2:10:32.240)

I'm still in the same place, and I don't mean climate change, on anything scientists say.

Lex Fridman (2:10:37.880)

I become a little bit, wait a minute.

Lex Fridman (2:10:44.220)

How does the basic scientific facts of our reality map to what we should do as a human

Lex Fridman (2:10:49.960)

civilization?

Steve Keen (2:10:50.960)

Yeah.

Lex Fridman (2:10:51.960)

There, I want to be a little bit careful.

Lex Fridman (2:10:52.960)

So whenever now I see arrogance and confidence, I become suspicious.

Steve Keen (2:10:57.240)

Well, I'm the same, and that's why I'm being angry about The Economist, because there's

Steve Keen (2:11:02.640)

incredible arrogance, incredible stupidity at the arrogance, assumptions which you look

Lex Fridman (2:11:09.240)

at it and think, how did anybody let that get published?

Steve Keen (2:11:12.120)

Sure.

Lex Fridman (2:11:13.120)

Okay.

Lex Fridman (2:11:14.120)

So the economic analysis of the effects of climate change are poor, in many cases.

Lex Fridman (2:11:19.480)

Incredibly poor.

Lex Fridman (2:11:20.720)

And this is like, Bjorn Lomborg styles himself as the skeptical environmentalist and criticizes

Lex Fridman (2:11:26.300)

the environmental models.

Steve Keen (2:11:28.660)

He doesn't take a look.

Lex Fridman (2:11:30.120)

He doesn't criticize the work come out by economists.

Steve Keen (2:11:33.040)

You look at it.

Lex Fridman (2:11:34.040)

It's so bad.

Lex Fridman (2:11:35.280)

Is it possible to do good economics modeling of the effects of climate change?

Lex Fridman (2:11:39.960)

Yeah, it is possible.

Steve Keen (2:11:42.200)

Very difficult.

Lex Fridman (2:11:43.200)

Or is it like one complex systems tech?

Steve Keen (2:11:45.800)

It's two modes.

Lex Fridman (2:11:46.800)

In that case, yeah.

Steve Keen (2:11:47.800)

I mean, like to me, what you should be looking at is saying, what are the scientists saying

Steve Keen (2:11:52.520)

are the consequences, probable consequences, not guaranteed, but probable consequences

Steve Keen (2:11:58.160)

of increasing the energy level of the atmosphere by the amount we're doing.

Lex Fridman (2:12:03.520)

What can the scientists say in terms of like, the effects, because it's so complicated,

Steve Keen (2:12:07.960)

the effects of sort of shifting resources, so basically, what are the effects of climate

Lex Fridman (2:12:15.280)

change?

Lex Fridman (2:12:16.280)

How can we really model that?

Steve Keen (2:12:17.280)

Because it's basically you're looking through the fog of uncertainty because they're rising

Steve Keen (2:12:22.240)

sea levels.

Lex Fridman (2:12:24.280)

How can we know what effect that has?

Steve Keen (2:12:26.080)

Well, we know there'll be a lot of change.

Lex Fridman (2:12:28.520)

Yeah.

Steve Keen (2:12:29.520)

Well, I don't actually, I think the sea level one is a poor argument, and I don't focus

Lex Fridman (2:12:33.200)

on it.

Lex Fridman (2:12:34.200)

What I mainly focus upon is the weather patterns, okay?

Lex Fridman (2:12:38.680)

And if you look at, like we've got the, the wheat belt in America goes through what Idaho

Lex Fridman (2:12:43.000)

and countries, places like that, and you've got an incredibly deep topsoil, like Ukraine

Lex Fridman (2:12:48.600)

is another classic example.

Steve Keen (2:12:49.840)

The depth of the topsoil in Ukraine is remarkable, and that's the wheat bowl of Europe.

Lex Fridman (2:12:55.680)

And that requires both the right temperature for growing wheat and the right rainfall for

Steve Keen (2:13:00.040)

growing wheat.

Steve Keen (2:13:01.040)

Now, when you look at the models that climate scientists are building of that, you have

Steve Keen (2:13:07.400)

pretty much, your ultimate foundation is the Lorenz model of turbulent flow.

Lex Fridman (2:13:13.760)

And of course, that's the first model which we saw chaos theory, complexity, that beautiful

Steve Keen (2:13:19.240)

simple model, three variables, three parameters, an incredible complexity out of the system.

Lex Fridman (2:13:25.400)

But and what that meant was you also had an exponential decay in the accuracy of your

Steve Keen (2:13:31.440)

model over time.

Lex Fridman (2:13:32.560)

So if you have, if you're accurate to a thousand decimal places, then in a thousand days, you'll

Steve Keen (2:13:39.640)

have no data whatsoever, because each time you're losing an order of magnitude of accuracy.

Lex Fridman (2:13:44.600)

So that's the point about the inability to predict for the very long future.

Lex Fridman (2:13:48.840)

But what you can do is say, well, there's a prediction horizon.

Steve Keen (2:13:51.760)

If we're close enough to the, if our statistical measurement of where we are is close enough

Steve Keen (2:13:57.080)

to where we actually are, and our forecast horizon is narrow enough to not extrapolate

Steve Keen (2:14:02.800)

too far, then for this direction forward, we can make a reasonable fist of predicting

Lex Fridman (2:14:06.880)

what the weather's going to be.

Lex Fridman (2:14:08.720)

And that's the foundation of meteorological, the stuff we watch on TV.

Steve Keen (2:14:12.840)

You know, most of the time, the forecasts are going to be correct these days.

Lex Fridman (2:14:16.840)

40, 50 years ago, most of the time, the forecasts were wrong.

Lex Fridman (2:14:20.840)

So that's the background foundation to these GCMs.

Lex Fridman (2:14:24.600)

But even they've got to massively simplify the world.

Lex Fridman (2:14:26.760)

So you have this enormous sphere of where they might divide it down to 100 kilometer

Lex Fridman (2:14:31.000)

by 100 kilometer by 10 kilometer cube, rectangles, whatever, oblongs.

Steve Keen (2:14:40.380)

That's how they're modeling the transition of where they're from one location to another.

Lex Fridman (2:14:45.800)

So they've got a chunky vision of the planet, which they have to.

Steve Keen (2:14:49.640)

They can't model it now down to the last molecule.

Lex Fridman (2:14:52.280)

So you're losing it.

Lex Fridman (2:14:53.280)

Not yet, right?

Lex Fridman (2:14:54.280)

It's getting better, better, better, better.

Steve Keen (2:14:55.280)

Oh, yeah.

Lex Fridman (2:14:56.280)

I think that's just too much processing power.

Lex Fridman (2:14:58.440)

But you're going to have some confines.

Steve Keen (2:15:00.280)

You can't go, I mean, if you look at the models to do the weather, they used to be of that

Steve Keen (2:15:04.400)

100 kilometer, I think they're about 10 kilometer grids now, I don't know.

Lex Fridman (2:15:08.120)

So the processing powers let us get more and more precise that way.

Steve Keen (2:15:11.400)

I do know that the models now include chemical mixing that occurs above cities.

Lex Fridman (2:15:16.960)

They've added that complexity to them over time.

Lex Fridman (2:15:19.120)

So you're looking at the increasingly accurate models of weather patterns, the effect they

Lex Fridman (2:15:23.080)

have on agriculture, on food.

Lex Fridman (2:15:25.760)

And you're saying that there's a lot of possibilities in which that's going to be really destructive

Lex Fridman (2:15:31.920)

to society on the food production side.

Lex Fridman (2:15:34.280)

And if you have that increase in temperature, you're going to get a change in precipitation.

Lex Fridman (2:15:38.180)

And it could mean that where the rainfall and the sunshine are adequate for growing

Steve Keen (2:15:42.540)

wheat is an area where there's no topsoil.

Steve Keen (2:15:45.640)

Like a huge part of the models, the models the economists use, which only use temperature,

Steve Keen (2:15:50.680)

don't include precipitation.

Steve Keen (2:15:51.680)

They predict that a large amount of the wheat output of the world is going to occur in Siberia

Steve Keen (2:15:58.340)

in the frozen tundra.

Lex Fridman (2:16:00.240)

What about, so that's a straightforward criticism of oversimplified models.

Lex Fridman (2:16:05.300)

What about the idea that we innovate our way out of it?

Lex Fridman (2:16:09.680)

So there's totally new, what is the, there's a silly, poor example at this time perhaps,

Lex Fridman (2:16:17.600)

but lab grown meat, sort of engineered food.

Lex Fridman (2:16:22.280)

So a completely shifting source of food for civilization.

Lex Fridman (2:16:30.680)

So therefore alleviating some of the pressure on agriculture.

Steve Keen (2:16:33.800)

That comes down to the difference that Elon makes between producing a prototype and mass

Steve Keen (2:16:38.900)

producing the prototype.

Steve Keen (2:16:41.600)

You can develop the idea very rapidly to put that into production on the scale that's necessary

Steve Keen (2:16:47.800)

to replace what we're currently doing.

Lex Fridman (2:16:49.440)

Six years.

Steve Keen (2:16:50.440)

Yeah.

Lex Fridman (2:16:51.440)

And we haven't got years.

Steve Keen (2:16:52.440)

We've got, we might have decades.

Lex Fridman (2:16:53.440)

We certainly haven't got centuries.

Lex Fridman (2:16:56.060)

So in the timeframe we've got, I can't see that engineering going from prototype to production

Steve Keen (2:17:02.040)

levels to replace what we're currently doing in the stable environment they're currently

Steve Keen (2:17:07.580)

destroying.

Lex Fridman (2:17:08.580)

What do you think about the sort of the catastrophic predictions that people that have thought

Lex Fridman (2:17:13.400)

have written about climate have made in the past that haven't come to people?

Steve Keen (2:17:16.760)

That's mainly unfortunately involving Paul Ehrlich and the population bomb and the predictions

Steve Keen (2:17:21.920)

Paul was making.

Lex Fridman (2:17:22.920)

A few individuals or the one individual in that case.

Lex Fridman (2:17:25.840)

So I'm mostly playing devil's advocate in this conversation and enjoying doing so.

Lex Fridman (2:17:31.560)

I do think I'm in agreement with the majority of the scientific community.

Lex Fridman (2:17:38.360)

But you still see that argument made.

Lex Fridman (2:17:40.680)

I still see the argument made.

Lex Fridman (2:17:42.760)

And I also am a little bit worried about the arrogance and the ineffectiveness of the arrogance.

Lex Fridman (2:17:47.560)

This is the problem.

Steve Keen (2:17:48.560)

It's ineffective.

Lex Fridman (2:17:50.020)

And that's what worries me because it's all been put into the sort of sea level rise,

Steve Keen (2:17:58.720)

temperature changes.

Lex Fridman (2:18:01.440)

It's not put into the fragility of the system in which we currently live.

Lex Fridman (2:18:08.600)

And the Earth will survive.

Lex Fridman (2:18:09.600)

And there's a wonderful science fiction book called The Earth Abides about a world in which

Steve Keen (2:18:14.600)

humans get wiped out.

Lex Fridman (2:18:15.600)

There's only a tiny little band left and then the Earth reasserts itself.

Lex Fridman (2:18:19.200)

So the Earth's going to survive us.

Lex Fridman (2:18:20.880)

Will we survive what we do to the Earth?

Steve Keen (2:18:22.500)

That's the question.

Lex Fridman (2:18:24.160)

And my feeling is that we have underplayed the extent to which the civilizations were

Steve Keen (2:18:32.600)

built have depended upon a relatively stable climate.

Lex Fridman (2:18:36.360)

And it's then there's that turning point in the global average temperature that we evolved

Steve Keen (2:18:41.240)

right on the top of it.

Lex Fridman (2:18:42.500)

And if we had done nothing, we could find that heading back down towards another ice

Steve Keen (2:18:46.840)

age could equally destroy the possibility of sedentary life.

Lex Fridman (2:18:51.000)

So for example, if we'd never developed fossil fuel based industries, we'd never built superphosphate,

Lex Fridman (2:18:58.000)

so our population would never have reached one billion people, and we were still living

Steve Keen (2:19:02.760)

like fairly sophisticated animals, but like 17th century level of load on the planet,

Steve Keen (2:19:09.160)

then we would have gone down that decline.

Lex Fridman (2:19:12.080)

And the approaching ice age would have started to wipe out our farming areas, the glaciers

Steve Keen (2:19:17.440)

would have encroached, and we would have been driven out of like an agricultural sedentary

Lex Fridman (2:19:21.940)

civilization by that change.

Lex Fridman (2:19:24.000)

So it's just the fact that we evolved on this stable period in the overall temperature cycle

Lex Fridman (2:19:30.200)

of the planet.

Lex Fridman (2:19:31.260)

And that stability is something which just reflects the turning point in the regular

Lex Fridman (2:19:36.360)

cycle of Malicevich cycle, I think it's called.

Steve Keen (2:19:38.800)

I've forgotten the actual name, but it's a cycle caused by change in the Earth's orbit

Lex Fridman (2:19:43.980)

around the sun, reflectivity and so on.

Steve Keen (2:19:48.040)

That cycle, it's just that tiny top bit that we evolved in.

Lex Fridman (2:19:53.320)

So what we should have done is, well, that's really useful for us, we should stay at that

Steve Keen (2:19:56.840)

level.

Steve Keen (2:19:57.840)

Now, if we hadn't done it, we'd go back down here and that'd be the end of our civilization

Steve Keen (2:20:01.420)

by an ice age.

Steve Keen (2:20:02.420)

Instead, we're going up here really rapidly, and we're causing a change in temperature

Steve Keen (2:20:08.620)

compared to that long term cycle 100,000 times faster.

Lex Fridman (2:20:14.720)

So yeah, I mean, my biggest worry is even subtle changes in climate might result in

Steve Keen (2:20:24.360)

geopolitical pressures that then lead to nuclear war.

Lex Fridman (2:20:28.920)

And that's, yeah, I mean, there's an argument that's actually behind, to some extent, not

Steve Keen (2:20:33.600)

the Ukraine war so much, but the Arab Spring, the wars in Syria, which partially has led

Lex Fridman (2:20:39.340)

to what's happening in Ukraine.

Lex Fridman (2:20:42.000)

And our weapons are getting more and more powerful and more and more destructive.

Lex Fridman (2:20:45.560)

More and more nations are having these destructive weapons.

Lex Fridman (2:20:49.080)

And now we're entering cyberspace, where it's even easier to be destructive.

Lex Fridman (2:20:54.520)

And hyperbaric weapons, which didn't exist in the Second World War.

Lex Fridman (2:20:58.080)

So you don't need nuclear weapons to have catastrophic attacks on each other.

Lex Fridman (2:21:03.040)

So yeah, it's incredibly scary that the warlike side of human nature could be extremely enhanced

Steve Keen (2:21:12.680)

by climate breakdown.

Lex Fridman (2:21:14.600)

So in this world, on a happy note, I don't know how we went from Marxism and Stalinism

Steve Keen (2:21:21.820)

to ecology, but all those are beautiful, complex systems.

Lex Fridman (2:21:28.040)

What is the best form of government, would you say?

Steve Keen (2:21:31.620)

We talked about the economics of things.

Lex Fridman (2:21:36.520)

You ran for office, so you care about politics too.

Lex Fridman (2:21:40.440)

How can politics, what political systems can help us here?

Steve Keen (2:21:43.640)

I think we first of all have to appreciate we're one species on a planet out of millions.

Lex Fridman (2:21:50.200)

And as the intelligent species, we should be enabling a harmonious life for those other

Lex Fridman (2:21:57.040)

species as well.

Lex Fridman (2:21:58.040)

Can we actually linger on that?

Lex Fridman (2:21:59.860)

What is, you mentioned that we need to acknowledge the value of life on Earth.

Lex Fridman (2:22:08.400)

Can we integrate the labor theory of value, can we integrate into that the value of life?

Lex Fridman (2:22:18.360)

So there's human life, and there's life.

Steve Keen (2:22:21.840)

If you take that structure that I talked about of Marx's use value, exchange value, dialectic,

Lex Fridman (2:22:28.240)

and foreground background, that only exists, that only works because we're exploiting the

Steve Keen (2:22:32.480)

free energy we find in the universe.

Steve Keen (2:22:35.040)

There could be no production system without free energy, which is the first law of thermodynamics

Steve Keen (2:22:41.840)

that exists.

Steve Keen (2:22:42.840)

There is free lunch, after all, and it's grounded in the energy that's provided to us by the

Steve Keen (2:22:47.000)

universe.

Lex Fridman (2:22:48.000)

Well, yeah, that's the free lunch.

Steve Keen (2:22:49.000)

That's what we're exploiting.

Lex Fridman (2:22:50.000)

It's the only free lunch we get.

Lex Fridman (2:22:51.000)

You know Ginsburg's summary of the laws of thermodynamics, don't you?

Lex Fridman (2:22:54.320)

Allen Ginsberg?

Lex Fridman (2:22:55.320)

What's that?

Steve Keen (2:22:56.320)

The laws of thermodynamics are summarized as A, you can't win, B, you can't break even,

Steve Keen (2:23:04.600)

C, you can't leave the game.

Lex Fridman (2:23:08.600)

Beautiful summary.

Steve Keen (2:23:09.600)

Beautiful summary.

Lex Fridman (2:23:10.600)

But the fact that it exists in the first place is the free lunch.

Lex Fridman (2:23:14.120)

So we're exploiting the free lunch.

Lex Fridman (2:23:15.920)

But to be able to do it, we can't put waste back into that system so much that it undermines

Steve Keen (2:23:20.320)

the free lunch.

Lex Fridman (2:23:21.320)

And that's what we've been doing.

Lex Fridman (2:23:23.840)

And once you respect the fact that we have to, living on the biosphere, the planet we're

Lex Fridman (2:23:30.120)

actually on, we have to enable that biosphere to survive us.

Steve Keen (2:23:35.960)

Because if it doesn't survive us, we won't survive it disappearing.

Lex Fridman (2:23:40.200)

And there's not that realization in humanity in general.

Lex Fridman (2:23:43.520)

And when you say the value of life, you know, all the different living organisms on Earth

Lex Fridman (2:23:49.320)

are part of that biosphere.

Lex Fridman (2:23:51.640)

So in order to maintain the biosphere, we have to respect, like pragmatically speaking,

Lex Fridman (2:23:58.720)

what that means is actually respecting all of life on Earth.

Lex Fridman (2:24:01.720)

Even the mosquitoes?

Lex Fridman (2:24:02.720)

I've got some, no.

Steve Keen (2:24:03.720)

Parasites.

Lex Fridman (2:24:04.720)

I mean, we are a parasite.

Steve Keen (2:24:10.540)

When you look at it, we're the mosquitoes of the large organizations.

Lex Fridman (2:24:17.160)

You're a fan of the Matrix movies at all?

Steve Keen (2:24:18.800)

Sure.

Lex Fridman (2:24:19.800)

Okay.

Steve Keen (2:24:20.800)

That's what I'm wearing.

Lex Fridman (2:24:21.800)

Absolutely.

Steve Keen (2:24:22.800)

I was wondering what the inspiration was.

Lex Fridman (2:24:23.800)

I was thinking...

Steve Keen (2:24:24.800)

It's not really inspiration.

Steve Keen (2:24:25.800)

We are living in a simulation, and I have a conversation offline to have with you about

Steve Keen (2:24:30.760)

that.

Lex Fridman (2:24:31.760)

You've been misbehaving, and we're going to have to put you back in line.

Lex Fridman (2:24:34.320)

So what's Agent Smith says when he's got Morpheus in his possession, he said, I've been trying

Lex Fridman (2:24:39.960)

to classify your species, and I've decided you're a virus.

Steve Keen (2:24:45.000)

Now there's truth to that.

Lex Fridman (2:24:46.240)

We have intruded into everything.

Steve Keen (2:24:48.880)

We've taken over every element of the biosphere, and we think we can continue doing that.

