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Debunking Economics: The Naked Emperor Dethroned?
Debunking Economics (Revised and Expanded Edition), now including a downloadable supplement for courses, exposes what many non-economists may have suspected and a minority of economists have long known: that economic theory is not only unpalatable, but also plain wrong.
When the original Debunking Economics was published in 2001, the market economy seemed invincible, and conventional "neoclassical" economic theory basked in the limelight. Steve Keen argued that economists deserved none of the credit for the economy's performance, and "The false confidence it has engendered in the stability of the market economy has encouraged policy-makers to dismantle some of the institutions which initially evolved to try to keep its instability within limits." That instability exploded with the devastating financial crisis of 2007, and now haunts the global economy with the prospect of another Depression.
In this expanded and updated new edition, Keen builds on his scathing critique of conventional economic theory while explaining what mainstream economists cannot: why the crisis occurred, why it is proving to be intractable, and what needs to be done to end it. Essential for anyone who has ever doubted the advice or reasoning of economists, Debunking Economics (Revised and Expanded Edition) provides a signpost to a better future.
When the original Debunking Economics was published in 2001, the market economy seemed invincible, and conventional "neoclassical" economic theory basked in the limelight. Steve Keen argued that economists deserved none of the credit for the economy's performance, and "The false confidence it has engendered in the stability of the market economy has encouraged policy-makers to dismantle some of the institutions which initially evolved to try to keep its instability within limits." That instability exploded with the devastating financial crisis of 2007, and now haunts the global economy with the prospect of another Depression.
In this expanded and updated new edition, Keen builds on his scathing critique of conventional economic theory while explaining what mainstream economists cannot: why the crisis occurred, why it is proving to be intractable, and what needs to be done to end it. Essential for anyone who has ever doubted the advice or reasoning of economists, Debunking Economics (Revised and Expanded Edition) provides a signpost to a better future.
496 pages, Paperback
First published January 1, 2001
About the author
Steve Keen
18 books153 followersSteve Keen is a professor in economics and finance at the University of Western Sydney. He classes himself as a post-Keynesian, criticizing both modern neoclassical economics and Marxian economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking about economics include John Maynard Keynes, Hyman Minsky, Piero Sraffa, Joseph Alois Schumpeter, and François Quesnay. His recent work mostly concentrates on mathematical modeling and simulation of financial instability.
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December 3, 2011
Update (3 December 2011)
Steve Keen's done an excellent interview with BBC Hard Talk. Check it out on his author profile. In summary, he explains that the last 30 years of growth have been fueled by a credit bubble where banks basically went wild making money from lending. Where credit is used to fund speculation (i.e., making money from the increase of asset prices as opposed to funding new business ventures), it's a Ponzi scheme. We were assured by the economists it was all stable because the banks knew what they were doing and wouldn't do anything stupid. Hah! Don't we know now how untrue that was.
The only way to recovery is for the bad debt to be worked out of the system. This means either 20 years of destroyed lives waiting for the debt to be worked out that way or do an Argentina and just refuse to pay the banks who were responsible for this fucking mess in the first place. Then we need to rebuild the financial system to stop banks from doing it again.
Update (17 November 2011)
Keen has come up with the second edition of this book. He was interviewed for the blog, naked capitalism. Part I of the interview can be read here. I want to just bookmark that interview here, but if you're interested, here's a snippet that to me was priceless:
Original Review
This one is for Trevor.
I don’t think I can possibly cover this book adequately. Certainly I’m in no position to assess how valid his economics is. What I can say, however, is that he does explain clearly and logically why neo-classical economics is a complete bunk. He doesn’t rely on anecdotes or nifty little stories; he relies on a solid analysis of its basic principles and theories. First he explains them and then goes on to show their internal contradictions and mathematical inaccuracies. Finally, he points us to actual published economic work written by real-life (or now dead) economists working out these concepts.
Wait! Maths you say? WTF? Sounds like a real snore fest. Well, yes, there’s math. And, yes, math-phobes are gonna get a case of hives {*scratch scratch scratch* pass me more camomile lotion please}. But don’t worry. You won’t die. He keeps it to a minimum, and you can keep the damage to a minimum by just skimming it.
What Keen Does
This guy doesn't think small. He starts off by taking aim at the four pillars of neo-classical economics: demand, supply, competition and wages. Then, after he’s limbered up, he goes for the remaining tenets. I’ll just lay out below how he deals with demand and supply because of the four pillars those were the bits I understood the most. All I can do, though, is provide a rough sketch and the arguments below are almost necessarily an unfair caricature of what he's written.
The demand curve and the principle of utility
We all know that little graph, you know, the one showing that as the price rises the demand for the goods fall (clearly whoever thought up of that one hasn’t met the phenomenon of luxury goods where hiking up the price increases demand!). Well, linked to that is the principle of maximum utility: the idea that we maximise the utility we get out of our money by spending it on that combination of goods that gives us the most pleasure. Economists then go on from that to derive the principle that all of us doing that very thing in our own little way create a market-economy where we arrive at a set of goods and prices which on a collective level arrives at the maximum level of utility or goodness for the entire society. Keen shows why that is incorrect.
The bitty graph we see is for one set of goods. What if we start adding more? Then we get utility curves that show theoretically the maximum and most efficient combination of goods we’d buy for the prices they are sold for. All very well and good. But then you start multiplying people.
Keen highlights that the utility curve fails to take into account that different people derive different levels of utility (i.e., pleasure) from the same things and that you can’t aggregate that pleasure in a mathematically meaningful way. In fact, a utility curve for a society will not be a smooth line but a jagged line that has no theorectical utility whatsoever.
To keep it smooth, economists have to assume the existence of goods that every consumer will want to buy and will continue to buy in numbers that take up the same proportion to his income regardless of what that income is. In real terms, if you drank a beer a day when you were a college student, you’d drink a hundred beers a day if you became an executive, and a thousand beers a day if you became a banker, and probably enough beer to sink a ship if you became an investment banker.
Even economists figured that real people might not behave that way, so they came up with a solution: the representative consumer. That’s not a real person. That’s an imaginary person. You know, imaginary, like leprechauns. Or kindly Randians. Of course, economists don’t use that term. They say “Sonnershein-Mantel-Debreu conditions” and they use language like, “The necessary and sufficient condition quoted above is intuitively reasonable. It says, in effect, that an extra unit of purchasing power should be spent in the same way no matter to whom it is given”.
The supply curve and supply-side economics
Well, the supply curve is the opposite of the demand curve: it shows a graph where as the price for a set of goods goes up, so does the number of goods produced. Sounds reasonable right? Put it another way. If Nike shoes cost $100 each when Nike makes 100 shoes, then they cost $1,000 when Nike makes 1,000 shoes. Wait, say that again?
This situation arises because economists believe that productivity falls incrementally for every extra unit of goods produced. So, it costs more to produce each extra pair of Nikes. Price is determined as cost plus a minimum amount extra. So, more Nikes sold mean more expensive Nikes. Okay, I think even a low-wage factory slave in India can see what’s wrong with that. But if you just focus on the theory, doesn’t it sound like it could be true?
He goes on to note how this critique was put together by Piero Saffra in 1926 who also noted that in an industrialised economy costs tend to remain constant within a normal range of output: you tend to get economies of scale as more goods are produced since it costs the same to run the machines to produce 100 goods as it does to produce 1,000 goods. (I’ve always wondered how neo-classical economics adapts to the non-tangible goods that make up a big part of the world economy. Stuff like music, for example, where the cost associated with producing a song is the same regardless of whether you sell one copy or whether you sell 1 million copies. I guess now I know. It doesn’t.)
And Then What?
As I noted above, he goes on to competition and wages dealing with them in a similar way. In summary, he notes with regards to competition that big isn’t necessarily bad (it gets you economies of scale) and with regards to wages that unions and minimum wage can be good things (for one thing, workers don’t choose between work and leisure but between starving and living). He takes aim at other key aspects of neo-classical economics. He tells us why, for example, the assumptions used in neo-classical theory are not a source of strength but a fundamental weakness. And also why it’s daft that economists ignore time. It's all solidly backed with graphs, tables and citations.
Trevor, what’s in this for you? Well, I think you’ll enjoy the chapter on wages. He also has a chapter on why neo-classical economists are so stubbornly wed to their theories--it's not a vast conspiracy, it’s simply cognitive dissonance. And he gives an overview of the alternatives: a chapter on Marxist economics (he thinks it’s equally flawed) and a chapter on the Austrian, post-Keynesian, Sraffian, complexity theory, and evolutionary varieties. He lays out their comparative flaws and strengths.
What I Liked
Keen, to give him credit, painstakingly explains the neo-classical position, explains the problems with it, explains the neo-classicist response, and then explains the problems with the response. I can’t say he’s even-handed, but he’s not polemical. You do get to hear both sides from him, so from that perspective it’s worthwhile reading the book.
Sometime in 2008, I was hoping that neo-classical economists were thoroughly discredited. Looking at where we stand now in 2011 where the bankers are getting obscenely rich again and people seem to have returned to their old habit of forgetting the crises of the past (witness the fad for austerity), and I find myself wholly depressed and disenchanted. It seems like nothing less than a complete melt-down of the global economic system will see their demise. In the meantime, we’re just supposed to drink our tea *cough*Kool-aid*cough* and assume that everything will turn out all right.
Don’t do it! Arm yourselves, not with Kalashnikovs but with information like this book. And come the revolution, it’s not the lawyers we’ll kill but the neo-classical economists.
Steve Keen's done an excellent interview with BBC Hard Talk. Check it out on his author profile. In summary, he explains that the last 30 years of growth have been fueled by a credit bubble where banks basically went wild making money from lending. Where credit is used to fund speculation (i.e., making money from the increase of asset prices as opposed to funding new business ventures), it's a Ponzi scheme. We were assured by the economists it was all stable because the banks knew what they were doing and wouldn't do anything stupid. Hah! Don't we know now how untrue that was.
The only way to recovery is for the bad debt to be worked out of the system. This means either 20 years of destroyed lives waiting for the debt to be worked out that way or do an Argentina and just refuse to pay the banks who were responsible for this fucking mess in the first place. Then we need to rebuild the financial system to stop banks from doing it again.
Update (17 November 2011)
Keen has come up with the second edition of this book. He was interviewed for the blog, naked capitalism. Part I of the interview can be read here. I want to just bookmark that interview here, but if you're interested, here's a snippet that to me was priceless:
“…science proceeds by the development of paradigms…followed by periods of volatility when the old paradigm strikes a series of anomalies it can’t resolve, leading to a scientific revolution in which a new paradigm is formed that can account for the anomalies.
But this process requires a degree of dispassionate separation between the empirical data and the theories.… But in economics, anomalies abound but simply aren’t even acknowledged, so attempts to resolve them simply don’t occur: the neoclassical paradigm just sails on oblivious to them.
My favourite here is the conflict between the neoclassical theory of the firm, which requires rising marginal costs, and the more than a hundred studies that have contradicted this… Rather than confronting this ‘anomaly’, neoclassical economists continue teaching and building models that assume rising marginal costs, and in fact the most (in)famous paper in methodology—Friedman’s ‘assumptions don’t matter’ paper—was written specifically to advise economists NOT to even read the empirical literature.”
Original Review
This one is for Trevor.
I don’t think I can possibly cover this book adequately. Certainly I’m in no position to assess how valid his economics is. What I can say, however, is that he does explain clearly and logically why neo-classical economics is a complete bunk. He doesn’t rely on anecdotes or nifty little stories; he relies on a solid analysis of its basic principles and theories. First he explains them and then goes on to show their internal contradictions and mathematical inaccuracies. Finally, he points us to actual published economic work written by real-life (or now dead) economists working out these concepts.
Wait! Maths you say? WTF? Sounds like a real snore fest. Well, yes, there’s math. And, yes, math-phobes are gonna get a case of hives {*scratch scratch scratch* pass me more camomile lotion please}. But don’t worry. You won’t die. He keeps it to a minimum, and you can keep the damage to a minimum by just skimming it.
What Keen Does
This guy doesn't think small. He starts off by taking aim at the four pillars of neo-classical economics: demand, supply, competition and wages. Then, after he’s limbered up, he goes for the remaining tenets. I’ll just lay out below how he deals with demand and supply because of the four pillars those were the bits I understood the most. All I can do, though, is provide a rough sketch and the arguments below are almost necessarily an unfair caricature of what he's written.
The demand curve and the principle of utility
We all know that little graph, you know, the one showing that as the price rises the demand for the goods fall (clearly whoever thought up of that one hasn’t met the phenomenon of luxury goods where hiking up the price increases demand!). Well, linked to that is the principle of maximum utility: the idea that we maximise the utility we get out of our money by spending it on that combination of goods that gives us the most pleasure. Economists then go on from that to derive the principle that all of us doing that very thing in our own little way create a market-economy where we arrive at a set of goods and prices which on a collective level arrives at the maximum level of utility or goodness for the entire society. Keen shows why that is incorrect.
The bitty graph we see is for one set of goods. What if we start adding more? Then we get utility curves that show theoretically the maximum and most efficient combination of goods we’d buy for the prices they are sold for. All very well and good. But then you start multiplying people.
Keen highlights that the utility curve fails to take into account that different people derive different levels of utility (i.e., pleasure) from the same things and that you can’t aggregate that pleasure in a mathematically meaningful way. In fact, a utility curve for a society will not be a smooth line but a jagged line that has no theorectical utility whatsoever.
To keep it smooth, economists have to assume the existence of goods that every consumer will want to buy and will continue to buy in numbers that take up the same proportion to his income regardless of what that income is. In real terms, if you drank a beer a day when you were a college student, you’d drink a hundred beers a day if you became an executive, and a thousand beers a day if you became a banker, and probably enough beer to sink a ship if you became an investment banker.
Even economists figured that real people might not behave that way, so they came up with a solution: the representative consumer. That’s not a real person. That’s an imaginary person. You know, imaginary, like leprechauns. Or kindly Randians. Of course, economists don’t use that term. They say “Sonnershein-Mantel-Debreu conditions” and they use language like, “The necessary and sufficient condition quoted above is intuitively reasonable. It says, in effect, that an extra unit of purchasing power should be spent in the same way no matter to whom it is given”.
The supply curve and supply-side economics
Well, the supply curve is the opposite of the demand curve: it shows a graph where as the price for a set of goods goes up, so does the number of goods produced. Sounds reasonable right? Put it another way. If Nike shoes cost $100 each when Nike makes 100 shoes, then they cost $1,000 when Nike makes 1,000 shoes. Wait, say that again?
This situation arises because economists believe that productivity falls incrementally for every extra unit of goods produced. So, it costs more to produce each extra pair of Nikes. Price is determined as cost plus a minimum amount extra. So, more Nikes sold mean more expensive Nikes. Okay, I think even a low-wage factory slave in India can see what’s wrong with that. But if you just focus on the theory, doesn’t it sound like it could be true?
He goes on to note how this critique was put together by Piero Saffra in 1926 who also noted that in an industrialised economy costs tend to remain constant within a normal range of output: you tend to get economies of scale as more goods are produced since it costs the same to run the machines to produce 100 goods as it does to produce 1,000 goods. (I’ve always wondered how neo-classical economics adapts to the non-tangible goods that make up a big part of the world economy. Stuff like music, for example, where the cost associated with producing a song is the same regardless of whether you sell one copy or whether you sell 1 million copies. I guess now I know. It doesn’t.)
And Then What?
As I noted above, he goes on to competition and wages dealing with them in a similar way. In summary, he notes with regards to competition that big isn’t necessarily bad (it gets you economies of scale) and with regards to wages that unions and minimum wage can be good things (for one thing, workers don’t choose between work and leisure but between starving and living). He takes aim at other key aspects of neo-classical economics. He tells us why, for example, the assumptions used in neo-classical theory are not a source of strength but a fundamental weakness. And also why it’s daft that economists ignore time. It's all solidly backed with graphs, tables and citations.
Trevor, what’s in this for you? Well, I think you’ll enjoy the chapter on wages. He also has a chapter on why neo-classical economists are so stubbornly wed to their theories--it's not a vast conspiracy, it’s simply cognitive dissonance. And he gives an overview of the alternatives: a chapter on Marxist economics (he thinks it’s equally flawed) and a chapter on the Austrian, post-Keynesian, Sraffian, complexity theory, and evolutionary varieties. He lays out their comparative flaws and strengths.
What I Liked
Keen, to give him credit, painstakingly explains the neo-classical position, explains the problems with it, explains the neo-classicist response, and then explains the problems with the response. I can’t say he’s even-handed, but he’s not polemical. You do get to hear both sides from him, so from that perspective it’s worthwhile reading the book.
Sometime in 2008, I was hoping that neo-classical economists were thoroughly discredited. Looking at where we stand now in 2011 where the bankers are getting obscenely rich again and people seem to have returned to their old habit of forgetting the crises of the past (witness the fad for austerity), and I find myself wholly depressed and disenchanted. It seems like nothing less than a complete melt-down of the global economic system will see their demise. In the meantime, we’re just supposed to drink our tea *cough*Kool-aid*cough* and assume that everything will turn out all right.
