While on vacation last week, I had the opportunity to plow through Debunking Economics by Steve Keen. It is probably the most interesting and informative book on economic theory that I have read to date. At its core, it is a textbook for the layman, covering many of the technical aspects of economic theory, but without getting bogged down in complex math and other such things that would cause the non-economist to stop reading and give up. I would recommend it to everyone.
As for the nitty-gritty, Keen is a Post-Keynesian. In his world, the money supply is endogenous (i.e., private banks are the source of debt creation, not the Fed), which fits in with Hyman Minsky's theory that capitalist systems are inherently unstable, the neoclassical framework for economic analysis is bunk, almost all economic models assume equilibrium (and, largely for that reason, were not able to see the crisis coming), and Keynes is greatly misunderstood and misapplied by the folks who are termed "Keynesians" now.
Going forward, my plan is to dedicate several posts to some of the important points that Keen makes in his book. For now, I will simply jot down a couple of points:
-I have a much greater respect for Keynes as a result of this book and would like to re-read The General Theory now that I have better context.
-The Minsky theory is intriguing, arguing that capitalism is inherently unstable and leads banks (who profit by making loans) to make more and more loans that are more and more risky. In a broad sense, that's plausible, as that's seemingly what happened. But, there is still a missing ingredient (at least from my read of it) that triggers this cycle of reckless behavior. After finishing the book, I did subsequently read some articles by Minsky, but still feel like there is a missing causal link in the progression of events that he describes. Happily, I know Professor Keen is working on a book covering the Financial Instability Hypothesis to be published in 2013.
-My thesis that most economists are ideologues remains in tact.
-While Keen says a lot of things that I agree with, there are still items that I remain skeptical about.
Anyway, that's it for the moment.
