I have been reading Steve Keen’s Debunking Economics, and thought I’d do a chapter by chapter guide to highlight the main concepts (and also help me to understand them fully). I’m about half way through at the moment, but so far I’m really enjoying it. I’ll offer a review-esque opening, with a few broad observations that struck me when reading the book.
First, dismissals of Keen as a crank or ideologue are misplaced. Keen’s tone thought the book is civil, technocratic and as ideology free as you will get. He spends part of chapter 4 arguing that monopolies are probably more efficient than neoclassical economists make them out to be, and incorporates insights from a plethora of economists across the political spectrum. His references reveal a broad depth of knowledge, both of the foundations of neoclassicism, the recent developments, and of practices and methods in other sciences. I may be wrong, but I doubt many of his detractors have as broad a knowledge of the literature as he does (after all, if you broadly accept neoclassicism, you’re less likely to root through its foundations).
Second, a peculiar recurrence throughout the book is how often these holes in economic theory were discovered – accidentally, or otherwise – by neoclassical economists themselves. It is relatively well known that Solow expressed distaste at the widespread used of his RBC models, and Hicks repudiated his IS/LM interpretation of Keynes. But it was also a neoclassical economist, William Gorman, who showed that a market demand curve, derived from neoclassical principles, can have any shape at all. Furthermore, some of the primary evidence for endogenous money came from Kydland and Prescott, and no less than neoclassicism’s founders, Jevons and Walras, expressed significant doubts over the usefulness of equilibrium theory, particularly if technology enabled economists to use more complex methods (as it has). If economists want to attack Keen, they must too question the work of many in their own ‘camp’, including some highly celebrated figures.
Third, I expect skeptics have a ready list of rebuttals to heterodox thinkers in general, and perhaps specific ones to Keen, perhaps to the extent that they do not deem his book worthy of their time. I can say with confidence that Keen has almost definitely addressed your objections in the book, as it is revised from his version 10 years ago and he has spent a lot of time since then debating his critics. I haven’t finished the book so I can’t be sure, but it may well be true that Keen doesn’t address every single development at the frontier of economics. But it is also true that none of these models reliably predicted – or can yet model – the crisis we’ve just experienced, whilst Keen’s did. Keen’s model is also a lot more simple than the convoluted mess of assumptions you’re generally presented with during a more advanced DSGE paper – bear in mind simplicity, rather than predictive power, was the reason Ptolemaic astronomy was abandoned.
If any neoclassical economists are thinking of buying Keen’s book, or at least following this guide, then Arnold Kling’s ‘review‘ of Keen’s book offers a fantastic demonstration of how not to approach reading it. Kling meanders off at the beginning about how deregulation didn’t cause the crisis (I won’t address that here, but suffice to say Kling appears to think regulation is a dial we can turn up and down).
Kling goes on to assert that what he admits are ‘unrealistically stringent’ conditions required for downward sloping demand curves are ‘uninteresting’, and that having a benevolant dictator redistribute resources prior to trade (seriously) is not ‘unrealistically stringent’. He says he is too dense to grasp that there is no supply curve unless perfect competition rules, but from his lack of engagement with the issue it’s plain he just doesn’t want to try. Kling also demonstrates why it is important to abandon the idea that the economy is a battle between the state and private actors before one can engage in purely technocratic arguments such as the ones put forth by Keen.
If you are a laymen and therefore worried the book will go over your head, I wouldn’t worry too much. The first two substantial chapters (3 & 4) are on the demand and supply curves respectively, and are the hardest to understand. The complexity then steadily declines – by the time time Keen gets onto talking about his own models, anyone with a cursory knowledge of economics should be following him fully. Keen avoids maths and alerts readers before he indulges in some of the more technical arguments, giving them an opportunity to skip the section, but not to the detriment of the book as whole.
I have some criticisms of this book. The first is that Keen would do better to acknowledge that not all economists are market fundamentalists, and that many of the conclusions of neoclassical economics are fairly moderate and at odds with what the public often sees. Whilst he doesn’t exactly paint all economists as Friedmanites, he does misrepresent the average political viewpoint, at least in my experience.
Secondly, Keen’s efforts to keep his book accessible are possibly stretched too far when his discussion necessitates mathematical equations. Writing something like ‘the rate of change of unemployment plus the level of investment’ is just as likely to confuse non mathematicians as writing the equations themselves, and will probably take some mathematicians with it on the way. I think a degree of maths is inevitable, and some equations would help communicate the ideas effectively.
But these are minor points. The book is a comprehensive and constructive critique of mainstream economics, coupled with a positive vision for a model of capitalism put forward by Keen himself, and deserves to be read by anybody. Neoclassicals who assume Keen is wrong have nothing to lose, and will gain a deeper understanding of their own models and confidence in them despite the decades of criticisms. Those who question neoclassicism will find their arguments strengthened substantially.
Discussion of the chapter on demand curves to follow.