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Tuesday, May 03, 2016

Brainstorm with Steve Keen

I am very pleased to be able to say that on Friday, May 6th, at 7 PM Eastern, we will be holding an Open Brainstorm with the most important economist working today, Dr. Steve Keen. Dr. Keen is the author of Debunking Economics, which is a work so fundamentally revolutionary that its implications will probably not be fully understood for at least another century.

He is the leading Post-Keynesian economist and he is one of the very few economists to have correctly anticipated both the 2008 financial crisis as well as what he describes as the Second Great Depression. (He is, of course, completely wrong; the correct term is Great Depression 2.0.) I will post an open registration link tomorrow after the Brainstorm members have had the chance to get their seats first, as I expect this will be a well-attended event. Invites to members will go out this evening along with a transcript of the recent William S. Lind event.

For those who attended the Lind event, I spoke with my ISP and it turned out there was a software-related problem in my connection on their end; they have fixed it and I don't anticipate any further problems. But we will have a backup plan in place just in case similar problems present themselves.

Below is my 2012 review of Debunking Economics.

Stalking the Undead Economist

Since being presented with a copy of Milton Friedman’s “Free To Choose” as a schoolboy, I have read a considerable quantity of books devoted to economics. Unlike most socialists, I have read Marx, Veblen and Bakunin. Unlike most monetarists, I have read more than Friedman’s pop books focused on the mass audience, but his more scholarly works, too, as well as his massive ode to monetary policy, coauthored with Anna Jacobson Schwartz, titled, “A Monetary History of the United States, 1867-1960.” Unlike most neo-Keynesians, I have read both “The General Theory of Employment, Interest and Money” as well as Paul Samuelson’s landmark textbook, “Economics,” in its original 1948 edition. Unlike most free traders, I have read David Ricardo’s “The Principles of Political Economy and Taxation,” and while unlike most Austrians, I cannot quote chapter and verse of Ludwig von Mises’ “Human Action” from memory, I have read it.

I have no doubt this reading list would have astonished the late professor of my macroeconomics class, who was less bothered by my usual failure to attend class than by the fact that I never bothered to buy the textbook.

After nearly three decades of reading across a broad spectrum of economic thought, the two books on the subject I would most recommend are Joseph Schumpeter’s “History of Economic Analysis” and Murray Rothbard’s “An Austrian Perspective on the History of Economic Thought.” But now there is a third. After finishing “Debunking Economics: The Naked Emperor Dethroned?” I have to assert that Keen’s book is not only an absolute masterpiece, but may, in fact, represent the most important intellectual development in economics since “The General Theory” was published in 1936. And if some of Keen’s more controversial assertions hold up over time, it will be the most important contribution to the literature since “The Wealth of Nations.”

The title of the book is an appropriate one because Keen calls into very serious question some of the most basic assumptions that economists of all ideological strains have shared since 1776. This is not a book for the faint of heart, not due to the relatively sophisticated mathematics he utilizes in support of his arguments, but because it will be hard for anyone with even a modicum of education in economics to accept intrinsically revolutionary ideas such as the non-linear shape of a market demand curve or to believe that conventional economic models are absolutely reliant upon absurdities such as markets that consist of one solitary customer for a single commodity. And while it is one thing to notice that the conventional models don’t take into account factors such as time and debt (for I have written about these things myself), it is still eye-opening to witness Keen methodically explore the significance of such omissions and explicate the consequences of how these structural errors render the entire mainstream discipline fundamentally incapable of coherently describing, let alone predicting, economic activity in the real world.

Perhaps the most revelatory section of the book deals with the way the General Theory of John Maynard Keynes was converted into the practical neoclassical form that presently dominates mainstream economics in its two halves, Monetarist and Neo-Keynesian, by Paul Samuelson and J.R. Hicks. While it is no secret that Samuelson quantified many of the concepts introduced by Keynes, as one will search “The General Theory” in vain for gross domestic product or any of the macroeconomic terms that are so familiar today, I had always wondered about the basis for the IS/LM model that played such a central role in my macroeconomic class could be found in Keynes; none of my economics professors ever pointed out that it was provided in what was essentially a book review of Keynes’s magnum opus or admitted how this core function of “Keynesian” economics inherently contradicted what Keynes himself wrote.

