..........Conventional macroeconomics is not a lot of help because its starting premise is that the economy, as a self-correcting system, shouldn't suffer from prolonged recession or depression or generate persistent large-scale unemployment. In order to account for deep economic downturns the models have to be augmented with assumptions such as unexplained changes in preferences for leisure, repeated exogenous shocks, or persistent price rigidities in the labour market. It's all a bit ad hoc.
While conventional economics may be struggling, many are searching for alternative economic theories that can provide a more satisfactory account of what is going on. Steve Keen's work has attracted a lot of attention. He is one of the small number of unorthodox economists who in the early 2000s made a concrete prediction that a crash was coming. He recently received the Revere Award from the Real World Economics Review – having been voted the economist who most clearly warned of the coming crisis.
Keen has recently published the second, expanded edition of Debunking Economics: the naked emperor dethroned? which represents a robust challenge to the orthodoxy. I read the first edition seven or eight years ago, when this was a topic of interest to a disparate band of dissidents. The second edition will no doubt reach a much broader audience because it speaks to the most pressing economic issue of our time.
Keen's starting point is a rejection of pretty much all the core tools of conventional economics. Static, equilibrium theorising is dismissed. Walrus' law is rejected. Fundamental ideas such as the downward sloping demand curves are argued to be wrong. Not only that but, as Keen rightly points out, orthodox economists have demonstrated this to be the case – they've just kept quiet about it. Rational expectations and efficient markets are dismissed as logically and empirically deficient............
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