Debunking Economics: Closing Notes

This is my final post on Steve Keen’s Debunking Economics, just to close the series and give some thoughts on the book as a whole.

The main aim of blogging Keen’s book was really to provide a platform for people to discuss the numerous inconsistencies (whether purported or real) that have arisen in neoclassical economics over time. Generally a Google of Keen will, predictably, contain outright (often vitriolic) dismissals from economists, coupled with some cheer leading from those on his side. Rarely, in my experience, will you find much substantive discussion of his ideas. Hopefully I’ve communicated these ideas in a (relatively) digestible way, and they can now be discussed openly.

I would encourage people who have enjoyed the series to read the actual book. My presentation of each chapter was necessarily shortened, omitting certain prongs of criticism: discussions of the history of thought; numerical examples; plain leaving out certain parts (for example Keen’s firm simulation model and his discussion of Von Neumann on utility). For this reason, anyone truly interested in Keen’s criticisms should read the book first hand. However, I would not recommend it alone for anybody not already versed in some basic economics and mathematics. Keen does a good job of explaining the concepts he is going to critique, but the fact is that both explaining and ‘Debunking’ Economics perfectly in a single book is simply not possible.

There is a largely superficial criticism of Keen that you will see floating around (so superficial that I am loath to address it formally): that he claims to become sort of mathematical genius blessed with insights that economists have missed for 100+ years. Of course, this is nonsense – there is not a single area in the book where Keen claims outright originality. Every critique he channels was either first noticed, else fully elucidated by, another economist or academic (often neoclassical economists themselves). Keen’s book is a culmination of a century of criticisms, all of which have been swept under the rug or dismissed, often without due justification.

Keen’s approach of critiquing each area on the grounds of internal inconsistency certainly has both advantages and drawbacks. The main advantage is that the critiques are not interdependent, so even if one fails to hold then it can still be shown that there are significant flaws in neoclassicism. The main disadvantage with this approach is that it requires Keen to assume concepts he criticises elsewhere are actually sound. Such an approach is almost bound – by probability – to be hit and miss. Can we really hope to show that absolutely every facet of neoclassical economics is internally inconsistent? In my opinion, Keen’s quest to dismantle neoclassicism from every angle might at times leads him astray from the overall goal. (The approach also necessitates some repetition, and I felt that some of the chapters could have been better arranged – for example, chapters 11 and 15 could surely have been merged).

Nevertheless, the match must be scored to Keen overall. His approach is helpful insofar as it sheds some light into what can often be a ‘black box’ of assumptions and mechanics that comprise many neoclassical models. What is really needed now is for someone to build a ‘ground up’ critique that combines discussion of conceptual errors, contradictions, and empirical irrelevance. Keen does not really talk about conceptual errors, and only really discusses empirical evidence in his section on alternatives. For me, a sustained critique would reject key areas of neoclassicism on various grounds, building up a positive heterodox view based on alternatives along the way. But I understand that was not really Keen’s intent.

I’m sure I will be drawn back to commenting on Keen’s work in the future, hopefully because economists continue to pay attention to it, whether civil or not. But this post concludes my comments on Debunking Economics.

Update: some commenters seem to have interpreted this post as me ending the blog. That is not so! The blog existed for 6 months prior to this series and will continue after it.


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  1. #1 by Ben Brennan on January 3, 2013 - 11:49 pm

    My biggest gripe (as was the gripe of a lot of my classmates) was that he was so committed to make the book not be intimidating to those who did not have strong math skills that he would write out things that would have been more clearly stated with formulas.

    • #2 by Unlearningecon on January 4, 2013 - 12:04 am

      Yes, I said this in my opening notes. Equations in words aren’t going to help non mathematicians, and are going to confuse mathematicians too!

  2. #3 by inthesaltmine on January 4, 2013 - 1:02 am

    Thank you very much for your work. It is much appreciated, and I certainly gained much from reading your analysis. Best wishes in 2013.

    • #4 by Unlearningecon on January 4, 2013 - 12:01 pm

      To be clear – I’m not ending the blog!

