Comment on Dániel Oláh on ‘If You Look Behind Neoliberal Economists, You’ll Discover the Rich: How Economic Theories Serve Big Business’
Blog-Reference and Blog-Reference
The one question in science is about the truth of a theory, i.e. its material and formal consistency: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)
Economists do not have the true theory. They have many different opinions but nothing in the way of scientific knowledge. Since the founding fathers, there is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, and 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 fact is that the agenda pushers of political economics have captured theoretical economics (= science) from the very beginning with the result that economics has produced nothing of scientific value in the last 200+ years.#1 Economics has until this day no scientific truth-value, only some political use-value. This applies not only to Orthodoxy but also to Heterodoxy.
Orthodoxy is defined since Jevons/Walras/Menger by methodological individualism. The neoclassical concretization translates into the following hardcore propositions a.k.a. 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)
Obviously, this axiom set contains three NONENTITIES: (i) constrained optimization HC2, (ii) rational expectations HC4, (iii) equilibrium HC5. Every theory/model that contains a nonentity is A PRIORI false. As a consequence, the economics of the Walrasian-Arrow-Debreu type and its offspring until DSGE/RBC/New Keynesianism is scientifically worthless.
The wonder of economics is twofold: (i) how can it be that this rather obvious proto-scientific garbage has been swallowed hook, line, and sinker by the majority of every new generation of economists for 150+ years? and (ii), why did heterodox economists during this long time span only come up with repetitive critique but not with something better?#2
What Orthodoxy and Heterodoxy have in common is scientific incompetence and the erroneous belief that economics is a social science.#3 The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong.
Economics is one of the most embarrassing scientific failures of all time and the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is either an absurd self-delusion or a deliberate deception of the general public.#4
Since the founding fathers, economists violate the principle of the separation of science and politics. Economics is what Feynman famously called a cargo cult science and neither right-wing nor left-wing economic policy guidance has sound scientific foundations since the soapbox economists Adam Smith and Karl Marx.
In order that economics becomes a science, the following steps have to be taken:
• a public declaration that economics is a failed science,
• the abolition of the fake Nobel,
• the unceremonious shredding of Econ 101 textbooks,
• the strict institutional separation of science and politics,
• the eviction of all political economists from science,
• the Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to correct macrofoundations.
It is high time that economics frees itself from the all-pervasive and all-corrupting grip of political agenda pushers. New Economic Thinking does not consist of more lipstick on the dead pig but of the long-overdue Paradigm Shift.#5
Egmont Kakarot-Handtke
#1 For details of the big picture see cross-references Failed/Fake Scientists
#2 The stupidity of Heterodoxy is the life insurance of Orthodoxy
#3 A social science is NOT a science but a sitcom
#4 The economics Cargo Cult Prize
#5 This is New Economic Thinking? Give me a break!
Related 'Show first your economic axioms or get out of the discussion' and 'Economists: scientists or political clowns?' and 'Replacing sand with granite' and 'Basics of monetary theory: the two monies'. For details of the big picture see cross-references Political Economics and cross-references Axiomatization and cross-references Paradigm Shift.
October 29, 2017
October 28, 2017
Lethal criticism of economics? Here it is!
Comment on Cameron Murray on ‘Decent criticisms of economics? Here are 111 of them.’
Blog-Reference and Blog-Reference
Economists are scientifically incompetent. In colloquial terms, both orthodox and heterodox economists are stupid or corrupt or both.
Economics is a failed science for 200+ years. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter ― profit ― wrong. With the pluralism of provably false theories, economics is what Feynman called a cargo cult science.#1
What the representative economist does not understand until this day is that economics is NOT a science of behavior and that both Walrasian microfoundations and Keynesian macrofoundations are false.#2 Methodologically it holds: if it isn’t properly macro-axiomatized, it isn’t economics at all.#3
The decent criticism of economics is insufficient and counterproductive: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)#4
Economics is a failed science and incompetent critics like fresh-thinker Murray are an essential ingredient of the mess.
Egmont Kakarot-Handtke
#1 Economics: 200+ years of scientific incompetence and fraud
#2 For details of the big picture see cross-references Failed/Fake scientists
#3 Ten steps to leave cargo cult economics behind for good
#4 The stupidity of Heterodoxy is the life insurance of Orthodoxy
Blog-Reference and Blog-Reference
Economists are scientifically incompetent. In colloquial terms, both orthodox and heterodox economists are stupid or corrupt or both.
Economics is a failed science for 200+ years. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter ― profit ― wrong. With the pluralism of provably false theories, economics is what Feynman called a cargo cult science.#1
What the representative economist does not understand until this day is that economics is NOT a science of behavior and that both Walrasian microfoundations and Keynesian macrofoundations are false.#2 Methodologically it holds: if it isn’t properly macro-axiomatized, it isn’t economics at all.#3
The decent criticism of economics is insufficient and counterproductive: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)#4
Economics is a failed science and incompetent critics like fresh-thinker Murray are an essential ingredient of the mess.
Egmont Kakarot-Handtke
#1 Economics: 200+ years of scientific incompetence and fraud
#2 For details of the big picture see cross-references Failed/Fake scientists
#3 Ten steps to leave cargo cult economics behind for good
#4 The stupidity of Heterodoxy is the life insurance of Orthodoxy
October 26, 2017
Note on Edward Fullbrook’s My evening with Joan Robinson and the Tractatus
Blog-Reference and Blog-Reference
Egmont Kakarot-Handtke
- Why don’t you do what Joan Robinson told you to do?
- Marshall and the Cambridge school of plain economic gibberish
- How Heterodoxy became the venue for science’s scum
- This is New Economic Thinking? Give me a break!
- Narrative economics and the imperatives of the sitcom
Egmont Kakarot-Handtke
Basics of monetary theory: the two monies
Comment on Lars Syll on ‘INET conferencing beyond disappointment’
Blog-Reference and Blog-Reference on Oct 30
Frances Coppola twittered on Oct 25 “He [Pontus Rendahl] says (I quote) ‘Banks can’t create money or we wouldn’t have had to bail them out.’ What’s the fallacy in that statement, Twitter?”
And Ann Pettifor echoed: “Pontus Rendahl: ‘disagrees banks can create money. Only true if CB complicit with this’ Extraordinary! We do not live in CB dictatorship.”
Lars Syll assisted “And to even for a second think that a visionless neoclassical economist like Rendahl should have anything to do with new thinking in economics is of course totally gobsmacking!”
Time to finally settle the theory of money.
Because economics is a failed science it has to be reconstructed from scratch. Walrasian microfoundations and Keynesian macrofoundations have to be scrapped.
As the new analytical starting point, the pure production-consumption economy is defined with this set of macroeconomic 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.
Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price is given by P=W/R, i.e. the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation see Figure 1.#1
The price is determined by the wage rate, which takes the role of the nominal numéraire, and the productivity. The quantity of money is NOT among the price determinants. This puts the commonplace Quantity Theory forever to rest.
Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw-C. It always holds Qm≡−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the Profit Law. Under the condition of budget-balancing total monetary profit is zero.
What is needed for a start is two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which declares the central bank’s deposits as legal tender.
Deposit money is needed by the business sector to pay the workers who receive the wage income Yw per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if C=Yw.
Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income. This time sequence is no problem for the central bank because the temporary overdrafts vanish with wage payments.
For the case of a balanced budget C=Yw, the idealized transaction sequence of deposits/overdrafts of the household sector at the central bank over the course of one period is shown in Figure 2.#2
The household sector’s deposits/overdrafts are zero at the beginning and end of the period. The business sector’s transaction pattern is the exact mirror image. Money, that is, deposits at the central bank, is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an accommodative role and simply supports the autonomous market transactions between the household and the business sector.
From this follows the average stock of transaction money as M=κYw, with κ determined by the transaction pattern. In other words, the average stock of money M is determined by the autonomous transactions of the household and business sector and created out of nothing by the central bank. The economy NEVER runs out of money.
The transaction equation reads M=κYw=κPX=κPRL in the case of budget balancing and market clearing and this yields the commonplace correlation between the average stock of money M and price P for a given employment and productivity level, except for the fact that M is the dependent variable.
Money comes into existence on the balance sheet of the central bank as soon as the central bank enters an overdraft for the business sector on the asset side and a deposit of equal amount on the liability side (step 1). This deposit is then transferred to the household sector as wage payment (step 2) and returns in the form of consumption expenditures (step 3). For the graphical representation of the complete cycle see Figure 3.#3
Now the commercial banks are introduced. They can create and destroy ‘money’ technically exactly in the same way as the central bank except for the fact that it is bank money and not central bank money. The crucial condition for the functioning of the two-monies system is that the business sector and household sector accept bank money as practically identical to central bank money. For a graphical representation, it is only necessary to change the account titles in Figure 3 from Central bank to Commercial banks.
What happens if the households, which possess money in the form of bank deposits (step 1 in Figure 4,#4), demand real = central bank money?
The commercial banking sector has to turn to the central bank which creates overdrafts and deposits out of nothing (2). In the last step (3) the commercial banks then transfer their central bank deposits to the households. The banking money vanishes completely from the system. This does, in principle, not hinder the commercial banks to create new bank money by handing out loans in various forms from overdrafts to long-term mortgage loans. This quantitative expansion, though, can be limited in various ways.
Conclusion: Pontus Rendahl is right, banks cannot create money only bank money which is in normal times, and for all practical purposes are functionally identical to central bank money. However, if the household or business sector demands money the commercial banks have to turn to the central bank because, in the final analysis, the modern monetary system consists of two tightly coupled monies. As always, the “new” thinkers Frances Coppola, Ann Pettifor, and Lars Syll have made blogging fools of themselves.
Egmont Kakarot-Handtke
#1 Wikimedia AXEC31 Elementary production-consumption economy
#2 Wikimedia AXEC98 Idealized transaction pattern, household sector, balanced budget
#3 Wikimedia AXEC114 Creation and destruction of transaction money at the central bank
#4 Wikimedia AXEC115 Switch from bank money to central bank money
Related 'Essentials of Constructive Heterodoxy: Money, Credit, Interest' and 'Reconstructing the Quantity Theory (I)' and 'Everything you know about MMT is wrong'. For details of the big picture see cross-references MMT.
In her Guardian article ‘How the actual magic money tree works’ Zoe Williams repeats the argument that banks can create money. The fact is that banks cannot create money only bank money. This has been explained in detail already to other silly journalists and stupid economists in the following post.
