Debunking Economics eBook available

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Click here to buy the Debunking Economics eBook from Mobipocket

Click on the cover to buy the eBook

Debunking Economics was first published in 2001 by Pluto Press (Australia) and Zed Books (UK). There has been renewed interest in it since I began warning of the impending financial crisis, and I decided to release the book in electronic format to make it more accessible (the hard copy can still be purchased, if your bookshop will order it, from Zed Books UK, or online from Amazon).

I have gone with the (free) Mobipocket Reader format–which runs on PCs and PDAs as well as eBook Readers like Amazon’s Kindle. The eBook priced at US$10 (about a third of Amazon’s paperback price).

If you’d like to purchase a copy, click here to access the Mobipocket store. For those of you who haven’t yet visited it, I have a website dedicated to the book that provides additional detail on some parts of the book, my lectures for free download, and much else.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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94 Responses to Debunking Economics eBook available

  1. carbonsink says:

    According to Craig James we will be in the midst of a housing-led recovery by the 2009. How is this possible with Japan in deep recession, China experiencing a rapid slowdown, the U.S. a basketcase, and Europe not much better?

    Is it really possible for Australia to grow its economy by building houses for each other while the rest of the world is in deep recession? It seems highly implausible to me, so why do the likes of Craig James make such ridiculous forecasts?

    CommSec economist Craig James said the economy would emerge from the global slowdown in the middle of next year, driven by higher construction. He said interest-rate cuts and first-home buyer grants would cause house prices to rise 5 per cent, and the Federal Government’s infrastructure program and grants to councils would drive work on roads, railways, hospitals and schools.

    Mr James estimated the cash rate would fall from 4.25 per cent to 3.25 per cent by June, bringing more good news to home owners whose loans had variable interest rates. But he said if the economy performed well, interest rates might rise again.

    “The Reserve Bank will start making noises mid-year about lifting interest rates, given the strength in our domestic economy and improvements in economies overseas,” he said.

  2. Steve Keen says:

    Dear Carbonsink,

    What an incredible “prediction” by James! I’ve whacked a link to it in my “Brickbats” page. I hope I get a chance half way through next year to quiz him on that call and its (expected) lack of connection with reality.

    plp15, I believe I have the beginnings of such a theory–which I am now toying with calling “New Monetarism” as a deliberate dig at neoclassicals who blithely christen their waffle “New Keynesianism” (unlike most of them, who have read little or no Keynes, I’ve read a lot of Milton Friedman [and far more of Keynes], and I would take great pleasure in taking over that term from his abuse of it). You’ll see some of that in the February Post, and it’s scattered through the papers on the Theory page here.

    But there is a long way to go!

  3. clive says:

    According to Saturday 28 Dec Financial Review. Page 31 ‘Financial Crisis Quiz’ The question is:
    ‘The current slowdown has been compared with the Great Depression. How much did the US economy contract then from peak to trough?
    The answer is 27 percent, with a note saying ‘The worst sceptics are predicting the current downturn will cause a contraction in the US of about 5 percent so the comparison is a big stretch’.
    I’m no economist but the speed at which good debt has become bad debt, the range of financial instruments that probably hadn’t been dreamed of in 1929, and the addition of Japan, China and India that probably weren’t even part of the equation then, makes me think this may have a chance of being even worse. Add to that the level of debt being double what it was then. The current health of the US economy as compared to then and things tend to look bleak. My view is that many have said earlier on that China will help to bail us out, I’m now thinking that this is just going to make it an even bigger bang. So far many of the experts seemed to not see the interconnectedness of everything or they just see it as a positive rather than more fuel to the fire. I also feel that some younger people fail to see that many of the western economies really have been just consuming crap for the last 40 years and China and India have been producing a lot of it. Much of our retail sector has been based on that and the shock there will be massive.
    Steve what’s your views on the peak to trough of the US and the truly global nature of this recession (China India)….am I right that they played only a small role in the 29 crash.

  4. dojufitz says:

    I had an argument at work with a mortgage slave over home prices in Melb.
    I said they were unaffordable…he reckoned they always double every 7 years….

    I said yes in dollar terms but what about when priced in gold?

