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Debunking Economics by Steve Keen

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Anyone read it? If so are his accusations regarding Neoclassics economic theory actually true? If so, screw those guys!

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It's a book made of stuff :)

 

http://www.amazon.com/Debunking-Economics-Revised-Expanded-Dethroned/dp/1848139926/ref=sr_1_1?ie=UTF8&qid=1424165931&sr=8-1&keywords=steve+keen

 

I have never studied Economics so I don't know if what he says is actually true. If the things he says are true about the school then it is absolute bollocks and anyone that had every worked in a job which required anything like production planning / pricing etc would just laugh their arse off at the adherents.

 

The assumptions required for the theories are so retarded the company would be out of business before it started. e.g. marginal cost of production purports that each item you make costs more than the last one you made. This is the opposite of the real world. But it is sooooo wrong, and obviously wrong, that I can't believe the school would actually use that as the basis of a theory.

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It's a book made of stuff :)

 

http://www.amazon.com/Debunking-Economics-Revised-Expanded-Dethroned/dp/1848139926/ref=sr_1_1?ie=UTF8&qid=1424165931&sr=8-1&keywords=steve+keen

 

I have never studied Economics so I don't know if what he says is actually true. If the things he says are true about the school then it is absolute bollocks and anyone that had every worked in a job which required anything like production planning / pricing etc would just laugh their arse off at the adherents.

 

The assumptions required for the theories are so retarded the company would be out of business before it started. e.g. marginal cost of production purports that each item you make costs more than the last one you made. This is the opposite of the real world. But it is sooooo wrong, and obviously wrong, that I can't believe the school would actually use that as the basis of a theory.

 

Sorry, I wasn't attempting to be accusatory... I find so much of economics unscientific dross. Keen in particular is likely correct in the long term. But he doesn't seem to understand that governments don't live in the long term. 

 

Both Labor and Libs have today reiterated that the pension will remain available to _everybody_ regardless of the value of their PPOR. It won't be counted in the pension means test... And then they speak of intergenerational wealth transfer of the budget deficit! 

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Oh didn't think you were being accusatory.

 

I am just getting suspicious that Keen _must_ be making some strawman type arguments because otherwise economic theory is not merely unscientific dross it is wilfully ignorant.

 

I guess now I need to go read some actual economic theory text books to get their side of the argument, Ewa will appreciate that, she loves my rambling.

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I really like Steve Keen and have met him personally. He is a very, very smart guy!

 

Pretty much everything he writes makes sense about the serious implications of the assumptions in economics. Some of these assumptions include

  • a "representative agent" being scaled up to become the behavior of the whole economy (we are all individuals - that act the same)
  • the "natural" state of the economy is in equilibrium (what - no volatility or bubbles?)
  • the always profit maximizing rational agent (who must have complete knowledge about the future)

 

Steve seems to get into trouble when he advocates policy measures or makes predictions (like the forever imminent property market crash). Still, his thinking about economics is first class, in my opinion.

 

Unfortunately, he is categorised as a "heterodox" economist (= heretic) and as such it is highly unlikely that he will get a prestigious professorship at a top international university.

 

Economics is so deeply political and pushed by vested interests that it is difficult to work out what makes sense. For example, Wall Street banksters supported economists that advocated laissez-faire economics (like Lawrence Summers) to deregulate the financial industry. This opened the floodgates to prop-trading by banks, which resulted in the Global Financial Crisis.

 

On the other hand, there are super smart economists that argue passionately the opposing views, of course.

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Oh so far I have no issues with _his_ ideas (except maybe one right at the beginning of the book I need to go back and check if he said what I think he said).

 

I am just wondering if he is being a tad hyperbolic about "the other side". His phrasing indicates he is not. His references indicate he is not. A few quick google searches and memories from accounting class when I was 15 indicate he is not.

 

But "the other side" do come off _insanely_ bad in this book.

 

It is kind of amusing (people that read my travelogue may remember I mentioned I don't think supply curves exist when I was ranting about McDonalds and KFC in Poland). I started reading the book (xmas pressie) a few weeks later and chapter 3 or 4 is basically "oh yeah supply curves and demand curves don't exist the way they are taught".

 

As Ewa and I had been discussing the idea for a few weeks by that point it was interesting to see an actual smart guy saying the same thing we had arrived at (although much more succinctly and with less swearing).

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On the other hand, there are super smart economists that argue passionately the opposing views, of course.

Gah hit post too early. Have any of the smart guys from other side argued against keens idea directly?

 

Seems to me that if he was being a dick about the neoclassics teachings / theories they would quite quickly and easily explain where he was wrong.

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Gah hit post too early. Have any of the smart guys from other side argued against keens idea directly?

 

Seems to me that if he was being a dick about the neoclassics teachings / theories they would quite quickly and easily explain where he was wrong.

 

Well, on the topic of "debt doesn't matter" in mainstream economics - there is the debate with Paul Krugman. Krugman won the Nobel prize in economics so he is as mainstream as you can get.

 

In mainstream economics debts are always offset by assets - i.e. someone owes something to someone else who then has a claim (thus, an asset). Debts are therefore just not considered at all in neoclassical economics.

