Steve Keen

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Steve Keen
SteveKeen01.jpg
Born (1953-03-28) 28 March 1953 (age 61)
Sydney
Nationality Australia
School/tradition Post-Keynesian economics
Influences Hyman Minsky
Piero Sraffa
Joseph Schumpeter
François Quesnay
Irving Fisher
Basil Moore
Contributions Mathematical models of financial crises and debt-deflation

Steve Keen (born 28 March 1953) is an Australian economist and author. He considers himself a post-Keynesian, criticizing neoclassical economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking about economics include John Maynard Keynes, Hyman Minsky, Piero Sraffa, Joseph Alois Schumpeter, and François Quesnay. He also gives credit to Marx for contributing to the "financial instability hypothesis" of Hyman Minsky.[1] His recent work mostly concentrates on mathematical modeling and simulation of financial instability. He is a Fellow at the Centre for Policy Development.

Early life and education[edit]

Keen was born in Sydney in 1953. His father was a bank manager. Keen graduated with a Bachelor of Arts in 1974 and a Bachelor of Laws in 1976 both from the University of Sydney. He then completed a Diploma of Education at the Sydney Teachers College in 1977.

In 1990, he completed a Master of Commerce with Honours in Economics and Economic History at the University of New South Wales. He completed his Doctor of Philosophy in Economics at the University of New South Wales in 1998.[2]

Financial instability and debt deflation[edit]

Most of Steve Keen's recent work focuses on modeling Hyman Minsky's financial instability hypothesis and Irving Fisher's debt deflation.[3][4] The hypothesis predicts that an overly large debt to GDP ratio can cause deflation and depression. Here, the falling of the price level results in a continually rising real quantity of outstanding debt. Moreover, the continued deleveraging of outstanding debts increases the rate of deflation. Thus, debt and deflation act on and react to one another, resulting in a debt-deflation spiral. The outcome is a depression. Steve Keen argues that the current global economic crisis is the result of too much debt.

Debunking Economics[edit]

Keen's full-range critique of neoclassical economics is contained in his book Debunking Economics.[5] Keen presents a wide variety of critiques on neoclassical economic theory, and argues that they show neoclassical assumptions are fundamentally flawed. Keen claims that several neoclassical assumptions are empirically unsupported (that is, they are unsupported by observable and repeatable phenomena) nor are they desirable for society at large (that is, they do not necessarily produce either efficiency or equity for the majority). He argues that economists' overall conclusions are very sensitive to small changes in these assumptions.

Keen has attempted to counter Marx's theory (in his view Marx's pre-1857 view, specifically) from a post-Keynesian perspective, by arguing that machines can add more product-value over their operational lifetime than the total value of depreciation charged during those asset lives. For example, the total value of sausages produced by a sausage machine over its useful life might be greater than the value of the machine. Depreciation, he implies, was the weak point in Marx's social accounting system all along. Similar to John Roemer,[6] Keen argues that all factors of production can add new value to outputs.

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. There is an accompanying web site which provides more detailed mathematical expositions.

Critique of neoclassical theory of the firm[edit]

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; compare fellow post-Keynesian Alfred Eichner, who also argued for markup pricing.

He cites Eiteman & Guthrie,[7] 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.[8]

Keen's article on "profit maximization, industry structure, and competition"[9] has had counter-arguments by Paul Anglin.[10]

MINSKY software project[edit]

See Minsky (economic simulator)

Recently, Keen commissioned the development of a software package called MINSKY for visually modelling national economies, in a way that is intended to be more accurate than mainstream macroeconomic models – which he contends do not properly include debt and banking. He envisages it being used for both educational and research purposes.

The first phase of the development was funded by an academic research grant, as is typical for academic research projects – but in February 2013 Keen launched a crowdfunding project on Kickstarter to allow members of the public to contribute towards taking MINSKY to the next level of development.[11] In the first 24 hours, this project raised approximately 15% of its funding target, and has since achieved its initial funding goal of $50,000.00.

Criticisms[edit]

Some reviewers contend that Keen has not shown what he claims, that he misrepresents economic theory, and that he gets basic mathematics wrong.[12]

Matthijs Krul[13][14] maintains that Keen, while broadly accurate in his criticism of the neoclassical synthesis, generally misrepresents Marx's views in Debunking Economics and in earlier work when asserting that, in the production of commodities, machinery produces more value than it costs.[15]

Austrian economists Robert P. Murphy and Gene Callahan, criticize Keen's 2001 book, by stating that the "work suffers from many of the very faults of which he accuses the mainstream". They also claim that much of his work is "ideologically motivated even while criticizing neoclassical economics for being ideological". They praise his critique of perfect competition, and his chapter on dynamic vs static models, whilst they criticize his attempts at objective value theory and what they claim is his misinterpretation of the Austrian interpretation of Say's law.[16]

Other publications[edit]

  • Lee, Frederic 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.

See also[edit]

References[edit]

  1. ^ Keen, Steve The Debtwatch Manifesto 2012 http://www.debtdeflation.com/blogs/manifesto/
  2. ^ [1] University of Western Sydney profile
  3. ^ The Roving Cavaliers of Credit
  4. ^ Steve Keen (1995): "Finance and economic breakdown: modelling Minsky’s Financial Instability Hypothesis", Journal of Post Keynesian Economics, Vol. 17, No. 4, 607–635
  5. ^ Debunking Economics: The Naked Emperor of the Social Sciences (2001, Pluto Press Australia) ISBN 1-86403-070-4
  6. ^ John Roemer, "New Directions in Marxian Theory of Exploitation and Class", in John Roemer (ed.), Analytical Marxism (Cambridge: Cambridge University Press 1986), p. 100.
  7. ^ Eiteman & Guthrie (1952): "The shape of the average cost curve", American Economic Review 42: 832–838
  8. ^ Blinder, Alan; et al. (1998): Asking about prices: a new approach to understanding price stickiness, Russell Sage Foundation, New York
  9. ^ Steve Keen & Russel Standish (2006):"Profit Maximization, Industry Structure, and Competition: A critique of neoclassical theory", Physica A 370: 81–85
  10. ^ Paul Anglin (2008): On the proper behavior of atoms: A comment on a critique Physica A 387: 277–280
  11. ^ Steve Keen (2013). "Kickstarter project". Retrieved 10 February 2013. 
  12. ^ David Stern, "BOOK REVIEWS: Debunking Economics", Ecological Economics Volume 39, Issue 2, November 2001,pages 319–320 [2]
  13. ^ Steve Keen’s Critique of Marx’s Theory of Value: A Rejoinder
  14. ^ Steve Keen’s critique of Marx’s Theory of Value: A rejoinder
  15. ^ Keen, S., "Use-value, Exchange-value, and the Demise of Marx's Labor Theory of Value", Journal of the History of Economic Theory, 15 (Spring 1993).
  16. ^ Review of Austrian Economics 2003 – http://www.gmu.edu/depts/rae/archives/VOL16_4_2003/6_BR_Murphy.pdf

External links[edit]