January 18, 2016

The economics of gossip and misplaced humor

Comment on ‘The gussied up economics of Tweedledum and Tweedledee’


James K. Galbraith sums up the current state of economics “Krugman’s entire essay is about two groups, both deeply entrenched at (what they believe to be) the top of academic economics. Both are deeply preoccupied with their status and with a struggle for influence and for academic power and prestige — against the other group.” (See intro)

Irrespective of whether it is accurate or not, this characterization simply distorts the perspective. To make a situation understandable by second-guessing other peoples’ motives has always been a senseless exercise — except in sitcoms. As Schumpeter put it:

“Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.” (1994, p. 11)

Of interest is alone whether what the one or the other group presents as economic theory/ model is true or false. All the rest is gossip.

Actually, both groups are not different at the core. As Krugman put it “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...”.

And this is the outcome in a nutshell: All models that are based on the assumptions of constrained optimization and equilibrium are provable false.* There is no use at all to make a great fuss about whether the salty mistake/error is worse than the fresh blunder or vice versa.

Krugman’s distinction between salty and fresh simply distracts from the fact that maximization-and-equilibrium is false since Jevons/Walras/Menger — long before the salty/fresh guys started with their proto-scientific stunts. The representative economist is, after more than 140 years, still behind the curve. That’s not funny.

Egmont Kakarot-Handtke

Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.

* See ‘Lars Syll creatively destructs Wren-Lewis’ and ‘How the intelligent non-economist can refute every economist hands down