10 of 12 people found the following review helpful
on March 31, 2013
Format: PaperbackVerified Purchase
PRO: Keen's critique of neoclassical economics is a tour de force. Not only does he point out how central tenants of the economic mainstream violate basic human experience, he explains the theory's internal, theoretical inconsistency and external inconsistency with empirical research. Most damning of all, he shows that mainstream economics has been consistently debunked by leading neoclassicals, in leading economics journals, only to have academic economists continue as if nothing happened.
Keen also does a good job pointing out the corruption of the economics profession. In addition to the intellectual dishonesty of ignoring serious theoretical and empirical problems, the profession marginalizes those who try and address these problems. Academic employment is based on publication. But the more prestigious the economics journal, the less likely a non-neoclassical paper will be published therein. The result is that the more successful an economist is in terms of academic honors and employment at prestigious schools, the less likely he is to know how economies work. But the terrifying reality is that governments and businesses tend to listen to the leading orthodox economists. One shouldn't be surprised, therefore, when bad things happen.
Moreover, Keen writes in an accessible way, with engaging prose, being simple without being simplistic. Readers will find the book intellectually challenging, but no more so than necessary. Further, Keens does even his mathematical analysis in English, so this book is accessible to all intelligent readers.
CON: My main critique is that Keen makes invalid criticisms of Austrian economics. One should always be careful when assessing another social scientist as a scientist, because ideology is hard to separate from description. If Keen just put forward different policies than I would, I would have given five stars, even though I might disagree with them and be able to put forth strong arguments against them. But there are claims in this book about Austrian economics that are demonstrably false. For that I docked a star.
For example, at Loc 5422 of the kindle version (Chapter 10: Why They Didn't See It Coming), Keen claims both neoclassical and Austrian economists "fail to consider the role of credit in a capitalist economy." And at Loc 5438 he similarly claims both schools argue general gluts and depressions are impossible. Keen claims Austrians and neoclassicals alike ignore the cycle of credit expansion and economic boom followed by credit contraction and bust, i.e., the business cycle.
Obviously, Keen is unfamiliar with Ludwig von Mises' 1912 book, The Theory of Money and CREDIT. In it, Mises laid out the essence of Austrian business cycle theory, which was developed by FA Hayek in Prices and Production (1931) and culminating in The Pure Theory of Capital (1941). The essence of that theory is that credit expansion, by an unsustainable fractional reserve banking system or government money printing, generates unsustainable demand that causes entrepreneurs to overestimate future demand, overextending productive capacity and leading to a general glut that can only be worked off by a period of credit contraction, price adjustment, and bankruptcy of unsustainable businesses.
A leading contemporary source on ABCT is Roger Garrison, whose 2000 book, Time and Money, is accessible, succinct and accurate. Garrison also presents the theory in an hour long lecture available on YouTube and entitled "Austrian Theory of the Trade Cycle." While Keen mentions Peter Schiff, an Austrian, was among those who predicted the housing boom and financial bust (a claim that's itself hard to reconcile with the proposition Austrians don't believe in depression), he doesn't point out the many other Austrians who saw the GFC and the Dotcom bubble on the horizon. Nor does he mention that Mises and Hayek warned of the Great Depression. All these predictions and more are documented, just Google "Austrian predictions."
I suspect that Keen is much more familiar with the first generation of Austrian economics, started by Carl Menger (whom Keen mentions several times) and largely absorbed into the mainstream, than the second started by Mises (whom Keen mentions only twice, and not when laying out his understanding of Austrian theory) and continued by Hayek, Rothbard, Kirzner, Block, Garrison, Salerno, Thornton, Herbner, Murphy, et al. An excellent source to help one distinguish the two is Israel Kirzner's 2 part, 2 hour lecture entitled The History of Austrian Economics, available on YouTube.
We're it not for these errors, I would have given the book 5 stars. If Keen accurately presented Austrian theory and disagreed with it, that would be different. But these aren't valid differences of opinion on policy or theory. They're verifiably false claims about the content of Austrian theory. Keen's critiques of Austrian economics may have been valid 100 years ago. But it's inaccurate as applied to Austrian economics today. Given the fact he compares this old version of Austrian theory with his own up-to-date, Post-Keynesian theory, Keen creates a strawman that misleads the reader, intentionally or unintentionally.
Fortunately, this is a small part of an otherwise worthwhile read, so I only took off one star.
PS: All the texts mentioned herein are available free from the Mises Institute (Mises.org). Just search the title and "PDF" in Google.
8 of 10 people found the following review helpful
on November 17, 2012
As a doctoral business student and working professional I found this book interesting--for the most part and to the extent that economics is interesting. Dr Keen provides a refreshing look at widely held beliefs in economics which I was questioning myself in my advanced doctoral studies. In the course of my studies I have argued several similar points to some of his--only his are much more profound, well explained, and there are more of them.