Throughout the book, Keen proves himself to be an engaging writer who is able to break down and explain the most complex concepts in a manner that most interested readers will be able to follow without too much trouble. He wisely structures his arguments in such a way that if one does not wish to wrestle with the math or the more esoteric aspects of the subject, one can still understand the significance of the point that he is making and move on to the next issue.

One need not agree with all of Keen’s arguments or his conclusions to admire the serious and substantive challenge that he has posed here to neoclassical economics. The neoclassicals cannot ignore the divergence between their theories and the real world forever, and no amount of revisionist history from the likes of Brad DeLong will permit them to do so much longer in a world that is drowning in excessive public and private debt. If Keen convinces the reader of just one thing, it is that there is a dire need for a better economics. Consider the following statement in which he compares five alternative schools of economics, Austrian, Post-Keynesian, Sraffian, Econophysics and Evolutionary economics prior to describing the strengths and weaknesses of each:

“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 twenty-first century. However, they all have strengths in areas where neoclassical economics is fundamentally flawed, and there is also a substantial degree of overlap and cross-fertilization between schools. It is possible that this century could finally see the development of a dominant economic theory which actually has some relevance to the dynamics of a modern capitalist economy. I would probably be regarded as partisan to the post-Keynesian approach. However, I can see varying degrees of merit in all five schools of thought, and I can imagine that a twenty-first-century economics could be a melange of all five.”

As can be seen by this quote, Keen is not a polemicist bent on defending his perspective, but a fair-minded inquirer after the truth. He may never be known as the father of whatever the future mainstream of economics turns out to be, but in driving this stake of a book through the heart of what can be reasonably characterized as the undead theory of neoclassical economics, he could rightly merit being described as its midwife.

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45 Comments:

Blogger SteelPalm May 03, 2016 5:03 AM  

Thanks a bunch for announcing the date in advance. Being an economist myself, I will try like hell to make the discussion.

I'm impressed with how much literature you've read; neither myself nor most other researchers have gone through most of those.

Blogger JACIII May 03, 2016 5:21 AM  

Tasty, VD. You do know how to keep the Ilk well fed.

Blogger The Kurgan May 03, 2016 5:37 AM  

I honestly do not mean this as a troll question but I remain mystified why an intelligent man would waste time reading all those tomes when it is abundantly clear from the most cursory observation of reality that in almost every case (keen may be the exception as you say he did predict something) economists have less reliable ability to predict anything than a blind deaf mute has of predicting the weather on the opposite side of the globe.

So-called economic theory is a hopeless attempt to try and make theory fit the facts by wishful thinking, for the most part. And the factors that do affect economies on a scale that is observably relevant are multiple and in more cases than one would assume practically unintelligible until after the fact.

Honestly I do not see the value of the time investment in the topic. But I am open to being proven wrong. Could you synthesise what benefit you gained from your extensive study? And I do not disparage simple curiosity or hobbyist interest by the way. But I wondered if at a practical level it did anything relevant for you.

Blogger JACIII May 03, 2016 6:07 AM  

Can't speak for VD, and I haven't read all those tomes, but how is there not huge benefit to gaining understanding why people think as they do? The dividing lines of theories of economics are the lines along which massive blocks of humans compete. These are theories of human behavior which are every day tested against reality.

Whole nations have driven themselves to murderous ruin as adherents of some of this stuff! Repeatedly! And nearly all of it makes sense at first glance.

It's sorta like Root Cause Analysis but for people,

Blogger JACIII May 03, 2016 6:11 AM  

Practically: Next socialist you meet (and you will); if you know enough socialist theory you can quickly determine if your new acquaintance is an ignorant child or a murderous thief.

Blogger SteelPalm May 03, 2016 6:15 AM  

@3

Macroeconomic policy is a thorny subject and no one has been able to fully figure it out, although some approaches work observably better than others.

