Blog-Reference
In 1935, Indiana Jones sits with Lao Che, a crime boss in Shanghai, at a large round table in a nightclub.#1 Indy takes a drink, then he is told by Lao Che that he just drank poison and is shown a vial with the antidote. Indy jumps over the table to grab the vial but it falls to the ground and is kicked crisscross over the floor by the stampeding crowd. Finally, in growing panic, Indy completely loses sight of the vial because the whole room is flooded with balloons. The chances of finding the vial among the balloons being almost identical to zero, anyone else would have given up.
This is a good metaphor for the situation in economics. All one has to do is to equate vial with true theory and balloons with political economics. The main differences between the two being: (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.
Economics is a failed science but for the general public, this is hard to see. Political economics has filled the room with colorful balloons up to the ceiling, i.e. with models, SS-DD-crosses, and good-guy-bad-guy stories. Independent of their color ― Walrasian, Keynesian, Marxian, or Austrian ― the content of the balloons consists of tepid exhaust air.
The fact is that theoretical economics (= science) has vanished from sight. Under the false flag of economics, the general public is incessantly flooded with political balloons.
A case in point is Barkley Rosser’s story ‘In four months around the world’, which starts and ends with musings about Mr. Trump. The surrealism of the story consists in the fact that an incompetent economist scans non-American newspapers and polls non-American people about a hitherto unknown businessman/entertainer who claims to represent the American people. Barkley Rosser, of course, is not alone. A lot of other economists cannot hold their political farts and relieve themselves in their blogs.
Blinded and paralyzed by a cloud of political balloons, the general public has lost sight of the fact that Barkley Rosser’s opinion about Mr. Trump has nothing whatsoever to do with economics. Economics is the science that deals with how the economy works. Science is knowledge, while non-science is opinion and storytelling. Knowledge is valuable, opinion is worthless. There is a scarcity of knowledge in economics and an abundance of opinions.
Economics urgently needs a heavy dose of scientific antidote and not the political opinion of failed economists like Barkley Rosser, who cannot tell until this day what profit is.#2 It is a rather boring repetition for 200+ years that economists who do not understand how the economy works dabble in politics where they understand even less.
Egmont Kakarot-Handtke
#1 YouTube The Poison You Just Drank
#2 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
Related 'Scientific suicide in the revolving door' and 'Make econ true' and 'Economics ― a doctor worse than the disease'
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REPLY to Barkley Rosser on May 15You argue: “… what can one expect of somebody who denies that if wages fall, holding prices and everything else constant, profits rise?”
Nobody ever denied this junior-consultant wisdom. Partial mom-and-pop-store economics, though, stands under the proviso of ceteris paribus. Ceteris paribus, in turn, PROHIBITS generalization. For the economy as a WHOLE, there is NO ceteris paribus. Partial analysis is methodologically dead since Marshall.#1
It holds for the economy as a WHOLE that a reduction of the wage rate does NOT affect monetary profit under the standard conditions of budget balancing and market clearing. To understand this elementary economic theorem is as hard or as easy to understand as a2+b2=c2.
Mom and pop did not need an economics professor to understand that they can increase their profit if they lowered the wage rate CETERIS PARIBUS. The fact of the matter is that in the past 150+ years economics professors NEVER rose above mom-and-pop-store wisdom. Or, as the iconic businessman/entertainer D. J. Trump likes to tweet: SAD!
#1 Marshall: a monument of scientific incompetence
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REPLY to Barkley Rosser on May 17You say: “I am sorry, but science is not based on common sense.”
No need to be sorry, I have NOWHERE argued pro common sense, just the opposite.#1
You say: “You have two very serious problems with your profit theory that render it so vacuous as to be a joke. The first is your claim that when wages change prices change also and by just as much in the same direction. Not only is this not true in general, it is almost never true.”
The elementary Profit Law Qm≡−Sm is UNIVERSAL, that is, it does NOT AT ALL depend on any specific assumption about market-clearing or budget balancing.#2
Under the ADDITIONAL CONDITIONS of market clearing and budget balancing for the economy as a whole follows the Law of Supply and Demand as P=W/R, that is, the market-clearing price moves with the wage rate and inversely to the productivity. Market clearing and budget-balancing are the standard assumptions of Econ 101 and I have explicitly stated what happens if these assumptions do not hold.#2
Note that the Profit Law and the Law of Supply and Demand are two different things.