    So i googled the info –

    These are average home prices in Melbourne –
    2005 – $352000 cost in Gold at that time – 698oz
    2008 – $425000 cost in Gold at this time – 340oz
    So Houses have gone up in price but half the amount of Gold buys you the same house….that is value vs price…..

    Will 2009 be 181oz of Gold?
    2010 – 90oz of Gold?
    2011 – 45oz?

    Who knows?

    But i would rather have gold and silver right now than huge debt on a mortgage.

    Please Dr Keen if you have the data show house prices versus gold….it would be interesting.

  5. prudentsaver says:

    I think the US housebuilder stocks, have bottomed out. Reit stocks, looks like they are bottoming out. It’s not based on fundamentals or anything, it’s just how it looks, housebuilder stocks now, as like nasdaq stocks in 2003.

    As I have said before, Steve, I think your CPI adjusted dow jones charts, is wrong, this is how I think the correct picture is shown, through Q factor or replacement value of the companies, from bill gross’s article. He thinks the dow can go to 4500, bringing it like the 1932 level, I think it will rather happen through inflation, with the same q ratio, but a higher dow.

    It also corrospond to the dow / gold ratio. it’s this effect that deflate the stocks through inflation, more than your charts give credit to, through the last years, that also means house prices are not that high, CPI inflation, especially food just needs to catch up.

    gold stocks, and gold are in a bubble, the same with agriculture. and alternative energy. oil have corrected. The way I see it the US treasury bond market have been in a bubble since Japan started supporting the US in the early nineties, but it accelerated since 1995, giving boost to serial bubbles is the us economy caused by the low interest rates, nasdaq, housing, chinese stocks, fertilizer stocks, and lastly treasuries itself, the bubbles have been shorter and shorter in duration. The standard formula is that when something doubles in 6 months it’s near the bursting phase, that’s what’s happened with treasuries now. japan have and later china, have in reality used parts of europe, australia, uk, US, as a surrogate mother to grow their export economies. printing money to keep our interest rates low. when that stops, japan have stopped, but I think china will to, it’s like the sand will crumble, and interest rates, will want to rise to a level like in the mid seventies. Countries like thailand have not been used the same way. I think China can really shift a lot of their attention towards other asian economies. Like Peter Schiff write in his book, the US had a great economy during WW2, but people really could not spend that much, with price and wage controls but they had jobs..etc, similar to china now..and there was thinking in the US that ending the war was bad for their economy, similar to how china feels to ending supporting the us, and subsidizing the US at a cost to their own citizens. Of course it’s wrong, and they will benefit, but I think that is how they feel. Back to the gold bubble, I think gold now, are in relation to what nasdaq was in late 1998, a sell off in treasuries, that I see happening early next year, will flow into gold, and “mostly everything”, especially inflation hedges. The US in my opinion have almost nothing in common with japan. A trend that is interesting is that when the treasury bubble began in 1995, silver started to weaken, thailand and other asian countries started to weaken in their stock markets, paper assets, mostly the US, uk, australian, stock market, housing markets, etc started to strenghten, china started to strenghten. I think the logical connection to this bubble is that the US, europe, australia, have sucked up the savings of
    asia, and having went more into housing, and paper assets more than real stuff, that the asians could have bought, it have moderated inflation, when the treasury bond bubble burst, I think that trend will reverse. since silver, and the thai stock market is priced in dollars, those markets will increase,together with our inflation because of the crumbling debt markets, paired with spiraling interest rates upwards.

    here the chart to back these theories up.;range=my;compare=ttf+^ftse;indicator=volume;charttype=line;crosshair=cross;ohlcvalues=0;logscale=on;source=undefined

  6. tommyt says:

    Hello steve, I have reading with graet interest the many ideas posted here and am delighted to finally understand what I did not understand i.e. the expansion of the Australian economy and what I suspected (from living on this earth for a while)would be the ‘train wreck’ about to hit (I could smell it!!mainly because of the great debt figures published everywhere (if you were looking).I have been more interested (not having an economic or mathematical understanding)in the psychology and political response and overt arrogance of the ‘political class'(not to mention the ‘Canberra Oracle’ the ‘Gov’!). Today that most conservative of newspapers,The ‘SMH’, in it’s EDITORIAL NO LESS,QUOTED:”…during a 17 year boom,now about to end,when AUSTRALIANS ACCUMULATED AN UNPRECEDENTED AMOUNT OF…..BUT ALSO AN UNHEALTHY AMOUNT OF PERSONAL DEBT….”This might be the “I told you so statement from this newspaper which will ‘hit us’ next year I suspect! As far as psychology goes it is ever so subtle.Me suspects they are finally getting the message,Steve!

