March 3, 2016

How to rise above Moronomics

Comment on Noah Smith on ‘Occult Mysteries of the Heterodox’


Economists do not understand how the market system works. Every interested non-economist gets this intuitively after reading one of the popular textbooks: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley, 2006, p. 17)

Because of this, every thinking economist finds himself by default in the heterodox camp. But here only one obvious fact is agreed upon, the rest is blank: “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)

Construction, though, never happened. What we have is an incoherent multitude of individual approaches. Heterodoxy never rose above naive empirical/historical/partial/ sociological commonsense analysis and did not succeed in formulating a general theory of how the monetary economy works. Keynes took on the task, but After-Keynesians lost focus and did not finish it.

So Noah’s key statement is spot on: “Critiquing the old is fine and good, but it is not the same as inventing the new.” (See intro)

True indeed, and well-known for a long time: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)

Accordingly, the current state of economics is this: Heterodoxy has failed to fully replace the fundamentally defective Orthodoxy or, in the jargon of methodology, to perform the inevitable paradigm shift. Strictly speaking, there is no economics at all, only confused blather (2013; 2014).

What, then, follows from Noah’s justified critique? The right thing to do is to leave Orthodoxy and traditional Heterodoxy behind and to move on to constructive Heterodoxy, that is, to perform the required paradigm shift and ― after more than 200 years ― to make economics a science.

Egmont Kakarot-Handtke

Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
McCauley, J. L. (2006). Response to "Worrying Trends in EconoPhysics". EconoPhysics Forum, 0601001: 1–26. URL
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, NY, Melbourne: Cambridge University Press.

Immediately preceding post 'The unveiled mystery of economic blather'.
Immediately following post 'Just one more orthodox absurdity'.