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Steve Keen is trying to reform economics

Steve Keen, author of the excellent Debunking Economics, which I used as a source, has a project on Kickstarter that’s worth a look.

The video and text on the Kickstarter site explains the project pretty well–basically, Keen says that he has a better economic model than the ones that economists use today, a model that could have predicted the depression we’re in.

And you know what? He’s almost certainly right. Mainstream economists’ models are, I’m sorry, sort of crap, and Keen has been one of the few very well-informed voices–one that mainstream economists can’t ignore, because he speaks their language (math)–saying so.

Keen has compared the differences among mainstream economists to the differences between Protestants and Catholics, which is spot-on–mainstream economists, for all their arguments, agree on their basic assumptions, much like Protestants and Catholics agree on the divinity of Christ, the existence of the Trinity, and so on. In this case the assumption in question is how much banks matter; to Keen, they matter a whole lot, while mainstream economists’ models assume them away to a shocking degree.

Now, I personally won’t be investing in his project. That’s because I think that the entire idea of economic models, as currently practiced, is flawed. In other words, Keen is trying to reform something that should be abandoned. I think systems like the economy can be simulated, either in the real world or in computer programs that create independent entities and see how they interact, but they can’t be modeled using economists’ current tools, which involve using very sophisticated calculus. The problem is that the more elaborate your mathematical reasoning, the more definite the units you start with have to be, so you wind up with a bunch of simplifying assumptions that don’t resemble the real world. In the end, you wind up with an analysis that is satisfyingly sophisticated but is also remarkably crude.

It’s sort of like chess; chess is an abstraction of warfare, but it’s so abstract that we would never ask Magnus Carlsen to direct our wars for us.

Unfortunately, in economics we base our policies on similar abstractions. Improving those abstractions–making them match the real world slightly better–is going in the wrong direction. Imagine if we actually did make the mistake of asking chessmasters to direct our wars; that would be a big problem, and the solution would *not* be to make chess more accurately represent real warfare. In both cases, the solution is to abandon the focus on abstraction and look at what actually happens in the real world.

But that’s my opinion, and I may be wrong. If you believe that the basic project of mainstream economics–modeling the economy with very sophisticated math–is sound (or even if you believe that it’s flawed but here to stay), then you should contribute to Keen’s project; better models might just prevent some of the insanely shitty policy we’ve seen over the past decades.

EDIT, 2/21: Damn, I’m good–the Kickstarter has already reached its goal, just a few days after I posted this. Post hoc, ergo propter hoc!

1 comment to Steve Keen is trying to reform economics

  • I get where you’re coming from, but if you didn’t understand war, you might use a game like chess to give you some idea as to how people tend to proceed. We use game theory all the time in sociology, political science, economics, etc. even though games don’t actually represent reality because they are at least indicative of certain tradeoffs and the way people approach them. A lot of good sociologists try to create models of causation to at least try to get predictions. I think that, if we had better economic models, we might be able to use them as a tool to make guesses and then try to pair that with limited data. The problem is when we fetishize a tool because the math is nice and elegant, not having more tools per se.

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