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on 24 December 2015
Steve Keen debunks every economic myth you can think of and there are many. He also proposes a newish economic way forward to make capitalism work for society rather than against it. Keen is not a communist or a revolutionary - he is simply explaining why neoliberal economics does not work and does not serve society in general at all well.

This book explains the economic principles well but it uses a lot of mathematics which was for me was easier to understand in Steve's graphical representations of the maths.

Steve also explains how modelling techniques can be used to help predict alternative economic outcomes without claiming that any form of economics is able to predict the future from a scientific point of view.

Once again this is not good bed time reading but neither is the Economist.
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on 6 April 2017
Eye-opening ! Everyone should read it - maybe not all of it but digging here and there is possible and suggested by Steve Keen himself. He shows humour and clarity. So the book is both for "the man in the street" and the professional economist. This author offers reasons for the financial crisis and the selfish society we live in, be it in the US, Europe or the rest of the developed world. He and many yet unknown scientists in economy are working together to offer the world a new direction and hope for the future of society. I find it hard to put this book down and await with anticipation the soon to be released "Can we avoid another financial crisis? The future of Capitalism" by the same author.
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on 26 May 2012
This is a difficult book to read at some points, but overall well worth the effort. There is a fair amount of mathematics and abstract economic theory involved in many parts of it and i struggled to understand some of those parts and frankly skipped through others. It could do with being a lot shorter and more focused on the core argument rather than going through so many theoretical and mathematical proofs of why standard economic theory is wrong, when a simple look at the historical record to present on its own is enough to show standard economic theory is empirically wildly wrong.

However the parts of the book that i could understand and did care about were well worth it. Keen argues that Keynes and Fisher and other post Great Depression economists were completely misinterpreted by the majority of economists. While Keynes and Fisher saw capitalism as an inherently unstable system which was prone to cyclical booms and busts and required strict government regulation to work to the advantage of the majority, the majority of economists have tried to pretend that a completely deregulated capitalist system tends towards constant equilibrium or balance.

He goes on to point out that in trying to predict the future of an economy there are simply too many variables and too many unpredictable developments for any calculated risks to be taken - what we're dealing with isn't risk (calculable) but uncertainty (incalculable).

The core of his argument (backed up with plenty of real world examples and figures) is that most economic growth is based on credit (which is also debt on the other side of the coin) - credit provided by private banks to businesses and individuals, with most money also the result of private banks providing it as credit (loans/mortgages etc). Without strict regulation banks start lending carelessly, without worrying about whether they've been repaid, during economic booms caused by the gradual expansion of credit. Frauds ('ponzi schemes') develop under cover of the boom. Then when everyone realises many loans have been made which the debtors can never repay and that there has been fraud, there's a bust and banks stop giving out loans, leading to a credit crunch.

If inflation is allowed to stay relatively high this leads to only a short-lived recession since inflation reduces the value of money and so of debts too, making debts shrink to manageable sizes.

If inflation is kept low (as economic orthodoxy would demand) the debts remain high and the recession becomes a depression as in the Great Depression and the current one.

The only other way to get out of a depression is to forgive all debts, especially as the debtors can't repay them anyway (a 'Jubilee' based on the ancient Babylonian festivals which included debt forgiveness).

