The two intersecting lines of supply and demand penetrate economics textbooks like Einstein’s mass-energy equivalence penetrates physics textbooks. The theory behind the two lines is inherently flawed, says Steve Keen.
It is not possible logically to derive from individuals and their preferences the aggregate demand and supply curves presented in economic textbooks – unless one is willing to make a host of unrealistic assumptions, such as that all people are alike. That is why the theory is flawed, according to Steve Keen, Professor of Economics at University of Western Sydney in Australia.
In part 1 of this INET interview he talks about the flaws in economic theory, and explains why the second edition of his book, Debunking Economics, carries the subtitle The Naked Emperor Dethroned
In part 2 of the interview he talks about how in his search for a realistic framework of capitalism he ended up with the work of Hyman Minsky. Unlike standard theory, Keen says, Minsky emphasizes the role of money and debt in the economy. What firms do is they borrow money to invest during a boom, and then they have to repay part of that debt during a slump. Keen was able to put this simple idea into a mathematical model, in a paper he published in 1995.
The model helped him to predict the financial crisis. Keen is the recipient of the Revere Award, an award given to the economist who first and most cogently warned the world of the coming financial collapse. In this video clip, Keen tells us how being an expert witness in a court case in Perth, Australia, helped him see “it” coming.
Categorie: Boeken Economische crisis