July 21, 2017

Minimum wage ― a fatal error in economic reasoning

Comment on NYT on ‘Minimum Wage and Job Loss: One Alarming Seattle Study Is Not the Last Word’


Economics suffers from the fact that the subject matter is ill-defined. Economists think that they are doing economics while they bungle amateurishly in sociology and psychology. What economists overlook is that their subject matter is the structure and behavior of the economic system and that all questions about Human Nature/motives/behavior/action is NOT their business.

Economics is a system science. Accordingly, the correct approach is not microfoundations but macrofoundations. The elementary version of the correct (objective, systemic, behavior-free, macrofounded) employment equation is shown on Wikimedia.

From this equation follows:
(i) An increase of the expenditure ratio rhoE leads to higher employment L (the Greek letter rho stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

Item (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio rhoF as defined in (iii) embodies the price mechanism. The fact of the matter is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R. This is the OPPOSITE of what microfounded economics teaches.

“We economists have all learned, and many of us teach, that the remedy for excess supply in any market is a reduction in price. If this is prevented by combinations in restraint of trade or by government regulations, then those impediments to competition should be removed. Applied to economy-wide unemployment, this doctrine places the blame on trade unions and governments, not on any failure of competitive markets.” (Tobin)

“If the price of bananas is kept too high in relation to the price required to balance supply and demand there will be a surplus of bananas. If the price of bananas is below the market clearing price there will be a shortage. The same applies to labour. If the price ― i.e. the wage ― is too high there will be a surplus of workers, i.e. unemployment. If it is kept too low there will be a shortage of workers … Workers do sell their services just as banana producers sell their bananas.” (Brittain)

The banana theory of the labor market is just that: bananas. The lethal methodological blunder of microfounded employment theory consists in the Fallacy of Composition, i.e. the illegitimate transfer of truths that hold for one firm/market onto the economy as a whole.

False theory leads to false policy guidance. Scientifically incompetent economists bear the intellectual responsibility for the social devastation of mass unemployment.*

Egmont Kakarot-Handtke

* For details see cross-references Employment

July 20, 2017

Economics: math-adorned incoherent blather

Comment on Jason Smith on ‘What mathematical theory is for’


Jason Smith asserts: “The primary purpose of mathematical theory is to provide equations that illustrate relationships between sets of numerical data.”

This is a bit shallow and does not reach the level of Wikipedia: “Mathematics is the study of topics such as quantity (numbers), structure, space, and change. … Rigorous arguments first appeared in Greek mathematics, most notably in Euclid’s Elements. Since the pioneering work of Giuseppe Peano, David Hilbert, and others on axiomatic systems in the late 19th century, it has become customary to view mathematical research as establishing truth by rigorous deduction from appropriately chosen axioms and definitions.”#1

Why mathematics is so admirably appropriate to the objects of reality is not fully understood: “I find it quite amazing that it is possible to predict what will happen by mathematics, which is simply following rules which really have nothing to do with what is going on in the original thing.” (Feynman) see also (Wigner) and (Velupillai)

How does this relate to economics? Walrasian economics, too, is axiomatized, the hard core premises are verbally given as follows: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

It should be pretty obvious that the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every model that contains a nonentity is A PRIORI false. And this is why mathematics does not work in economics and why economics is a failed science or what Feynman famously called a cargo cult science.

In practical terms, it follows immediately: as soon as the word equilibrium/disequilibrium appears in an economic paper or textbook it can be thrown into the waste basket. The same holds for all other nonentities. Note well that this holds also for Jason Smith’s information equilibrium.

The decisive insight for the role of mathematics in economics is: “If it isn’t macro-axiomatized, it isn’t economics.”

The natural math of economics is the elementary math of accounting. This is the formalism to start with and NOT SS-function-DD-function-solution.#2 The problem with economists is that they grab a piece of math from the math department and apply it without deeper understanding.

The cargo cultic methodologist Jason Smith asserts: “A big step in using math to understand the world is when you’ve collected several different empirically successful models into a single paradigm or framework. That’s what Newton did in the seventeenth century. He collected Kepler’s, Galileo’s, and others’ empirical successes into a framework we call Newtonian mechanics.”