  7. Steve Keen says:

    Hi Clive,

    I’m predicting a damn sight more than a 5% fall in the USA–and already forecasters (a highly reliable group of course!) are predicting a decline at a 6% annualised rate for the current quarter.

    In terms of a peak to trough change in real USA GDP, that I think will easily exceed 10%. Whether it will be of the order of the 27% fall in the 1930s… Well I wouldn’t say fore sure. but I wouldn’t rule it out either–since we’re starting with at least twice as much debt (compared to GDP) as back then.

    China played an insignificant role back in the ’30s, but Germany played an altogether different one. Let’s hope the downturn’s impact on China doesn’t rival what happened in Germany in the 1930s.

  8. clive says:

    Thanks Steve. Looks like another case of optimism getting in the way of the fundamentals.
    On a lighter side had a German friend of mine who left there before the war and was old enough to remember the depression. What I remember him saying was that almost overnight their was a swing from deflation to hyperinflation. His story goes….(Whether this is myth or not I’m don’t know), he tells how when he was paid he took his money home in a wheel barrow, on the way home he stopped to purchase some milk. He picked up arm fulls of notes to buy the milk and entered the shop. When he came out of the shop someone had stolen the wheel barrow and left the pile of notes strewn all over the foot path….this accelerated his move to AUS

  9. carbonsink says:


    Continuing the “don’t worry, be happy theme”, today we have Christopher Joye in Business Spectator with The great house price myth

    He makes the reasonable point that house price falls have so far been restricted to the $1M+ market which doesn’t affect 95% of Australians, but he completely underplays the effect that rising unemployment will have in coming months/years.

    He also blames the media for “poor reporting” and sensationalism, which I assume means, not reporting that everything is fine.

    Again, I struggle to understand how Australia will escape a thumping global recession simply by cutting rates and handing out a thousand bucks per kid.

    We seem to be experiencing a highly delusional period in Australia where businesses (particularly trade-exposed businesses) are already feeling the pinch, but haven’t yet cut staff. Employees know their employers are struggling, they know they are carrying unsustainable debts, but the RBA and Kev have put so much cash in their pockets, the urge to splurge has proven irresistible.

  10. David Short says:

    Hi all

    I am a retired physicist, interested in economics, as well as too many other things.

    In the two weeks since Steve Keen’s post, I think about three of the 80-odd respondents welcomed the electronic republication of the book, and one of these, Gordon, indicated his intention to do the hard work of reading it. But there seems to have been no discussion of the book’s content.

    When Margaret Throsby interviewed Steve recently on ABC Classic FM, I wanted the book ASAP. Finally a secondhand bookseller gave me a paperback copy for $60, when his embarrassment about the cost to him led to seek only a $5 margin. Perhaps Margaret drove up the market!

    While waiting for the book, I read Steve’s papers on endogenous creation of money. These papers written for academic audiences were remarkably readable to someone outside of the field. This was due to such civilised features as explaining terms clearly and minimising specialist jargon.

    Then on reading Steve’s paper on the non-conservation of money [see the papers in the Theory part of this blog], the light dawned. Good double entry bookkeeping to account for transactions of firm, worker and banker, including the money-creating fiat of the latter, yielded a model analogous to two models I had studied as a physicist. Money in each account was analogous:
    (a) In the first model, a micro-scale case, to a store of electrons or holes in the crystal structure of a mineral, and
    (b) In the second model, a macro-scale case, to a store of water or other material in the landscape.

