Steve Keen

Early life and education

Keen was born in Sydney in 1953. His father was a bank manager. Keen graduated with a Bachelor of Arts in 1974 and a Bachelor of Laws in 1976, both from the University of Sydney. He then completed a Diploma of Education at the Sydney Teachers College in 1977.

In 1990, he completed a Master of Commerce in economics and economic history at the University of New South Wales. He completed his PhD in economics at the University of New South Wales in 1998.

Financial instability and debt deflation

Most of Steve Keen's recent work focuses on modeling Hyman Minsky's financial instability hypothesis and Irving Fisher's debt deflation. The hypothesis predicts that an overly large private debt to GDP ratio can cause deflation and depression. Here, the falling of the price level results in a continually rising real quantity of outstanding debt. Moreover, the continued deleveraging of outstanding debts increases the rate of deflation. Thus, debt and deflation act on and react to one another, resulting in a debt-deflation spiral. The outcome is a depression. Steve Keen argues that the current global economic crisis is the result of too much private debt.

Debunking Economics

Keen's full-range critique of neoclassical economics is contained in his book Debunking Economics. Keen presents a wide variety of critiques on neoclassical economic theory, and argues that they show neoclassical assumptions are fundamentally flawed. Keen claims that several neoclassical assumptions are empirically unsupported (that is, they are unsupported by observable and repeatable phenomena) nor are they desirable for society at large (that is, they do not necessarily produce either efficiency or equity for the majority). He argues that economists' overall conclusions are very sensitive to small changes in these assumptions.

Keen has attempted to counter Marx's theory (in his view Marx's pre-1857 view, specifically) from a post-Keynesian perspective, by arguing that machines can add more product-value over their operational lifetime than the total value of depreciation charged during those asset lives. For example, the total value of sausages produced by a sausage machine over its useful life might be greater than the value of the machine. Depreciation, he implies, was the weak point in Marx's social accounting system all along. Keen argues that all factors of production can add new value to outputs. However he gives credit to Marx for contributing to the "financial instability hypothesis" of Hyman Minsky.

Keen's book closes with a survey of various schools of heterodox economics, concluding "None of these is at present strong enough or complete enough to declare itself a contender for the title of 'the' economic theory of the 21st century." However, he argues that neoclassical economics is a degenerative research program, not generating new knowledge but growing a belt of protective auxiliary hypotheses to shield its core beliefs from critique. There is an accompanying web site which provides more detailed mathematical expositions.

Critique of neoclassical theory of the firm

Keen's work has also focused on refuting the neoclassical theory of the firm, which argues that firms will set marginal revenue equal to marginal cost. Keen notes that empirical research finds real firms set price well above marginal cost: they charge a markup, often cost-plus pricing.

Keen's article on "profit maximisation, industry structure, and competition" has had counter-arguments by Paul Anglin. Chris Auld has additionally shown that Keen & Standish's argument is inconsistent with standard assumptions used in perfect competition, and their analysis uses calculus improperly.

Politics

In August 2015, Keen endorsed Jeremy Corbyn's campaign in the Labour Party leadership election.

Views on the UK's EU referendum

Keen was in favour of the UK leaving the EU, stating that mainstream economists were over-certain and exaggerating as regards the likely effects following the country's withdrawal. Keen regards the open-borders free-movement policy of the EU as precipitate and unsustainable in the absence of a common fiscal policy, all the more so given that migrants impose burdens on public services in destination countries also experiencing austerity. He also states that the Euro is destined to fail, not least because of the way it penalises recession-hit countries unable to pursue expansive fiscal policy, and indeed considers the whole EU project as a failed one destined for collapse.

Minsky software project

Recently, Keen commissioned the development of a software package called Minsky for visually modelling national economies, in a way that is intended to be more accurate than mainstream macroeconomic models – which he contends do not properly include debt and banking. He envisages it being used for both educational and research purposes.

The first phase of the development was funded by an academic research grant, as is typical for academic research projects – but in February 2013 Keen launched a crowdfunding project on Kickstarter to allow members of the public to contribute towards taking MINSKY to the next level of development. In the first 24 hours, this project raised approximately 15% of its funding target, and has since fully achieved its initial funding goal of $50,000.00.

Criticisms

Chris Auld notes that many of the arguments in Keen's "Debunking Economics" against modern economics are invalid. He points out that Keen's critique of perfect competition is based on mathematical mistakes, and his critique that modern economics doesn't consider dynamics is inconsistent with the kind of dynamics Keen proposes should be introduced.

Matthijs Krul maintains that Keen, while broadly accurate in his criticism of the neoclassical synthesis, generally misrepresents Marx's views in Debunking Economics and in earlier work when asserting that, in the production of commodities, machinery produces more value than it costs.

Austrian-school economists Robert P. Murphy and Gene Callahan claim that Keen's 2001 book "suffers from many of the very faults of which he accuses the mainstream". They also claim that much of his work is "ideologically motivated even while criticising neoclassical economics for being ideological". They praise his critique of perfect competition, and his chapter on dynamic vs static models, whilst they criticise his attempts at objective value theory and what they claim is his misrepresentation of the Austrian interpretation of Say's law.

Other publications