And how does Newtonian mechanics start? Yes, with the axioms of motion, see Axiomata Sive Leges Motus at the very beginning of Principia.#3

Physicists got the axioms right and this is why math works, economists messed up the axioms (first and foremost with HC5, i.e. equilibrium), and this is why the representative economist became a scientific laughing stock. The economist-turned-physicist Jason Smith is no exception.#4

Egmont Kakarot-Handtke

#1 Wikipedia Mathematics
#2 Macro for dummies
#3 Wikipedia Newton’s laws of motion
#4 You are fired!

For details of the bigger picture see cross-references Math/Mathiness

REPLY to Neil Wilson on Jul 21

You say: “Physics envy again. … Changing the framework in physics doesn’t fundamentally alter the behaviour of the elements studied ― even in quantum physics. It does in social sciences and economics ― because they involve people with brains and emotions that change their mind.”

This is not a case of physics envy but of social science delusion. Economics is a system science, i.e. about the structure/behavior of the economy, and NOT a social science, i.e. about Human Nature/motives/behavior action. This is the subject matter of psychology, sociology, political science, etcetera.

Economists are simply at the wrong party and have not realized it since the founding fathers.

Standard economics is based on behavioral axioms (constrained optimization, rational expectations, equilibrium) and mathematics simply does NOT work with nonentities. The calculation that when three angels and four angels dance on a pinpoint then the total is seven angels is not applied arithmetic but brain-dead crap.

It is well-known among mathematicians, but not among economists, that not all mathematical structures incorporate “certain aspect of empirical reality”, which means, that there is a “... whole crop of monster-structures, entirely without application.” (Bourbaki)

Standard economics, i.e. supply-demand-equilibrium, is such a monster-structure, entirely without application. This is NOT the fault of mathematics but of abysmally incompetent economists. Count Jason Smith and yourself among them.*

* Incompetence — the original sin in economics

REPLY to Neil Wilson on Jul 21

You quote: “Newton’s law of gravity hasn’t changed for eons, Derman said, but human behavior in markets changes all the time, wreaking havoc on even the best models made by scientists.”

WOW, what a revelation! Guess what, this has been known to scientists of all ages except, of course, to retarded economists: “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition … is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown)#1

Economists, in their ignorance, built economics on a set of BEHAVIORAL axioms with utility maximization at the core. This was 140+ years ago and neither has Orthodoxy abandoned this proto-scientific rubbish nor has Heterodoxy come forward with something better. Economics has never risen above the level of folk psychology and folk sociology and second-guessing other people’s expectations.

Of course, there is NO such thing as a behavioral law or regularity or stable functional relationship, never was, never will be. Being axiomatically false, economics has to be abandonment and fully replaced.

There is no use to criticize Walrasianism, Keynesianism, Marxianism, Austrianism. It is ALL proto-scientific sitcom blather. The only question is how to replace these failed approaches as fast as possible.

The first step to a paradigm shift is to understand that economics is not a so-called social science like psychology/sociology and not a natural science like physics but a system science. The economist’s proper task is to look out for objective systemic laws and to empirically verify/falsify them. Science is about the invariants beneath changes on the surface and not a commonsensical description of what happens here and now. There are NO BEHAVIORAL laws but there are SYSTEMIC laws, and they are as objective, certain, mathematically exact, and eternal like physical laws.#2

#1 The existence of economic laws and the nonexistence of behavioral laws
#2 New Economic Thinking: the 10 crucial points

Intellectual deficit spending

Comment on Lars Syll on ‘The balanced budget paradox’


Lars Syll gives a vivid description of the utterly confused state economists are in since 200+ years: “The pros and cons of public debt have been put forward for as long as the phenomenon itself has existed, but it has, notwithstanding that, not been possible to reach anything close to consensus on the issue — at least not in a long time-horizon perspective. One has as a rule not even been able to agree on whether public debt is a problem, and if — when it is or how to best tackle it. Some of the more prominent reasons for this non-consensus are the complexity of the issue, the mingling of vested interests, ideology, psychological fears, the uncertainty of calculating ad estimating inter-generational effects, etc., etc.”

Lars Syll gives the catch-all reason for the failure of economists — complexity of the issue#1 — and thus remains true to the custom of solidarity among fellow economists to avoid the real issue, which is all-around scientific incompetence.

