October 6, 2016

Just for the record: economics is dead

Comment on Noah Smith on ‘The new heavyweight macro critics’


Economics in these days in NOT about criticizing macro in its DSGE/RBC incarnation but to fully replace it because it is beyond repair.

Noah Smith writes: “... recently, there have been a number of respected macroeconomists posting big, comprehensive criticisms of the way academic macro gets done.” (See intro)

What the respected macroeconomists overlook, though, is that there is NO WAY to improve a dead theory. There is nothing left to do but to bury it. So, what the critique of respected macroeconomists amounts to is the zombiefication of economics. These critical folks cannot be taken seriously as scientists. A scientist does not waste too much time with the critique of an obsolete research program but moves on to a progressive paradigm.

The first thing to notice is that the critical heavyweights miss the crucial point. Noah Smith reports: “Romer basically says that macro ... a community of believers, dogmatically following the ideas of revered elders and ignoring the data. The elders he singles out are Bob Lucas, Ed Prescott, and Tom Sargent.” (See intro)

Depicting the DSGE/RBC crowd as quasi-religious sect is a silly ad hominem argument. Every economist should know from Schumpeter: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

The decisive argument against DSGE/RBC is that it is scientifically forever unacceptable because it is materially and formally INCONSISTENT. Whether the adherents of DSGE/RBC appear weird to non-adherents is absolutely IRRELEVANT. Science is well-defined since more than 2000 years: “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)

The simple fact is that DSGE/RBC is PROVABLE inconsistent and needs to be replaced. The more embarrassing fact, though, is that this holds to the same extent for Walrasianism, Keynesianism, Marxianism, Austrianism, which means that there is nothing left of economics to be taken seriously.

How can we be absolutely sure that the critical heavyweights are as scientifically incompetent as the DSGE/RBC crowd? Well, simply look at their ad hominem arguments and their ridiculous solutions: “As a solution, Romer suggests chucking formal modeling entirely and going with more general, vague but flexible ideas about policy and the macroeconomy, supported by simple natural experiments and economic history.” (See intro)

Lo and behold, this has always been the methodological mantra of those microfoundations lacking Keynesians: “It is better to be roughly right than precisely wrong!”* Science, though, is digital=binary=true/false and NOTHING in between. There is NO such thing in science as roughly right or roughly wrong, there is only materially/formally true/false.

Vague blather, untestable wish-wash and storytelling has always been the hallmark of what Feynman famously called cargo cult science: “Another thing I must point out is that you cannot prove a vague theory wrong.” (Feynman, 1992). To immunize a theory/model against refutation and thereby to save their job has always been the apex of smartness of the scientifically incompetent.

Economics has not lived up to scientific standards in the last 200 years. Economists are well aware of this and therefore try to question the standards and to ‘play tennis with the net down’ (Blaug). Unsurprisingly, the representative economist’s methodology of choice turns out to be postmodern-new-age-pluralistic-anything-goes. Make no mistake, the ‘throng of superfluous economists’ (Joan Robinson) feels at home in the morass where “nothing is clear and everything is possible” (Keynes).

Critique and good advice of Romer, Kocherlakota, Krugman, Rodrik and other scientific underweights is worthless: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998)

What the Grand Coalition of Failed Economists (Walrasians, Keynesians, Marxians, Austrians) wants least but economics needs most is a new theory, or in methodological terms, a paradigm shift.** The only thing left to do for these scientific deadweights is to get out of the way.

Egmont Kakarot-Handtke

* See post ‘How Keynes got macro wrong and Allais got it right
** See cross-references Paradigm shift