July 6, 2016

Ending the economic Froschmäusekrieg a.k.a. Batrachomyomachia

Comment on Lars Syll on ‘Paul Krugman — nothing but a die-hard neoclassical economist’

Blog-Reference

The Battle of Frogs and Mice, a.k.a. Orthodoxy vs. Heterodoxy, has become rather stagnant, so let us shorten the agony with some clear cut arbitral awards.

Syll: “Despite all his radical rhetoric, Krugman is — where it really counts — nothing but a die-hard neoclassical economist.”

Krugman says on his blog “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”

Judgment:* Krugman is a neoclassical economist, always was, and always said so, and everybody got it. Stop being surprised, Lars Syll. The point at issue is NOT that Krugman is a Neoclassical but that his starting point, i.e. the neoclassical axiom set, is false.

Krugman: “... this is exactly the kind of situation in which words alone can create an illusion of logical coherence that dissipates when you try to do the math.” In other words, formalization and modeling can be helpful to clarify the issue.

Georgescu-Roegen: “Lest this position is misinterpreted again by some casual reader, let me repeat that my point is not that arithmetization of science is undesirable. Whenever arithmetization can be worked out, its merits are above all words of praise. My point is that wholesale arithmetization is impossible, that there is valid knowledge even without arithmetization, and that mock arithmetization is dangerous if peddled as genuine.”

Syll: “That’s a methodological reductionist straightjacket.”

Judgment: Krugman and Georgescu-Roegen are right. Lars Syll is wrong.

Syll: “The only economic analysis that Krugman and other mainstream economists accept is the one that takes place within the analytic-formalistic modeling strategy that makes up the core of mainstream economics.”

Krugman on several occasions: “where’s your model?” and “what’s your alternative?”

Lewis: “There is no example, not even even a vague outline, of what Prof. Syll might regard as a satisfactory economic analysis of 'an open system where complex and relational structures and agents interact'. Because it is devoid of any such substance, Prof. Syll’s argument provides no understanding of how Krugman’s many errors could have been avoided.

Judgment: Lars Syll has never presented an alternative. His advice: “I would rather suggest you read Keynes, Minsky, Polanyi, Galbraith, Myrdal, Hodgson, Keen, Mirowski, Lawson, Davidson, Kalecki, Chick, Dow” is hand waving and does not count as an alternative because Keynes’s, Minsky’s, Kalecki’s, Keen’s, Davidson’s and other heterodox economists’ models are also defective, i.e. provable false. Lawson, Chick, Dow are failed methodologists because they cannot even spot elementary logical blunders, which are entirely sufficient for the refutation of a theory/model.

Syll: “That isn’t pluralism.”

Judgment: Science is about clear-cut true/false and the very opposite of a pluralism of false theories. Either Orthodoxy is true or Heterodoxy is true, then either Orthodoxy is thrown out of science or Heterodoxy. Except, both are false, then both are thrown out of science.

Syll: “Validly deducing things from patently unreal assumptions — that we all know are purely fictional — makes most of the modeling exercises pursued by mainstream economists rather pointless. It’s simply not the stuff that real understanding and explanation in science is made of.”

Aristotle: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”

Judgment: Lars Syll and Aristotle are right. Economics is currently based upon false axioms. Both Walrasian and Keynesian axioms have to be fully replaced in order to produce scientific knowledge of the economy. After more than 200 years of producing scientific garbage this task has top priority. Concrete proposals are urgently needed. Lars Syll has none.

Hickey: “There is nothing wrong with using a simple IS-LM approach in some cases as a gadget.”

Judgment: IS-LM has been already dead in the cradle (2014a). You are way behind the curve.

Pontus: “Banks are only intermediary in a certain sense: Any loan that is granted implies that someone’s spending exceeds his or her income. That does necessarily imply that someone else’s spending must fall short of his or her income.”

Judgment: You are way behind the curve (2014b).

Wilder: “National income accounting identifies a category it calls 'saving' that it opposes in its double‑entry scheme to 'investment'. Honestly, I have to say it does not make a lot of sense: while investment is spending and transactional, saving is not.”

Judgment: This matter has already been settled (2012). You are way behind the curve.

Nanikore: “Samuelson’s project has ultimately reached its inevitable end — but the subject which has invested so much in it is finding reality hard to swallow. I don’t know what it is going to take to finally kill the beast.”

Judgment: Yes, you are in dire straits. But could you now stop repeating it over and over again and proceed to the inescapable paradigm shift?

Mellechman: “True, setting out such a model would imply accepting the core assumptions of what you call the ur-model.”

Judgment: Nonsense of the worst sort. Nobody is obliged to accept the core assumptions, a.k.a. neoclassical axioms. Just the opposite, as Keynes told his fellow economists long ago: “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight — as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”

So, let us end the Froschmäusekrieg and start doing real science.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Kakarot-Handtke, E. (2014a). Loanable Funds vs. Endogenous Money: Krugman is Wrong, Keen is Right. SSRN Working Paper Series, 2389341: 1–17. URL
Kakarot-Handtke, E. (2014b). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL

* All judgments are backed in greater detail, see blog or working papers before jumping to silly conclusions.

For the details about the definitive resolution of the I=S/IS-LM issue see cross-references.