IIEA, 16 November 2011: Steve Keen, Debunking Economics

Ever responsive to the concerns of this blog’s readership, the IIEA has organised this event.

34 replies on “IIEA, 16 November 2011: Steve Keen, Debunking Economics”

What’s that I hear? Sounds like the loud gnashing of all those false teeth on the previous Harvard walk-out thread 😆

And one doesn’t even have to ‘attend’ Harvard as Keen makes his stuff readily available – Blind Biddy has been dabbling … I’m sure she will attend.

Nice one!

Well done. Good invitation.

Not sure what the venue is but I expect the power of searching the web will make it clear.

Does one need to book?

Perhaps other pseudonymous bloggers might wear subtle name-tags, it would be nice to be able to say hello.


The venue is upstairs at 8 North Great George’s Street. If there is a very high number of registrations for an event it is moved to the Gresham Hotel. Events are €50 each or €250 for an annual membership.

I sincerely hope that all, or as many that are available, of our economists, academic or otherwise, and most especially those who advise government/policy makers (and in particular that applies to those in the ESRI and the I can’t believe it’s not called the ESRI fiscal quango, sorry council), and just those who have party members ears, are all going to attend.

You have too much influence to keep closed ears.

Posted this link already but it gets into the guts of MMT.
Its counterintuitive and its mechanics is very complex for Dorks but its conclusions are worth reading in the end if you can’t quite make all the connections in your little head.

The ECB is preventing private actors, both corporations & citizens from accumulating goverment bonds by not producing enough high powered money / financing goverment defecits.

Why the little old Irish State has tied its fortunes to property is beyond me – if this theory is correct all private assets other then Goverment bonds are overvalued as there can be little leverage in this system if we are to get out of this mess.

What happens to the dollar as the reserve currency is problematic in my opinion however – if America needs to produce much more Treasuries , what happens to world savings ?

Still trying to get my head around a hybrid Austrian / MMT world – where is the final payment in a MMT universe ?


Prof Lane, I am going to be honest – I was avoiding getting to know Steve Keen’s work (Can someone who makes Karl Whelan so angry be worth reading?) but with your vote of approval I will now give him the benefit of the doubt.

Also, as Mr Kostick asked, do we need to sign up? Even on a Wednesday morning this event could be oversubscribed.

@Gavin Kostick

I will be wearing a JohnTheOptimist name badge and carrying a copy of either Thomas Friedman’s “The World is Flat” or Freakonomics”, but this being Ireland, we have met before.

At the risk of provoking an avalanche, I find the devotion of our readers to this guy a little odd. A colleague advised me recently to watch this video.


I did and was extremely disappointed.

Rehashes of well-known criticisms of neoclassical economics (understood by most practitioners who generally understand the methodological issues better than Keen), a strangely weak grasp of who stands where in relation to debates on these issues (his surprise that “leading neoclassical” Bob Solow doesn’t like DSGE models …), odd statements about banks and credit and alternative mathematical models that suffer from exactly the same faux-scientific methodology problems as DSGE models.

Like I say, I don’t get it.

@Karl Whelan

Well, you share something in common with Steve Keen – you both make your stuff readily available to the ‘even greater bemused’ such as I! Another welcome commonality is that you are both willing to engage with the ‘even greater bemused’.

It looks as if the IMF is opening the doors to the heterodox: commenting on Iceland –

Lessons for the IMF

What, then, should the IMF take away from its cooperation with Iceland? The Fund learned three main lessons, Shafik said.

•When countries have a clear strategy in mind, as was the case in Iceland, it becomes much easier for the IMF to engage and provide policy support and advice.

•There are clear advantages to having a heterodox toolkit―more tools are better than fewer.

•Iceland set an example by managing to preserve, and even strengthen, its welfare state during the crisis.

Recent IMF research has shown that countries tend to grow faster and more consistently when income distribution is more equitable, so the Fund is now paying much more attention to these issues in its programs, she said.


The Grateful Bemused.

