Comment on David Glasner on ‘Romer v. Lucas’
Blog-Reference
You say: “I agree that economic theory has many shortcomings, but that does not imply that economic theory is ‘pseudo-scientific junk’.”
I have dealt with this evasive argument already under the title The philosophy of know-nothingers. What I agree upon is that it is perhaps more to the point to speak of cargo cult science or farce as Feynman did (see blog-post Tavares, 2014).
Science is about logical and material consistency (Klant, 1994, p. 31). Now, it can be rigorously demonstrated that standard economics lacks logical consistency and from this follows straightforwardly that it is out of science.
It is sufficient to take Keynes as a concrete example and then generalize. As a centerpiece of his General Theory, he formulated the foundational syllogism of macroeconomics. “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (1973, p. 63)
This elementary two-liner is conceptually and logically defective because Keynes did not come to grips with profit. “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson and Bezemer, 2010, pp. 12-13, 16)
The fault in Keynes's two-liner is in the premise ‘income = value of output’. This equality holds only in the limiting case of zero profit in both the consumption and investment goods industry. Hence, Keynes dealt with a zero-profit economy without being aware of it (2011). Curiously, Walras's original model has also been a zero-profit economy. Both approaches are not very ‘realistic’ to say the least.
It holds in general: “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10). It is pretty obvious that economists know nothing about how the actual monetary economy works when they cannot tell what profit is. A logically and materially consistent profit theory is the first scientific hurdle economics has to take. It did not, and this is a provable fact.
The problem of economics is not that this or that model is insufficient or unrealistic or oversimplified or whatever euphemism is used. The fact is that economics as a whole is a failure. And the ultimate reason is that it is built upon false premises.
In sum, all theories/models that take one or more of the following concepts into the premises are scientifically worthless: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity. All these items are economic NONENTITIES.
From an economist who accepts one of these premises nothing of scientific value is to be expected. And this is why economics is caught for more than 200 years in the proto-scientific cul-de-sac. Given this abysmal logical performance, it is a matter of indifference whether the peer-reviewed representative economist realizes, understands, or accepts this.
Egmont Kakarot-Handtke
References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2011). Keynes’s Missing Axioms. SSRN Working Paper Series, 1841408: 1–33. 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.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Tavares, E. (2014). The Farce That Is Economics: Richard Feynman On The Social Sciences. Zerohedge. URL
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL
For details of the big picture see cross-references Incompetence.
Related 'Disoriented and lost in folk psychology'.