You say: “What is at issue is the operation of a monetary production economy, that is, how finance, which is concerned with financial instruments, and economics. which is concerned with real resources, interact. Even most economists don’t understand this. How can the public?”
True. The task of economists is to explain how the actual monetary economy works ― not less, not more. But to this day, economists (Walrasians, Keynesians, Marxians, Austrians, and Pluralists) have no idea how the economy works, that is, they lack the true theory.
Why is economics a scientific failure/fraud? Because economists never had the intellectual capacity nor the time to do proper science. What they were busily occupied with instead was political agenda pushing. Agenda pushing is the natural choice for morons because one needs only an opinion, a big flap, and some acting talent.#1
Neil Wilson demonstrates here for everyone to see how easy it is to derail science by switching to politics: “And the hot button political issues have little or nothing to do with money.” André and Calgacus immediately jump on the bandwagon by telling their Bad Guy story. Thus, the whole discussion of what Keynes called the ‘monetary theory of production’ degenerates into a Pavlovian exchange of age-old political crap. It is the same pattern on all levels of economic discussion. There is no scientific substance in Krugman and Kelton and Hickey and all the rest.
What the representative economist has not realized in 200+ years is that politics is NOT his business: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (J. S. Mill)
From an economist, society expects scientific knowledge of how the actual economy works, just as it expects from engineers all the scientific knowledge that is necessary to get a huge metallic construct against gravity off the ground.
Economists have no such knowledge. They have wasted 200+ years since Adam Smith and Karl Marx with political blathering and agenda-pushing. MMT is no exception.#3 Economics is a scientific failure/fraud, and MMT is part of it.
#1 For details see cross-references Political Economics/Stupidity/Corruption
#2 For details see cross-references Failed/Fake scientists
#3 For details see cross-references MMT
You say: “MMT shows how finance and economics overlap and interact interdependently in a monetary production economy. It is a continuation of the analysis of a modern monetary production economic that Keynes initiated explicitly, although it was implicit in classical economics. Neoclassical economics ignored the monetary aspect in focusing on a barter economy and viewing the monetary aspect as a neutral veil that was useful in resolving the necessity for ‘double coincidence of wants’ in a pure barter system.”
It is true, of course, that orthodox economics in general and orthodox monetary theory, in particular, is provably false yet at the same time insufficient: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)
In other words, orthodox economics has to be fully replaced, in methodological terms, economics needs a paradigm shift, in technical terms, the neoclassical axioms have to be fully replaced and ALL of the economics has to be reconstructed based on consistent macrofoundations.
Keynes initiated the move from microfoundations to macrofoundations but failed. He failed because he did not understand macroeconomic 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.)
This failure not only proves the utter scientific incompetence of Keynes but also of those who came before and after him. Economists do to this very day not understand the foundational concept of their subject matter. This means that ALL economic policy guidance since Adam Smith and Karl Marx is misleading or disastrous or at best ineffective.
This is well-known among heads-of-state. Napoleon claimed “… that he had always believed that if an empire were made of granite the ideas of economists if listened to, would suffice to reduce it to dust.” (Viner) Because of this, politicians do not take economists seriously, they employ them as useful idiots.
MMT profit theory, as embodied in the balances equations, is false and by consequence, the whole theoretical superstructure is false and by consequence MMT economic policy has no sound scientific foundations, just like neoliberal policy and Keynesian policy and Marxian policy.
What the spokespersons of MMT, Mitchell, Tcherneva, Mosler, Wray, Kelton, Fullwiler, Forstater, Kaboub, Hickey etcetera, are in effect doing is political agenda pushing without one jot of scientific competence. And, clearly, it is NOT the agenda of We-the-people.
Blog-Reference and Blog-Reference on Oct 30
Frances Coppola twittered on Oct 25 “He [Pontus Rendahl] says (I quote) ‘Banks can’t create money or we wouldn’t have had to bail them out.’ What’s the fallacy in that statement, Twitter?”
And Ann Pettifor echoed: “Pontus Rendahl: ‘disagrees banks can create money. Only true if CB complicit with this’ Extraordinary! We do not live in CB dictatorship.”
Lars Syll assisted “And to even for a second think that a visionless neoclassical economist like Rendahl should have anything to do with new thinking in economics is of course totally gobsmacking!”
Time to finally settle the theory of money.
Because economics is a failed science it has to be reconstructed from scratch. Walrasian microfoundations and Keynesian macrofoundations have to be scrapped.
As the new analytical starting point, the pure production-consumption economy is defined with this set of macroeconomic 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.
Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price is given by P=W/R, i.e. the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation see Figure 1.#1
The price is determined by the wage rate, which takes the role of the nominal numéraire, and the productivity. The quantity of money is NOT among the price determinants. This puts the commonplace Quantity Theory forever to rest.
Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw-C. It always holds Qm≡−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the Profit Law. Under the condition of budget-balancing total monetary profit is zero.
What is needed for a start is two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which declares the central bank’s deposits as legal tender.
Deposit money is needed by the business sector to pay the workers who receive the wage income Yw per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if C=Yw.
Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income. This time sequence is no problem for the central bank because the temporary overdrafts vanish with wage payments.
For the case of a balanced budget C=Yw, the idealized transaction sequence of deposits/overdrafts of the household sector at the central bank over the course of one period is shown in Figure 2.#2
The household sector’s deposits/overdrafts are zero at the beginning and end of the period. The business sector’s transaction pattern is the exact mirror image. Money, that is, deposits at the central bank, is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an accommodative role and simply supports the autonomous market transactions between the household and the business sector.
From this follows the average stock of transaction money as M=κYw, with κ determined by the transaction pattern. In other words, the average stock of money M is determined by the autonomous transactions of the household and business sector and created out of nothing by the central bank. The economy NEVER runs out of money.
The transaction equation reads M=κYw=κPX=κPRL in the case of budget balancing and market clearing and this yields the commonplace correlation between the average stock of money M and price P for a given employment and productivity level, except for the fact that M is the dependent variable.
Money comes into existence on the balance sheet of the central bank as soon as the central bank enters an overdraft for the business sector on the asset side and a deposit of equal amount on the liability side (step 1). This deposit is then transferred to the household sector as wage payment (step 2) and returns in the form of consumption expenditures (step 3). For the graphical representation of the complete cycle see Figure 3.#3
Now the commercial banks are introduced. They can create and destroy ‘money’ technically exactly in the same way as the central bank except for the fact that it is bank money and not central bank money. The crucial condition for the functioning of the two-monies system is that the business sector and household sector accept bank money as practically identical to central bank money. For a graphical representation, it is only necessary to change the account titles in Figure 3 from Central bank to Commercial banks.
What happens if the households, which possess money in the form of bank deposits (step 1 in Figure 4,#4), demand real = central bank money?
The commercial banking sector has to turn to the central bank which creates overdrafts and deposits out of nothing (2). In the last step (3) the commercial banks then transfer their central bank deposits to the households. The banking money vanishes completely from the system. This does, in principle, not hinder the commercial banks to create new bank money by handing out loans in various forms from overdrafts to long-term mortgage loans. This quantitative expansion, though, can be limited in various ways.
Conclusion: Pontus Rendahl is right, banks cannot create money only bank money which is in normal times, and for all practical purposes are functionally identical to central bank money. However, if the household or business sector demands money the commercial banks have to turn to the central bank because, in the final analysis, the modern monetary system consists of two tightly coupled monies. As always, the “new” thinkers Frances Coppola, Ann Pettifor, and Lars Syll have made blogging fools of themselves.
Egmont Kakarot-Handtke
#1 Wikimedia AXEC31 Elementary production-consumption economy
#2 Wikimedia AXEC98 Idealized transaction pattern, household sector, balanced budget
#3 Wikimedia AXEC114 Creation and destruction of transaction money at the central bank
#4 Wikimedia AXEC115 Switch from bank money to central bank money
Related 'Essentials of Constructive Heterodoxy: Money, Credit, Interest' and 'Reconstructing the Quantity Theory (I)' and 'Everything you know about MMT is wrong'. For details of the big picture see cross-references MMT.
***
Cross-posting on Oct 30In her Guardian article ‘How the actual magic money tree works’ Zoe Williams repeats the argument that banks can create money. The fact is that banks cannot create money only bank money. This has been explained in detail already to other silly journalists and stupid economists in the following post.
***
COMMENT on Tom Hickey on Oct 31You say: “What is at issue is the operation of a monetary production economy, that is, how finance, which is concerned with financial instruments, and economics. which is concerned with real resources, interact. Even most economists don’t understand this. How can the public?”
True. The task of economists is to explain how the actual monetary economy works ― not less, not more. But to this day, economists (Walrasians, Keynesians, Marxians, Austrians, and Pluralists) have no idea how the economy works, that is, they lack the true theory.
Why is economics a scientific failure/fraud? Because economists never had the intellectual capacity nor the time to do proper science. What they were busily occupied with instead was political agenda pushing. Agenda pushing is the natural choice for morons because one needs only an opinion, a big flap, and some acting talent.#1
Neil Wilson demonstrates here for everyone to see how easy it is to derail science by switching to politics: “And the hot button political issues have little or nothing to do with money.” André and Calgacus immediately jump on the bandwagon by telling their Bad Guy story. Thus, the whole discussion of what Keynes called the ‘monetary theory of production’ degenerates into a Pavlovian exchange of age-old political crap. It is the same pattern on all levels of economic discussion. There is no scientific substance in Krugman and Kelton and Hickey and all the rest.
What the representative economist has not realized in 200+ years is that politics is NOT his business: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (J. S. Mill)
From an economist, society expects scientific knowledge of how the actual economy works, just as it expects from engineers all the scientific knowledge that is necessary to get a huge metallic construct against gravity off the ground.
Economists have no such knowledge. They have wasted 200+ years since Adam Smith and Karl Marx with political blathering and agenda-pushing. MMT is no exception.#3 Economics is a scientific failure/fraud, and MMT is part of it.
#1 For details see cross-references Political Economics/Stupidity/Corruption
#2 For details see cross-references Failed/Fake scientists
#3 For details see cross-references MMT
***
REPLY to Tom Hickey on Nov 1You say: “MMT shows how finance and economics overlap and interact interdependently in a monetary production economy. It is a continuation of the analysis of a modern monetary production economic that Keynes initiated explicitly, although it was implicit in classical economics. Neoclassical economics ignored the monetary aspect in focusing on a barter economy and viewing the monetary aspect as a neutral veil that was useful in resolving the necessity for ‘double coincidence of wants’ in a pure barter system.”
It is true, of course, that orthodox economics in general and orthodox monetary theory, in particular, is provably false yet at the same time insufficient: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)
In other words, orthodox economics has to be fully replaced, in methodological terms, economics needs a paradigm shift, in technical terms, the neoclassical axioms have to be fully replaced and ALL of the economics has to be reconstructed based on consistent macrofoundations.
Keynes initiated the move from microfoundations to macrofoundations but failed. He failed because he did not understand macroeconomic 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.)
This failure not only proves the utter scientific incompetence of Keynes but also of those who came before and after him. Economists do to this very day not understand the foundational concept of their subject matter. This means that ALL economic policy guidance since Adam Smith and Karl Marx is misleading or disastrous or at best ineffective.
This is well-known among heads-of-state. Napoleon claimed “… that he had always believed that if an empire were made of granite the ideas of economists if listened to, would suffice to reduce it to dust.” (Viner) Because of this, politicians do not take economists seriously, they employ them as useful idiots.
MMT profit theory, as embodied in the balances equations, is false and by consequence, the whole theoretical superstructure is false and by consequence MMT economic policy has no sound scientific foundations, just like neoliberal policy and Keynesian policy and Marxian policy.
What the spokespersons of MMT, Mitchell, Tcherneva, Mosler, Wray, Kelton, Fullwiler, Forstater, Kaboub, Hickey etcetera, are in effect doing is political agenda pushing without one jot of scientific competence. And, clearly, it is NOT the agenda of We-the-people.
October 24, 2017
Economics: Stories, narratives, and disinformation
Comment on David Glasner on ‘The Standard Narrative on the History of Macroeconomics: An Exercise in Self-Serving Apologetics’
Blog-Reference and Blog-Reference
Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a Paradigm Shift was needed: “The [neo-]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.”
After Keynes, every economist who still does not see the necessity of a Paradigm Shift is simply scientifically incompetent. One spokesperson of this prevailing majority is Krugman who debunks himself with: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
The fact is that maximization-and-equilibrium economics has already been dead in the cradle 150+ years ago.
Keynes, though, messed up the shift from microfoundations to macrofoundations. His lethal blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This elementary syllogism is conceptually and logically defective because Keynes never came to grips with profit. (Tómasson et al.)
Because profit is ill-defined, the whole analytical superstructure of Keynesianism is false.#1 Yet one of the outstanding characteristics of the cargo cult science economics is that refutation is persistently ignored: “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)
As a result of the continuous violation of scientific standards, the history of economic thought boils down to a narrative of incompetence, failure, self-deception, and lame excuses.#2 What we have today is the pluralism of provably false theories.
After-Keynesians never realized Keynes’ foundational blunder and thereby became part of the abysmal failure of what was meant as a Paradigm Shift.#3, #4 Neither DSGEers nor Post Keynesians up to MMT can define macroeconomic profit until this very day.
Science is indeed the search for invariances (Nozick) a.k.a. laws. In economics, though, the invariances are NOT in Human Nature/motives/behavior/action but in the properties of the economic system. Because of this, economics has to move from subjective-behavioral microfoundations to objective-systemic macrofoundations.#5 Nothing less than a Paradigm Shift will do and it is overdue for 150+ years. It holds: If it isn’t macro-axiomatized, it isn’t economics.
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
#2 Failed economics: The losers’ long list of lame excuses
#3 Why Post Keynesianism Is Not Yet a Science
#4 Heterodoxy, too, is proto-scientific garbage
#5 Ten steps to leave cargo cult economics behind for good
Related 'Narrative economics and the imperatives of the sitcom' and 'How the representative economist gets it wrong big-time' and 'United in the social science delusion' and 'Macroeconomics and the fake History of Economic Thought' and 'Econogenics in action' and 'Econogenics: economists pose a hazard to their fellow citizens' and 'Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion' and Ch. 13, The indelible scientific disgrace of economics, in Sovereign Economics.
Wikimedia AXEC112a Basic Laws of the elementary production-consumption economy
Blog-Reference and Blog-Reference
Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a Paradigm Shift was needed: “The [neo-]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.”
After Keynes, every economist who still does not see the necessity of a Paradigm Shift is simply scientifically incompetent. One spokesperson of this prevailing majority is Krugman who debunks himself with: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
The fact is that maximization-and-equilibrium economics has already been dead in the cradle 150+ years ago.
Keynes, though, messed up the shift from microfoundations to macrofoundations. His lethal blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This elementary syllogism is conceptually and logically defective because Keynes never came to grips with profit. (Tómasson et al.)
Because profit is ill-defined, the whole analytical superstructure of Keynesianism is false.#1 Yet one of the outstanding characteristics of the cargo cult science economics is that refutation is persistently ignored: “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)
As a result of the continuous violation of scientific standards, the history of economic thought boils down to a narrative of incompetence, failure, self-deception, and lame excuses.#2 What we have today is the pluralism of provably false theories.
After-Keynesians never realized Keynes’ foundational blunder and thereby became part of the abysmal failure of what was meant as a Paradigm Shift.#3, #4 Neither DSGEers nor Post Keynesians up to MMT can define macroeconomic profit until this very day.
Science is indeed the search for invariances (Nozick) a.k.a. laws. In economics, though, the invariances are NOT in Human Nature/motives/behavior/action but in the properties of the economic system. Because of this, economics has to move from subjective-behavioral microfoundations to objective-systemic macrofoundations.#5 Nothing less than a Paradigm Shift will do and it is overdue for 150+ years. It holds: If it isn’t macro-axiomatized, it isn’t economics.
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
#2 Failed economics: The losers’ long list of lame excuses
#3 Why Post Keynesianism Is Not Yet a Science
#4 Heterodoxy, too, is proto-scientific garbage
#5 Ten steps to leave cargo cult economics behind for good
Related 'Narrative economics and the imperatives of the sitcom' and 'How the representative economist gets it wrong big-time' and 'United in the social science delusion' and 'Macroeconomics and the fake History of Economic Thought' and 'Econogenics in action' and 'Econogenics: economists pose a hazard to their fellow citizens' and 'Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion' and Ch. 13, The indelible scientific disgrace of economics, in Sovereign Economics.
***
Wikimedia AXEC112a Basic Laws of the elementary production-consumption economy
Everything you know about MMT is wrong
Comment on Bill Mitchell and Thomas Fazi/Social Europe on ‘Everything You Know About Neoliberalism Is Wrong’
Blog-Reference and Blog-Reference
There is the political sphere and there is the scientific sphere. It is quite obvious that both are fundamentally different and because of this, it is of utmost importance to radically separate the two. The mixing of the two has been the crippling defect of economics since the founding fathers propagated Political Economy.
The goal of political economics is to successfully push an agenda, the goal of theoretical economics (= science) is to successfully explain how the actual economy works. In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
The fact is that the political agenda pushers have hijacked economics and messed it up. Political economics has produced nothing of scientific value in the last 200+ years.
MMT, too, violates the first rule of science, i.e., the strict separation of politics and science. This rule is known since J. S. Mill: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”
Needless to emphasize that all economic schools violate this rule and are in the business of agenda-pushing. This is why economics is a failed science or what Feynman called a cargo cult science.
So, it is not the question of whether what Mitchell/Fazi say about sovereignty and the role of the nation-state is convincing or not. The point is that all questions about the realization of the Good Society have to be discussed and decided in the political sphere. When economists start to talk about liberty and democracy and liberalism and free markets and state intervention and the road to serfdom/freedom they are exceeding their scientific authority and become clowns in the political Circus Maximus.
The really bad fact of the matter is that economists should be able to tell how the actual economy works, yet they are not. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent and ALL got the foundational concept of the subject matter ― profit ― wrong. MMT is no exception.
MMT claims on Wikipedia: “Therefore, budget deficits add net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector. This is widely represented in macroeconomic theory by the national income identity: G−T=S−I−NX where G is government spending, T is tax, S is savings, I is investment and NX is net exports.”#1
For G, T, NX = 0 this equation boils down to Keynes’ famous I=S. The remarkable fact is that neither MMT’s national income identity nor Keynes’ basic formalism says anything about the pivotal economic magnitude profit.#2 It should be obvious that a model/theory which does not explicitly contain the variable profit is a priori false. After all, the concept of profit is for economics what the concept of energy is for physics. So, there is no need at all to occupy oneself with the rest of the theoretical superstructure of MMT. The fundamental methodological rule says if there is an inconsistency in the premises/axioms the whole theory is scientifically worthless.
The axiomatically correct balances equation reads Qm≡G−T+I−S+NX with Qm as monetary profit. And from it follows directly Public Deficit = Private Profit. The preferred policy measure of MMT, i.e. deficit spending, is in effect a profit booster program.
Exactly at this point, political agenda pushing sets in. MMT never talks about the profit of the business sector but says “budget deficits add net financial assets to the private sector” suggesting that private sector = household sector = ninety-nine percenters.#3 In fact private sector = business sector = one-percenters.
With the argument that deficit spending in the form of a Job Guarantee or other social benefits “add net financial assets to the private sector” MMT tries to sell its policy to socialist movements like Sanders/Corbyn.
MMT is NOT a new economic paradigm but political agenda pushing for the one-percenters in a social bluff package.#4 This holds for all of economics: when profit is false the whole theoretical superstructure is false and economic policy guidance has NO sound scientific foundations. MMT is political economics = proto-scientific garbage.
Egmont Kakarot-Handtke
#1 Wikipedia Modern Monetary Theory
#2 How Keynes got macro wrong and Allais got it right
#3 MMT and the magical profit disappearance
#4 For the full-spectrum refutation of MMT see cross-references MMT
Related 'Some fatal flaws of MMT' and 'MMT: The one deadly error/fraud of Warren Mosler' and 'Why is MMT so false?' and 'Down with idiocy!' and 'How MMT enlightens Washington' and 'MMT: Just another political fraud' and 'MMT is dead: An unfriendly critique of Bill Mitchell' and Additional proof of MMT’s inconsistency' and 'Wikipedia and the promotion of economists’ idiotism (II)' and 'MMTers make capitalism work'.
Everything you know about MMT is wrong
Blog-Reference and Blog-Reference
There is the political sphere and there is the scientific sphere. It is quite obvious that both are fundamentally different and because of this, it is of utmost importance to radically separate the two. The mixing of the two has been the crippling defect of economics since the founding fathers propagated Political Economy.
The goal of political economics is to successfully push an agenda, the goal of theoretical economics (= science) is to successfully explain how the actual economy works. In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
The fact is that the political agenda pushers have hijacked economics and messed it up. Political economics has produced nothing of scientific value in the last 200+ years.
MMT, too, violates the first rule of science, i.e., the strict separation of politics and science. This rule is known since J. S. Mill: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”
Needless to emphasize that all economic schools violate this rule and are in the business of agenda-pushing. This is why economics is a failed science or what Feynman called a cargo cult science.
So, it is not the question of whether what Mitchell/Fazi say about sovereignty and the role of the nation-state is convincing or not. The point is that all questions about the realization of the Good Society have to be discussed and decided in the political sphere. When economists start to talk about liberty and democracy and liberalism and free markets and state intervention and the road to serfdom/freedom they are exceeding their scientific authority and become clowns in the political Circus Maximus.
The really bad fact of the matter is that economists should be able to tell how the actual economy works, yet they are not. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent and ALL got the foundational concept of the subject matter ― profit ― wrong. MMT is no exception.
MMT claims on Wikipedia: “Therefore, budget deficits add net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector. This is widely represented in macroeconomic theory by the national income identity: G−T=S−I−NX where G is government spending, T is tax, S is savings, I is investment and NX is net exports.”#1
For G, T, NX = 0 this equation boils down to Keynes’ famous I=S. The remarkable fact is that neither MMT’s national income identity nor Keynes’ basic formalism says anything about the pivotal economic magnitude profit.#2 It should be obvious that a model/theory which does not explicitly contain the variable profit is a priori false. After all, the concept of profit is for economics what the concept of energy is for physics. So, there is no need at all to occupy oneself with the rest of the theoretical superstructure of MMT. The fundamental methodological rule says if there is an inconsistency in the premises/axioms the whole theory is scientifically worthless.
The axiomatically correct balances equation reads Qm≡G−T+I−S+NX with Qm as monetary profit. And from it follows directly Public Deficit = Private Profit. The preferred policy measure of MMT, i.e. deficit spending, is in effect a profit booster program.
Exactly at this point, political agenda pushing sets in. MMT never talks about the profit of the business sector but says “budget deficits add net financial assets to the private sector” suggesting that private sector = household sector = ninety-nine percenters.#3 In fact private sector = business sector = one-percenters.
With the argument that deficit spending in the form of a Job Guarantee or other social benefits “add net financial assets to the private sector” MMT tries to sell its policy to socialist movements like Sanders/Corbyn.
MMT is NOT a new economic paradigm but political agenda pushing for the one-percenters in a social bluff package.#4 This holds for all of economics: when profit is false the whole theoretical superstructure is false and economic policy guidance has NO sound scientific foundations. MMT is political economics = proto-scientific garbage.
Egmont Kakarot-Handtke
#1 Wikipedia Modern Monetary Theory
#2 How Keynes got macro wrong and Allais got it right
#3 MMT and the magical profit disappearance
#4 For the full-spectrum refutation of MMT see cross-references MMT
***
Wikimedia AXEC118d Sectoral Balances: False = MMT, True = AXEC
***
ICYMI on billy blog 'When the mainstream Left gets lost down its Europhile hole' on Oct 28Everything you know about MMT is wrong
October 22, 2017
How the representative economist gets it wrong big-time
Comment on Barkley Rosser on ‘Remembering Black Monday’
Blog-Reference
Barkley Rosser summarizes: “One other outcome of Black Monday also was that it was the beginning of the end for the dominance in economic theory of the rational expectations axiom. Yes, it is still around and strong in the whole DSGE modeling world. But increasingly people take more behavioral assumptions seriously, and Black Monday was a body blow to ratex big time.”
Economics has been a failed science for 200+ years. How does this cargo cult science survive nonetheless? An important ingredient of the time-tested survival strategy of incompetent scientists is to readily admit and superficially fix striking defects in the so-called protective belt in order to save the methodological core. Let us call this the epicycle stratagem because it was by adding epicycle after epicycle how the geocentrists tried to postpone the final admission of empirical and logical refutation.
Economists have always been incompetent scientists but managed to cover it vis-a-vis the general public with some skill in the application of what Popper called immunizing stratagems.
The inevitable failure of economics started with Jevons/Walras/Menger but was officially institutionalized much later by Arrow with this methodological specification: “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.”
The neoclassical concretization of methodological individualism translates into the following hardcore propositions a.k.a. 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)
Obviously, this axiom set contains three NONENTITIES: (i) constrained optimization HC2, (ii) rational expectations HC4, (iii) equilibrium HC5. Every theory/model that contains a nonentity is A PRIORI false. By consequence, the economics of the Arrow-Debreu type and its offspring until DSGE/RBC/New Keynesianism is scientifically worthless.
The economist’s immunizing stratagem consists of admitting the most blatant defect but adhering to the paradigm of methodological individualism. One example is the replacement of the obviously idiotic behavioral axioms of constrained optimization and rational expectations by something more commonsensical which is readily provided by Behavioral Economics. It should be obvious that Behavioral Economics is not a new paradigm but just another version of methodological individualism as defined by Arrow.#1
One of the loudest proponents of the proto-scientific approach of Behavioral Economics is Barkley Rosser and his buddies in the econblogosphere.#2 What these folks do not understand is that economics is NOT a science of behavior and that if it isn’t macro-axiomatized, it isn’t economics at all.#3
Egmont Kakarot-Handtke
#1 See also Joan Robinson and the early death of Behavioral Economics
#2 Rather weird examples of Behavioral Economics are The Case of the Spitting Legionnaire and Why I Lack Sympathy For The Catalan/Catalunyan Independence Movement and many others at EconoSpeak
#3 For details of the big picture see cross-references Failed/Fake Scientists
Most people/economists have no proper understanding of what economics is all about. Therefore it is, first of all, 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 has to be judged according to the criteria true/false with truth well-defined as material and formal consistency. Political economics has produced NOTHING of scientific value in the last 200+ years. The four major approaches — Walrasianism, Keynesianism, Marxianism, and Austrianism — are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economics is a failed science but economists award themselves the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” (note the brain-dead plural).
The political agenda pushing of orthodox and heterodox economists normally comes in the form of a verbal/formal model/theory that pretends to satisfy scientific criteria. This, of course, is what Feynman called cargo cult science.#1 However, soapbox economists like you and Sandwichman do not even care about pretending to do science but vomit their political agenda directly into the econblogosphere.
To argue that you have done this already at the predecessor of this blog does not make things better but worse. It proves only that the scientific self-governance never worked in economics.#2
You are right in assuming that I do not discuss the crash of 1987 with you.#3 For cargo cult scientists who have until this day not realized that constrained optimization, rational expectations, supply-demand-equilibrium, Arrow-Debreu economics up to DSGE, Behavioral Economics, Keynesian I=S, Post Keynesianism up to MMT is proto-scientific garbage and who after 200+ years still do not understand what profit is there is only one message: get out of the way.
# 1 Krugman is a case in point, see Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#2 For the perversion of peer review see Heckman Publishing and Promotion in Economics: The Curse of the Top Five
#3 For the correct economic crash theory see Mathematical Proof of the Breakdown of Capitalism
BloombergView writes: “Economists have come to rival even journalists and politicians in lack of public esteem. That might be partly because so many economists seem as interested in journalism and politics as in advancing their science. But there’s also a deeper problem: Far from advancing, the science of economics has been going backwards.”
The article is titled ‘Why Not Make Economics a Science?’ Hmm, stupid folks at Bloomberg! Have they never heard of the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”? Take notice of the plural, Bloomberg editors: economics is already sciences not merely science.
Obviously, someone is taking the general public for a ride, is it the journalists or the ‘Nobel’ committee?
To make economics a science presupposes the eviction of all failed/fake scientists and political blatherers like you, Sandwichman, and Barkley Rosser. You complain that this is not very polite. That is true but misses the point.
Here is Schumpeter’s good advice for all complainers: “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.”
Refute my post above if you can but spare the world the horrors of your ruminations about politeness.
You say: “… you have said nothing you have not said a thousand times previously in your now two new posts above.”
Even you in your utter confusion should understand that to repeat a thousand times 2+2=4 does not make it false. Physicists repeat the Law of the Lever for more than 2000 years and it is still true. To repeat a thousand times the statement of fact that Barkley Rosser is a scientifically incompetent political agenda pusher does not alter the fact.
You hallucinate: “I have refuted these arguments many times and am not going to waste peoples’ time by indulging you with more refutations, …”
My argument is that the profit theory is false since Adam Smith.#1 The axiomatically correct macroeconomic relationships are:
You say “I have refuted these arguments many times”. Fact is (i) that you have NOT refuted them once, and (ii), that you have blathered your lifetime about economics without understanding the pivotal concept of the subject matter.
#1 For details and sources see cross-references Profit
Blog-Reference
Barkley Rosser summarizes: “One other outcome of Black Monday also was that it was the beginning of the end for the dominance in economic theory of the rational expectations axiom. Yes, it is still around and strong in the whole DSGE modeling world. But increasingly people take more behavioral assumptions seriously, and Black Monday was a body blow to ratex big time.”
Economics has been a failed science for 200+ years. How does this cargo cult science survive nonetheless? An important ingredient of the time-tested survival strategy of incompetent scientists is to readily admit and superficially fix striking defects in the so-called protective belt in order to save the methodological core. Let us call this the epicycle stratagem because it was by adding epicycle after epicycle how the geocentrists tried to postpone the final admission of empirical and logical refutation.
Economists have always been incompetent scientists but managed to cover it vis-a-vis the general public with some skill in the application of what Popper called immunizing stratagems.
The inevitable failure of economics started with Jevons/Walras/Menger but was officially institutionalized much later by Arrow with this methodological specification: “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.”
The neoclassical concretization of methodological individualism translates into the following hardcore propositions a.k.a. 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)
Obviously, this axiom set contains three NONENTITIES: (i) constrained optimization HC2, (ii) rational expectations HC4, (iii) equilibrium HC5. Every theory/model that contains a nonentity is A PRIORI false. By consequence, the economics of the Arrow-Debreu type and its offspring until DSGE/RBC/New Keynesianism is scientifically worthless.
