November 19, 2016

Economists: The Trumps of science

Comment on David Glasner on ‘OMG! The Age of Trump Is upon Us’


You say “The American voters, in their wisdom, have elected a mountebank (OED: “A false pretender to skill or knowledge, a charlatan: a person incurring contempt or ridicule through efforts to acquire something, esp. social distinction or glamour.”), a narcissistic sociopath, as their chief executive and head of state.“

This happened recently in the political realm. In the scientific realm something similar happened 140+ year ago when Jevons/Walras/Menger took over economics. They made a banana science out of it but people are enthusiastic about it until this very day.#1

David Glasner had his epiphany 50 years ago: “When I took my first economics course almost a half century ago and read the greatest economics textbook ever written, University Economics by Armen Alchian and William Allen, I was blown away by their ability to show how much sloppy and muddled thinking there was about how markets work .... I have been a fan of free markets ever since.” (See intro)

The trouble with the Alchian/Allen textbook is the same as with all other economics textbooks, that is, it is utter scientific rubbish.#2

The standard definition of the subject matter is given with the following hard core 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)

From these premises follows what Leijonhufvud famously called the Totem of Micro/Macro, that is, SS-curve―DD-curve―equilibrium. This construct is the one-size-fits-all analytical workhorse of economics.

For every person with some scientific instincts this construct is immediately and forever unacceptable. Economists, to their disgrace, have no scientific instincts at all. They simply swallow every junk hook, line and sinker. Obviously, the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every theory/model that contains a nonentity is A PRIORI false. By consequence, economics from Jevons/Walras/Menger to DSGE/RBC/New Keynesianism is false.

Economists do not know how the actual economy works. They lack the true theory. Instead, they senselessly speculate about nonentities and hallucinate about the marvelous feats of the Invisible Hand.

The worst thing, though, is that economists in their loose talk about markets have not realized until this day that an elementary market system that consists of a consolidated product market and a consolidated labor market is UNSTABLE. This means that, as a matter of principle, there is NO such thing as an overall equilibrium in the market system. The system is NOT self-regulating and self-optimizing, there is NO such thing as an Invisible Hand and this has NOTHING to do with market imperfections or rigidities or information asymmetry. This is a STRUCTURAL feature that is built right into the core of the market system.

It is important to realize that economic policy guidance NEVER had sound scientific foundations. Because economists never captured the essence of the market economy, whatever they have said for or against capitalism, communism or socialism has been based upon provable false theories about how the monetary economy works.#4

Since 140+ years economists are the Trumps of science, that is, "false pretenders to skill or knowledge".

Egmont Kakarot-Handtke

#1 See also ‘Turning the bananatization of economics around
#2 See ‘The father of modern economics and his imbecile kids
#3 See ‘There is no such thing as THE market
#4 See ‘Secular intellectual stagnation

Related 'A new curriculum for swampies?' and 'Could we, please, all focus on the key question of economics? and 'The economist as standup comedian' and 'Wikipedia and the promotion of economists’ idiotism' and 'Economists’s real job problem'