David Glasner summarizes: “Modern macroeconomics, of which Roger’s model is one of the more interesting examples, flatters itself by claiming to be grounded in the secure microfoundations of the Arrow-Debreu-McKenzie general equilibrium model. But the great achievement of the ADM model was to show the logical possibility of an equilibrium of the independently formulated, optimizing plans of an unlimited number of economic agents producing and trading an unlimited number of commodities over an unlimited number of time periods. To prove the mutual consistency of such a decentralized decision-making process coordinated by a system of equilibrium prices was a remarkable intellectual achievement.” (See intro)
It is misleading to depict the history of economic thought as progressive. It is definitely not: “... we know little more now about ‘how the economy works,’ ... than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” (Clower). The fact of the matter is as Hume aptly put it: “... when the road ends at a coal-pit, he [the traveler] doesn’t need much judgment to know that he has gone wrong, and perhaps to find out what has led him astray.” Yet, the representative economist lacks even this little judgment.
General equilibrium theory is one of the most embarrassing failures in the history of the sciences: “At long last, it can be said that the history of general theory from Walras to Arrow-Debreu has been a journey down a blind alley, and it is historians of economic thought who seem to have finally hammered down the nails in this coffin. … General theory is simply a research program that has run into the sands.” (Blaug).
Ingrao et al. conclude: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.”#1
So, there are some economists who have realized that, in order to get out of the bottom of the coal-pit, nothing less than a paradigm shift is necessary. Roger Farmer is NOT one of them. Instead of abandoning and fully replacing the current paradigm he merely rearranges the crappy components of a crappy construct.
Roger Farmer’s version of modern macro consists of three major components:
- The Walrasian framework which is given with this axiom set: “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)
The representative economist has not realized it but methodologically these premises are forever unacceptable. It should be pretty obvious that the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every model that contains a nonentity is a priori false.
- “… an investment equals saving equilibrium condition (IS curve) describing the optimal consumption/savings decision of the representative individual …”. Every I=S/IS-LM model since Keynes and Hicks is false.#2
- “… a short-run Phillips Curve that expresses actual inflation as a function of expected future inflation and the output gap.”. Every Phillips curve since Phillips’s original is misspecified.#3
Economics is not only in need of a paradigm shift from false Walrasian microfoundations but also from false Keynesian macrofoundations. The whole of economics has to be put on consistent macrofoundations.
David Glasner concludes: “There are few economists better equipped than Roger Farmer to lead macroeconomics onto a new and more productive path.” What the representative economist at the bottom of the coal-pit has not understood until this very day is this: If it isn’t macro-axiomatized, it isn’t economics. Roger Farmer, that much is sure, has not understood anything, which, indeed, has always been the main qualification of the fake innovators of economics.
#1 Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
#2 See ‘Getting out of IS-LM = Getting out of despair’
#3 See ‘NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy’
#4 See ‘How Keynes got macro wrong and Allais got it right’
Related 'Walras, Keynes, Samuelson, DSGE, IS-LM ― R.I.P.' and 'Macroeconomics without Keynes' and 'The futile synthesis of neoclassical rubbish and Keynesian garbage' and 'Economics: The pathetic story of two failures' and 'Macroeconomics ― dead since Keynes' and 'Rethinking deficit spending' and 'Causa finita: the end of I=S/IS-LM' and 'Neo-Paleo-Stupidicism' and 'Heterodoxy’s biggest mistake is to repeat Orthodoxy’s biggest mistake' and 'Joan Robinson and the ‘throng of superfluous economists’ and 'I=S: Mark of the Incompetent' and 'Fundamentally flawed' and 'True macrofoundations: the reset of economics'