Lex Fridman (2:24:55.000)

And the thing is, we're breaking that.

Steve Keen (2:24:57.320)

We're exporting it so much, we're breaking it down.

Lex Fridman (2:24:59.880)

And I think it's E.O. Wilson who argued the 50 percent rule.

Steve Keen (2:25:03.400)

He believed that we should reserve 50 percent of the planet for nonhuman species.

Lex Fridman (2:25:09.560)

In other words, we make 50 percent of it off limits.

Steve Keen (2:25:13.380)

Humans cannot go there.

Lex Fridman (2:25:15.220)

And we just let that evolve as it does.

Lex Fridman (2:25:17.560)

And then we control the other 50 percent.

Lex Fridman (2:25:19.760)

I think it's probably giving too much to us.

Steve Keen (2:25:22.480)

I think we should actually save like 20 percent, 25 percent max on the rest of the planet.

Steve Keen (2:25:27.940)

We let life go on and evolve as it does without our interference, without our dominance.

Steve Keen (2:25:34.500)

Now that's neither a democratic system nor an authoritarian one.

Steve Keen (2:25:40.240)

It's one which starts off with saying the first thing humans have to do is respect life

Steve Keen (2:25:44.280)

itself.

Lex Fridman (2:25:45.280)

Okay?

Lex Fridman (2:25:46.280)

So would we do that?

Lex Fridman (2:25:50.060)

We haven't done it, obviously.

Steve Keen (2:25:52.120)

I don't think the Soviets would have done it if we had a generally Soviet system.

Lex Fridman (2:25:56.060)

We haven't done it under a capitalist.

Steve Keen (2:25:58.360)

We continue intruding.

Lex Fridman (2:25:59.880)

So I think we have to go through something like a Star Trek, a Star Trek, you know, catastrophic

Steve Keen (2:26:05.360)

200 years to realize that ultimately if we're going to survive as a species, we have to

Lex Fridman (2:26:10.120)

respect life in general.

Lex Fridman (2:26:12.080)

And then that means parts of the planet we can no longer touch, while we also try to

Steve Keen (2:26:18.760)

maintain the planet at the temperature that we found it in what we now call the Anthropocene.

Lex Fridman (2:26:25.560)

So politically, we have to have, like in many ways what native societies often have, a vision

Steve Keen (2:26:34.000)

of the cycle of life, not this exponential progression we've developed over the last

Steve Keen (2:26:39.320)

250 years.

Lex Fridman (2:26:42.080)

And again, I'll use another movie, the Avatar type respect for the cycle of life.

Steve Keen (2:26:46.260)

We need to have that as part of our innate nature.

Lex Fridman (2:26:49.600)

And then on top of that, the political system comes out.

Steve Keen (2:26:53.840)

Now that political system has to be one that lets us feel like we have a say in the direction

Lex Fridman (2:27:01.240)

of society while that part is sacrosanct.

Steve Keen (2:27:04.400)

We can't touch it.

Lex Fridman (2:27:06.080)

But we also, because we are now living with so many challenges created by our own civilization,

Steve Keen (2:27:10.800)

I mean, the main threat to the existence of human civilization is the existence of human

Lex Fridman (2:27:17.000)

civilization.

Steve Keen (2:27:18.000)

Is both a feature and a bug.

Lex Fridman (2:27:19.680)

Yeah.

Lex Fridman (2:27:20.680)

And therefore, we need to have people who can understand complex systems making those

Lex Fridman (2:27:24.880)

decisions.

Steve Keen (2:27:25.880)

Now that means it isn't a political system as much as it is an appreciation that the

Lex Fridman (2:27:30.560)

world is a complex system.

Lex Fridman (2:27:32.200)

And therefore, effects, which we think are direct effects, will actually come through

Lex Fridman (2:27:36.640)

an oblique fashion.

Lex Fridman (2:27:38.440)

And we cannot, there's no simple linear progression from where we are to where we want to be.

Lex Fridman (2:27:45.060)

So you have to see how everything feeds together in a systemic way.

Lex Fridman (2:27:47.880)

And that's why, one reason I designed this off where I'm wearing the tshirt for now,

Steve Keen (2:27:51.600)

Minsky, is to have, it's nowhere near to this scale, I hope it one way will be, but something

Steve Keen (2:27:57.600)

which means we can bring together all that complexity, all those systems, and perceive

Steve Keen (2:28:01.040)

them on an enormous screen where we have all the various interacts and we can see what

Steve Keen (2:28:05.800)

a potential future is.

Lex Fridman (2:28:08.900)

And that then guides us.

Lex Fridman (2:28:10.540)

So it isn't a case of democracy and, you know, our side wins a vote and therefore we ban

Lex Fridman (2:28:16.280)

abortion or we don't, you know, whatever else happens.

Steve Keen (2:28:19.600)

It's seeing what the, respecting the fact that we're in a complex system, and being

Steve Keen (2:28:25.120)

uncertain about the consequences, and not making the bold, expansionary ideas that we've

Steve Keen (2:28:34.440)

been doing.

Lex Fridman (2:28:35.440)

So like, being a little bit more, uh, humble.

Steve Keen (2:28:41.920)

Humble.

Lex Fridman (2:28:43.600)

Humble is a good word.

Lex Fridman (2:28:44.720)

But wouldn't you like to apply that same humility both to the considerations of the pros of

Lex Fridman (2:28:55.400)

capitalism and to the catastrophic view of the effects of climate change?

Steve Keen (2:29:00.840)

Yeah.

Lex Fridman (2:29:01.840)

And also, like, I think we can afford to be bold in space.

Lex Fridman (2:29:05.400)

And that's one reason I respect the practical vision of Musk and so far impractical vision

Steve Keen (2:29:10.480)

of Bezos, that if we're going, we look for the very far future, the only way we can continue

Steve Keen (2:29:16.760)

expanding our knowledge of the universe is to move our civilization, the productive side

Lex Fridman (2:29:23.400)

of off the planet.

Steve Keen (2:29:24.600)

Offsite backup.

Lex Fridman (2:29:25.600)

Yeah.

Lex Fridman (2:29:26.600)

So can you actually linger on this?

Lex Fridman (2:29:28.000)

So let's actually talk about this.

Lex Fridman (2:29:29.880)

So first of all, you have the new book, uh, humbly named, uh, named The New Economics

Lex Fridman (2:29:36.680)

A Manifesto.

Steve Keen (2:29:38.720)

Publisher chose the title.

Lex Fridman (2:29:39.720)

Yes.

Steve Keen (2:29:40.720)

No, but I'm joking, but, um, maybe I will ask you about why Manifesto, but we'll go

Lex Fridman (2:29:47.240)

through some of the ideas in this book.

Steve Keen (2:29:48.840)

We have been already, uh, so some of it is embracing the fact that the economy, our world,

Lex Fridman (2:29:56.880)

our mind is a complex system.

Lex Fridman (2:29:58.520)

So this t shirt that you're wearing, yep, take it out, yeah, is, uh, the software I'll

Lex Fridman (2:30:06.520)

do that.

Lex Fridman (2:30:07.520)

There you go, there you go, you're wearing a, what is this, an infomercial?

Lex Fridman (2:30:13.280)

So there's a t shirt that says Minsky, um, after not, not, not my Minsky, it's your

Steve Keen (2:30:21.880)

Minsky.

Lex Fridman (2:30:22.880)

Not Hyman.

Lex Fridman (2:30:23.880)

So no, the Hyman Minsky, not Marvin Minsky.

Lex Fridman (2:30:25.520)

Not Marvin Minsky, right.

Lex Fridman (2:30:26.720)

So that's, so AI Minsky is, is Marvin and then, uh, Harman, uh, it all rhymes.

Lex Fridman (2:30:33.900)

So stability is free open source system dynamic software invented by Mr. Steve Keen, uh, coded

Steve Keen (2:30:45.720)

by Russell Standish, it's on SourceForge.

Lex Fridman (2:30:51.120)

It's destabilizing.

Steve Keen (2:30:52.120)

Stability is destabilizing.

Lex Fridman (2:30:53.860)

So that's sort of embracing the, the complex aspect of it.

Steve Keen (2:30:58.280)

Yeah.

Lex Fridman (2:30:59.280)

So how can you model the economy?

Lex Fridman (2:31:01.600)

What are some of the interesting, whether detailed or high level, big picture ideas

Lex Fridman (2:31:07.620)

behind your efforts of Minsky?

Steve Keen (2:31:10.480)

Okay.

Steve Keen (2:31:11.480)

Minsky, um, meaning the software, the modeling software that, that models the dynamic system.

Steve Keen (2:31:16.600)

Basically what Minsky is doing is system dynamics modeling.

Lex Fridman (2:31:19.980)

So it's, if anybody's used Stellar or Vensim or Simulink, um, then they've used exactly

Steve Keen (2:31:26.200)

the same family of software that Minsky is part of.

Lex Fridman (2:31:28.500)

So I didn't invent that.

Steve Keen (2:31:29.500)

It was invented by Jay Forrester, who's one of the great intellects, one of the great

Lex Fridman (2:31:33.480)

engineers, uh, in American history.

Lex Fridman (2:31:36.600)

And the idea of, of, of Forrester's system was, uh, complex interactions.

Lex Fridman (2:31:41.640)

So he was doing his work in the fifties, um, uh, if people don't know Forrester's work,

Steve Keen (2:31:48.160)

he actually built the models of the, um, uh, the, the mathematics for the gun turrets on

Lex Fridman (2:31:53.200)

American warships in the second world war mechanical systems, obviously.

Lex Fridman (2:31:57.580)

So he had to work out, you know, how to give a feedback system that meant when the boat

Lex Fridman (2:32:01.720)

rolled in one direction, the, the tower did not roll the other way.

Steve Keen (2:32:05.400)

All that stuff was his work.

Lex Fridman (2:32:06.960)

So marvelous engineering.

Lex Fridman (2:32:08.480)

And then he realized if you want to look at a, even like a factory, a factory is a complex

Lex Fridman (2:32:13.320)

system.

Lex Fridman (2:32:14.320)

And so you get cycles generated out of the interaction between different components of

Steve Keen (2:32:18.000)

the factory that he was first involved in taming, that he built the software to model

Steve Keen (2:32:22.160)

complex interactive systems.

Lex Fridman (2:32:23.960)

So Minsky is that, the thing that Minsky adds, which is unique is the Godley table.

Lex Fridman (2:32:27.920)

And that's the double entry bookkeeping.

Lex Fridman (2:32:29.500)

So you can model the financial system, Godley, the economist, Godley, the economy, Wynn Godley,

Steve Keen (2:32:34.000)

another great, great man.

Lex Fridman (2:32:35.740)

So there, there's like this, so you're modeling it as like a state diagram.

Steve Keen (2:32:40.440)

Yeah.

Lex Fridman (2:32:41.440)

Fundamentally.

Steve Keen (2:32:42.440)

It's actually, it is circuit diagrams.

Lex Fridman (2:32:43.620)

It's exactly what engineers have been using for decades, almost a century.

Lex Fridman (2:32:48.840)

So you're using a circuit diagram to model the economy.

Lex Fridman (2:32:52.280)

And that's, that's the, so other factories have done it.

Lex Fridman (2:32:55.960)

What they, what they haven't had in the circuit diagram is a way of handling the dynamics

Lex Fridman (2:33:01.200)

of the financial system.

Lex Fridman (2:33:02.860)

So what the Godley table does is bring it financial flows as being everything goes from

Lex Fridman (2:33:09.040)

somewhere and ends up somewhere.

Lex Fridman (2:33:11.400)

So you have a positive and a negative, if you're looking on the liability side, a positive

Lex Fridman (2:33:16.840)

and a positive or negative and a negative, you're looking at assets and liabilities side

Lex Fridman (2:33:20.960)

and Minsky gets the accounting right for that.

Lex Fridman (2:33:22.920)

So you can do an enormous complex model looking at the economy financially from the point

Steve Keen (2:33:27.640)

of view of a dozen different actors in the economy and know that the mathematics is right.

Steve Keen (2:33:32.680)

Even though what you're building is set of differential equations, which might be 50

Steve Keen (2:33:36.400)

differential equations with 350 terms in them.

Lex Fridman (2:33:40.020)

If you've got the Godley tables right, you know the mathematics is correct.

Lex Fridman (2:33:43.540)

So that's the main innovation that Minsky adds.

Lex Fridman (2:33:45.680)

And you're operating there at the macroeconomics level.

Steve Keen (2:33:48.680)

Yeah.

Lex Fridman (2:33:49.680)

It's definitely macro.

Steve Keen (2:33:50.680)

It's not agent based.

Lex Fridman (2:33:52.760)

And then this, I'm just open on random page that I think is very relevant here.

Steve Keen (2:33:57.320)

The process, this is referring to Minsky, not the software, maybe the software.

Lex Fridman (2:34:01.160)

I don't know.

Steve Keen (2:34:02.160)

The process can be captured in an extremely simple causal chain.

Lex Fridman (2:34:05.920)

Capital determines output, output determines employment.

Steve Keen (2:34:08.180)

The rate of employment determines the rate of change of wages.

Lex Fridman (2:34:11.440)

Output minus wages and interest payments determines profit.

Steve Keen (2:34:14.400)

The profit rate determines the, there's a very nice circuit here.

Steve Keen (2:34:17.960)

The profit rate determines the level of investment, which is the change in capital, which takes

Steve Keen (2:34:23.560)

us back to the beginning of this causal chain.

Lex Fridman (2:34:26.240)

And the difference between investment and profits determines the change in private debt.

Lex Fridman (2:34:32.600)

And there's some nice, the Keen Minsky model and the intermittent route to chaos on page

Lex Fridman (2:34:38.920)

86 of your book.

Lex Fridman (2:34:40.520)

These are, do these come from the software?

Lex Fridman (2:34:42.480)

Yeah.

Steve Keen (2:34:43.480)

Yeah.

Lex Fridman (2:34:44.480)

I was a mathematician back in 1992, August, 1992.

Steve Keen (2:34:50.280)

Mathematics is another amazing piece of software.

Lex Fridman (2:34:52.000)

Yeah.

Lex Fridman (2:34:53.000)

And I find it, it's very much a programmer's approach to mathematics.

Steve Keen (2:34:55.160)

I prefer like a program called Mathcad, which is what I'm using for all my, when I do my

Steve Keen (2:35:00.680)

mathematics on the computer, I write in Mathcad.

Lex Fridman (2:35:04.040)

CAD or CAB?

Steve Keen (2:35:05.600)

CAD.

Lex Fridman (2:35:06.600)

Okay.

Steve Keen (2:35:07.600)

It's been ruined by bad management.

Steve Keen (2:35:09.400)

They chucked out all the good engineers and I'm still using a version which is 12 years

Steve Keen (2:35:13.560)

old.

Lex Fridman (2:35:14.560)

If only engineers ruled the world.

Steve Keen (2:35:16.520)

If only engineers, rather than this particular case, there was a bunch of marketers for CAD

Lex Fridman (2:35:20.640)

software agreed.

Steve Keen (2:35:22.220)

I'm definitely a fan of engineers.

Lex Fridman (2:35:24.020)

What are the plots that we're looking at here?

Steve Keen (2:35:26.160)

Growth rate, private debt ratio, employment versus wages, employment versus debt, income

Lex Fridman (2:35:31.400)

distribution.

Lex Fridman (2:35:32.400)

So this is across years, like different trade offs.

Steve Keen (2:35:36.160)

Is there something interesting to say about the plots and the insights from those plots

Lex Fridman (2:35:39.480)

that are generated by the software?

Lex Fridman (2:35:41.920)

That's a particular parameter value is to give that outcome.

Lex Fridman (2:35:46.200)

But what happened when I first simulated the model, I took a model by a guy called Richard

Steve Keen (2:35:50.380)

Goodwin who's one of the great neglected economists, American Marxist, mathematical Marxist.

Lex Fridman (2:35:56.920)

And what he did was build a model of cycles.

Lex Fridman (2:35:59.420)

And he actually wrote a paper called, it's only about a five page paper published in

Steve Keen (2:36:06.200)

a book and a very, very obscure conference paper.

Lex Fridman (2:36:09.700)

And what he was doing was trying to build a model of Marx.

Lex Fridman (2:36:13.660)

So he wrote it in 1967 and it was putting into mathematical form a model that Marx came

Lex Fridman (2:36:19.840)

up with in 1867.

Lex Fridman (2:36:21.700)

So it was a centenary birthday present to Marx.

Lex Fridman (2:36:24.360)

And what Marx had argued in chapter 25, I think, of volume one of Capital, section three,

Steve Keen (2:36:35.780)

he built a verbal model of a cyclical system.

Lex Fridman (2:36:39.140)

And it's quite out of character with the rest of the book.

Lex Fridman (2:36:41.600)

So when you read volume one of Capital, people think Marx has got a commodity view of money.

Lex Fridman (2:36:47.600)

He doesn't at all.

Steve Keen (2:36:50.420)

The idea was he had like an onion, you start off on the middle level and you ignore the

Lex Fridman (2:36:53.840)

outer layer, then you bring the outer layer and so on and so forth.

Steve Keen (2:36:56.480)

Anyway, in this model, in volume one of Capital, he normally just assumed work has got a subsistence

Lex Fridman (2:37:01.520)

wage.

Steve Keen (2:37:02.520)

That's it.

Steve Keen (2:37:03.520)

In this little chapter, he said that if the economy is, effectively he said, the economy

Steve Keen (2:37:09.800)

is booming, then workers will demand wage rises.

Lex Fridman (2:37:14.200)

And the wage rises will cut into the profit so that capitalists will not get the level

Steve Keen (2:37:18.580)

of profit they're expecting.

Lex Fridman (2:37:20.520)

Therefore they will invest less and the economy will slump.

Lex Fridman (2:37:23.800)

And the slump will mean workers become unemployed and have to accept wage cuts.

Lex Fridman (2:37:28.920)

And it was a model of a cyclical economy.

Lex Fridman (2:37:31.140)

And as it happens, Marx spent his later years trying to learn enough calculus to be able

Lex Fridman (2:37:35.720)

to model it himself mathematically.

Lex Fridman (2:37:37.780)

And he never managed.

Steve Keen (2:37:38.780)

There's Marx's mathematical notes on calculus, which are quite fun to read if you have a

Steve Keen (2:37:42.880)

mathematical background.

Lex Fridman (2:37:43.880)

Did he get far?

Lex Fridman (2:37:44.880)

Far?

Lex Fridman (2:37:45.880)

Far?

Steve Keen (2:37:46.880)

No.

Steve Keen (2:37:47.880)

He got too caught up in the whole philosophy and never really got to build the model.

Lex Fridman (2:37:50.560)

But what Goodman realized was a predator prey model.

Lex Fridman (2:37:54.240)

Okay.

Steve Keen (2:37:55.240)

The Locta Volterra model was the basis of the idea.

Lex Fridman (2:37:57.920)

So the idea is you have a prey, and the example that Locta actually used initially was grass.

Steve Keen (2:38:07.400)

Grass is the prey.

Lex Fridman (2:38:08.680)

And then you have a predator, and the predator were cows.

Lex Fridman (2:38:12.200)

So you start off with a very few cows, lots of grass.

Lex Fridman (2:38:15.560)

And then because of lots of grass, the numbers of cows grow.

Lex Fridman (2:38:19.300)

And then because the cows grow, they start to eat the grass.

Lex Fridman (2:38:21.720)

So the grass runs out, so the cows starve, and you get a cycle.

Lex Fridman (2:38:25.420)

And what Locta was amazed by was that the cycles were persistent.

Lex Fridman (2:38:28.860)

They didn't die out.

Lex Fridman (2:38:30.060)

So Goodman got that vision, and he then built a predator prey model.

Lex Fridman (2:38:33.940)

And I, first of all, read Goodman and really found it really hard to follow his writing.