  3. #5 by Chris Auld on January 4, 2013 - 1:11 am

    Unlearning, you claim:

    “Of course, this is nonsense – there is not a single area in the book where Keen claims outright originality.”

    Here’s Keen describing his own work:

    “Stigler’s convergence argument is technically correct, but in conflict with the proof
    shown above that “price equals marginal cost” is not a profit maximum for the individual firm.
    The resolution of this conflict led to Keen’s first truly original contribution to this literature: the
    proposition that equating marginal revenue and marginal cost maximizes profit is also a

    Keen explicitly claims originality for this (incorrect) argument. He’s published it repeatedly in academic journals, which tend to frown on publication of unoriginal results. He explicitly and repeatedly claims to be correcting mathematical errors made by every other economist. Those claims are not correct, to put it mildly.

    • #6 by Ben Brennan on January 4, 2013 - 4:10 am

      In the broadest terms I guess those aren’t mathematical errors because mainstream argument he is attacking assumes perfect competition, which is the scenario in which # of firms approaches infinity and in that scenario mathematically you can ignore the chain rule because the slope would be virtually flat and make firms price takers. I assume that IO delves more into the more interesting market structures of limited competition, but then again I can only assume that because nobody has been able to give me a straight answer as to what the hell IO even is. Most people just tell me it’s the “Game Theory or Behavioral Economics of yesteryear”.

      • #7 by Unlearningecon on January 4, 2013 - 12:05 pm

        Yeah, many of the errors Keen identifies aren’t strictly mathematical, in the sense that economists have been able to assume the problem away.

        There are large areas of economics that don’t really have that much to do with marginalism and the core, are quite empirically based and do better work. However, that is certainly not the case for important areas such as macro, and even the ‘better’ areas often carry over questionable concepts.

      • #8 by successfulbuild on January 6, 2013 - 5:55 pm

        Is the guy above saying that the argument that p does not equal mc, and that mr does not equal mc, is incorrect? Why?

      • #9 by Unlearningecon on January 7, 2013 - 12:16 pm

        The argument is that maximising profits under the assumption MR=P will not quite maximise them, because MR will never quite equal P with a market demand curve that slopes downward. However, this is not the same as MC=MR not maximising profits; under economist’s assumptions, that is always true.

    • #10 by Unlearningecon on January 4, 2013 - 12:02 pm

      Perhaps this is semantics, but I wrote “first noticed by, or else fully elucidated.” I had in mind Stigler with the word ‘noticed.’

  4. #11 by Alex on January 4, 2013 - 1:15 am

    Will this be the end of the blog, or will you continue with, say, The Economics Anti-Textbook?

    • #12 by Unlearningecon on January 4, 2013 - 12:00 pm

      I updated the post – the blog will continue but I don’t plan to blog any books. I may do single reviews, however.

  5. #13 by Steve on January 4, 2013 - 1:38 am

    I have a great deal of respect for Keen. Its not easy or pleasant to take on orthodoxy. Iconoclasm is usually very painful. And iconoclasm is necessary. However, it is just the first step. And the next step is not just reform. Reform is like aluminum siding, it can cover a lot of ugliness and inadequacies….but it doesn’t actually change the direction or character of the discipline it has been applied to, and it most certainly does not change the direction or character of society as a whole. Only transformation can do that, and transformation can only take place because the basic ideas and intentions that the discipline/society are ACTUALLY based upon….are ACTUALLY changed. Theory is abstraction, i.e. ideas about a construct. Philosophy is about the actual ideas that both the construct and the theory are based upon. There is where the REAL power lies. There is where the focus actually needs to be. There is where change is truly enabled and begins. If you fail to actually get to the level of philosophy at all, or fail to conscientiously craft policies that accurately reflect that philosophy and/or fail to bind those policies back to the actual original ideas……you’ll end up with messes like we are currently in because “the center will not hold” or you fail to keep your mind open to the reality that the only constant of the temporal universe…is change and so eventually circumstances make your orthodoxy absurd. This is not just high mindedness; although the solution indeed is much more high minded and virtuous than the negative virtues that govern our current systems, it is the recognition of how the temporal universe itself functions, and also what the most important aspect of Man, homo sapiens, actually is….wisdom. Everything begins with philosophy. And philosophy’s end is wisdom, that is if you attend to the best of both temporal and internal realities. And anything less than actual wisdom as a basis for anything….either folly or a stubborn irrationality.

