Rethinking economics

Book review: Debunking EconomicsThe neo-classical approach to economics dominates in academia, argues Steve Keen. In his new book "Debunking Economics", the Sydney professor champions some of the more overlooked schools of thought.

Debunking economics by Steve Keen

If you decide to study economics formally, having already read widely around the subject, you'll probably notice something strange about your course. Many of the ideas and influences you'll have come across elsewhere scarcely appear in the academic curriculum.

You can go through an entire undergraduate economics course and barely hear of Karl Marx or Friedrich Hayek, to take two very different viewpoints. John Maynard Keynes tends to be covered in the context of Keynesian theory, which can bear little resemblance to what the man himself thought. Other key figures, such as Hyman Minsky and Joseph Schumpeter, can be entirely absent.

Most economics taught today represents one particular approach. In the second half of the 20th century, neoclassical economics came to dominate academia to the point where "it represented perhaps 85% of the profession" and reduced other schools of thought to "several small rumps", says Steve Keen, professor of economics at the University of Western Sydney. As a result, it also dominates economic approaches in business, finance and politics, simply because it's the only economics that most students who go into these fields are taught.

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There's a major problem with this, Keen claims: the entire approach is fatally flawed, built on unsound foundations and replete with contradictions from top to bottom. Debunking Economics sets out to correct this by tearing apart modern economics, showing where theory and practice fail and introducing competing views from other schools that have been submerged by the neoclassical consensus.

First published in 2001, this new edition has been extensively updated in the aftermath of the global financial crisis. The clear failure of many economic theories and policymakers such as Federal Reserve chairmen Alan Greenspan and Ben Bernanke, who were beholden to them provides plenty of extra material for Keen's criticisms. While it may not be likely that any reader will agree with all his views, many will concur that much of modern economics needs to be re-examined.

At least, those that make it through will. Keen has set out to write a critique of neoclassical economics, while also making it an introduction to these theories for those without much background in the subject.

That would be a difficult task in a book twice as long and proves impossible here: the text isn't dry, but some chapters would prove very hard going for the beginner. However, if you have studied economics or are planning to do so, this is an interesting and provocative read.

Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.