July 27, 2015

What comes after debunking?

Comment on ‘Why Real Business Cycle models can’t be taken seriously’

Blog-Reference and Blog-Reference

Orthodoxy is a failure and even laypersons understand intuitively that the behavior of the economy as a whole cannot be explained by the behavioral assumption of constrained optimization of individual agents. This has been a non-starter since Jevons-Walras-Menger and Heterodoxy has always said so. Yet, the question is not how this ‘pure nonsense’ ‘could be awarded The Sveriges Riksbank Prize in Economic Sciences’ but why traditional Heterodoxy could not produce something better than this ridiculous specimen of proto-science?

Orthodoxy is long dead but it has not been buried. Why is this scientific zombie (Quiggin, 2010) still around?

“The main reason for the considerable acceptance of the approach is that fundamental rule of scientific combat: it takes a theory to beat a theory. No amount of skepticism about the fertility of a theory can deter its use unless the skeptic can point to another route by which the scientific problem of regulation can be studied successfully.” (Stigler, 1983, p. 541)

So, this is the pork-barrel deal: Orthodoxy does not vanish because of proven scientific incompetence but only if Heterodoxy presents something better.

To do them the favor is the pleasant duty of Constructive Heterodoxy. Let us throw out the ‘real’ business cycle by advancing to the interaction of nominal and real variables which constitutes the business cycle of the economy we happen to live in (2012).

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2012). Intertwined Real and Monetary Stochastic Business Cycles. SSRN Working Paper Series, 2173528: 1–27. URL
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, NJ, Oxford: Princeton University Press.
Stigler, G. J. (1983). Nobel Lecture: The Process and Progress of Economics. Journal of Political Economy, 91(4): 529–545. URL