The economist’s immunizing stratagem consists of admitting the most blatant defect but adhering to the paradigm of methodological individualism. One example is the replacement of the obviously idiotic behavioral axioms of constrained optimization and rational expectations by something more commonsensical which is readily provided by Behavioral Economics. It should be obvious that Behavioral Economics is not a new paradigm but just another version of methodological individualism as defined by Arrow.#1
One of the loudest proponents of the proto-scientific approach of Behavioral Economics is Barkley Rosser and his buddies in the econblogosphere.#2 What these folks do not understand is that economics is NOT a science of behavior and that if it isn’t macro-axiomatized, it isn’t economics at all.#3
Egmont Kakarot-Handtke
#1 See also Joan Robinson and the early death of Behavioral Economics
#2 Rather weird examples of Behavioral Economics are The Case of the Spitting Legionnaire and Why I Lack Sympathy For The Catalan/Catalunyan Independence Movement and many others at EconoSpeak
#3 For details of the big picture see cross-references Failed/Fake Scientists
***
REPLY to Barkley Rosser on Oct 23Most people/economists have no proper understanding of what economics is all about. Therefore it is, first of all, 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 has to be judged according to the criteria true/false with truth well-defined as material and formal consistency. Political economics has produced NOTHING of scientific value in the last 200+ years. The four major approaches — Walrasianism, Keynesianism, Marxianism, and Austrianism — are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economics is a failed science but economists award themselves the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” (note the brain-dead plural).
The political agenda pushing of orthodox and heterodox economists normally comes in the form of a verbal/formal model/theory that pretends to satisfy scientific criteria. This, of course, is what Feynman called cargo cult science.#1 However, soapbox economists like you and Sandwichman do not even care about pretending to do science but vomit their political agenda directly into the econblogosphere.
To argue that you have done this already at the predecessor of this blog does not make things better but worse. It proves only that the scientific self-governance never worked in economics.#2
You are right in assuming that I do not discuss the crash of 1987 with you.#3 For cargo cult scientists who have until this day not realized that constrained optimization, rational expectations, supply-demand-equilibrium, Arrow-Debreu economics up to DSGE, Behavioral Economics, Keynesian I=S, Post Keynesianism up to MMT is proto-scientific garbage and who after 200+ years still do not understand what profit is there is only one message: get out of the way.
# 1 Krugman is a case in point, see Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#2 For the perversion of peer review see Heckman Publishing and Promotion in Economics: The Curse of the Top Five
#3 For the correct economic crash theory see Mathematical Proof of the Breakdown of Capitalism
***
REPLY to Anonymous on Oct 24BloombergView writes: “Economists have come to rival even journalists and politicians in lack of public esteem. That might be partly because so many economists seem as interested in journalism and politics as in advancing their science. But there’s also a deeper problem: Far from advancing, the science of economics has been going backwards.”
The article is titled ‘Why Not Make Economics a Science?’ Hmm, stupid folks at Bloomberg! Have they never heard of the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”? Take notice of the plural, Bloomberg editors: economics is already sciences not merely science.
Obviously, someone is taking the general public for a ride, is it the journalists or the ‘Nobel’ committee?
To make economics a science presupposes the eviction of all failed/fake scientists and political blatherers like you, Sandwichman, and Barkley Rosser. You complain that this is not very polite. That is true but misses the point.
Here is Schumpeter’s good advice for all complainers: “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.”
Refute my post above if you can but spare the world the horrors of your ruminations about politeness.
***
REPLY to Barkley Rosser on Oct 25You say: “… you have said nothing you have not said a thousand times previously in your now two new posts above.”
Even you in your utter confusion should understand that to repeat a thousand times 2+2=4 does not make it false. Physicists repeat the Law of the Lever for more than 2000 years and it is still true. To repeat a thousand times the statement of fact that Barkley Rosser is a scientifically incompetent political agenda pusher does not alter the fact.
You hallucinate: “I have refuted these arguments many times and am not going to waste peoples’ time by indulging you with more refutations, …”
My argument is that the profit theory is false since Adam Smith.#1 The axiomatically correct macroeconomic relationships are:
- Qm≡−Sm in the case of the elementary production-consumption economy,
- Qm≡I−Sm in the case of the investment economy,
- Qm≡(I−Sm)+Yd+(G−T)+(X−M) in the general case.
You say “I have refuted these arguments many times”. Fact is (i) that you have NOT refuted them once, and (ii), that you have blathered your lifetime about economics without understanding the pivotal concept of the subject matter.
#1 For details and sources see cross-references Profit
October 20, 2017
Economists understand neither Capitalism nor Socialism
Comment on Michael Hudson on ‘Socialism, Land and Banking: 2017 Compared to 1917’
Blog-Reference and Blog-Reference
Michael Hudson tells economic history from early Western Capitalism to Russian Socialism to modern China. This account suffers from the fact that he does not know what profit is. In his ignorance, he is not alone. The profit theory is false since Adam Smith. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong.
Smith treated profit as the income of the factor capital. This was the original blunder.#1 It was followed by Ricardo’s theory of rent#2, and Marx’s theory of profit#3, and Keynes’ messed-up macro.#4 As the Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008)
Because Michael Hudson does not understand profit he does not understand how the monetary economy works. The fact is that profit for the economy as a whole does not at all depend on who owns the means of production. In other words, the Profit Law holds always and everywhere: in capitalist America, in former communist Russia, and in the mixed economy of China. Michael Hudson’s historical account remains on the surface of political economics. Political economics has produced nothing of scientific value in the last 200+ years.
For the proof, macroeconomic profit is here determined for the most elementary case. The pure production-consumption economy is defined with this set of macroeconomic 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.
Under the conditions of market-clearing X=O and budget-balancing C=Yw the price is given by P=C/X or P=W/R (1), i.e. the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.#5
From (1) follows that the real wage is equal to productivity, i.e. W/P=R (2). The wage income receivers get the whole product.
Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm≡−Sm, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving and vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing, the total monetary profit is zero. The Profit Law holds for every monetary economy, no matter how it characterizes itself politically.
Overall profit depends alone on deficit spending, that is, the change of private or public debt. It does NOT depend on labor time, or productivity, or monopoly power, or greedy landlords, or rent-seeking bankers. These factors are only relevant to the distribution of overall profit between the firms. Traditional profit theory has been nothing more than a Fallacy of Composition, that is, an illegitimate generalization of what can be observed on the microeconomic level. Economists are failed/fake scientists and Michael Hudson is no exception.
Egmont Kakarot-Handtke
#1 The Profit Theory is False Since Adam Smith
#2 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
#3 Profit for Marxists
#4 How Keynes got macro wrong and Allais got it right
#5 For the graphical representation see Wikimedia AXEC31
Related 'When non-thinkers rethink' and 'Ricardo and the invention of class war'. For details of the big picture see cross-references Profit.
Blog-Reference and Blog-Reference
Michael Hudson tells economic history from early Western Capitalism to Russian Socialism to modern China. This account suffers from the fact that he does not know what profit is. In his ignorance, he is not alone. The profit theory is false since Adam Smith. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong.
Smith treated profit as the income of the factor capital. This was the original blunder.#1 It was followed by Ricardo’s theory of rent#2, and Marx’s theory of profit#3, and Keynes’ messed-up macro.#4 As the Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008)
Because Michael Hudson does not understand profit he does not understand how the monetary economy works. The fact is that profit for the economy as a whole does not at all depend on who owns the means of production. In other words, the Profit Law holds always and everywhere: in capitalist America, in former communist Russia, and in the mixed economy of China. Michael Hudson’s historical account remains on the surface of political economics. Political economics has produced nothing of scientific value in the last 200+ years.
For the proof, macroeconomic profit is here determined for the most elementary case. The pure production-consumption economy is defined with this set of macroeconomic 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.
Under the conditions of market-clearing X=O and budget-balancing C=Yw the price is given by P=C/X or P=W/R (1), i.e. the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.#5
From (1) follows that the real wage is equal to productivity, i.e. W/P=R (2). The wage income receivers get the whole product.
Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm≡−Sm, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving and vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing, the total monetary profit is zero. The Profit Law holds for every monetary economy, no matter how it characterizes itself politically.
Overall profit depends alone on deficit spending, that is, the change of private or public debt. It does NOT depend on labor time, or productivity, or monopoly power, or greedy landlords, or rent-seeking bankers. These factors are only relevant to the distribution of overall profit between the firms. Traditional profit theory has been nothing more than a Fallacy of Composition, that is, an illegitimate generalization of what can be observed on the microeconomic level. Economists are failed/fake scientists and Michael Hudson is no exception.
Egmont Kakarot-Handtke
#1 The Profit Theory is False Since Adam Smith
#2 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
#3 Profit for Marxists
#4 How Keynes got macro wrong and Allais got it right
#5 For the graphical representation see Wikimedia AXEC31
Related 'When non-thinkers rethink' and 'Ricardo and the invention of class war'. For details of the big picture see cross-references Profit.
October 19, 2017
This is New Economic Thinking? Give me a break!
Comment on Lars Syll on ‘Twenty years ago’
Blog-Reference and Blog-Reference on Oct 27
Science is about the true theory. The true theory is the humanly best mental representation of reality. The rest of social communication is storytelling, agenda-pushing, exchange of superficial opinions/beliefs, blather, gossip, unintended comedy, disinformation, and white noise.
The characteristic of science is the insistence on 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)
Economics pretends to be a science but is only what Feynman called a cargo cult science. As everywhere in life, there is a genuine thing and a look-alike. The general public cannot spontaneously tell the difference and this provides a comfortable ecological niche for the look-alikes in all walks of life from the marriage-impostor, to the snake-oil seller, to the Ponzi schemer, to the fake scientist. Unsurprisingly, there are also 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. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
What the general public is presented with is political economics. The public has no idea of the underlying theory and cannot assess its scientific worth. Fact is that political economics (= agenda-pushing) has virtually extinguished theoretical economics (= science).#1 The loudspeakers of economics ― right-wing or left-wing does not matter ― are without exception incompetent scientists.#2 Political economics has had no sound scientific foundations for 200+ years. Economic policy discussion has no scientifically valid content, it is just opinion and rhetoric.
