Steve Keen

Most of Steve Keen's recent work focuses on modeling Hyman Minsky's financial instability hypothesis and Irving Fisher's debt deflation.[4][5] The hypothesis predicts an overly large private debt to GDP ratio, can cause deflation and depression. Here, the falling of the price level results in a continually rising real quantity of outstanding debt. Moreover, the continued deleveraging of outstanding debts increases the rate of deflation. Thus, debt and deflation act on and react to one another, resulting in a debt-deflation spiral. The outcome is a depression.

Keen's full-range critique of neoclassical economics is contained in his book Debunking Economics.[6] Keen presents a wide variety of critiques on neoclassical economic theory. He argues they show neoclassical assumptions which are fundamentally flawed. Keen claims several neoclassical assumptions are empirically unsupported (that is, they are unsupported by observable and repeatable phenomena) nor are they desirable for society at large (that is, they do not necessarily produce either efficiency or equity for the majority). He argues economists' overall conclusions are very sensitive to small changes in these assumptions.

Keen has attempted to counter Karl Marx's theory (in his view Marx's pre-1857 view, specifically) from a post-Keynesian perspective, by arguing machines can add more product-value over their operational lifetime than the total value of depreciation charged "during those asset lives".

For example, the total value of sausages produced by a sausage machine over its useful life might be greater than the value of the machine. Depreciation, he implies, was the weak point in Marx's social accounting system all along. Keen argues all factors of production can add new value to outputs. However he gives credit to Marx for contributing to the "financial instability hypothesis" of Hyman Minsky.[7]

Keen's book closes with a survey of various schools of heterodox economics, concluding "None of these is at present strong enough or complete enough to declare itself a contender for the title of 'the' economic theory of the 21st century." However, he argues neoclassical economics is a degenerative research program, not generating new knowledge. It primarily grows a belt of protective auxiliary hypotheses to shield its core beliefs from critique. There is an accompanying website which provides more detailed mathematical expositions.

Keen has challenged the core, elementary textbook neoclassical theories of Perfect competition and Monopoly, and in particular the argument that firms in "perfect competition" and monopolies are usefully thought of as representing polar opposites. Keen has referred to this as "the theory of the firm." Neoclassical textbooks define a firm acting without any strategic awareness of the effect of its output choice on price as representing "perfect competition" and argue that this condition of "perfect competition" can be represented analytically by a horizontal demand curve facing the firm -- the firm acts as if it believes it can sell whatever it produces at the currently prevailing price, but nothing at any higher price; marginal costs for this firm, it is presumed, are rising and the firm does not want to sell more at the current price or a lower price. Something like such a state of affairs, it is sometimes argued, is approached as the number of firms competing in a market approaches infinity and the effect of any one firm's output decision on the overall market price becomes infinitesimal and can be practically disregarded by the individual firm in its decision-making. By contrast a firm with strategic awareness that its output decision markedly affects the market price, faces, presumptively, a downward-sloping demand curve: expanding the rate of output sold depresses market price. In general, elementary neoclassical textbook presentations hold that all "profit-maximizing" firms will set marginal revenue equal to marginal cost. For the firm in "perfect competition", this means price = marginal revenue = marginal cost = average (unit) cost and no profit. For the "monopoly" firm aware that its output choice affects price, the "profit-maximizing" choice is to choose a rate of output where marginal cost = marginal revenue, but in the monopolist's case, that will mean constraining output to raise price above marginal cost.

Keen challenges the theory and pedagogy of the polar opposition of "perfect competition" and "monopoly" from multiple angles, arguing that the traditional theoretical pedagogy is contradictory and incoherent taken as a whole. He shows that the number of firms in a market is practically irrelevant to whether the firm's output choice affects the overall market price in the simplified (and practically unlikely) case of uniform firm cost structures and a downward-sloping market demand curve. He goes on to explore various scenarios by which multiple firms might arrive at an "equilibrium" market price and level of output. Keen further notes that cost structures are rarely uniform and that in the presence of significant economies from scale of production, a so-called "monopoly" realizing such economies of scale would be led to higher output and lower price than a large number of competing firms unable to realize such economies of scale. Keen also takes note of empirical evidence that many actual business firms are producing in a range of output where marginal cost may be less than average cost and falling, and firms openly desire to produce and sell more at current prices.[8]

Keen's article on "profit maximisation, industry structure, and competition"[9] has had counter-arguments by Paul Anglin.[10] Chris Auld has additionally claimed to show that Keen & Standish's arguments are inconsistent with standard assumptions used in perfect competition, and their analysis uses calculus improperly.[11]

In August 2015, Keen endorsed Jeremy Corbyn's campaign in the Labour Party leadership election.[12] As of October 2021, Keen plans to run as a senate candidate in the 2022 Australian federal election for The New Liberals in New South Wales.[13][14]

Keen was in favour of the UK leaving the European Union, stating mainstream economists were over-certain and exaggerating the likely effects following the country's withdrawal. Keen regards the open-borders free-movement policy of the EU as precipitate and unsustainable in the absence of a common fiscal policy; all the more so, given how migrants impose burdens on public services in destination countries also experiencing austerity.

He also states the Euro is destined to fail, not least because of the way it penalises recession-hit countries unable to pursue expansive fiscal policy, and indeed considers the whole EU project as a failed one destined for[15] collapse.[16]