April 20, 2015

Economists kill the economy

Comment on ‘Reality killed the Washington Consensus’


Francesco Saraceno writes about failed Orthodoxy: “These results are not surprising per se. All of these issues are highly controversial, so it is obvious that research does not find unequivocal support for a particular view. All the more so if that view, like the Washington Consensus, is pretty much an ideological construction.” (See thread intro)

The Washington Consensus was built on standard economic theory. It is well known that this theory does not satisfy the scientific criteria of material and formal consistency. Therefore, it is a priori impossible that economists can offer scientifically founded advice.

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)

For lack of the true theory, economists have only vague and commonsensical ideas about how the actual economy works. So they cannot help politicians to steer the economy. Worse, they usually deteriorate the situation, or, in more practical terms, they bear for example the responsibility for high unemployment (for the correct employment theory see 2015).

The problem is not so much ideology, the root of the malaise is the collective inability to trump up the new economic paradigm.

“... we may say that ... the omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives ...” (Feyerabend, 2004, p. 72), original emphasis

Egmont Kakarot-Handtke

Feyerabend, P. K. (2004). Problems of Empiricism. Cambridge: Cambridge University Press.
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Employment. SSRN Working Paper Series, 2576867: 1–11. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge, MA: MIT Press.