April 30, 2017

IS-LM ― a crash course for EconoPhysicists

Comment on Jason Smith on ‘The ISLM model’

Blog-Reference

You define your task: “The economist John Hicks wrote out Keynes’ prose as an economic model that came to be known as the IS-LM model. I already derived this model before in a way that followed the way it is introduced in macroeconomics classes (as an IS and LM market). This derivation will achieve the same result, but approached fundamentally as an information transfer market system.”

This is an idle task because IS-LM is false on all methodological counts. By consequence, it cannot be saved or improved by the misplaced application of information theory.

The formal core of IS-LM can be traced back to the General Theory: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (Keynes, 1973, p. 63)

This two-liner is conceptually and logically defective because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Because profit is ill-defined the whole theoretical superstructure of Keynesianism is false, in particular all I=S and IS-LM models.#1

Let this sink in: Keynes had NO idea of the fundamental concepts of economics, viz. profit and income. Worse, Hicks did not get it either. Worst, after 80 years Jason Smith still has not realized that ALL macro models that do not explicitly contain profit are false.#2

An economist who cannot tell how the pivotal concept of economics, i.e. profit, is defined is like a physicist who cannot tell how energy is defined. Persons who neither understand economics nor physics are called EconoPhysicists. Mirowski has given an account of how these clueless folks have messed up economics in his masterpiece More Heat Than Light.

Egmont Kakarot-Handtke

#1 See also ‘Why Post Keynesianism Is Not Yet a Science
#2 For more details see ‘The IS-LM macro imbeciles’ and cross-references Refutation of I=S

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ANSWER of Jason Smith

Replies

  1. Seems to do ok describing interest rate data, tho.

    So it's a good effective theory regardless of what you think economic theory should look like.

    Let that sink in. Despite all your pompous verbosity, that black line matching up with the blue line above means your criticisms are likely incorrect.

    That's the wonderful thing about data. It can from time to time settle arguments definitively. This is one of those cases. The data says you're wrong, so please display a bit of scientific integrity and admit it.
  2. Please note that a lack of scientific integrity is a violation of my comment policy.

    Additionally, please don't refer to me in the third person when you comment on my blog.
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REPLY to Jason Smith on Apr 30

Your understanding of the scientific method is rather superficial. You maintain: “that black line matching up with the blue line above means your criticisms are likely incorrect. That’s the wonderful thing about data. It can from time to time settle arguments definitively.”

Perhaps you have heard of the famous example that the false Geo-centric theory with its 20+ epicycles fitted the data initially better than the true Helio-centric theory. The Geo-centric theory was discarded nonetheless because it was theoretically unsatisfactory.

Genuine scientists know that science is more than a data-fitting exercise: “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)

Because a theory has to satisfy TWO criteria ― material AND formal consistency ― it is SUFFICIENT to refute it either on material or formal grounds. I have chosen to refute you on formal grounds.

I have delivered the proof that there is NO such thing as an IS curve because I and S are NEVER equal (it holds in the elementary case Qm=I-Sm). Because there is NO such thing as an IS curve your data-fitting exercise is as phantasmagorical as epicyclic data-fitting. (There is NO LM curve either and NO such thing as an equilibrium but this proof is redundant in the given context.)

Your blog is a perfect example of what Feynman called cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

The essential thing that is missing on your cargo cultic blog is a proper understanding of scientific methodology and integrity.
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The whole conversation had vanished from the ITE blog at Apr 30, 20:26 MUC time.

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Blog capture May 26

April 28, 2017

The stupidity of Heterodoxy is the life insurance of Orthodoxy

Comment on Lars Syll on ‘The dangers of neglecting methodology’

Blog-Reference and Blog-Reference on May 1 adapted to context

A theory is the best mental representation of reality that is humanly possible. As Kant put in in 1793: “There is nothing as practical as a good theory.” A good theory is defined by material and formal consistency: “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) A theory is the embodiment of knowledge. Knowledge is the very opposite of opinion. Knowledge is valuable, opinion is worthless. Knowledge is the currency in the realm of science, opinion is the currency in the realm of politics. Both realms are disjunct. How does one eventually arrive at knowledge?: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle)

All this is known since more than 2000 years ― except among economists. Economists have talked volumes about methodology but reality is the final arbiter in science. The reality of economics is that it is a failed science, and from this follows that what economists preach and practice as methodology, i.e. the proverbial ‘thinking like an economist’,#1 is plain proto-scientific rubbish. Fact is that the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Heterodoxy is NOT methodologically superior to Orthodoxy it merely talks more about methodology.#2 The bottom line of heterodox methodology is the pluralism of false theories, which, of course, is scientifically forever unacceptable.

The methodological blunder of Orthodoxy and Heterodoxy is basically the same. Both suffer from the social science delusion. The fundamental methodological error/mistake has been codified by Arrow: “… all explanations must run in terms of the actions and reactions of individuals”. Heterodoxy replaces classes for individuals, and that’s it. What the representative economist fails to realize is that NO way leads from the understanding of Human-Nature/motives/interests/behavior/action/interaction to the understanding of how the economic system works.

The representative economist focuses on the wrong aspect of economic reality which is the result of human-system interaction. An example makes this clear.

Imagine someone is shown an airplane taking off for Paris. Now the person is asked to explain how it so happens that planes fly. The scientifically incompetent commonsenser explains that this flight takes place because the passengers have a variety of motives to go to Paris, and the crew and the pilot have theirs, and that the airline wants to make big profits, and so on. This is how the Human-Nature explanation of psychology and sociology works. It is scientific rubbish but people are perfectly happy with it.

The competent scientist, in contradistinction, avoids all Human-Nature blah blah and explains flight by the interaction of a bunch of physical laws, e.g. aerodynamics, thermodynamics, gravity, and so on.

Methodologically, the lethal blunder of Orthodoxy consists in starting from behavioral axioms: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” (Krugman)#4

The heterodox critique of Orthodoxy (unrealism, mathiness, ignorance of uncertainty/ reflexivity, etcetera) is not false but remains on the surface. There is only ONE effective critique of a false paradigm and this a new paradigm. As long as Heterodoxy is unable to provide the new paradigm the orthodox zombie cannot be buried.