Steve Keen (2:38:37.960)

He's not a very good writer, but a guy called John Blatt, who was a professor of mathematics

Steve Keen (2:38:42.880)

at New South Wales University, wrote a brilliant explanation of Goodman's model in a book called

Steve Keen (2:38:48.500)

Dynamic Economic Systems.

Lex Fridman (2:38:49.720)

And I read that.

Steve Keen (2:38:50.720)

It was superb, and he said a way he could extend this was to include finance.

Lex Fridman (2:38:55.900)

So I thought, okay, what I'm going to have is that what Goodman presumed is capitalists

Steve Keen (2:39:00.460)

invest all their profits.

Lex Fridman (2:39:02.740)

So you get a boom when there's a high rate of profit because they invest all that money,

Lex Fridman (2:39:08.620)

and then a slump when there's low profit because depreciation will wipe away capital and you'll

Lex Fridman (2:39:13.300)

go boom and slump.

Lex Fridman (2:39:14.840)

So I simply added in, well, capitalists will invest more than their profits during a boom,

Lex Fridman (2:39:21.100)

but less than their profits during a slump.

Lex Fridman (2:39:23.760)

And that therefore means they had to borrow money to finance the gap and pay interest

Lex Fridman (2:39:27.220)

on the debt.

Lex Fridman (2:39:28.340)

So I ended up with a model with just three systems states, the income share, the wages

Steve Keen (2:39:32.660)

distribution of income between workers, capitalists, and bankers, the level of employment, and

Steve Keen (2:39:38.260)

the level of private debt.

Lex Fridman (2:39:40.540)

And those three equations are fundamentally like going from the Locke to Volterra model

Steve Keen (2:39:45.620)

with just two equations, and therefore you get a fixed cycle, to the Lorenz model where

Lex Fridman (2:39:50.380)

you have three.

Lex Fridman (2:39:51.920)

And therefore what I got out of it was a chaotic outcome.

Lex Fridman (2:39:54.300)

So what you're seeing is a manifestation of chaos, complexity in those plots.

Lex Fridman (2:40:00.560)

But one of the many fascinating parts about it was that as the level of private debt rose,

Steve Keen (2:40:08.740)

in my model I had capitalists being the only ones who borrowed, but the people who paid

Steve Keen (2:40:12.860)

for the high level of private debt were the workers.

Lex Fridman (2:40:17.460)

The rising banker's share corresponded exactly to a falling worker's share.

Lex Fridman (2:40:22.780)

So you can infer from that that the workers are the ones paying.

Lex Fridman (2:40:26.580)

Effectively, the workers end up paying for it.

Steve Keen (2:40:28.020)

They get a lower level of wages.

Lex Fridman (2:40:30.220)

And the basic dynamic is that capitalists, when you have a three social class system,

Steve Keen (2:40:36.120)

your income goes between workers, capitalists, and bankers.

Lex Fridman (2:40:38.820)

Now in the system, the good one did, they're just workers and capitalists.

Lex Fridman (2:40:41.860)

So if workers share rose, capitalists share had to fall.

Lex Fridman (2:40:45.380)

But when you have three social classes, then capitalists share can remain constant while

Steve Keen (2:40:49.180)

workers fall and bankers rise.

Lex Fridman (2:40:53.580)

So that's what actually happened.

Steve Keen (2:40:55.580)

Because capitalists, the simple way I modeled it was there's a certain rate of profit at

Lex Fridman (2:40:59.580)

which capitalists invest all their profits.

Steve Keen (2:41:02.180)

Above that they borrow more, below that they pay off debt.

Lex Fridman (2:41:05.620)

So what would happen is when you got back to that point, then the level of investment

Steve Keen (2:41:09.820)

would be a precise share of GDP.

Lex Fridman (2:41:13.260)

And therefore you'd get a precise rate of economic growth.

Lex Fridman (2:41:15.980)

But if there was a higher percentage going to bankers and offset by a lower share going

Lex Fridman (2:41:20.740)

to workers, it didn't affect the capitalists.

Lex Fridman (2:41:23.140)

So what you get is the cycles sort of diminish for a while because there's the income distribution

Lex Fridman (2:41:31.720)

effect is important.

Lex Fridman (2:41:32.720)

So the workers pay for the increasing level of debt.

Lex Fridman (2:41:37.140)

But the other side of it was that the cycles would diminish for a while.

Steve Keen (2:41:40.580)

Now what you get is a period of diminishing cycles, then leading to rising cycles.

Lex Fridman (2:41:45.660)

And technically this is known as the Pomeranville route to chaos, and it's one particular element

Steve Keen (2:41:53.840)

of Lorenzo's equations of fluid dynamics.

Lex Fridman (2:41:57.580)

So what they found was in examining laminar flow in a fluid, you have a period where the

Steve Keen (2:42:03.380)

laminar flow got more laminar, and then suddenly it'd start to get less laminar and go turbulent.

Lex Fridman (2:42:09.760)

And this is what actually goes on in the model, so in my model of Minsky.

Lex Fridman (2:42:14.500)

So what you have is a period where there's big berms and cycles, and then as the debt

Lex Fridman (2:42:19.800)

level rises, the berms and slumps get smaller.

Lex Fridman (2:42:23.640)

And that looks like what neoclassical economists call the Great Moderation.

Lex Fridman (2:42:28.000)

So when I first modeled this in 1982, I finished up my paper, which was published in 95, with

Lex Fridman (2:42:33.780)

what I thought was a nice rhetorical flourish, saying the chaotic dynamics of this paper

Steve Keen (2:42:38.940)

should warn us against regarding a period of relative stability in a capitalist economy

Steve Keen (2:42:43.380)

as anything more than a lull before the storm.

Steve Keen (2:42:45.580)

Now I thought it was a great speed of rhetoric, I didn't think it was going to fucking happen.

Lex Fridman (2:42:50.140)

But it did, because you had this period from 1990 through to 2007 where there were diminishing

Steve Keen (2:42:56.360)

cycles, and the neoclassicals labeled that the Great Moderation, and they took the credit

Steve Keen (2:43:00.420)

for it.

Steve Keen (2:43:01.420)

They thought that the economy was being managed by them to a lower rate of inflation, a lower

Steve Keen (2:43:06.500)

level of unemployment, less instability over time, and they literally took credit for it.

Lex Fridman (2:43:11.460)

And I was watching that and thinking, that's like my model running, and I'm scared as

Steve Keen (2:43:14.980)

shit that there'll be a breakdown.

Steve Keen (2:43:17.540)

I ended up not working in the area for a while because I wrote Debunking Economics, and I

Steve Keen (2:43:23.380)

got involved in a fight over the modeling of competition in neoclassical theory that

Lex Fridman (2:43:28.780)

took me away for about four or five years.

Lex Fridman (2:43:31.340)

And then I got asked to do a court case in 2005, end of 2005, and I used Minsky as my

Steve Keen (2:43:40.260)

framework for arguing that somebody who was involved in predatory lending should be able

Steve Keen (2:43:44.880)

to get out of the debt they were in.

Lex Fridman (2:43:47.460)

And I explained Minsky's theory, and I used this throwaway line of saying debt levels

Steve Keen (2:43:52.700)

of private debt have been rising exponentially.

Lex Fridman (2:43:55.860)

And then I thought, well, I can't, as an expert, just make a claim like that.

Steve Keen (2:43:59.380)

I've got to check the data.

Lex Fridman (2:44:01.380)

And the debt ratio was rising exponentially, and I thought, holy shit, we're in for a financial

Steve Keen (2:44:05.700)

crisis, and somebody has to warn about it, and at least in Australia, I was that somebody.

Lex Fridman (2:44:10.860)

So can you, given this chaotic dynamics idea, can you talk about the crises ahead of us

Lex Fridman (2:44:16.700)

in the future?

Lex Fridman (2:44:17.700)

So one of the things, I mean, it's a fundamental question of economics.

Lex Fridman (2:44:21.820)

Is economics about understanding the past or predicting the future?

Steve Keen (2:44:26.380)

Because you can construct models that do poetic, like in 95, poetic, you know, yeah, and then

Steve Keen (2:44:37.540)

you can, you know, watch years fly by, and some of the predictions in retrospect that

Steve Keen (2:44:43.860)

you make turn out to be true, but, you know, all kinds of gurus throughout history have

Steve Keen (2:44:49.980)

done that kind of thing, and you can call yourself right and forget all the many times

Lex Fridman (2:44:54.860)

you've been wrong.

Steve Keen (2:44:56.460)

Let's talk about the future.

Lex Fridman (2:44:57.840)

What kind of stuff, you mentioned about the importance of the biosphere, but what are

Steve Keen (2:45:02.540)

the crises that are ahead of us that a chaotic dynamics view allows us to predict and be

Lex Fridman (2:45:10.660)

concerned about?

Steve Keen (2:45:11.660)

Getting out of it, leaving aside the ecological, wasn't a crisis, it was stagnation.

Steve Keen (2:45:17.980)

Because what we got out of the crisis was caused by a rising level of private debt.

Steve Keen (2:45:23.300)

Now you reach a peak level where the willingness to take on debt collapses.

Lex Fridman (2:45:29.700)

And so you go to a period where debt is rising all the time.

Lex Fridman (2:45:32.940)

So credit, which is the annual change in debt, and that's credit as part of aggregate demand

Lex Fridman (2:45:38.300)

and aggregate income.

Lex Fridman (2:45:39.980)

So credit goes from positive to negative, and that causes a slump.

Lex Fridman (2:45:44.740)

So can you describe why that causes a slump?

Lex Fridman (2:45:47.060)

So credit goes to negative.

Steve Keen (2:45:49.420)

If you ask Paul Krugman, he'll tell you credit plays no role in aggregate demand.

Steve Keen (2:45:53.180)

Give me a second.

Lex Fridman (2:45:55.960)

Credit plays no role in aggregate demand.

Lex Fridman (2:45:58.780)

So the vision that the neoclassicals have for the banking system is what they call learnable

Lex Fridman (2:46:02.660)

funds.

Steve Keen (2:46:03.660)

Is Paul Krugman, by the way, the knight at the front of the army that is the neoclassical

Lex Fridman (2:46:10.460)

economist?

Steve Keen (2:46:11.460)

Yeah, fundamentally.

Lex Fridman (2:46:12.460)

Sure.

Steve Keen (2:46:13.460)

Okay.

Steve Keen (2:46:14.460)

He's politically reasonable, which makes him more dangerous than those that aren't.

Steve Keen (2:46:21.360)

He's politically...

Steve Keen (2:46:22.360)

Yeah, there's quite a lot of people that would disagree with that characterization of Paul

Steve Keen (2:46:25.660)

Krugman as he's politically reasonable.

Lex Fridman (2:46:28.300)

You should see the people behind him.

Steve Keen (2:46:29.300)

The alternatives.

Lex Fridman (2:46:30.300)

Okay.

Steve Keen (2:46:31.300)

Fair enough.

Lex Fridman (2:46:32.300)

Okay.

Lex Fridman (2:46:33.300)

So he's not a negative or positive statement, that's just he can be feisty as well.

Lex Fridman (2:46:36.420)

Oh, he can.

Steve Keen (2:46:37.420)

He can.

Lex Fridman (2:46:38.420)

But he's like the human face of neoclassical economics.

Steve Keen (2:46:40.780)

It doesn't deserve having a human face.

Lex Fridman (2:46:43.020)

It's anti human theory.

Lex Fridman (2:46:45.260)

But he's the human face.

Lex Fridman (2:46:46.260)

Tell me what you really think.

Steve Keen (2:46:47.260)

I got you.

Lex Fridman (2:46:48.260)

All right.

Steve Keen (2:46:49.260)

Well, so but the credit does not have any effect on aggregate demand.

Lex Fridman (2:46:54.300)

In their model.

Lex Fridman (2:46:55.300)

And you're saying that's not the case at all.

Lex Fridman (2:46:56.900)

It's absolutely crucial to aggregate demand.

Lex Fridman (2:46:59.000)

So what they model is, again, the example of you lending to me or vice versa.

Lex Fridman (2:47:03.420)

If I lend money to you, I can spend less, you can spend more.

Lex Fridman (2:47:07.660)

So credit is the change in debt.

Lex Fridman (2:47:11.020)

So if I lend money to you, then there's a level of private debt rises.

Lex Fridman (2:47:17.100)

So there's an increase in credit.

Lex Fridman (2:47:19.000)

But that increase in credit comes at an expense of my spending power.

Lex Fridman (2:47:22.820)

So you can spend what I've lent you, but I can't spend what I've lent you.

Lex Fridman (2:47:26.860)

So credit cancels out.

Steve Keen (2:47:28.700)

When you look at that's learnable funds.

Lex Fridman (2:47:30.600)

But in the real world, and the Bank of England has said this is the real world and the textbooks

Steve Keen (2:47:34.180)

are wrong categorically in 2014.

Lex Fridman (2:47:38.900)

When the bank lends, it adds to its asset side and says, you owe us more money.

Lex Fridman (2:47:43.940)

And it adds to its liability side and says, here's the money in your bank account.

Lex Fridman (2:47:47.340)

Now you spend that money.

Lex Fridman (2:47:49.420)

So what happens when you do your sums, credit is part of aggregate demand and aggregate

Lex Fridman (2:47:54.380)

income.

Lex Fridman (2:47:55.380)

And that's something I first solved in 2019, I think, 2000, I only recently proved it mathematically.

Lex Fridman (2:48:02.160)

So what that means is credit is a component of aggregate demand, and credit is also very

Steve Keen (2:48:08.540)

volatile.

Steve Keen (2:48:09.540)

It's like consumption demand never goes negative, investment demand never goes negative, but

Steve Keen (2:48:14.140)

credit can go from positive to negative.

Lex Fridman (2:48:15.700)

And when you take a look at the long run of American history after the Second World War,

Steve Keen (2:48:21.620)

there was no period until 2007 where credit was negative.

Steve Keen (2:48:26.740)

It was a positive number, therefore, when you do it as a percentage of GDP, it was a

Steve Keen (2:48:34.000)

positive percentage of GDP.

Lex Fridman (2:48:36.360)

It peaked at 16% of GDP in 2006, 2007.

Steve Keen (2:48:42.840)

It fell to minus 5% in 2008, 2009.

Lex Fridman (2:48:47.500)

So you had a 20% of GDP turnaround in aggregate demand.

Steve Keen (2:48:51.980)

Now when you plot that against unemployment, the correlation of credit to unemployment

Lex Fridman (2:49:00.060)

across the period from about 1990 to 2010 is about minus 0.9, okay?

Steve Keen (2:49:09.300)

Enormous negative correlation.

Lex Fridman (2:49:10.520)

Now according to the neoclassicals, it should be close to zero.

Steve Keen (2:49:14.380)

Empirically it's bleedingly obvious it's not.

Lex Fridman (2:49:16.180)

And it applies to every country in the world that had a financial crisis at that period.

Lex Fridman (2:49:21.540)

So it's bleedingly obvious in the data.

Lex Fridman (2:49:24.740)

And they ignore it because credit's not part of their model.

Lex Fridman (2:49:28.180)

And you're saying it's causation.

Lex Fridman (2:49:29.180)

It is causal.

Steve Keen (2:49:31.900)

Today we sit there, it's extremely high inflation.

Lex Fridman (2:49:35.980)

What role does inflation play in this picture?

Lex Fridman (2:49:41.500)

Is a little bit of inflation good?

Lex Fridman (2:49:43.060)

We talked about money creation at the beginning.

Lex Fridman (2:49:48.380)

What's a little bit of inflation good or bad?

Lex Fridman (2:49:50.500)

A lot of inflation good or bad?

Lex Fridman (2:49:52.220)

How concerned are you about?

Steve Keen (2:49:53.220)

A little bit is good for a simple reason that, like again, it's taken me a while to get my

Steve Keen (2:49:57.420)

head around this.

Lex Fridman (2:49:58.720)

But if you think about how people say, what are the functions of money?

Steve Keen (2:50:01.500)

They say money, it's a unit of account, so you're measuring.

Lex Fridman (2:50:04.780)

It's a means of exchange, okay?

Lex Fridman (2:50:06.980)

And it's a store of value, okay?

Steve Keen (2:50:09.300)

Now yes, okay, it has those three roles, but the last one is contradictory to the previous

Steve Keen (2:50:15.060)

two.

Steve Keen (2:50:16.060)

Because, and this is where you see this with the Bitcoin phenomenon, if you want to hang

Steve Keen (2:50:20.440)

onto money as a store of value, then if prices are falling, the value of money is rising.

Lex Fridman (2:50:29.740)

And it's actually in your interests as a store of value to hang onto it and not spend it.

Lex Fridman (2:50:35.340)

So that contradicts its role as a means of exchange.

Steve Keen (2:50:39.280)

Now if you have money which depreciates, and this was actually tried in the Austrian town

Steve Keen (2:50:44.320)

of Wargel during the Great Depression.

Steve Keen (2:50:48.420)

If you have money that depreciates, then if you don't use it, you lose it fundamentally.

Lex Fridman (2:50:53.300)

So it has a high rate of circulation.

Lex Fridman (2:50:55.500)

So there's a monetary theorist called Silvio Gazzell, and he wrote this proposal that money

Steve Keen (2:51:01.740)

should depreciate.

Lex Fridman (2:51:03.940)

And he was ridiculed and opposed and derided, but Keynes said he was a great intellect.

Lex Fridman (2:51:09.640)

And the mayor of the town of Wargel in Austria during the Great Depression was facing an

Lex Fridman (2:51:15.660)

unemployment rate of 25% pretty much.

Steve Keen (2:51:18.760)

Germany had the worst experience in the Great Depression in the world, as bad as America,

Lex Fridman (2:51:23.700)

slightly worse than America.

Lex Fridman (2:51:25.600)

And so he thought, how can I stimulate demand here?

Lex Fridman (2:51:28.600)

So he produced a script which could only be used for buying goods and services in Wargel.

Lex Fridman (2:51:33.500)

And it could be used to pay your local rates.

Lex Fridman (2:51:37.460)

But it was depreciated by putting a stamp on the money if you didn't use it.

Lex Fridman (2:51:41.460)

So what happened was people would pay their rates, they needed to pay the rates using

Lex Fridman (2:51:45.720)

this money, so the script, so they used the script.

Lex Fridman (2:51:49.180)

And because it depreciated, you'd use it rapidly.

Lex Fridman (2:51:52.760)

So people were using that money, this alternative to the Austrian shilling, and the economic

Steve Keen (2:51:58.240)

activity in town took off, and unemployment fell to zero.

Lex Fridman (2:52:02.040)

And it was an absolute miracle, and everybody loved a Wargel experiment, and the Austrian

Steve Keen (2:52:06.040)

central bank sued them for establishing an alternative form of money and shut it down.

Steve Keen (2:52:12.160)

Unemployment went back up to 25% again, and Austria voted 99.6% for the Nazis, something

Steve Keen (2:52:20.280)

crazy number like that when Hitler marched in.

Lex Fridman (2:52:22.920)

So the Wargel experiment showed that a depreciating currency led to a high rate of circulation.

Lex Fridman (2:52:29.720)

But of course, we're not talking Weimar Republic levels of inflation.

Lex Fridman (2:52:33.700)

So when you get that much inflation, and that's normally caused by, as the Weimar inflation

Steve Keen (2:52:40.340)

was caused by, the reparation terms imposed on Germany, fundamentally by France at the

Steve Keen (2:52:46.080)

Treaty of Versailles, they paid a large part of that with just basically printing the notes,

Lex Fridman (2:52:52.140)

and you went into this crazy period of hyperinflation.

Lex Fridman (2:52:54.900)

So hyperinflation almost always occurs when there's a massive destruction of physical

Steve Keen (2:52:58.480)

resources, and the monetary authority tries to paper, literally, over it, and then you

Lex Fridman (2:53:03.040)

get hyperinflation, that's total social breakdown.