It is not only the question of public debt which is stuck in the swamp where ‘nothing is clear and everything is possible’ (Keynes), it is ALL of economics. The fact is that the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.

Isn’t it curious that in Lars Syll’s comprehensive discussion of public deficit spending and functional finance the word profit does not appear once? The simple reason is that the profit theory is false since Adam Smith, therefore profit either does not at all appear in the models or in misspecified form.

The problem is that economists in general and Lars Syll, in particular, do not understand the elementary mathematics of macroeconomic accounting.#2 Let us make matters short here. The balances of the business sector, the household sector, the government sector and the rest of the world are interrelated as follows: Qm≡-Sm+I+Yd+(G-T)+(X-M). This boils down to Qm≡-Sm+(G-T) for I, Yd, X, M = 0.

So, there are two limiting cases: (i) If the household sector’s saving Sm goes up and the government’s deficit (G-T) goes up by the same amount the monetary profit of the business sector Qm remains unchanged. (ii) If the household sector’s saving Sm remains unchanged and the government’s deficit (G-T) goes up the profit of the business sector Qm goes up by the same amount.

So, the counterpart of an increased public deficit is either increased saving of the households or increased profits of the firms or some combination of the two. Therefore, to say that the counterpart of an increased public deficit is an increased surplus of the ‘private sector’ obscures important real world differences.

What is entirely missing in Lars Syll’s discussion of public debt is that public deficit spending is, first of all, a profit machine.#3 This is not different from private deficit spending. In the past decades the US households increased their debt, that is, they were dissaving. So, BOTH the private and public households ran deficits. From the formula above follows that this boosts profit Qm TWICE. And this is exactly what has been observed and criticized as a catastrophic deterioration of the income distribution.

The interrelation between changes of public debt and profit is obscured by lumping together the business sector and the household sector to the ‘private sector’ and repeating the idiocy ‘We owe the debt to ourselves’.

Egmont Kakarot-Handtke

#1 See also ‘Failed economics: The losers’ long list of lame excuses
#2 ‘Macro for dummies
#3 See also ‘Keynesianism as ultimate profit machine

Related 'New Economic Thinking: the 10 crucial points' and 'You are fired!' and 'Austerity and the idiocy of political economists' and 'Replacing sand by granite' and 'First Lecture in New Economic Thinking' and 'Macrofounded labor market theory' and 'The minimum wage debate: a showpiece of economists’ hereditary idiocy'

July 19, 2017

New Economic Thinking: the 10 crucial points

Comment on Bradford DeLong on ‘How to Think Like an Economist’

Blog-Reference and Blog-Reference and Blog-Reference on Jul 19 and Blog-Reference and Blog-Reference and Blog-Reference on Jul 20 adapetd to context

Bradford DeLong gives a comprehensive overview of what he and the representative economist understands under economic thinking.#1 His post can be taken as an inventory of all that is wrong with economics. This, in turn, delivers the red thread for the systematic enumeration of necessary changes.

(i) The State of Economics

The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.

Provable false:
• profit theory, since 200+ years,
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S, IS-LM), since 80+ years.#2

This means that the popular textbooks from Samuelson (1947) to Mankiw and Rodrik are scientifically worthless.#3

(ii) Paradigm shift

Economics is a failed science. The four main approaches are indefensible. The arguments of the representative economist about specific difficulties of his subject matter have to be taken for what they are: as excuses, more precisely as thoroughly refuted excuses.#4

The fact that an approach is axiomatically false means that it cannot be improved but must be fully replaced.

(iii) System science

Bradford DeLong argues: “While economics is not a natural science, it is a science — a social science.” This is a popular misunderstanding. Economics is a system science. Economics is about how the economy works and NOT about Human Nature/motives/ behavior/action.#5 These issues are left to psychology, sociology, anthropology, history, political science, social philosophy, biology/Darwinism/evolution theory etcetera.

(iv) Separation of Politics and Science

The question about the good society is a political question that has to be answered in the political realm and NOT in the scientific realm. Already John Stuart Mill was quite explicit about the separation of politics and science.#6

(v) True macrofoundations

Fact is that the subject matter of economics is ill-defined or, in methodological terms, that economics is axiomatically false.

