Debunking Economics: The Naked Emperor of the Social Sciences [Paperback]

For people, like me, who had almost given up entirely on the academic field of Economics when I first started reading on the topic because of ridiculous theories and poor teaching, there is fortunately still Steve Keen. In this book, the Australian Keen shows the errors of the standard views of neoclassical (orthodox) economics.

Not just some side aspects of the theory, but the actual core views of economics as it is taught in universities everywhere unravels before your eyes. Keen masterfully applies both economic models and historical analysis to show that orthodox economists not only do not know what theories exist in their own field, but they also have no inkling of the history of economics and what this means for their approach. This, combined with a possibly even poorer understanding of the philosophy of science (Keen uses Milton Friedman as the main example, but more could have been named), leads to a series of ridiculous assumptions and even more ridiculous results. That the economists consistently ignore the way industrial managers and market analysts etc. do NOT apply their pet theories is just the icing on the cake.

The book is heavy reading for those with no knowledge of economics or maths, but certainly not impossible. A basic understanding of economics and mathematics as taught at high school level (at least in The Netherlands) goes a long way, and Keen fortunately writes well and attempts to avoid long mathematical proofs as much as possible.

The only downside to the book is that his treatment of alternative theories, especially the quite closely linked Austrian school of economics, is very short and vague, and his criticism of Marxist economics is incompetent and useless, done from a Sraffian perspective. This leads to the impression that Keen knows what's wrong with neoclassics, but not what is to be done instead. Therefore, start by reading this book, but don't end there.

Many years ago while I was studying economics, our tutor group was set an exercise framed as, "given that a firm's cumulative cost/output curve is S-shaped, show that it's average cost vurve is U-shaped". As a mathematics major I chafed at the lack of rigour in the terms "S-shaped" and "U-shaped" and set out to demonstrate that what I was asked to show was not true.

A polite request to my applied maths tutor elicited an old handbook of mathematical functions written in Polish. The Polish was no problem, since I could find what I wanted from the mathematical notation alone. Soon I found a curve based on two exponential functions, each with a parameter. By tweaking the parameters I could generate different S-shaped curves, two of which were of interest. Taking each as a cumulative cost curve, it was easy to show that one led to an average-cost curve that was downward-sloping over most of its domain while the other was upward-sloping over the same domain. Moreover, variation of the parameters enabled me to make the domains of positive or negative average cost curve slope as long as I wished. My conclusion was that what I was asked to prove could easily be false in many practical cases. This attracted the wrath of my economics tutor who duly berated me for being too cocky - and shortly after that I dropped economics as a subject.

Steve Keen's book tells me, after many years, that my scientific instincts about mainstream economics were very well founded. "Debunking Economics" is probably best read in conjunction with a single-volume standard economics textbook. (While I was reading it I referred to "Economics" 3ed by Begg Fisher and Dornbusch.) What Keen shows is that the assumptions unerlying the models used by neoclassical (i.e. mainstream) economics do not correspond to reality (bad science) and that their elaboration often contains logical contradictions (bad mathematics). In fact very little of neoclassical economics stands up to any rigorous scrutiny.

The sad thing about it is that many academic economists know that it's all a mess but have to teach it to students because neoclassical economists dominate in academic departments and economists who investigate models outside the neoclassical paradigm are often unable to get tenured university posts. (This situation parallels that described in relation to physics and string theory in Smolin's "The Trouble With Physics").

Given the extent to which the opinions of economists influence economic policy, this situation is very worrying and Keen has done sceptics a great service in writing this book. It should, IMO, be read by all students of economics, preferably *before* they start their university courses.

All intellectual progress depends on people who are prepared to denounce twaddle. If there were any justice, Keen should have got the Nobel Prize in Economics for this book - because it pulls the rug from under the worthless output of many others who did win it.

interesting review, VERY readable, the guy is a very good writer, i am not an economist so i can't really be dogmatic, but i liked it and believe it would complement well paul ormerods two books (death of economics and butterfly economics)
it also left me wanting to read this guy pierro sraffa in the original, but sadly he seems to be out of print

well worth aread anyhow