February 13, 2016

On economists’ stupidity

Comment on Paul Krugman on ‘On Economic Stupidity’


(i) There are political economics and theoretical economics. Only the latter satisfies scientific standards which are well-defined and well-known. Genuine scientists stay instinctively clear of politics. Why? Because political reasoning is quite different from scientific reasoning. As Peirce aptly put it: “In short, it is no longer the reasoning which determines what the conclusion shall be, but it is the conclusion which determines what the reasoning shall be. This is sham reasoning.” (1931, 1.57)

There is no revolving door between politics and science; there is only one one-way out of science. Political economics has not produced anything of real scientific value since Adam Smith.

There is no trade-off between political and theoretical economics, it is a binary either/or: “But if a man occupies himself with investigating the truth of some question for some ulterior purpose, such as to make money, or to amend his life, or to benefit his fellows, he may be ever so much better than a scientific man, if you will ... but he is not a scientific man.” (Peirce, 1931, 1.45)

(ii) Now it could be said: forget the nitpicking distinction between normative/positive, all that counts is economic expertise in order to get out of the mess. And here is the snag: right policy depends on true theory. As a matter of fact, Krugman’s theory is provably false (2014). Because of this his economic policy advice has no more scientific content than a horoscope.

Boiled down to essentials, Krugman’s approach is “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” Now, maximization-and-equilibrium is methodological garbage since Jevons/Walras/Menger. Krugman has not gotten the point until this very day and this is nothing other than scientific incompetence.#1

“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)

Krugman does not have the true theory, so he has not much profound to say about right/ wrong or smart/stupid economic policy.

Non-economists tend to think that the expertise of economists can help to solve economic problems. This is a vain hope. Neither Walrasians, Keynesians, Marxians, nor Austrians know how the economy works. To ask an economist for expertise in a crisis is pretty much like a drowning person expecting help from a blind non-swimmer with a weight belt.

Egmont Kakarot-Handtke

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
Peirce, C. S. (1931). Collected Papers of Charles Sanders Peirce, Vol. I. Cambridge: Harvard University Press. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.

#1 Economists’ three-layered scientific incompetence