Comment on Roger Farmer on ‘Neo-Paleo-Keynesianism: A suggested definition’
Blog-Reference
Science was there before economics was there. Economists either conform to well-defined scientific standards or they are outside of science: they are in NO position to redefine scientific criteria. This, though, is what they regularly attempt to do. Roger Farmer’s featured post is a case in point.
Because economics — as represented by the four failed sects Walrasians, Keynesians, Marxians, and Austrians — has never risen above the level of a proto-science it has become popular among economists to question the standards, to lower them, or, as Blaug put it, ‘to play tennis with the net down’. Hence, economists are very receptive to methodological soft-pedaling like anything-goes (Feyerabend), economics is not a Science with a capital S (Solow), economics is an inexact and separate science (Hausman/J. S. Mill), pluralism of false theories or nobody-knows-anything (Heterodoxy), or Lakatosian replacement of scientific true/false by opportunistic like/dislike.
The scientific method is well-defined by formal and material consistency (Klant, 1994, p. 31). Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing. To secure both consistencies is a tough job and it is in no way predetermined how the general methodological principle applies at the cutting edge of research. To figure this out is the creative scientific achievement.
Economics fails on both counts: the axiomatic foundations are provably false and, as a consequence, testing is regularly inconclusive. So, the four economic sects have happily established themselves in the swamp between true and false where ‘nothing is clear and everything is possible’ (Keynes).
Standard economics is built upon this set of foundational propositions, a.k.a. axioms: “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)
Methodologically, these premises are forever unacceptable but economists swallowed them hook, line and sinker from Jevons/Walras/Menger onward to DSGE. The failure of methodological individualism as embodied in HC1|HC5 is indisputable. NOT ONE axiom is acceptable.
Because of this, the microfoundations approach has already been dead in the cradle more than 140 years ago. Have economists realized this? Forget it! Krugman put it thus: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”.
Get this: ALL models that contain maximization-and-equilibrium in any shape or form are a priori unacceptable. Post-Keynesianism is different but in no way better.#1 This leaves only one option. As Joan Robinson put it: “Scrap the lot and start again.”
Roger Farmer asks: “How can we recover this idea, without discarding three hundred years of microeconomic principles?“ Wrong question. Sticking to these principles is as good as sticking to the flat-earth principle, that is, it is a reliable indicator of scientific incompetence.
The failure of economics requires a paradigm shift. Nothing less will do. Roger Farmer instead teams up with a zombie: “The neo-paleo-Keynesian research program is unashamedly neo-classical.” But it gets worse. Who is Roger Farmer’s ideal economist? “Keynes was notorious for changing his views on a daily basis and was said to be capable of holding several conflicting opinions at the same time.” Allais called this “insuffisance logique” (1993, p. 70) which unceremoniously translates into stupidity (see also 2013).
Egmont Kakarot-Handtke
References
Allais, M. (1993). Les Fondements Comptable de la Macro-Économie. Paris: Presses Universitaires de France, 2nd 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
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
#1 From microfoundations to macrofoundations