Don’t do it! Arm yourselves, not with Kalashnikovs but with information like this book. And come the revolution, it’s not the lawyers we’ll kill but the neo-classical economists.
November 25, 2011
"Thirty years ago I experienced a highly conventional education in Economics. I always had an immense difficulty in reconciling the irreconcible; the economics inside the lecture theatre and the seminar room with that in the outside world. Without the internet and books like Debunking Economics it would have taken extraordinary luck and perseverance to find the literature I needed to counteract the wrongheadedness of what I was being taught. I can even recall one of our lecturers saying that it was part of our role as Economics students to defend Neoclassical Economics.
What Professor Keen'€™s book demonstrates is that these nuggets were out there at the time, but that the teaching of Economics conspired against these being discovered. Keen'€™s description of Economics teaching today makes very familiar reading; things do not seem to have moved on that much at all. Indeed, just last week I checked out the Economics section for undergraduate textbooks and much of what was presented was eerily familiar.
So, despite the internet and the present economic crisis Economics undergraduates are likely to find themselves in the same predicament as my younger self. If that is the case, then my advice is quite simple: buy, read, re-read and absorb Debunking Economics. Counter the nonsense you are being taught at every level and tool yourself up for building a new academic subject.
Read this book and understand that Neoclassical Economics has never been able to successfully aggregate the behaviour of individuals, either as consumers or producers, to the level of a single market let alone a whole economy. Read and understand that markets have “emergent qualitiesâ€, i.e. that they are greater than the sum of their parts. Read and understand that a market or an economy is in a constant state of dynamic equilibrium where decisions are made in conditions of uncertainty about the future values of important economic variables. Read and understand that this type of economy cannot be analysed using an equilibrium analysis.
Debunking Economics points the Economics student to the way to counteract Milton Friedman'€™s "€œthe realism of assumptions doesn'€™t matter"€ dictum that can really cause problems for critical thinking; accept it and an effective critique of Neoclassical Economics becomes much more difficult.
The book also shares details of Professor Keen's own research programme in the area of Macroeconomics, with the promise that a further book, to be published in 2013, will develop the ideas.
This positive contribution to Economics is there to be taken seriously. The presentation here is quite accessible to the interested non-specialist reader - in fact this has been a central shaping of the book throughout. It is a launch pad, should the reader wish to take the journey, to a greater understanding of the world around us. "
What Professor Keen'€™s book demonstrates is that these nuggets were out there at the time, but that the teaching of Economics conspired against these being discovered. Keen'€™s description of Economics teaching today makes very familiar reading; things do not seem to have moved on that much at all. Indeed, just last week I checked out the Economics section for undergraduate textbooks and much of what was presented was eerily familiar.
So, despite the internet and the present economic crisis Economics undergraduates are likely to find themselves in the same predicament as my younger self. If that is the case, then my advice is quite simple: buy, read, re-read and absorb Debunking Economics. Counter the nonsense you are being taught at every level and tool yourself up for building a new academic subject.
Read this book and understand that Neoclassical Economics has never been able to successfully aggregate the behaviour of individuals, either as consumers or producers, to the level of a single market let alone a whole economy. Read and understand that markets have “emergent qualitiesâ€, i.e. that they are greater than the sum of their parts. Read and understand that a market or an economy is in a constant state of dynamic equilibrium where decisions are made in conditions of uncertainty about the future values of important economic variables. Read and understand that this type of economy cannot be analysed using an equilibrium analysis.
Debunking Economics points the Economics student to the way to counteract Milton Friedman'€™s "€œthe realism of assumptions doesn'€™t matter"€ dictum that can really cause problems for critical thinking; accept it and an effective critique of Neoclassical Economics becomes much more difficult.
The book also shares details of Professor Keen's own research programme in the area of Macroeconomics, with the promise that a further book, to be published in 2013, will develop the ideas.
This positive contribution to Economics is there to be taken seriously. The presentation here is quite accessible to the interested non-specialist reader - in fact this has been a central shaping of the book throughout. It is a launch pad, should the reader wish to take the journey, to a greater understanding of the world around us. "
June 1, 2016
First off I stopped reading past chapter 9. This book covers a subject that is huge (a whole social science field) and that is the problem. The book is one too many things; it talks to too many audiences about too many topics using too many tools. It reads like a textbook, scientific paper, dissertation and a non-fiction book all at once. It certainly requires great concentration to follow the ancillary comments and supplements. It is not organized in a manner that is easy to follow because of the way the author chose to structure his arguments and the methodology he employed. I felt at several points the author fell into the same mistakes he be littles his opponents for. Both sides of the battles still rely on theoretical concoctions that they both still can't reliably test empirically. The first 9 chapters should give any reader the jest of the contested economic topics, beyond that it starts to be philosophical, argumentative and opinionated.
This book could have been more accessible to more people if it was designed and structured in a manner that relates and compares the theoretical contests to everyday economic transactions; such as, a small business' demand and supply realities, tax and interest impacts on consumers and businesses, consumption behaviors, etc.
This book could have been more accessible to more people if it was designed and structured in a manner that relates and compares the theoretical contests to everyday economic transactions; such as, a small business' demand and supply realities, tax and interest impacts on consumers and businesses, consumption behaviors, etc.
May 13, 2014
Every adult living in a democracy should read this book.
The next time someone tells you that rewards for the rich are the way to fix the economy, ask them what the relationship is between private debt and the supply curve. If they cannot answer (they will likely tell you that private debt is not an important factor in a capitalist economy--insane as that sounds) then you can whip out some Keen and leave them backpedaling. Even if they do answer, you will be prepared to pummel their simplistic, static and imaginary-world arguments into the ground.
We constantly hear that the economic choices for our economies are lamentably going to result in some short term pain in order to provide long-term stability, and it is simply too bad that some people are going to get rich off these measures while ordinary people are going to face unemployment, poverty and uncertainty. It's just the way things have to be, we read. This book proves such neoclassical hogwash to be unscientific, illogical and completely at odds with reality.
Keen, though at times a challenge to follow, brings together different disciplines to critique the lunacy of neoliberal economics. He knows economics better than nonprofessionals, he knows economic history better than most historians. He knows, applies and explains advanced mathematics. He brings philosophy and history of ideas to bear on the problem. In short, he is able to look at economic processes as they actually happen in the real world, using the tools that educated people have available to us.
I read Marx in 1986 and, though I'm no Marxist, I've found that a Marxist economic analysis serves far better than the Wall Street Journal or Planet Money for explaining what is happening. This is the first book since I read Alexander Berkman in 1987 that has added to my understanding of Marx and given me better tools to analyze and understand economics.
The next time someone tells you that rewards for the rich are the way to fix the economy, ask them what the relationship is between private debt and the supply curve. If they cannot answer (they will likely tell you that private debt is not an important factor in a capitalist economy--insane as that sounds) then you can whip out some Keen and leave them backpedaling. Even if they do answer, you will be prepared to pummel their simplistic, static and imaginary-world arguments into the ground.
We constantly hear that the economic choices for our economies are lamentably going to result in some short term pain in order to provide long-term stability, and it is simply too bad that some people are going to get rich off these measures while ordinary people are going to face unemployment, poverty and uncertainty. It's just the way things have to be, we read. This book proves such neoclassical hogwash to be unscientific, illogical and completely at odds with reality.
Keen, though at times a challenge to follow, brings together different disciplines to critique the lunacy of neoliberal economics. He knows economics better than nonprofessionals, he knows economic history better than most historians. He knows, applies and explains advanced mathematics. He brings philosophy and history of ideas to bear on the problem. In short, he is able to look at economic processes as they actually happen in the real world, using the tools that educated people have available to us.
I read Marx in 1986 and, though I'm no Marxist, I've found that a Marxist economic analysis serves far better than the Wall Street Journal or Planet Money for explaining what is happening. This is the first book since I read Alexander Berkman in 1987 that has added to my understanding of Marx and given me better tools to analyze and understand economics.
May 14, 2013
This book is a fantastic critique of the neoclassical synthesis and an exploration into the world of heterodox economics. Keen bravely attacks static economics at its mathematical roots and assumptions, revives Marx' theory of value and crowns him the greatest of Classical economists, defends Keynes against his opponents and heirs, and introduces the elegance and irrationality of dynamic analysis into the inherent instability of the market.
