December 30, 2014

How to look at reality

Comment on 'Mainstream macroeconomics distorts our understanding of economic reality'


When Galileo stood in the cathedral of Pisa and watched the swinging chandelier, as certainly many had done before him without much reflection, he asked himself: how much time does the pendulum need for a full swing and what does the period depend on?

He did not ask: do my fellow citizens pursue happiness, or do they maximize utility, or who will eventually go to heaven, to hell, or to Bedlam? He somehow felt that the chances were good that he could answer the first question and nil that he could answer the second.

As a genuine scientist he was content with the petty problem of time, length and weight and left the really big, important, interesting, fateful and insoluble questions of humankind to the so-called social sciences. And there they remained, after countless promising attempts and the application of the most powerful analytical tools, unsolved up to the present day.

When they founded science and sought the material principle of things, the ancient Greeks in effect excluded psychology. We know today that this was a wise demarcation.

Economics could not emancipate itself from the social sciences. The axioms of rationality formalize a rather unconvincing variety of psychology. There is nothing wrong with axiomatization to be sure, only with psychology (2014a). An economist who philosophizes about optimizing human behavior is dislocated -- he finds himself on the wrong side of the line that demarcates science from non-science. Neither naive empirical realism, nor ill-understood formalization, nor rhetoric helps to the other side.

Demarcation may be difficult in every concrete case, but it is not negotiable. No serious methodologist could ever let orthodox or heterodox economics pass as science. The flaws are obvious and numerous.

Physicists know the Law of the Lever. And it is almost trivial. Economists cannot tell the difference between profit and income (2014b) but they are pretty sure about what is good and what is bad in the economy and, above all, who has to be blamed for the latter.

Not to forget, they are pretty sure about what a distorted understanding of reality is.

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2014a). Objective Principles of Economics. SSRN Working
Paper Series, 2418851: 1–19. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics:
Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL