Debunking Economics

Debunking Economics – Steve Keen

Economics often presents itself as a rigorous science, with mathematical models that explain how markets work. Australian economist Steve Keen argues that much of this is built on shaky foundations. In Debunking Economics: The Naked Emperor Dethroned?, he offers a detailed critique of mainstream neoclassical economics, the theory that dominates university teaching and policy advice.

Keen examines the core building blocks of standard economic theory one by one and argues that each contains logical or empirical flaws. He questions the theory of demand and supply, the assumption that firms maximize profit in the way textbooks suggest, the theory of how wages and the returns to capital are determined, the idea that markets naturally tend toward equilibrium, and the treatment of money, debt and banking in economic models.

A central part of his argument draws on the work of economist Hyman Minsky, who argued that financial systems are inherently unstable, as periods of stability encourage risk-taking and debt that eventually lead to crisis. Keen argues that because mainstream models largely ignored private debt and the role of banks, they failed to foresee the global financial crisis of 2008, which he himself had warned about. The revised edition discusses the crisis in detail.

Keen also outlines alternative approaches, including dynamic models that incorporate money and debt, and schools of thought such as post-Keynesian economics.

Bold and challenging, Debunking Economics is a stimulating read for students, economists and readers interested in alternative perspectives. Its arguments are contested by many mainstream economists, and some sections are technical.