A paradigm shift means in practical term that economics has to move from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations because if it isn’t macro-axiomatized, it isn’t economics.#7

(vi) Methodology

The failure of economics is mainly due to the Fallacy of Insufficient Abstraction. In other words, economists cannot rise above the level of storytelling. One story line is that of supply-demand-equilibrium and the wonderful feats of the Invisible Hand, the other story line is that of the struggle between the good guys=workers and the bad guys=capitalists. Storytelling is scientific rubbish but people like it.

The economy is an abstraction. The correct abstraction to start with is what Keynes called the ‘monetary theory of production’. Scientific theories are defined by material/formal consistency.

The analysis proceeds top down, that is it starts with macrofoundations which are step by step differentiated, in other words, the analysis advances from the elementary to the complex.

There is no vague blather, no rhetoric, no metaphors, no psychologism, no sociologism, no second-guessing of human motives or expectations, no gossip, no sitcom talk and no storytelling. There is nothing but measurable variables, equations and graphs. Because all variables are measurable all conclusions are testable.

(vii) The pure consumption economy

The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.#8 The pure consumption economy is formally given by:

• Three axioms:
(A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L,
(A2) O=RL output O is equal to productivity R times working hours L,
(A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

• Two initial conditions: market clearing, i.e. X=O, and budget balancing, i.e. C=Yw.

• Two definitions: monetary saving of the household sector Sm≡Yw-C and monetary profit of the business sector Qm≡C-Yw. It always holds Qm+Sm=0 or Qm=-Sm.

(viii) The evolving economy

The axioms A1 to A3 refer to a period of predetermined length. The variables for one period and the next period are connected by rates of change (deterministic or random). The proper formal representation is not a system of equations but a simulation. The open ended simulation is given with the Economics God Equation.#9

(ix) The market

It is a must to forget a whole bunch of NONENTITIES: utility, production function, supply function = SS-curve, demand function = DD curve, equilibrium/disequilibrium. Supply-demand-equilibrium, the totem of micro/macro, is dead. Functions are fictions and therefore reduced to period elasticities.

The macroeconomic market is formally defined with the Law of Supply and Demand.#10

(x) Employment and real growth/decline

The pure consumption economy has, of course, to be expanded to the investment economy. This yields the employment equation.#11This equation shows how employment/ unemployment depends on aggregate demand and the price- and profit mechanism, i.e. on the relative changes of wage rate, price, and productivity. The growth/decline of output and changes of the income distribution can be derived from the employment equation. The stocks of inventory, money, and capital are consistently derived from the period flows as numerical integrals.

The employment equation proves that the market economy is inherently unstable and shows the possible entry points for effective policy measures.

Egmont Kakarot-Handtke

#1 How to think like an economist (if, that is, you wish to …)
#2 Economics: 200+ years of scientific incompetence and fraud
#3 The father of modern economics and his imbecile kids
#4 Failed economics: The losers’ long list of lame excuses
#5 Economics is NOT about Human Nature but the economic system
#6 The end of political economics
#7 First Lecture in New Economic Thinking
#8 For the verbal description see ‘How the intelligent non-economist can refute every economist hands down
#9 Wikimedia Economics God Equation

#10 Wikimedia Law of Supply and Demand
#11 Wikimedia Employment equation/structural Phillips curve

Immediately preceding 'How economists habitually mess it up'. For details of the big picture see cross-references Paradigm shift.

July 18, 2017

On econoblogosphere bias

Comment on Chris Dillow on ‘On BBC bias’

Blog-Reference and Blog-Reference

Chris Dillow is concerned: “One fact tells us this ― that the public are horribly wrong about many basic facts. Of course, this isn’t wholly or even mainly the BBC’s fault. But such massive ignorance should alert us to the possibility that the country’s most powerful broadcaster isn’t fulfilling its purpose of informing its viewers and listeners.”

That the public are horribly wrong about many basic economic facts, though, is mainly the fault of economists. The first fact where the public is horribly wrong is to think that economics is a science. Economists communicate this every year to the public with immense fanfare with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

Fact is that there is no such thing as ‘Economic Sciences’. Theoretical economics consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational economic concept profit wrong. What we actually have is the pluralism of provable false theories ― a rummage table where everybody can grab a convenient opinion.

