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Debunking Economics: The Naked Emperor of the Social Sciences Paperback – March, 2002
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From the Publisher
Debunking Economics 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. Many of the most cherished notions of conventional economics are based on reasoning that is internally inconsistent.
Debunking Economics explains why economists think the way they do, and points out the flaws in their thinking which they either dont realize, dont appreciate, or just plain ignore. Most of these flaws were established by dissident academic economists decades ago, yet modern economics pretends that it can continue with business as usual. In a profound irony, Debunking Economics shows that a discipline which labours the word rational may be the most irrational of all. --This text refers to an out of print or unavailable edition of this title.
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Steve Keen actually explains neoclassical economic theory, and the foundations of neoclassical economic theory, in more depth in this book than most of the textbooks I have read which makes it an excellent book for anyone who is struggling to understand neoclassical theory. The textbooks often simply present the standard tools of economic theory, such as supply and demand curves, without explaining how they are derived. Steve Keen explains precisely how they are derived and in doing so Steve Keen also offers some truly devastating criticisms of neoclassical theory which cut right to the heart of the theories. The criticisms are especially devastating because they reveal logical inconsistencies within the theories themselves. They are not merely external criticisms based on unrealistic assumptions or contrary empirical evidence. To give just one example, in the second chapter Steve Keen shows that the standard downward sloping aggregate demand curve in price theory is actually inconsistent with the assumption that prices determine distribution. Since Engels curves are going to be different shapes for different income brackets, and since every change in price will shift the distribution of income, we do not wind up with a single downward sloping demand curve but rather with a new demand curve for every single price when we attempt to aggregate individual demand curves. Neoclassical theory is simply inconsistent with itself on this point. We do not in general tolerate logical inconsistency in our theories and Steve Keen does not think we should tolerate it in economics either. Steve Keen applies the same treatment to nearly every aspect of neoclassical theory. Anyone who has struggled through the intermediate micro- and macroeconomic textbooks needs to read this as a necessary corrective. It will not only deepen your understanding of neoclassical economic theory itself but it will reveal a number of serious problems with the theories that the textbooks understandably pass over.
Steve Keen also offers a fairly interesting analysis of Marx. Steve Keen believes that the labor theory of value is simply incorrect (he agrees with standard neoclassical economic theory on this point). What is interesting is that Keen seems to believe that Marx began to question the standard labor theory of value in his late writings as well. Basically the labor theory of value, according to Keen, is based on a dualism between exchange value and use value. This is how Marx was able to solve the problem of surplus value under conditions of equilibrium. Exchange value is determined by the socially necessary labor time needed to reproduce a given commodity (including labor power) which has nothing to do with use-value. Wages, therefore, are determined by the amount of labor necessary to physically reproduce the human being. The human being sells their labor power which has the particular use-value of being able to create value. According to the standard labor theory of value only labor has this property and so all surplus-value is based on unpaid labor (exploitation). Steve Keen argues that the dualism between use-value and exchange value applies equally to capital and that Marx seemed to be moving in this direction himself. This would mean that both labor and capital would be capable of producing surplus-value. Whether you agree or disagree with Keen's analysis (and most Marxists I think will disagree) this is certainly an interesting interpretation of Marx and one worth considering.
In short, this book is highly, highly recommended. For anyone seriously interested in economics this book needs to move to the top of your "to read" list.
Debunking Economics does just what its title says -- in the very language of mainstream economics, and using that discipline's own methodologies to demonstrate its internal incoherence and self-contradictions.
Run don't walk.
Prof. Keen's focus in this book is to establish that microeconomic analysis, which forms the conceptual underpinnings of macroeconomics, breaks down once you try to apply them beyond the individual and to markets as macroeconomics purports to do. He is devastatingly effective in accomplishing this task, at least to anybody like me who has a science or engineering background. Some economists, however, as indicated by some of the more negative reviews, have a hard time accepting what Keen has to say. That's because economics is much more a religion than a science. One negative review, for example, asserts that Keen does not understand mathematics, which is demonstrably not true, as you will quickly find if you actually read the book and sift through the materials he makes available at his blog [...].
What Keen is attacking is not the math of neoclassical economics but some of the key assumptions upon which the mathematical models of neoclassical economics are built. This fact is not lost on defensive neoclassical economists, who try to change the topic by claiming to attack his math (without real explanation).
If you are looking for Keen to attack neoclassical macroeconomics directly, this book would warrant only 2-3 stars. For a full frontal assault on that topic, see Davidson's "The Keynes Solution." That being said, this book is worth reading (and even owning a couple of copies in different media, as I do).
This makes intuitive sense: a coin, or a die, has no memory - the result of the last flip does not affect any future flips. But people do have memories - people buy and sell financial instruments because of their own judgements about what ithers are doing, and based on such emotions as hope and fear. This can set up the feedback loops that are the essense of nonlinear dynamical systems - the "chaos theory" that most economist's don;t understand and thus dismiss as irrelevant.
Read the book. If there was any justice, Keen would have a regular column in the New York Times instead of that fool Krugman...