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Debunking Economics - Revised and Expanded Edition: The Naked Emperor Dethroned? [Kindle Edition]

Steve Keen
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Praise for the First Edition: 'Debunking Economics may not delight economic conservatives, but it is certainly necessary. Our hope must be that it will be read by enough people to prompt reform of our economic thinking and save our endangered societies' - James Cumes, author of 'How to Become a Millionaire without really working', and other books 'Particularly useful to those, like myself, who are interested in economics but not formally trained in it. Debunking Economics reveals that neoclassical economic doctrines are faulty... because the fundamental assumptions from which such doctrines have been derived are less than self-evident' - Henry C.K. Liu, Chairman, Liu Investment Group 'If you are interested in how the economy really works (and want to challenge an economist) then read this book' - James Dick, Professional Members Division, The Economic Society of Australia 'Keen's serious but accessible look at the shaky logical and mathematical foundations of neoclassical economics will be of great interest to students and open-minded economists alike. And his insightful survey of alternative schools of thought lends substance to his call for a new economics.' - Don Goldstein, Associate Professor of Economics, Allegheny College 'A wide-ranging yet accessible critique of the staples of neoclassical pedagogy' - Alan G. Isaac, Associate Professor of Economics, American University 'This text carefully follows the form of argument familiar to all economics undergraduates, through to conclusions from which under-graduates are more usually protected. Avoiding polemic or hyperbole, the case that he presents is all the more damning for its clarity and systematic approach' - John M. Legge, Associate Professor, LaTrobe University 'Debunking Economics... will transform the way economics is taught and thought' - Jan Otto Andersson, Professor of Economics, A...bo Akademi University, Finland 'Professional economists include their own best critics. Steve Keen is one of the very best... translating the algebra into plain language, he deploys a devastating theoretical attack on neoclassical theory' - Hugh Stretton, Fellow of the Academies of the Humanities and Social Sciences, and author of 'Economics: A New Introduction' 'Refreshingly provocative' - Geoffrey Fishburn, Department of Economics, University of New South Wales Second Edition 'Economics still awaits its Darwin. Keynes came close, but not close enough. Keen comes closer still. Economics, like biology used to be, remains mostly faith-based. No book poses a bigger threat to that faith than the second and expanded edition of Debunking Economics.' - Edward Fullbrook 'It is notorious that only the most mediocre students have the stomach to stick with graduate economics degree. The assumptions become so narrow-minded and tunnel-visioned that reality-based minds drop out. But economics obviously is important too much so to be left to economists. Fortunately, Steve Keen is an empirical mathematician who views the economy logically and systematically. Having made a pioneering explanatory statistical model, he looked through the literature to review the history of economic thought and saw how little today's assumptions had to contribute to Reality Economics. So his book does two things. First, it explains some of the most wrong-headed logical paths that led today's 'free market' economics down its detour to rationalize the status quo. Second, it explains how to view the economy from a more realistic, cause-and-effect light.' - Michael Hudson, Distinguished Research Professor of Economics, University of Missouri 'You would be hard-pressed to find an individual whose pre-crisis analyses of both the world financial system and the economics profession were more dead on than Steve Keen's. The original edition of this book not only demonstrated the irrelevance of modern theory, but it predicted the major economic and social crisis that occurred. This second edition updates earlier chapters and adds new ones that directly address the causes of the collapse and the reasons why standard solutions have been useless. This book is an absolute must read for anyone wondering what caused this catastrophe and how we can truly put it behind us.' - Prof. John T. Harvey, author of 'Currencies, Capital Flows, and Crises: A Post Keynesian Analysis of Exchange Rate Determination'

Kurzbeschreibung

Debunking Economics exposes what a minority of economists have long known and many of the rest of us have long suspected: that economic theory is not only unpalatable, but also plain wrong. When the first edition was published in 2001, economists basked in the limelight of a seemingly invincible market economy. But the economy’s performance, as Steve Keen argued, had nothing to do with neoclassical economic theory and gave policy-makers the false confidence to begin to dismantle the very institutions designed to limit market instability. That instability exploded with the devastating financial crisis of 2007, and now haunts the global economy with the prospect of another Depression. In this updated and expanded edition, Keen builds on his scathing critique of conventional economic theory whilst explaining what mainstream economists cannot: why the crisis occurred, why it is proving to be intractable, and what needs to be done to end it. Essential for anyone who has ever doubted the advice or reasoning of economists, Debunking Economics is a signpost to a better future.