 

You can find some of Krugman's arguments with Keen here: http://krugman.blogs.nytimes.com/2012/03/27/minksy-and-methodology-wonkish/

 

Keen thinks that Hyman Minsky is right. At some point of increasing debt something will break - you will end up with debt deflation. My particular irritation with the "debt doesn't matter" view is that asset values can change rapidly - whereas the debt stays the same. Or in other words, this can happen if confidence disappears or liquidity dries up such that asset values fall rapidly - but the amount of debt stays the same.

Edited by AndersB

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...Keen thinks that Hyman Minsky is right. At some point of increasing debt something will break - you will end up with debt deflation....

 

As I understand this would also be Armstrong's view regarding the Sovereign Debt crisis, where people will lose trust in government bonds. In my simple mind, governments are no different to individuals or corporations - if you can't balance your books, you eventually go broke!

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Gah hit post too early. Have any of the smart guys from other side argued against keens idea directly?

 

Seems to me that if he was being a dick about the neoclassics teachings / theories they would quite quickly and easily explain where he was wrong.

 

"Pythagoras was misunderstood, and Socrates, and Jesus, and Luther, and Copernicus, and Galileo, and Newton, and every pure and wise spirit that ever took flesh. To be great is to be misunderstood."

 

http://www.emersoncentral.com/selfreliance.htm

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"Pythagoras was misunderstood, and Socrates, and Jesus, and Luther, and Copernicus, and Galileo, and Newton, and every pure and wise spirit that ever took flesh. To be great is to be misunderstood."

 

http://www.emersoncentral.com/selfreliance.htm

Yeah but lots of people that were blatantly wrong claimed to be just misunderstood as well.

 

I'd put "feeling misunderstood" up there with "breathing" as a useful indicator of "is he a genius?" :)

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As I understand this would also be Armstrong's view regarding the Sovereign Debt crisis, where people will lose trust in government bonds. In my simple mind, governments are no different to individuals or corporations - if you can't balance your books, you eventually go broke!

 

Yes, it is also an interesting coincidence that both Armstrong and Keen believe that central banks have less power than what people think.

 

From the Business Insider link above:

Keen argues that this behavior demonstrates a deeper ideology: Fiscal and central bank policy have far less power in controlling credit conditions than we would like to believe.

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Yeah but lots of people that were blatantly wrong claimed to be just misunderstood as well.

 

I'd put "feeling misunderstood" up there with "breathing" as a useful indicator of "is he a genius?" :)

 

There are a few different schools of thought in economics. The "freshwater school" originates in Chicago (with Milton Friedman a big name there), and the "saltwater school" (Harvard, U o California): http://en.wikipedia.org/wiki/Saltwater_and_freshwater_economics

 

None of the mainstream economists debate the heterodox theories much at all (that I have seen). So there are no economists that explicitly says that Keen's theories are crackpot crazy stuff. Mainstream theorists basically just ignore the heterodox economists. You have to make up your own mind.

 

I hoped that the mainstream schools would become a bit humbled by the GFC and look for new synthesis theories with some heterodox elements but that does not seem to have happened.

 

At the moment, it seems both Keynesians (interventionists) and laissez-fair deregulation adherents both argue that government has a stability role to play - hence they both violently agree with the current Central Bank interventionist policies.

Edited by AndersB

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As an ad hoc idea.

If Neoclassics theory requires a benevolent dictator to rebalance income so that the theory of demand (and therefore social welfare [as defined by economics]) works

And if the advice governments are getting is from neoclassics economists

Then it seems obvious a government would decide it was that benevolent dictator and would therefore aim for 100% taxation

 

Whether it was left or right leaning.

 

This idea would kind of explain a fair bit of what Armstrong has been ranting about and what I seem to be seeing.

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As an ad hoc idea.

If Neoclassics theory requires a benevolent dictator to rebalance income so that the theory of demand (and therefore social welfare [as defined by economics]) works

And if the advice governments are getting is from neoclassics economists

Then it seems obvious a government would decide it was that benevolent dictator and would therefore aim for 100% taxation

 

Whether it was left or right leaning.

 

This idea would kind of explain a fair bit of what Armstrong has been ranting about and what I seem to be seeing.

 

Bingo! Give the man a cigar!

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Oh was this common knowledge?

 

I don't recall seeing it but if I have plagiarised yet another idea I apologise to whoever I stole it from, sort of :)

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Oh was this common knowledge?

 

I don't recall seeing it but if I have plagiarised yet another idea I apologise to whoever I stole it from, sort of :)

 

Your way of expressing the idea may be original - my view is that there is the assumption that the business cycle can be managed - that is what Keynesianism is all about. The government should tighten when times are good and spend more when times are bad.

 

The problem is that politicians just spend all the time - hence they need more and more taxation. But on the other hand, the population holds politicians to ransom and demand more and more spending to consider voting for them. Elections are auctions where the highest bidder wins - but future generations pay for it. I feel sorry for the young people of today.

 

Another problem is that business cycles are not easy to detect. Are house prices in a cycle or are they in a structural bubble? At present we are in perpetual Keynesian stimulous mode. Is there any government in the world that is tightening? Maybe China…. perhaps...

 

Either way, the results are more tax, more government debt, and worse economies.

 

Hmmm…. that was kind of bearish!

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Bearish would be to ad that many revolutions started after sharply rising taxes...

Those were then often followed by war...

Plus people below 50 years of age have little chance to get a pension...

Plus lots of poor immigrants on government checks not getting checks anymore...

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