Egmont Kakarot-Handtke

#1 See ‘Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist
#2 See ‘Heterodoxy, too, is scientific junk
#3 See ‘Economics is NOT a social science
#4 See also ‘The Krugman curse


Related 'True macrofoundations: the reset of economics' and '10 steps to leave cargo cult economics behind for good'. For details of the bigger picture see cross-references Heterodoxy

Note on Barkley Rosser on political/scientific failure

Blog-Reference  'Financial Times Messes Up On Italy'

I agree, corruption in Italy and elsewhere is a matter to worry about. It is, though, a matter sociology, political science, the police, and the voters have to deal with. The subject matter of economics is how the monetary economy works.

To put this in perspective: physicists do not try to figure out why and how Nero burnt down Rome but they try to figure out the laws of thermodynamics, which hold for all places and all times. Nonscientists are defined by the Fallacy of Insufficient Abstraction, which is the mirror image of Whitehead’s Fallacy of Misplaced Concreteness.

From this follows that the economist as scientist is NOT interested in why “the FT has joined so many other newspapers in just going down the toilet of bad reporting” but is indeed very much interested in why economics has gone down the toilet of bad science.

To come back from the sad state of Italy to the sad state of economics: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Egmont Kakarot-Handtke


Related 'Poland: "What Are These People Complaining About?"' and 'Turkey And The Trend To Authoritarianism'
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COMMENT on 'Is Authoritarian Nationalism Mostly A Rural Phenomenon?' on Apr 29

Most people are not aware that there are TWO economixes and that this has been the cause of endless confusion. Actually, it is quite simple: there is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics the scientific standards of material and formal consistency are observed.

The state of economics is this: theoretical economics (= science) had been hijacked from the very beginning by political economics (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. As a result of the utter scientific incompetence of political economists#1 economics is a failed science.

In methodological terms, economics is axiomatically false, that is, it is beyond repair. Accordingly, there is no progress at all in economics since 140+ years only the senseless multiplication of silly models which are based on the maximization-and-equilibrium axiom set.#2

As a consequence, what is needed is the Ultimate Separation. These are the options:
― Economics is thrown out of science.
― Political economists (= fake scientists) are thrown out of economics (= science).

As a corollary:
― EconoSpeak changes its name to PoliticoBlather or
― Soap box economists like Barkley Rosser and Sandwichman are told to no longer abuse economics as a pretext for spreading their political opinion.#3

The nullification of political economics requires also the nullification of all scientific credentials (Master, PhD, Peer Reviewer, Journal Editor, Professor, Nobel Laureate) economists ever received since Walras/Jevons/Menger. Political economics is NOT science.

#1 The profit theory is false since Adam Smith, see Palgrave Dictionary online, Desai (2008)
#2 About 90 percent of the content of peer-reviewed quality journals consists of models that are axiomatically false.
#3 See the recent posts about Trump, Turkey, Poland, Italy and my standard comment: Whatever this is, it is NOT economics.

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COMMENT on Anonymous, Barkley Rosser on Apr 29

May I draw your attention to the fact that Marx’s characteristic of the ‘peasantry as a sack of potatoes’ is something like folk sociology but certainly not economics. Marx’s economics, on the other hand, was even more self-disqualifying than his sociology.

Fact is that Marx never figured out what profit is.#1 This is the worst thing that can happen to an economist. Clearly, when the core concept of economics is false then the whole analytical superstructure is false and the sociological implications have no sound theoretical foundations. From the correct profit theory follows the concept of cross-exploitation and this in turn explodes the concept of class.

It is a bit curious that After-Marxians have not detected and rectified Marx’s lethal error until this day.

#1 See ‘Profit for Marxists


Immediately following 'Economics ― a doctor worse than the disease'

April 27, 2017

What genuine scientists believe about economics

Comment on Jason Smith on ‘Falsehoods scientists believe about economics’

Blog-Reference

When directly confronted with economics, genuine scientists immediately realize that economists are lost in the woods:

“Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter)

“What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley)

But, as a rule, genuine scientists are focused on their own field and simply believe what every layperson believes: “Economics is a scientific field like any other that speaks in the public sphere using theories that are empirically grounded and responds to changes in the data, …” (Jason Smith)

Science is well-defined since 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)

Economists have simply NOT gotten this vital point. Fact is that the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Economics is what the genuine scientist Feynman called a cargo cult science. And this means: “So we really ought to look into theories that don’t work, and science that isn’t science.” Axiomatically false is the death sentence for an approach, that is, it is beyond repair and needs to be fully replaced by a new paradigm. Economists, though, do not feel any urge for a paradigm shift: “… most economists neither seek alternative theories nor believe that they can be found.” (Hausman)

So, economists put lipstick on the dead pig and decorate their pathetic models with the latest gadget from the physics department.* What they are in fact doing is to violate the basic principle of falsification to which all genuine scientists strictly adhere: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern)

What genuine scientists know for sure about economics is that ― after 200+ years ― it is still at the proto-scientific stage: “Economics is simply still a million miles away from the state in which an advanced science is …”. (von Neumann)

Egmont Kakarot-Handtke

* See ‘Toolism! A Critique of EconoPhysics


Related 'Hayek and other informationally retarded proto-economists'

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This comment has been removed by a blog administrator.
Reply

Replies


  1. This comment will be deleted because the author failed to understand that the post above was a joke.

    There is also nothing wrong with not directly measurable quantities in science (the quantum wavefunction is a good example).

April 26, 2017

Ricardian vice and Keynesian confusedness

Comment on Lars Syll on ‘The Ricardian Vice’

Blog-Reference and Blog-Reference on May 3

Ricardo is the traditional boogeyman of Heterodoxy: “Ricardo literally invented the technique of economics. … His gift for heroic abstractions produced one of the most impressive models, judged by its scope and practical import, in the entire history of economic theory: seizing hold of a wide range of significant problems with a simple analytical model involving only a few strategic variables, he produced dramatic conclusions oriented to policy action. In short he was the first to master that art that brought success to Keynes in our own day. Not everyone will consider this praiseworthy. Even Schumpeter calls Ricardo’s habit of applying severely simplified abstractions to the solution of practical problems ‘the Ricardian Vice’. And to the Historical School and the American Institutionalists, Ricardo has always stood for everything they detest in orthodox economics.” (Blaug)

In April 1817, David Ricardo published The Principles of Political Economy and Taxation, where he laid out ― among others ― the idea of comparative advantage which serves until this day as ultimate rationale for free trade. Heterodoxy criticizes Ricardo since 200 years. Time enough, one should think, to spot Ricardo’s pivotal blunder and to come up with a superior alternative.