“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 but dwell in the scientific no man's land where, in Keynes’ words, ‘nothing is clear and everything is possible’.
Political economics cannot be improved but only abandoned. What is needed is a Paradigm Shift. The problem with economists is that they have no clue what this is: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
The goal of science is the true theory. 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 foundational economic concept of profit wrong.#3
So, genuine New Economic Thinking is about the Paradigm Shift and nothing else. Given the history of economic thought, this is, of course, NOT what happens. Alleged New Thinking is a dilettantish proto-scientific dog and pony show, not much different in substance from what came before. It’s all a bit more user-friendly: no mathiness, no stress with true/false but peaceful coexistence of provably false theories, no offensive neoliberal hardcore ideology but an emotionally satisfying narrative, and a demonstrative commitment to a brighter future for humanity and the planet or at least to one’s own national society. All this is political marketing. Scientifically, it is essentially the old Walrasian/Keynesian/ Marxian/Austrian garbage in a new package. The foundational concept of profit is still not understood and this means that there is no analytical progress whatsoever.
The methodologically correct action to overcome scientific failure is the Paradigm Shift. This requires a redefinition of the whole subject matter. Economics is not about individual or social behavior but about the behavior of the economy. Economics is a systems science and the functioning of the economic system has to be explained without recourse to folk psychology and folk sociology.#4
Economics is a scientific failure and the ultimate cause is the utter incompetence of both orthodox and heterodox economists. The old thinking has been rather insufficient and the new thinking is not any better. These agenda-pushing folks simply cannot rise above the proto-scientific level.
Egmont Kakarot-Handtke
#1 For details of the big picture see cross-references New Economic Thinking
#2 For details of the big picture see cross-references Failed/Fake Scientists
#3 Why economists don’t know what profit is
#4 First Lecture in New Economic Thinking
Related 'Joan Robinson and the early death of Behavioral Economics' and 'Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist' and 'The real problem with the economics Nobel' and 'Economists understand neither Capitalism nor Socialism' and 'New Economic Thinking, or, let’s put lipstick on the dead pig' and 'CORE: more lipstick on the dead economics pig' and 'Dilettantes at the end of the coal-pit' and 'Economics between cargo cult, farce, and fraud' and 'What is the fuss with New Economic Thinking all about?' and 'New Economic Thinking: The 10 crucial points'. For details of the big picture see cross-references Not a Science of Behavior and cross-references Scientific Incompetence.
Frances Coppola summarizes: “This is not ‘new thinking’, it is the same old elite economists’ voodoo in different clothes.”
True, orthodox ‘New Economic Thinking’ is bad but heterodox ‘New Economic Thinking’ is even worse. For details see This is New Economic Thinking? Give me a break!.
Frances Coppola summarizes: “This is not ‘new thinking’, it is the same old elite economists’ voodoo in different clothes.”
True, orthodox ‘New Economic Thinking’ is a bad joke but heterodox ‘New Economic Thinking’ is even worse. For details see This is New Economic Thinking? Give me a break! and Everything you know about MMT is wrong.
AXEC106i
Blog-Reference and Blog-Reference on Oct 27
Science is about the true theory. The true theory is the humanly best mental representation of reality. The rest of social communication is storytelling, agenda-pushing, exchange of superficial opinions/beliefs, blather, gossip, unintended comedy, disinformation, and white noise.
Economics pretends to be a science but is only what Feynman called a cargo cult science. As everywhere in life, there is a genuine thing and a look-alike. The general public cannot spontaneously tell the difference and this provides a comfortable ecological niche for the look-alikes in all walks of life from the marriage-impostor, to the snake-oil seller, to the Ponzi schemer, to the fake scientist. Unsurprisingly, there are also 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. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
What the general public is presented with is political economics. The public has no idea of the underlying theory and cannot assess its scientific worth. Fact is that political economics (= agenda-pushing) has virtually extinguished theoretical economics (= science).#1 The loudspeakers of economics ― right-wing or left-wing does not matter ― are without exception incompetent scientists.#2 Political economics has had no sound scientific foundations for 200+ years. Economic policy discussion has no scientifically valid content, it is just opinion and rhetoric.
“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 but dwell in the scientific no man's land where, in Keynes’ words, ‘nothing is clear and everything is possible’.
Political economics cannot be improved but only abandoned. What is needed is a Paradigm Shift. The problem with economists is that they have no clue what this is: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
The goal of science is the true theory. 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 foundational economic concept of profit wrong.#3
So, genuine New Economic Thinking is about the Paradigm Shift and nothing else. Given the history of economic thought, this is, of course, NOT what happens. Alleged New Thinking is a dilettantish proto-scientific dog and pony show, not much different in substance from what came before. It’s all a bit more user-friendly: no mathiness, no stress with true/false but peaceful coexistence of provably false theories, no offensive neoliberal hardcore ideology but an emotionally satisfying narrative, and a demonstrative commitment to a brighter future for humanity and the planet or at least to one’s own national society. All this is political marketing. Scientifically, it is essentially the old Walrasian/Keynesian/ Marxian/Austrian garbage in a new package. The foundational concept of profit is still not understood and this means that there is no analytical progress whatsoever.
The methodologically correct action to overcome scientific failure is the Paradigm Shift. This requires a redefinition of the whole subject matter. Economics is not about individual or social behavior but about the behavior of the economy. Economics is a systems science and the functioning of the economic system has to be explained without recourse to folk psychology and folk sociology.#4
Economics is a scientific failure and the ultimate cause is the utter incompetence of both orthodox and heterodox economists. The old thinking has been rather insufficient and the new thinking is not any better. These agenda-pushing folks simply cannot rise above the proto-scientific level.
Egmont Kakarot-Handtke
#1 For details of the big picture see cross-references New Economic Thinking
#2 For details of the big picture see cross-references Failed/Fake Scientists
#3 Why economists don’t know what profit is
#4 First Lecture in New Economic Thinking
Related 'Joan Robinson and the early death of Behavioral Economics' and 'Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist' and 'The real problem with the economics Nobel' and 'Economists understand neither Capitalism nor Socialism' and 'New Economic Thinking, or, let’s put lipstick on the dead pig' and 'CORE: more lipstick on the dead economics pig' and 'Dilettantes at the end of the coal-pit' and 'Economics between cargo cult, farce, and fraud' and 'What is the fuss with New Economic Thinking all about?' and 'New Economic Thinking: The 10 crucial points'. For details of the big picture see cross-references Not a Science of Behavior and cross-references Scientific Incompetence.
***
NOTE on INET conferencing beyond disappointment on Oct 24Frances Coppola summarizes: “This is not ‘new thinking’, it is the same old elite economists’ voodoo in different clothes.”
True, orthodox ‘New Economic Thinking’ is bad but heterodox ‘New Economic Thinking’ is even worse. For details see This is New Economic Thinking? Give me a break!.
***
NOTE on INET conferencing beyond disappointment on Oct 25Frances Coppola summarizes: “This is not ‘new thinking’, it is the same old elite economists’ voodoo in different clothes.”
True, orthodox ‘New Economic Thinking’ is a bad joke but heterodox ‘New Economic Thinking’ is even worse. For details see This is New Economic Thinking? Give me a break! and Everything you know about MMT is wrong.
***
AXEC106i
October 18, 2017
Joan Robinson and the early death of Behavioral Economics
Comment on Lars Syll on ‘Joan Robinson and the inadequacies of revealed preference theory’
Blog-Reference and Blog-Reference on Oct 22
“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)
How do scientists eventually arrive at the true theory? “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)
Neither orthodox nor heterodox economists have developed anything that remotely resembles the true (= materially/formally consistent) theory.
Samuelson, to his credit, at least realized that utility is a NONENTITY and that, by consequence, marginalism had no sound scientific foundations: “The very raison d’être for developing revealed preference theory in the 1930s and 1940s was to be able to ascertain people’s preferences by observation of their actual behaviour on markets and not having to make unobservable psychological assumptions or rely on any utility concepts.” (Lars Syll, Intro)
What Samuelson did realize was that economics cannot be based on a behavioral axiom like constrained optimization but he did not realize that it cannot, as a matter of principle, be based on any other behavioral assumption whatsoever. The economy is a system and economics has to be based on objective-systemic macrofoundations and not on subjective-behavioral microfoundations.
The significance of the failure of revealed preference theory lies in the fact that economics is not a science of behavior and that microfoundations are the methodologically wrong approach.#1
It was Joan Robinson who drew the correct conclusion: “Scrap the lot and start again.”
However, Keynes’ attempt to move from microfoundations to macrofoundations failed.#2 Thus, the propagation of silly orthodox and heterodox economics goes on and on. The scrapping of the false micro-behavioral paradigm did not happen. What indeed happened was the pseudo-progress from the entirely vacuous behavioral assumption of utility maximization to more ‘realistic’ assumptions under the label of Behavioral Economics.
For Behavioral Economics, though, holds what held already for the microfoundations of Jevons, Walras, Menger: Scrap the lot and start again. In other words, if it isn’t macro-axiomatized, it isn’t economics.
To award in 2017 the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” for Behavioral Economics is the point where the abysmal scientific incompetence of orthodox and heterodox economists for 150+ years turns into a deception of the general public. Economics is not a science but what Feynman called a cargo cult science.
Egmont Kakarot-Handtke
#1 A social science is NOT a science but a sitcom
#2 From false micro to true macro: the new economic paradigm
Related 'The father of modern economics and his imbecile kids' and 'What makes economics a failed science?' and 'Hunting down the economics body snatchers' and 'You are fired!' and 'Joan Robinson and the ‘throng of superfluous economists’' and 'Why don’t you do what Joan Robinson told you to do?' and 'Yes, economics is a bogus science' and '10 steps to leave cargo cult economics behind for good'. For details of the big picture see cross-references Not a science of behavior and cross-references New Economic Thinking
Blog-Reference and Blog-Reference on Oct 22
“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)
How do scientists eventually arrive at the true theory? “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)
Neither orthodox nor heterodox economists have developed anything that remotely resembles the true (= materially/formally consistent) theory.
Samuelson, to his credit, at least realized that utility is a NONENTITY and that, by consequence, marginalism had no sound scientific foundations: “The very raison d’être for developing revealed preference theory in the 1930s and 1940s was to be able to ascertain people’s preferences by observation of their actual behaviour on markets and not having to make unobservable psychological assumptions or rely on any utility concepts.” (Lars Syll, Intro)
What Samuelson did realize was that economics cannot be based on a behavioral axiom like constrained optimization but he did not realize that it cannot, as a matter of principle, be based on any other behavioral assumption whatsoever. The economy is a system and economics has to be based on objective-systemic macrofoundations and not on subjective-behavioral microfoundations.
The significance of the failure of revealed preference theory lies in the fact that economics is not a science of behavior and that microfoundations are the methodologically wrong approach.#1
It was Joan Robinson who drew the correct conclusion: “Scrap the lot and start again.”
However, Keynes’ attempt to move from microfoundations to macrofoundations failed.#2 Thus, the propagation of silly orthodox and heterodox economics goes on and on. The scrapping of the false micro-behavioral paradigm did not happen. What indeed happened was the pseudo-progress from the entirely vacuous behavioral assumption of utility maximization to more ‘realistic’ assumptions under the label of Behavioral Economics.
For Behavioral Economics, though, holds what held already for the microfoundations of Jevons, Walras, Menger: Scrap the lot and start again. In other words, if it isn’t macro-axiomatized, it isn’t economics.
To award in 2017 the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” for Behavioral Economics is the point where the abysmal scientific incompetence of orthodox and heterodox economists for 150+ years turns into a deception of the general public. Economics is not a science but what Feynman called a cargo cult science.
Egmont Kakarot-Handtke
#1 A social science is NOT a science but a sitcom
#2 From false micro to true macro: the new economic paradigm
Related 'The father of modern economics and his imbecile kids' and 'What makes economics a failed science?' and 'Hunting down the economics body snatchers' and 'You are fired!' and 'Joan Robinson and the ‘throng of superfluous economists’' and 'Why don’t you do what Joan Robinson told you to do?' and 'Yes, economics is a bogus science' and '10 steps to leave cargo cult economics behind for good'. For details of the big picture see cross-references Not a science of behavior and cross-references New Economic Thinking
***
Wikimedia AXEC121i
October 17, 2017
Note on Asad Zaman’s Supply & Demand
Blog-Reference
To criticize silly supply-demand-equilibrium again and again is itself silly. For the FULL REPLACEMENT of the proto-scientific nuisance see:
• Essentials of Constructive Heterodoxy: The Market
• The Law of Supply and Demand: Here It Is Finally
• How to Get Rid of Supply-Demand-Equilibrium
Egmont Kakarot-Handtke
Related 'Refutation of Asad Zaman’s heterodox methodology: all arguments you ever need' and cross-references Failure of Heterodoxy.
To criticize silly supply-demand-equilibrium again and again is itself silly. For the FULL REPLACEMENT of the proto-scientific nuisance see:
• Essentials of Constructive Heterodoxy: The Market
• The Law of Supply and Demand: Here It Is Finally
• How to Get Rid of Supply-Demand-Equilibrium
Egmont Kakarot-Handtke
Related 'Refutation of Asad Zaman’s heterodox methodology: all arguments you ever need' and cross-references Failure of Heterodoxy.
When non-thinkers rethink
Comment on Carola Binder on ‘Rethinking Macroeconomic Policy’
Blog-Reference and Blog-Reference and Blog-Reference on Oct 18
This is the track record of economics: provably false:
• profit theory, for 200+ years,
• Walrasian microfoundations (including equilibrium), for 150+ years,
• Keynesian macrofoundations (including I=S, IS-LM), for 80+ years.
The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of profit wrong.#1
Economics is a failed science or what Feynman called a 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.”
What is entirely missing among economists is scientific competence. The familiar research programs have produced nothing but proto-scientific garbage but neither orthodox nor heterodox economists have any clue of how to get out of the mess: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
This is why rethinking-this-and-that-and-everything is all the rage.#2 It cannot produce anything worthwhile for obvious reasons. Those economists who in their Econ101 youth unthinkingly swallowed supply-demand-equilibrium, which is one the worst proto-scientific idiocies of all time, are in NO position to perform the necessary Paradigm Shift: “A new idea is extremely difficult to think of. It takes a fantastic imagination.” (Feynman)#3
Carola Binder maintains: “The fact that the conference speakers are so distinguished is both an upside and a downside. They have the greatest understanding of our current models and policies, and in many cases were central to developing them. They can rethink, because they have already thought, and moreover, they have large influence and loud platforms. But they are also quite invested in the status quo, for all they might criticize it, in a way that may prevent really radical rethinking (if it is really needed, which I’m not yet convinced of).”
Obviously, Carola Binder is still in a hallucinatory state. The only thing the Blanchard’s and Summers’ and Bernanke’s and the rest of the rethinking-macro crowd can do for the advancement of economics is to get out of the way.
Egmont Kakarot-Handtke
#1 Where modern macroeconomics went wrong
#2 New Economic Thinking, or, let’s put lipstick on the dead pig
#3 Fact of life: your econ prof is scientifically incompetent
Related 'This is New Economic Thinking? Give me a break!' and 'New Economic Thinking = old scientific garbage' and 'How to make economics a science'. For details of the big picture see cross-references New Economic Thinking.
Blog-Reference and Blog-Reference and Blog-Reference on Oct 18
This is the track record of economics: provably false:
• profit theory, for 200+ years,
• Walrasian microfoundations (including equilibrium), for 150+ years,
• Keynesian macrofoundations (including I=S, IS-LM), for 80+ years.
The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of profit wrong.#1
Economics is a failed science or what Feynman called a 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.”
What is entirely missing among economists is scientific competence. The familiar research programs have produced nothing but proto-scientific garbage but neither orthodox nor heterodox economists have any clue of how to get out of the mess: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
This is why rethinking-this-and-that-and-everything is all the rage.#2 It cannot produce anything worthwhile for obvious reasons. Those economists who in their Econ101 youth unthinkingly swallowed supply-demand-equilibrium, which is one the worst proto-scientific idiocies of all time, are in NO position to perform the necessary Paradigm Shift: “A new idea is extremely difficult to think of. It takes a fantastic imagination.” (Feynman)#3
Carola Binder maintains: “The fact that the conference speakers are so distinguished is both an upside and a downside. They have the greatest understanding of our current models and policies, and in many cases were central to developing them. They can rethink, because they have already thought, and moreover, they have large influence and loud platforms. But they are also quite invested in the status quo, for all they might criticize it, in a way that may prevent really radical rethinking (if it is really needed, which I’m not yet convinced of).”
Obviously, Carola Binder is still in a hallucinatory state. The only thing the Blanchard’s and Summers’ and Bernanke’s and the rest of the rethinking-macro crowd can do for the advancement of economics is to get out of the way.
Egmont Kakarot-Handtke
#1 Where modern macroeconomics went wrong
#2 New Economic Thinking, or, let’s put lipstick on the dead pig
#3 Fact of life: your econ prof is scientifically incompetent
Related 'This is New Economic Thinking? Give me a break!' and 'New Economic Thinking = old scientific garbage' and 'How to make economics a science'. For details of the big picture see cross-references New Economic Thinking.
October 16, 2017
Proof of the inherent instability of the market economy
Comment on Simon Wren-Lewis on ‘How Neoliberals weaponise the concept of an ideal market’
Blog-Reference and Blog-Reference and Blog-Reference on Oct 17
The foundational tenet of economics is that the interaction of free markets tends, in principle, to produce an inherently stable optimal outcome with all factors fully employed or, with regard to labor, at worst ‘naturally’ unemployed.
This tenet has NEVER been proven. General Equilibrium Theory is known to be a methodological disaster and economics is known to be in need of a Paradigm Shift: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
As a result, economic policy guidance in ALL variants between the outer right wing and outer left wing has had no sound scientific foundations for 200+ years. It can be proved that the market economy is inherently unstable.
Economics is a systems science. Accordingly, the correct approach is not microfoundations but macrofoundations.#1 The elementary version of the objective, systemic, behavior-free, macrofounded Employment Law is shown on Wikimedia AXEC62
From this equation follows
(i) An increase in the expenditure ratio ρE leads to higher employment L (the Greek letter ρ stands for the ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
Items (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρF as defined in (iii) embodies the macroeconomic price mechanism. The fact is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R and vice versa. This is the OPPOSITE of what microfounded economics teaches: “We economists have all learned, and many of us teach, that the remedy for excess supply in any market is a reduction in price. If this is prevented by combinations in restraint of trade or by government regulations, then those impediments to competition should be removed.” (Tobin)*
This is false: a reduction of the average wage rate W in the situation of unemployment INCREASES unemployment. In general terms: at the heart of the market economy is a positive feedback loop, i.e. the very OPPOSITE of what is required for a self-adjusting system.
The lethal methodological blunder of the microfounded market theory consists of the Fallacy of Composition, i.e. the illegitimate generalization of truths that hold for one firm/market for the economy as a whole.
The free market system is neither efficient, self-adjusting, nor stable. Neoliberalism has no sound scientific foundations.
Egmont Kakarot-Handtke
#1 New Economic Thinking: the 10 crucial points
Related 'How to overcome the manifest silliness of Econ 101 and save the economy'
Blog-Reference and Blog-Reference and Blog-Reference on Oct 17
The foundational tenet of economics is that the interaction of free markets tends, in principle, to produce an inherently stable optimal outcome with all factors fully employed or, with regard to labor, at worst ‘naturally’ unemployed.
This tenet has NEVER been proven. General Equilibrium Theory is known to be a methodological disaster and economics is known to be in need of a Paradigm Shift: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
As a result, economic policy guidance in ALL variants between the outer right wing and outer left wing has had no sound scientific foundations for 200+ years. It can be proved that the market economy is inherently unstable.
Economics is a systems science. Accordingly, the correct approach is not microfoundations but macrofoundations.#1 The elementary version of the objective, systemic, behavior-free, macrofounded Employment Law is shown on Wikimedia AXEC62
From this equation follows
(i) An increase in the expenditure ratio ρE leads to higher employment L (the Greek letter ρ stands for the ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
Items (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρF as defined in (iii) embodies the macroeconomic price mechanism. The fact is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R and vice versa. This is the OPPOSITE of what microfounded economics teaches: “We economists have all learned, and many of us teach, that the remedy for excess supply in any market is a reduction in price. If this is prevented by combinations in restraint of trade or by government regulations, then those impediments to competition should be removed.” (Tobin)*
This is false: a reduction of the average wage rate W in the situation of unemployment INCREASES unemployment. In general terms: at the heart of the market economy is a positive feedback loop, i.e. the very OPPOSITE of what is required for a self-adjusting system.