Lex Fridman (2:53:05.760)

So a moderate level of inflation inspires the means of exchange usage of money, but

Lex Fridman (2:53:12.560)

undermines the store of value usage of money.

Lex Fridman (2:53:17.560)

And that dilemma is why we have this antagonistic attitude towards inflation.

Steve Keen (2:53:22.760)

Yeah, I mean, you're describing it as a tension, but it nevertheless is, like money is a store

Steve Keen (2:53:31.120)

of value and a means of exchange, and I don't, you know, to push back, it's not necessarily

Steve Keen (2:53:36.600)

that there's a tension, it's just that depending on the dynamics of this beautiful economic

Steve Keen (2:53:42.360)

system of ours, it's used as one more than the other.

Steve Keen (2:53:45.800)

If there's inflation, you're using it more for the means of exchange, there's deflation

Steve Keen (2:53:53.380)

using more for store of value, but that doesn't, I don't see that as a tension, that's just

Lex Fridman (2:53:57.560)

a, how much you use it for those different, like...

Lex Fridman (2:54:00.800)

But it ends up saying that overall, the level of effective commerce, a bit of inflation

Steve Keen (2:54:07.240)

is a good thing, because that's depreciating the money slightly and encourage its use.

Steve Keen (2:54:11.400)

Yeah, but so the argument that some Bitcoin folks use or gold standard folks, again, HODL

Steve Keen (2:54:20.400)

is not an argument, is that having an inflation of zero is actually achieving that balance.

Steve Keen (2:54:29.320)

Yeah.

Lex Fridman (2:54:30.320)

Right?

Lex Fridman (2:54:31.320)

So like, yeah.

Lex Fridman (2:54:32.320)

But they're actually in favor of negative, they want it to be appreciated rapidly, and

Steve Keen (2:54:36.200)

because of the negative inflation, the value of the money rising relative to commodities,

Lex Fridman (2:54:42.980)

that's what they want, that's the HODL philosophy.

Steve Keen (2:54:45.480)

Well, that's more of like an investment, I don't know if that, that's more of investment

Steve Keen (2:54:50.380)

philosophy than the fundamental principles of why they believe in cryptocurrency, in

Steve Keen (2:54:55.680)

forced scarcity, it's a model.

Steve Keen (2:54:58.140)

The concern there is that when you print money, the public policy is detached from the actual

Steve Keen (2:55:04.040)

value.

Steve Keen (2:55:06.480)

Yeah, well, I mean, this is where, again, it matters to get money creation right, because

Steve Keen (2:55:12.720)

the government's not the only money creator, banks are as well, private banks.

Lex Fridman (2:55:19.000)

And if we obsess too much about limiting government money creation, what we end up getting, if

Steve Keen (2:55:25.160)

there is money creation going on, it's private banks doing it, and you get an increase in

Steve Keen (2:55:28.920)

private debt, and fundamentally, private debt and its collapse, the collapse of credit,

Steve Keen (2:55:36.720)

when it stops growing, that's the fundamental cause of financial crises.

Lex Fridman (2:55:41.200)

So yeah, but the question is, what's the cause for the collapse of the...

Steve Keen (2:55:46.240)

Well, I think this is like the Austrian thinking leaves out the debt deflation.

Lex Fridman (2:55:51.820)

And that's like, I think one of the most important papers ever written was by Irving Fisher called

Steve Keen (2:55:56.640)

the Debt Deflation Theory of Great Depressions.

Lex Fridman (2:55:59.640)

Fisher was somebody who accepted the neoclassical vision.

Steve Keen (2:56:02.640)

He wrote the pre Efficiency Market Hypothesis, Efficiency Market Hypothesis.

Lex Fridman (2:56:09.300)

He had his own PhD called the Theory of Interest.

Lex Fridman (2:56:14.680)

And in that, he argued effectively for a supply and demand analysis of the financial system.

Lex Fridman (2:56:21.940)

And he argued for equilibrium, he said when you're working with a commodity market, then

Steve Keen (2:56:27.480)

the sale and the transaction and the exchange occur at the same point in time.

Steve Keen (2:56:35.040)

When you're working with the financial market, then the exchange occurs through time.

Lex Fridman (2:56:39.520)

So he said he assumed that debts are repaid, all debts are repaid, and he assumed that

Lex Fridman (2:56:46.680)

equilibrium through time was an essential part of his assumption.

Steve Keen (2:56:50.200)

This is...and then the Great Depression comes along.

Lex Fridman (2:56:54.680)

And he has become a major shareholder in the rank Xerox because he invented the Roller

Steve Keen (2:57:00.640)

Dex.

Lex Fridman (2:57:01.640)

He's a tinkerer.

Lex Fridman (2:57:03.600)

And so he had taken out shares on margin, and he was worth about 100 million in modern

Lex Fridman (2:57:09.720)

terms when the Great Depression hit.

Lex Fridman (2:57:12.480)

And 90% of that was share market valuation.

Lex Fridman (2:57:14.920)

He'd taken out margin debt just like everybody else.

Lex Fridman (2:57:18.120)

And with margin debt, you could put down $100,000 and buy a million dollars worth of shares.

Lex Fridman (2:57:24.120)

So you got this huge leverage into debt.

Steve Keen (2:57:27.120)

Now that when the financial crisis hit, the level of margin debt in America had risen

Lex Fridman (2:57:30.720)

from half a percent of GDP in 1920 to 13% of GDP in 1929.

Steve Keen (2:57:38.660)

It then fell to zero again.

Steve Keen (2:57:40.460)

That's why the stock market crash in 1929 was so devastating, that scale of margin lending.

Lex Fridman (2:57:46.520)

And everybody was being wiped out, they were selling Rolls Royces for 20 quid.

Lex Fridman (2:57:49.960)

You literally have photographs showing people doing that.

Steve Keen (2:57:52.400)

Because a margin call comes in, you've got to liquidate everything.

Lex Fridman (2:57:56.500)

So he said the danger of a debt deflation is what we have to avoid.

Lex Fridman (2:58:02.180)

And that means you don't want too much private debt to accumulate, and you don't want falling

Steve Keen (2:58:08.360)

prices because the falling prices will amplify the impact of being insolvent to begin with.

Lex Fridman (2:58:14.680)

And that's what we saw in the Great Depression.

Lex Fridman (2:58:16.800)

It's partially what we saw in 2007.

Lex Fridman (2:58:19.720)

But we didn't have anything like the level of margin debt.

Lex Fridman (2:58:23.360)

Margin debt was reduced from 90% to 50% ratio after the Great Depression.

Lex Fridman (2:58:29.100)

So there were limits on how bad it was in 2007.

Lex Fridman (2:58:33.200)

But the danger is still the period of deflation amplifies your debts.

Steve Keen (2:58:37.960)

Okay.

Lex Fridman (2:58:38.960)

And I call it Fisher's Paradox, he didn't write those terms himself.

Lex Fridman (2:58:42.260)

But he wrote a line saying the more debtors pay, the more they owe.

Lex Fridman (2:58:46.080)

Okay.

Lex Fridman (2:58:47.080)

And this is because you're liquidating to try to meet your own debts.

Lex Fridman (2:58:52.360)

When you liquidate, the price level falls.

Steve Keen (2:58:55.080)

You will end up having a lower level of monetary debt, but a higher level of debt when you

Lex Fridman (2:59:00.280)

deflate it using the price level.

Lex Fridman (2:59:02.360)

So the biggest danger in capitalism is the debt deflation, far more dangerous than inflation.

Lex Fridman (2:59:08.000)

And the cause of debt deflation is?

Steve Keen (2:59:11.040)

Too much lending.

Lex Fridman (2:59:12.040)

Too much bank lending.

Steve Keen (2:59:13.040)

Too much private money creation.

Lex Fridman (2:59:14.520)

And if you take a look at the 1920s, Calvin Coolidge explained the boom of the 1920s on

Steve Keen (2:59:21.200)

his surplus.

Steve Keen (2:59:22.200)

He said, my government running a surplus of 1% of GDP pretty much from 1922 through to

Steve Keen (2:59:28.040)

1930 is the foundation of our stability.

Lex Fridman (2:59:30.600)

It should be continued.

Lex Fridman (2:59:32.040)

What he didn't look at was that over that same time period, on average, Americans were

Lex Fridman (2:59:37.440)

borrowing 5% of GDP per year from the private banks.

Lex Fridman (2:59:42.320)

So you had a housing bubble at the beginning of the 1920s, which Richard Vague covers beautifully

Lex Fridman (2:59:46.480)

in the brief history of doom.

Lex Fridman (2:59:49.720)

And then you had this huge rise in margin debt as well, gigantic increase in margin

Lex Fridman (2:59:54.480)

debt.

Lex Fridman (2:59:55.640)

So all this borrowed money was being spent into the economy, and this is where credit

Lex Fridman (2:59:59.280)

becomes part of aggregate demand.

Steve Keen (30:00.400)

That's zero.

Lex Fridman (30:01.400)

So money is the liabilities side of the banking sector.

Steve Keen (30:04.360)

Okay.

Lex Fridman (30:05.360)

Okay.

Steve Keen (30:06.360)

Assets are the...

Steve Keen (30:08.480)

The assets on the other side can be either created by the banking sector, which is where

Steve Keen (30:12.200)

you get bank loans, or created by the government, where you get reserves.

Lex Fridman (30:16.640)

But money is the liabilities.

Steve Keen (30:18.120)

Money is...

Steve Keen (30:19.120)

If you think about protons and anti protons, in that sense, money is like the anti proton.

Steve Keen (30:23.800)

It's the negative, the liability.

Lex Fridman (30:25.760)

But wait, wait, wait.

Steve Keen (30:27.600)

The liability is the negative.

Lex Fridman (30:30.960)

Yeah.

Lex Fridman (30:31.960)

How's that money?

Lex Fridman (30:32.960)

I thought money is the positive.

Lex Fridman (30:33.960)

What is the liability for the banking sector is an asset for you and me.

Lex Fridman (30:37.880)

And assets includes money?

Steve Keen (30:39.720)

Yeah.

Lex Fridman (30:40.720)

Yeah.

Steve Keen (30:41.720)

Okay.

Steve Keen (30:42.720)

If you have a bank account, you'd have a bank account, and you'd have some cash.

Steve Keen (30:45.520)

Yeah.

Lex Fridman (30:46.520)

Okay.

Steve Keen (30:47.520)

Those are your assets.

Lex Fridman (30:48.520)

But the bank account is a liability of the banking sector, and the cash is a liability

Steve Keen (30:53.560)

of the Federal Reserve.

Lex Fridman (30:55.040)

Okay.

Lex Fridman (30:56.040)

So what's money?

Steve Keen (30:57.040)

Well, money is the promise of a third party that we both accept to close our transaction.

Lex Fridman (31:04.280)

And this is...

Lex Fridman (31:05.280)

And that's a bank with a liability?

Steve Keen (31:06.280)

That's a bank.

Lex Fridman (31:07.280)

Yeah.

Steve Keen (31:08.280)

One of the most important works I've ever read is a work by a wonderful, now unfortunately

Lex Fridman (31:12.120)

deceased, Italian economist called Augusto Graziani.

Lex Fridman (31:18.000)

And he's the most wonderful personality.

Steve Keen (31:20.120)

Augusto, I met him on a few occasions, is one of the few human beings who can speak

Steve Keen (31:26.160)

in perfectly formed paragraphs, okay, superbly eloquent.

Lex Fridman (31:31.260)

And what he did was write a paper called The Monetary Theory of Production.

Steve Keen (31:36.060)

You can find it, download it on the web, it's pretty much open source now.

Lex Fridman (31:41.640)

And what he said is, what distinguishes a monetary economy from a barter economy?

Lex Fridman (31:45.400)

So he said, in a barter economy, what we do is, you know, I'll give you two of these for

Lex Fridman (31:50.840)

one of those.

Steve Keen (31:51.840)

Yeah.

Lex Fridman (31:52.840)

Okay, barter.

Lex Fridman (31:53.840)

So we've got a relative price, there are two of us involved, and there are two commodities.

Lex Fridman (31:57.600)

So with money, money is a triangular transaction, okay?

Steve Keen (32:02.440)

There is one commodity, I want to buy that can of drink off you, two people, and the

Steve Keen (32:08.640)

price that's worked out ends up being in a transfer from the promises to pay the bank

Steve Keen (32:14.540)

that the buyer has to the promises to pay the bank that the seller has.

Lex Fridman (32:19.240)

So if I, so what you have is a monetary transaction in a capitalist economy involves three agents,

Steve Keen (32:26.380)

the buyer, the seller, and the bank.

Lex Fridman (32:28.160)

So the bank always has to be part of it.

Steve Keen (32:29.960)

Well, the bank has to be part of it.

Steve Keen (32:32.160)

When I hand you the money, you accept that as you've now got, rather than it's the bank

Steve Keen (32:37.600)

promising to pay me something, it's now the bank promising to pay you something.

Lex Fridman (32:41.320)

And we exchange the promises of banks, and that's fundamentally money.

Lex Fridman (32:46.040)

So money is fundamentally a threesome, and everybody gets fucked.

Lex Fridman (32:51.440)

Is that a good way to put it?

Steve Keen (32:53.200)

No, I'm just kidding.

Steve Keen (32:54.200)

It leaves it, it leaves it for the guy to be like, oh no, I can use French in this conversation,

Steve Keen (32:57.520)

that's good.

Lex Fridman (32:58.520)

That's not French, that's a different language, I'll explain it to you one day.

Steve Keen (33:03.560)

You Australians will never understand.

Lex Fridman (33:05.800)

Okay, if I can return to, we'll jump around if it's okay.

Steve Keen (33:09.360)

Oh, that's fine.

Lex Fridman (33:10.360)

So you mentioned Karl Marx as one of the great intellects, economic thinkers ever.

Steve Keen (33:18.800)

He might be number one.

Steve Keen (33:21.040)

You study him quite a bit, you disagree with him quite a bit, but you still think he's

Steve Keen (33:26.080)

a powerful thinker.

Lex Fridman (33:28.040)

A powerful mind.

Steve Keen (33:29.040)

A powerful mind.

Lex Fridman (33:30.480)

So first of all, let's just explore the human.

Lex Fridman (33:36.720)

Why do you say so?

Lex Fridman (33:38.060)

What's interesting in that mind?

Lex Fridman (33:40.100)

In the way he saw the world, what are the insights that you find brilliant?

Steve Keen (33:45.520)

Marx once described his major work as, towards a critical examination of everything existing.

Lex Fridman (33:54.360)

So he's a modest bastard.

Lex Fridman (33:56.180)

So he wanted to understand and criticize everything.

Lex Fridman (34:00.040)

And even, he wasn't trained directly by Hegel, but his teachers were Hegelian philosophers.

Lex Fridman (34:08.240)

And what Hegel developed was a concept called dialectics.

Lex Fridman (34:12.760)

And dialectics is the philosophy of change.

Lex Fridman (34:15.580)

And when most people hear the word dialectics, they come up with this unpronounceable trio

Steve Keen (34:21.520)

of words called thesis, antithesis, synthesis.

Lex Fridman (34:25.760)

I can barely get the words out myself.

Lex Fridman (34:28.040)

And that actually is not Hegel at all.

Lex Fridman (34:29.480)

That's another German philosopher.

Lex Fridman (34:30.480)

Kant?

Lex Fridman (34:31.480)

Fichte.

Steve Keen (34:32.480)

Oh, I thought it was Kant.

Lex Fridman (34:33.480)

No, Fichte.

Steve Keen (34:34.480)

Well, I'm not sure.

Lex Fridman (34:35.480)

I mix them up.

Steve Keen (34:36.480)

All Germans look the same to me.

Lex Fridman (34:37.480)

Yeah.

Steve Keen (34:38.480)

Yeah.

Lex Fridman (34:39.480)

So, but if you look, there's a beautiful book called Marx and Contradiction.

Steve Keen (34:42.760)

You want to find a great explanation for Marx's philosophy.

Lex Fridman (34:45.720)

I've forgotten the author.

Steve Keen (34:46.720)

I think it's Wild, W I L D E, Marx and Contradiction.

Lex Fridman (34:50.960)

And he points out the actual origins of Marx's philosophy, but I didn't know that when I

Steve Keen (34:55.120)

first read Marx.

Lex Fridman (34:56.120)

So I became exposed to Marx when I was a student at Sydney University.

Lex Fridman (35:01.500)

And we'd had a strike at the university over the teaching of philosophy.

Lex Fridman (35:06.840)

And what happened was the philosophy department had a lot of radical philosophers in it and

Steve Keen (35:11.320)

a conservative chief philosopher.

Lex Fridman (35:14.000)

And the radicals wanted to have a course on what they called philosophical aspects of

Steve Keen (35:21.040)

feminist thought.

Lex Fridman (35:22.740)

And the staff voted in favor of it.

Steve Keen (35:24.280)

This is back in the days when university departments were democratic.

Lex Fridman (35:27.640)

The professor opposed it.

Steve Keen (35:29.040)

He got it blocked at a high level.

Steve Keen (35:30.280)

The staff lipfrogged over that, and then finally the vice chancellor blocked it.

Lex Fridman (35:34.600)

So that led to a strike over the teaching of philosophy at Sydney University, which

Lex Fridman (35:39.480)

at one stage, over half the students were on strike.

Steve Keen (35:45.040)

Economics began out of that.

Lex Fridman (35:46.040)

Over teaching of a philosophy of feminism.

Steve Keen (35:48.680)

Yes.

Lex Fridman (35:49.680)

God, it's good to be a student.

Steve Keen (35:50.680)

That's such a different life to what we're living now.

Lex Fridman (35:53.260)

That's the academic milieu in which I developed all my ideas.

Lex Fridman (35:58.720)

And I had become a critic.

Steve Keen (35:59.840)

I've gone from being a believer of mainstream economics when I was a first year student

Steve Keen (36:03.740)

to disbelieving it halfway through first year.

Lex Fridman (36:06.680)

Okay.

Lex Fridman (36:07.680)

And I then spent a long time trying to change it, getting nowhere.

Lex Fridman (36:11.280)

And then this philosophy strike happened and we took it on in economics and we formed what's

Steve Keen (36:15.500)

called the political economy movement and had a successful strike.

Steve Keen (36:19.860)

We actually managed to pressure the university into establishing a department of political

Steve Keen (36:25.520)

economy at Sydney University, as well as a department of economics.

Lex Fridman (36:28.760)

What was the foundational ideas?

Steve Keen (36:30.720)

Were you resistant to the whole censorship of why can't you have a philosophy of anything

Lex Fridman (36:37.120)

kind of course?

Steve Keen (36:38.120)

Well, it was much more libertarian in the genuine sense of the word, period of time,

Steve Keen (36:44.560)

at the end of the 60s, beginning of the 70s than the word libertarian has been corrupted

Steve Keen (36:49.600)

since then.

Lex Fridman (36:50.600)

But it really was about free thought.

Lex Fridman (36:52.500)

And you went to university to learn.

Lex Fridman (36:54.060)

It was about education.

Steve Keen (36:55.060)

I remember having a fight with my father once where dad was angry about the marks I was

Lex Fridman (36:59.240)

getting for some of my courses.

Lex Fridman (37:01.120)

And he said, if you don't get a decent result, you won't get a decent job.

Lex Fridman (37:04.280)

And I said, I'm not here to get a job.

Steve Keen (37:05.440)

I'm here to get an education.

Lex Fridman (37:06.440)

Oh, wow.

Steve Keen (37:07.440)

Okay.

Lex Fridman (37:08.440)

Now, the thing is, ultimately, it's been a pretty good job for me as well.

Steve Keen (37:11.480)

This is in Sydney, by the way, and Sydney in summer is absolutely gorgeous.

Lex Fridman (37:16.160)

And what does a bunch of lefties decide to do during summer but read Karl Marx?