Theoretical economics is scientifically unacceptable. And political economics is just this since 200+ years: politics. This is faithfully reflected in the econoblogosphere. Since the founding fathers economists violate the principle of the separation of science and politics. Economics is what Feynman famously called a cargo cult science and neither right wing nor left wing economic policy guidance has a sound scientific foundation since Adam Smith/ Karl Marx.

So, is the economics blogoshpere fulfilling its purpose of informing the general public about economic matters? Or is it full of proto-scientific crap, incompetent blather, disinformation? Are all comments published as they come or are some made to vanish into nirvana? Are some threads edited ex post? Does attention and reputation management happen? Is the BBC biased? You bet. Is the econoblogosphere biased? You bet. Does Chris Dillow make comments disappear?#1

The paradox of communication is: the information you get is not the one you need, and the information you need is not the one you get. It is much like Sherlock Holmes’s ‘curious incident of the dog in the night-time’.#2

Egmont Kakarot-Handtke

#1 Look for ‘Zero-sum capitalism
#2 See also ‘Economics, Plato’s Cave and the Silver Blaze Case

Related 'Needed: The Worst of the Worst of economics blogs'. For details of the bigger picture see cross-references Political economics

July 17, 2017

You are fired!

Comment on Barkley Rosser on ‘Those Of You Who Are Old Enough Will Really Get This’

Blog-Reference and Blog-Reference and Blog-Reference

(i) Barkley Rosser reports: “I am adding yet more to my most recent two posts where I am complaining about this essentially side remark that Larry Summers made in his commemoration of his late uncle, Kenneth Arrow, in which he reports that at the party celebrating Arrow’s Nobel Prize in 1972, Summers’s other uncle, the late Paul Samuelson was supposedly ‘discussing how stupid Joan Robinson was’.”

The geniality of Joan Robinson is engraved in everlasting granite with this verdict about economics: “Scrap the lot and start again.”

To her fellow economists she referred as ‘throng of superfluous economists’. Indeed, this is their track record: PROVABLE false
• profit theory, since 200+ years,
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S, IS-LM), since 80+ years.

ALL theories/models that contain profit, maximization-and-equilibrium, or I=S/IS-LM are a priori false and this is more than 90 percent of the content of peer-reviewed economic quality journals and 100 percent of textbooks of renowned authors since 1947.

The throng of superfluous economists has not realized that the core of economics ― profit theory ― is false since Adam Smith.

(ii) Most famous example: Keynes. This is the piece of evidence from the General Theory: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Because profit is ill-defined the whole theoretical superstructure of Keynesianism is false. This holds also for Walrasianism, Marxianism, Austrianism.

(iii) All errors and misinterpretations are eliminated by turning to mathematical formalism and graphical representation.

(a) National accounts, pure consumption economy, two sectors, initial period C=Yw, consumption expenditures = wage income
(b) National accounts, dissaving C > Yw, consumption expenditures greater than wage income, profit Qm = dissaving -Sm (with Qm≡C-Yw, Sm≡Yw-C, Qm+Sm=0 or Qm=-Sm)
(c) National accounts, saving C < Yw, consumption expenditures less than wage income, loss -Qm = saving Sm

The national accounts tell one important thing: profit is NOT the income of capital but the mirror image of dissaving, i.e. the household sector’s increase of debt.

(iv) From the accounting graphics it is immediately obvious that Keynes’s foundational identity “Income = value of output” is false. This seemingly commonsensical identity is the biggest methodological blunder in all of economics because it led ― among other errors/ mistakes ― to the treatment of profit as income of capital.

Because the profit theory is false since Adam Smith ― “... one of the most convoluted and muddled areas in economic theory: the theory of profit” (Mirowski) ― economics became the failed science that it is today.

(v) The scientific incompetence of the representative economist is documented by the fact that he cannot tell the difference between profit and income until this very day. The ‘throng of superfluous economists’ has NO idea of the foundational concepts of their subject matter. From the freshman to the Nobel Laureate it is just proto-scientific blather.

Joan Robinson realized this and told the world. Now it is time to get rid of these folks.