  6. #14 by Peter on January 4, 2013 - 2:59 am

    For such an inexact discipline that is economics, it has endured in it’s modern format (warts and all) for close to a century. Is it just me? It seems the attacks of character and argument with the precision of a scalpel borne out by Keen’s work (and few others since 2006/07) are not befitting of the original subject. As a non-economist, I can appreciate fully what Keen was trying to achieve in this one quart size paperback of 450 odd pages, that more than 450 books over the past century have utterly failed to. I regard it as a complete success for everything it was and was not purported to be. Nice work by you both.

    That someone is attempting to put tangible physical science into the alchemy of economics was never going to be easy or popular.

    • #15 by Unlearningecon on January 4, 2013 - 12:30 pm

      As I said, I’d simply dismiss core concepts and go from there. But Keen does well to draw attention to the various problems that have arisen over the decades.

  7. #16 by successfulbuild on January 6, 2013 - 6:02 pm

    I’ve wanted to chime in on this topic and others but quite often but I felt it was over my head. This has been a good series though, and hopefully a lot of people will read it.

    Would you go so far as saying that if what Keen is saying is correct about economics that there really isn’t even a reason to study it, other than perhaps helping you understand a calculus problem or something that relates to economics? If neoclassical economics is wrong, and is a degenerative research program, isn’t it worthless and just wasting money in academia? Would it still have a use as a teaching aid, in the way that the early presentation of atoms and elements isn’t technically correct. Because if what Keen is saying about economics and money and banking is correct it’s clear that neoclassical economics is probably doing more harm than good:

    Perhaps that might be a good topic to consider if you haven’t already, to what extent should we use this field called “economics.”

    • #17 by Unlearningecon on January 7, 2013 - 12:07 pm

      It’s an open question whether learning neoclassical economics does more harm than good. The problem I have with ‘sweeping it all away’ is that many concepts and ideas are useful. This something Keen himself has noted in his paper on Econophysicists, who have ended up rediscovering old insights. But these concepts could easily be taught under an alternative framework.

  8. #18 by commenter on January 14, 2013 - 7:31 pm

    By Keen’s logic, this video is evidence that physics needs to be debunked!

    Using the approximations that are taught to undergraduates as evidence that an entire field is useless is a mugs game.

    • #19 by Unlearningecon on January 15, 2013 - 12:59 pm

      A poor argument considering Keen mostly focuses on the failure of economists to model and foresee the recession within their most advanced frameworks.

      It also shows an ignorance of Keen’s approach, which is focused on internal inconsistencies rather than lack of evidence.

      Oh, and even undergraduate physics is a far closer approximation than economics.

      • #20 by commenter on January 15, 2013 - 5:39 pm

        I was referring to Keen’s microeconomic criticisms, rather than macroeconomic. In his microeconomics he is clearly focusing on what is taught to undergraduates and not the advanced models.

        Undergrad physics lecturers have an advantage because students have been exposed to physics during high school. If students had spent 3 or 4 years learning economics in high school then undergraduate econ could be much more advanced.

        Keen’s arguments regarding internal inconsistencies in undergraduate microeconomics are simply wrong (see Chris Auld, responses to his Physica A paper etc.). So the only place he has left to hang his hat is the lack of evidence.

      • #21 by Unlearningecon on January 15, 2013 - 6:21 pm

        Auld focuses mostly on Keen’s critique of supply curves, so to suggest that encompasses all of Keen’s critiques is something of a leap.

        Comparing economics to physics is just laughable on so many levels. Assumptions, reductionism, inconsistencies and lack of evidence are all sufficient grounds on which to reject many economic theories.