But there are many phenomena and situations that economists can easily and reliably predict with great accuracy.

As a quick example, auction theory used to be a hotbed of research in the 80s and to an extent, the 90s. Now not so much because it's virtually all tapped out. Fully understood.

So anything you would want to know or predict about an auction a good economist can tell you about.

Your question is a bit like asking why anyone bothers with physics because no one really understands quantum theory. Or climate science because since they all suck at predicting the weather and larger trends.

Blogger VD May 03, 2016 6:18 AM  

I honestly do not mean this as a troll question but I remain mystified why an intelligent man would waste time reading all those tomes when it is abundantly clear from the most cursory observation of reality that in almost every case (keen may be the exception as you say he did predict something) economists have less reliable ability to predict anything than a blind deaf mute has of predicting the weather on the opposite side of the globe.

First, I find it interesting. Last night, I stayed up an hour longer than I meant to because I made the mistake of checking to see if the EPUB of an economics book I'd converted worked. I just got sucked into reading it rather than the novel I'd been reading.

Second, it is the sum all of human activity. Understand it, and you understand humanity. That's why power-mad individuals and control freaks have historically been drawn to it.

Third, it is a serious intellectual challenge.

Blogger Stilicho May 03, 2016 6:23 AM  

If I cannot attend, would someone please ask Keen why he thinks govt debt doesn't matter and ask him to prove it. He has ignored the fact that the people who have to service their own debts also get stuck with servicing govt debt (directly and indirectly). Of course, his prescription of more socialist spending could hardly be justified without ignoring govt debt so he may not have a legitimate explanation.

Blogger Aeoli Pera May 03, 2016 6:23 AM  

The Kurgan wrote:I honestly do not mean this as a troll question but I remain mystified why an intelligent man would waste time reading all those tomes when it is abundantly clear from the most cursory observation of reality that in almost every case (keen may be the exception as you say he did predict something) economists have less reliable ability to predict anything than a blind deaf mute has of predicting the weather on the opposite side of the globe.

The field is maybe 5% genuine inquirers, 20% government shills pushing centralization, and 75% incompetents pushing centralization. The answer to your question is that it's not worth the time and effort unless you enjoy it a priori. Same as the humanities, essentially.

My understanding of central banking is that it is necessary to raise massive armies, thus any nation that doesn't engage in it will be conquered by those who do. But it's a parasite that eventually kills its host, so it's a dicey business. I figure the rest is smoke and mirrors between these opposing interests.

Blogger VD May 03, 2016 6:24 AM  

I'm impressed with how much literature you've read; neither myself nor most other researchers have gone through most of those.

I read fast. Reading Eco or Manzoni in Italian, that's considerably harder.

Blogger Aeoli Pera May 03, 2016 6:28 AM  

I suppose the cost-benefit is worth it if you're going to use the knowledge to rip people off, but you're obviously not interested in that.

Blogger The Kurgan May 03, 2016 6:35 AM  

Thanks, that's a reasonable reply, and as I had guessed it involves a degree of perineal curiosity about a vast and nebulous subject. I can't fault that but I also think unless you have it in that particular field you're unlikely to be willing to dig into it.

It makes sense too that you would want to try and grasp it as well... Supreme Dark Lord and all that and I agree it is a serious intellectual challenge. I guess my view of it when you explain it that way is almost diametrically opposed to yours, that is, ignore ALL economic theory and instead observe reality as much as possible.

I have for example noted I am generally able to predict the rises in value of metals like gold and silver fairly accurately for years and fairly accurately. But ask me how and I couldn't tell you in a way that would be repeatable. I suppose I had a narrow definition of economics compared to how you described it.

Anonymous Mr. Rational May 03, 2016 6:37 AM  

VD wrote:... as well as what he describes as the Second Great Depression. (He is, of course, completely wrong; the correct term is Great Depression 2.0.)
First guffaw of the day.

Blogger Aeoli Pera May 03, 2016 7:06 AM  

The Kurgan wrote:...perineal curiosity...