Steve Keen (37:20.320)

Yeah.

Lex Fridman (37:21.320)

On the beach or?

Steve Keen (37:22.320)

Actually, inside the room of the philosophy department at the University of Sydney in

Lex Fridman (37:27.480)

the main quadrangle.

Steve Keen (37:28.480)

There's sandstone all around us, and we have a bunch of about 20 or 30 of us reading our

Lex Fridman (37:32.840)

way through Marx.

Lex Fridman (37:33.840)

Capital?

Lex Fridman (37:34.840)

Which capital?

Steve Keen (37:35.840)

It was volume one capital.

Lex Fridman (37:38.540)

And I remember walking off to that meeting with one of my friends who's a law student.

Lex Fridman (37:46.000)

And this was a period of a huge construction boom in Sydney, so the whole skyline, which

Steve Keen (37:51.240)

we could see from the campus, was full of what they call kangaroo cranes, which were

Steve Keen (37:55.200)

an Australian invention, that are cranes that can be leapfrogged over each other to build

Lex Fridman (37:59.640)

a skyscraper.

Steve Keen (38:00.640)

So, here you are reading Karl Marx, looking at the mechanisms of capital.

Lex Fridman (38:05.840)

And I looked at those mechanisms, and I knew Marx argued that labor was the only source

Steve Keen (38:09.720)

of value.

Lex Fridman (38:10.720)

Yeah.

Lex Fridman (38:11.720)

And he said machinery doesn't add value.

Lex Fridman (38:12.720)

So, the cranes are worthless.

Steve Keen (38:14.760)

I'm looking at these cranes and thinking, I want a very good explanation by Marx as

Lex Fridman (38:18.120)

to why these cranes don't add value.

Steve Keen (38:20.080)

So, reading through the first seven chapters of Capital, what you found was Marx applying

Lex Fridman (38:24.680)

this dialectic.

Lex Fridman (38:26.200)

And like the Fichte and stuff is bullshit.

Lex Fridman (38:28.040)

That is not how Marx thought at all.

Steve Keen (38:29.560)

I was reading, trying to find the thesis and the synthesis, and it's not there at all in

Lex Fridman (38:34.040)

any of Marx's works.

Lex Fridman (38:35.040)

And I've read everything he's ever written on economics from 1844 to 1894, when his last

Lex Fridman (38:42.600)

books were published.

Steve Keen (38:44.080)

There's not one word of mention of that.

Lex Fridman (38:45.440)

What he does talk about is foreground and background and tension.

Lex Fridman (38:49.480)

And his idea of a dialectic is that a unity will exist in society, and that unity can

Lex Fridman (38:57.720)

be individual, it can be a commodity, anything at all.

Steve Keen (39:01.200)

The unity will be understood by that society.

Lex Fridman (39:05.440)

One particular aspect will be focused upon.

Steve Keen (39:07.200)

So, if you think about the human being in capitalism, the focus on the human being as

Lex Fridman (39:12.240)

an object is their capacity to work.

Lex Fridman (39:14.840)

You're a worker, okay?

Lex Fridman (39:17.120)

It's put in the foreground.

Steve Keen (39:19.800)

The fact that you're human and you want to play a guitar and go surfing and make love

Lex Fridman (39:23.280)

and all the other things that humans do is pushed into the background.

Steve Keen (39:27.360)

There's a tension between the two of those.

Lex Fridman (39:30.400)

And that can transform that unity over time.

Lex Fridman (39:33.320)

And that's a beautiful dynamic vision of change.

Lex Fridman (39:37.640)

So dialectics is a philosophy of change.

Lex Fridman (39:40.040)

So synthesis, antithesis is what does every idea have a counter argument?

Lex Fridman (39:45.800)

Yeah.

Steve Keen (39:46.800)

There's a positive and negative and you bring them together somehow.

Lex Fridman (39:48.760)

And then Marx has this foreground, background, and tension.

Steve Keen (39:52.440)

Foreground is all what we think of as economics and background is all the lovemaking we do

Lex Fridman (39:56.940)

as humans.

Steve Keen (39:57.940)

That sort of thing.

Lex Fridman (39:58.940)

And why is there a tension?

Lex Fridman (3:00:01.020)

And it's both not just for goods and services, it's also for shares and houses and so on.

Lex Fridman (3:00:05.760)

So a huge valuation effect.

Lex Fridman (3:00:07.960)

But then when the margin debt turned around, when people would not take out margin debt

Lex Fridman (3:00:13.280)

anymore, the demand for margin debt disappeared.

Lex Fridman (3:00:16.160)

And then it was, you know, what we call badly a positive feedback loop is actually an amplifying

Lex Fridman (3:00:21.940)

feedback loop.

Lex Fridman (3:00:22.940)

And that caused a collapse.

Lex Fridman (3:00:25.200)

So what elements of that do you see today that we need to fix and how do we fix it?

Steve Keen (3:00:30.260)

We have to regard the level of private debt as a target of economic policy, just as much

Lex Fridman (3:00:35.500)

as the rate of inflation or the rate of unemployment.

Lex Fridman (3:00:38.760)

What is the moderate amount of private debt that's good?

Lex Fridman (3:00:41.400)

I would say something of anywhere between 30 and 70% of GDP.

Lex Fridman (3:00:45.320)

What is it currently?

Lex Fridman (3:00:47.320)

In America, it's 170%.

Steve Keen (3:00:50.240)

Nice.

Lex Fridman (3:00:51.720)

Of GDP.

Steve Keen (3:00:52.720)

Of GDP.

Lex Fridman (3:00:53.720)

Oh, that's nice.

Steve Keen (3:00:54.720)

I've got, we'll have to talk after we talk, but I can show you the data in this.

Lex Fridman (3:00:57.700)

And it is just this huge increase in private debt that first of all caused the boom, but

Steve Keen (3:01:04.560)

then financing the credit causes, ultimately causes the slump.

Lex Fridman (3:01:10.080)

And so if we remove the rate level at which debt can reach and we stop speculative lending

Lex Fridman (3:01:16.360)

and basically have a lending for both innovation, investment and essential consumption items,

Lex Fridman (3:01:23.400)

we won't have the slump on the other side.

Steve Keen (3:01:25.800)

We can get rid of financial instability.

Lex Fridman (3:01:27.500)

We can't stop financial cycles, but we can stop financial breakdown.

Lex Fridman (3:01:31.620)

So we should really be focusing on the instability and getting that under control.

Steve Keen (3:01:35.380)

By the way, as you point to your laptop, my laptops, I have a lot of, how many computers

Lex Fridman (3:01:40.960)

do I have?

Steve Keen (3:01:41.960)

I have a lot of them, but my little Surface, whatever the heck this thing is, is getting

Steve Keen (3:01:45.920)

definite size envy because your laptop, you said is 18 something inches.

Lex Fridman (3:01:50.240)

18.4 inches.

Steve Keen (3:01:51.240)

18.4 inches.

Lex Fridman (3:01:52.240)

I don't think I've ever seen one that big and I'll give the internet that one.

Steve Keen (3:01:59.560)

All right.

Lex Fridman (3:02:00.780)

That's for the graphics.

Lex Fridman (3:02:01.780)

So it's a gaming laptop.

Lex Fridman (3:02:02.780)

It's a gaming laptop.

Steve Keen (3:02:03.780)

It's basically a desktop.

Lex Fridman (3:02:04.780)

It probably weighs like 40 pounds and you have to.

Lex Fridman (3:02:08.160)

Eight kilos?

Lex Fridman (3:02:09.160)

Eight kilos.

Steve Keen (3:02:10.160)

Let's see.

Lex Fridman (3:02:11.160)

You reckon eight or?

Steve Keen (3:02:12.160)

Oh wow.

Lex Fridman (3:02:13.160)

Okay.

Steve Keen (3:02:14.160)

Yeah.

Lex Fridman (3:02:15.160)

Okay.

Steve Keen (3:02:16.160)

Eight kilos.

Lex Fridman (3:02:17.160)

That's, you know, you're pushing 40 pounds.

Lex Fridman (3:02:18.160)

You've seen the power supply for it?

Lex Fridman (3:02:19.160)

It's over there somewhere.

Steve Keen (3:02:20.160)

The power supply weighs about twice as much as your laptop.

Lex Fridman (3:02:21.160)

Yeah.

Lex Fridman (3:02:22.160)

And you have to power it on with a crank.

Lex Fridman (3:02:23.800)

Pretty close.

Steve Keen (3:02:24.800)

You have to like pull it.

Lex Fridman (3:02:25.800)

Is it gas powered or is it coal?

Steve Keen (3:02:26.800)

Oh, well, I feel like it's a nuclear power station.

Lex Fridman (3:02:29.800)

Nuclear.

Steve Keen (3:02:30.800)

Yeah.

Lex Fridman (3:02:31.800)

A nuclear diamond in the back there.

Steve Keen (3:02:32.800)

Okay.

Lex Fridman (3:02:33.800)

So let me, before I forget, just let me ask you about, we've covered brilliantly the

Steve Keen (3:02:41.440)

nuanced disagreements you have and the wisdom you've drawn from Karl Marx.

Lex Fridman (3:02:46.240)

But there's also, like you mentioned in popular discourse, a kind of a distorted use of different

Steve Keen (3:02:54.920)

terms and one of them is Marxism today.

Steve Keen (3:02:58.000)

Is there something you could just speak to about, you know, increased use of that word

Lex Fridman (3:03:05.620)

and is it misused?

Steve Keen (3:03:06.620)

Does it concern you that there's a lot of actually young people that say they're sort

Lex Fridman (3:03:10.640)

of proudly Marxist?

Lex Fridman (3:03:12.640)

Yeah.

Lex Fridman (3:03:13.640)

Are they misusing the term?

Steve Keen (3:03:15.520)

They are definitely misusing the term if they don't understand the use value exchange

Steve Keen (3:03:20.240)

value dialectic I went through earlier.

Lex Fridman (3:03:23.640)

So if I could.

Lex Fridman (3:03:24.640)

And they don't.

Steve Keen (3:03:25.640)

If I could just pause, the idea of socialism and Marxism is used in sort of popular lingo.

Steve Keen (3:03:33.160)

It's basically, you know, a lot of people have a disproportionately hard life.

Lex Fridman (3:03:40.880)

Why can't we help them out?

Lex Fridman (3:03:43.840)

Why can't we be kind to our fellow man?

Steve Keen (3:03:46.560)

Kind of that's a short embodiment of an idea as opposed to some super complicated elaborate

Steve Keen (3:03:54.880)

model of the economy and politics and all that kind of stuff.

Lex Fridman (3:03:58.120)

Yeah.

Steve Keen (3:03:59.120)

I mean, we could do that by using the insights that come out of modern monetary theory, which

Lex Fridman (3:04:02.880)

I've confirmed just using my simple Minsky models.

Lex Fridman (3:04:06.200)

And that is that, to use the term, usually a feature, not a bug.

Steve Keen (3:04:10.120)

A government running a deficit is a feature of a well functioning mixed fiat credit economy,

Steve Keen (3:04:16.680)

not a bug.

Steve Keen (3:04:17.680)

The government should normally run a deficit because that's how the government creates

Steve Keen (3:04:21.000)

money.

Steve Keen (3:04:22.000)

We've also had this obsession from mainstream economists of running a surplus, which is

Lex Fridman (3:04:26.360)

what caused the Great Depression, Calvin Coolidge doing it for eight years.

Steve Keen (3:04:30.840)

Because of that obsession, we've cut back on social services, we've cut back on health,

Steve Keen (3:04:34.760)

we've cut back on education, we've cut back on infrastructure.

Steve Keen (3:04:37.720)

Now all that stuff predominantly affects the poor because the rich can afford to buy it

Steve Keen (3:04:42.120)

themselves.

Lex Fridman (3:04:43.120)

So if we had, Sonovich, realized that the government should run a deficit, it's a feature,

Steve Keen (3:04:47.520)

not a bug of a fiat money system.

Lex Fridman (3:04:50.520)

And that's where Elon's made one mistake recently, I'm not going back to funded first principles.

Steve Keen (3:04:55.480)

That deficit enables you to provide enough of a decent standard of living for those who

Lex Fridman (3:05:01.760)

don't come out on top in the capitalist game.

Lex Fridman (3:05:05.800)

And with that, you wouldn't have the angst of the young people.

Steve Keen (3:05:08.720)

Now we still have the climate parameters within which we have to survive, but a decent level

Steve Keen (3:05:15.200)

of government funding would mean the angst that you get where people say, I want to be

Steve Keen (3:05:18.560)

a Marxist, and they've got what I call a cardboard cutout version of Marx in their minds.

Steve Keen (3:05:23.720)

That wouldn't be happening.

Lex Fridman (3:05:25.500)

So it's potential to have a good society where the government runs a deficit that finances

Steve Keen (3:05:32.400)

the needs of the poor, where the rich get enough to indulge and take care of themselves,

Lex Fridman (3:05:38.760)

and you don't get this breakdown.

Steve Keen (3:05:41.080)

If you try to cause the government running a surplus, then the burden of that is borne

Steve Keen (3:05:44.760)

by the poor, middle class and poor, and that will lead to the angst we're now seeing.

Steve Keen (3:05:50.240)

LW.

Lex Fridman (3:05:51.240)

Beautiful.

Steve Keen (3:05:52.240)

That was a beautiful whirlwind exploration of all of economics and economics history.

Lex Fridman (3:05:59.480)

Let me ask you, you tweeted, I think, we are the opposite of ants.

Steve Keen (3:06:05.880)

Individually intelligent, collectively stupid.

Lex Fridman (3:06:09.580)

You need to develop systems thinking fast to counter our limitations.

Steve Keen (3:06:17.240)

That's really interesting.

Lex Fridman (3:06:19.000)

Do you really believe we're individually intelligent and collectively stupid?

Steve Keen (3:06:21.760)

RG.

Lex Fridman (3:06:22.760)

I do.

Steve Keen (3:06:23.760)

LW.

Lex Fridman (3:06:24.760)

Can you elaborate?

Steve Keen (3:06:25.760)

I mean, some of that is just cheeky tweets, but...

Lex Fridman (3:06:27.960)

RG.

Steve Keen (3:06:28.960)

It's a cheeky tweet I've had in my mind for a long time.

Steve Keen (3:06:31.360)

It's one that actually went moderately viral, not enough, but moderately viral for me.

Steve Keen (3:06:36.000)

LW.

Steve Keen (3:06:37.000)

Nevertheless, if you could analyze it as if it's some deep, profound statement you made

Steve Keen (3:06:40.760)

in a book.

Lex Fridman (3:06:41.760)

RG.

Steve Keen (3:06:42.760)

Well, the reason is that we are the incredibly individually intelligent, things like these

Lex Fridman (3:06:46.040)

devices we're playing with now.

Steve Keen (3:06:47.480)

LW.

Lex Fridman (3:06:48.480)

That's the creation of individual minds.

Steve Keen (3:06:49.480)

RG.

Steve Keen (3:06:50.480)

Creative individual mind and a collective labor over centuries that led to this level

Steve Keen (3:06:53.240)

of technology, and that has to be respected.

Lex Fridman (3:06:55.900)

It's incredible stuff.

Lex Fridman (3:06:58.280)

But at the same time, I think what humans are, if you want to distinguish humans from

Steve Keen (3:07:02.720)

other species on the planet, we don't weave webs, okay, we don't make bird calls.

Lex Fridman (3:07:08.560)

What we do is we share beliefs.

Lex Fridman (3:07:10.120)

LW.

Steve Keen (3:07:11.120)

Yeah.

Lex Fridman (3:07:12.120)

RG.

Steve Keen (3:07:13.120)

Okay.

Lex Fridman (3:07:14.120)

Now...

Steve Keen (3:07:15.120)

LW.

Lex Fridman (3:07:16.120)

You don't think that's a catalyst for intelligence?

Steve Keen (3:07:17.120)

RG.

Lex Fridman (3:07:18.120)

Yeah, it is a catalyst.

Lex Fridman (3:07:19.120)

But what it means is we can delude ourselves as much as we can inform ourselves.

Lex Fridman (3:07:23.000)

So because we share beliefs, we can do things in a collective way.

Lex Fridman (3:07:27.200)

And if we believe that if we take the incantations of the witch doctors and we happen to have

Steve Keen (3:07:33.120)

a couple of spears and things, we can go and attack the local herd, a tribe of lions and

Steve Keen (3:07:40.400)

drive them out, and we become the dominant species.

Lex Fridman (3:07:43.480)

So it works at the stage where we were in competition with other species on the planet.

Steve Keen (3:07:48.880)

Now that we're the dominant species, then our beliefs get in the way.

Steve Keen (3:07:53.280)

LW. So you agree with Einstein, who said there are only two things that are infinite, the

Steve Keen (3:08:00.480)

universe and human stupidity.

Lex Fridman (3:08:01.480)

RG.

Lex Fridman (3:08:02.480)

And he wasn't sure about the universe.

Lex Fridman (3:08:03.480)

LW.

Lex Fridman (3:08:04.480)

And he wasn't sure about the universe.

Lex Fridman (3:08:05.480)

Right.

Steve Keen (3:08:06.480)

That's right.

Lex Fridman (3:08:07.480)

And he wasn't sure about the universe.

Steve Keen (3:08:08.480)

Yeah, so you think that the collective, I mean, there's an infinity to the destructive

Lex Fridman (3:08:14.720)

and the stupid, the inhumane that's possible when we humans get together, but it feels

Steve Keen (3:08:20.000)

like there's more trajectories, there's more possibility for creation.

Lex Fridman (3:08:24.480)

RG.

Steve Keen (3:08:25.480)

There are.

Steve Keen (3:08:26.480)

I mean, I think that's why we have to, I say if we were built around the idea that our

Steve Keen (3:08:30.360)

role as a species is to maintain and extend life on the planet and if not find it elsewhere,

Steve Keen (3:08:37.480)

then seed it elsewhere, then that is a vision which makes us creative and confines the worst

Steve Keen (3:08:43.400)

elements of our capacities to share beliefs.

Lex Fridman (3:08:46.720)

So that's what I, my hope is that we'll reach that stage, but I think we've overshot it

Lex Fridman (3:08:51.920)

so badly that my real fear is we'll end up blaming technology for the type of world we

Lex Fridman (3:08:58.520)

find ourselves living in in the next 20 to 50 years.

Steve Keen (3:09:01.160)

LW.

Lex Fridman (3:09:02.160)

So you think technology is going to be one of the, part of the solution?

Steve Keen (3:09:05.160)

RG.

Lex Fridman (3:09:06.160)

Part of the solution.

Steve Keen (3:09:07.160)

Yeah.

Lex Fridman (3:09:08.160)

But if we go through and blame it, which is quite possible, we'll blame the technology

Steve Keen (3:09:12.360)

rather than blaming too much of the technology and the too much comes down to what economists

Steve Keen (3:09:16.200)

have told us, that we can just continue consuming infinitely on a finite planet.

Lex Fridman (3:09:21.120)

And Kenneth Boulding said that beautifully.

Steve Keen (3:09:23.680)

If somebody believes that you can have exponential growth on a finite planet, they're either

Steve Keen (3:09:27.840)

mad or they're an economist.

Lex Fridman (3:09:29.800)

LW.

Lex Fridman (3:09:30.800)

So you're, you made a long journey for which I'm deeply honoured from, from, this distant

Lex Fridman (3:09:39.440)

place.

Steve Keen (3:09:40.440)

RG.

Lex Fridman (3:09:41.440)

Antibodies.

Steve Keen (3:09:42.440)

There's myth.

Lex Fridman (3:09:43.440)

RG.

Steve Keen (3:09:44.440)

You've got to go there one day, you'd enjoy it.

Lex Fridman (3:09:45.440)

If I go there, I will stay forever.

Lex Fridman (3:09:47.400)

And so...