This did not happen. Keynes, for one, complained that Malthus “failed to furnish an alternative construction; and Ricardo conquered England as completely as the Holy Inquisition conquered Spain”. But Keynes, too, failed to furnish an alternative construction. Keynes subscribed to the Cambridge School of Loose Verbal Reasoning and established himself in the scientific no-man’s land where ‘nothing is clear and everything is possible.’#1

The common blunder of Keynes and Ricardo is the profit theory. Both got the foundational concept of economics wrong: “His [Keynes’s] Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

In his chapter On Profits Ricardo stated that “profits would be high or low in proportion as wages were low or high.” This relationship holds for a single firm but is false for the business sector as a whole. Ricardo committed the classical logical Fallacy of Composition.#2 Overall profit does NOT depend on wages.

What Keynes and Ricardo had in common was a false profit theory and this is the worst thing that can happen to an economist. In 200 years of critique of the Ricardian vice neither Orthodoxy nor Heterodoxy has made any progress. As the Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008) The state of economics 200 years after Ricardo is this: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Since Ricardo, the root of methodological vice and intellectual confusion is scientific incompetence.

Egmont Kakarot-Handtke

#1 See ‘Marshall and the Cambridge school of plain economic gibberish
#2 See ‘When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism

Hayek and other informationally retarded proto-economists

Comment on Jason Smith on ‘Should the left engage with neoclassical economics?’

Blog-Reference and Blog-Reference

Hayes characterizes the corpus of Hayek, Friedman and neoclassical economics as “incredibly powerful, really important, really influential, tremendous amount of incredible insight, helpful for understanding how capitalism works, etc.”

Fact is that Hayek et al. is plain proto-scientific rubbish. No amount of information theory make-up can change the fact that neoclassical economics had already been dead in the cradle 140+ years ago. Some retarded folks, though, have not realized this, among them Jason Smith. He maintains: “One thing that I think needs to be more widely understood is that Hayek did have some insight into prices having something to do with information, but got the details wrong.”

One thing that has to be clearly understood is that there in NO such thing as economics. There are TWO economixes and they are constantly confounded. Therefore, it is of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics the scientific standards of material and formal consistency are observed.

Theoretical economics (= science) has to be judged according to the criteria true/false and NOTHING else. Hayek et al. is provable false. Neoclassical economics has no truth-value, merely political use-value.

Hayek et al. is false because it is based on microfoundations. Microfoundations are defined with this behavioral 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)

From these axioms together with some auxiliary assumptions follows what Leijonhufvud called the Totem of Micro/Macro, that is, SS-curve―DD-curve―equilibrium, which is the representative economist’s all-purpose tool.

This approach is false on all methodological counts, that is, supply-demand-equilibrium is a NONENTITY or plain proto-scientific rubbish. Microfounded economics is what Feynman famously called cargo cult science.

Hayek et al. argued that the existing economic system is self-adjusting. He could never prove it in a way that satisfies the criteria of material and formal consistency. Worse, it can be rigorously proved that the market system is NOT self-adjusting.#1

Clearly, economics has to abandon microfoundations altogether and move forward to macrofoundations.

Macrofoundations do away with the brain-dead blather of supply-demand-equilibrium. From macrofoundations follows the correct objective/systemic/behavior-free/testable Law of Supply and Demand which is shown on Wikimedia.#2

Conclusions:
  • Hayek et al. NEVER understood how the price and profit mechanism works.
  • The economic policy guidance of Hayek et al. NEVER had a sound scientific foundation.
  • NOT ONE of the political economists and agenda pushers from Smith to Hayek et al. will ever be accepted as scientist.
  • Hayek et al.’s approach cannot be improved only abandoned because it is axiomatically false.

Egmont Kakarot-Handtke

#1 See ‘Could we, please, all focus on the key question of economics?
#2 For details see ‘Essentials of Constructive Heterodoxy: The Market


Related 'Economists’ proto-scientific shell games' and 'The non-existence of economics' and 'Friedman and the cluelessness of fake scientists' and 'Why Hayek was not a scientist' and 'Krugman is not an economist' and 'Economics: Deadlocked between politics and science' and 'Hayek ― agenda pusher or scientist?' and 'Hayek or how economists miss their subject matter since more than 200 years' and 'Economics: ‘a tale told by an idiot ... signifying nothing’' and 'Hayek was not an economist' and 'Hayek: mad, bad, or just another incompetent economist?' and 'Hayek or how economists miss their subject matter since more than 200 years' and 'Pareto-efficiency, Hayek’s marvel, and the invisible executor' and 'The philosophy of know-nothingers' and 'Keynes, Hayek, Kant' and 'Time to get rid of political economics' and 'Nominal and real distribution'

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This comment has been removed by a blog administrator.


  1. This comment contains offensive language and will be removed.

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REPLY to Bob on Apr 27

You say: “Nothing stopping him [Jason Smith] from addressing AXEC and Bob Roddis over here.”

No way. Jason Smith has removed/deleted not one but several comments that have been posted on his blog Information Transfer Economics. He has even retrofitted his own posts.*

Jason Smith violates basic scientific standards on a daily basis and therefore cannot be invited or admitted to any economics debate whatsoever.

Egmont Kakarot-Handtke

* For my original contributions see:

For Jason Smith’s original contributions you have to urge him to put them back on his blog. I cannot recommend this because the sooner his unqualified blather about economics and physics is forgotten the better.

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REPLY to Bob on Apr 28

(i) There is political economics (= agenda pushing) and theoretical economics (= science).
(ii) Political economics is scientifically worthless since Adam Smith.
(iii) Hayek was a political economist (= fake scientist).
(iv) Hayek’s contribution to theoretical economics is proto-scientific rubbish.
(v) Jason Smith is putting lipstick (= Information Theory) on the dead pig.
(vi) By promoting Hayek, Jason Smith is promoting political economics (= fake science).

It is a curious fact that substandard physicists, mathematicians, and engineers turned in great number to economics. Mirowski has dealt with this phenomenon at great length in More Heat Than Light. It explains why economics is still at the proto-scientific stage.

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REPLY to Tom Hickey, Bob Roddis on Apr 28

The argument about identities/human action is one of the oldest clichés from the long list of lame excuses.#1

Obviously you lack any understanding about the vital difference between political economics (= agenda pushing) and theoretical economics (= science).

Economics is NOT about human behavior but about the behavior of the economic system.#2

Economists (including Hayekians) do until this very day NOT understand how the price and profit mechanism works. This is why they have NOTHING worthwhile to say.#3

#1 See ‘Failed economics: The losers’ long list of lame excuses
#2 See ‘The stupidity of Heterodoxy is the life insurance of Orthodoxy
#3 See ‘Economists and politics: Will you kindly shut up!

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COMMENT on Tom Hickey's ‘Jason Smith — Should the left engage with neoclassical economics?’ on Apr 30

You kicked off this thread with “Getting the left up to speed by understanding information. There’s a lot of good stuff in this post.”

It is a puzzle wrapped in a conundrum how you can recommend Jason Smith’s post. Take note of:

  • Economics is a science and deals exclusively with true/false and NOT with left/right.
  • Political economics is proto-scientific rubbish and Hayek is one of the better known examples for fake science. Jason Smith’s attempt to improve Hayek is a no-go.
  • Jason Smith has NO idea of how the market economy works.
  • Jason Smith has NOT realized that microfounded neoclassical economics is dead since 140+ years and macrofounded Keynesianism is dead since 80+ years.*
  • Jason Smith practices censorship on his blog and therefore throws himself out of the econ blogosphere.
  • There is NOT one iota of ‘good stuff’ in his post or on his blog.

* See ‘IS-LM ― a crash course for EconoPhysicists

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Blog capture May 26

April 25, 2017

The Krugman curse

Comment on David Glasner on ‘A Tale of Three Posts’

Blog-Reference

Humans are gregarious animals and therefore take reassurance from being part of the larger crowd and from a casual friendly pat of their leader. Accordingly, David Glasner is overjoyed to report that: “A number of my posts have achieved a fair amount of popularity, … Many, though not all, of my most widely viewed posts were mentioned by Paul Krugman in his blog. Whenever I noticed an unusually large uptick in the number of viewers visiting the blog, I usually found Krugman had linked to my post, causing a surge of viewers to my blog.”

This is a fine success according to the criteria of media-, public relations-, attention-, and reputation management. At second sight it is a comical attempt of two failed economists to mutually beef up their reputation.

David Glasner readily admits all the inconsistencies of standard economics but he is content with supply-demand-equilibrium as an explanation of how the market system works and does not feel any urge for a paradigm shift: “… most economists neither seek alternative theories nor believe that they can be found.” (Hausman) This is self-disqualifying.

Krugman, too, is unwavering committed to the orthodox paradigm: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” This, too, is self-disqualifying.

Krugman has not realized that both the neoclassical axioms and the Keynesian I=S are false on all methodological counts but applies an inconsistent synthesis of these two inconsistent approaches in order to explain current economic events.#1, #2 But, of course, Krugman is a well-respected loudspeaker of the profession.

What David Glasner has not realized is that economics is what Feynman called a cargo cult science#3 and in this topsy-turvy world holds Shakespeare’s ‘fair is foul, and foul is fair’. This means (i) that any Top-Ten chart tells one what NOT to touch under any circumstances, and (ii), that the approval of Paul Krugman amounts to a confirmation of utter scientific failure.

So, a link from Paul Krugman, Mark Thoma, Brad DeLong and other ‘hearts and souls of the econ blogoshpere’ is not a reason to feel elated and indebted but a curse that follows one beyond the grave. The curse says: We, the mutually interlinked leaders and followers of cargo cult economics will never be accepted in the community of scientists.

Egmont Kakarot-Handtke

#1 See 'Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It'
#2 See ‘The father of modern economics and his imbecile kids
#3 See Wikipedia


Related 'Paul the Menace' and 'Scientific suicide in the revolving door'

Economics and encephalomalacia

Comment on Barkley Rosser on ‘Turkey And The Trend To Authoritarianism’

Blog-Reference

Simon Wren-Lewis correctly observed:#1 “Narratives are a way people can try to understand things they know little about, and most people know little about economics or politics.”

This is an accurate observation ― and it is by no means new. The media have always been in the business of storytelling and it is well-known that this sooner or later leads to general encephalomalacia (softening of the brain).

What Simon Wren-Lewis tried to suggest in his post is that the media are the bad storytelling guys and that economists are the facts-only-truth-telling good guys.

Reality is quite different. It is NOT only the media that is in the business of storytelling but economics, too. But economists’ encephalomalacia is more reprehensible because economics claims to be a science and this means: “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)

And here is the snag: economists do not have the true theory. Economics claims to be a science, yet has never satisfied scientific standards. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Because of his lack of the true theory what the representative economist has to offer is educated common sense, his personal opinion, second-guessing the FED, and interpreting the President’s tweets.

Some economists have given up economics altogether and have regressed to psychological, sociological, political, and historical storytelling. Barkley Rosser has now set new standards with his completely beside-the-point narrative of voting patters, the Sons of Liberty in Texas who fought for the freedom to own slaves, the convergence on an ethnic core based nationalism, Erdogan’s attempt to undo the secular Turkish state of Ataturk and replace it with a neo-Ottoman Empire, and of the confusion that was caused by Trump congratulating Erdogan on his referendum.

Whatever this is, it is NOT economics.

The storytelling of scientifically failed economists like Barkley Rosser has become virtually indistinguishable from the blather of half-witted journalists.#2 This proves that economics has never gotten above the proto-scientific level since Adam Smith: “… he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

Since 200+ years economists are lousy scientists but good at brain softening.

Egmont Kakarot-Handtke

#1 See ‘Media-fake-farce-fraud-storytelling-macro
#2 See also ‘Politics, storytelling, and science’ and ‘Economics ― from attention and reputation management to science

April 21, 2017

Ditch scientific incompetence!

Comment on Lars Syll on ‘Ditch physics envy!’

Blog-Reference

It was one of Mirowksi’s worst idiocies to introduce in his More Heat Than Light the term ‘physics envy’ in analogy to Freud’s ‘penis envy’. To psychologize derails every discussion because the focus turns from ‘Is the other guy’s argument true or false?’ to ‘What are the other guy’s real motives?’.

Schumpeter has settled this issue once and for all: “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.”

Science is about true/false and NOTHING else. Kate Raworth, though, has never heard anything of Schumpeter, methodology, and the rules of scientific discourse: “… a critical discussion is well-conducted if it is entirely devoted to one aim: to find a flaw in the claim that a certain theory presents a solution to a certain problem.” (Popper)

Kate Raworth recounts the history of economic thought: “In the 1870s, a handful of aspiring economists hoped to make economics a science as reputable as physics.”

