April 22, 2016

Heterodoxy: From bad to better or from bad to worse?

Comment on Asad Zaman on ‘The Education of an Economist’

Blog-Reference and Blog-Reference on Apr 26 adapted to context

“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)

You say: “In our PhD Economics program at Stanford, we learnt nothing about the history of major economic events of the twentieth century. Instead, we were taught the rather arcane and difficult skill of building models.”

Yes, standard economics is cargo cult science and your education has been a waste of time and money. The question is, how does Heterodoxy proceed from this common understanding of the actual situation?

Obviously, criticizing model bricolage and mathiness and unrealism is fully justified but not very productive. What is the alternative? The flight to naive empiricism and history is the wrong way. The acceptance of the pluralism of false models is the wrong way. To discuss Trump vs. Clinton is the wrong way.

“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)

Orthodoxy has failed, no doubt, but traditional Heterodoxy has failed to develop a superior alternative. Economics, represented by the four sects Walrasians, Keynesians, Marxians, Austrians, is still at the proto-scientific stage.

One possible reaction to this embarrassment is to give up the idea of scientific truth in economics and to resort to anything goes. This attitude is rather popular among heterodox economists — and it is self-defeating.

“If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111). Without this aspiration economics degenerates to mere opinion, pluralism of false theories, and in the last consequence to brain-dead political blather.

For economists the mission is clear since J. S. Mill: develop the true theory. The true theory of the market economy is neither to be found in Econ 101 nor in the textbooks nor in the journals nor in the newspapers nor in the history books. There is a lot to do for constructive Heterodoxy.

Egmont Kakarot-Handtke


References
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield, VT: Edward Elgar.
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge, MA: MIT Press.

***
REPLY to Nanikore on Apr 26

“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)

Standard economics is cargo cult science. The question is, how does Heterodoxy proceed from this common understanding of the actual situation?

Obviously, criticizing model bricolage and mathiness and unrealism is fully justified but not very productive. What is the alternative? The flight to naive empiricism and history is the wrong way. The acceptance of the pluralism of false models is the wrong way. To discuss Trump vs. Clinton is the wrong way.

“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)

Orthodoxy has failed, no doubt, but Heterodoxy has failed to develop a superior alternative. Economics, represented by the four sects Walrasians, Keynesians, Marxians, Austrians, is still at the proto-scientific stage.

One possible reaction to this embarrassment is to give up the idea of scientific truth in economics and to resort to anything goes and storytelling. This attitude is rather popular among heterodox economists — and it is self-defeating.

“If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111). Without this aspiration economics degenerates to mere opinion, pluralism of false theories, and in the last consequence to brain-dead political blather.

True, Krugman does “not understand the problem with models” but neither does Nanikore or the Swedish branch of Heterodoxy.


References
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield, VT: Edward Elgar.
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge, MA: MIT Press.

***
REPLY to David Chester on Apr 27

You remind me: “You are missing out the Georgist School of macroeconomic thought and philosophy.”

True, but my argument applies to the Georgist School as well.

It is of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics scientific standards are observed.

It is perfectly legitimate to push an agenda. That’s NOT the point. The point is that agenda pushers use economic theory as a means to an end. And that is the wrong priority from the viewpoint of science.

Adam Smith, Ricardo, Marx, Henry George, Keynes, Hayek or Friedman were political economists. I do not criticize their political objectives, I criticize that they were lousy scientists, that is, their respective theories do not satisfy the scientific criteria of formal and material consistency. In other words, when the underlying theory is provable false economic policy proposals are hanging in midair. It does no matter how good and sensible they appear, they are scientifically worthless.

This said, I agree with the Georgist School that the treatment of land in standard economics is false since Ricardo (2011).

I do not agree, though, with this job description ‘consequential macroeconomics–rationalizing is about how our social system works.’

To figure out how the social system works is the task of sociology and/or political science. The task of economics is to figure out how the economic system works.

The ludicrousness of economists derives from the fact that they have failed on their mission and cannot explain how the actual monetary economy works (2015) but tell the world how to improve society — which is none of their business as scientists.


References
Kakarot-Handtke, E. (2011). When Ricardo Saw Profit, He Called it Rent: On the Vice of Parochial Realism. SSRN Working Paper Series, 1932119: 1–19. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL