Thursday, October 25, 2018


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. 


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.

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).

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.").

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.

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).

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.

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.

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. 

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.


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. 

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.


  1. Life is full of wonderful coincidences, Jason. Just these days I've been giving Steve Keen's Debunking book a good, careful read.

    Some people had already written about a particular criticism Steve Keen made to the theory of the firm, Nick Rowe and Chris Auld among them. Until recently, I myself had not heard their side of the story.

    Here's Rowe's "A post for Steve Keen" [*]. It features comments by some of Keen's supporters and a reply by Steve Keen himself.

    Let me be clear, I don't enjoy this kind of debate. I find it tiresome and not very edificating. Both sides of the debate, in my opinion, are at fault. Neither side covers itself in glory. Both parties -- pro- and anti-mainstream -- appeal to all sorts of dishonest antics to prevail come what may (cheap shots, deliberate misrepresentation, red herrings, that kind of thing).

    That's why I refer to Rowe's post: in my opinion, it's an all-too-infrequent exception to the rule. I'm not a fan of Rowe, but one must give him something: he went out of his way to be reasonable, polite, and didactic. I actually found the post instructive.

    I have my own opinion about the final outcome of that debate and if you want, we can discuss that later. Here I'd like to have your opinion about it.


    1. I primarily wrote this post to be done with this. Keen is a hack which is relatively easy to see from reading into his work more than not at all. I don't think Keen discredits MMT, stock-flow consistent approaches, post Keynesianism, or any of the other things Keen has latched onto in his effort to stay relevant (those things have their own issues, but that's for another time).

      That said, Rowe gives a reasonable argument while Keen essentially assumes his conclusion in the mathematics (see e.g. here) while misrepresenting both his own (non-)prediction of the global financial crisis as well as the SMD theorem (which does *not* say individual demand curves can't be aggregated, but rather that only a few properties of the individual demand curves survive aggregation).

      It's pretty easy to see which "side" is operating in good faith here.

      Beyond that, Keen's paper represents a failure to "lean over backwards" (in the words of Richard Feynman) to show how his own case could be incorrect (there is little introspection n where the difference in the mathematical results come from -- something corrected by Chris Auld who shows that the difference is that Keen effectively assumes monopoly to prove monopoly).

    2. "Leaning over Backwards" ... a good name for a blog.

    3. I had an old blog with a friend of mine where we critiqued the science appearing in the news that could have made good use of that title. However, we went with "Spittle-Flecked Ire" (based on a quote from this article:

    4. Jason,

      Sorry for the belated reply. I thought you were not interested.

      If one were to give points for different aspects of the episode, I'd give Rowe points for honesty and civility. Keen, on the other hand, neither acknowledged Rowe's point, nor disputed his argument. Instead Keen promised a reply (which, to the best of my knowledge -- and I might be mistaken, for I no longer follow him -- never came) and pointed to a book which has nothing to do with his claim that the mathematical analysis of the model is wrong.

      In general I tend to agree with you but that's besides the point. What I'm really interested in is the mathematics of both parties.

      You see, if F(x) = f(x) + g(x) (all functions continuous and differentiable), then F'(x) = f'(x) + g'(x).

      Anyways. I've also read Chris Auld's post and unpublished paper and I think you should pay it more attention, for as Auld writes, Keen's claim is not that the model is inadequate or simplistic or whatever, but that the mathematical analysis of the model is inept.

    5. I think you might be misreading one of Auld's comments where he said:

      "Generally, any optimization problem that can be expressed as maximizing (f(x) – g(x)) with respect to x has the property that f'(x)=g'(x) at an internal solution ..."

      It's not *just* the derivative sum rule which Auld mentions and you state correctly:

      "if F(x) = f(x) + g(x) (all functions continuous and differentiable), then F'(x) = f'(x) + g'(x)"

      but that an optimum of a function F(x) occurs where its derivative is zero if it's not on a boundary — the interior extremum theorem. I.e. if F'(x₀) = 0 and x₀ is not on a boundary, then x₀ is a local extremum (minimum or maximum). If F(x) = f(x) − g(x), then

      F'(x) = f'(x) − g'(x) = 0


      f'(x) = g'(x)

      is a condition for a local extremum (not on the boundary). This is Auld's point: if you have an economic optimum, then these marginal quantities (i.e. these derivatives in econ-speak) are going to be equal: marginal revenue equals marginal cost.

      In Keen's treatment, he just assumes that marginal revenue increases for all firms when one firm raises its price (i.e. firms collude). This does seem to be an appropriate approach in monopoly cases, but is hardly a proof that "econ is wrong".

    6. Thanks for the reply, Jason.

      I think you might be misreading one of Auld's comments where he said:

      Trust me, that specific observation is not what I am talking about. But never mind that. I am currently reviewing my rusty microeconomics and if I confirm my suspicions I'll be writing about that.

      What do you think of the comments to Nick Rowe's post by Frank Restly (December 01, 2012 at 03:40 PM and December 04, 2012 at 01:13 AM) and Min (December 02, 2012 at 06:34 PM)?

    7. Arg. Typo. Re-posting.

      Regarding Restly's comment, it doesn't matter what the shape of the demand curve is for a point estimate of the elasticity.

      Regarding Min's comment, it is nonsense. We can't have ∂q2/∂q1 = -1 unless q2 = -q1 which makes the original Q identically zero.

    8. Agreed.

      About Restly's comments, I am not really sure what he thought they meant. Take, for instance, the equation he derived in the first comment:

      Em = Ei + ln n / ln P.

      If n and P are larger than 1, then (ln n/ln P) is positive, which means that Em > Ei (that would contradict Rowe's claim that Ei > Em: "the elasticity of the individual farmer's demand function is much bigger than the elasticity of the market demand function").

      But if that was Restly's intention, it wouldn't work, for both Restly and Rowe (and apparently Steve Keen) agreed that

      Em = (1/slope)(P/Q) and

      Ei = (1/slope)(P/Qi).

      So, Restly's equation would mean that Qi > Q!!!

      He, I'm sure, knows that, and that's why he asks us to consider "very large n's and small P's". With that he makes (ln n/ln P) negative and Em < Ei, preempting thererefore that possible objection.

      Fair enough. But in that case the scenario he paints is one where a large number of farmers (large n) agree to give away their crops essentially for free (small P).


      Regarding Min: he/she doesn't know what a partial derivative is.

      What caught my attention in his/her comment is that that "argument" about constant versus independent follows a pattern common among pokeys.

      Check this post:

      Or this one, where you'll find a contribution by one of your frequent commentators (this time, he is absolutely right).

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  3. Hi JS, as an initial economics student, your work is always a great source of insight, even though it´s usually way over my head.

    In what sense do you consider yourself practically a marxist? What do you think of the labor theory of value?

    1. Thanks for reading Iván.

      I say that I'm practically a Marxist because a) my political economy is pretty far left in general, b) I often get push back from people who think I'm some sort of neoclassical econ defender — I'm not, I just don't go along with bad arguments because they're politically convenient, and c) I actually believe there is an aggregate (macro scale) "labor theory of value" (to get to your second question).

      I do not believe a labor theory of value sets individual prices (this has been shown to be generally a bad theory of prices with a variety of examples), but at the macro level the price level appears to be set (empirically!) by the quantity of labor. I've called this the "quantity theory of labor" elsewhere on my blog (e.g. here). But in general, the more people are working (the more labor), the higher the prices of all goods in the economy.

  4. Many say Keen predicted the GFC then link to his failed prediction of an Australian housing crash and recession that never happened.

    He got in the door ag the new Zealand treasury first two days but they turned down his offer to build a minsky model for new Zealand


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