Lex Fridman (3:09:48.400)

LW.

Steve Keen (3:09:49.400)

No, it's a bit too, there's more vitality back in this economy.

Lex Fridman (3:09:51.600)

So you'd come back.

Steve Keen (3:09:52.600)

RG.

Lex Fridman (3:09:53.600)

Okay.

Steve Keen (3:09:54.600)

Maybe.

Lex Fridman (3:09:55.600)

You know, I'm not a fan of the economy or money or any of that.

Steve Keen (3:09:58.800)

Nature calls me.

Lex Fridman (3:10:02.240)

Let me, so I'm honoured that you make that trip.

Steve Keen (3:10:04.840)

You've also said that while you're here in Austin, you're going to go to this American

Lex Fridman (3:10:11.300)

factory that makes cars here in Austin and also visit Starbase.

Lex Fridman (3:10:18.160)

So let me ask you about expanding out into the universe.

Lex Fridman (3:10:22.320)

Is that something that excites you?

Steve Keen (3:10:25.280)

You mentioned about the economics of it, do you think, what do you think Marx would think

Lex Fridman (3:10:30.940)

about this?

Lex Fridman (3:10:31.940)

Like what, economically speaking, what is this?

Lex Fridman (3:10:35.400)

Is it a good thing?

Steve Keen (3:10:36.400)

LW.

Lex Fridman (3:10:37.400)

I think it's vital.

Steve Keen (3:10:38.400)

I mean, we can have capitalism in outer space far more successfully than we can have it

Steve Keen (3:10:42.400)

on the planet because we don't face, when we dump the waste, it ends up in the sun.

Lex Fridman (3:10:46.480)

Not a problem, okay?

Lex Fridman (3:10:49.000)

So it means the potential, we don't undermine our own productive capacity if we're doing

Steve Keen (3:10:54.620)

it in outer space.

Lex Fridman (3:10:55.620)

RG.

Lex Fridman (3:10:56.620)

So the destructive element of waste has a lesser impact in outer space.

Lex Fridman (3:10:59.600)

LW.

Steve Keen (3:11:00.600)

Far lesser, yeah.

Lex Fridman (3:11:01.600)

I mean, who cares if we throw a bit of our iron back into the sun again?

Steve Keen (3:11:03.600)

It'd take a fair bit of it to turn it into what would be the next stage, it'd be a red

Lex Fridman (3:11:07.120)

giant.

Lex Fridman (3:11:08.800)

And we have to get away because if there's a red giant at some stage, the sun will head

Lex Fridman (3:11:12.500)

out past the orbit of Mars, I think, certainly past the orbit of Earth.

Lex Fridman (3:11:16.840)

So to have longevity of just human life, life that evolved on this planet, we have to be

Lex Fridman (3:11:25.760)

able to take it off planet, ultimately.

Lex Fridman (3:11:28.240)

So if you think in the really long term, then it's our responsibility, we're going to want

Lex Fridman (3:11:33.160)

to maintain life, is to establish life off the planet.

Steve Keen (3:11:37.360)

LW.

Lex Fridman (3:11:38.360)

What do you think about robots and AI as part of the expanding out into the universe?

Steve Keen (3:11:43.800)

RG.

Lex Fridman (3:11:44.800)

Oh yeah, we have to.

Steve Keen (3:11:45.800)

I mean, that ends labor.

Steve Keen (3:11:46.800)

You can't go for a, you know, your daily joint can't be from here to the asteroid belt and

Steve Keen (3:11:51.440)

back again for dinner with your family.

Lex Fridman (3:11:54.260)

So production would be entirely mechanized.

Steve Keen (3:11:56.480)

There'd have to be a handful of people who service the machines.

Lex Fridman (3:11:59.640)

LW.

Lex Fridman (3:12:00.640)

So it's about production and automation.

Lex Fridman (3:12:02.320)

What about elements of consciousness that make humans so special, what about that persisting

Lex Fridman (3:12:08.840)

within the machine?

Lex Fridman (3:12:09.840)

RG.

Steve Keen (3:12:10.840)

That, I mean, I'm still a skeptic about us ever being able to create a machine which

Lex Fridman (3:12:13.280)

is truly conscious.

Steve Keen (3:12:14.900)

If I can throw my, it's only two cents worth.

Lex Fridman (3:12:16.760)

LW.

Steve Keen (3:12:17.760)

That would really piss off Karl Marx, by the way, if we create machines that are conscious.

Lex Fridman (3:12:21.040)

RG.

Steve Keen (3:12:22.040)

Exactly.

Steve Keen (3:12:23.040)

This is actually part of the, there's two good logical arguments against the labor theory

Steve Keen (3:12:25.200)

of value.

Steve Keen (3:12:26.200)

One of what it becomes, machines become intelligent, and the other was that if the declining rate

Steve Keen (3:12:30.200)

of profit applies in socialism, it'll apply as a rate of accumulation, sorry, in capitalism,

Lex Fridman (3:12:36.000)

it'll apply as a rate of socialism as well.

Steve Keen (3:12:38.000)

A guy called Khalid made that argument.

Lex Fridman (3:12:39.880)

So his argument was just unsound.

Lex Fridman (3:12:42.500)

But yeah, intelligent machines would completely screw Marx up, you know?

Lex Fridman (3:12:45.720)

LW.

Steve Keen (3:12:46.720)

Yeah.

Lex Fridman (3:12:47.720)

Do you not like that world where machines have not only intelligence, but a consciousness,

Lex Fridman (3:12:52.720)

a soul?

Lex Fridman (3:12:53.720)

RG.

Steve Keen (3:12:54.720)

Yeah.

Steve Keen (3:12:55.720)

I know that's one of your interests, one of your potential endeavors, and the Kurtz will

Steve Keen (3:13:01.800)

argue that there's some singularity we're approaching as we just get increasing processing

Lex Fridman (3:13:05.720)

power.

Steve Keen (3:13:06.720)

It's not processing power, it's imagination.

Lex Fridman (3:13:09.520)

And I think—

Steve Keen (3:13:10.520)

LW.

Lex Fridman (3:13:11.520)

Whatever the heck that means.

Steve Keen (3:13:12.520)

RG.

Lex Fridman (3:13:13.520)

Huh?

Steve Keen (3:13:14.520)

Whatever the heck that means, yeah.

Lex Fridman (3:13:15.520)

I mean, you would have had imaginative insights.

Steve Keen (3:13:16.520)

I mean, your papers on, like, in automating motoring between the hyperintelligent machine

Steve Keen (3:13:23.680)

or the machine human interface where the standards can be lower for the machine and higher for

Lex Fridman (3:13:28.360)

the human, okay?

Steve Keen (3:13:29.360)

That's an insight you would have had at some point, and then you've worked it further.

Lex Fridman (3:13:33.120)

So I've had insights like that as well, and I have no idea where they come from.

Steve Keen (3:13:36.400)

They just hit me in the head, and I just write them down, and they solve a problem that I

Lex Fridman (3:13:41.080)

didn't even know my mind was working on, okay?

Lex Fridman (3:13:43.680)

So how can we get a machine to do that?

Lex Fridman (3:13:47.000)

And I do not know the answer, but one thing I think is the potential is I think we have

Lex Fridman (3:13:53.440)

to create AI that has feelings, AI that wants to survive.

Steve Keen (3:13:58.500)

Because if you think how our intelligence evolved, it's on this planet in a struggle

Lex Fridman (3:14:04.000)

between predator and prey, and intelligent became a survival technique.

Steve Keen (3:14:07.640)

LW.

Steve Keen (3:14:08.640)

I find the ideas of Ernest Becker with denial of death really powerful, which is that humans

Steve Keen (3:14:15.640)

not only have emotions and are trying to survive, they're able to ponder out in the distant

Steve Keen (3:14:26.080)

future their mortality, and that is a driving force for even greater creation that animals

Steve Keen (3:14:32.960)

are able to do, more primitive animals.

Lex Fridman (3:14:38.880)

So there is some element where I agree with you.

Steve Keen (3:14:42.280)

I think for AI systems to have something like consciousness, they have to fear their mortality.

Lex Fridman (3:14:49.240)

LW.

Steve Keen (3:14:50.240)

Exactly.

Lex Fridman (3:14:51.240)

And I think that's, if you do it then, you can't produce an AI whose behavior you can

Steve Keen (3:14:57.160)

control.

Lex Fridman (3:14:58.160)

RL.

Steve Keen (3:14:59.160)

I mean, when you have kids.

Lex Fridman (3:15:00.160)

LW.

Steve Keen (3:15:01.160)

Yeah.

Lex Fridman (3:15:02.160)

You're doing it.

Steve Keen (3:15:03.160)

RL.

Lex Fridman (3:15:04.160)

You can't control their behavior.

Steve Keen (3:15:05.160)

That's the tradeoff.

Lex Fridman (3:15:06.160)

LW.

Steve Keen (3:15:07.160)

You give life to an anarchist.

Steve Keen (3:15:08.160)

Like one of my favorite instances in my family life is one of my favorite, I like all my

Steve Keen (3:15:14.120)

nurses and nephews, but one's got a real quirk to her, and I was standing over her cot when

Steve Keen (3:15:19.840)

she was literally like about six months old, and she was gurgling away to herself.

Lex Fridman (3:15:24.680)

And her father waved his fingers and said, stop making that noise.

Lex Fridman (3:15:28.920)

And this little six month old kid goes, and I said, boy, you're going to have issues with

Steve Keen (3:15:33.960)

that one, mate.

Lex Fridman (3:15:34.960)

RL.

Steve Keen (3:15:35.960)

Yeah.

Lex Fridman (3:15:36.960)

An anarchist was born.

Steve Keen (3:15:37.960)

LW.

Lex Fridman (3:15:38.960)

So you can't control this life you give birth to, and that's, I think, the threat of AI.

Steve Keen (3:15:41.760)

RL.

Lex Fridman (3:15:42.760)

That's terrifying and exciting.

Steve Keen (3:15:43.760)

LW.

Lex Fridman (3:15:44.760)

It is.

Lex Fridman (3:15:45.760)

And I think we should take that risk at some stage.

Lex Fridman (3:15:47.520)

But I think to do it with what actually let artificial intelligence involve in this environment

Steve Keen (3:15:53.600)

in which it fears its own death.

Lex Fridman (3:15:55.800)

RL.

Steve Keen (3:15:56.800)

Yeah.

Lex Fridman (3:15:57.800)

Yeah.

Steve Keen (3:15:58.800)

I think there's a lot of beauty there, but there's also a lot of destruction that's possible.

Lex Fridman (3:16:04.160)

So you have to be extremely careful, but that's kind of the cutting edge of which we all often

Steve Keen (3:16:09.200)

operate as a humanity.

Lex Fridman (3:16:12.080)

Let me ask you for advice.

Lex Fridman (3:16:13.680)

Can you give advice to young people in high school and college?

Lex Fridman (3:16:19.720)

Maybe they're interested in economics.

Steve Keen (3:16:22.400)

Maybe they have other career ideas.

Lex Fridman (3:16:25.080)

What advice would you give them about a career they can have that they can be proud of or

Lex Fridman (3:16:29.520)

a life they can be proud of?

Lex Fridman (3:16:31.040)

LW. Mainly in a career, I say don't do an economics degree.

Lex Fridman (3:16:34.320)

Okay?

Lex Fridman (3:16:35.320)

I say if you...

Steve Keen (3:16:36.320)

RL.

Lex Fridman (3:16:37.320)

There's a little book.

Steve Keen (3:16:38.320)

LW.

Lex Fridman (3:16:39.320)

Econ Comics.

Steve Keen (3:16:40.320)

RL.

Lex Fridman (3:16:41.320)

Econ Comics, Taking the Con Out of Economics.

Lex Fridman (3:16:45.880)

So they should start with that and then say screw it to an economics degree.

Lex Fridman (3:16:50.520)

LW.

Steve Keen (3:16:51.520)

Yeah, because what you learn is an obsolete technology.

Lex Fridman (3:16:54.540)

Learning economics at a university is like learning to make astronomy.

Lex Fridman (3:16:58.360)

Okay?

Steve Keen (3:16:59.360)

Earth centric, equilibrium, you know, epicycles being added to make your models fit the data.

Steve Keen (3:17:06.600)

RL.

Lex Fridman (3:17:07.600)

So it's not that economics is not a discipline worth deeply studying, it's that the university

Steve Keen (3:17:11.960)

education around economics is bad.

Lex Fridman (3:17:13.680)

LW.

Steve Keen (3:17:14.680)

Is so bad.

Lex Fridman (3:17:15.680)

Yeah.

Lex Fridman (3:17:16.680)

So I'd say learn system dynamics.

Steve Keen (3:17:17.680)

Do a course in system dynamics which you can apply in any field and then apply what you

Steve Keen (3:17:21.920)

learn out of system dynamics to the issues of economics if that's what interests you.

Lex Fridman (3:17:26.160)

RL.

Lex Fridman (3:17:27.160)

So get a sort of base engineering...

Lex Fridman (3:17:29.320)

LW.

Steve Keen (3:17:30.320)

Yeah.

Lex Fridman (3:17:31.320)

...education.

Steve Keen (3:17:32.320)

RL.

Lex Fridman (3:17:33.320)

A base engineering education.

Steve Keen (3:17:34.320)

That is far better than doing an economics degree.

Lex Fridman (3:17:35.320)

In terms of life, my life is pretty chaotic in many, many ways.

Steve Keen (3:17:40.160)

My friends and family will tell me that at every opportunity.

Lex Fridman (3:17:44.400)

But the thing is, I once had a, I'll tell you an example of a really funny incident

Steve Keen (3:17:48.720)

that occurred to me because I led this student revolt at Sydney University as I mentioned

Lex Fridman (3:17:51.920)

when I was 20 years old.

Steve Keen (3:17:52.920)

LW.

Lex Fridman (3:17:53.920)

Yeah.

Steve Keen (3:17:54.920)

This is great.

Lex Fridman (3:17:55.920)

RL.

Lex Fridman (3:17:56.920)

So I was at a restaurant one night and I found a bunch of guys, all guys, who'd done accounting

Lex Fridman (3:18:01.420)

at the university but had also been part of the student revolt.

Lex Fridman (3:18:04.780)

So they hadn't seen me for about a decade and they said, what have you been doing, Steve?

Lex Fridman (3:18:07.920)

And I talked about what I'd done.

Lex Fridman (3:18:09.040)

So I'd been a school teacher for a while.

Lex Fridman (3:18:10.760)

I then worked in overseas aid.

Steve Keen (3:18:13.320)

I was doing computer programming at the time and had forgotten what else I was doing at

Lex Fridman (3:18:17.840)

that point.

Lex Fridman (3:18:18.840)

So I explained it to all of them and they were at a Bucks night, one of them having

Lex Fridman (3:18:21.100)

a wedding coming up the next week.

Lex Fridman (3:18:23.520)

And one of them said, I wish I'd done that.

Lex Fridman (3:18:27.080)

And there was silence around the table, it was obviously a silent agreement.

Lex Fridman (3:18:31.400)

And I looked at them and said, hang on, guys, look at the downside of my life.

Steve Keen (3:18:35.720)

You know, like you're getting married, I don't have a girlfriend right now, you've all got

Steve Keen (3:18:41.840)

secure jobs, I'm unemployed, okay, you own a house, I haven't even got a car, you know,

Lex Fridman (3:18:47.700)

look at the downside of my life.

Lex Fridman (3:18:49.420)

And the bloke was the kingpin of that group, they're a very innovative bunch of guys in

Lex Fridman (3:18:53.080)

the student revolt.

Lex Fridman (3:18:54.080)

And so he said, Steve, we would still all rather have done what you have done.

Lex Fridman (3:19:01.200)

And they did a county because it was safe, you always get a job, and they were bored

Steve Keen (3:19:05.680)

shitless.

Steve Keen (3:19:06.680)

Did you have a sense that the chaos you're always jumping into was dangerous or was it

Lex Fridman (3:19:14.520)

just the pull of it?

Lex Fridman (3:19:16.880)

I simply couldn't not do it.

Steve Keen (3:19:18.960)

It was part of me that I couldn't swallow this economic stuff.

Steve Keen (3:19:22.160)

Once I was exposed to why it was so wrong, then I was on a crusade to make it right.

Lex Fridman (3:19:29.040)

And that's been part of my nature all through my life, I don't know why.

Lex Fridman (3:19:32.840)

So it wasn't that I made a choice to do it, it's that I couldn't be true to myself without

Steve Keen (3:19:37.880)

doing it.

Lex Fridman (3:19:38.880)

And I find a lot of people get caught in a life where they're doing it because it works

Steve Keen (3:19:42.260)

for some financial or other reason, but they're not being true to themselves.

Lex Fridman (3:19:46.300)

And as messy as my life is, as much shit I've got myself caught up in, and there's a lot

Steve Keen (3:19:50.360)

of that in my personal and financial life right now, which is a pain in the ass.

Lex Fridman (3:19:55.600)

I would rather have had that nature than not.

Steve Keen (3:19:58.680)

You would rather take the pain in the ass than not.

Lex Fridman (3:20:02.680)

Let me ask a dark question.

Lex Fridman (3:20:06.080)

What's the darkest place you've ever gone to in your mind?

Lex Fridman (3:20:09.800)

So in all that rollercoaster of life, have there been periods where it's been really

Lex Fridman (3:20:15.000)

tough?

Steve Keen (3:20:16.000)

I've had to cope with depression in the last five years since I started reading Neoclassical

Steve Keen (3:20:22.040)

Economists on Climate Change.

Lex Fridman (3:20:23.480)

Sorry to laugh.

Steve Keen (3:20:24.480)

Got to come back to that one.

Lex Fridman (3:20:25.480)

So that's where my wife's going to come into this story.

Lex Fridman (3:20:28.120)

So I was reading Richard Toll, a paper from 2009 called The Economics of Climate Change,

Lex Fridman (3:20:34.840)

Journal of Economic Perspectives, I think.

Lex Fridman (3:20:37.320)

And I read this section where he says that one of the ways they tried to calibrate what

Steve Keen (3:20:43.320)

climate change was due is they assumed that the relationship between GDP and temperature

Steve Keen (3:20:48.440)

over space would apply over time as well.

Lex Fridman (3:20:54.000)

And I read that and thought, that is so fucking stupid, because all it's saying is that if

Steve Keen (3:20:59.480)

there's a 10 degree temperature difference between New York and Florida and a 20% difference

Steve Keen (3:21:03.720)

in income, then a 10 degree increase in temperature will cause GDP to fall by 20%.

Steve Keen (3:21:08.440)

It is so insanely stupid.

Lex Fridman (3:21:10.360)

So when I read that line, I just did this.

Steve Keen (3:21:16.520)

I was in shock at how stupid it was.

Steve Keen (3:21:18.320)

My wife, who's Thai and brings in treats for me all day, walks into the room and she speaks

Lex Fridman (3:21:25.220)

in a staccato English and says to me, why are you like this?

Lex Fridman (3:21:29.380)

And I said, I'm just doing this work on climate change.

Lex Fridman (3:21:31.760)

And she interrupts me and says, oh, why you do that stuff?

Lex Fridman (3:21:35.160)

Nobody's interested in climate change.

Steve Keen (3:21:36.760)

You can't do anything to change it.

Lex Fridman (3:21:38.080)

If we die, we die.

Lex Fridman (3:21:41.040)

And that's perfect Buddhist grounding.

Lex Fridman (3:21:44.360)

And I thought, well, I can't argue with her again.

Lex Fridman (3:21:48.560)

So that sort of stopped me on the depression, but that's the darkest point when I looked

Steve Keen (3:21:53.160)

at it and I thought that this arrogance, this stupidity, this humbug in the economists meant

Steve Keen (3:22:00.780)

that we were potentially jeopardizing the lives of billions of people and Christ knows

Lex Fridman (3:22:05.120)

how many other life forms.