@Karl Whelan

I could be confused but in the thread on Dolmen Securities recent advice to Ireland to do its bit for Munich Re (“Anglo Bond: Debts are Debts?”) were you not talking about Steve Keen when you said:

Just because you can find some guy ranting on the internet about “neoclassical economists” who don’t understand about “endogenous money” doesn’t mean that the guy actually has the first clue.

I got the impression that you though that Keen’s ratio of self promotion to comprehension was poor. I really have not followed Keen at all yet, Quiggan is more my popular economics guy, but the word on the net is that Keen was ahead of the curve on the origins of the GFC.

Well he strangely ignores the role of Gold as final payment – especially in relation to cross border transactions.

Maybe this would explain some of the “devotion”:

“..Steve predicted the financial crisis as long ago as December 2005. His leading role as one of the minority of economists to both foresee the crisis and warn of it was recognised by his peers when he received the Revere Award from the Real World Economics Review for being the economist who most cogently warned of the crisis, and whose work is most likely to prevent future crises.”

In terms of Australian-based economists who have been launching an assault on some dominant economic ideas, John Quiggin is really worth a read. Zombie Economics is well worth a read. If you google, he has online chapters around somewhere. Be interested in Karl’s thoughts at some stage. Quiggin doesn’t claim to ‘debunk economics’, but rather he goes after a set of ideas and methodologies that he claims have driven a lot of wrong-headed policies.


His foreign policy article from a couple of years back is a decent summary. He mentions five ‘zombie ideas’: the idea of a Great Moderation; The efficient markets hypothesis, particularly the strong version; dynamic stochastic general equilibrium models; the idea of ‘trickle-down’ economics where tax breaks to rich people generate benefits for poor people; and the idea that privatisation of public goods is neccesarily a good thing.


@ Liam Delaney

The full name of that Quiggin book is Zombie economics: how dead ideas still walk among us

@ Karl Whelan,

Can I ask a couple of questions:

Is he correct that the dominant models of how the economy operates consider neither money/credit?

Is he correct that those same models which are extrapolated to an entire economy are based about the consumption preferences of a single individual and a single commodity?

@ DO

There are loads of models in economics so it is not necessarily useful to talk about dominant models. It’s something of a straw man. But lots of standard models incorporate credit. For example, today’s seminar at UCD.

Many models have representative agents. Some don’t. Whether this is important depends on what questions you are looking at.

More generally, most economists understand that models are extreme simplifications and you need to be careful about extrapolating from them.

@ Karl,

Thanks for the reply.

I took a look at a link to the tutorials of Greg Mankiws class, which interestingly is entitled, “Economists Do It With Models”. Liam Delaney provided it on the Mankiw thread. http://www.youtube.com/user/jodiecongirl

Specifically I watched the tutorials to the point I’m at in his book, about 90 pages in, where he speaks of the supply curve, or more precisely the lack thereof, and the fallacy of perfect competition. Helpfully he provides a link to a paper about that very issue. http://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf

(Note: I’m not a mathematician so I can’t verify what’s presented in that paper.)

But so far in comparing what’s being taught, (going by the link), and presented as the foundations of economics, with his critique of it, he appears to make a very persuasive case. Granted he’s a bit hyperbolic in his criticism, but nonetheless, to my non economically trained mind, he seems to be spot on. In fact, if he’s correct, it’s really withering stuff.

Regarding: why so many are “devoted” to this guy. My own personal story (minus a few details :-)): I got interested in this stuff at the time when Brad Setser was working for Nouriel Roubini at RGE. They’d just written a paper the previous year (2004 if I remember correctly) when they were talking about the global imbalances and the debt pile that was building. They thought it would all unwind due to a Chinese revulsion to ever accumulting reserves and long before the over indebted American consumer gave out. At the time, I was formulating my own theories on things (I explained in the Mankiw thread how my own basic model works), and immediately I knew Roubini and Setser were correct. It was merely a matter of time before something would give. The reason I like this guy, and give him the benefit of reading his material, despite his hyperbole, is that similarly to Roubini & Setser, he called it. And now that I’m reading his work I’m beginning to see how it is that so few did. In fact, the information that it was all going pear shaped was out there. Remember there was a reaction to it. Nouriel Roubini, just like Steve Keen was quite trenchant, as he had faced a volley of criticism, not least in Jackson Hole. Similarly, Morgan Kelly’s call about here, which was fundamentally based on credit flows, was also dismissed and derided. There was quite frankly an unwillingness to hear his views. Some of that unwillingness can be put down to the proverbial “vested interests,” but the dismissal was always couched in economic terminology and constructs and quite frankly the economics profession was either aghast at the dissenting view or remiss in following it up.