It was NOT AT ALL a problem of reputation. Economists realized that ― after Newton ― their confused psychological and philosophical blather was no longer taken seriously: “The backward state of the Moral Sciences can only be remedied by applying to them the methods of Physical Science, duly extended and generalized.” (Mill). And: “Like most of his fellow moral philosophers, Hume thought it was worth a try to make all sciences as rigorous as Newtonian physics.” (Redman)

Being scientifically incompetent, economists engaged in what Feynman called cargo cult science, that is, they imitated without deeper understanding. What hit their eyes was the most outstanding feature of the Scientific Revolution, i.e. the discovery of physical laws.

Economists’ tried to apply the concept of law to sociology or psychology or something in-between called Human Nature.

“The fundamental problem, therefore, of the social science, is to find the laws according to which any state of society produces the state which succeeds it and takes it place.” (Mill)

“Intrinsically, it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is a question of these laws themselves, of these tendencies working with iron necessity towards inevitable results.” (Marx)

“That Political Economy informs us of the laws which regulate the production, distribution, and consumption of wealth. … This definition is free from the fault which we pointed out in the former one. It distinctly takes notice that Political Economy is a science and not an art; that it is conversant with laws of nature, not with maxims of conduct, and teaches us how things take place of themselves, not in what manner it is advisable for us to shape them, in order to attain some particular end.” (Mill)

“The foundation of political economy and, in general, of every social science, is evidently psychology. A day will come when we shall be able to deduce the laws of social science from the principles of psychology …” (Pareto)

“From the above considerations the following seems to come out as the correct and complete definition of Political Economy: ― ‘The science which treats of the production and distribution of wealth, so far as they depend upon the laws of human nature.’ Or thus ― ‘The science relating to the moral or psychological laws of the production and distribution of wealth’.” (Mill)

That there is NO such thing as a behavioral/social/historical law has been known to scientists (in contradistinction to economists) in ALL ages: “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown)

The scientific incompetence of economists consisted in the fact that they defined economics as as social science instead of a system science and that they did not realize their fundamental methodological blunder until this day. Standard economics is built upon microfoundations = BEHAVIORAL axioms.

There are NO laws of human behavior/nature/action, neither psychological nor social nor historical, but there are SYSTEMIC laws of the monetary economy, e.g. the Profit Law.

To argue with ‘physics envy’ is entirely beside the point. The problem of economists is NOT envy but stupidity.

What Kate Raworth has figured out is: “People and money are not so obedient as gravity, as it turns out, so no such laws exist.” True, there are NO behavioral laws. This has been known in ALL ages. But there are SYSTEMIC laws. Unfortunately, the folk psychologist and hobby economist Kate Raworth has not figured them out.

The conclusions from the manifest failure of Orthodoxy AND Heterodoxy are: (i) to ban psychology, sociology and all Human-Nature blather from economics, (ii) to retire the whole bunch of incompetent scientists, and (iii), to focus on the question how the market system works.

Egmont Kakarot-Handtke


Related ‘The Science-of-Man fallacy’ and ‘The economist as moralist’ and ‘The Synthesis of Economic Law, Evolution, and History’  and ‘Mathematical Proof of the Breakdown of Capitalism’ and 'How Heterodoxy became the venue for science’s scum' and 'How to overcome the manifest silliness of Econ 101 and save the economy'

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COMMENT on Nanikore on Apr 22

You say: “Society does not follow Darwinian Laws, which the author fails to note also had a big impact on the philosophical foundations of classical Anglo-Saxon economics that emerged during its Victorian Era formative stages.”

This is way beside the point because economics is NOT about society ― this is the subject matter of SOCIOLOGY ― but about how the actual monetary economy works. Economics is faux sociology since J. S. Mill.#1

Fact is, economists got their subject matter wrong. And this is why the representative economist has until this day NO idea what the pivotal magnitude of her/his subject matter, i.e. profit, is.

Imagine you are shown an airplane taking off for Paris. Now you are asked to explain how it so happens that planes fly. As a scientifically incompetent commonsenser you explain that this flight takes place because the passengers have a variety of motives to go to Paris, and the crew and the pilot have theirs, and that the airline wants to make big profits, and so on. Everybody easily understands your ‘explanation’ because this is how Verstehen works since the kindergarten.

The competent scientist, in contradistinction, avoids all Human-Nature blah blah and explains flight by the interaction of a bunch of physical laws, e.g. aerodynamics, thermodynamics, gravity, and so on.

It is the same with economics: utility maximization or profit maximization or other human motives do NOT get the economy off the ground. Only the systemic laws, e.g. the Profit Law, can explain what makes the economy fly or crash.

Fact is that neither orthodox nor heterodox economists know until this day the objective systemic laws of the monetary economy. This does not stop them from giving economic policy advice.

You say: “The natural place of economics is in the humanities”. This is true insofar as both the humanities and economics are OUT of science. The term ‘social science’ is an oxymoron and an euphemism for cargo cult science.#2 Since the founding fathers, economics is faux sociology, or metaphorically, the Forrest Gump of science.#3

#1 See ‘John Stuart Mill as a social science founder
#2 See ‘The non-existence of economics
#3 See ‘The Science-of-Man fallacy

Where MMT got macro wrong

Comment on Bill Mitchell on ‘MMT is what is, not what might be’

Blog-Reference and Blog-Reference

MMT consists of a political part and a theoretical part. The MMT developers “set out in the early 1990s to construct a better way of doing macroeconomics.” In the following, the exact point is located where MMT-macro went methodologically wrong. The political part of MMT is not addressed.

Methodology demands to start with the most elementary economic configuration. In the beginning, the economy consists only of the household and the business sector. No public sector, no foreign trade.

MMT is right: microfoundations is the wrong approach ― since 140+ years. The correct approach is macrofoundations.#1,#2 The elementary version of the objective, systemic, behavior-free, macrofounded employment equation is shown on Wikimedia.

From this equation follows:
(i) An increase of the expenditure ratio ρE leads to higher employment L (the Greek letter ρ stands for ratio). An expenditure ratio ρE greater than 1 indicates credit expansion, a ratio ρE less than 1 indicates credit contraction.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio ρF=W/PR leads to higher employment.

The complete employment equation contains in addition profit distribution, the public sector, and foreign trade.

Item (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρF as defined in (iii) embodies the price mechanism. The fact of the matter is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R.

Total monetary profit for the economy as a whole is given with Qm=Yd+(I-Sm)+(G-T)+(X-M), which reduces to Qm=I-Sm for Yd, G, T, X, M = 0. The reduced macroeconomic profit equation says that the monetary profit of the business sector Qm is equal to the difference between investment expenditures of the business sector I and monetary saving of the household sector Sm (or dissaving -Sm as the case may be).

