Debunking Economics: The Naked Emperor Dethroned? (Revised and Expanded Edition)
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<I>Debunking Economics - Revised and Expanded Edition</I> exposes what many non-economists may have suspected and a minority of economists have long known: that economic theory is not only unpalatable, but also plain wrong. When the original Debunking Economics was published back in 2001, the market economy seemed invincible, and conventional "neoclassical" economic theory basked in the limelight. Steve Keen argued that economists deserved none of the credit for the economy's performance, and "The false confidence it has engendered in the stability of the market economy has encouraged policy-makers to dismantle some of the institutions which initially evolved to try to keep its instability within limits." That instability exploded with the devastating financial crisis of 2007, and now haunts the global economy with the prospect of another Depression. In this expanded and updated new edition, Keen builds on his scathing critique of conventional economic theory while 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, <I>Debunking Economics - Revised and Expanded Edition</I> provides a signpost to a better future.
ignore the short-term disequilibrium jostling, in the belief that it is just a short-term sideshow to the long-run main game of achieving equilibrium. A similar belief permeates even some of the alternative schools of econom ics. The dynamic process is ignored because it is believed to be a short-term, transitory phenomenon, and attention is focused on the long-term, allegedly enduring phenomenon of equilibrium. As a result, time itself, the change in variables over time, and disequilibrium
biscuits and bananas to any other. Since marginal utility is a key concept, this was a major technical failing of this approach. It is also impossible to provide a geometric picture for more than two commodities. However, there is another, more obvious shortcoming. By postulating an objective measure of utility, it mooted an apparently impossible degree of precision and objectivity in the measurement of something so intrinsically subjective as personal satisfaction. As a result, the ‘cardinal’
there might be a problem are no longer part of the introductory pedagogy. Also, I expect that the Mankiws of the economics profession haven’t read the original papers by Sonnenschein, Mantel and so on – and as I’ve noted, in a way they can’t be criticized for this. Academ ics are accustomed to not having to read the original literature in their discipline, because they rely on their textbooks to accurately portray the key results of fundamental research. This belief is justified in physics –
optimal level. The question then arises of when is it valid to regard a given factor of production – say, land – as fixed. Sraffa said that this was a valid assumption when industries were defined very broadly, but this then contradicted the assumption that demand and supply are independent. Sraffa’s broad arrow If we take the broadest possible definition of an industry – say, agriculture – then it is valid to treat factors it uses heavily (such as land) as fixed. Since additional land can only
relative prices of land and labor, then it will also change the distribution of income. As we saw in Chapter 2, changing the distribution of income changes the demand curve. There will therefore be a different demand curve for every different position along the supply curve for agriculture. This makes it impossible to draw independent demand and supply curves that intersect in just one place. As Sraffa expressed it: If in the production of a particular commodity a considerable part of a fac tor