May 22, 2017

Economics is NOT about Human Nature but the economic system

Comment on Bill Mitchell on ‘Humans are intrinsically anti neo-liberal’

Blog-Reference and Blog-Reference

For little children the primary layer of reality is the social here-and-now ― mom, pop, family and neighborhood. The insight that the tiny social bubble is embedded in the non-social reality of region, earth, universe and their past and future development commes latter. Most people do not get far beyond the infantile layer of reality: “Perhaps it is because their horizons are limited in this way that some people are able to imagine that the centre of the universe is man.” (Feynman)

In the myopic Human-centered worldview learning and knowledge relates primarily to the properties/motives/behavior/actions of other humans. In the Universe-centered worldview learning and knowledge relates primarily to the properties/‘behavior’ of Non-human Nature. In very general terms, this gives us two fundamentally different realms: politics and science. It is of utmost importance to keep both realms separated because they are governed by mutually exclusive principles. The accepted currency in the political realm is opinion (= doxa), the accepted currency in the scientific realm is knowledge (= episteme).

In economics the proper separation never took place. There have always been two economixes, 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 (= true theory). (ii) In political economics anything goes; in theoretical economics scientific standards are observed. Fact is that (i) theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers), and (ii), political economics has produced NOTHING of scientific value in the last 200+ years.

The underlying world view of political economics is, of course, Human-centered. Accordingly, the issues have been folk psychological, folk sociological and folk biological: self-interest, greed, utility maximization, profit maximization, rent seeking, moral hazard, bounded rationality, animal spirits, honesty/trust/corruption, power/freedom/oppression, individualism/collectivism, competition/cooperation, survival of the fittest and so on.

ALL definitions of economics implicitly or explicitly contain a Human-Nature core.

“It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow)

“Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins)

“The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.” (Mill)

It is pretty obvious that the common denominator of the different schools of economics is Human-centric. This is the ultimate axiom of economics and this defines it as so-called social science. Where the schools differ is what the true Human Nature is or should be.

It is also pretty obvious that ALL definitions of economics contain the commitment to science.

Fact is, though, that economics is a failed science. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and ALL got the pivotal economic concept profit wrong.#1 After 200+ years economics is still at the level of a proto-science or what Feynman called a cargo cult science.

What neither orthodox nor heterodox economists have realized is that their definition of the subject matter is methodologically unacceptable. All Human-Nature issues are the subject matter of other disciplines, that is, of psychology, sociology, political science, anthropology, biology etcetera. The subject matter of economics is the structure/ ‘behavior’ of the economic system, which is an objective non-human entity. The outstanding characteristic of the representative economist is that he dabbles since 200+ years in all Human-Nature disciplines but has NO idea how the economic system works. Fact is that the representative economist does not even know what profit is.#2

Because economic theory has NEVER been true, economic policy guidance NEVER had sound scientific foundations. The scientific incompetence of economists consists in the fact that they have defined economics as a so-called social science instead of a system science and that they have not realized their fundamental methodological blunder until this day.#3 Since Adam Smith/Karl Marx economics is political economics and ALL political economics is scientifically worthless.

Egmont Kakarot-Handtke

#1 Including MMT see ‘Where MMT got macro wrong
#2 See ‘Essentials of Constructive Heterodoxy: Profit
#3 See also ‘The Science-of-Man fallacy

COMMENT on Tom Hickey on May 23

You say: “Training children in this is part of the socialization process, and those that don't get become life-long brats that are always taking and never give, or when they give it is not really reciprocating. They get a reputation for being assholes.”

This is a fine piece of folk psychology/sociology. The questions is, is it relevant for economics? Not at all! The insight that there are assholes in the world ― to which everybody can readily agree from his own experience ― does NOT advance our understanding of how the actual economy works. Just the opposite. Psychology/sociology are NOT the subject matter of economics but a distraction from the real issues, which, as we all know by now, has led economics into the coal-pit of cargo cult science.#1

Keynes, famously, gave a definition of what the centerpiece of economics is: the monetary theory of production. Note, that this definition of the subject matter eliminates a lot of garbage that has always been dear to mentally retarded economists. Barter, for example. But, more important, it eliminates ALL psychological and sociological issues. In contradistinction to the neoclassical utility maximizers, Keynes correctly defined economics as a system science.

In order not to fall back behind Keynes the PsySoc-Ban has to be issued as one of the Ten Commandments of Economics: Leave all psychological, sociological, anthropological, biological etc. issues to psychology, sociology, anthropology, biology etc.

The PsySoc-Ban has tremendous consequences because standard economics is built upon this set of behavioral 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)

The PsySoc-Ban bans the neoclassical approach from economics ― completely from supply-demand-equilibrium to DSGE. So, there is absolutely NO need to reenact Groundhog Day and to moralize again and again about constrained optimization, greed or individualism.

The PsySoc-Ban, though, has one important methodological implication: “The problem is not just to say that something might be wrong, but to replace it by something ― and that is not so easy.” (Feynman)

So, the all-decisive question is: is MMT the replacement of obsolete neoclassical economics?

No! MMT, just like PsySoc standard economics, is axiomatically false.#2 Which brings us to the question, why does Bill Mitchell waste so much time with kicking a dead horse instead of correcting the provable false formal foundations of MMT?

#1 “... but 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.” (Hume)
#2 See also ‘Going beyond Wicksell, Keynes and MMT