July 3, 2017

When institutions go awry

Comment on Chris Dillow on ‘Selecting for groupthink’

Blog-Reference

When Mr. Trump became President most people with not much more than normal TV/Press information knew intuitively that something had gone awry with the institution Presidency.

When Mr. Hoover declared in the late 1940s that there is no such thing as organized crime most people with not much more than normal newspaper information knew intuitively that something had gone awry with the institution Law Enforcement.

When the FED bailed out the too-big-to-fail banks in 2009 most people with not much more than normal media information knew intuitively that something had gone awry with the institution Banking.

When Nobel Laureate Arrow declared in the 1994 Richard T. Ely Lecture: “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.” most people with not much more than a superficial knowledge of General Equilibrium Theory knew intuitively that something had gone awry with the institution Science.

It is NOT such a rare event that institutions mutate into something that does not conform to, or even contradicts, their original mission statement. Science is defined by its ethics and the principle of self-governance. This works fine as long as everybody sticks to the protocol, which includes to accept a formal/empirical refutation if it so happens.

This does not work in economics since the Marginalists took over 140+ years ago. Morgenstern reminded his fellow economists back in 1941: “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.”#1

Economics has stabilized itself institutionally as a cargo cult science which Feynman defined thus: “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.”

What is missing in economics is the true theory. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.#2 The current pluralism of false theories is the proof of institutional failure, which is intuitively clear to most people with not much more than a normal historical understanding of what science is all about.

The snag is: it it not clear to the representative economist.

Egmont Kakarot-Handtke

#1 See also ‘Feynman Integrity, fake science and the econoblogosphere
#2 See also ‘Profit and stupidity