From the correct macrofoundations follows that the two statements of Bill Mitchell are provably false:
― “The obvious conclusion is that unemployment occurs when net government spending is too low to accommodate the need to pay taxes and the desire to net save.” Unemployment occurs when the expenditure ratio ρE or/and the factor cost ratio ρF is “too low”. Government spending/taxation can improve or worsen the situation.
― “Net government spending is required to meet the private desire to save.” False. Given investment expenditures I, the private desire to save Sm determines monetary profit Qm.

As a matter of principle, full employment can be achieved without private/public deficit spending, i.e. ρE=1, via the price mechanism by increasing ρF=W/PR.

In methodological terms, MMT messed macro up because it got the elementary accounting equations wrong.#3 Because the formal foundations are false the whole analytical superstructure of MMT-macro is false.

The economic policy proposals of MMT have NO sound scientific foundation, just like Post Keynesianism, New Keynesianism, DSGE, RBC, etcetera.

Egmont Kakarot-Handtke

#1 The macrofoundations approach starts with three SYSTEMIC axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
#2 For the introduction of money see ‘Essentials of Constructive Heterodoxy: Money, Credit, Interest
#3 See ‘The Common Error of Common Sense: An Essential Rectification of the Accounting Approach


Related 'The final implosion of MMT' and 'How Keynes got macro wrong and Allais got it right' and 'Why Post Keynesianism Is Not Yet a Science' and 'True macrofoundations: the reset of economics'. For more details see cross-references MMT.

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REPLY to MRW on Apr 22

The line of the argument is as follows. MMT is right: orthodox/mainstream economics is false. This is what already Keynes knew. In technical terms, the lethal error/mistake resides in the microfoundations. Keynes switched to macrofoundations but got it wrong.#1 MMT switched also to macrofoundations but got it also wrong.#2

The point is: when the foundations are false the whole analytical superstructure falls apart. The correct macrofoundations are given in the previous post.

From the correct foundations follow the correct systemic relationships for employment and total profit.

From the correct equations follows that there are basically two ways to arrive at full employment (i) deficit spending, (ii) to increase the wage rate faster than price and productivity, that is, to use the price mechanism.

Deficit spending has negative effects on the income distribution.#3 In the actual situation, the economic policy recommendation is therefore (ii). This is the best way to get out of unemployment, deflation, and stagnation.

To know how the monetary economy (i.e. the price and profit mechanism) works is the precondition for successful economic policy. The fact of the matter is that both microfounded mainstream and macrofounded MMT are provably false. Policy recommendations that lack sound scientific foundations are worthless or even counterproductive.

Incompetent economists WORSEN the situation. This holds for Walrasians, Keynesians, MMTers, Marxians, Austrians.

If this is too condensed, more details are to be found in the references. The economy is a complex system which does not fit in one short post.

#1 See ‘Keynes saw the problems but did not solve them
#2 See ‘The final implosion of MMT
#3 See ‘Austerity and the idiocy of political economists

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REPLY to hog on Apr 22

You ask: “the flow from the government sector to the household sector, and why by your assumptions it can’t be greater than taxes.”

This flow is called transfers and it has been left out of the picture here.

You ask: “so your argument is what? that more money flows from the government sector to the business sector than to the household sector?”

The profit equation Qm=Yd+(I-Sm)+(G-T)+(X-M) reduces to Qm=G-T if Yd, I, Sm, X, M is set to zero and then it says: if government expenditure G is greater than taxes T, i.e. if there is a public sector deficit, then profit of the business sector as a whole is equal to the deficit. In the opposite case, if the government sector runs a surplus, i.e. if G is less than T, then the loss of the business sector is equal to the surplus of the government sector.

The growing profits of the US economy in the past decades and the increasing ratio of profits to wage income are the mirror image of public deficit spending = growth of public sector debt (plus growth of household sector debt).*

* See also ‘Austerity and the idiocy of political economists

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REPLY to hog on Apr 22

You ask: “so how does arbitrarily setting various parameters of the profit equation to 0 somehow disprove it?”

The sole purpose of setting some variables initially to zero is to focus on the point at issue. The point at issue is here the relationship between public sector deficit/surplus and business sector profit/loss.

The other relationships have been dealt with elsewhere.

The rule of proper analysis is that one solves first the simple problems and then successively the more complex. As Morgenstern put it: “There can be no doubt whatsoever that a problem which has not yet been solved in all its aspects under its simplest conditions will be still more difficult to tackle if other, ‘more realistic’ assumptions are being made.”

The crucial point is that MMTers do not even understand the most elementary case. Because of this, there is NO NEED AT ALL to tackle the general case with the other variables of the profit equation different from zero.

By the way, you can do the general analysis for yourself. It follows ALL almost by itself from the structural/systemic/macro axiom set, just like the whole of geometry follows from the Euclidean axioms.

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REPLY to hog on Apr 23

Scientific standards are well-defined: “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)

A theory must satisfy TWO criteria. Therefore, in order to refute a theory, it is SUFFICIENT to prove that it is either logically false or empirically false.

MMT-macro is logically defective. As a consequence, all economic policy conclusions drawn from it are scientifically worthless. While every moron is entitled to an opinion, economists are NOT. Economics is a science and from a scientist KNOWLEDGE is expected. Scientific knowledge, in turn, is well-defined by material/formal consistency.

The political sphere and the scientific sphere have to be kept strictly apart. The political sphere is for morons with an opinion, the scientific sphere is for scientists with knowledge.

MMT is soapbox economics because it does NOT satisfy the condition of logical consistency. It is therefore at best good for a sitcom.

The elementary case in economics is given with the pure consumption economy which consists of the household and the business sector. Neither Keynes, nor Post Keynesians, nor MMT got this simple case right. And the reason is that these so-called economists do not understand what profit is: “His Collected Writings show that he [Keynes] wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

So, Keynes did NOT understand the fundamental magnitude of economics. Worse, it is NOT the case that Keynesians or other so-called economists have realized or fixed the problem in the meantime. As the Palgrave Dictionary states: “A satisfactory theory of profits is still elusive.” (Desai, 2008)

MMTers, too, messed up macrofoundations.

The most elementary economic configuration yields for total monetary profit Qm=-Sm. This simple equation is lethal for Keynesianism, Post Keynesianism, New Keynesianism, IS-LM, MMT to name only the macrofounded approaches.

With the public sector added the equation becomes Qm=-S+(G-T). With investment added it becomes Qm=(I-Sm)+(G-T). With profit distribution added, it becomes Qm=Yd+(I-Sm)+(G-T). And so on, complexity increases in the course of analysis.

