January 15, 2016

Is Paul Krugman necessary?

Comment on Paul Krugman on ‘Is Vast Inequality Necessary?’

Blog-Reference

Economists do not understand their proper task until this very day. J. S. Mill once told them:
“A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (2006, p. 950)

Economists were from the very beginning torn between science and politics. As scientific dilettantes they preferred politics. This explains why economics never rose above the level of a proto-science.

“In this and many analogous cases, of which modern economics is another deplorable example, economists indulged their strong propensity to dabble in politics, to peddle political recipes, to offer themselves as philosophers of economic life, and in doing so neglected the duty of stating explicitly the value judgments that they introduced into their reasoning.” (Schumpeter, 1994, p. 19)

Economists are addicted to political economics and this is why they have not produced anything of real scientific value.

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)

Paul Krugman does not have the true theory. As he summarized on his blog “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...”.

This starting point is provable false.* Because of this Krugman’s arguments and proposals have no sound theoretical foundation (2014).

It is high time for the separation of science and politics in economics. The task of theoretical economics is to figure out how the economy works. Economists owe society the true theory. Political economists can no longer be allowed to speak in the name of science.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge, MA: MIT Press.

* See ‘Addendum to “Musings on Whether We Consciously Know More or Less than What Is in Our Models”

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REPLY  Wrong question, wrong answers

Most of the preceding posts fall into the Human-Nature category and the contributors are obviously not aware that all questions about human behavior/motivation/aspiration/ intention/ etc belong to psychology, sociology, anthropology, political science, etcetera, but not to economics. It is not the task of economics to explain how humans behave, the task is to explain how the economy behaves. Second-guessing human behavior and waffling about utility maximization is not science but — as confirmed by more than 100 years of failure — a senseless exercise.

The first thing an economist with a modicum of scientific instinct understands is that “if we wish to place economic science upon a solid basis, we must make it completely independent of psychological assumptions and philosophical hypotheses.” (Slutzky, quoted in Mirowski, 1995, p. 362)

Does the world expect from economists to find out how people behave? No. Does the world expect from economists to figure out what profit is? Yes, of course, no philosopher, psychologist, anthropologist, biologist, or sociologist will ever try to figure this out. Have economists done their proper job? No. The Palgrave Dictionary summarizes “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10)

Had Keynes any idea about what profit is? No. “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 et al., 2010, pp. 12-13, 16). This, obviously, could not hinder Keynes to philosophize and sociologize about the end of laissez faire and third-generation men.

Has Krugman any idea about what profit is? No (2014).

Has income distribution something to do with wages and profits? These two concepts are obviously fundamental for distribution theory.

It is known since Hume that there is a categorical difference between ‘Is’ and ‘Ought’ and that science is exclusively concerned with ‘Is’. ‘Ought’ is the realm of philosophy, morals, ethics, politics. ‘Is’ is the proper realm of science. Political economics is out of science.

Krugman’s first mistake is to trespass with his question the line between ‘Is’ and ‘Ought’. It is pretty obvious that Ought-questions cannot, as a matter of principle, have a scientific answer. His second mistake is to answer the question without knowing the difference between profit and income, which is the worst thing that can happen to an economist.

The actual fact of the matter is that economists have no clear idea about the fundamental concepts of their discipline. This is like medieval physics before the concept of energy was fully understood.

Distribution theory is where economics reaches its lowest scientific ebb.

References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
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