*snicker*

Blogger Ahazuerus May 03, 2016 7:08 AM  

In every power structure are court intellectuals whose very existence is predicated on inventing new and plausible reasons why the reigning elite are not only good and right, but absolutely necessary.

In the modern democracies, which are in many ways technocratic, economists perform a great deal of this function.

You might notice that their track record is strikingly similar to that of the other major performers, the political pundits. As is their credentialism and associated dismissive attitude to all those not sharing their function.

Thanks to Vox's review above, I've just purchased Keen's book, as he sounds an exception...

Blogger Ahazuerus May 03, 2016 7:09 AM  

PS; hence Emperor Qin's advice to new rulers:

First, kill all the intellectuals

Anonymous mature craig May 03, 2016 7:57 AM  

Re 537. Well I think economics is an interesting subject and I would be interested in hearing anything and everything Vox has to say about it

Blogger Stg58/Animal Mother May 03, 2016 7:58 AM  

Kurgan,

If I were an economist like VD, I'd read my intellectual adversaries as well. Know your enemy, know his arguments better than he does, at a deeper level, and you become an AWCA.

And then the fun really begins.

Blogger Mr.MantraMan May 03, 2016 8:06 AM  

#8 what?

Anonymous Spartacus xxxxx May 03, 2016 8:27 AM  

That's quite a pitch. I'm pretty close to the same level as Vox, similar trajectory, though haven't thoroughly read all those authors. Bottom line- if Vox says Keen's work is this important, then it is so, to as high a degree as any economic calculation can reach.

On Triggering. Back in the day, Bradford DeLong was my (ex) friend's prof at Caltech, so I read some of his early manuscript for Slouching Toward Utopia. It gave me the creepy-crawlies sort of like Pederast Keynes or Quarterly-withdrawal Friedman does. In the chapter where DeLong is covering up the gold confiscations/robberies of the 1930's (the financial prelude to WWII), he actually broke down- in print- at the point where he was covering up Executive Order #6102. (This was the first action of FDR's 100 days: steal all the gold.) DeLong rambled on for several sentences of what amounted to word salad! He corrected that in later drafts.

If you care to see an example of the Triggering -> Word-salad breakdown IRL, ask an econ prof a certain question, preferably without prior tip off. "What is money?" "What is the Federal Reserve?" "What happened to all the gold?" are all field tested. This is not the same type of response as the SJW Trigglyfluff ragefest, it's more of a rapid running together, or 'kaleidoscope language', as the mind tries to re-stabilize.

Blogger Ahazuerus May 03, 2016 8:36 AM  

Aeoli

I missed that. Well spotted

Anonymous lpajeans May 03, 2016 8:54 AM  

Read Friedrich List

Here is an interesting article, How the world works, from the Atlantic Magazine by James Fallow.

http://www.theatlantic.com/magazine/archive/1993/12/how-the-world-works/305854/

"Friedrich List and his best-known American counterpart, Alexander Hamilton, argued that industrial development entailed a more sweeping sort of market failure. Societies did not automatically move from farming to small crafts to major industries just because millions of small merchants were making decisions for themselves. If every person put his money where the return was greatest, the money might not automatically go where it would do the nation the most good. For it to do so required a plan, a push, an exercise of central power. List drew heavily on the history of his times—in which the British government deliberately encouraged British manufacturing and the fledgling American government deliberately discouraged foreign competitors."

Blogger The Deuce May 03, 2016 9:06 AM  

Vox: What works would you recommend to an intelligent neophyte who wanted to get a solid handle on economics (how it really works, to have a fuller grasp on the current predicament), starting from beginner level, but isn't that fast a reader and doesn't have a ton of time? The three just mentioned?

Blogger Aeoli Pera May 03, 2016 9:19 AM  

The Deuce wrote:Vox: What works would you recommend to an intelligent neophyte who wanted to get a solid handle on economics (how it really works, to have a fuller grasp on the current predicament), starting from beginner level, but isn't that fast a reader and doesn't have a ton of time? The three just mentioned?

1. Return of the Great Depression (current events, need-to-know)
2. The Creature from Jekyll Island (history, shenanigans)
3. Economics in One Lesson (classic theory and vocabulary)

Disclaimer: I only know the latter two by reputation, I haven't read them.

Blogger Nate May 03, 2016 9:21 AM  

"and while unlike most Austrians, I cannot quote chapter and verse of Ludwig von Mises’ “Human Action” from memory, I have read it."

I laughed.

Blogger Stilicho May 03, 2016 9:21 AM  

@ 19 Mantra Man, that is Keen's position (govt debt doesn't matter and he focuses then on the problems with private debt), further, he is a socialist who let's that drive his proposed solutions. It's all in debunking economics. Vox admires his work in diagnosing problems with the major economic schools of thought and that is Keen's strength, but he tends to phone it in on solutions due to his politics and a predilection for econometrics (he thinks we just need better models rather than admitting the inherent map/territory problem).

Blogger Nate May 03, 2016 9:24 AM  

"What works would you recommend to an intelligent neophyte who wanted to get a solid handle on economics "

return of the great depression will get you up and running. It explains the problem in a way you should be able to follow.

Anonymous mature craig May 03, 2016 9:27 AM  

Re govt debt doesn't matter.As a non govt worker my powerful knee jerk reaction is to be against any theory suggesting govt debt doesn't matter

Anonymous #8601 Jean Valjean May 03, 2016 9:35 AM  

Vox, in your book, ROTGD, you discussed the importance of fractional reserve banking. However, Steve Keen thinks it is a myth. Has Steve influenced your thinking on that subject since you wrote your book?

Blogger Stilicho May 03, 2016 9:54 AM  

@29 Jean, go read Keen's "Roving Cavaliers of Credit"

Blogger Stilicho May 03, 2016 9:56 AM  

Hey, heaving bosoms of the intarwebz, what's the deal with the craig-bot? More failed AI?

Anonymous DE-173/Code 19/Vox Nox May 03, 2016 10:26 AM  

The singular problem of economics is that it practitioners are so eager to be court astrologers. Any court.

Blogger John Regan May 03, 2016 10:33 AM  

VD I'd be interested to know if you've ever read Richard Timberlake's Monetary History of the United States. He's a gold standard guy, libertarian.

Keen is great and very decent but not a gold standard guy, and I think more socialist than libertarian but of course I can't really categorize him.

Anyway, it's good that you and he are having an exchange. Should be quite edifying.

Blogger VD May 03, 2016 10:46 AM  

Disclaimer: I only know the latter two by reputation, I haven't read them.

Seriously? Why would you ever do that?

What works would you recommend to an intelligent neophyte who wanted to get a solid handle on economics (how it really works, to have a fuller grasp on the current predicament), starting from beginner level, but isn't that fast a reader and doesn't have a ton of time?

Robert Murphy's textbook. I don't remember the name.

Blogger praetorian May 03, 2016 11:06 AM  

This is a bit awkward, but what is the Ilk equivalent of "squee"-ing?

I'm asking for a friend.

Anonymous EH May 03, 2016 11:09 AM  

@30 Stilcho The Roving Cavaliers of Credit, good article.

Vox, you have a link to an intrerview with Steve Keen that is effectively unusable. WND wants to load scripts from 25 different sites, it uses some antique player that resets to the beginning of the interview at about 2:30, it doesn't buffer enough, it stutters, it's just unusable.

Could you please put your podcasts up as MP3s? (Transcripts would be even better, but it's a lot of work.) With a download it saves a lot of listening time since I can crank my player up to 1.5 speed on most conversations, (though in the case of Steve Keen, that might be a bit too fast.)

Blogger maniacprovost May 03, 2016 11:54 AM  

The Deuce:

https://mises.org/sites/default/files/Principles%20of%20Economics_5.pdf

That is the foundation of Austrian Economics. Relatively short. Not sure if that translation has too much crazy Germanic sentence structure.

