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Steve Keen Debunking Economics

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Jun 27

Debunking Economics Steve Keen

Professor Steve Keen is a Fellow at the Center for Policy Development, and an Associate Professor in finance and economics based at the University of Western Sydney (UWS). He considers himself post-Keynesian. He criticises modern neoclassical economics and some Marxian economics as lacking in consistency, non-scientific and not supported empirically (in other words, they aren't supported by observable or replicable phenomena) .

Major influences on Professor Keen's economic thinking include Minsky, Sraffa, Schumpeter and Quesnay. His recent work mainly consists of mathematical modeling and simulation of economic instability.

Much of Keen's work is focused on modeling Minsky's Financial Instability Hypothesis and Fisher's debt deflation. This hypothesis predicts that an unsustainable credit to GDP ratio will result in deflation and recession. Falling price levels result in constantly rising real levels of outstanding debt. The continual disleveraging of outstanding credit increases the speed of the deflation. Therefore, debt and disinflation operate on and react to each another, causing a spiral of debt deflation. The result is often a major depression. Professor Keen argues that the GFC is a result of excessive debt levels.

Professor Keen's critique of neoclassical economics is described in his excellent book, Debunking Economics. He presents a broad variety of critiques on neoclassical economic theory, and argues that they demonstrate that neoclassical assumptions are inherently flawed. Keen shows that multiple neoclassical assumptions are not supported empirically, nor are they beneficial to society because they don't result in improved efficiency or equality for the majority or the population. Keen argues that the conclusions of most economists are overly sensitive to minor changes in the assumptions.

Professor Steve Keen's book ends with a survey of a variety of schools of heterodox economics. He concludes that "None of these is at present strong enough or complete enough to declare itself a contender for the title of ‘the’ economic theory of the 21st century." In addition, Keen argues that neoclassical economics is a degenerative research program, and does not create new knowledge.

Keen's critics claim he has not sufficiently demonstrated his theories, and that he may be misrepresenting the economic theories of others. Professor Keen does agree that more nuanced and defined versions of neoclassical economics may exist at high levels, although he insists his critique is directed at the core neoclassical ideas taught in universities at undergraduate and postgraduate level. These are frequently used as the basis for policy prescriptions.

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Posted 27 Jun 2011, 10:37 PM · No comments

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