His primary premises are that neoclassical economics are highly flawed and are resulting in dangerous government policies. Some of his key points include:
1. The error in efficient market hypothesis
2. The destabilizing effect of neoclassical economic policies
3. Current debt practices are flawed
4. Deregulation of the financial industry is very dangerous
5. Reactions to economic crises based on neoclassical economics (and some Keynesian) will actually result in worse conditions over the long term than other practices
6. The dominance of neoclassical economics is restricting public access to alternate theories
7. Current consumer demand theory is wrong
8. Traditional supply and demand setting price is false
9. Labor theory is flawed
10. Supply curves taught do not match what is happening in practice
11. There are about 15 other items that he also discusses but are too many to mention here.
I would highly encourage you to see his YouTube videos before buying this book as it will give you a great idea as to what to expect in the book (look for the one on risk in particular). I personally found his videos better than the book as the illustrations were good, I am a visual person, and the explanations were short whereas the book has very detailed explanations. If you like the videos and want to know more behind the man or ideas then this book is for you.
Given that he predicted the 2008 crash well in advance (see his other writings) I think it important to read this book for anyone seriously interested in economics.
I recommend this book for any serious student or practitioner of economics and economic policy. If you are a 4th year student (finance, economics) or higher then you should be able to understand most of what he is saying. There are a couple of parts where there is math that gets complex and he suggests skipping it on the first read.
Dr Keen's perspective is fresh and for the most part appears to be well thought out and logical and has a lot to add to the economics profession.
Areas for Improvement
1. There are not many diagrams. If you are a visual learner like I am it may take you longer to understand the material.
2. You need a strong economics background to fully understand the material.
3. While many of his points are valid, his criticism of how neoclassical economists obtained their theories are sometimes the same means made by him in expressing his points
4. It can be repetitive.
5. It is not an easy read. He quotes several times from others which are hard to understand, but some of what he has written is also difficult. You will, however, likely understand most of it based on my other points. It just takes a while to process. It is too technical for the average person without having taken at least a course or two in economics at a minimum (I took at least 4).
6. His comments on a debt jubilee are questionable
7. His points on government stimulus efficiency are questionable. My own research and that of others indicates the contrary.
4 of 6 people found the following review helpful
on August 25, 2012
Format: Kindle EditionVerified Purchase
Steve Keen explains in a very clear manner, understandable for every interested layman, how utterly wrong mainstream economists are about almost everything in the real world, and why they did not see the present crisis coming even when it was already looming large. He compares the pseudo-science of neoclassical economics with a religion, as its practitioners continually sweep the facts under the carpet so as to be able to maintain their beliefs.
Keen also provides alternatives, and indicates the direction in which solutions to the Great Recession can be found. And no, these do not include more 'Quantative Easing'.
The key to it all, according to Keen, is the level of private sector debt compared to GDP, and the rate at which this debt accellerates or decellerates. Keen draws on the works of (non-orthodox) economists like Piero Sraffa, Irving Fisher, Joseph Schumpeter, Hyman Minsky, and others. He designed his own mathematical model of the economy, including the effects of credit and debt - which neoclassical economists ignore - and was able to reproduce with it the effects we have observed in the real world from the early nineties till now.
He als provides a comparison of the present-day Great Recession with the phenomena that occurred prior to, and during, the Great Depression of the 1930's, which were totally missed and/or misinterpreted by the would-be expert par excellence on this subject, Ben Bernanke, the current chairman of the Federal Reserve.
All in all a very refreshing and enlightening book, written in a very readable style, devoid of the turgid language used in many other books on economics, but certainly not superficial; a real eye-opener. After you have read it, you will be well-armed to debunk the arrant nonsense that the media spread about the crisis yourself.
15 of 23 people found the following review helpful
on January 21, 2012
This is a good book for learning about some problems in mainstream economic theory. It should be more widely understood.
Standing in the way of that is that it is WAY too long, though. For the verbally inclined, I think 275 pages would do. For the mathematically inclined, I think the problems in mainstream economics he points out could have been fully explained in 50 pages. For those familiar with system dynamic modeling or those more mathematically inclined, his model could have been fully explained in 10 pages.
Should Steve ever read this....you need shorter offerings to reel in more people to your way of thinking. Right now, you only get people with a lot of patience and time; what you need are the ones who actually make the decisions- they have no time, and rarely have patience. Make one thing for the verbal types (but WAY shorter), one for the mathematical types and one for the system dynamics pros (and publish a normal file or two or three that the SD guys use instead of that special thing you had made; the thing you have could be malware for all we know, and we don't have the time to learn some new program anyway).