What you also do not get is that, for a start, two logical LIMITING CASES (market clearing, budget-balancing) are analyzed. NO claim has been made that the limiting cases are realized because it is pretty OBVIOUS that reality lies between the logical limiting cases.
Limiting cases are ANALYTICAL tools and almost everybody understands that physicists who analyze friction-free motion as a limiting case DO NOT claim that motion on earth is friction-free.#3 It is the privilege of morons/commonsensers/realists to brainlessly repeat again and again that limiting cases are “almost never true”. Yes, and just because of this limiting conditions are always lifted in the sequel.
You say: “And of course the problem of the existence of equilibrium is in fact a deep and difficult one, not one to be just assumed based on ‘common sense’.”
The problem of equilibrium is neither deep nor difficult but nonexistent because equilibrium is a NONENTITY.#4 Equilibrium is introduced as the 5th axiom of the Walrasian axiom set,#5 which in turn is as a WHOLE pure proto-scientific garbage and forever unacceptable.
This is common knowledge since 20 years: “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. It has been a dead alley because the most rigorous solution of the existence problem by Arrow and Debreu turns general theory into a mathematical puzzle applied to a virtual economy that can be imagined but could not possibly exist, while the extremely relevant ‘stability problem’ has never been solved either rigorously or sloppily. General theory is simply a research program that has run into the sands.” (Blaug)
Nobody, except scientifically incompetent blatherers at Trump University or at blogs like EconoSpeak or at peer-reviewed quality journals applies the concepts of equilibrium or partial profit maximization anymore. Scientists know: If it isn’t macro-axiomatized, it isn’t economics.
#1 The bigots of common sense
#2 True macrofoundations: the reset of economics
#3 Complexity and stupidity
#4 Ground Control to David Glasner
#5 “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)
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REPLY to Barkley Rosser on May 18You say: “You denounce nearly all economists because they supposedly accept various axioms that you declare not to be true, even though many do not accept those axioms.”
Standard economics is defined by the Walrasian axiom set. Whether the representative economist is aware of it or not, methodological fact is that ALL of economics from the Econ 101 textbook to the fixpoint theorem to DSGE is built upon this set. Or, as Krugman so aptly put it: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
You, too, argue with maximization and equilibrium. Obviously, you are not clearly aware that you subscribe to the Walrasian axioms, just like people who write down 2+2=4 are not aware that they are applying the Dedekind–Peano axioms.#1
To take the maximization-and-equilibrium world as a starting point, though, is sheer stupidity for 150+ years. There can be NO argument about this, either one realizes it by looking at the axioms or not. The vast majority of mentally retarded econ students realizes nothing, swallows this proto-scientific garbage and clings to it for the rest of their lives.
Keynes drew the correct conclusion from the manifest failure of standard economics: “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”
Here you have it for 80 years: economists have to abandon the Walrasian axioms. Obviously, economists failed to work out a non-Walrasian economics, while mathematicians/physicists were successful in working out the non-Euclidean geometry. This is why physicists proceeded to quantum mechanics while economists do not know for 200+ years what profit is.
The Keynes quote tells you in simple words what has to be done and makes it clear that economics is still a scientific failure because it has not yet been done. Krugman and the rest of mental retards still live in the maximization-and-equilibrium world, more precisely, in one of the pointless variants of this proto-scientific hallucination.#2
From the fact that the Walrasian axioms are provably false and that Keynes’s move from microfoundations to macrofoundations failed follows that economic policy proposals NEVER had a sound scientific foundation. Economics in its four variants ― Walrasianism, Keynesianism, Marxianism, Austrianism ― is just brain-dead political blather.
Your comments are another instance of the substandard level of economic discussion: “The currently prevailing pattern of economic theorizing exhibits the following three characteristics: (1) a syncopated style of argument fluctuating back and forth between literary and symbolic modes of expression, (2) naive translation, or the loose paraphrasing of formulae into sentences, and (3) loose verbal reasoning for certain aspects of theoretical argumentation where explicit symbolic formulation is lacking.” (Dennis, 1982)
Both microfounded Walrasian economics and macrofounded Keynesian economics is proto-scientific rubbish. The truth-value of economics is zero or less. Because economics is axiomatically false it cannot be repaired only abandoned. This means practically that the whole bunch of what Joan Robinson called the ‘throng of superfluous economists’ has to be retired. To do this voluntarily and as fast as possible is the only thing that the representative economist can do for the welfare of humanity.
#1 Wikipedia
#2 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It