Blogger Aeoli Pera May 03, 2016 12:41 PM  

"Seriously? Why would you ever do that?"

To quiet my psychological distress, it was very a priori and defies all ratiocination if you really think about it.

Blogger VD May 03, 2016 3:09 PM  

To quiet my psychological distress, it was very a priori and defies all ratiocination if you really think about it.

What have I told you. Stop "helping" people.

Blogger Aeoli Pera May 03, 2016 4:04 PM  

Okay.

Anonymous Spartacus xxxxx May 03, 2016 5:44 PM  

Aeoli Pera wrote:The Deuce wrote:Vox: What works would you recommend to an intelligent neophyte who wanted to get a solid handle on economics ...

2. The Creature from Jekyll Island (history, shenanigans)



Cha ching! There are maybe 4 books that I've ever bought more than one copy of. This is one of them, as is SJWAL. Highly recommended both for the history of the Federal Reserve conspiracy (much more detailed than Rothbard's gloss, Origins of the Federal Reserve(?)), and for an explanation of how the System actually works. You can also get a pretty good idea of the latter from the Fed's own Modern Money Mechanics too, free online, and more of an essay than a book.

Blogger pbuxton May 04, 2016 10:08 AM  

http://www.amazon.com/gp/customer-reviews/R3VRC3MZQZT89P/

Does this guy know what he is talking about? He sounds politicized, and mentions the housing crisis but not the government's role in it. (I left a question.) Am reading Keen's website now. I find it interesting that Debunking Economics has a high price used, even the old, 2001 edition.

Anonymous Spartacus xxxxx May 04, 2016 11:08 AM  

pbuxton wrote:http://www.amazon.com/gp/customer-reviews/R3VRC3MZQZT89P/

Does this guy know what he is talking about? He sounds politicized, and mentions the housing crisis but not the government's role in it. (I left a question.) Am reading Keen's website now. I find it interesting that Debunking Economics has a high price used, even the old, 2001 edition.



Yes, this review is very politicized, or monetized. Notice how much language is devoted to pomp and circumstance, arcane references, and narcissistic showboating. Lauds state regulation, no mention of the thumb on the scale or the man behind the curtain who paid him.

Blogger Joshua Sinistar May 04, 2016 12:42 PM  

Oh Vox. First you go purple for some dead pop star and now you're bringing up economics? Did you and Spacebunny have a fight? Never argue with women, facts have no bearing on their feelings.
Economics is Math for Sociologists. Economists have predicted absolutely none of the ups and downs endemic to a fake Market Economy built entirely on debt and consumption, even though the impossibility of such a system to be viable ensures cycles of easy credit lending causing bubbles and massive debt write-offs and deflation due to the impossibility of paying off debt with more debt. Any serious Mathematician should be able to predict these turns easily by simple measures of debt issuance, inflation and discretionary spending by customers and end users. However, due to the obvious legalised criminality going on with debt being used instead of currency and banks cycling endless debt into the market by not using assets but a scary scheme called fractional reserve banking that seems more appropriate to a ponzi scheme, none of these "economists" seem even to want to discuss the fraud much less honestly debate the rationality of having trade between unlike and unequal societies to benefit a few while ensuring global destitution to any and all workers.

Blogger Dwain Dibley September 25, 2016 5:45 PM  

@39. Spartacus xxxxx

2. The Creature from Jekyll Island (history, shenanigans)

That, was a ripoff of Eustress Mullins: Origins of the Federal Reserve
http://www.resist.com/Onlinebooks/Mullins-TheFederalReserveConspiracy.pdf

Here's a good read: DISPATCH OF MERCHANTS
http://famguardian.org/Subjects/Taxes/Articles/DispatchOfMerchants.htm

Capitalism is nothing more than rebranded and repurposed mercantilism, it's not a system of economics, it's a system of wealth extraction and accumulation, that products get produced in the process is purely incidental.

Austrian "economics" is a 19th century rendition of a romanticized 18th century economic ideal. The Mises/Rothbard version never understood the Federal Reserve or the U.S. monetary system.

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