The author succeeds in trashing the NeoLiberal argument of supremacy of free markets by discrediting the equilibrium assumption of Walrasian markets and other restrictions of the Sonnenschein-Mantel-Debreu conditions. Keen's basic position is a Marx-Keynes-Schumpeter-Sraffa-Minsky synthesis that firmly holds that markets are inherently unstable due to the complex nature of the dynamics of capitalists and financial capital. While exploding Marx' labor theory of value, Steve Keen lauds Marx' theory of value and his dynamic perspective on the nature of economics. He integrates this dynamism into the creative nature of Schumpeter's entrepreneurs and the speculation of financial markets so that the nature of the business cycle becomes clearly not balanced to any stable point derived from Minsky's legacy.
Having read both the first and second edition I would strongly recommend referencing the graphics from the first edition (and now available online) in order to provide a nonnarrative basis for analyzing Keen's work. This is a book that any serious student of economics and the Great Recession needs to read immediately.
The author succeeds in trashing the NeoLiberal argument of supremacy of free markets by discrediting the equilibrium assumption of Walrasian markets and other restrictions of the Sonnenschein-Mantel-Debreu conditions. Keen's basic position is a Marx-Keynes-Schumpeter-Sraffa-Minsky synthesis that firmly holds that markets are inherently unstable due to the complex nature of the dynamics of capitalists and financial capital. While exploding Marx' labor theory of value, Steve Keen lauds Marx' theory of value and his dynamic perspective on the nature of economics. He integrates this dynamism into the creative nature of Schumpeter's entrepreneurs and the speculation of financial markets so that the nature of the business cycle becomes clearly not balanced to any stable point derived from Minsky's legacy.
Having read both the first and second edition I would strongly recommend referencing the graphics from the first edition (and now available online) in order to provide a nonnarrative basis for analyzing Keen's work. This is a book that any serious student of economics and the Great Recession needs to read immediately.
March 7, 2013
Keen is brilliant but there are two problems with this book on my end: it assumes too little mathematical knowledge at the same time as it assumes too much knowledge of the neoclassical theory he is rebutting in general.
The result is often a confusing, hard and overly verbose slog. As much as I don't like pages and pages of equations like you see in some texts, I see what he's doing sometimes and wish he would just fill it in in a box set apart from the rest of the material. He has supplemental data on his website but that doesn't fix everything.
I wish Keen were more accessible in the regards I mentioned; I have called it quits about midway through.
The result is often a confusing, hard and overly verbose slog. As much as I don't like pages and pages of equations like you see in some texts, I see what he's doing sometimes and wish he would just fill it in in a box set apart from the rest of the material. He has supplemental data on his website but that doesn't fix everything.
I wish Keen were more accessible in the regards I mentioned; I have called it quits about midway through.
February 16, 2014
5 stars for content, 3 stars for presentation.
While Keen's intent to present complex facets of economics in layman terms is certainly laudable, his efforts to bypass mathematical formulas at all costs by use of textual, tabular and graphic illustration (even if that occasionally means spelling out formulas in sentence form) sometimes go too far.
There's quite a bit of redundancy between chapters, as well as less-than-perfect mixes of the first (2001) edition and the revised (2011, post-crash) one. Considering the massive scope of this book (covering pretty much all aspects of economics except world trade) it's inevitable that some parts become somewhat of a trudge.
On the bright side, there are many enlightening passages and interesting anecdotes I had no idea about. Keen points out moments in history where ideology influenced political economy, both to the right (did you know Keynes included Marx's M-C-M' circuit in an early draft of his General Theory, even though publicly he denied having read Marx) and to the left (Marx's early draft of Capital where he considers machinery as a source of value - which would have annulled the inevitability of socialism).
This is a book of Big Ideas that need urgent consideration - whether you decide to read the book, or follow Keen's online/media presence, or read a summary (maybe start here: http://unlearningeconomics.wordpress.... ), you should definitely get to know them if you have an interest in economics or social dynamics.
Finally, here's my favourite quote - Keynes' take on politicians from his General Theory book:
'Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back'
BOOM.
While Keen's intent to present complex facets of economics in layman terms is certainly laudable, his efforts to bypass mathematical formulas at all costs by use of textual, tabular and graphic illustration (even if that occasionally means spelling out formulas in sentence form) sometimes go too far.
There's quite a bit of redundancy between chapters, as well as less-than-perfect mixes of the first (2001) edition and the revised (2011, post-crash) one. Considering the massive scope of this book (covering pretty much all aspects of economics except world trade) it's inevitable that some parts become somewhat of a trudge.
On the bright side, there are many enlightening passages and interesting anecdotes I had no idea about. Keen points out moments in history where ideology influenced political economy, both to the right (did you know Keynes included Marx's M-C-M' circuit in an early draft of his General Theory, even though publicly he denied having read Marx) and to the left (Marx's early draft of Capital where he considers machinery as a source of value - which would have annulled the inevitability of socialism).
This is a book of Big Ideas that need urgent consideration - whether you decide to read the book, or follow Keen's online/media presence, or read a summary (maybe start here: http://unlearningeconomics.wordpress.... ), you should definitely get to know them if you have an interest in economics or social dynamics.
Finally, here's my favourite quote - Keynes' take on politicians from his General Theory book:
'Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back'
BOOM.
October 19, 2017
This is excellent read and hard work for the brain. Highly complex, it is hard to abstract into one sentence, but I think more appropriate would be following: "economics is complex dynamic system, so it is unwise to model it with oversimplified static models." (free quote)
"(...) Thus ‘labor-intensive’ industry III, with a labor-to-capital ratio of 2:3, earns the highest ‘value’ rate of profit of 40 percent, while ‘capital-intensive’ industry V, with a 1:20 ratio, makes a ‘value’ rate of profit of just 5 percent." [K. Marx]
(...) because the monetarist experiment in Great Britain wasn’t a controlled experiment, monetarist economists could refuse to accept that their theory had been falsified.
The same observation can be made about #Marxist economists, and their attitude toward the data on Marx’s theory that the rate of #profit would tend to fall, or the inevitability of #socialism, and so on. In other words, this isn’t just a disease of the political right, but an endemic problem in economics: without the ability to undertake controlled experiments, statements which could be falsified will be unfalsifiable in practice. Economists of all persuasions are therefore liable to hang on to beliefs that they argue are scientific, but which in the end are ideological."
"Physicists turn to economics and are horrified by neoclassical economics theory." (free quote)
"(...) Thus ‘labor-intensive’ industry III, with a labor-to-capital ratio of 2:3, earns the highest ‘value’ rate of profit of 40 percent, while ‘capital-intensive’ industry V, with a 1:20 ratio, makes a ‘value’ rate of profit of just 5 percent." [K. Marx]
(...) because the monetarist experiment in Great Britain wasn’t a controlled experiment, monetarist economists could refuse to accept that their theory had been falsified.
The same observation can be made about #Marxist economists, and their attitude toward the data on Marx’s theory that the rate of #profit would tend to fall, or the inevitability of #socialism, and so on. In other words, this isn’t just a disease of the political right, but an endemic problem in economics: without the ability to undertake controlled experiments, statements which could be falsified will be unfalsifiable in practice. Economists of all persuasions are therefore liable to hang on to beliefs that they argue are scientific, but which in the end are ideological."
"Physicists turn to economics and are horrified by neoclassical economics theory." (free quote)
April 3, 2008
Stevey-boy is my kind of guy! He’s a super-expert on standard mainstream economic theory but he doesn’t buy any of it. If you choose to read only one book in your entire life on economics, don’t read one that tries to convince you that it all makes sense (much less a book that claims to “explain it all in simple language” or some other similar nonsense). Keen knows all the Economic Theories and all the arcane math they use to obfuscate the total absurdity of what they are saying, and he carefully takes it apart chapter by chapter. When you read this book, you can’t believe SO MANY PEOPLE believe SUCH SILLY GOOFY CRAZINESS. It’s also a nice, easy, pleasant read. He seems real human, and I like how he often gets real worked up about the outrageousness of the theories he’s talking about, so he uses LOTS OF CAPITAL LETTERS, and exclamation points!!! (And he’s Australian. I like to imagine him discussing differential calculus in an outraged Aussie accent.)
March 7, 2016
Debunking Economics offered an excellent and thorough dressing down of modern neoclassical economics. The author does so using the very same tools and mathematics that neoclassical economists hold up as proof of the correctness of their theories. He shows that more so than a science, and despite its own claims to the contrary, modern neoclassical economics operates as an ideology (or even a religion) that refuses to acknowledge its own shortcomings and inconsistencies. In addition to his fierce condemnation of neoclassical economics and its many follies, Keen provides an exciting snapshot of the alternative economic schools of thought that are beginning to emerge and how each compares to the neoclassical mainstream.
