March 28, 2017

Austerity and the idiocy of political economists

Comment on Simon Wren-Lewis on ‘On criticising the existence of mainstream economics’


Unlearning Economics argues: “The case against austerity does not depend on whether it is ‘good economics’, but on its human impact. Nor does the case for combating climate change depend on the present discounted value of future costs to GDP. Reclaiming political debate from the grip of economics will make the human side of politics more central, and so can only serve a progressive purpose.”

In other words UE says, let us put the whole squabble whether economic theory is true or false aside, the real issue is whether a policy measure serves the 1-percenters or the 99-percenters. Economics is progressive if it serves the 99-percenters and regressive if it serves the 1-percenters.

This amounts to abandoning science altogether. The criterion of science is true/false with truth defined as material and formal consistency: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

The problem of economics is that neither Orthodoxy nor Heterodoxy has the true theory. Therefore, the economic policy proposals of BOTH orthodox AND heterodox economists lack sound scientific foundations.

The discussion about austerity delivers the proof of the utter scientific incompetence of political economists. Neither Orthodoxy nor Heterodoxy got the fundamental concept of economics, i.e. profit, right.#1 To make the argument short, the correct profit equation for the economy as a whole is given here as Qm≡Yd+(I-Sm)+(G-T)+(X-M) which reduces to Qm≡G-T for Yd, I, Sm, X, M = 0. The reduced macroeconomic profit equation says that the monetary profit of the business sector Qm is equal to the deficit G-T of the public sector.

So, from the standpoint of simple self-interest the 1-percenters and their useful academic spokespersons should argue FOR deficit spending and the 99-percenters and their academic spokespersons should argue AGAINST it. Just the opposite happens since Adam Smith railed at public debt.

The fact of the matter is that the measured increase of the relation between profit and wage income in the past decades has no other cause than the increase of public and private deficit spending. It has NOTHING AT ALL to do with greed, or productivity, or the smartness of business people. These factors only influence the distribution of overall profit Qm between the firms.

Because neither Orthodoxy nor Heterodoxy has the true profit theory#2 their economic policy proposals are counter-productive or regressive for the social groups/classes they speak for. The fact of the matter is that nobody has done more for the 1-percenters than deficit spending heterodox economists who claim to “serve a progressive purpose”.

Economic disasters happen since 200+ years because political economists ― both orthodox and heterodox soap box blatherers ― lack the true theory.#3

Egmont Kakarot-Handtke

#1 For details, references, and proofs proceed to Meta-references
#2 “A satisfactory theory of profits is still elusive.” (Palgrave Dictionary, Desai, 2008)
#3 See also ‘Mass unemployment: The joint failure of orthodox and heterodox economics

Immediately preceding 'The non-existence of economics'