Keen

Because it comes up from time to time, let me collect my various criticisms of Steve Keen's work in one place with short summaries. I've been critical of his claims and approaches on this blog for years. People keep linking me to his nonsense, so I thought I'd create a reference post for why I think he's talking nonsense.

TL;DR Keen seems to thrive in a niche in heterodox econ where his fans aren't technically savvy enough to realize what he says doesn't make any sense, but he includes enough political polemic, name dropping, and chumminess with other heterodox "schools" that he can construe any attack on his claims as politically motivated or expect those "schools" to rise to his defense. Failing that, he says that people don't understand what he's saying. As I'm practically a Marxist (and even pro-Minksy) and am well-trained in mathematics and model-building, I'm in a pretty good place to push back against this nonsense. I was also what is called a phenomenologist in theoretical physics — I connected theory to data — which gives me particular expertise understanding the connected roles of theory and empirical data. This last element is a major failure in both mainstream and heterodox economics. Keen was trained as an economist, so that's probably why he's so bad at determining whether his models represent any kind of empirical reality — or even a "realistic" starting point. 

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No one saw this coming: Bezemer's misleading paper

May 2018

Dirk Bezemer wrote a paper where he claims that heterodox economics predicted the global financial crisis. Almost all of his references are quotes either taken out of context or completely fabricated. I stand by my assessment, but have published Bezemer's response to let people judge for themselves. Regardless, Steve Keen's website cites Bezemer's paper. However, the reference for that "prediction" was not a prediction of a global financial crisis, but rather an Australian housing crisis which has never appeared (with Keen in fact losing a bet over it). Bezemer's defense against my charge of fabrication only says that Australia made a policy change but clearly says the prediction was about Australia. As far as I know, Keen has never said in public that he never predicted the global financial crisis — and he should disavow such claims when made by his proponents.

Update: Oh, jeez. Keen himself [pdf] cites Bezemer while simultaneously claiming he has a "model" that predicted the global financial crisis. This is really bad.

The long trend in energy consumption

September 2017

Keen doesn't understand the second law of thermodynamics and claims that log-linear regression is "false" if it is called a Cobb-Douglas function. He just sounds stupid. I go on to produce evidence that might support one of his claims (because he apparently forgot what supporting evidence looks like).

Economics criticism as art criticism

August 2017

Keen smugly derides an economist using "the word 'complex' while clearly not understanding its modern meaning". He then says "it's maths semantics by the way, not economics. Look it up." However, Keen often refers to his models as "complex dynamical systems" or "complex systems" when they are in fact just called dynamical systems. Look it up. Just because you have a nonlinear set of differential equations doesn't mean you have e.g. a complex adaptive system (Paul Cilliers even says of complex system that "conventional means (e.g. a system of differential equations) not only become[s] impractical, [but] cease[s] to assist in any understanding of the system.").

Macroeconomics has no equilibrium data

April 2017

This is just a footnote where I talked about seeing Boom Bust Boom (2015) — I'll just quote it: [The movie] brought on Steve Keen for a second to mention money and debt. However, later on they had someone else say that economics shouldn't be approached like a branch of theoretical physics. If I had to pick an economist who used the most inappropriate physics models, it would be Steve Keen who treats the economy like it's a nonlinear electronic circuit. It's just a very odd juxtaposition.

Qualitative economics done right, part 2

February 2017

So many of Keen's defenders tell me that his models are just qualitative or toy models, so they won't get the data right. If that's how it is, I wonder how these same people (and Keen himself) can be so down on DSGE models which are actually much better at getting the qualitative behavior right. Regardless, Keen's models are qualitatively accurate in the same way rocks are qualitatively food. This might be an area where Keen and his defenders aren't technically savvy enough to understand what the qualitative features of model outputs actually are. This also appears to be a general failure in economics (here's me saying the similar things about DSGE models, for example).