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Sicherlich eines der besten Bücher, die in der letzten Zeit in der VWL geschrieben wurde. Was hört man nicht gerne von den VWL'ern? "Oh die Finanzkrise hat niemand kommen sehen" ... absolut niemand. "Die Finanzkrise war nicht prognostizierbar ... wie ein schwarzer Schwan". Diese Aussagen sind definitiv falsch. Steve Keen war einer der heterodoxen Ökonomen, die die Finanzkrise 2000 (Internetblase) exakt (!!!) vorausgesagt hat [in der 1. Auflage des Buches] und auch die zweite Finanzkrise präzise prognostiziert hat. Jetzt fragt man sich sicherlich wie soll das gegangen sein? Glückstreffer? Nein, er unternimmt in dem Buch eine kritische Untersuchung der Fundamente der volkswirtschaftlichen Theorie und belegt deren Falschheit (logisch, mathematisch, empirisch, etc.) und die Immunisierungsstrategien, die es in der VWL gibt. Er zeigt auch das Instrumentarium auf mit deren Hilfe man, die Probleme simulieren konnte. Ein absolutes MUSS für jeden VWL'er. Dumm nur, dass er die bestehenden Professoren ziemlich dumm aussehen lässt und daraus keinen Hehl macht. ... deswegen gibt es an unserer Landes- und Universitätsbibliothek kein einziges Exemplar.
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5.0 von 5 Sternen Debunking Economics is a comprehensive critique of textbook economics. 30. Oktober 2011
Von Brisbane reader - Veröffentlicht auf Amazon.com
Format:Taschenbuch
Steve Keen's "Debunking Economics" is a thorough and most challenging document in the ongoing struggle to understand the limitations of modern social science and economics in particular. It deserves a most careful reading and comparison with other credible studies of economics listed below.

It is similar to, but much longer than Hill and Myatt's "The Economics Anti-Textbook" in that they both follow the main topics of undergraduate textbooks (micro only in EAT). Hill and Myatt present the orthodox textbook economic positions clearly, succinctly and sufficiently to understand their eclectic critique. By comparison, for the depth and extent of Keen critique I doubt his summaries of the orthodoxy will truly be understood by the non-economically trained general reader, and therefore his critique might also not be fully appreciated: One still needs to study an economics textbook to fully understand and test Keen's critique.

But what a critique it is! Eminiently clear and precise it is hard to find fault with it.

Taken overall, Keen's is the far more comprehensive, deeper, more integrated, and more cogent critique. Both are helpful to grasp the weakness of positivist economics with its false and fictional 'value free' status (concealed value judgements abound in every choice made in every textbook!) and the urgency of the need to radically revise it, as mentioned above, for truth sake and the public interest. Just one question: Does the self-referencing throughout the text help or hinder the argument?

Perhaps a second, shorter simpler version for the general public (say between 50-250pp with a catchy title like "The Market Mechanism: Why it doesn't work and what does." might penetrate the mass media, and then the public consciousness more directly and lead the policy elites to take note of the larger work. What is most needed is a radical re-examination of economics (and social science altogether) to see how we can improve it, both for the sake of truth and the common good (after all economics like politics is a practical knowledge).

But, I would like to recommend a book that penetrates more deeply into the political and economic philosophy behind the modern "science" of economics by examining Hobbes, Locke, Smith, Marshall, Keynes, Hayek, Myrdal, and Rational Expectations Economics partly in the light of Aristotle.

That book is "Deductive Irrationality. A Commonsense Critique of Economic Rationalism" 073911624X) by Stephen McCarthy and David Kehl based on the teaching and writings of Dr. Richard W. Staveley here in Brisbane, Australia from the 1960s to the end of the last century.

Together, Deductive Irrationality and Debunking Economics are complementary and deserve assiduous study as part of the renovation of the social sciences.