Lex Fridman (3:22:08.060)

And having that knowledge is the most depressing experience of my life.

Steve Keen (3:22:13.840)

That ideas, simple models combined with arrogance can lead to the potential destruction of human

Steve Keen (3:22:23.360)

civilization.

Lex Fridman (3:22:24.360)

That was a very heavy.

Lex Fridman (3:22:25.800)

And then your wife came in with Nature Wins in the End and sort of accept the flow of

Lex Fridman (3:22:35.560)

life.

Steve Keen (3:22:36.560)

I really enjoy that book, The Earth Abides, because it's got that same beautiful sense

Lex Fridman (3:22:40.120)

to it.

Steve Keen (3:22:41.120)

Life will survive whatever we do.

Steve Keen (3:22:42.800)

I mean, they talk about the people, I was actually talking with a good mate of mine,

Steve Keen (3:22:46.640)

an ex geologist, and he's now a professor of economics.

Lex Fridman (3:22:49.640)

And he said as a geologist, he really hated people talking about the Anthropocene epoch.

Lex Fridman (3:22:54.900)

And I said, well, it shouldn't be the Anthropocene epoch, it'll be the Anthropocene event.

Steve Keen (3:23:00.820)

Anthropocene epoch is millions of years and a huge period of life on the planet.

Lex Fridman (3:23:06.960)

And we might be snuffed out in 10,000 years of human civilization.

Lex Fridman (3:23:12.360)

And that's not much slower than the meteors wiping out the dinosaurs.

Steve Keen (3:23:16.760)

The dinosaurs lasted for a long time after that event.

Lex Fridman (3:23:19.480)

So we'd just be a layer in the surface of the planet with plastics and strange metals

Steve Keen (3:23:26.840)

like that at some point.

Lex Fridman (3:23:29.100)

So we're just an epoch.

Steve Keen (3:23:30.100)

Life will abide.

Lex Fridman (3:23:31.100)

Life will survive us.

Lex Fridman (3:23:32.100)

But there's so much life we're going to take down with us in this whole period.

Lex Fridman (3:23:37.360)

And there's so many of our own lives we're going to terminate for no good reason.

Steve Keen (3:23:43.000)

I'm looking at this Richard Toll character.

Lex Fridman (3:23:46.160)

I'll definitely have to look at some of his papers.

Steve Keen (3:23:48.120)

It does look like, boy, is he oversimplifying and do a lot of people.

Lex Fridman (3:23:52.920)

Oh my God.

Steve Keen (3:23:53.920)

Check his one on how good it'll be to lose Amok.

Lex Fridman (3:23:57.520)

That said, I'm going to approach all of these topics with humility.

Lex Fridman (3:24:03.200)

And I would like to have some conversations if people can recommend.

Steve Keen (3:24:07.120)

My default position is always with the scientists, but even above that, my default position is

Steve Keen (3:24:12.280)

with those who are humble versus those who are arrogant.

Steve Keen (3:24:16.960)

This idea that because you're a quote unquote expert, you deserve to have arrogance is a

Steve Keen (3:24:21.760)

silly idea to me.

Lex Fridman (3:24:23.240)

Again, going to the broader view of life on earth, nature.

Steve Keen (3:24:29.280)

Nature's the only one that gets to be arrogant and it chooses not to.

Lex Fridman (3:24:35.360)

So let me ask you about love.

Lex Fridman (3:24:39.060)

What role does love play in this whole thing?

Lex Fridman (3:24:41.760)

Did Karl Marx have a model for that?

Steve Keen (3:24:43.760)

Oh, Marx was madly in love with Jenny von Westphalen and wrote love poetry to her long

Lex Fridman (3:24:48.800)

before he wrote Das Kapital.

Lex Fridman (3:24:51.260)

And he was infatuated with her.

Lex Fridman (3:24:52.560)

He ended up also impregnating his housekeeper.

Lex Fridman (3:24:57.040)

So there's a son of Karl Marx, who was the son of the housekeeper, not the Jenny.

Lex Fridman (3:25:02.800)

There are numerous daughters.

Lex Fridman (3:25:05.640)

So he had a complicated view of love.

Lex Fridman (3:25:09.240)

Oh yeah.

Steve Keen (3:25:10.240)

There's a dialectic on love there.

Steve Keen (3:25:12.520)

He had an idealistic view with Jenny and he was rejected because he wasn't, not by Jenny,

Steve Keen (3:25:19.920)

she was madly in love with him as well.

Lex Fridman (3:25:22.000)

So it was a real passionate love affair from the very outset.

Lex Fridman (3:25:25.400)

But then of course you have children, lots of them die.

Lex Fridman (3:25:28.600)

There's a huge amount of tragedy in his life as well.

Steve Keen (3:25:31.200)

He and Jenny were forced out of Chelsea by a cholera epidemic.

Lex Fridman (3:25:37.200)

My vision for London back in the 1850s and 60s was Calcutta in the 1970s.

Steve Keen (3:25:43.600)

That's really what life was like.

Lex Fridman (3:25:45.200)

So there's a lot of hardship in his life as well.

Lex Fridman (3:25:48.000)

And he was always poor.

Lex Fridman (3:25:50.640)

So only Ingalls kept him alive financially.

Steve Keen (3:25:54.760)

He applied for one job outside of, he never got an academic job.

Steve Keen (3:26:01.680)

He was pushed out of Prussia as a newspaper author, but he also applied for a job as a

Steve Keen (3:26:07.520)

clerk in the British railway system, was turned down because they couldn't read his handwriting.

Lex Fridman (3:26:15.360)

I think I'm a bit similar there.

Lex Fridman (3:26:18.760)

So yeah, there's a lot of love and passion.

Lex Fridman (3:26:21.120)

But in general, what do you think is the role of love in the human condition?

Steve Keen (3:26:24.560)

It's vital.

Lex Fridman (3:26:25.560)

It's, I mean, that feeling of passionate desire and respect for somebody else.

Lex Fridman (3:26:33.520)

And there's perverted forms of love as well.

Lex Fridman (3:26:35.280)

So I'll leave that out, but somebody having a really, a deep bond, which goes beyond just

Steve Keen (3:26:42.520)

sexual attraction.

Steve Keen (3:26:43.520)

Like I've had that four or five times in my life with different women at different times.

Lex Fridman (3:26:48.480)

And I've stuffed up the most important one very early on.

Lex Fridman (3:26:52.960)

And that feeling is incredible.

Lex Fridman (3:26:56.200)

And you couldn't have life worth living without that.

Lex Fridman (3:27:01.560)

So it's an essential part of who we are.

Lex Fridman (3:27:04.040)

But what we have to do is to transfer it, not just to the rest of our species, but to

Lex Fridman (3:27:08.400)

all the species.

Lex Fridman (3:27:10.500)

And that's, I think, what's vital.

Lex Fridman (3:27:12.920)

And how do we maintain that over generations?

Lex Fridman (3:27:16.880)

And I think that idea that we can actually hang on to that general sense of respect and

Lex Fridman (3:27:22.200)

not lose it again.

Steve Keen (3:27:23.200)

Because the amount of life we've terminated on this planet, the warlike side of humanity,

Lex Fridman (3:27:29.800)

that is too much of a defining feature of our species.

Steve Keen (3:27:32.920)

That's the opposite of love, it's hate.

Lex Fridman (3:27:35.160)

But it's pleasure and inflicting pain on others.

Steve Keen (3:27:37.180)

When you see people killing others in a warlike environment, they're enjoying themselves.

Lex Fridman (3:27:42.480)

It's rarely, sometimes it's self defense.

Lex Fridman (3:27:44.720)

But there's, when I've spoken to people who've been involved in combat and been involved

Steve Keen (3:27:49.720)

in riots and said, when you see somebody rioting, bashing people up, they're enjoying themselves.

Steve Keen (3:27:54.860)

It's not anger they're feeling, it's pleasure.

Lex Fridman (3:27:56.800)

There's a dark aspect to human nature.

Steve Keen (3:27:58.600)

Very dark.

Lex Fridman (3:27:59.640)

But there's also the capacity to rise above that.

Lex Fridman (3:28:04.620)

And I think, like I put us on a spectrum between chimpanzees at one extreme and bonobos at

Lex Fridman (3:28:08.840)

the other.

Steve Keen (3:28:09.840)

We're too close to the chimpanzees.

Lex Fridman (3:28:12.760)

Bonobos are just having fun, having lots of sex.

Steve Keen (3:28:15.200)

Every time they do anything, they fuck first and do the work later and then fuck afterwards

Lex Fridman (3:28:18.520)

to celebrate.

Steve Keen (3:28:19.520)

Fuck first, ask questions later.

Steve Keen (3:28:21.640)

It's like that Scent of a Woman, one of my favorite films, where Al Pacino gives advice

Steve Keen (3:28:27.280)

to a cat.

Lex Fridman (3:28:28.280)

He says, when in doubt, fuck.

Steve Keen (3:28:31.920)

It's good life advice for a cat, especially.

Steve Keen (3:28:36.120)

We mentioned that death seems to be maybe fundamental to creating a conscious AI.

Lex Fridman (3:28:42.080)

All right, do you think about your own death?

Lex Fridman (3:28:47.640)

Are you afraid of it?

Steve Keen (3:28:49.920)

I'm afraid of going through it.

Lex Fridman (3:28:53.880)

Not the other side?

Lex Fridman (3:28:54.880)

Huh?

Lex Fridman (3:28:55.880)

You're not afraid of being on the other side?

Steve Keen (3:28:56.880)

I don't think there is an other side.

Lex Fridman (3:28:58.360)

I mean, I'm agnostic.

Steve Keen (3:29:00.520)

I'm atheist when pressed and agnostic.

Steve Keen (3:29:02.760)

The one thing that I think I can understand why religion exists is that the whole thing

Steve Keen (3:29:07.400)

that something exists is itself a dilemma.

Steve Keen (3:29:11.260)

You have to take on faith that reality exists, whether it's a simulation or actual reality,

Steve Keen (3:29:16.520)

it exists, and that itself can't be explained in any scientific manner.

Steve Keen (3:29:20.480)

I mean, you can talk about anti protons and protons and the sun being zero and so on,

Lex Fridman (3:29:25.400)

but why did it even happen in the first place?

Lex Fridman (3:29:27.700)

So there's part you simply have to take on faith.

Lex Fridman (3:29:31.780)

So there was darkness before, and there's darkness after.

Steve Keen (3:29:36.600)

Yeah, and I don't know if we're going to be alive on the other side of that darkness.

Steve Keen (3:29:39.560)

I think individually, no, but the way you can live on is by what you do to human consciousness.

Lex Fridman (3:29:45.160)

How do you hope people remember you?

Steve Keen (3:29:49.800)

As someone who managed to integrate economics with an appreciation for life.

Lex Fridman (3:29:56.880)

Well, I have to say, as a bit of a callback, you're one deadly bastard.

Steve Keen (3:30:05.440)

It's a huge honor that you would come down and talk to me.

Lex Fridman (3:30:09.360)

You're a brilliant person.

Steve Keen (3:30:10.440)

You're a hilarious person.

Lex Fridman (3:30:11.840)

The humility shines through.

Steve Keen (3:30:12.960)

The brilliance shines through.

Lex Fridman (3:30:13.960)

Thank you so much for spending this time.

Steve Keen (3:30:16.360)

You do the same for humanity.

Lex Fridman (3:30:17.360)

I mean, when I saw that email from you, my eyes popped out of my head.

Steve Keen (3:30:21.520)

Okay.

Lex Fridman (3:30:22.520)

Well, you should hold your judgment.

Steve Keen (3:30:23.520)

I got to show you the sex dungeon I have.

Lex Fridman (3:30:25.720)

I'm waiting for an invitation.

Steve Keen (3:30:28.840)

I'll send my wife over.

Lex Fridman (3:30:30.320)

Awesome.

Steve Keen (3:30:31.320)

Can't wait.

Lex Fridman (3:30:32.320)

All right.

Steve Keen (3:30:33.320)

Okay, mate.

Lex Fridman (3:30:34.320)

Thanks for listening to this conversation with Steve Keen.

Steve Keen (3:30:36.320)

To support this podcast, please check out our sponsors in the description.

Lex Fridman (3:30:40.340)

And now let me leave you with some words from Karl Marx.

Steve Keen (3:30:44.360)

To be radical is to grasp things at their root.

Lex Fridman (3:30:49.880)

Thank you for listening, and hope to see you next time.

Steve Keen (40:01.360)

Because if you imagine the unity, like if you take a human in a, any preview, like

Steve Keen (40:07.520)

if you go back to Cro Magnum days, when we're living in caves and we've got to go hunting

Lex Fridman (40:12.560)

and cook food and stuff like that, but there's no social hierarchy.

Steve Keen (40:16.760)

Because we've become used to, so you don't get labored as a worker or a capitalist.

Steve Keen (40:20.480)

You're just a human in that situation.

Lex Fridman (40:22.740)

Then you've got more an integrated view of who you are.

Lex Fridman (40:26.360)

And I think that's one of the appeals of a tribal, a genuine tribal culture that you

Lex Fridman (40:30.360)

get treated for the whole of who you are.

Steve Keen (40:32.520)

You've certainly categorized you're male, you're female, you're young, you're old,

Lex Fridman (40:36.340)

you're a hunter, you're a tool maker, et cetera, et cetera.

Lex Fridman (40:39.440)

But you're treated as more an integrated object.

Steve Keen (40:41.740)

When you get put in a complex society, like a capitalist society, then one side of you's

Steve Keen (40:47.040)

emphasized and the others are deemphasized.

Lex Fridman (40:48.960)

So is it fair to say that the background is like our basic fundamental humanity and the

Lex Fridman (40:54.520)

foreground is the machine of capitalism?

Lex Fridman (40:56.840)

Effectively.

Lex Fridman (40:57.840)

And when you look at it in terms of a human, but what Marx did is apply this to a commodity.

Lex Fridman (41:01.960)

So he said, what is the essential unity in a capitalist economy?

Lex Fridman (41:05.760)

And the essential unity is a commodity.

Lex Fridman (41:08.360)

The essential unit.

Steve Keen (41:10.440)

The essential unity.

Lex Fridman (41:12.120)

What's unity?

Steve Keen (41:13.120)

Unity is an object in society.

Lex Fridman (41:15.040)

Okay.

Steve Keen (41:16.040)

Okay.

Lex Fridman (41:17.040)

So he started from the point of view of trying to understand how exchange occurs.

Lex Fridman (41:20.260)

How do we set prices?

Lex Fridman (41:21.800)

And his starting vision was to say that a commodity is a unity in a capitalist economy.

Steve Keen (41:28.720)

The part of the unity that we focus upon is the exchange value.

Steve Keen (41:35.280)

A capitalist produces a commodity, not because of its qualitative characteristics, but because

Steve Keen (41:41.200)

it'd be sold for a profit.

Lex Fridman (41:43.080)

So the foreground aspect of a commodity is its exchange value.

Steve Keen (41:47.040)

The background aspect of it, it won't succeed as a commodity unless it has a use value.

Lex Fridman (41:52.720)

So the background is the utility thing.

Steve Keen (41:55.280)

Yeah.

Steve Keen (41:56.280)

See, if you made something which didn't work, okay, then you might be able to sell it, but

Steve Keen (42:01.800)

it has no utility.

Lex Fridman (42:02.800)

You can't make that into a commodity.

Steve Keen (42:05.360)

A broken thing can't be sold.

Lex Fridman (42:06.360)

Does that have the subjective?

Steve Keen (42:07.360)

Yeah, it has to have the subjective side as well as the objective.

Lex Fridman (42:12.200)

So the objective is what capitalists worry about.

Steve Keen (42:14.000)

I'll give you my favorite counter example of that.

Steve Keen (42:16.200)

I took a bunch of Australian journalists to China way back in the period when the Gang

Steve Keen (42:21.060)

of Four was being on trial, and we did a tour of the Forbidden City in Beijing.

Lex Fridman (42:28.360)

And at that stage, all the artifacts of the royal family, the emperor, were actually in

Steve Keen (42:33.240)

the building still.

Lex Fridman (42:34.240)

And we walked past one of them, and it was this gold, solid gold bar about this long,

Steve Keen (42:41.160)

shaped like a fist, turned over like this.

Lex Fridman (42:43.080)

And on this side, there were rubies, emeralds, diamonds.

Steve Keen (42:46.480)

You'd never seen gemstones.

Lex Fridman (42:47.480)

I mean, gems that big, okay?

Lex Fridman (42:49.900)

And one of the journalists asked me what I thought it was, and I said, oh, it's obvious.

Lex Fridman (42:52.720)

Jane is a backscratcher, ha, ha, ha.

Steve Keen (42:55.280)

I walked away.

Steve Keen (42:56.280)

She caught up with me about 20 minutes later, said, I asked one of the guides, it is a backscratcher.

Lex Fridman (43:01.480)

So here's a backscratcher for the emperor made of solid gold with diamonds and rubies

Lex Fridman (43:06.040)

and emeralds during the scratching.

Lex Fridman (43:07.720)

Now, that's a commodity in a feudal society, okay?

Lex Fridman (43:11.080)

The cost doesn't matter.

Steve Keen (43:13.380)

You want the most elaborate, beautiful thing because you are the emperor.

Lex Fridman (43:16.880)

So in a feudal society, the commodity, what's focused upon is the utility.

Lex Fridman (43:22.720)

And the cost of production when you're the emperor is immaterial.

Lex Fridman (43:26.520)

Capitalism reverses that.

Lex Fridman (43:28.240)

So the commodity in a capitalist economy is a plastic $2.00 scratchy you can get from

Lex Fridman (43:33.020)

Kmart or Target.

Lex Fridman (43:35.840)

And so the use value is necessary but irrelevant to forming the price.

Steve Keen (43:42.400)

Now, that was a completely different vision of exchange in capitalism to what I found

Steve Keen (43:47.600)

in the neoclassical theory because that says it's the marginal utility and the marginal

Lex Fridman (43:52.440)

cost of everything that determines the exchange ratio.

Lex Fridman (43:57.040)

And the crazy thing about that is not so much the marginal utility, but the argument in

Steve Keen (44:02.640)

the neoclassical theory is that the price ratio, the price will, when there's an exchange

Steve Keen (44:07.480)

going on, there's two person, two commodity exchange of two commodities between two people.

Steve Keen (44:16.440)

The price will change until such time as the ratio of the marginal utilities is equal to

Steve Keen (44:21.360)

the ratio of the marginal costs that's supposed to be the equilibrium.

Lex Fridman (44:25.320)

And Marx says that's bullshit.

Steve Keen (44:27.160)

That's a previous society where you exchange stuff that you happen to have for stuff somebody

Lex Fridman (44:33.040)

else happened to have without any real production mechanism being involved.

Lex Fridman (44:37.400)

And he said that's like when you have two ancient tribes meeting for the very first

Lex Fridman (44:42.400)

time and one tribe can make something the other tribe can't make.

Lex Fridman (44:46.720)

And they will therefore, the price they were willing to pay will reflect how unique this

Lex Fridman (44:52.080)

other object is that this one tribe can make and the other can't.

Lex Fridman (44:55.480)

So for example, the story of Manhattan being sold for 40 glass beads, it's actually 40

Lex Fridman (45:00.600)

glass trading beads, I believe it is a true story.

Lex Fridman (45:03.960)

But the thing is the Indians couldn't make glass beads.

Lex Fridman (45:07.680)

So they valued the glass beads at the island of Manhattan, okay, which is a utility based

Steve Keen (45:12.360)

comparison.

Lex Fridman (45:13.360)

And what Marx said, that's the very initial contact over time, even if you don't know

Steve Keen (45:17.560)

the technology.

Steve Keen (45:18.560)

Over time, you start to realize how much work goes involved to making what they're selling

Steve Keen (45:23.800)

you versus what you're selling to them.

