Keen's Master-idea is that the money and debt are not created the way it is described in the textbooks. In classical "textbook" view, the banks receive deposits and create reserves first, and make loans later. In real world Keen argues, the banking sector creates loans and goes looking for the reserves later. His other important idea is that the main factor that causes economic contraction or expansion, and also has caused the brief recovery--and will also cause the dreaded "double dip" recession in the U.S.-- is the Credit Impulse.
The Credit Impulse (a.k.a. Credit Accelerator) is not the rate change of the monetary base, but it the RATE OF CHANGE OF IT'S RATE OF CHANGE.
Keen discovers a paradox - because aggregate demand is the sum of GDP plus the change of debt, the rate of change of aggregate demand can be BOOSTED by a slowdown in the rate at which debt is falling. The U.S. FED had stumbled on it by chance - the slight recovery of the U.S. in 2010 and 2011 was driven mainly by a slowdown in the rate of deceleration of credit.
The factor that makes the recent recovery of the U.S. economy different to all previous ones -- except the Great Depression itself--is that this strong boost from the Credit Impulse has occurred while the change in private debt is still massively negative. Keen states that contrary to the neoclassical model of equilibrium, a capitalist economy is characterized by excess supply in all times, even during booms. According to Keen, the main constraint facing capitalist economies is not supply, but demand. The demand must be boosted by a CONSTANT acceleration of debt. The end game here, the way out of the debt, will be many years in the future, if ever. The book contains many things: among them a scathing critic of neo-classical economic theories, but also, interestingly, of Marx. I highly recommend it
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Debunking Economics - Revised and Expanded Edition: The Naked Emperor Dethroned? Paperback – October 15, 2011
by
Steve Keen
(Author)
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 back 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.
- Print length554 pages
- LanguageEnglish
- PublisherZed Books
- Publication dateOctober 15, 2011
- Dimensions6.14 x 1.05 x 9.35 inches
- ISBN-101848139926
- ISBN-13978-1848139923
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Top reviews from the United States
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Reviewed in the United States on December 11, 2011
Reviewed in the United States on January 6, 2012
This is one of the most important books on economics in print, and a good guide to anyone trying to navigate the confusing realm of economic theory, dominated by the so-called 'neo-classical' brand of mathematical science fiction now monopolizing the domain of policy. The expose of neo-classical economics is something I was alerted to many years ago by such writers as Mirowksi (in a book no longer in print), and Kuttner has been critical here also. But the sense that things didn't add up hovers over the arcana of equilibrium theory in the hard-to-penetrate math jungles of such as Arrow-Debreu. Who as an outsider can manage in such a field of sophistries? This book is therefore a lifeboat for those who have witnessed The Great Recession in some bewilderment at the failure of the economics profession to stop talking through their hat. The book is a mine of multiple topics and reviews the whole field in its history and theory, and leads the reader through the at first counterintuitive realization that the majority of economists are suffering severe delusion. That bad economic theories are making the current economic fiasco worse requires a book such as this to explain the extent and complicated nature of the hallucinatory paradigm gripping the profession. One of the liabilities of the current Great Recession is the absent of any coherent commentary and the puzzle this generates in those without the expertise or training to understand that their sense of ill-ease is normal. It is hard to grasp at first that economic models now current are based on a set of fictional abstractions, and can't be correct. The realization that this is so can help to start looking at economic realities for what they are without the mediation of the professional idiocy of economic so-called 'experts'.
Reviewed in the United States on March 31, 2013
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.
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.
Top reviews from other countries
Lawrence Hirsh
2.0 out of 5 stars
A lot of straw man arguments and bragging
Reviewed in France on December 12, 2017
The first two or three chapters debunk the demand/supply curve model in the context of manufacturing, whereas in fact it is only meant to apply to commodities and raw materials which, unlike manufactured goods,do get harder to produce or extract,as supplies are exhausted. A disappointing start followed up by rather a lot of bragging. It's worth remembering that that way back in 1999 there were books predicting the 2007 crash and the coming bond market collapse, so that much as Professor Keen would like to have been the only one to see the iceberg before it hit, economic Cassandras have been something of a publishing stand-by for quite some time.
Jose A. Rodríguez
5.0 out of 5 stars
Muy recomendable para entender que hay mucha vida más allá de la teoría neoclásica sobre la vida económica
Reviewed in Spain on January 9, 2017
Excelente redacción y exposición de los muchos argumentos y evidencias para dudar de que el enfoque neoclásico que predomina en la enseñanza y la práctica de la economía es el único posible. Si a alguien le entran dudas sobre la fe en la teoría neoclásica y echa en falta el soporte empírico de la teoría neoclásica es un buen libro para empezar a vislumbrar las distintas alternativas.
goldenears
5.0 out of 5 stars
Steve Keen debunks every economic myth you can think of and there are many
Reviewed in the United Kingdom on December 24, 2015
Steve Keen debunks every economic myth you can think of and there are many. He also proposes a newish economic way forward to make capitalism work for society rather than against it. Keen is not a communist or a revolutionary - he is simply explaining why neoliberal economics does not work and does not serve society in general at all well.
This book explains the economic principles well but it uses a lot of mathematics which was for me was easier to understand in Steve's graphical representations of the maths.
Steve also explains how modelling techniques can be used to help predict alternative economic outcomes without claiming that any form of economics is able to predict the future from a scientific point of view.
Once again this is not good bed time reading but neither is the Economist.
This book explains the economic principles well but it uses a lot of mathematics which was for me was easier to understand in Steve's graphical representations of the maths.
Steve also explains how modelling techniques can be used to help predict alternative economic outcomes without claiming that any form of economics is able to predict the future from a scientific point of view.
Once again this is not good bed time reading but neither is the Economist.
One person found this helpful
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Rocky Mountain Entrepreneur
4.0 out of 5 stars
Many Valid Points
Reviewed in Canada on November 17, 2012
Overall Impression
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.
Positives
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.
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.
Positives
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.
5 people found this helpful
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Kenneth Hunter
5.0 out of 5 stars
Get ready to unlearn much of what you've been taught
Reviewed in the United Kingdom on June 7, 2023
As someone who has been an economist for nearly 60 years and has had increasing doubts about its major analyses, this book is a revelation. It explains in a clear fashion where economics as taught in British and American university is very little helping in understanding the world we actually inhabit. A must read for all economics students. The author himself is a well-educated economist so he knows what he is talking about.