So,some other books of interest reviewing economics include:

1. Deductive Irrationality.A Commonsense Critique of Economic Rationalism
2. The Economics Anti-Textbook by Rod Hill and Tony Myatt;
3. The Skeptical Economist by J. Aldred;
4. Economics for the Rest of Us by Moshe Adler;
5. How Markets Fail by John Cassidy;
6. Animal Spirits by George Akerloff and Robert Schiller.

It is indeed an exciting time to think through the meaning of economics and consider what must eventually come after the failure of positivist social science.
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5.0 von 5 Sternen Keen's Magnum Opus 23. November 2011
Von Charles Lewis Sizemore, CFA - Veröffentlicht auf Amazon.com
Format:Taschenbuch
In the new 2011 edition of his magnum opus Debunking Economics: The Naked Emperor Dethroned, Australian economics professor Steve Keen comes out guns blazing, blasting the "Panglossian view" of neoclassical economics that did so much to get us into the credit boom and bust that we are still struggling to recover from.

Keen, unlike most of his peers, understands the role of debt in the economy, both as fuel for a boom and as an enormous anchor that prevents recovery during a bust. He also clearly shows how private financial institutions create most of the debt in the economy, not the government or central banks. Mainstream economists did not see the 2008 crisis coming because, frankly, the tools they use have no way to take the role of private debt into account. It's not that mainstream economists are stupid; far from it. Most are highly intelligent. There just happens to be a rather large hole in their body of research that Professor Keen has sought to fill.

In this age of popular angst in which our reigning politico-economic system--and the Federal Reserve in particular--is under attack from both the Tea Party on the right and Occupy Wall Street on the left, it is easy to dismiss Professor Keen as just another fringe, anti-establishment doom monger. But Professor Keen is no Johnny-come-lately, and I advise readers to take his words very seriously. While his fiery rhetoric has made him a bit of a black sheep among his peers in the profession, he can rightly call "scoreboard." He was one of the few professional economists to predict the 2008 meltdown, correctly pointing out the risks of the private-sector debt explosion and sounding the alarms of the disaster to come as early as December 2005. For his efforts, he received the Revere Award from the Real World Economic Review for the being economist "who most cogently warned of the crisis, and whose work is most likely to prevent future crises." Keen is a man we would all be wise to listen to.

He's also highly likely to make you uncomfortable, which is a cross that all contrarians bear. As a race, humans crave certainty, and--like a proverbial ostrich with its head buried in the sand--they tend to hide from any evidence that might call that certainty into question.

Economists are no better than the rest of us on this count and might even be worse. Economists (and political scientists too, for that matter) tend to be dogmatic in their views. Like a die-hard Marxist who insists that communism could work "if only it were implemented correctly," it seems that no amount of evidence to the contrary can convince a neoclassical economist that the market is not always efficient and that instant liquidity is not the solution to every problem.

As Keen writes of his peers,

"I came to the conclusion that the reason [economists] displayed such anti-intellectual, apparently socially destructive, and apparently ideological behavior lay deeper than any superficial pathologies. Instead, the way in which they had been educated had given them the behavioral traits of zealots rather than of dispassionate intellectuals.

"As anyone who has tried to banter with an advocate of some esoteric religion knows, there is no point in trying to debate fundamental beliefs with a zealot."

For those with only a cursory knowledge of the popular schools of economic thought, let this serve as a crash course:

Neoclassical School: The vast majority of economists, including Fed Chairman Ben Bernanke and most policy wonks for both the Republicans and the Democrats, can be loosely classified as "Neoclassical" economists. The Neoclassical School is what you would think of as "mainstream economics." There is a general belief in the efficiency of markets with a sprinkling of Keynesian ideas about the role of government spending during recessions and Monetarist ideas about the role of the central bank and official interest rates. Where neoclassical economics differ with one another--such as on the proper size of the state, the size of social safety nets, the level of regulation and taxation needed, etc.--they tend to argue at the margins. There is general consensus that, all else equal, markets and trade should be as free as possible, though regulation and fiscal and monetary policy have their respective places. While I consider myself a "free market" guy, I do think it is only prudent to look at the other side of the coin.