Lex Fridman (45:26.680)

And you start making stuff specifically for sale.

Lex Fridman (45:29.920)

So you know, Elon's not losing personal utility each time a Model 3 goes out the door.

Steve Keen (45:37.080)

He might get utility out of the fact that he's created that vehicle, that concept and

Steve Keen (45:41.360)

manufactures it and so on, but he's not losing utility each time a Model T Ford goes out

Lex Fridman (45:45.460)

the door, going back for the ancient commodity there.

Lex Fridman (45:50.360)

So the utility plays no role in setting price in Marx's model.

Lex Fridman (45:56.440)

Whereas it's essential in the neoclassical model.

Lex Fridman (45:59.200)

What's the difference between utility and marginal utility?

Lex Fridman (46:02.000)

What does the word marginal mean?

Lex Fridman (46:04.720)

And why is it such a problem?

Steve Keen (46:06.380)

It turns marginal utility or utility itself has different meanings than the two schools

Steve Keen (46:11.640)

of thought.

Steve Keen (46:12.640)

If you take the classical school of thought, which when Marx comes from, utility is effectively

Steve Keen (46:17.240)

objective.

Lex Fridman (46:18.240)

So the utility of a chair is that you can sit in it, okay, not how comfortable it makes

Steve Keen (46:22.680)

you feel.

Steve Keen (46:23.680)

Okay, now if you think about the utility of the chairs, we're both sitting and they're

Steve Keen (46:27.240)

identical from a classical point of view, we're both sitting.

Lex Fridman (46:30.760)

But from a neoclassical point of view, it's how comfortable it makes you feel.

Lex Fridman (46:34.600)

And that depends upon your subjective feelings of comfort.

Steve Keen (46:37.960)

You might be far more comfortable in the identical chair that I'm sitting in than I am.

Lex Fridman (46:42.120)

And therefore, the comparison is difficult.

Lex Fridman (46:44.120)

And therefore, working out a ratio involves you've got a decline in your, each time you

Lex Fridman (46:49.720)

give away a chair in exchange for an iPhone, you have a fall in your utility, okay?

Lex Fridman (46:58.160)

And then therefore, you want a higher return because you're losing more utility each time.

Steve Keen (47:03.380)

The more chairs you give away, the less utility you're getting from chairs.

Lex Fridman (47:06.120)

So there's a decline in your utility.

Steve Keen (47:08.640)

That's your marginal utility.

Lex Fridman (47:11.060)

So it's including your subjective valuation in setting the price.

Lex Fridman (47:15.380)

And what Marx pointed out is this is a caricature of actual change in a capitalist economy because

Steve Keen (47:20.960)

we have, in a capitalist economy, huge factories turning out huge quantities, specifically

Steve Keen (47:25.400)

for sale.

Lex Fridman (47:26.400)

They've got no utility to the seller unless they're sold, okay?

Lex Fridman (47:32.320)

So it's a very different vision of how price is set.

Lex Fridman (47:36.200)

And Marx used that to explain where profit comes from, but he made a mistake.

Lex Fridman (47:42.440)

And his argument was that talking about a worker, as now your unity, this foreground

Steve Keen (47:49.120)

background tension thing, the foreground is that you hire a worker for their cost of production.

Lex Fridman (47:55.820)

And the cost of production is a subsistence wage, okay?

Lex Fridman (48:00.320)

Their utility to the buyer is the fact that they can work in a factory.

Steve Keen (48:05.960)

Now, it might take six hours, let's say, to make the means of subsistence.

Lex Fridman (48:10.640)

And that's the exchange value, and that's what the capitalist pays as a wage to the

Steve Keen (48:14.840)

worker.

Lex Fridman (48:15.840)

But they can work in the factory for 12 hours.

Steve Keen (48:18.380)

That's the utility.

Lex Fridman (48:19.380)

12 minus 6 is 6 surplus of value hours, and that's where profit comes from.

Lex Fridman (48:26.240)

And that was Marx's argument.

Lex Fridman (48:27.920)

And I thought it was brilliant, but it also applied to machinery.

Steve Keen (48:31.720)

Right, okay.

Lex Fridman (48:32.720)

Let's blink on that.

Steve Keen (48:33.720)

Hold on a second.

Lex Fridman (48:34.720)

No, no.

Steve Keen (48:35.720)

Deep is good.

Lex Fridman (48:36.720)

You just want to define terms.

Steve Keen (48:38.520)

Don't take that statement out of context, the internet, please.

Lex Fridman (48:43.080)

Okay.

Lex Fridman (48:44.080)

You said buyer, seller, worker in a factory, who's the seller, who's the buyer?

Lex Fridman (48:52.920)

Why is the worker the buyer?

Steve Keen (48:55.800)

The worker is the commodity in this case.

Lex Fridman (48:58.200)

Because if you're going to make stuff in a factory, you've got to hire workers.

Steve Keen (49:01.760)

Yes.

Lex Fridman (49:02.760)

And what Marx is saying, the buyer in that situation is a capitalist.

Lex Fridman (49:06.120)

So what does the buyer pay?

Lex Fridman (49:07.660)

He says he pays the exchange value.

Steve Keen (49:09.440)

That's back to the commodity thing, because that's the starting point.

Lex Fridman (49:13.040)

He said the essential unity in a capitalist economy is the commodity.

Steve Keen (49:17.160)

A commodity has two characteristics, exchange value and use value.

Steve Keen (49:22.580)

Exchange value of a commodity in a capitalist economy will be its cost of production.

Steve Keen (49:26.520)

The use value is what you do with it, okay, once you've purchased it.

Lex Fridman (49:31.220)

But labor is a commodity?

Steve Keen (49:34.100)

In this case, when a worker is being hired for a job, yes.

Lex Fridman (49:38.120)

So the worker's labor has an exchange value and a use value as well?

Steve Keen (49:43.520)

That's it, yeah.

Lex Fridman (49:44.520)

Use value.

Steve Keen (49:45.520)

Use value of a worker's labor.

Lex Fridman (49:48.680)

Exchange value.

Steve Keen (49:49.680)

Let me think about that.

Lex Fridman (49:54.320)

So the hours they put in is the use value.

Steve Keen (49:58.480)

Interesting.

Lex Fridman (49:59.960)

So what does the worker want in this?

Lex Fridman (50:05.000)

What are the motivations?

Lex Fridman (50:06.000)

Are we not considering the worker in this context as a human being?

Steve Keen (50:09.720)

Well, you come in and that's actually, that's the next layer.

Lex Fridman (50:14.020)

What Marx gives us is like a layered cake, starting from a foundation of saying straight

Steve Keen (50:19.440)

commodity exchange, and then saying, well, you're treating a worker as a commodity.

Lex Fridman (50:23.940)

Now a commodity is something like this, okay, that has, so far as I'm aware, no soul, okay?

Steve Keen (50:30.000)

Not going to be complaining if I turn it upside down.

Lex Fridman (50:32.680)

It'll fall over.

Lex Fridman (50:34.380)

So there's no soul there as a human, is both a commodity and a noncommodity.

Lex Fridman (50:39.600)

And therefore there'll be a tension in the person.

Steve Keen (50:41.560)

I'm being treated as a commodity here.

Lex Fridman (50:43.040)

I'm being paid just enough to stay alive.

Steve Keen (50:45.520)

I've got a wife and kids back at home.

Lex Fridman (50:48.760)

So that is another layer of thinking in Marx, and on that layer he then says, well, workers

Steve Keen (50:54.600)

will therefore demand more than their value.

Lex Fridman (50:57.000)

So that's when you get like political.

Steve Keen (50:58.800)

You get political and you get money coming above that and so on.

Lex Fridman (51:01.400)

But the basic idea starts from the commodity is the fundamental unity in capitalism.

Steve Keen (51:07.240)

The important commodity in Marx's thinking was the worker, because that's where he said

Lex Fridman (51:12.280)

profit came from, okay?

Lex Fridman (51:14.400)

And then that explains the motivation of the capitalist, and that ultimately is the labor

Lex Fridman (51:18.000)

theory of value and Marx's arguments about how capitalism will come to an end.

Steve Keen (51:23.360)

Okay, okay, okay.

Lex Fridman (51:24.600)

So first of all, what is the labor theory of value?

Lex Fridman (51:27.800)

And actually before that, what is value?

Lex Fridman (51:30.680)

Is that, this is like me asking what's happiness.

Lex Fridman (51:35.440)

Is there something interesting to say about trying to define value?

Lex Fridman (51:38.640)

You vary, and this is a huge problem in economics is arguments of what does value mean?

Lex Fridman (51:45.240)

And the neoclassicals came down as that it's subjective.

Steve Keen (51:48.480)

Its value is whatever you get out of it, but it's your personal evaluation of something,

Steve Keen (51:54.080)

your personal feelings.

Lex Fridman (51:55.520)

So they've got that very subjective idea of value, whereas the Marxists, being inheritors

Steve Keen (52:01.760)

of classical school, talk in terms of objective value.

Lex Fridman (52:06.440)

So the value is the number of hours it takes to make something, or the effort.

Steve Keen (52:11.880)

Value is the effort that goes into making something in the classical school.

Lex Fridman (52:14.680)

Well, that's just one measure of objective.

Lex Fridman (52:18.160)

Where do you fall?

Lex Fridman (52:19.160)

Huh?

Lex Fridman (52:20.160)

Where do you fall?

Lex Fridman (52:21.160)

I fall on...

Steve Keen (52:22.160)

Subjective versus objective spectrum of value.

Steve Keen (52:25.640)

I think you have to have the capacity to move between one and the other in a structured

Steve Keen (52:30.440)

way.

Lex Fridman (52:31.440)

The K model of value.

Lex Fridman (52:32.440)

Yeah, well, my base model is the objective, okay?

Lex Fridman (52:35.120)

But above that, as soon as you start talking, you said about the worker, for example, then

Steve Keen (52:40.600)

you get involved in the subjectivity, because a worker will be angry, and justifiably so,

Lex Fridman (52:48.480)

about being treated as a commodity, because I'm not a commodity, I'm a human being, okay?

Lex Fridman (52:53.240)

And that's where Marx saw political organization coming from.

Lex Fridman (52:58.400)

And that's subjective now.

Lex Fridman (52:59.920)

And then when you get to money itself, Marx actually said, well, what's the value of money?

Steve Keen (53:05.160)

Now if you use an objective theory of value, you would say, well, the value of money is

Steve Keen (53:09.680)

its cost of production.

Lex Fridman (53:11.520)

What's the cost of producing a dollar?

Steve Keen (53:13.000)

It's about two cents.

Lex Fridman (53:15.160)

So he said it can't be, the value of money cannot be its cost of production.

Steve Keen (53:20.480)

Or the most value, I think if I remember the phrase properly, is value here as it must

Lex Fridman (53:25.240)

mean the, effectively, uncertain expectations or subjective valuation.

Steve Keen (53:33.200)

Uncertain expectations or subjective valuation.

Lex Fridman (53:35.000)

Okay, but he's okay with that?

Steve Keen (53:36.760)

He was okay with that, because he could move between different levels, because he had a

Steve Keen (53:40.200)

structured foundation of this dialectical vision of foreground, background tension,

Steve Keen (53:46.800)

commodity, having use value, exchange value, and a gap between the two when you're talking

Lex Fridman (53:52.400)

about machines, when you're buying stuff for production.

Lex Fridman (53:56.200)

And then at the next level, he could look at workers, worker organization, and say that's

Lex Fridman (54:00.680)

driven by being treated as a commodity when you're a noncommodity.

Lex Fridman (54:04.940)

So the basic labor theory of value that is described to Karl Marx is that value at the

Lex Fridman (54:13.600)

base layer fundamentally comes from the labor you put into something.

Lex Fridman (54:19.960)

And you say, well, there's some deep truth there, except he misses one fundamental point,

Lex Fridman (54:26.080)

which is machines can also bring value to the world.

Steve Keen (54:30.400)

He was saying they don't, the only thing that matters is human labor, not labor.

Lex Fridman (54:38.720)

How do you measure what's the role of whatever value machines bring to the world?

Steve Keen (54:45.120)

This is another intriguing history, because Marx, when he first started, had what you

Lex Fridman (54:51.120)

can call an exclusivist explanation for why labor created value.

Lex Fridman (54:57.600)

And that was to say that labor is the only commodity with both what he called commodity

Lex Fridman (55:03.560)

and commodity power.

Lex Fridman (55:04.880)

So you have labor and labor power.

Steve Keen (55:09.080)

Labor is the, and I get fuzzy about this, I haven't read it for something like 30 years,

Lex Fridman (55:13.960)

but labor has both commodity and commodity power.

Lex Fridman (55:17.000)

The commodity is you can buy labor, which is the means of subsistence.

Steve Keen (55:22.200)

Labor power is the capacity to work inside a factory.

Steve Keen (55:25.280)

There's a difference between the two, therefore that difference will give rise to surplus.

Lex Fridman (55:29.680)

And there's no other commodity that has this essence of commodity and commodity power.

Lex Fridman (55:34.280)

So that was his exclusivist argument.

Steve Keen (55:36.440)

In the middle of 1857, he was visited by a guy called Otto Brau in his home in Chelsea.

Lex Fridman (55:44.920)

And Otto returned to Marx a copy of Hegel's, I think it's called Phenomenology of Right,

Steve Keen (55:51.440)

I haven't read it, but that's the book.

Lex Fridman (55:53.560)

And Marx was then at that stage reading through all the classical theorists again.

Lex Fridman (55:58.600)

And he was, suddenly he read Hegel again.

Lex Fridman (56:01.360)

And if you know Hunter S. Thompson, okay, okay.

Lex Fridman (56:04.800)

Who doesn't know Hunter S. Thompson?

Lex Fridman (56:06.560)

Somebody who hasn't had enough drugs, obviously.

Steve Keen (56:08.040)

Yeah.

Lex Fridman (56:09.040)

But Hunter S. Thompson.

Steve Keen (56:10.040)

He comes to you in a dream after you take your first puff of...

Lex Fridman (56:12.280)

Mescaline or...

Steve Keen (56:13.280)

Or whatever.

Lex Fridman (56:14.280)

And of course, we've all...

Steve Keen (56:15.280)

If you know your drugs well enough, you can tell, okay, he's stoned, okay, he's on cocaine,

Lex Fridman (56:18.640)

you know.

Lex Fridman (56:19.640)

But suddenly, his writing style in the middle of a book called The Grundrisse completely

Lex Fridman (56:24.080)

changed.

Steve Keen (56:25.080)

He switched from weed to cocaine.

Lex Fridman (56:26.080)

He switched from Ricardo to Hegel, okay.

Lex Fridman (56:28.760)

And what in Ricardo, he had this exclusivist argument about labor, and suddenly Hegel is

Steve Keen (56:33.280)

back talking in terms of dialectics, not actually using a word, but foreground and background

Lex Fridman (56:38.480)

and tension.

Lex Fridman (56:40.220)

And then he...

Steve Keen (56:41.220)

That's where this use value, exchange value, attention thing came from, is rereading Hegel

Steve Keen (56:46.000)

13 years after he stopped reading philosophy, because made in 44, he was reading just The

Steve Keen (56:51.960)

Economists.

Lex Fridman (56:52.960)

So you're saying Karl Marx is human after all.

Steve Keen (56:55.800)

He's human.

Lex Fridman (56:56.800)

He could be...

Steve Keen (56:57.800)

I would love to have a beer with Karl.

Lex Fridman (56:58.800)

For a wine.

Lex Fridman (56:59.800)

For Karl?

Lex Fridman (57:00.800)

He's Karl to you?

Steve Keen (57:01.800)

He's Mr. Marx to me.

Lex Fridman (57:03.360)

Hang on.

Steve Keen (57:04.360)

He'd be Karl to me, I'm afraid, after all these years.

Lex Fridman (57:06.960)

Yeah, yeah.

Steve Keen (57:07.960)

You've had quite a journey together.

Lex Fridman (57:09.500)

So that's where after Hegel, his interpretation of the dialectic comes in the form of background,

Steve Keen (57:15.560)

foreground, and background.

Lex Fridman (57:16.560)

And then on page 267 of the Penguin edition of the Grundrisse.

Lex Fridman (57:21.440)

What early?

Lex Fridman (57:22.440)

Your memory...

Steve Keen (57:23.440)

One and a half pages long footnote.

Lex Fridman (57:24.440)

It's pretty hard to forget.

Steve Keen (57:25.440)

Because when I did this, when I first read Marx way, way back when I was...

Lex Fridman (57:30.720)

How old was I?

Steve Keen (57:31.720)

20.

Lex Fridman (57:32.720)

Okay.

Steve Keen (57:33.720)

I tried to explain my explanation of Marx's use value, exchange value stuff to my colleagues

Steve Keen (57:38.560)

in this philosophy discussion room at Sydney University during a beautiful summer that

Steve Keen (57:43.240)

we were inside, concrete and sandstone walls discussing Marx.

Lex Fridman (57:47.400)

And I went to say, look, the use value, exchange value argument can be applied to a machine.

Lex Fridman (57:52.600)

What's the exchange value of a machine?

Lex Fridman (57:54.000)

It's cost of manufacturing it.

Lex Fridman (57:55.680)

What's its use value?

Lex Fridman (57:56.840)

Its capacity to produce goods for sale.

Steve Keen (57:59.800)

No relation between the two, there'll be a gap, a machine can be a source of profit.

Lex Fridman (58:03.440)

Now, I said that and I got laughed at and I quite literally laughed at.

Lex Fridman (58:07.760)

So when I went back to university 13 years later to do my master's degree, I chose to

Lex Fridman (58:13.760)

read through and find in Marx where he first came across this insight.

Lex Fridman (58:18.640)

So my first master's thesis failed, by the way, and justifiably so.

Lex Fridman (58:24.960)

I didn't know the level of academic discourse necessary.

Steve Keen (58:29.720)

I had an advisor who didn't understand what I was writing.

Steve Keen (58:32.880)

He got me to write for his New Keynesian audience and it was a mess and it got failed.

Lex Fridman (58:39.480)

So I got rid of him.

Lex Fridman (58:40.480)

Did it get failed?

Lex Fridman (58:41.480)

Why do you think?

Lex Fridman (58:43.000)

It wasn't a good thesis.

Steve Keen (58:44.280)

I didn't know the level.

Steve Keen (58:46.400)

It was written for an audience my supervisor thought that I should be writing for, and

Steve Keen (58:51.000)

it was a mess.

Lex Fridman (58:52.000)

And so I met another guy, Jeff Fishburne, as a lecturer at New South Wales University.

Lex Fridman (58:59.440)

And Jeff was open minded.

Lex Fridman (59:00.840)

He was not a conventional neoclassical thinker.

Lex Fridman (59:04.560)

And I realized I'd throw out the half that Bill had got me to do, focused just on Marx.

Lex Fridman (59:09.720)

And so I decided to read Marx in chronological sequence from his very first works of economics,

Steve Keen (59:15.080)

which are called the Economic and Philosophical Manuscripts of 1844.

Lex Fridman (59:18.880)

And he wrote those in a garret in Paris after he'd been expelled from Prussia.

Lex Fridman (59:23.760)

And so he decided to read having been an expert on philosophy and regarded it as the towering

Steve Keen (59:30.260)

intellect of Hegelian philosophy in Prussia, but driven out because he was a radical.

Steve Keen (59:36.380)

He ended up running a newspaper or being writing for a newspaper, and he was reporting about

Lex Fridman (59:42.560)

the eviction of peasants from the forests, taking away their feudal rights.

Lex Fridman (59:47.840)

And so this is where his passion for economics and humanity came from.

Lex Fridman (59:53.040)

And he was a poet as well.

Steve Keen (59:55.120)

I mean, he loved poetry to Jenny von Westhalen.

Lex Fridman (59:58.760)

His first published works were pretty much in poetry.