January 26, 2017

Traditional Heterodoxy’s paradigmatic impotence

Comment on Editor on ‘The static analysis of the supply and demand model’

Blog-Reference

Editor quotes Stuart Birks’s critique: “Note that the supply and demand model is, like much of economics, based on static analysis. Consequently the focus will be on the market equilibrium. It is based on the idea that you have a scenario within which you can have as much costless adjustment as required to achieve some final end state which will be the equilibrium (issues of existence and uniqueness aside). This does not reflect the real world. In reality, there is a starting point, A. This is more than just an initial resource endowment. It also specifies an application of those resources, for example producing and consuming goods and services at some rate of output (as we are actually moving through time). There is also a path to be taken to the endpoint.”

This critique is absolutely correct. Economists think they can answer any question by painting the triad SS-function―DD-function―equilibrium. Leijonhufvud called this analytical tool totem of the micro/totem of the macro. What the representative economist does not understand until this day is that there is NO such thing as an economic equilibrium and NO such thing as SS and DD functions. The totem of micro/macro is a NONENTITY like the Tooth Fairy or the Easter Bunny.

While traditional Heterodoxy has correctly identified the core of every economic textbook as utter scientific rubbish it has failed to provide the methodologically correct replacement of the methodologically unacceptable supply-demand-equilibrium construct. In other words, traditional Heterodoxy failed at its mission to bring about the necessary paradigm shift.

This feat has been accomplished by constructive Heterodoxy, see
Essentials of Constructive Heterodoxy: The Market
The Law of Supply and Demand: Here It Is Finally
How to Get Rid of Supply-Demand-Equilibrium

What both orthodox and heterodox economists in their innate scientific incompetence have failed to realize is that the economy as a system is defined by the interrelationship of a number of elementary variables. Every model, no matter how differentiated, must contain these OBJECTIVE SYSTEMIC interrelationships as its formal hard core. This is an imperative methodological necessity.

The false Walrasian microfoundations and the false Keynesian macrofoundations have to be replaced by the true macrofoundations. The graphical representation of this absolute formal minimum is given on Wikimedia. This chart replaces the hare-brained totem of SS-function―DD-function―equilibrium. A detailed description of the elementary macro relationships has been given in the papers referenced above.

It is time now for traditional Heterodoxy, which has exhausted itself in repetitive critique, to get out of the way and to no longer hamper progressive constructive Heterodoxy.

Egmont Kakarot-Handtke