Neoclassical economics hinges on a few assumptions that any non-ideologue would immediately know where untrue (and which Keen relentlessly critiques throughout the book):

* People act independently and on the basis of full information. (Under this assumption, irrational bubbles would be impossible; how anyone believes this given the recurrence of bubbles in history is a mystery.)
* People have rational preferences that can be quantified (Again, this point is dubious at best. We are humans, not Vulcans.)
* Markets are rational and tend towards equilibrium (which implies that booms and busts are the exception and not the rule.)
* What is true of the individual is true of the group. (Keynes attacked this as the Fallacy of Composition; more on that later.)

While the Neoclassical School's emphasis on the benefits of trade and free markets is generally spot on, the school clearly has its limitations. Its dogmatic belief in the efficiency of markets is, frankly, ridiculous and flies in the face experience. And again, it suffers from the Fallacy of Composition, which we will discuss shortly.

Austrian School: Formerly the domain of gold bugs and various stripes of libertarians, the Austrian School of economics has recently risen to prominence with the popularity of Congressman and perennial presidential candidate Ron Paul. Representative Michele Bachmann also describes herself as an Austrian and claims to read the works of von Mises on her beach vacations. For the literary enthusiasts out there, Ayn Rand, author of The Fountainhead and Atlas Shrugged could be loosely lumped in with the Austrians, though she was not an economist and had her own school of thought known as Objectivism.

Friedrich von Hayek--who taught for years at my alma mater, the London School of Economics--and Ludwig von Mises were the main proponents for the movement in its early days, which rose in response to the creeping statism that grew out of the Keynesian movement in the years after World War II. The Austrian School objects to the hyper-precision quantification of most modern economic methods, insisting that economics is too complex and too subject to fickle human tastes to be accurately measured. On this count, I would have to agree. Unfortunately, they also tend to have a near obsession with the Federal Reserve and the effects of managed interest rates which Austrians believe inevitably lead to inefficient "mal-investment." For some of the more puritanical Austrians, the Federal Reserve is not simply an inefficient institution; it's a source of societal moral rot. (The Austrians seem to ignore that, even under a gold standard, irrational booms and busts were still a fact of life. It appears that the human emotions of greed and fear were concocted in the conference room of the New York Fed by a cabal of sinister bankers.) On balance, the Austrians have an emphasis on limited government and personal freedom which is refreshing and admirable, but they tend to be a little too radical to fully take seriously.

Hard-core Austrians would have been content to let every bank in America fail, even if it meant 50 percent unemployment and conditions worse than the Great Depression, because it would have struck them as being "just." It's easy to be a radical when you know there is no possibility that what you advocate will come to pass and that you'll never have to live with the consequences.

Keynesian School / Post-Keynesian School: Keen would count himself among the Post-Keynesians. For our purposes here, Keynesians and Post-Keynesians are close enough to be lumped together as one. Keynesianism can be defined more by what it is not than what it is. It is not a dogmatic grand unifying theory. It is more of a hodgepodge of pragmatic adjustments to what Keynes considered shortcomings of a pure market economy.

John Maynard Keynes cobbled together what we now call "Keynesian economics" from what he saw as shortcomings of mainstream economics during the Great Depression. Delving into the arcane, Keynes believed that "Say's Law," a tenet of classical economics that claims that supply creates its own demand, was a half-truth at best. Sometimes supply didn't create its own demand. Sometimes you have overcapacity, falling prices, and weak aggregate demand. Sometimes an economy can settle at an equilibrium far below full capacity. Because of "sticky wages" and "sticky prices," sometime the unemployment rate can stay uncomfortably high. Sometimes--just sometimes--the real world doesn't look like an economics text book, and waiting for things to work out in the long-run is not always a viable option. In the long run, we're all dead.

To smooth over some of the rougher edges of a free-market economy, Keynes argued that the state could be a stabilizing force. One of the more controversial elements of his work was his advocacy for "countercyclical measures." Keynes argued that governments should run deficits during recessions to spur demand with the understanding that the debts racked up during the hard times would be paid back with surpluses during the good times. Alas, while this sounds great in theory, the always-pragmatic Keynes seemed to have a complete misunderstanding of how real-world politics works. Borrowing money is easy for a politician. Paying back proves to be remarkably hard. (Note: Though he is a "Post-Keynesian" economist, Keen makes it clear that that countercyclical Keynesian deficit spending is not going to fix an economic plagued by debt deflation. More on that to come.)

