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In 2008, Keen bet Macquarie strategist Rory Robertson that house prices would fall by 40 per cent. The forfeit was to walk from Canberra to the top of Mount Kosciuszko and as house prices continued to rise, Keen did just that in 2010.
There is some confusion over the bet and if you listen to the recording of the conversation during which the bet was made, it’s clear that the timescale Keen was talking about was over 10 to 15 years while even Robertson agrees to give him five years for it to drop. Keen says he did it anyway because he thought he might get bad publicity if he didn’t but he got lots of bad publicity anyway and riled many mainstream economists. That doesn’t mean they don’t respect him.
The chief economist at AMP Capital, Shane Oliver, says Keen’s work on highlighting the inefficiencies of markets and opposing deregulation has been valuable.
“He always said that markets are not inherently efficient in that they do not always price assets correctly and that is now largely accepted as true.
“He has also been right to point out the ballooning private debt issues in many countries and his forecasts about what this would do for house prices were right in places such as the UK and US. Just because Australia’s house prices haven’t crashed doesn’t mean we don’t have too much debt. We do. So he has played an important role in bringing these issues into the spotlight.
“When you come out with views as extreme as his, and even sell your flat to avoid a price slump, you will get negative publicity when your predictions don’t come true.”
Saul Eslake of Merrill Lynch Bank of America disagrees with many of Keen’s views but says Keen works hard to back up claims. “Keen’s reading of data leads him to conclusions that I would not necessarily reach but he doesn’t make forecasts without basis. He looks for evidence to support his views. The fact he has been at an extreme end of views about house prices does not make him a bad economist. We all make bad calls from time to time.”