June 18, 2015

From true/false to garbage-wrestling and back

Comment on ‘Speak for yourself, or why anti-Keynesian views survive’


Science is about true/false and this is why most people do not like it. They point out that the world we live in is not black and white. So we have a zone of indeterminism (Schrödinger's cat!) where true and false coexist.

This idea reappears in economics as a positive methodological principle: “For Keynes as for Post Keynesians the guiding motto is ‘it is better to be roughly right than precisely wrong!’” (Davidson, 1984, p. 574)*

The logical snag of this popular slogan is that roughly right is equivalent to roughly wrong. Indeterminacy works both ways, but consistency has never been the strongest point of Keynesianism.

Keynes enthusiastically took indeterminacy on board and became the prophet of vagueness and uncertainty. Thus he occupied the ground between true and false where “nothing is clear and everything is possible.” (Keynes, 1973, p. 292)

The problem with indeterminism is that it degenerates to anything-goes and wish-wash faster than an egg boils. The remarkable thing is that two of the most advanced scientific propositions, Heisenberg's uncertainty principle and Gödel's incompleteness theorem, are routinely cited by people who have not realized that supply-demand-equilibrium is scientifically barely on a par with the Law of the lever.

What economics urgently needs is a return to the Principle of bi-valence, i.e. true/false, in order to minimize the zone of indeterminism. For scientists the guiding motto is “It is better to be precisely right than roughly wrong!”

When we focus on the formalized part of Keynes's theory there is no way around the fact that it is precisely wrong. Keynes stated in the General Theory: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (1973, p. 63)

This elementary syllogism contains a fundamental conceptual error/mistake (2011) that invalidates all I=S-models without exception. The fundamental flaw of the General Theory is that Keynes got the pivotal distinction between income and profit wrong. Now, because I=S is wrong, the multiplier is wrong, and this affects the whole employment theory. The only question that remains is whether Keynes's common sense arguments apply independently from the defective formal foundations.

Now we can advance from the intense yet pointless pro/anti-Keynesianism wrestling of Cafe Hayek, viz. “The evidence for the Keynesian worldview is very mixed”, to the straightforward Principle of bi-valence, which states unambiguously and definitively that Paul Krugman, Russ Roberts and Simon Wren-Lewis are out of science because they refer to models that are built upon the logically defective and empirically refutable I=S-proposition.**

Pro/anti-Keynesianism survives because ‘nothing is clear and everything is possible’ is the perfect motto for a sitcom of indeterminate duration.

Egmont Kakarot-Handtke

Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.

* See also Lars Syll on the RWER blog
** See Krugman  Roberts  Wren-Lewis