Governments on both sides of the Atlantic used Keynes work to justify the massive expansion of the state after World War II, and the stagnation that followed led to Keynesian economics falling into disrepute by the late 1970s.

Where Keynes's work would appear to justify socialism, I find it outright dangerous. But much of Keynes' work is politically neutral, and his insights into markets were largely spot on.

In particular, Keynes tore apart the notion that what is good for the individual is automatically good for the group. This is the Fallacy of Composition and is perhaps best illustrated by Keynes's Paradox of Thrift. While it is considered responsible behavior for an individual to spend less and save more, if everyone did it at the same time the economy would collapse. Keynes' disciples, including Steve Keen, have taken this notion further. In Debunking Economics, Keen writes:

"One of the great difficulties in convincing believers that neoclassical economics fundamentally misunderstands capitalism is that, at a superficial level and individual level, it seems to make so much sense. This is one reason for the success of the plethora of books like The Undercover Economist and Freakonomics that apply economic thinking to everyday and individual issues: at an individual level, the basic concepts of utility maximizing and profit-maximizing behavior seems sound.

"As I explain later, there are flaws with these ideas even at the individual level, but by and large, they have more than a grain of wisdom at this level. Since they seem to make sense of the personal dilemmas we face, it is fairly easy to believe that they make sense at the level of society as well.

"This reason this does not follow is that most economic phenomena at the social level--the level of markets and whole economies rather than individual consumers and producers--are "emergent phenomena": they occur because of our interactions with each other--which neoclassical economics cannot describe--rather than because of our individual natures, which neoclassical economics seems to describe rather well.

Keynesians, better than neoclassicals, "get" that economics is a social science. It's a lot closer to psychology than it is to physics. (In this respect, Austrian Economics is also closer to the truth than Neoclassical.)

Neoclassical Economics (and Marxist Economics too, for that matter) focuses almost exclusively on the supply side of the equation. Demand is almost an afterthought, some that just kind of "happens" and doesn't need to be explained. I consider that a shortcoming and consider Keynes' workin this respect to be insightful.

Much of Steve Keen's work in Debunking Economics and elsewhere is an expansion on the work of two prominent Post-Keynesians: Hyman Minsky and Irving Fisher.

Minsky's Financial Instability Hypothesis is brilliant. While Neoclassical Economics insists that market economies naturally tend towards equilibrium, Minsky argues exactly the opposite. Stability begets instability, and vice versa. A long period of stability lulls market participants into a false sense of security and encourages them to take on excessive debts and excessive risks. This inevitably leads to instability and crisis--as it did in 2008--which in turn causes market participants to go too far in the opposite direction, becoming too risk averse. Try to get a mortgage today at a major bank, and you'll see what I mean. The only way to moderate this never-ending oscillation is to avoid the massive accumulation of debts, which can only be done by strictly regulating the banking system.

The aftermath of excessive debt is, unfortunately, what Irving Fisher called "Debt Deflation."

Debt deflation is a nightmare. It starts with a debt-fueled boom. When the boom turns to bust, prices fall, which makes the value of the outstanding debt rise in real terms. The more that consumers and businesses cut back their spending to pay back their debts, the more the economy sinks, the further prices fall, and the higher the value of the debt rises. It's a vicious cycle in which the harder you try to pay off the debts, the more burdensome they become. This is where Greece is today and where the rest of the developed world may soon be going.

Japan is a perfect example of Irving Fisher debt deflation in action, mixed with a fatal dose of bad demographics. The last time prices rose significantly in Japan, Bill Clinton was the Governor of Arkansas. Private debts have inched lower over the past two decades, but government debt has exploded in an attempt to follow the standard Keynesian policy of using government debt to spur demand. Alas, this won't end well for Japan. (John Mauldin calls Japan "a bug in search of a windshield," and it is an apt metaphor.)