April 18, 2012
A manifestly important book. It's hard to capture the scope of Keen's work — his erudition of the real history of economic thought and demolition of the neoclassical house of cards is breathtaking, exciting, urgently necessary.
If, like me, you sat in undergrad economics classes thinking (or even saying) 'but... huh?' then it may just be that you were quite capable of understanding what was being presented, it simply made no sense.
Eagerly await his next book.
If, like me, you sat in undergrad economics classes thinking (or even saying) 'but... huh?' then it may just be that you were quite capable of understanding what was being presented, it simply made no sense.
Eagerly await his next book.
December 28, 2015
Fascinating book. It would have helped to have more of a grounding in economics at even the undergrad level, but slow consumption and re-reading make this possible because of Keen's clear language. My basic takeaway is that all of those things that seem a bit ridiculous about economics (perfectly rational consumers, assumed equilibrium) are actually, provably ridiculous. The why and how was definitely the interesting part here.
December 15, 2022
"[...]had the internet been around when I was a student, someone somewhere would have posted an essay I wrote while in my first year calling for the abolition of both unions and monopolies[...] What enabled me to break away from that delusional analysis was what Australians call 'a good bullsh*t detector'. At a certain point, the fact that the assumptions needed to sustain the vision of the Invisible Hand were simply absurd led me to break away, and become the critic I am today." (268)
July 23, 2014
Not very clear or convincing. Constantly feel like I need a glossary (uses "marginal productivity", "marginal product of labour" and "marginal revenue product" near interchangeably for example. No idea what makes each different). I fully admit this is at least partially my own fault - it would be ridiculous to expect to understand a huge amount of economics just reading straight through. But I felt it could have been made easier. I felt often like I could see how a neoclassical economist would rebut what's being said, although obviously not the details. I'm no friend of neoclassical economics but he seems to sell it a bit short - teaching ridiculously simplistic assumptions to undergrads and then teaching stuff closer to reality later is sadly pretty typical. He shows that the basis of neoclassical economics is crap but a lot of what he says is "right" feels remarkably similar. A lot of the time it didn't feel like it was hitting the right mark between "teaching neoclassical economics and showing the problems" and "sketching out an alternative".
Why is it taken as a given that capital makes a profit in and of itself? It's just stated with no evidence (chapter 7, while explaining Sraffa). Coming from a Marxist perspective it feels pretty pathetic. Actually a lot of the time I was reminded of Marx - for example talk about classes being better ways of analysing things, labour considered separately/important - but he criticises Marxist perspectives, even devoting a whole chapter to it. He apparently knows a lot about Marx but he makes a few criticisms which are just absurd - for example, the idea he quotes of a "commodity residue", which should somehow "prove" the labour theory of value is incorrect by showing that there's always a commodity that labour has to work with. This ignores that capitalism is presented by Marx as historical (therefore not everything previously made has been a capitalist commodity) for a start. http://mccaine.org/2012/07/04/steve-k... This article gives a lot of criticism of this particular section.
He thinks science can be non-ideological but economics isn't and seems to think that the reason for this has nothing to do with the role of economics or anything, just that economists are stubborn or something.
Really it's not my ideological problems that are frustrating me, it's just that I'm not really building up a super clear picture either of neoclassical economics or his alternative because it's tough going with little help from the text in terms of either a glossary, summaries of concepts or anything like that. I don't know if I'm expecting too much but I guess it's important to point out that if you're looking for an intro to economics combined with a criticism of it you'll have a lot of trouble most likely.
Why is it taken as a given that capital makes a profit in and of itself? It's just stated with no evidence (chapter 7, while explaining Sraffa). Coming from a Marxist perspective it feels pretty pathetic. Actually a lot of the time I was reminded of Marx - for example talk about classes being better ways of analysing things, labour considered separately/important - but he criticises Marxist perspectives, even devoting a whole chapter to it. He apparently knows a lot about Marx but he makes a few criticisms which are just absurd - for example, the idea he quotes of a "commodity residue", which should somehow "prove" the labour theory of value is incorrect by showing that there's always a commodity that labour has to work with. This ignores that capitalism is presented by Marx as historical (therefore not everything previously made has been a capitalist commodity) for a start. http://mccaine.org/2012/07/04/steve-k... This article gives a lot of criticism of this particular section.
He thinks science can be non-ideological but economics isn't and seems to think that the reason for this has nothing to do with the role of economics or anything, just that economists are stubborn or something.
Really it's not my ideological problems that are frustrating me, it's just that I'm not really building up a super clear picture either of neoclassical economics or his alternative because it's tough going with little help from the text in terms of either a glossary, summaries of concepts or anything like that. I don't know if I'm expecting too much but I guess it's important to point out that if you're looking for an intro to economics combined with a criticism of it you'll have a lot of trouble most likely.
Read
August 3, 2015I have to confess that I glaze over parts of the book because the material is just over my head. Not having taken even basic Economics 101 courses, things like demand curves, supply curves, indifference curves etc., are a bit hard to grasp, though I feel that the author has tried hard to explain them for laymen like myself. Having said that, I still got some good insights from the author's narrative:
1) Some fundamental assumptions that neoclassicals made on which their theories are built upon do sound too naive, simplistic and far away from reality.
2) The fact that neoclassicals view the economy as essentially in equilibrium does sound incredible.
3) There could be various reasons leading to Economics' current sorry state, both practical and political. And both , IMHO, are due to timing. Neoclassical economics penetrated mainstream in the 50's and 60's. At that time, computing power did not allow complex models, which real-life economics actually needed. Also, that time period saw the height of the cold war. It was politically and ideologically unacceptable, as much as it is now, in the West to admit that the Capitalist system is inherently unstable (especially when it came from Karl Marx!)
Thanks to this book, I can now kind of explain why every time I hear some mainstream economist or central banker speaks (e.g. Kuroda from BOJ), I couldn't help but wonder whether they actually live in the real world?! Now I know that they actually live in their own neoclassical, over-simplistic and wrong economical models!
I shall refrain from rating this book since I am in no position to critique its claims. However, I do recommend that freshman/sophomore economic students to read it and get a different perspective, before getting indoctrinated by neoclassical teachings.
1) Some fundamental assumptions that neoclassicals made on which their theories are built upon do sound too naive, simplistic and far away from reality.
2) The fact that neoclassicals view the economy as essentially in equilibrium does sound incredible.
3) There could be various reasons leading to Economics' current sorry state, both practical and political. And both , IMHO, are due to timing. Neoclassical economics penetrated mainstream in the 50's and 60's. At that time, computing power did not allow complex models, which real-life economics actually needed. Also, that time period saw the height of the cold war. It was politically and ideologically unacceptable, as much as it is now, in the West to admit that the Capitalist system is inherently unstable (especially when it came from Karl Marx!)
Thanks to this book, I can now kind of explain why every time I hear some mainstream economist or central banker speaks (e.g. Kuroda from BOJ), I couldn't help but wonder whether they actually live in the real world?! Now I know that they actually live in their own neoclassical, over-simplistic and wrong economical models!
I shall refrain from rating this book since I am in no position to critique its claims. However, I do recommend that freshman/sophomore economic students to read it and get a different perspective, before getting indoctrinated by neoclassical teachings.
Want to read
May 29, 2019I'm looking forward to reading this! After my extended minor in economics in the mid 1990s, I left it shocked and amazed at what I'd been taught. I spent the next 12 years researching why my feeling that economics is simply wrong, at best, or currently the world's biggest religion, at worst. From that I wrote two mini 'anti-economics' courses: I called them 'Economics Debunked' and 'Banks Skanks.' (Why didn't I see this book back then!? Ah well.)
June 18, 2012
Debunking Economics is a non-Marxist, non-neoclassical portrait of the field of economics. It attempts to explain why economics is a field filled with unproven and erroneous assumptions. While his prediction of the present economic crisis is impressive, I feel the rest of the work is merely okay.
The style of Debunking Economics alternates in feel between an off-handed chumminess and the dryness of an economic textbook. The introductions and conclusions are too familiar in tone to feel impartial. (At one point, he exhorts us to pour a cup of coffee, because the next chapter will be boring. None of the other chapters were any less or more boring though.) The actual meat of the arguments is fairly technical. It is an attempt to explain the internal flaws in neoclassical economics that in its own words “doesn’t use math.” By that Keen means he doesn’t use mathematical variables. There are still tons of graphs, charts, jargon, technical arguments, and, yes, equations. They are phrased in word format, which if anything is even more confusing and tedious than reading a bunch of variables. Would you rather read “Change in profit equals change in profit due to change in time multiplied by the change in time plus change in profit due to change in quantity multiplied by the change in quantity” spread out over five lines, or a simple one line equation? I wish Keen had just dispensed with the pretense that he’s not being mathematical. It’s difficult writing a mathematical critique of a mathematical subject without using math, I know, so why make promises you can’t keep?
Well enough quibbling about style, what did I think of the author’s arguments? I guess they seemed plausible where I understood them but not everything was completely persuasive. For example, the very first chapter tries to undermine the collective macroeconomic notion of demand on the basis that neoclassical economics treats all consumers as having the same tastes when clearly they don’t. Okay, makes sense. But I don’t understand why the “representative agent” argument, which argues that we’re talking about aggregating not real people but the average tastes of the average consumer, is so wildly implausible it can just be dismissed out of hand. The average household with 2.7 children doesn’t really exist in reality either, but that doesn’t mean it’s not a useful concept. Another critique argues that neoclassical models of supply have marginal costs increasing as more and more units are produced. Keen argues that in fact, marginal costs remain constant or decrease past a certain point, and assuming you could sell widgets at a constant price, you would produce an infinite number of them. Therefore production is only limited by marketing. But wait, don’t the costs of inputs have to increase? After all, at some point you must buy a limited resource that simply exists (land, raw resources, etc.) and is not produced by anyone. Each new widget you produce must have these inputs and therefore each new widget made increases the demand for these inputs and consequently the price.
I can’t say that Debunking Economics is completely successful in its aims. I don’t think it succeeds in being quite fish or fowl- not quite easy enough to be a layman’s critique, not quite technical enough to be a textbook. In addition, I found many of its arguments to be not quite as clear cut as the author presents them. Still, if you’re not much of a fan of the orthodoxy of free market champions or the radicalism of Marxists, there is a third party option, and Debunking Economics presents it.
The style of Debunking Economics alternates in feel between an off-handed chumminess and the dryness of an economic textbook. The introductions and conclusions are too familiar in tone to feel impartial. (At one point, he exhorts us to pour a cup of coffee, because the next chapter will be boring. None of the other chapters were any less or more boring though.) The actual meat of the arguments is fairly technical. It is an attempt to explain the internal flaws in neoclassical economics that in its own words “doesn’t use math.” By that Keen means he doesn’t use mathematical variables. There are still tons of graphs, charts, jargon, technical arguments, and, yes, equations. They are phrased in word format, which if anything is even more confusing and tedious than reading a bunch of variables. Would you rather read “Change in profit equals change in profit due to change in time multiplied by the change in time plus change in profit due to change in quantity multiplied by the change in quantity” spread out over five lines, or a simple one line equation? I wish Keen had just dispensed with the pretense that he’s not being mathematical. It’s difficult writing a mathematical critique of a mathematical subject without using math, I know, so why make promises you can’t keep?
Well enough quibbling about style, what did I think of the author’s arguments? I guess they seemed plausible where I understood them but not everything was completely persuasive. For example, the very first chapter tries to undermine the collective macroeconomic notion of demand on the basis that neoclassical economics treats all consumers as having the same tastes when clearly they don’t. Okay, makes sense. But I don’t understand why the “representative agent” argument, which argues that we’re talking about aggregating not real people but the average tastes of the average consumer, is so wildly implausible it can just be dismissed out of hand. The average household with 2.7 children doesn’t really exist in reality either, but that doesn’t mean it’s not a useful concept. Another critique argues that neoclassical models of supply have marginal costs increasing as more and more units are produced. Keen argues that in fact, marginal costs remain constant or decrease past a certain point, and assuming you could sell widgets at a constant price, you would produce an infinite number of them. Therefore production is only limited by marketing. But wait, don’t the costs of inputs have to increase? After all, at some point you must buy a limited resource that simply exists (land, raw resources, etc.) and is not produced by anyone. Each new widget you produce must have these inputs and therefore each new widget made increases the demand for these inputs and consequently the price.
I can’t say that Debunking Economics is completely successful in its aims. I don’t think it succeeds in being quite fish or fowl- not quite easy enough to be a layman’s critique, not quite technical enough to be a textbook. In addition, I found many of its arguments to be not quite as clear cut as the author presents them. Still, if you’re not much of a fan of the orthodoxy of free market champions or the radicalism of Marxists, there is a third party option, and Debunking Economics presents it.
June 5, 2013
This book was not an easy read, but it gets four stars from me as in many ways I found it an utter eye opener.
Steve Keen analyses and documents in methodical detail the flaws in neoclassical economics. While there are many other books that have done this before, his is the only one that I am aware of that takes the economic academic profession head on, and plays them at their own game. He exposes their flawed thinking and gross mathematical incompetence, which to anyone who has studied mathematics and science at tertiary level is deeply shocking. I would personally call it corruption, but Keen gives them the benefit of the doubt and prefers to put it down to ideological zeal and a closed shop academic culture. Certainly it is a brave book.
I am highly impressed with Keen's trail blazing work in bringing the science of complexity into economic modelling, and his efforts to bring monetary factors into those models. It is absolutely appalling that mainstream economists so resolutely ignore the impact of money and debt in their economic theories. Apparently Keen is planning to write another book on Finance and Economic Breakdown, which I greatly look forward to reading. "Debunking Economics" makes it clear that it is private debt and uncontrolled financial speculation that causes financial crises, not government spending. In fact, governments have a role to play in regulating finance and ameliorating economic crises by appropriate spending and intervention. The Rudd government interventions to address the GFC come out much better in this analysis than the US "quantitative easing" of gifts to the banks.
To me it is blindingly obvious that an economy needs to be modelled as a complex, non-equilibrium system: there are too many variables at play and feedback loops. Physicists, biologists and other scientists have been aware of the difficulties of modelling these types of nonlinear systems for decades, or more. So why has economics, the so-called "dismal science", been protected - or blind - to these insights? Can it not be that there are class interests involved? Keen tiptoes around this issue somewhat, but this is understandable considering his desire for academic credibility. He is passionate about doing justice to a "real" economics, but careful to avoid potential claims of bias or polemic in his writing.
Keynes' reputation has been resurrected by this book as well. I was very interested to read of the way this great economist's ideas had been distorted and misrepresented to suit a neoclassical economst's view of the world.
As a non-economist myself who is nevertheless mathematically literate, I would have appreciated equations and diagrams being fully included in the book. It suffered from a lack of clarity as a result, and while I read every word of the book, I had to skim over some parts without a full understanding. I did check the web links provided, but the PDF with the diagrams was not clearly linked to the book's sections, and the debunking economics website was a subscription website with rather unaffordable rates.
Overall, highly recommended to anyone wanting to better understand the economic forces at play in the world today. Be prepared for some intellectual work though. It took me quite a few weeks to get through this book, and at times it gave me a headache, but I'm really glad I made the effort.
Steve Keen analyses and documents in methodical detail the flaws in neoclassical economics. While there are many other books that have done this before, his is the only one that I am aware of that takes the economic academic profession head on, and plays them at their own game. He exposes their flawed thinking and gross mathematical incompetence, which to anyone who has studied mathematics and science at tertiary level is deeply shocking. I would personally call it corruption, but Keen gives them the benefit of the doubt and prefers to put it down to ideological zeal and a closed shop academic culture. Certainly it is a brave book.
I am highly impressed with Keen's trail blazing work in bringing the science of complexity into economic modelling, and his efforts to bring monetary factors into those models. It is absolutely appalling that mainstream economists so resolutely ignore the impact of money and debt in their economic theories. Apparently Keen is planning to write another book on Finance and Economic Breakdown, which I greatly look forward to reading. "Debunking Economics" makes it clear that it is private debt and uncontrolled financial speculation that causes financial crises, not government spending. In fact, governments have a role to play in regulating finance and ameliorating economic crises by appropriate spending and intervention. The Rudd government interventions to address the GFC come out much better in this analysis than the US "quantitative easing" of gifts to the banks.
To me it is blindingly obvious that an economy needs to be modelled as a complex, non-equilibrium system: there are too many variables at play and feedback loops. Physicists, biologists and other scientists have been aware of the difficulties of modelling these types of nonlinear systems for decades, or more. So why has economics, the so-called "dismal science", been protected - or blind - to these insights? Can it not be that there are class interests involved? Keen tiptoes around this issue somewhat, but this is understandable considering his desire for academic credibility. He is passionate about doing justice to a "real" economics, but careful to avoid potential claims of bias or polemic in his writing.
Keynes' reputation has been resurrected by this book as well. I was very interested to read of the way this great economist's ideas had been distorted and misrepresented to suit a neoclassical economst's view of the world.