        The amusing thing about your comments is that they seem to take the lack of evidence for economic theories as a given.

      • #22 by commenter on January 15, 2013 - 8:38 pm

        There is a lack of evidence for many of the economic theories that are taught to undergrads. The simplifying assumptions used to make the theories accessible to undergrads necessarily reduces their realism.

        Economic research, which is very different from undergrad econ, is very responsive to, and supported by, empirical evidence.

        The parts of Keen that I have read (such as MC=MR implies monopoly outcomes if you do the math right) are so deeply flawed that I haven’t bothered to read the rest of his stuff. Maybe I am dismissing him too quickly, but it is a rational updating of my priors to expect similar quality in the rest of his writing.

      • #23 by Unlearningecon on January 15, 2013 - 9:17 pm

        Yeah, it’s mostly marginalism that I have a problem with, and there are quite a few areas of economics that are more empirical. However, often I find they are plagued by marginalist concepts nonetheless (and often unnecessarily, I might add. Use of production functions in development economics springs to mind).

        I maintain that UG economics assumptions are not merely ‘simplifying;’ most of the assumptions in physics simply eliminate a known variable. Conversely, UG economics is built up from incredibly abstract and arbitrary axioms and concepts simply to create the possibility of the use of certain types of mathematics.

      • #24 by commenter on January 16, 2013 - 9:41 pm

        What are your issues with marginalism? I tried putting ‘marginalism’ in your search box, but nothing useful came up.

      • #25 by Unlearningecon on January 18, 2013 - 12:56 pm

        Try ‘marginalist’ or ‘neoclassical’.

        See here for the issue of marginal product, and how they can’t be defined separately for different factors of production. See here for the MC=MR approach to theories of the firm.

    • #26 by paul on January 18, 2013 - 11:18 am

      The video is wildly exaggerating. Quantum and relativistic theories give the same results as classical physics when applied to the realm of ordinary masses and speeds. They extend classical physics: they do not invalidate it – otherwise they would never have been accepted. These theories have to be true in both the quantum and relativistic realm and in “the classical limit”. Nothing that is taught in undergrad physics is “wrong”. If any approximations or theories lead to predictions that are the exact opposite of what actually occurs (as in the “great moderation”), then they are removed – not cemented into the undergrad curriculum.

      It is utterly incredible to find out that economists justify obvious falsehoods in undergraduate economics by saying that the cognoscenti know that undergad economics is wrong but don’t worry we start doing it right later on.

      • #27 by Unlearningecon on January 18, 2013 - 12:53 pm

        Thanks for that comment. I find economists more than anyone feel the need to make analogies with sciences that they don’t really know about.

      • #28 by commenter on January 20, 2013 - 9:27 am

        Nothing taught in undergrad economics is “wrong”, either. But some it is overly simplified, and some (much?) of it is normative rather than positive.

      • #29 by Unlearningecon on January 20, 2013 - 12:12 pm

        What is the criteria for ‘wrong’ for you?

      • #30 by freedomthistime on January 29, 2013 - 1:27 am

        An amusing example of economists “feel[ing] the need to make analogies with sciences” is the “Nobel” prize in economics (or to give it its correct title, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel). The first was awarded in 1969, so it clearly has nothing to do with Alfred Nobel (who died in 1896). A little cheeky, no?

      • #31 by Unlearningecon on January 30, 2013 - 11:08 am

        Both his family and the other sciences have complained about it.

      • #32 by freedomthistime on January 29, 2013 - 1:44 am

        Also, just by the by, I have a PhD in theoretical physics and second @Paul – Newtonian mechanics, for example, works beautifully for the finite domain of validity in which it was experimentally established (i.e. slowly moving, macroscopic things). To argue that neo-classical economics works beautifully for the society within which it was established… well… perhaps those economists are watching different news channels to the rest of us 😉

      • #33 by Unlearningecon on January 30, 2013 - 1:00 pm

        I’m always grateful when someone who actually knows what they’re talking about corrects economists on their spurious analogies with real sciences. Maybe I’ll write a brief post on the matter.

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