Overall, Keen has written a comprehensive work that I would recommend for any reader with an interest in economics. Keen is a serious student of the profession, and the proof of his critique of mainstream economics is in the pudding. Keen saw the crisis coming. Neither Bernanke, nor Greenspan, nor any other Neoclassical economist did. That, more than anything I can say, is testament to the importance of Keen's work.
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5.0 von 5 Sternen Prelude to a New Economics 2. November 2011
Von Sean Fernyhough - Veröffentlicht auf Amazon.com
Format:Taschenbuch
Thirty years ago I experienced a highly conventional education in Economics. I always had an immense difficulty in reconciling the irreconcible; the economics inside the lecture theatre and the seminar room with that in the outside world. Without the internet and books like Debunking Economics it would have taken extraordinary luck and perseverance to find the literature I needed to counteract the wrongheadedness of what I was being taught. I can even recall one of our lecturers saying that it was part of our role as Economics students to defend Neoclassical Economics.

What Professor Keen's book demonstrates is that these nuggets were out there at the time, but that the teaching of Economics conspired against these being discovered. Keenâ(tm)s description of Economics teaching today makes very familiar reading; things do not seem to have moved on that much at all. Indeed, just last week I checked out the Economics section for undergraduate textbooks and much of what was presented was eerily familiar.

So, despite the internet and the present economic crisis Economics undergraduates are likely to find themselves in the same predicament as my younger self. If that is the case, then my advice is quite simple: buy, read, re-read and absorb Debunking Economics. Counter the nonsense you are being taught at every level and tool yourself up for building a new academic subject.

Read this book and understand that Neoclassical Economics has never been able to successfully aggregate the behaviour of individuals, either as consumers or producers, to the level of a single market let alone a whole economy. Read and understand that markets have âaeemergent qualitiesâ, i.e. that they are greater than the sum of their parts. Read and understand that a market or an economy is in a constant state of dynamic equilibrium where decisions are made in conditions of uncertainty about the future values of important economic variables. Read and understand that this type of economy cannot be analysed using an equilibrium analysis.

Debunking Economics points the Economics student to the way to counteract Milton Friedman'(tm)s "aethe realism of assumptions doesn'tt matter" dictum that can really cause problems for critical thinking; accept it and an effective critique of Neoclassical Economics becomes much more difficult.

The book also shares details of Professor Keen'(tm)s own research programme in the area of Macroeconomics, with the promise that a further book, to be published in 2013, will develop the ideas.

This positive contribution to Economics is there to be taken seriously. The presentation here is quite accessible to the interested non-specialist reader - in fact this has been a central shaping of the book throughout. It is a launch pad, should the reader wish to take the journey, to a greater understanding of the world around us.
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5.0 von 5 Sternen Excellent overall, missing some links, arguable solutions to our crisis 7. März 2012
Von Michael Henson - Veröffentlicht auf Amazon.com
Format:Taschenbuch
First let me say that, unlike many books with graphs, the graphs are very readable and relatively well formatted for the kindle.

When I started my journey of understanding the financial crisis in 2008, I was fortunate to stumble early on a graph of US aggregate debt / GDP. My intuition told me this was the most important idea behind the crisis in 2008, and I found it stunning that it wasn't the most discussed data point of the crisis. Instead, it seemed to be the most important data that almost no one was talking about. Unfortunately, this book missed my radar for too long as Steve Keen makes a cogent argument that this was not only the most important variable in the 2008 crisis, but also in the Great Depression.

I'm going to suggest you immediately buy this book if you can afford some time and effort to understand it's arguments. If you don't have the time, then buy the book and just read part 3. I'm not going to reiterate some of the other great reviews on this book, I'm giving it 5 stars for many of the same reasons. Instead I'm going to give some criticisms of his conclusions of part 3 that I hope he addresses in his next book. I hope my criticisms don't turn off anyone from reading the book - his modeling of the economy is largely spot on.

Keen models banks and non-banking firms differently than others. This is a key point, and very true of the real world. Keen argues that banks create loans to firms, and then seek reserves. "[In] reality...banks create loans first. If the ... banks have insufficient reserves, then they get them afterwards..." [location 7509]. I agree that this models the real world, but why do banks exist at all? Why don't firms loan themselves money and then seek reserves to justify the loan? This is a very serious question and is unfortunately ignored in this book.

