December 13, 2015

Neither impressive nor hopeful

Comment on Lars Syll of Dec 6 on ‘The model of all economic models’

Blog-Reference

Everybody easily agrees that the statement “Lars Syll is a green Martian living in New York” is false and that the statement “Lars Syll is a green Martian living in Malmö” is not a very impressive improvement. But “Lars Syll is a confused economist living in Malmö” is a correct assertion.

Everybody easily agrees that Lars Syll’s critique of standard economics is valid and that all models from Jevons/Walras/Menger to DSGE that take the ‘maximization-and-equilibrium world as a starting point’ are provable false.* The methodological incompetence of neoclassical economists consists in not recognizing that the axiomatic foundations of their ur-model are indefensible.

Thus far the matter is settled, now the hard part starts with finding an alternative because Keynesianism as the challenger of neoclassics is also defective and untenable.

The fact of the matter is that all authors who have written about Keynes, this includes Lars Syll**, have overlooked that Keynes had messed up the formal foundation of the General Theory which is given with this two-liner “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (1973, p. 63)***

The fatal flaw of Keynesianism is that the underlying profit theory is false. And it should be beyond the slightest doubt that if one gets the pivotal concept of economics wrong all the rest of one’s theory is for the birds. From this follows that Keynesian policy proposals have no sound theoretical foundation — just like neoclassical policy advice.

Science is defined by material and logical consistency. Not to realize the logical inconsistency in the elementary formalism of Keynesianism is a reliable indicator of scientific incompetence.

The state of economics is this: Orthodoxy is methodologically forever unacceptable but what Heterodoxy has delivered until now is ‘not very impressive or hopeful.’

Egmont Kakarot-Handtke


References
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 ‘Scientific Cave men with a daunting message’ and ‘The ur-blunder of economics and its rectification’ and ‘How economists became the scientific laughing stock
** See Book
*** For details see cross-references Refutation of I=S

Immediately preceding post here