Advanced analysis is NOT needed, though, because it is pretty obvious that MMT messed already the elementary case up. Because of this, MMT economic policy guidance is the same brain-dead blather as Walrasianism, Keynesianism, Marxianism, Austrianism.

Note in passing that the complex profit equation is testable with the accuracy of two decimal places. This, of course, is the way to settle the whole matter.

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REPLY to hog on Apr 23

You say: “While politics itself isn’t a science political theory however is.”

In order to give economic policy guidance economists need to know how the economy works: “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)

Economists do NOT have the true theory. After 200+ years they do not even know what profit is. This applies also to MMT. Political opinion is NOT needed, we have more than enough of this crap, but scientific knowledge is urgently needed.

The conclusions from the manifest failure of economists are: (i) to ban psychology, sociology, politics from economics and to leave it to sociology, psychology, political science,#2 (ii) to retire the whole bunch of incompetent scientists (Walrasians, Keynesians, Marxians, Austrians, MMTers, hog), and (iii), to focus on the question how the market system works.

#1 See ‘Ditch scientific incompetence!
#2 For details see cross-references Political economics

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REPLY to Tom Hickey on Apr 23

You can research as many molehills as you like but with this method, you will never arrive at the correct theory of the universe. The same holds for economics. The simple reason is that conclusions drawn from properties and relationships that are true for a firm cannot be generalized for the economy as a whole. This is the well-known fallacy of composition.

Example: One firm can increase profit by lowering the wage rate but for the business sector as a whole this does not work.#1 Because of this, economic policy that is based on microeconomic partial analysis runs inevitably against the wall.

Bottom-up is how Orthodoxy proceeds under the label of microfoundations: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow)

This molehill approach had been bound to fail already 140+ years ago. Keynes realized that microfounded economics had led into a cul-de-sac and therefore switched to macrofoundations. This was ― in principle ― the right first step towards a paradigm shift, except for the fact that Keynes messed up macrofoundations. This is why Keynesianism, too, is a failure.#2

The lesson from the history of economic thought is that theoretical economics has to proceed top-down, i.e. from macrofoundations down through intermediate levels (sectors, branches, firms, households) to the individual. Why? Because NO amount of microeconomic research will ever lead to the understanding of how the (world-) economy works.#3

The only thing that is methodologically correct with MMT is the move from microfoundations to macrofoundations. The subject matter of economics is an abstract entity called the (world-) economy and NOT the decisions that are taken in firms or before the yogurt shelf. Every junior consultant with some background in psychology and sociology and a statistics package on his laptop can do this kind of studies. That’s NOT economics.

The economist’s ambition goes beyond case studies: “The highest ambition an economist can entertain who believes in the scientific character of economics would be fulfilled as soon as he succeeded in constructing a simple model displaying all the essential features of the economic process by means of a reasonably small number of equations connecting a reasonably small number of variables.” (Schumpeter)

MMT failed at this task. MMT’s macrofoundations are provably false.

#1 See ‘Profit for Marxists
#2 See ‘The unfinished Keynes
#3 See ‘Macro for dummies

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REPLY to Tom Hickey on Apr 23

You say: “Moreover, the notion that there is a scientific method that allows scientists to step outside of a world view and see ‘with God’s eyes’ is just nonsense based on current scientific findings about how brains function.”

There is no need to invoke God’s eye, every person with a modicum of scientific instinct sees immediately that economics is a cargo cult science#1: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley)

Generation after generation of dull economics students has accepted supply-demand-equilibrium as an explanation of how the market system works. No God is needed to realize that economists have NO idea of the fundamental concepts of their subject matter, it’s in the Palgrave Dictionary.

No brain research is necessary to figure out that economists’ brains contain just enough cells to philosophize about methodology and politics but not enough to understand how the economy works.

It is no good idea to invoke God in economic matters. If HE does realize what economists have produced so far (Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, and silly excuses#2) he will make this heap of proto-scientific rubbish and methodological dilettantism disappear in a no-return black hole.

As far as MMT is concerned everybody can make it disappear in the wastebasket with a rather small quantity of logical thinking.

#1 Wikipedia
#2 See ‘Failed economics: The losers’ long list of lame excuses

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MMT/historical

Bill Mitchell has been informed via Twitter that the final refutation of MMT took place on this blog.

April 20, 2017

Media-fake-farce-fraud-storytelling-macro

Comment on Simon Wren-Lewis on ‘GE2017: Why economic facts will be ignored once again’

Blog-Reference and Blog-Reference

You say: “Narratives are a way people can try to understand things they know little about, and most people know little about economics or politics. Mediamacro is a set of narratives.”

This holds for 99.9 percent of the people and 99.9 percent of the issues. The average person simply dislikes an objective explanation (e.g. the thunderbolt is an electromagnetic phenomenon subject to physical laws) and likes a subjective/emotional explanation (e.g. Zeus threw the thunderbolt because he was angry). Human communication is storytelling/ myth/gossip/spoof. The only exception is science.

Scientific explanation takes the form of the true theory with truth defined as material/ formal consistency. For the economist this means: “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)

And here is the snag: economists do not have the true theory. Economics claims to be a science, yet has never risen above the level of storytelling. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Because of his lack of the true theory what the professional economist has to offer is educated common sense, his personal opinion, and poultry entrails reading. The narrative of the representative economist is qualitatively NOT different from the narrative of an experienced journalist. Economists’ policy guidance has NO sound scientific foundation since 200+ years.

Egmont Kakarot-Handtke

Related 'Politics, storytelling, and science' and 'Economics between cargo cult, farce, and fraud' and 'Economics ― from attention and reputation management to science' and 'Narrative economics and the imperatives of the sitcom' and 'Storytelling vs Theory = Politics vs Science' and 'The economist as storyteller# and 'Lucas: Confession of a scientific write-off' and 'New economic thinking, or, let’s put lipstick on the dead pig' and 'The end of storytelling' and 'Economics as poultry entrails reading' and 'No ground to lose'  and 'Schizonomics' and 'Economics is a science? You must be joking!' and 'There is NO such thing as an economic expert' and 'Economics — from storytelling to science'

April 19, 2017

How Heterodoxy became the venue for science’s scum

Comment on Edward Fullbrook on ‘Why a global disaster that could easily have been prevented took place’

Blog-Reference

The key message of Heterodoxy is that orthodox/mainstream economics is false. This is correct but curiously, since Veblen’s fundamental critique of Orthodoxy, Heterodoxy has never come up with the true theory: “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell)

Construction, though, never happened. Instead of following the scientific protocol and performing the necessary paradigm shift Heterodoxy advocates pluralism: “The first distinction you draw is that the old paradigm (OPE) is anti-pluralist (as in classical physics), while the new paradigm (NPE) is pluralist (as in modern physics).” (Fullbrook, see intro)

This statement is proof of the utter scientific incompetence of traditional Heterodoxy. The first thing to notice is that Edward Fullbrook does NOT understand the elementary difference between hypothesis and theory. Most people don’t and this why the worst misnomer of all ‘conspiracy theory’ became popular. The correct designation for what is actually meant is ‘conspiracy hypothesis’. To confound hypothesis and theory is a sure indicator of idiocy.

