December 30, 2014

What economics is all about

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

It is important to distinguish first between political and theoretical economics. The main differences are:
• The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works.
• In political economics anything goes; in theoretical economics scientific standards are observed.

Political economics is legitimate, however, it becomes illegitimate as soon as it tries to exploit theoretical economics for its respective agenda. It is a matter of indifference what the agenda is.

Theoretical economics has to be judged according to the criteria true/false and nothing else. Theoretical economics serves no political or social purpose whatever. Utility is not a scientific criterion, because it only makes sense with regard to specific groups/individuals.

To make the world a better place is the task of the legitimate government, not of economics. Institutional failures cannot be repaired by economics, only by political means.

Theoretical economics deals only with propositions that can in principle be decided by objective means. Political economics deals with all the rest, that is, opinion, faith, second-guessing, phantasy, hallucination, myth, paranoia, metaphor/analogy, green cheese assumptions, philosophy, storytelling, etcetera.

Political economics is scientifically worthless.

The main charge against current theoretical economics is: The profit theory is false since Adam Smith. Each economic approach that fails to capture the essence of the actual market economy is scientifically worthless.

Both, political defense or political attack of the actual market system has no scientific basis.

The two criteria of theoretical economics are material and formal consistency.

Formal consistency is guaranteed by the axiomatic-deductive method. This method alone, though, does not guarantee the truth of the theory. Material consistency is established by empirical tests.

The main argument against orthodox economics is that it is based on behavioral axioms. The argument against heterodox economics is that it lacks an axiomatic foundation, that is, it does not meet the formal minimum criterion of theoretical economics.

From the fact that actual economics is a failed science follows the necessity of a paradigm shift. The shift is formally executed by replacing the behavioral axioms of the current Orthodoxy.

Heterodoxy has identified numerous flaws of Orthodoxy, however, most heterodox economists do not understand/accept the task before them.

The main task of theoretical economics is to develop a superior economic paradigm.

Egmont Kakarot-Handtke