Good article here explaining how Steve Keen didn't predict the GFC.
Full article is pretty long, I have just copied a few paragraphs here...
Full article is pretty long, I have just copied a few paragraphs here...
What does it mean to have "predicted the crisis"?
Since 2008, quite a lot of people have boldly claimed that they "predicted the crisis". Usually, the claimants use this "fact" to argue for the superiority of their economic school of thought, modeling approach, investing approach, or personal intuition. But what does it mean to have "predicted the crisis"?
As an example, let's take Steve Keen.
Steve Keen, formerly a professor at the University of Western Sydney, is known for claiming more loudly and confidently than just about anyone else on the planet that he "predicted the global financial crisis". According to Keen, this should be a reason to believe his extensive critiques of neoclassical (i.e. mainstream) economics, and his suggested alternative paradigm, known as "Post-Keynesianism".
So in what way did Keen "predict the crisis"?
Searching the internet, I can find no record of an ex-ante prediction by Keen of a large-scale U.S. housing bubble. He did, however, predict an Australian housing bubble, in 2007 after the U.S. housing bubble had already begun to pop. That prediction has so far yet to materialize; Australian housing prices have not collapsed yet. As a result of this incorrect prediction, Keen lost a high-profile bet.
Did Keen predict the collapse of the U.S. finance industry (the Lehman shock and subsequent bailouts)? Not that I can find. Nor did he warn of the risk of such an industry collapse, as far as I can find.
How about the recession and stagnation? Here, Keen makes his strongest claim to have made an ex ante prediction. His argument is laid out in this paper. (Warning: as others have noted, Keen's papers are nearly unreadable.)
In any case, it is clearly apparent that nowhere in this paper - or in any other paper that I can find - does Keen present a model whose output bears even a passing resemblance to the crisis we experienced in the late 2000s. (As an aside, note that many models, including a simple neoclassical Ramsey model, have equilibria in which the economy collapses completely. Building such a model is very very easy. But complete economic collapses - total and permanent cessations of economic activity - haven't yet been seen in the real world...ever.)
Therefore, we can conclude that there is no Steve Keen model that predicted the recession and long stagnation that we've experienced. And in fact, there does not seem to be any "Post-Keynesian model" whose features closely resemble the financial crises and recessions that we see in the real world.
Anyway, so we see that Steve Keen's prediction of the global financial crisis was considerably less impressive than his bold claims would have us believe. He does not have a model that can predict bubbles, financial collapses, or recessions. His personal warnings of doom often don't seem to materialize for over a decade...if they materialize at all. If you trust Steve Keen as an economist or as a personal prognosticator based on his 2005 warnings of imminent global recession, you may be falling victim to the common behavioral phenomenon of overconfidence. (Not that I expect this fact to give pause to many of his...um...ardent followers. Remember that pundits get more fans by displaying self-confidence than by being right!)
Link to full article... http://noahpinionblog.blogspot.com.au/2013/05/what-does-it-mean-to-have-predicted.html