March 2, 2016

The unveiled mystery of economic blather

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

Blog-Reference

(i) Science is about true/false and methodology is about how to ascertain the truth/ falsity of a theory/model. There is no mystery in science, just the contrary, it is the very opposite of mystery.

(ii) Logical and empirical consistency are the criteria of a true theory/model. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing.

(iii) Orthodoxy and Heterodoxy got the axiomatic foundations wrong.

(iv) Orthodoxy is built upon the following hard core propositions: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to  equilibrium states.” (Weintraub, 1985, p. 147)

These premises are provable false. Because of this, the whole theoretical superstructure from Jevons/Walras/Menger to DSGE is false. Not to realize the axiomatic falsity of orthodox economics proves the scientific incompetence of proponents and opponents alike.

(v) Keynes formulated the premises of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (1973, p. 63)

This elementary two-liner is conceptually and logically defective because Keynes did not come to grips with profit and therefore “discarded the draft chapter dealing with it.” (Tómasson et al., 2010, p. 12). As a result, all I=S models including the Keynesian multiplier are false (2014).

(vi) Neither Keynesians nor Walrasians have grasped the fundamental difference between profit and income. Because of this fatal conceptual defect, their theories/models are false. And because the profit theory is false economists do not know how the economy works. From this follows that economic policy proposals are scientifically unfounded and therefore useless or even harmful.

(vii) Keynesians are since more than 80 years in the dark. Sorta-kinda neoclassicals are since more than 140 years in the dark. Because they have disqualified themselves neither Keynesians nor Walrasians can be taken seriously. The same holds for Marxians and Austrians.

Because of their incompetence, economists are a scientific nuisance and a menace to their fellow citizens. They can significantly increase the welfare of humanity by simply shutting up.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
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
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

Immediately preceding post 'Orthodoxy?―NO, Heterodoxy?―NO: Scrap ALL this crap!'
Immediately following post 'How to rise above Moronomics'.