The reason that firms don't create money themselves and then seek reserves is because it would be illegal - they would quickly be charged with fraud, embezzlement and likely running a ponzi operation. Yet when banks do the same thing, it is unquestioned and unjustified even by non-orthodox economists like Keen. In fact, Keen says private banks are effectively "free to create as much credit as they wish. This is a freedom they have exploited with gusto, as I explain in [Chapter 13]".[location 7650]

He goes on to place an onus of blame for the 2008 crisis on such `freedom'. "Though borrowers can be blamed for having euphoric expectations of unsustainable capital gains, in reality the real blame for Ponzi schemes lies with their financiers - the banks and the finance sector in general - rather than the borrowers" [location 8555]

This is all true, but shockingly, never does Keen directly propose limiting such `freedom' of banks, nor justify why they alone have this `freedom'. Worse, he argues many times throughout the book that this power - considered fraud if done by anyone but a bank - is endogenous to capitalism itself! This is most bizarrely done when discussing Rothbardian Austrian economics, where Keen says

"[Rothbardian economists] believe that the money supply should be determined endogenously...they argue that the current system of state money means that the money supply is entirely exogenous, and under the control of the state authorities. They then attribute much of the cyclical behavior of the economy to government meddling with the money supply and the rate of interest...the money supply is largely endogenously determined by the market economy, rather than imposed upon it exogenous by the state." Keen makes these statements despite the fact that Murray Rothbard called fractional reserve banking "legalized counterfeiting", and wrote at least one whole book arguing that it is state commissioned fraud and has no place in capitalism The Mystery of Banking. The state designed and imposed a system that gave private actors control over the money supply. I fail to understand the argument that legalizing fraud, empowering it with an opaque unaccountable central bank, and commissioning this power to private interests is `endogenous'. This is important, because it is the heart of an important question: Is capitalism itself deeply flawed? Or has the state imposed some wolf in capitalist clothing? Clearly I am in the second camp, and wish Keen had addressed this question more directly.

The rest of his criticism of Austrian economics is surprisingly harsh, considering that even wikipedia considers the Austrian Business Cycle Theory a similar theory to the Debt-Deflation theory, Peter Schiff is an Austrian economist that Keen cites many times as predicting the crisis, and many of the Internet sources that Keen recommends are sympathetic to the Austrian school. None of these Austrian credentials are mentioned by Keen. I wish Keen had more explicitly embraced more of the positives from the Austrian School, specifically the similarities between Austrian Business Cycle Theory and his Debt Deflation Theory; his theories and ideas could use the alliance.

I did a search to be sure, but no where in the book is `full reserve banking' ever discussed. I think this idea, which would directly eliminate the credit creation problems that Keen identified, should be worthy of a serious discussion. Instead of full reserve banking as a solution to wanton credit creation, he proposes placing indirect limits on speculation in the stock and housing market. I don't have space to go into a full criticism of these proposed solutions, but I feel they come off as band-aids trying to stop a flesh wound.

The large solution he proposes to get out of our current mess is a jubilee. I agree that this should be the only plausible solution, but it bears keeping in mind that Fractional Reserve Banking holds the economy hostage to this solution. If a jubilee occurs, it's not those responsible for lending the money that will lose - it's everyone with a checking and savings account. Keen doesn't address this, and it leaves the option of a jubilee hard to imagine.
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5.0 von 5 Sternen Best Book to make sense of Economics 16. November 2011
Von Alexander Leung - Veröffentlicht auf Amazon.com
Format:Taschenbuch|Verifizierter Kauf
I am not formally trained in economics, though I have read quite a lot of books on economic history and issues because I need to form my own opinion of the economy as an investor. In fact I actively discourage young people from studying economics at university economic departments, often by asking them to first look at Debunking Economics (1st edition). Most of the economics as taught in university is both illogical, defy common sense, irrelevant to the real world and extremely outdated especially with respect to recent developments in the study of nonlinearity and feedback systems. Of course, we may forgive the forerunners in the 19th century because they lack the mathematical tools and understanding to tackle complex feedback systems. But how can we forgive present days academics to hang on to ridiculous and unrealistic assumptions now we have all those tools available. This expanded edition is even better with the update.
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