January 16, 2016

Confused Orthodoxy vs. confused Heterodoxy

Comment on ‘Heterodox economists and mainstream eclecticism’

Blog-Reference and Blog-Reference

It is widely known, except among economists, how science works “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

Or, in simplified Popperian terms, science is an upward spiraling two-step process of conjecture, i.e. formulation of a theory/model, and either refutation or eventual admittance to the corpus of knowledge until a better theory/model appears.

Accordingly, refutation can take two routes (i) proof of logical inconsistency, and (ii) proof of empirical inconsistency. The proof of one inconsistency is sufficient for the rejection of the whole theory/model.

The logical consistency of a theory/model is secured by applying the axiomatic-deductive method which is well-established since the ancient Greeks defined science as knowledge in contradistinction to mere opinion “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle, Posterior Analytics)*

The fundamental methodological mistake of Lars Syll consists in rejecting Orthodoxy because it applies the axiomatic-deductive method. Orthodoxy indeed has to be rejected because of gross methodological defects but not for the application of the axiomatic-deductive method. So, in his rejection of Orthodoxy Lars Syll is right but for the wrong reason.

Heterodoxy in turn has to be criticized for completely ignoring the requirement of logical consistency. It can readily be shown that the profit theories of Keynes, Kalecki, Minsky, and Keen are different. Elementary logic tells one that not all four can be true, in fact all four are provable false.** So, Heterodoxy in its present shape and form has to be rejected because of logical inconsistency.

It is not possible to idealize inconsistency and conceptual confusion as pluralism or eclecticism. Scientific truth is strictly exclusive “There cannot be both opinion and knowledge of the same thing at the same time.” (Aristotle, Posterior Analytics)

Orthodoxy has been based upon a properly defined axiom set “The [neo-Walrasian] program is organized around the following hard core propositions:
HC1. There exist economic agents.
HC2. Agents have preferences over outcomes.
HC3. Agents independently optimize subject to constraints.
HC4. Choices are made in interrelated markets.
HC5. Agents have full relevant knowledge.
HC6. Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985, p. 109)

The fact of the matter is that there is no such thing as an equilibrium in the economy. Methodologically, HC6 is what is known since antiquity as petitio principii. This is a quite primitive methodological blunder. Likewise for HC3.

Clearly, when one axioms fails the whole formal basis breaks apart and with it the whole theoretical superstructure. The Orthodox microfoundation approach is axiomatically flawed, and because of this all variants of DSGE models are false and have to be rejected. There is no such thing as eclecticism of false models — except in Wren-Lewis’s confused methodology.

Neither Orthodoxy nor Heterodoxy satisfies scientific standards. Economics is a failed science. Economic policy proposals have no sound theoretical foundation.

Egmont Kakarot-Handtke

Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, NY, etc.: Cambridge University Press.

* Wikipedia
** See ‘Heterodoxy, too, is scientific junk

See also the working paper 'Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist'