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Post-Keynesian economics and ecological economics have in common that they are considered to be ‘heterodox’ schools of thought. Aside from that, there has not been a strong connection between them. Previous books on post-Keynesian economics contain no chapter on environmental or ecological issues. This neglect has led leading ecological economists to criticize post-Keynesians for succumbing to the same growth paradigm as the neoclassical school. This paper argues that the two approaches are complementary in the sense that they each have different strong points. Ecological economics has correctly pointed out that the growth of the global economy may not be welfare-improving anymore, whereas post-Keynesians have gained valuable insights into the functioning of the capitalist growth process. To determine the feasibility of a synthesis between the two schools, the paper compares their approaches to the problems of production, consumption, and economic dynamics as well as the associated policy recommendations. It shows that on a theoretical level the two schools have much in common, but their policy conclusions differ with regard to the desirability of further growth. The paper concludes that a synthesis of both approaches may lead to a better understanding of how a capitalist economy operates in a natural environment with limits to growth and to better-informed policy advice.

This paper presents a post-Keynesian ecological macro model that combines three strands of literature: the directed technological change mechanism developed in mainstream endogenous growth theory models, the ecological economic literature which highlights the role of green innovation and material flows, and the post-Keynesian school which provides a framework to deal with the demand side of the economy, financial flows, and inter- and intra-sectoral behavioral interactions. The model is stock-flow consistent and introduces research and development (R&D) as a component of GDP funded by private firm investment and public expenditure. The economy uses three complimentary inputs - Labor, Capital, and (non-renewable) Resources. Input productivities depend on RD a Resource tax increase, and an increase in the share of public R&D on Resources. Model results show that policy instruments that are continually increased over a long-time horizon have better chances of achieving a "green" transition than one-of climate policy shocks to the system, that primarily have a short-run affect.

The paper expands the BOP-constraint growth model and Kaldorian regimes (productivity and demand regimes) in order to include some of the concerns raised by ecological economics in post-Keynesian models for open economies. The demand regime is modified by taking into account Porter's hypothesis, which suggests that environmental innovations, spurred by environmental policies, can foster competitiveness. As a result, the equilibrium BOP-constrained rate of growth increases, leading to a different version of Thirlwall's Law, which opens room for analyzing the impact of environmental innovations on convergence between developing and developed economies. The productivity regime in turn considers the growth and employment implications of innovations in labor productivity (standard innovations) and environmental efficiency (environmental innovations). It is argued that the fiscal policy and composition of public expenditure matter for long run growth, employment and sustainability.

The paper starts with a brief criticism of macroeconomic analyses of different schools of thought for their focus on economic growth and maximisation of output. This applies to the traditional Keynesian approach, which has focused on the achievement of sufficient aggregate demand to underpin full employment and full capacity utilisation, down-playing aggregate supply constraints. This also applies to the neoclassical approach, including the current New Consensus Macroeconomics approach, which asserts the dominant role of aggregate supply in the long run, and where growth is set by the so-called ‘natural rate of growth’, with no concerns over environmental and ecological issues. The paper then proposes a different approach to macroeconomic analysis. It explicitly acknowledges that economic growth is a double-edged sword. Growth can help to alleviate persistent levels of high unemployment, but it can also lead to potentially catastrophic environmental problems. Building on the Monetary Circuit theory and the Demand-led growth theory, the paper offers an analysis of the interconnections and interdependence of the economic, biophysical and social worlds and by doing it hopes to provide the building blocks for the establishment of post-Keynesian ecological macroeconomics.