Scientific research STARTS with a speculative idea, a possible explanation, a hypothesis. A hypothesis is an open invitation for discussion and a challenge to come forward with a better hypothesis. There are no restrictions for a hypothesis: “It does not matter that moos and goos cannot appear in the guess. You can have as much junk in the guess as you like, provided that the consequences can be compared with experiment. (Feynman)

Scientific research ENDS with a theory. A materially/formally consistent theory is the best mental representation of reality that is humanly possible. Science is binary, i.e. true/false with nothing in between. The ultimate goal of science is the true theory. The pluralism of hypotheses or opinions is only a transitory state: “That the settlement of opinion is the sole end of inquiry is a very important proposition.” (Peirce)

It is exactly the same in criminology. The statement 'A has murdered B' is either true or false. But every criminal investigation starts with the pluralism of hypotheses and suspects. Now, as Sherlock Holmes already taught, the very task of the detective is to eliminate hypotheses: “Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth.” Hypothesis is plural and temporary, truth is singular and final.

Fullbrook’s example of the kidnapping case is entirely beside the point because he confounds hypothesis with paradigm. To switch in the course of an investigation between different and contradictory hypotheses is NOT the same as a paradigm shift.

More often than not, the argumentation becomes nutty when economists cite physics as an example. Edward Fullbrook is no exception: “Many, and probably most, of the wonderful advancements of modern science have, as Einstein and other greats so deeply appreciated, came about in a similar way, that is by altering the ‘focus’ or ‘theory’ or conceptual framework through which a particular realm of the real-world is viewed.”

This is true but thoroughly misleading. Einstein appreciated paradigm shifts BUT NOT the pluralism of theories, just the opposite: “They [Einstein and Dirac] agreed that science was fundamentally about explaining more and more phenomena in terms of fewer and fewer theories, a view they had read in Mill’s A System of Logic.” (Farmelo)

No physicist regarded the state of the 1920s/1930s with relativity theory on the one hand and quantum theory on the other as satisfactory. The challenge is the Grand Unified Theory. Feynman put it thus: “Some day, when physics is complete and we know all the laws, we may be able to start with some axioms, and no doubt somebody will figure out a particular way of doing it so that everything else can be deduced.”

To compare the proto-scientific state of economics with the advanced state of physics and then to characterize the manifest confusion and scientific incompetence of economists as “pluralist (as in modern physics)” is self-delusional or worse.

Both, relativity theory and quantum theory satisfy the scientific criteria of material and formal consistency. In economics, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong. Neither orthodox nor heterodox economists understand the pivotal concept of their subject matter. This is like a physicist who does not understand the elementary concept of force or mass.

By advocating the pluralism of false theories, Heterodoxy is attempting to lower scientific standards to the point of anything-goes. Nobody talks more nonsense about methodology than Edward Fullbrook, Lars Syll, and Asad Zaman. What has to be realized is: either economics satisfies the well-defined scientific criteria of material and formal consistency or economics is OUT of science.#1 At the moment BOTH Orthodoxy and traditional Heterodoxy are out of science.

The task of Heterodoxy is to fully replace the current Orthodoxy and to become the new and better Orthodoxy. This requires the development of a superior theory. Traditional Heterodoxy has failed at this task.#2 This explains the attempts to lower scientific standards and the propagation of the pluralism of false theories: “If you believe in the correctness of your ideas, you do not want pluralism; you want your ideas to win out because they are correct.” (Colander et al.)#3

Egmont Kakarot-Handtke

#1 See also ‘Science does NOT predict the future
#2 For details see cross-references Heterodoxy
#3 For details about Constructive Heterodoxy see cross-references Paradigm shift


Related 'How economists shoot themselves non-stop in the methodological foot' and 'Redefining economics' and 'From the pluralism of false models to the true economic theory' and 'Economists and the destructive power of stupidity' and 'The myth of economics knowledge' and 'Heterodoxy, too, is scientific junk' and 'Eclecticism, anything goes, and the pluralism of false theories' and 'Economics: The pluralism of false theories is over' and 'First Lecture in New Economic Thinking' and '10 steps to leave cargo cult economics behind for good'.

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COPY of George McKee's post


April 18, 2017 at 7:42 pm
This post is unfortunately like too much of economics, in that it preferences stories that support its preconceived conclusions over observed facts. Physics is in fact not pluralist at all: there’s only one theory of physics that matches the facts, and that theory is the standard model of quantum field theory. In this astounding theory there are eighteen quantum fields which span all of space and time, and that is the whole of reality. Everything else is consequences of the interactions of those fields at larger and larger and larger …and larger scales. This theory isn’t perfect by any means, and there are many proposals to fix its problems, but the key distinction from what’s described the post here is that no physicist is happy with the plurality of different proposals. For physicists, pluralism is a problem to be fixed, not a heterodox paradigm to be advocated. And all physicists agree on the way to fix the problem, which is to conduct experiments and adjust the theory so that it predicts the data. Sometimes it takes 50 years to validate a theoretical construct, as it took 50 years between Peter Higgs’ proposal of the mechanism that carries his name and its confirmation by two different kinds of detectors in the Large Hadron Collider at CERN.
Physicists are persistent in their commitment to the experimental method, while far too many economists have little commitment to reality. They are committed to their pet theories, or to their opposition to some other economist’s pet theories, and if the world doesn’t act that way, well that’s the world’s problem, not economics’ or economists’ problem. This is a shame.
Economists who want to make comparisons to physics should stop referring to the archaic ideas of Einstein that are now more than 100 years old, and look at 21st century thinking. Sean Carrol’s book “The Big Picture” has an up to date perspective and has many videos on youtube aimed at general audiences. David Tong has a nice lecture on youtube with the same modern approach.