So the question I posed to myself was this: if I could see that Roubini and Setser were right and if I could know that the housing market both here and in the States would end up in tears, how could the practitioners of the profession that supposedly understood the economy not only not see it, but argue vociferously against it? So I figured their theories were wrong. I’m reading his work now to find out if I’m right.

@ Karl Whelan

Isn’t it the case that important policy questions, such as what is optimal fiscal policy are answered based on general equillibrium models that do not include financial sector or even money? James Galbraith calls them internally inconsistent because numbers do not add up.

@ Heppykeppy

As I said, some (most) academic general equilibrium don’t feature financial sectors but quite a lot do and the idea that mainstream macro simply ignores the financial sector is well off base.

Perhaps more importantly, though, I can’t think of a government anywhere in the world that has actually set fiscal policy based on the recommendations of an academic general equilibrium model.

Thanks for the clarification and its nice to see Prof. Keen’s claims engaged in.

You say:

“Perhaps more importantly, though, I can’t think of a government anywhere in the world that has actually set fiscal policy based on the recommendations of an academic general equilibrium model.”

I’ve always wondered, does the Department of Finance have a model? Does the ESRI? Or is it finger-in-the-air and whatever our political masters are having themselves? If these models exist, clearly they were unable to predict the current crisis, right up until 2007. Have they been radically modified as a result?

If they do, what are the assumptions made in the model, and broadly what kind of model is it? Why can’t these models be open-sourced, like say, many climate models?

We don’t have access to the computing power to run these climate models in any detail, but at least we can, given time and effort, look at the principles upon which they are constructed.

Sorry – the last comment was addressed to Karl Whelan – and by model I mean a macroeconomic model.

You don’t have to get to the IEAA to see Prof. Keen.

15:00-16:30 Book signing (Location TBA)
16:30-18:00 TASC Seminar
19:00 – 20:30 Feasta
23:00 – 23:40 Tonight with Vincent Browne (To Be Confirmed)
07:00-09:00 RTE Radio 1 Morning Ireland (To Be Confirmed: 5-10 minute interview)
10:00 – 10:30 RTE Radio 1 Pat Kenny (To Be Confirmed: 10-20 minute interview)

TASC and Feasta seminars are open to the laity, or always have been in the past.

It would seem that he has published a book and would like to sell copies. 😉

Personally what I like about his delivery is that he very Australian and, how can I put it, blunt.

@ Karl Whelan,

“Perhaps more importantly, though, I can’t think of a government anywhere in the world that has actually set fiscal policy based on the recommendations of an academic general equilibrium model.”

Are you not being a bit modest? Do academics not advise political parties? Is the influence not based on perceived expertise, which is heavily weighted towards set assumptions, the very assumptions on which academic models are based? And even if academics were not influential in policy making, which they quite clearly are, (Colm McCarthy, Philip Lane and John McHale come to mind), that still leaves institutions such as the ESRI, as Pope Epopt notes. Does it’s Hermes model which it uses for macro factor in credit? Is it based on the representative agent?

Further abroad (or in Merrion Street), is the IMF’s Global Economic Model not a general-equilibrium model?


I can assure you that McCarthy, Lane and McHale don’t base their fiscal policy recommendations on simulation results from DSGE models. I think the more empirically based standalone studies of the effects of fiscal contraction have had far more influence than outputs from the simulation of specific models.

I don’t get the impression that the HERMES model is that big an influence on Irish fiscal policy making but I could be wrong. Again I get the impression that the reality of the economics profession is just quite different from how many of our commenters think it is.

Anyway, I’m just giving you my impression. Feel free to disagree with me.

