More Bunk from Economists
Sinclair Davidson purports to debunk my debunking of economics in “Debunking Keen”. It would have been preferable, therefore, if he had read my book beforehand. Having read his “critique”, I seriously doubt that he has.
The best evidence of a failure to read—or certainly to comprehend—is the “killer blow” he applies to my alleged arguments at the end of his piece:
Consider a simple thought experiment: Take
an economy and arbitrarily divide it into two pieces. Allow the market to operate
in one piece, and government to run the economy in the other piece. Fast
forward by fifty years and observe what has happened. It turns out that West
Germany and South Korea prospered relative to East Germany and North Korea when
this experiment was actually conducted. If market economics is wrong, Keen
needs to explain this “anomaly”. (Sinclair Davidson, The Drawing Board, 24
August 2001)
The implication from that paragraph is that I am an old style socialist and advocate of central planning over the market economy. Yet the one chapter in my book on socialist economics—or more strictly Marxian economics—is entitled “Nothing to lose but their minds”. Surely this chapter title should have given even the most obtuse of reviewers an inkling that I can’t be dismissed as just another “Chardonnay Socialist”.
That chapter shows that Marx’s economics does not prove that socialism is either inevitable or desirable, and concludes in part that:
The tendency for the rate of profit to fall is crucial to this belief in the inevitability of socialism, and it is one of the many concepts that evaporate once the labour theory of value is expunged. Marxists economists are likely to continue to cling to the labour theory of value, to hang on to the faith, in preference to embracing logic. (Debunking Economics, p. 299)
There are many other signs of Davidson having a visceral rather than an intellectual reaction to my book. He claims that I “make up a very imprecise caricature of [my] opponent, and then ... demolish that construct”. This “straw man” criticism is one I have received from other economists: since I ignore many of the latest developments in economic theory, and concentrate instead on what is taught to undergraduates, I am told that “we don’t really believe this stuff at the advanced levels of economics, so your critique isn’t relevant. You’re demolishing a straw man.”
My reply is simple: “If what I demolish is a straw man, why do you teach him?”. Everything I critique can be found in undergraduate textbooks at all levels, and also many postgraduate textbooks (I refer extensively to Varian’s Microeconomic Analysis). If this is a straw man, why teach it—especially since provably erroneous propositions make up a substantial part of this instruction? This is bad pedagogy, and yet there has been no sign of undergraduate (or graduate) education reforming itself from within.
Davidson also completely misunderstands my critique of the theory of the firm, stating that “Keen seems to think that a monopoly is any large firm”. No, but no monopoly can be a small firm relative to the market. My unique critical contribution in Debunking Economics is to show that the theories of perfect competition and monopoly are mathematically erroneous (those interested in this assertion should check the presentation “Why economics must abandon its theory of the firm” on my webpage www.debunking-economics.com).
I do however understand Davidson’s visceral reaction. I did not write this book to win any friends amongst conventional economists—though I hope the many closet dissidents might enjoy it. As I explain in the book’s preface, I have long ago abandoned any hope of a true debate within economics, and therefore wrote this book to assist those members of the public who find themselves at odds with the advice of economists. I knew that it was no way to win a popularity contest with economists.
However, Davidson’s critique is of a calibre that I expected to see from one of Australia’s well-known economic journalists, not from an academic. In this light, Alan Duhs’ forthcoming review in Economic Analysis and Policy (September 2001) is a far more worthy product. Duhs also criticises my book for perhaps contributing to, as Davidson says, “a tirade” rather than a debate. I can concede Duhs’ point more easily than Davidson’s, because at least he has clearly read and understood my book.
Steve Keen
Dr Steve Keen is a Senior Lecturer in Economics and Finance at the University
of Western Sydney, and author of Debunking Economics: the
naked emperor of the social sciences.
Keen, S., (2001). Debunking Economics: the naked emperor of the social sciences, Pluto Press, Sydney.
Varian, H.R., (1992). Microeconomic Analysis, Norton, New York.