Egmont Kakarot-Handtke

Related 'How economists habitually mess it up' and 'Macro for dummies' and 'The real problem with the economics Nobel' and 'We are not yet out of the wood; in fact, we are not yet in it' and 'Economics is not a science, not a religion, but proto-scientific rubbish' and 'How Arrow pushed economics over the cliff' and 'New Economic Thinking: the 10 crucial points'

REPLY to anne on Jul 17

For more on Joan Robinson see:
Joan Robinson and the ‘throng of superfluous economists
Let’s do it
Habermas, Albert, Robinson, Syll are right — now scrap the crap
The overdue public clarification of economics’ actual scientific state
Will economics ever become a science?

REPLY to ProGrowthLiberal on Jul 17

See 'The futile attempt to recycle Sraffa'

REPLY to ProGrowthLiberal on Jul 17

The Economics God Equation fully replaces Sraffa’s akward “real” construct. Note that there is NO profit in a “real” economy. Seems to have escaped you since Econ 101.

REPLY to Barkley Rosser on Jul 18

The consistency with which you grab into the toilet is remarkable. Joan Robinson said TWO correct things, which is TWO MORE than Arrow, Samuelson, Summers e tutti quanti ever said:
  • “Scrap the lot and start again.”
  • “An excess of saving over the value of investment is therefore a loss to firms … and an excess of investment over saving is an undistributed profit to the firms …”#1
So, Joan Robinson got macro accounting almost right (see also case (iii) c above) but did not see the significance for profit/capital theory and fell back to vacuous microeconomic argumentation.#2

Stupid as ever, you cited the 'wrong' Joan Robinson.

#1 For details see ‘Keynes’s Missing Axioms’ p. 21, references
#2 For the correct capital theory see ‘Squaring the Investment Cycle

REPLY to Barkley Rosser on Jul 18

You say: “If she said the second, you will need to show where, troll, although she probably would say that it is often the case, as it is, but not one that necessarily holds in general.”

Learn reading. I gave you the source already above with the baby spoon: #1 For details see ‘Keynes’s Missing Axioms’ p. 21, references

There you will find the original source: Robinson, J. (1956). The Accumulation of Capital. London: Macmillan. Page 402.

Perhaps there is a brilliant mind in your circle of blather buddies who can read it aloud for you.

July 16, 2017

How economists habitually mess it up

Comment on Bradford DeLong on ‘How to Think Like an Economist’

Blog-Reference and Blog-Reference and Blog-Reference

Economics is a failed science. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent and all got the pivotal economic concept profit wrong.#1

Economists are well aware of the stagnation of economics: “... we know little more now about ‘how the economy works,’ ... than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” (Clower) Economists, though, do not locate the reasons for failure in themselves but in the specifics of their subject matter. These explanations have to be taken for what they are: as excuses.#2, #3, #4

Fact is that the subject matter of economics is ill-defined or, in methodological terms, that economics is axiomatically false.#5

Bradford DeLong argues: “While economics is not a natural science, it is a science — a social science.” False. Economics is a system science.

Therefore “… to understand people you have to get inside their heads: understand their hopes, fears, desires, reasoning, plans, expectations, and actions” is NOT AT ALL the business of economics. This is the subject matter of psychology, sociology, anthropology, political science etcetera.

The business of the economist is to figure out how the economic system behaves and how the economic phenomena and variables are structurally interrelated. In an analogy: economics is not about the motives/behavior/action of passengers/crew on an airplane but about how flight is possible.

Bradford DeLong explains why economist have always three answers for any question: “The major reason is that different people have different views of what makes a free, a good, a just, or a well-ordered society.”

Note well that the question about the good society is a political question that has to be answered in the political realm and NOT in the scientific realm. John Stuart Mill was quite explicit about the separation of politics and science: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”

The main reason why economics is a failed science is that economists are not scientists but agenda pushers. There are TWO economixes: political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics the scientific standards of material and formal consistency are observed.

Economics has been hijacked 200+ years ago by agenda pushers. Political economists have not figured out until this day how the market economy works.#6

Economists do not need a prescription ‘How to Think Like an Economist’ but an idea how to get out of the self-created proto-scientific mess.

Egmont Kakarot-Handtke

#1 Economics: 200+ years of scientific incompetence and fraud
#2 Economists and their silly excuses
#3 Failed economics: The losers’ long list of lame excuses
#4 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist
#5 First Lecture in New Economic Thinking
#6 Macro for dummies

Immediately following 'New Economic Thinking: the 10 crucial points'