@ Karl Whelan

Thanks for the engagement. I honestly don’t know. I lean towards the sceptical. I’ll be frank and admit that it’s not so much models that concern me but rather the underlying assumptions. But I’m open minded and I appreciate your responses.

On macro-economic modelling, followers of this thread may be interested in taking a look at the IMF’s DSGE model, GIMF: Global Integrated Monetary and Fiscal Model, which is commonly used for policy analysis at the IMF:

Dr Kumhof, the model’s chief architect, was in Dublin last month at the invitation of ASPO Ireland, and presented at an event organised with SEAI, on the results of a study he did on the impact of oil scarcity on the global economy:

If you watch Kumhof’s presentation, or read Chapter 3 from the April WEO, it’s clear that Kumhof is well aware of the limitations of DSGE models.

I invited Keen over having attended his presentation (referred to above by Karl Whelan). Clearly I was anything but disappointed, but I’m not a professor of economics, in fact only a mere student of economics layering it on top of a background in engineering and business. I think it may be overstating it to suggest Keen was surprised by Solow’s dislike of DSGE models. I think the more important point is Solow’s surprise that his production function is still so widely used in economics. For a critique of Solow’s work I refer the reader to our IMF event and the presentation which preceded it by Prof Bob Ayres:


@ Karl Whelan

As your initial comment near top appears not to have provoked an avalanche, I will venture to ask you to elaborate on your criticism of Keen’s

“odd statements about banks and credit and alternative mathematical models that suffer from exactly the same faux-scientific methodology problems as DSGE models.”

Keen’s modelling approach is standard fare in the scientific and engineering domain, where the mathematics underpinning it is most commonly used. The value/usefulness of a model lies in its ability to explain what has happened in the past and make forecasts about the future which are subsequently borne out. Keen’s model demonstrated a remarkably powerful ability to explain past economic performance. It’s a mathematical fact that DSGE models can’t produce the results that Keen’s can. However, a model can be built to fit any empirical data, is this ‘the same faux-scientific methodology’ to which you refer?

“Rehashes of well-known criticisms of neoclassical economics (understood by most practitioners who generally understand the methodological issues better than Keen).”

Keen’s main gripe is that these theories are taught to students of economics despite their clear inconsistencies. He’s spot on. Also, most economists I’ve encountered are NOT aware of the Cambridge Capital Controversy, Pierro Sraffa’s critiques etc.

“…odd statements about banks and credit and alternative mathematical models that suffer from exactly the same faux-scientific methodology problems as DSGE models.”

Keen’s critiques of the neoclassical view of credit is spot on. The best paper on this from the neoclassicals is Krugman’s and Keen’s critiques of it are 100% correct.

The endogenous theory of money also has a far better model of how banks extend credit than the ridiculous loanable funds/money multiplier model. The empirics don’t lie on this either.

Notes from “Debunking Economics”

Presentation by Prof Steve Keen (UWS).

There was a packed and eager audience in the elegant neo-classical room on North Great Georges Street for Prof Steve Keen, known as he is for his combative style, and it was no disappointent when, after a warm introduction by Pat McArdle, Professor Keen immediately overturned the desk in a single throw, and announced in a fine Autralian barritone; “Roight, you spud aytin’ bond sahkkers – let’s be havin’ yow.”

“Iorland 2050, Iorland 2050, I’ll show yow Iorland 2050”, he continued with which he firmly grasped Dr Stephen Kinsella (UCL), and plunged him head-first into a barrel filled with dubious fluids, on which he had kindly written the word “DEBT”, to aid the clarity of his demonstration.

As the life force left the young academic in a number of spasms, Keen remarked; “Ind that’s exactly where we’re all headed unless we get a bloomin’ grip.”

The quicksilver mind of Prof Richard Tol (TCD, UV, ESRI) saw exactly where this was going and swiftly came to the conclusion that the best course of action was one of minimal intervention, and was almost immediately out of the door, when Prof Keen caught him on the back of the skull with a razor-sharp boomerang.

“Rank that you foike crusty” was the triumphant cry.

