Steve Keen

Post-Keynesian economics
Nationality	Australia
Influences	Hyman Minsky Piero Sraffa Joseph Alois Schumpeter
Opposed	Neoclassical economics
Contributions	Mathematical models of financial crises and debt-deflation

Steve Keen is an Associate Professor in economics and finance at the University of Western Sydney. He identifies as post-Keynesian, criticizing both modern neoclassical economics and (some of) Marxian economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking about economics include Hyman Minsky, Piero Sraffa and Joseph Alois Schumpeter. His recent work mostly concentrates on mathematical modeling and simulation of financial instability. His work has received more interest recently because of his correct prediction of the 2008 financial crisis^{[citation needed]}.

Contents 1 Financial instability and debt deflation 2 Debunking Economics 3 Critique of neoclassical theory of the firm 4 Criticisms 5 Other publications 6 See also 7 References 8 External links

[edit] Financial instability and debt deflation

Most of the recent work of Steve Keen focuses on modeling Hyman Minsky's Financial Instability Hypothesis.^[1][2] The hypothesis predicts that the too big debt to GDP ratio can cause deflation and depression. Steve Keen argues that the current global economic crisis is the result of too much debt.

In the recent year, Dr Steve Keen has commentated about the current economic down-turn in the Australian media.^[3]

[edit] Debunking Economics

Keen's full-range critique of neoclassical economics is contained in his book Debunking Economics ^[4]. Keen collects and popularizes a wide variety of critiques of numerous aspects of neoclassical economic theory and argues that together they show that neoclassical assumptions are simply flawed. Keen points out that several neoclassical assumptions are empirically unsupported (that is, they evade reality) nor are they desirable (that is, they do not necessarily produce either efficiency or equity reasons). He argues that economists' overall conclusions are very senstive to small changes in these assumptions.

Keen's book closes with a survey of various schools of heterodox economics, concluding "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." However, he argues that neoclassical economics is a degenerative research program, not generating new knowledge but growing a belt of protective auxiliary hypotheses to shield its core beliefs from critique.

Debunking economics is written for a lay audience, but with an accompanying web site which provides more detailed mathematical expositions.

[edit] Critique of neoclassical theory of the firm

Keen's work (as opposed to his popularization) has also focused on refuting the neoclassical theory of the firm, which argues that firms will set marginal revenue equal to marginal cost. Keen notes that empirical research finds real firms set price well above marginal cost: they charge a markup, often cost-plus pricing.

He cites Eiteman & Guthrie,^[5] finding 89% of firms set prices above the level where marginal revenue is equal to marginal cost, as well as more recent work by Alan Blinder.^[6]

[edit] Criticisms

Some reviewers contend that Keen has not shown what he claims and that he misrepresents economic theory.^[7] Keen agrees that some more nuanced and qualified versions of neoclassical economics exist at very high levels. However he claims that his critique is aimed at the core neoclassical ideas that are taught in universities at undergraduate and postgraduate level and which are often used as the basis for policy prescriptions.

Some claim that the empirical evidence that Keen uses to argue against the claim that firms set marginal revenue to marginal cost is not inconsistent with the neoclassical theory of the firm ^[8] if those firms have some market power. However, Keen argues^[9] that economic theory neglects the effect on price of increasing or reducing supply by a single item and finds that charging a markup is actually a more stable, profitable equilibrium.

[edit] Other publications

• Lee, Frederick S. and Steve Keen (2004): "The Incoherent Emperor: A Heterodox Critique of Neoclassical Microeconomic Theory", Review of Social Economy, V. 62, Iss. 2: 169-199
• Co-editor of: Commerce, Complexity and Evolution: Topics in Economics, Finance, Marketing, and Management: Proceedings of the Twelfth International Symposium in Economic Theory and Econometrics. New York: Cambridge University Press. ISBN 0-521-62030-9.

[edit] See also

• Heterodox economics
• Paul Ormerod

[edit] References

1. ^ The Roving Cavaliers of Credit
2. ^ Steve Keen (1995): "Finance and economic breakdown: modelling Minsky’s Financial Instability Hypothesis", Journal of Post Keynesian Economics, Vol. 17, No. 4, 607–635
3. ^ ABC (2008): "Steve Keen with Kerry OBrien - ABC 7:30 Report 8-10-2008", http://www.youtube.com/watch?v=tl_siVwCX-A
4. ^ Debunking Economics: The Naked Emperor of the Social Sciences (2001, Pluto Press Australia) ISBN 1-86403-070-4
5. ^ Eiteman & Guthrie (1952): "The shape of the average cost curve", American Economic Review 42: 832–838
6. ^ Blinder, Alan; et al. (1998): Asking about prices: a new approach to understanding price stickiness, Russell Sage Foundation, New York
7. ^ David Stern, "BOOK REVIEWS: Debunking Economics", Ecological Economics Volume 39, Issue 2, November 2001,pages 319–320 [1]
8. ^ Tirole, Jean, 'The Theory of Industrial Organization', MIT Press 1998
9. ^ Steve Keen & Russel Standish (2006):"Profit Maximization, Industry Structure, and Competition: A critique of neoclassical theory", Physica A 370: 81-85

[edit] External links

• Website of "Debunking Economics" and Steve Keen's personal web site
• Steve Keen's Debtwatch blog
• List of Steve Keen's publications
• There is madness in their method A sample chapter from Debunking Economics.
• Video: Steve Keen on Australia's economic prospects July 2009, SlowTV

• A more detailed presentation of the contents in the Physica A article.
• A news feature on an Econophysics paper co-written by Prof. Keen appeared in the journal Nature, accompanied by an editorial.