August 10, 2015

Heterodoxy: important decisions ahead

Comment on ‘Some Issues’

Blog-Reference

1st issue
Peter Radford sees the main problem of current economics in ‘these unbelievably simple little economies’. There is, of course, a huge problem with orthodox modeling but it is not exactly simplicity. Given the serial processing of human thinking, theory must start with the simplest case and then proceed to ever more complexity.

“There can be no doubt whatsoever that a problem which has not yet been solved in all its aspects under its simplest conditions will be still more difficult to tackle if other, 'more realistic' assumptions are being made.” (Morgenstern, 1941, p. 373)

The lethal crux of Orthodoxy lies in unacceptable premises. What are those premises?
“... I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub, 1985, p. 147)

The economics of the future has to be built on an entirely different set of premises — not because orthodox premises are too simple but because they are methodologically unacceptable.

2nd issue
“... economics is a big omnibus which contains many passengers of incommensurable interests and abilities.” (Schumpeter, 1994, p. 827)

Current economics is a melange of political and theoretical economics with a predominance of the first ingredient. The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works. One problem of economics is that many economists are not scientists but agenda pushers. The crucial difference between the two is as follows.

“A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent. (Haack, 1997, p. 1)

Economists are expected to deliver the true economic theory and not to serve any extraneous purpose of whatever sort. Up to the present, they have not accomplished their primary task. Economics is a failed science.

In order to become a science, economics has to get agenda pushers off the omnibus. Political economics may become a sub-discipline of political science. The topic of political economics is how to instrumentalize the economy for political purposes. Economics proper is concerned with the working of the economic system. The goal of the theoretical economist is to achieve a paradigm shift. In Keynes’s words: “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight — as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (1973, p. 16)

3rd issue
“... there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)

All of microeconomics is false because the set of hard core propositions HC1 to HC5 is the false point to start with. For the reconstruction of economics the following concepts are definitively ruled out: utility, expected utility, rationality/bounded rationality, equilibrium, constrained optimization, well-behaved production functions, supply/demand functions, simultaneous adaptation, rational expectation, ergodicity.

As a positive heuristic we have: time, matter, energy, information, entropy, randomness and uncertainty should be part of the theoretical reconstruction of the monetary economic system.

As main formal tool the usual system of equations has to be replaced by the stochastic simulation. A simulation as defined by structural axioms, probability distributions, and behavioral propensities is a well-defined mathematical object just like a system of equations. A simulation yields a bundle of intertwined paths of real and nominal variables including the stocks of money and debt. This bundle has a counterpart in reality.

In any case, Heterodoxy has to define itself with a set of hard core propositions that fully replace HC1 to HC5 above.

4th issue
Paraphrasing J. S. Mill: The most effectual mode of showing how Heterodox economics may be constructed, would be to construct it.*

5th issue
Heterodoxy has to decide whether it stands for a political movement or a new economic paradigm.

Egmont Kakarot-Handtke


References
Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. 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.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, NY, Melbourne: Cambridge University Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

* See cross-references