    In case “a” the developers used the same numerical technique [generic ODE solver] as Steve appears to use to solve the analogous equations in economics. Even more interestingly, in case “b” the developer shared Steve’s intention to use macro-scale data, rather than much up-front ideology, in developing a dynamic model of a complex system that was otherwise rather intractable.

    At a later date, I would like to ask Steve questions about details of numerical technique, perhaps in another forum.

    Returning to the book, the mind that wrote the surprisingly readable academic papers also wrote the book. For now, I shall comment on Chapter 1. This outlines the content of the book, which comprises both a detailed exposition of mainstream (neoclassical) economics, and a detailed debunking of the same. The purpose is to spare the reader the task of finding and reading “dozens of books and hundreds of journal articles”. Anticipated readers include economics students, professional economists (including the mainstream variety, to give them a good summary of what they are up against) , and “the intelligent lay reader”.

    Despite acknowledging the difficulty of the reader’s task, the author has a vision of of the lay reader mastering the subject. We don’t have to find and interpret the myriad of books and papers. And there is helpful advice to treat the book as a reference work, and thus start with parts that are relatively easy or of particular interest to the individual reader.

    My related suggestion is to undertake the “significant intellectual exertion” with relaxed perseverance, reading or pondering a little and often, rather than with anxious struggle. During this exertion our spirits can be refreshed, by Steve’s vision for what lay readers can achieve, and by his “guarantee that mainstream economists will hate the irreverent tone of this book”.

    Please get on with the reading, folks, and come back with questions and comments about the book.

  11. iconoclast says:


    back in late November, when Chris Joye was peddling his views on another blog site, I wrote a rebuttal to his views. The link to it is here

    I never got a response to my view on why his analysis was missing the point.

  12. OldSkeptic says:

    The probability of Australia escaping this is zero. At least a recession comparable to 91-93 is definite, worse … highly probable.

    How bad will depend on (1) Luck (2) Govt, especially Federal Govt, intervention .. but it has to be smart intervention.

    Luck we can do nothing about, but sadly the Federal Govt is in ga-ga land. Not only do they not have a plan C, I doubt they have even talked about a Plan A (what will they do about all the privately owned infrastructure if the holders go under?).

    Unfortunately, for those who hoped otherwise, this is a dyed in the wool neo-liberal Govt, and as such sees everything through that very distorted prism. Bit of a nip and tuck here, say the right things and everything will go back to BAU. House prices will rise again, debt will increase, but under the neo-liberal model private debt has no meaning. Only public debt is a no-no.

    They will go into deficit, but will try to ‘balance the books’, by some nasty cuts in areas they think will have little political impact. The usual candidates will be rounded up, science and research, ABC, ‘hidden’ infrastructure, rail, Aboriginal spending, etc.

    How they have dealt with carbon trading and Federal education spending, CSIRO, CDEP, etc, sums them pretty much up.

    So its going to be a rocky road ahead for all of us … well unless you are a big polluter of course.

  13. al49er says:

    This is a repeat as I accidentally posted it in an ‘old section’

    To ‘GSM’ re your post of Dec 22nd.

    Thank you very much for your link to the “Global Europe Anticipation Bulletin”.
    – have a look people.

    As I mentioned before having believed for a long time, from the ’sociological’ perspective, that things had to go ‘ass up’, and then to find the likes of our home grown Steve Keen, the US’s Peter Schiff (and others)put all the flesh and detailed explanation in forecasts dating back a number of years, has been a fantastic revelation.

    This site for which ‘GSM’ provided the link is yet another fantastic resource with a great deal of detail and apparently very accurate running forecasts back to 2006 and earlier.

    I do not have a spare €200’s for a subscription and am more than happy with Steve’s very excellent postings, forecasting and proposed papers on the correct structure for future systems, along with some very informative postings by fellows to this site.

    I remain stunned notwithstanding the very few
    ‘coming outs’ among journalists – and for the life of me I cannot understand, how ‘the people in power’, governments, business, regulartory bodies etc – someone, anyone, even the middle level office boy – hasn’t twigged and began work to shine a light in the dark ivory towers.