I am not sure Steve Keen understands the arguments against his framework

October 2016

Keen says that Kocherlakota's note represents a defense of his (Keen's) approach, but Kocherlakota's note explicitly says the case where a worse model empirically might be taken more seriously is when that worse model has better microfoundations (microeconomics). Keen's models have no microfoundations (nor even a basis in microeconometrics), and he has often criticized the idea or held microfoundations responsible for DSGE models (e.g. here or citing Solow on DSGE here). Keen doesn't seem pass basic reading comprehension in this case.

Keen, chaos, and equilibrium

October 2016

This post was an elaboration on a post by Roger Farmer about how we can't really tell the difference empirically between nonlinear models and linear models with stochastic shocks. As Keen's models don't look anything like the empirical data (even qualitatively, see above), this is kind of moot. So really, Keen's insistence on nonlinear dynamical systems is based on nothing — you can't tell the difference between it and other approaches, and it doesn't have the benefit of being a good model of the empirical data in the first place.

Attainable definitions of equilibrium

February 2016

This one really pissed me off. Keen is referencing mathematics lots of other people don't really understand in a way that's not really appropriate to the economic system to claim that mainstream economists are full of it and that capitalism is mathematically proven (ha!) to be unstable. It pissed me off because either Keen understands the math and is basically deceiving people who don't know any better, or doesn't understand it and engaging in a bit of, um, rectally disseminated speech. Keen's claim is like saying all buildings are unstable and will collapse soon by asserting a definition of "building" that can only be a literal house of cards. Either he knows what he's doing and is a snake oil salesman, or doesn't know and should really just go back to school. 

Limit cycles versus avalanches

December 2015

I started off my earliest blog post referencing Keen by saying "I'm not sure I understand the allure of Steve Keen." Keen's models are equivalent to nonlinear circuits in electronics, and as a person who has built a couple over my lifetime I am aware just how easy it is for noise or small deviations in e.g. resistor specs to completely ruin the chaotic limit cycles (the things that Keen likens to the business cycle). These circuits oscillate in only narrow ranges of component values (i.e. model parameters). And that fine-tuning problem comes before you even get to issues of the Lucas critique (why should parameters stay in the finely-tuned areas of phase space where the system exhibits a chaotic or nonlinear result for several decades). Instead of thinking of chaotic limit cycles as the result of a rickety, jury-rigged, non-deterministic underlying system (the image most people probably have in their mind when they think of chaos), they're actually the result of a finely-tuned deterministic system. It's more like the Newtonian clockwork universe (which, remember, includes the chaotic three-body problem) than the stochastic uncertainty of real economic systems.

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I also wanted to note another author — J.W. Mason, a professor at CUNY, a fellow at the lefty Roosevelt Institute, and writes for Jacobin — that I think captured the essence so succinctly that I've referenced it multiple times. I'll just quote from it because I don't think I could possibly do better. 

The Case of Keen

J.W. Mason, April 2012

... if your idea is just that there is some important connection between A and B and C, the equation A = B + C is not a good way of saying it. 

Honestly, it sometimes feels as though Steve Keen read a bunch of Minsky and Schumpeter and realized that the pace of credit creation plays a big part in the evolution of GDP. So he decided to theorize that relationship by writing, credit squiggly GDP. And when you try to find out what exactly is meant by squiggly, what you get are speeches about how orthodox economics ignores the role of the banking system. 

Keen is taken seriously by serious people. He’s presenting this paper at the big INET conference in Berlin next week. It’s not OK that he writes in a way that makes it impossible to understand or evaluate his ideas. For better or worse, we in the world of unconventional economics cannot rely on the usual professional gatekeepers. So we have a special duty to police each other’s work, not of course for ideology, but for meeting basic standards of logic and evidence. There are very important arguments in Schumpeter, Minsky, etc. about the role of the financial system in capitalism, which mainstream economics has downplayed, just as Keen says. And he may well have something important to add to those arguments. But until he writes in a language spoken by people other than himself, there’s no way to know.

Whereas J.W. Mason points out that Keen's prose is opaque, I am pointing out in the list above that the modeling strategies and mathematics (i.e. the equations) are largely unjustified or inappropriate — not math errors per se (maybe, I haven't checked), but using math without tight connections to the claims about the system. Bad math plus opaque language is not a recipe for progress.