Blog-Reference
After more than 200 years it is now obvious that economics is a failed science. Orthodox economics in general and DSGE, in particular, is directly comparable to Geo-centrism in physics. The only difference is that Geo-centrism is dead AND buried for about 500 years while orthodox economics is dead but the majority of economists have not realized it. Those who are vaguely aware that economics is scientifically indefensible, though, do not abandon it but switch into damage control mode. Blanchard is a case in point.
Wren-Lewis, too, is a case in point. His fallback position is this: “What is at issue is not the existence of DSGE models, but their hegemony.” (See intro)
False! DSGE always has been indefensible scientific garbage. Wren-Lewis’s damage control consists of shifting the blame on the journals: “Top journal editors’ preference for the latter [general equilibrium models] means that the former [partial equilibrium] is less highly valued.”
This is ridiculous because the hegemony of Orthodoxy is not an editorial accident but the inevitable result of every half-witted economist doing exactly what he is supposed to do: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow, 1994)
Since Adam Smith economics claims to be a science but has never risen above the level of what Feynman called cargo cult science. Science is about formal and material consistency (Klant, 1994). The outstanding characteristic of economists is that they never got this pivotal point of methodology. And these are the results.
(i) There is Orthodoxy with microfoundations and it has been nicely defined by Krugman: “... most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”#1
(ii) Methodologically, these premises never have been and never will be acceptable.#2
(iii) When the premises/axioms/foundational propositions are false or contain nonentities the WHOLE theory/model/superstructure is false.
(iv) Because of this, orthodox policy proposals never had sound theoretical foundations.
(v) Walrasianism, Keynesianism, Marxianism, and Austrianism is materially/formally inconsistent.
(vi) Keynes started the macrofoundations research program in the General Theory formally as follows: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” These formal foundations are conceptually and logically defective because Keynes never came to grips with profit.#2
(vii) Because of this, the macrofoundations approach (including After-Keynesianism, Post Keynesianism, New Keynesianism, and all I=S/IS-LM models) has already been dead in the cradle 80 years ago.
Review of the Troops. Provably false
• profit theory, for 200+ years,
• microfoundations, for 150+ years,
• macrofoundations, for 80+ years.
ALL models that contain maximization-and-equilibrium or I=S/IS-LM are a priori false and this is more than 90 percent of the content of peer-reviewed economic quality journals and 100 percent of textbooks of renowned authors since 1948.
No more proof of scientific incompetence is needed. Remains only one question for the scientific community: how to get rid of the ‘throng of superfluous economists’ (J. Robinson)? Or, as Wren-Lewis put it: ... there is no way that all these academics are going to suddenly decide this research programme is a waste of time.” Of course, they cannot decide it for themselves, somebody has to expel them ― including Blanchard and Wren-Lewis ― from the scientific community. Eclecticism, anything goes, and the pluralism of false theories is NOT an option.
Egmont Kakarot-Handtke
#1 More detailed, the starting point is given with these 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). Accepting these microfoundations is a reliable indicator of utter scientific incompetence.
#2 For details and proofs see blog and working papers.
