Comment on Thomas Palley on ‘Inequality, the financial crisis and stagnation: competing stories and why they matter’
Blog-Reference
You say: “Theory shapes the way we understand the world, thereby shaping how we respond to it.” True, but you say also: “Theory is a form of storytelling, and the stories we tell shape our understanding of the economy and economic policy. That means the stories we tell are critical.” (p.1)
To equate theory with storytelling is a gross methodological blunder because theory belongs to the realm of science while storytelling belongs to the realm of politics. This distinction is of utmost importance. 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.
Theoretical economics has to be judged according to the criteria true/false and nothing else. Scientific truth is well-defined as formal and material consistency (Klant, 1994, p. 31).
The fact of the matter is that economists have failed for more than 200 years to develop the true theory. What we have is Walrasianism, Keynesianism, Marxianism, and Austrianism. Neither of these approaches satisfies the scientific criteria of formal and material consistency. So ALL have to be abandoned: what economics urgently needs is a Paradigm Shift.
The fatal mistake/error of Heterodoxy is to argue that Orthodoxy tells a biased story and then replace it with another biased story. This is NOT a Paradigm Shift. A Paradigm Shift replaces ALL stories with the scientifically true theory. In marked contrast to politics, science is neither capitalist-friendly nor worker-friendly but simply true.
Storytelling is ultimately a means to a political end. What looks like theory lacks the essential properties of formal and material consistency. What looks like science is cargo cult science (Feynman). The outer features of science are cultivated in order to signal credibility and authority.
Accordingly, you argue: “Given the vital significance of ‘getting the story right’, progressive action aimed at policy change must be accompanied by vigorous efforts to challenge and replace the mainstream economic story.” (p. 16) Thus, your agenda determines your story.
What you call a ‘purely analytical exercise’ in distribution theory fails. It is indeed true that Orthodoxy in both the Chicago and the MIT variant does not satisfy scientific criteria by any stretch of the imagination, yet, the problem of Post Keynesianism is that it is also defective (2011). The common error/mistake is located in profit theory and because of this, the whole neoclassical and Post Keynesian distribution theory falls apart (2014).
Because both orthodox and heterodox economists lack the true theory all their arguments and policy proposals are freely floating in midair. Whatever is uttered about economic policy has no sound scientific foundations and is not different from reading poultry entrails.
The answer to the cargo cult science of Chicago and MIT is to expel both from the sciences. To combat malpractice with just another political bias is not such a good idea.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
