December 6, 2015

Scientific Cave men with a daunting message

Comment on ‘The model of all economic models’*


Let us call the fatal methodological fault of both orthodox and heterodox economists the social science delusion. The fundamental crux of the social sciences has been identified precisely by Richard Feynman.

“By having a vague theory it is possible to get either result. ... It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (1992, p. 159)

Exactly because of this there is no such thing as a behavioral axiom. There is no elementary and almost self-evident proposition about human behavior, except that it is target-oriented. However, from this statement follows nothing as long as one cannot ascertain what the target is.

Exactly this is the embarrassment of the so-called social sciences: the vacuous speculation about other peoples’ goals/motives/intentions/hopes/wishes/expectations. For a genuine scientist like Feynman it is obvious at first glance that this is not the way to scientific knowledge.

From this follows that every economics paper or textbook that contains the words "utility maximization", "profit maximization", "rationality", "bounded rationality", "animal spirits", or "expectation" can be treated in the same way as any yellow-press gossip.

The vacuousness of the constrained optimization axiom, clearly, is not the fault of the axiomatic-deductive method. The success of this method depends on the choice of axioms. The content of every theory resides in the axioms, deduction neither increases or decreases content.

The correct conclusion for a heterodox economists who is worth his scientific salt is therefore that no behavioral proposition whatever can be part of the foundational propositions, aka axioms, of economics. Just because of this, the neoclassical axiom set is forever inadmissible. This crashes uno actu the whole theoretical superstructure from employment to distribution theory (which has always been the worst scientific junk).

The fault of the economist-as-social-scientist, i.e. the sorta-kinda maximization-and-equilibrium guy, is that he subscribes to a research program that has an unsurpassed track record of failure: “... there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman, 1992, p. 320), (Rosenberg, 1980, pp. 2-3)

Certain knowledge about human behavior is impossible, but certain knowledge about the economic system is possible. This, clearly, presupposes a change of the axiomatic foundations of economics. There is no other way to ‘throw over’ Orthodoxy. As Keynes famously put it “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)

As long as the social science delusion prevails economics will be caught in Plato’s proto-scientific Cave with both orthodox and heterodox economists waffling about economic policy without a sound theoretical foundation aka scientific knowledge.

In more than 200 years economists have not produced scientific knowledge. How can this be? It is because economists are not the most enthusiastic missionaries of knowledge — rather the opposite.

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” F. A. Hayek

Egmont Kakarot-Handtke

Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.

* See also the preceding post ‘The ur-blunder of economics and its rectification’ or here.


ICYMI (Dec 8)

Whatever one’s ontology is, as an economist at some point one starts to make statements about how one thinks the economy works, how certain phenomena are related, and what the actual state of the economy is. These statements have to be (i) logically coherent and (ii) in principle directly or indirectly comparable with facts. This is the general characteristic of science as opposed to storytelling.

People never had any difficulty telling stories about the various aspects of reality and how the phenomena fit together and, lo and behold, this has been the easiest thing in the world as all myths and religions testify, and, best of all, this has been quite satisfactory for 99,9 percent of mankind 99,9 percent of historical time.

Non-scientific explanations have the same basic structure: there is an entity beyond normal perception which can do everything and this entity produces the observable phenomena. In economics this entity is called the Invisible Hand. This type of statements is not logically false if one accepts the premises, but empirically irrefutable. A perfectly rational debate about angels-on-a-pinpoint is possible if one accepts the premise that angels exist. The same holds for the Invisible Hand.

Between science and non-science there is the large zone of statements which could be true but are neither sufficiently corroborated nor clearly refuted. This is the realm of everyday commonsensical communication.

To say that economics cannot — in principle — satisfy the conditions of logical and material consistency is to say that economics cannot be a science and never rise above storytelling. As a practical consequence this implies that economics is relabeled as showbiz/ entertainment/politics and that economics professors give back their venia legendi and become talk show hosts or journalists or politicians.

An academic who tells the world that his discipline cannot be a science states a logical paradox like Epimenides’s Cretian Liar. More, a single academic can only speak for himself and by no stretch of the imagination ‘know’ whether his colleagues can produce now or in the future a theory that satisfies the scientific criteria of material and formal consistency. The assertion that economics cannot apply the axiomatic-deductive method because the economy is an open system is in any case methodological nonsense. It falls into the same category of logical fallacies as “human beings cannot fly because they are heavier than air.”

G. B. Shaw nicely put it thus: “People who say it cannot be done should not interrupt those who are doing it.”


Addendum (Dec 9)

I would like to complete the statement “The assertion that economics cannot apply the axiomatic-deductive method because the economy is an open system is in any case methodological nonsense.” as follows.

The economy is indeed an open system and from this follows that the concept of equilibrium is inapplicable. This concept, though, is one proposition of the neoclassical axiom set (Krugman: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”).

Therefore: because the economy is an open system, the equilibrium axiom is forever inadmissible and from this follows that the neoclassical axiom set as a whole is inadmissible and this explodes the whole theoretical superstructure of Orthodoxy. And from this follows in turn that all of what Krugman and the other sorta-kinda maximization-and-equilibrium wannabe scientists have ever peer-reviewed published is scientific junk.

The application of the axiomatic-deductive method is the very precondition for the refutation of Orthodoxy. From the fact that the economy is an open system follows that the equilibrium axiom is false and not that the axiomatic-deductive method is inapplicable in economics. That is the methodological nonsense many heterodox economists are still stuck with.

Immediately following blog post Neither impressive nor hopeful