October 8, 2016

Feeble thinkers, feeble rethinkers: the perennial misery of economics

Comment on David Ruccio on ‘Crash and learn?’

Blog-Reference and Blog-Reference on Oct 9 adapted to context

Economists assert since Adam Smith/Karl Marx that economics is a science. If this is the case then Pontus Rendahl is right: “... it would be wrong to teach heterodox theories as though they had equal validity. ‘In the same way, I don’t think heterodox engineering or alternative medicine should be taught’.”

Indeed, science is well-defined: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994). It is pretty obvious that Heterodoxy does not satisfy the criteria of material/formal consistency. In its current state it cannot be admitted to science.*

Pontus Rendahl’s conclusion is right, except for the fact that his tacit premise is false. His tacit premise is that orthodox economics is science. This is NOT the case. Orthodoxy does not satisfy scientific criteria either but the representative economist simply has not realized it. It is a remarkable fact that each student generation has swallowed the utterly silly supply-demand-equilibrium core model without turning an eyelid since 140 years.

So, while Heterodoxy cannot be admitted to science, Orthodoxy has to be thrown out of it. This is the situation: there is NO such thing as an economic curriculum that satisfies scientific standards. Economics is still at the proto-scientific level.

When confronted with critique orthodox economists readily admit some undeniable peripheral weakness with the assertion that the core of economics is sound: “... Diane Coyle also defends the basic methodology of economics. She says there is confusion among critics between microeconomics, the study of the behaviour of individuals and firms, and macroeconomics, the study of whole economies. Macroeconomics, she admits, ‘is broken’.” (See intro)

This is a manifest self-delusion.** Microeconomics is built upon this hard core set of 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)

Methodologically, these premises are forever unacceptable. It is pretty obvious that the microeconomic axiom set contains THREE indefensible nonentities: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every model that contains only one nonentity is A PRIORI false. The discussion of models that contain nonentities is not different from a medieval angels-on-a-pinpoint discussion. And this scientific rubbish is the content of peer-reviewed quality journals, textbooks and, of course, the economics curriculum.

Economics is a failed science and economists are incompetent scientists. There is NOTHING to choose between Orthodoxy and traditional Heterodoxy. Rethinking economics means to rise above the proto-scientific level and to fully replace Walrasian microfoundations and Keynes’s flawed macrofoundations by entirely new macrofoundations.***

Egmont Kakarot-Handtke

* See for details ‘When proto-scientific Heterodoxy calls Orthodoxy pseudo-scientific’ and more details
** See ‘Just for the record: economics is dead
*** For details see cross-references New Curriculum

Immediately following: 'The Cambridge crap curriculum'