Unlike most economics, this all makes sense and fits in with real world events. The only reason I don't give the book 5 stars instead of four is that it's too long and includes too many mathematical and theoretical exercises which will put off many readers and made the book longer and more difficult to read than it needs to be.
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on 1 November 2011
Must admit that I missed the publication of the first edition in 2000, but I am certainly pleased to have picked up the second edition. This book is remarkable on several counts.
Firstly, it is an accurate, and quite objective, review of the state of neo-classical economics. At every turn the author backs up his observations and provides a clear analysis of the fundamental problems faced by the 'body of knowledge' taught to A level and under-graduate students. I really can't take exception to any of his points - they are well argued and patently true. His debunking of representative agent models, whilst not the most difficult thing in the world to carry out, is firmly based on logic and as mathematical in nature as the reprehensible models he rubbishes. Job done.
Secondly, it is a cogent argument for why disequilibrium models must form the foundation of economic's 'body of knowledge'. The exact form of those models can certainly be debated, but at the very least we must move away from pretending that a capitalist economy is, at any time, in equilibrium! The ease with which Steve Keen develops a working model of capitalism and its inherent instability should be sufficient to convince any rational person (so that excludes neo-classical economists).
Thirdly, it's simply a good read! Even when Steve Keen moves into "I told you so" mode, he's funny - when was the last time you read a humorous economics text (and I don't include Freakanomics in that set)?
Finally, it's refreshing to see Marx, Sraffa, Schumpeter, Keynes and Minsky portrayed in the kind light that they richly deserve - Keen is an excellent advocate for these 'sensible thinkers' and I thank him for this. The text's bibliography is worth the price of the book alone!
All in all, a great text which will probably get ignored or marginalised. At any rate, Steve, you get my vote for the clearest thinking economist since Minsky et al. I look forward to your next work.
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on 5 December 2012
This is a new, larger edition of Steve Keen's already classic critique of neoclassical economic theory. Many of the additions are useful, although Keen does come across as more of a braggard than in the earlier edition -he was after all only one of a handful of economists who predicted the crisis, and he makes sure to let everyone know. Much of the additional material is useful, although it suffers from what I consider a major flaw, and that is that Keen has removed all the tables and graphs which he used to illustrate his critiques of neoclassical theory. This is a disaster, because the concepts he's explaining and critiquing are complex enough as it is, and removing the visual aids that made it easier to follow what was going on makes everything even more difficult.
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on 5 February 2016
Like many non-economists, although I had a sense that bankers were greedy and corrupt and had helped cause the last crash, I had never imagined that the very economic theory allowing the finance sector to get away with this – the "neoclassical economics" which Keen so brilliantly describes and exposes, and which apparently continues to dominate economic academia and public policy even after the crash – could be, itself, not just flawed, but outright ridiculous. I had always assumed that most, if not all, economists, were in effect scientists, that their work was highly sophisticated, mathematically rigorous, and that any major theories they still relied on were checked and informed by a balance of empirical findings, and subject to a constant culture of scepticism, peer-reviewing and improvement. I had assumed economists, like scientists, must be updating their theories when evidence flatly contradicted them. I had also assumed I was too stupid and economically (and mathematically) ignorant to understand, in detail myself, any better.
Unfortunately, the truth is the reverse, and staggeringly so. You don't need advanced mathematics (or any at all, really) to understand Keen's simple descriptions of the glaring flaws in neoclassical economics. Six-year-olds could improve on some of it, if it was presented to them in terms they could grasp. For instance, Keen explains that neoclassical economic theory assumes that all consumers have identical taste; that there is, in effect, only one consumer in society, or in the economy. There are more and more of these flaws, all, to me, equally ridiculous. Keen shows how devastating such flawed assumptions can be, in a way that backs up his general claim that the economic layman could actually take better charge of the economy than the neoclassical economist could, and does.
If these staggering flaws in, outwardly, so respectable-seeming a "science", deeply saddened and concerned me, I was much more glad to have had my eyes opened to this calamity. Keen goes a good way to explaining how on earth this shocking reality has been allowed to evolve – or not evolve. He is also fair to the small percentage but considerable number of previously neoclassical economists, or indeed neoclassical economists, who have not shied away from problems they have identified in their field, but done their best to expose them. Keen is not some lone nutter – instead, there are many other economists like him (as well as yet other rival schools), but he shows how the economic establishment has repeatedly refused not only to budge, but in most cases even to listen seriously to opposing views. He shows how most modern economics is and has been the very reverse of a science, and at a grave cost to modern societies. Keen also pays due recognition at every stage to the work of numerous other economists, living and dead – a reminder and a validation that Keen, and you the reader if you find his book makes complete sense, are not stupid, or missing something. Keen’s book is also a reminder that it’s not just corrupt and incompetent bankers harming our economies – this flawed neoclassical economics also continues to govern much of our modern public economic policy, thanks to more than a generation of bad economics education.
Lastly, Keen’s writing is superb, and very funny. Think economics is boring? Much of it is, but Keen is just the reverse, and lightens the reader's enlightenment to this intellectual darkness with an articulate, varied, page-turning style full of concrete illustrations, and just the right amount of humour.
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I was looking forward to getting this book and at first all went well but I then found myself having problems as the economics began. Eventually I ploughed through it. It wasn't that it was particularly difficult, it was just so tedious. To be fair to the author he did sign-post this, explaining that it was necessary to include because this was what he was debunking.

However, it gets better and as this is an important book it is worthwhile not giving up. Economics is a social science, which means it is not really a science at all. The old joke that if you put three economists in a room you will end up with three different economic theories may no longer be true because neo-classical economics now seems to have become generally accepted as orthodoxy. Unfortunately, it also seems to be fundamentally wrong.