    On the otherhand it is not quite so surprising to me to see the the general populace ‘remain oblivious’, given that I have always subscribed to the belief that at least 85% of the population are politically ignorant and bereft of any interest to read, research and learn the truth, not only of what is going on in the world around them, but how it is being powered and manipulated.

    So we have Kevin and Wayne et al, feeding out just the sort of remedy the plebs are looking for : – “here go and spend some money”
    whilst no doubt behind-the-scenes, saying to one another in the Ivory Castle,
    “yes this is definitely the way to go, we do not want to spook the peasants with the truth (about which we don’t have much flamin idea in any event) and because Australia is ’special’ we will be somewhat protected from all of this ‘passing nastiness’ and have a ’soft landing’”

    It is all simply so incredible – it is almost surreal.
    2009 will certainly prove
    “we live in interesting times”

  14. tommyt says:

    Thanks AL 49er for your post!! yes very inetersting times! what will our children have to say? our grankids, when they are in a state of ‘siege’ from other ‘thinking economies on our doorstep? Me thinks the tourism industry will be huge and we will all be ‘turning bed sheets’!As you rightly said, most citizens don’t give a you know what! BUT don’t forget the media, as the organ of communication is no where to be seen!!EXCEPT for communicators like steve!Thanks

  15. Effit says:

    Perhaps another economic journalist besides Ross Gittins is changing his thinking?

    Thanks to you all for your blogs. My knowledge is growing all the time!

  16. GSM says:

    Something coming through from many MSM commentaters these days is the “Hoocoodanode” meme. Why didn’t economists and major investment houses see this GFC coming? Peter Martin’s blog mentioned above reeks of it.

    This of couse is arse covering in the extreme- as I’m certain ALL these well known commenters bought the spiel hook line and sinker – choosing to ignore the great scamathon they knew was being perpetrated by these snake oil salesemen and feeding large at the corperate trough doing so. Whilst the Ponzi economy delivered good numbers, their job was easy- just report the good news. Now it’s all turned to crap and exposed as filthy DEBT , “Hoocoodanode?- certainly not Moi if the boffins got it wrong”.

    Which just about sums up economic MSM in Australia- entirely bloody useless and no worth at all.

    Best to keep that in mind when dealing with any investment options going forward. They have no clue at all other than what the snakes in suites tell them. In that realm I also put Craig James, Evans at Westpac et al. All of them media prima donna’s talking their book and delivering a spin.

  17. Steve Keen says:

    The “Hoocoodanode meme” is a great way to describe that. Rather than admitting that their grasp of how the economy works must be wrong, they begin by saying that it was unpredictable–nobody could have seen it coming. And to cover people like myself to whom the GFC was obviously imminent, they describe us–as Anatole Koletsky did in the Business Times–as “Jehovah’s Witness economists who had been predicting the end of the world every year for the past decade.”
    In reality a Post Keynesian or Austrian view of economics made it easy to see this one coming. It’s the neoclassical (or at best what Joan Robinson once called “bastard” Keynesian) vision of how the economy operates that prevented them seeing this coming.
    I hope reality will set in when they find at social occasions all over the world that the group that was least aware this was on its way were “professional (neoclassical) economists”.

  18. Effit says:

    I’ve been re-reading notes (that I had mis-laid) that I took at a Symposium in May 2008 ‘The Sub-Prime Mortgage Meltdown’ where Steve was a speaker and also included a speaker from the Reserve Bank and one from Treasury along with various other academics.

    Funny how the academics got it right in predicting/warning what was about to happen – whereas the Reserve Bank speaker seemed to ‘sit on the fence’ and the Treasury speaker seemed to think nothing would touch Australia, and anyway it was all over really.

    His speech had the financial crisis all in the past! I could quote reams from it, but just a few will do. ‘While the immediate crisis is fading…’ And ‘…while plenty of problems remain, the global financial system is not hurtling towards destruction.’ And ‘… there must have been powerful offsetting forces which protected the Australian financial system from serious injury’. Ouch! I wonder if he would feel embarrassed now if he ever re-read his speech? He’s probably become one of the “Hoocoodanode” meme that are bobbing up all over the place now.

  19. clive says:

    Interesting article by George Monbiot… how the US Killed Keynes’s Proposals at Bretton Woods

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