But Keen had no time to gloat, for with a “Schnip, schnip” Mr Colm McCarthy (UCD, Dublin), was at him with an alarming pair of scissors – rather larger than domestic ones, but not, I fancy, so big as pinking sheers. He succeeded in making a number of cuts but not perhaps as many as he had hoped.

“Moi best bonzer suit!”, Keen wailed, and disarming the veteran slasher in one move, had him almost immediately caught by rump and collar.

“Oy’ll show yow how to create emploimehnt.” And with that he launched the still-flailing McCarthy through the round window.

The expression of Mr McCarthy as he was definistrated was oddly triumphant as (if one is not reading too much into a single moment) he seemed to have satisfactorily proved to himself that as he was now doomed to go kersplat, he did at least know the worst was upon him, and could begin planning for recovery.

What words he may have expressed this in were lost amdist the crashing of glass, followed by; “Ind dahn’t come bayck until yow’ve built Metro North with yowr bayer hahnds.”

At this point, a mr paul quigley (blogger) – known to abhor violence – demonstrated the power of power elites to remain untouched by appearing to stay still whilst actually shifting his position subtly yet continuously.

This did initially confuse the now visibly enraged antipodean, but he then cried; “let me show yow how the Chinese command economy works”, at which he clamped either hand to mr quigley’s head and tore it out, spine and all.

“I appreciate the point you’re making, but does it have to be so personal?” This was Prof. John McHale (NUIG).

Far from restoring order, this sem to incense our guest further, who produced a specially adpated Austrailian tommy gun (the Owen Gun), and howled;”Say hello to my modern monetary friend”, at which he buried the Head of the Fiscal Council beneath an endless stream of monetary tokens. “That’s how yow close a fiscal defoycit”.

A thoughtful silence followed on this remarkable event.

“That’s a enough Keen”, and calm voice filled the room and a thrill ran through those of the assembled who were not yet hidden under chairs. This was Prof Karl Whelan (UCD), and for whose intervention most had been waiting.

Now the business was serious and at close quarters too, by both leading academics trading blow for blow, with the local champion showing fine pugilistic style, landing chopping blows that hammered through the defences of the noticeably bruised contender.

Indeed, things might have gone very ill for Keen at last, but he produced three handsome volumes from a a capacious inner pocket and bellowed; “Hey Koirl, put this on your reading list” and hammered down Karl Marx volumes one, two and three on the doughty professor. The first volume broke, but the second got through and at last – to an audible groan – Whelan was down.

“Volu-um two always gets them.”

It was noted at this point that all that remained of Prof Lane was a quizzical smile – the rest being invisible by now – which confirmed to many a skill of his that many had suspected.

“I’ve seen enough!” Gandalf roared from the back of the room. Various orcs from the banking industry scattered in alarm.

On closer inspection it transpired that this was Governor Patrick Honohan (ICB) incognito.

“Feel the power of the Central Bank’s balance sheet”, and he hurled, net-like the mighty balance sheet of the Central Bank to entagle his foe. This was a sight that many had wished to see for some time, and the audience gasped , as it flew as a slivery net over the ducking heads.

Sadly it was caught short by an unseen string, with a note that announced; “Property of the ECB – not for national use”, and the poor Governor was left defenseless.

“Coirl that a balance sheet, I’ll show yow a balance sheet”, at which, in the manner of a conjurer producing flags from his sleeve, Keen, demonstrated how a real Central Bank can never go bankrupt, by producing a simply emormous balance sheet, in which the Governor was quickly entangled. The balance sheet then shrunk, to compact the old gentleman to the size of a ball, which Keen (humming “Under the Southern Cross”) then bounced three times, before drop-kicking through the shattered window in an easterly direction.

“Six points for me” he declared, “Toike that back to the Franfoirt Group, and don’t come back until yow’ve got a proper Central Boink”.

At this, Keen’s presentation was finished and, after a lively series of questions on which I cannot report (Chatham House Rules), the vote of thanks was passed in the usual manner.

Coffee, tea and buscuits were served.

Prof Keen requested a tinny.

Apologies in advance for the poor spelling.

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