As a non-economist myself who is nevertheless mathematically literate, I would have appreciated equations and diagrams being fully included in the book. It suffered from a lack of clarity as a result, and while I read every word of the book, I had to skim over some parts without a full understanding. I did check the web links provided, but the PDF with the diagrams was not clearly linked to the book's sections, and the debunking economics website was a subscription website with rather unaffordable rates.
Overall, highly recommended to anyone wanting to better understand the economic forces at play in the world today. Be prepared for some intellectual work though. It took me quite a few weeks to get through this book, and at times it gave me a headache, but I'm really glad I made the effort.
February 25, 2019
As someone whose first real introduction to economics was one of those standard econ 101 classes, which I found essentially an exercise in switching your brain off and making a bunch of imaginary lines intersect on a sheet in order to prove that our current society is the best of all possible worlds, my disappointment with mainstream economics led me to explore alternative ways of understanding and analysing our (political) economy. As of today, this is a path that sooner or later leads you to bump into Steve Keen.
Debunking Economics - Revised and Expanded Edition: The Naked Emperor Dethroned? is one of those instances of a book truly delivering on its title. Keen methodically debunks each and every single tenet of neoclassical economics, or what is also called the mainstream or orthodoxy. Ever since the Great Recession more on more of these types of books and articles have been published, but what sets Keen’s work apart from the rest is that he doesn’t simply highlight how neoclassical theories are based on unrealistic assumptions, yields wrong predictions, etc., but also shows how a great deal of them are logically contradictory and senseless. While neoclassicals like to charge that their detractors just don’t understand math, Steve Keen in fact demonstrates the problem is that their models are based on bad maths, and that neoclassicals, unlike mathematicians and physicists, don’t understand the limitations to mathematics (chaotic systems).
I must admit that most of what he presented in his debunking of micro was new to me, and it made me realize just how fundamentally rotten the orthodoxy of the discipline is. All their tenets have already been disproven, often by neoclassicals themselves. But what happens with these discoveries? Well, like in any completely and absolutely scientific field of study, you ignore it of course! Or best case scenario; you add a bunch of nonsensical assumptions so that the economy you end up modelling is:
If that excerpt alone isn’t enough to make you go and read this book, I don’t know what is.
Debunking Economics - Revised and Expanded Edition: The Naked Emperor Dethroned? is one of those instances of a book truly delivering on its title. Keen methodically debunks each and every single tenet of neoclassical economics, or what is also called the mainstream or orthodoxy. Ever since the Great Recession more on more of these types of books and articles have been published, but what sets Keen’s work apart from the rest is that he doesn’t simply highlight how neoclassical theories are based on unrealistic assumptions, yields wrong predictions, etc., but also shows how a great deal of them are logically contradictory and senseless. While neoclassicals like to charge that their detractors just don’t understand math, Steve Keen in fact demonstrates the problem is that their models are based on bad maths, and that neoclassicals, unlike mathematicians and physicists, don’t understand the limitations to mathematics (chaotic systems).
I must admit that most of what he presented in his debunking of micro was new to me, and it made me realize just how fundamentally rotten the orthodoxy of the discipline is. All their tenets have already been disproven, often by neoclassicals themselves. But what happens with these discoveries? Well, like in any completely and absolutely scientific field of study, you ignore it of course! Or best case scenario; you add a bunch of nonsensical assumptions so that the economy you end up modelling is:
“[A] model of the macroeconomy as consisting of a single consumer, who lives for ever, consuming the output of the economy, which is a single good produced in a single firm, which he owns and in which he is the only employee, which pays him both profits equivalent to the marginal product of capital and a wage equivalent to the marginal product of labor, to which he decides how much labor to supply by solving a utility function that maximizes the utility over an infinite time horizon, which he rationally expects and therefore correctly predicts. […] And there are no banks, no debt, and indeed no money in this model.”
If that excerpt alone isn’t enough to make you go and read this book, I don’t know what is.
August 31, 2013
Some Anvils Need to be Dropped
JDN 2456534 PDT 15:58.
A review of Debunking Economics: The Naked Emperor Dethroned? by Steve Keen.
The basic message Keen is trying to send is a vitally important one: Neoclassical economics is failing. Models based around rational agents and static equilibrium simply fail to represent the real world, and and as a result give policymakers a false sense of security against economic crisis.
The way Keen delivers this message is by avalanche: Page after page, chapter after chapter, he tears apart neoclassical economics piece by piece. His goal, indeed, is not to show that the theory is wrong—refuting even a few assumptions or equations would do that—but rather to show that it is rotten to the core, that virtually every assumption and every equation is defective.
And this, I think, is Keen's greatest failing. Some of the walls he tries to tear down are stronger than he imagines them to be, and this draws attention away from the very real gaps in the walls of the citadel.
He also has this weird obsession with "what they originally meant"; he clearly knows a great deal about the history of economics and economists, and so I'm inclined to think he's basically right about what Keynes, Marx, Von Neumann, etc. originally meant; but so what? These men were brilliant, and many of their insights are useful, but they were still wrong about a lot of things. Even Darwin and Einstein made mistakes, and Marx was no Darwin.
All the way throughout the book, Keen seems intent on showing that neoclassical economics is wrong, wrong, wrong, about everything, in every possible way. But this was not necessary; reversed stupidity is not intelligence. Neoclassical economics does not get everything wrong; in fact, it probably gets more things right than the general folk notions most people have about economics. I doubt most people realize that sales taxes create deadweight loss, for example, or that the money supply is largely created by bank loans and isn't backed by any commodity; yet these are things that neoclassicists definitely do understand quite well. Neoclassical economics is wrong not at the core, but at the margins; but isn't it neoclassicists most of all who taught us that margins are everything?
(My complete review was too long for Goodreads and will be posted at pnrj.xanga.com once Xanga finishes migrating to Xanga 2.0.)
JDN 2456534 PDT 15:58.
A review of Debunking Economics: The Naked Emperor Dethroned? by Steve Keen.
The basic message Keen is trying to send is a vitally important one: Neoclassical economics is failing. Models based around rational agents and static equilibrium simply fail to represent the real world, and and as a result give policymakers a false sense of security against economic crisis.
The way Keen delivers this message is by avalanche: Page after page, chapter after chapter, he tears apart neoclassical economics piece by piece. His goal, indeed, is not to show that the theory is wrong—refuting even a few assumptions or equations would do that—but rather to show that it is rotten to the core, that virtually every assumption and every equation is defective.
And this, I think, is Keen's greatest failing. Some of the walls he tries to tear down are stronger than he imagines them to be, and this draws attention away from the very real gaps in the walls of the citadel.
He also has this weird obsession with "what they originally meant"; he clearly knows a great deal about the history of economics and economists, and so I'm inclined to think he's basically right about what Keynes, Marx, Von Neumann, etc. originally meant; but so what? These men were brilliant, and many of their insights are useful, but they were still wrong about a lot of things. Even Darwin and Einstein made mistakes, and Marx was no Darwin.
All the way throughout the book, Keen seems intent on showing that neoclassical economics is wrong, wrong, wrong, about everything, in every possible way. But this was not necessary; reversed stupidity is not intelligence. Neoclassical economics does not get everything wrong; in fact, it probably gets more things right than the general folk notions most people have about economics. I doubt most people realize that sales taxes create deadweight loss, for example, or that the money supply is largely created by bank loans and isn't backed by any commodity; yet these are things that neoclassicists definitely do understand quite well. Neoclassical economics is wrong not at the core, but at the margins; but isn't it neoclassicists most of all who taught us that margins are everything?
(My complete review was too long for Goodreads and will be posted at pnrj.xanga.com once Xanga finishes migrating to Xanga 2.0.)
April 3, 2008
From a review by Joe McCauley
"This book provides a far more clear explanation of the ideas of standard economic theory (neo-classical economics) than do the standard texts (compare with Samuelson, Mankiw, or Barro, e.g.).
The book explains utility maximization, indifference curves, and the assumptions underlying the standard economic model that is used by the IMF, the World Bank and all major western governments. Keen uses simple language that even the lay person can follow. The text should be standard reading for every student of elementary economics, but even an experienced economist like Alan Greenspan might benefit from the clarity of thought displayed therein.
Macroeconomic theory is covered from the right perspective, from the result of Sonnenshein et el - all which shows the basis in microeconomic theory for the standard macroeconomic model.
Kirman is mentioned but his seminal connection of liquidity demand with uncertainty is not discussed. The work of Radner should have been included, but then Samuelson and Varian do not discuss Radner's contribution either. Chapter 7 presents the correct perspective on general equilibrium theory, with good advice for students of econ 101.