If this was post-modern literary theory then it wouldn't matter much unless you were a post-modern literary theorist, but this is economics and it has seeped into the wider culture. It is being used to manage the current economic crisis; it is seeping into business and it especially influences public policy. For all its faults, capitalism is now the only game in town and how that game is played and what rules are used to play it affects us all.
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on 10 March 2012
In fact, if you are a conventional neoclassical economist - one of the ones that got us into this mess, in other words - you should take your blood pressure pills. Steve Keen carves his way through your jungle of bad, misapplied and out of date mathematics in a way that even I, a very non-mathematical historical writer, could cope with. He's funny, he's clear, he's logical and he completely destroys any claims mainstream economists have to guide real world economic policy. Of course, they've done a good demolition job of that themselves, but still it's nice to see it all laid out with such devastating clarity.
Don't worry about the maths, by the way - he tells you where you could skip scary bits and when you might need a large jolt of coffee. There are places where I even laughed out loud, although Marx on value is just rather sad.
It's not easy to understand such a complicated social phenomenon as our present global economy, but this makes a vital start. If you have anything to do with economics or finance, you must read this book.
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on 29 October 2011
As a writer on strategy myself, I think this is the most interesting book that I've read in the last decade - and I've read a heck of a lot in that decade. It is not just the economics, but also the politics of what is going on.

There are a number of 'so whats', but the first important one for the private investor is that our central bankers and economic advisors are generally from the neo-classical school of economics, whose assumptions are, as Steve Keen shows, fundamentally flawed and whose theory demonstrably does not work empirically. What this means is that the people at the top of the economic shop don't know what their doing. And what is worse, they don't know that they don't know what they're doing. They are in a state of, as they say in coaching, unconscious incompetence.

Although difficult in places - and admittedly so, because the subject is difficult - Debunking Economics is nevertheless an excellent book, hugely thought provoking, and a 'must read' for any one who's interested in the Western politico-economic model, warts and all.
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on 18 November 2011
... but all the evidence around you says that their medicine isn't working, this book explains why.

For years and years, I've wanted to learn enough about economics to be able to take on those who say that markets are always efficient, that government is always bad, that regulation is always bad, and that the system we have is the best possible. This book gives you the ammunition to do that.

It shows that the foundations of neoclassical economics are a good deal less solid than its practitioners' self confidence. To be frank, I was actually pretty shocked at what he reveals about the huge self-contradictions, illogic and flakymathematics underpinning the economic conventional wisdom. I'm not the most distinguished scientist in the world, but with a Cambridge PhD in Theoretical Chemistry I hope I can appreciate how good science is *supposed* to work, and what Keen reveals shows that neoclassical economics is closer to a cargo cult than a science. The words "Seriously?!", "You're kidding?" and "No way!" emerged from my lips somewhat frequently when reading. One of the things Keen points out is that frequently the problems have been known for decades and ignored by the mainstream economic community; often the problems were pointed out by the theories' original authors themselves.

Many of the charges he levels would not be heinous sins in themselves: there's nothing wrong with making simplifying assumptions in a model, or favouring linear models over more complex ones *provided* you are fully aware of and honest about the simplification, *and* you test your theory against the evidence. If your model agrees with the facts and has predictive power then you are entitled to claim that the bits of reality that you simplified don't actually matter that much. Unfortunately self-contradictory assumptions are more of a problem, even more so if you don't realise you're making them. Economics, like epidemiology, is the kind of science that one cannot ethically test directly (not that people didn't have a damn good try in South America), but the evidence in the wreckage of the global economy at the moment, and in the track record of numerous disastrous interventions by the World Bank and the IMF, tends to show that the dubious foundations of neoclassical models are not salvaged by enormous power to predict reality.

One of the charges levelled at mainstream economics since the crash is that it had been over-obsessed with elaborate mathematical modelling at the expense of trying to explain observed behaviour. Keen shows that there is nothing wrong with mathematics in economics, and that modern techniques that are routinely used elsewhere in science but have yet to penetrate the economic profession can shed much light on macroeconomic complexity. It's just that the mainstream has been preoccupied with building ever-more elaborate models using ancient techniques dubiously applied to dodgy and self-contradictory assumptions, which must make it one of the longest bouts of mental masturbation in history.

It's not always an easy read, and slightly ranty in places but it is full of the pithy insights and clear thinking that typify the best writing.

One of the best things I learned from the book was a point made by Minsky in the 1950s. Since we've had depressions, then a valid macroeconomic theory must have a depression as one of its possible states. Neoclassical theories, with their unwarranted assumption that the market is always near and tending to equilibrium, fail this test.
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