In 2002, I wrote a small piece noting that Steve Keen’s novel criticism of economics in his book Debunking Economics is simply wrong (Debunking Debunking Economics). Part of that novel criticism is Keen’s claim that the standard analysis of the competitive model is mathematically wrong, and if one does the math correctly, one finds that the competitive equilibrium and the collusive outcome are the same. Which is an extraordinary claim! Everyone has been just doing the math wrong for well over a century, and if we were to do the math correctly we’d find that all industry structures actually behave as if the industry were monopolized, under textbook assumptions. Again, it’s important to emphasize this isn’t an appeal to some more complex model, or to empirical evidence, or criticism of some unrealistic assumption in the standard model: Keen’s claim is that this theoretical result follows from textbook assumptions if one merely does the math correctly.
Over on Worthwhile Canadian Initiative, Nick Rowe made an attempt a few days ago to explain that an elaborated version of that argument which was published in the “Real World Economics Review” (paper) is wrong. The elaborated version includes an alleged proof of an assertion in the original paper. This post points out the conceptual and mathematical errors in that “proof.” These are errors in high school level mathematics and elementary microeconomics.