Chapter 8 on Keynes is outstanding, presenting the clearest (and even correct!) textbook discussion of Keynes that I am aware of. Marx's contribution to the basics of capitalism, the recognition of the central role played by the profit motive, is also made apparent in the Keynsian context. [In comparison] The profit motive is ignored completely in Samuelson and the other standard texts, which discuss merely pure barter economies and leave out financial markets altogether. Hicks' interpretation of Keynes' ideas is also correctly presented. All in all, students of economics would be well advised to make Keen's book their main econ text."
"This book provides a far more clear explanation of the ideas of standard economic theory (neo-classical economics) than do the standard texts (compare with Samuelson, Mankiw, or Barro, e.g.).
The book explains utility maximization, indifference curves, and the assumptions underlying the standard economic model that is used by the IMF, the World Bank and all major western governments. Keen uses simple language that even the lay person can follow. The text should be standard reading for every student of elementary economics, but even an experienced economist like Alan Greenspan might benefit from the clarity of thought displayed therein.
Macroeconomic theory is covered from the right perspective, from the result of Sonnenshein et el - all which shows the basis in microeconomic theory for the standard macroeconomic model.
Kirman is mentioned but his seminal connection of liquidity demand with uncertainty is not discussed. The work of Radner should have been included, but then Samuelson and Varian do not discuss Radner's contribution either. Chapter 7 presents the correct perspective on general equilibrium theory, with good advice for students of econ 101.
Chapter 8 on Keynes is outstanding, presenting the clearest (and even correct!) textbook discussion of Keynes that I am aware of. Marx's contribution to the basics of capitalism, the recognition of the central role played by the profit motive, is also made apparent in the Keynsian context. [In comparison] The profit motive is ignored completely in Samuelson and the other standard texts, which discuss merely pure barter economies and leave out financial markets altogether. Hicks' interpretation of Keynes' ideas is also correctly presented. All in all, students of economics would be well advised to make Keen's book their main econ text."
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April 24, 2008A crucial work for understanding the failures of neoclassical economics: For people, like me, who had almost given up entirely on the academic field of Economics because of ridiculous theories and poor teaching, there is fortunately still Steve Keen. In this book, the Australian Keen shows the errors of the standard views of neoclassical (orthodox) economics.
Not just some side aspects of the theory, but the actual core views of economics as it is taught in universities everywhere unravels before your eyes. Keen masterfully applies both economic models and historical analysis to show that orthodox economists not only do not know what theories exist in their own field, but they also have no inkling of the history of economics and what this means for their approach. This, combined with a possibly even poorer understanding of the philosophy of science (Keen uses Milton Friedman as the main example, but more could have been named), leads to a series of ridiculous assumptions and even more ridiculous results. That the economists consistently ignore the way industrial managers and market analysts etc. do NOT apply their pet theories is just the icing on the cake.
The book is heavy reading for those with no knowledge of economics or maths, but certainly not impossible. A basic understanding of economics and mathematics as taught at high school level (at least in The Netherlands) goes a long way, and Keen fortunately writes well and attempts to avoid long mathematical proofs as much as possible.
The only downside to the book is that his treatment of alternative theories, especially the quite closely linked Austrian school of economics, is very short and vague. This leads to the impression that Keen knows what's wrong with neoclassics, but not what is to be done instead. Therefore, start by reading this book, but don't end there.
Not just some side aspects of the theory, but the actual core views of economics as it is taught in universities everywhere unravels before your eyes. Keen masterfully applies both economic models and historical analysis to show that orthodox economists not only do not know what theories exist in their own field, but they also have no inkling of the history of economics and what this means for their approach. This, combined with a possibly even poorer understanding of the philosophy of science (Keen uses Milton Friedman as the main example, but more could have been named), leads to a series of ridiculous assumptions and even more ridiculous results. That the economists consistently ignore the way industrial managers and market analysts etc. do NOT apply their pet theories is just the icing on the cake.
The book is heavy reading for those with no knowledge of economics or maths, but certainly not impossible. A basic understanding of economics and mathematics as taught at high school level (at least in The Netherlands) goes a long way, and Keen fortunately writes well and attempts to avoid long mathematical proofs as much as possible.
The only downside to the book is that his treatment of alternative theories, especially the quite closely linked Austrian school of economics, is very short and vague. This leads to the impression that Keen knows what's wrong with neoclassics, but not what is to be done instead. Therefore, start by reading this book, but don't end there.
June 1, 2016
Although I am giving this book five stars, I have to alert any interested readers that this book gets technical. From time to time Prof. Keen will utilize very abstract thinking that will leave some people confused and/or fleeing from the book - he even admits to this by advising the reader to drink some coffee. Having given this major qualification, I must contend that this book is the thorough critique of economics since Marx's "Capital." Unlike Marx, however, Prof. Keen does not foresee a worker's paradise anytime soon but a turbulent future that present day economists and leaders are only making worse by poor decisions. Keen has demonstrated in this book that almost all mainline thought on economics is poorly conceived and in need of major correction. Most importantly, Keen reveals that in the modern economy there are four types of actors: workers, capitalists, bankers, and governments. I highly recommend that the intellectually curious read this work - with plenty of caffeine ready - so that the marvels of capitalism are not lost due to its pitfalls being ignored.
February 6, 2018
I never read quite all of this, but probably will find myself going back to it to look at specific things. I've got pretty mixed feelings about it. Some of it was really brilliant, some other bits felt a bit forced and muddled. One major complaint is that for the supposed sake of simplicity, mathematical formulas are not included, but instead described in words. This is completely incomprehensible. Anyone reading this book is not going to be scared of some symbols. Not including the graphs etc. in the book is also a great disappointment. I have the printed supplement, but they should have been in there in the first place. Some of this this is pretty heavy going, but it can be rewarding. I also read "The economics anti-textbook", and that was much more structured and accessible, and I would probably recommend that book over this, in most cases. Still, there is some real gold in here, if you are willing to dig for it.
January 11, 2019
The book is important and meaningful reading for anyone interested in economics or politics. His points are cogent and persuasive. I gave the book three stars primarily for three reasons: First, while it has many useful charts, they, for the most part, lack legends. If labelled, many of the curves are identified by cryptic acronyms not otherwise identified. Second, for those of us who are non-economists, the book greatly could use a glossary. While terms and acronyms are defined in the text, they are often addressed again in later chapters with no explanation -- a glossary would solve the problem. Finally, the text is uneven -- in many places it is quite clear and able to be followed by the layman, in others it introduces concepts which are foreign to non-economists without explanation. Oddly, a little simple math might help to solve the problem.
That said, I highly recommend this book.
That said, I highly recommend this book.
March 11, 2011
I agree with other reviewers that is book is one of the most accurate and brilliant criticisms of mainstream/neoclassical economics. Some of the points Mr. Keen makes are very original, and if you are looking for "ammo" to shoot at mainstream economics, this book will give you plenty.
However,I am not sure how much this book will appeal to the non-economist reader. Much of it is discussion of the existing economic theories, and without a knowledge of these theories, much of the book would be imcomprehensible to the reader. Thus, I am taking statements like "the only economics book you need to read" with a grain of salt. Economics is a fairly complex subject, I believe more complex than most of the sciences. So, non-economist readers should not be frustrated if they feel that the book is difficult.
However,I am not sure how much this book will appeal to the non-economist reader. Much of it is discussion of the existing economic theories, and without a knowledge of these theories, much of the book would be imcomprehensible to the reader. Thus, I am taking statements like "the only economics book you need to read" with a grain of salt. Economics is a fairly complex subject, I believe more complex than most of the sciences. So, non-economist readers should not be frustrated if they feel that the book is difficult.
February 25, 2016
This is probably the single best economics book I have read, and I have read more economics books than is good for one's health. Keen does an excellent job of pulling back the curtain to show the true lunacy that sits underneath most of our economic dogma. From the insanity of perfect competition, to flaws in the theory of the firm (MC does not equal MR in any real world case) to the SMD issue with aggregating market demand curves, Keen details and debunks all of the flaws in the religious discipline of neoclassical economics (includes Keynesian and Chicago School) using their own literature to do so. Keen is a brilliant economist and even makes reading economics bearable (not always an easy task). Book relies heavily on text, I wish it were a bit more visual, but it is not a textbook, so I can't fault Keen for that. Five stars all the way, I recommend it to EVERYONE.
September 27, 2017
Highlights many holes and errors in the standard theories of economics and confirms that many economists are using simplistic or incorrect models to predict future, which gives rise to "unexpected" crashes and crises. Informative and illuminating content but it is a shame that the writing is so repetitive and comes across as a big moan by someone who feels he is not being listened to.
January 28, 2016
Students (and professors) of economics need to digest this somewhat technical book, and find a way to come to terms with Keen's points.
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