The lethal methodological blunder of the microfounded market theory consists of the Fallacy of Composition, i.e. the illegitimate generalization of truths that hold for one firm/market for the economy as a whole.
The free market system is neither efficient, self-adjusting, nor stable. Neoliberalism has no sound scientific foundations.
Egmont Kakarot-Handtke
#1 New Economic Thinking: the 10 crucial points
Related 'How to overcome the manifest silliness of Econ 101 and save the economy'
For more about self-adjusting see AXECquery.
* Lars P. Syll blog, James Buchanan, Wall Street Journal
***
October 14, 2017
Why does Heterodoxy not abolish the fake Nobel?
Comment on Lars Syll on ‘Thaler and behavioural economics — some critical perspectives’
Blog-Reference and Blog-Reference on Oct 15
The core message of Heterodoxy is that Orthodoxy has failed on all theoretical and empirical counts and that New Economic Thinking is required. Heterodoxy claims to be the living example of New Thinking which, however, has NOT produced the true economic theory but the pluralism of provably false theories. Worse, Heterodoxy argues that the criteria of science do not literally apply to economics as a social science and that to insist on the well-defined standards of material and formal consistency is merely physics envy.
While it is true that Orthodoxy has abysmally failed, it is important to stress that Heterodoxy, too, has achieved nothing of scientific value.#1 The simple reason is that orthodox and heterodox economists share the same mental handicap: they do not understand what science is all about. What we have underneath the conspicuous hick-hack of the diverse schools is the grand unity and solidarity of the scientifically incompetent.#2 Well knowing that economics is not a science, no economics school puts the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” in earnest into question.
What the Bank of Sweden does, though, is either (i) a self-delusional overreach, (ii) an arrogation of scientific competence, (iii) an arrogation of legitimacy, or/and (iv), a deception of the general public.
The question is, why have heterodox economists never made a serious attempt to abolish the fake Nobel which makes the ridiculous claim that economics is science[s]. There is a blatant contradiction between reality and what the Bank of Sweden declares.
The Bank of Sweden has no legitimacy whatsoever to elevate a proto-science to the status of a science. The four major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economists do not even understand the foundational concept of their subject matter, that is, macroeconomic profit. Economics is not a science, and economists are not scientists.
What neither orthodox nor heterodox economists have realized until this day is that economics is NOT a science of behavior. Behavioral Economics from Adam Smith’s Theory of Moral Sentiment to homo oeconomicus to bounded rationality to game theory to Richard Thaler’s nudge is not economics at all but the very subject matter of Sociology, Psychology, Anthropology, Political Science, History, etcetera. The subject matter of economics is the economic system.
Lars Syll entirely misses the point with his patronizing critique: “So — although it is good that people like Kahneman and Thaler are rewarded ‘Nobel prizes’ and that much of their research has vastly undermined the lure of axiomatic-deductive mainstream economics, there is still a long way to go before economics has become a truly empirical science.”
There is no other way to go for failed/fake scientists than to apply for immediate retirement. This, of course, includes the misdirected methodologist, confused blatherer, and clueless heterodox prophet Lars Syll.#3
Egmont Kakarot-Handtke
#1 Economics: 200+ years of scientific incompetence and fraud
#2 For details of the big picture see cross-references Scientific Incompetence
#3 The stupidity of Heterodoxy is the life insurance of Orthodoxy
Related 'The real problem with the economics Nobel' and 'The economics Cargo Cult Prize' and 'A social science is NOT a science but a sitcom' and 'Schizonomics' and 'There is NO such thing as an economic expert' and 'The economist as stand-up comedian' and 'Is Lars Syll’s stupidity really infinite?' and 'Legitimacy lost'. For details of the big picture see cross-references Not a Science of Behavior and cross-references Heterodoxy and cross-references Political Economics/Stupidity/Corruption.
Blog-Reference and Blog-Reference on Oct 15
The core message of Heterodoxy is that Orthodoxy has failed on all theoretical and empirical counts and that New Economic Thinking is required. Heterodoxy claims to be the living example of New Thinking which, however, has NOT produced the true economic theory but the pluralism of provably false theories. Worse, Heterodoxy argues that the criteria of science do not literally apply to economics as a social science and that to insist on the well-defined standards of material and formal consistency is merely physics envy.
While it is true that Orthodoxy has abysmally failed, it is important to stress that Heterodoxy, too, has achieved nothing of scientific value.#1 The simple reason is that orthodox and heterodox economists share the same mental handicap: they do not understand what science is all about. What we have underneath the conspicuous hick-hack of the diverse schools is the grand unity and solidarity of the scientifically incompetent.#2 Well knowing that economics is not a science, no economics school puts the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” in earnest into question.
What the Bank of Sweden does, though, is either (i) a self-delusional overreach, (ii) an arrogation of scientific competence, (iii) an arrogation of legitimacy, or/and (iv), a deception of the general public.
The question is, why have heterodox economists never made a serious attempt to abolish the fake Nobel which makes the ridiculous claim that economics is science[s]. There is a blatant contradiction between reality and what the Bank of Sweden declares.
The Bank of Sweden has no legitimacy whatsoever to elevate a proto-science to the status of a science. The four major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economists do not even understand the foundational concept of their subject matter, that is, macroeconomic profit. Economics is not a science, and economists are not scientists.
What neither orthodox nor heterodox economists have realized until this day is that economics is NOT a science of behavior. Behavioral Economics from Adam Smith’s Theory of Moral Sentiment to homo oeconomicus to bounded rationality to game theory to Richard Thaler’s nudge is not economics at all but the very subject matter of Sociology, Psychology, Anthropology, Political Science, History, etcetera. The subject matter of economics is the economic system.
Lars Syll entirely misses the point with his patronizing critique: “So — although it is good that people like Kahneman and Thaler are rewarded ‘Nobel prizes’ and that much of their research has vastly undermined the lure of axiomatic-deductive mainstream economics, there is still a long way to go before economics has become a truly empirical science.”
There is no other way to go for failed/fake scientists than to apply for immediate retirement. This, of course, includes the misdirected methodologist, confused blatherer, and clueless heterodox prophet Lars Syll.#3
Egmont Kakarot-Handtke
#1 Economics: 200+ years of scientific incompetence and fraud
#2 For details of the big picture see cross-references Scientific Incompetence
#3 The stupidity of Heterodoxy is the life insurance of Orthodoxy
Related 'The real problem with the economics Nobel' and 'The economics Cargo Cult Prize' and 'A social science is NOT a science but a sitcom' and 'Schizonomics' and 'There is NO such thing as an economic expert' and 'The economist as stand-up comedian' and 'Is Lars Syll’s stupidity really infinite?' and 'Legitimacy lost'. For details of the big picture see cross-references Not a Science of Behavior and cross-references Heterodoxy and cross-references Political Economics/Stupidity/Corruption.
October 12, 2017
The economics Cargo Cult Prize
Comment on Barkley Rosser on ‘On Richard Thaler Receiving The Nobel Prize’
Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference
Economics is a failed science and because of this the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is an absurdity ― or worse.#1 The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.
Today’s economics is nothing but the pluralism of provably false theories or, in Feynman’s words, 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.”#2
What economists have not realized to this day is that economics is NOT a science of behavior.#3, #4 Behavioral Economics from Adam Smith’s Theory of Moral Sentiment to homo oeconomicus to bounded rationality to game theory to rational expectations to Richard Thaler’s nudge is not economics at all but the very subject matter of Sociology, Psychology, Anthropology, Political Science, History, etcetera.#5 The subject matter of economics is the economic system.
The lethal defect of economics is that it is microfounded, i.e. based on behavioral axioms. Now it holds that (i) there is NO such thing as an invariant of human behavior, and (ii), NO way leads from the second-guessing of Human Nature/motives/behavior/action to the explanation of how the economic system works.
After 200+ years of behavioral economics, economists still have no idea of how the market economy works. It is common knowledge that all profit theories are defective: “A satisfactory theory of profits is still elusive.”#6
This means, to this day, neither the Walrasian, nor the Keynesian, nor the Marxian, nor the Austrian cargo cultic sect can tell what macroeconomic profit is.#7 Hence, they all fail to capture the essence of the market economy. This is not exactly a noteworthy scientific achievement of the economics profession.#8
Does the world expect economists to find out how people behave? No, this is the very job of Psychology, Sociology, Anthropology, etcetera. Does the world expect economists to figure out what profit is? Yes, of course, no philosopher, psychologist, biologist, or sociologist will ever try to figure this out.
Have economists done their proper job? No. Do economists know what profit is? No. Does behavioral economics help to find out what profit is? No.
It is not the task of economists to dabble in the so-called social sciences. The subject matter of economics is the economy. Economics is a systems science and has to be based on macrofoundations. Economists are still caught in a cargo cultic paradigm. They do not deserve any prizes but to be thrown out of science.
Egmont Kakarot-Handtke
#1 Economics: 200+ years of scientific incompetence and fraud
#2 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#3 Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
#4 For details see cross-references Not a Science of Behavior
#5 PsySoc — the scourge of economics
#6 Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online
#7 You are fired!
#8 The real problem with the economics Nobel
Related 'A social science is NOT a science but a sitcom' and 'Economic policy guidance NEVER had sound scientific foundations'
You are way behind the curve. For a quick Hudík-check see my 2013 post Economics is NOT a science of behavior.
REPLY to Barkley Rosser on Oct 16
Economics is NOT about human behavior but about the behavior of the economic system. The lethal blunder of economics is methodological individualism which comes in many psycho-sociological flavors and constitutes as the axiom of constrained optimization the core of Orthodoxy.
Science is well-defined for 2300+ years but economists somehow did not get it: “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)
Only certain knowledge (= materially/formally consistent) can be admitted to the corpus of science. And here is the crux of the so-called social sciences: “By having a vague theory it is possible to get either result. … It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (Feynman)
So, to begin with, economics cannot be built upon a behavioral axiom like constrained optimization or any other psycho-sociological premise.
This is the current state of economics: PsySoc-economists do NOT know how the economy works. Economists have not realized to this day that they are in a research program that has already been dead in the cradle: “Indeed, Alexander Rosenberg maintains that there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman)
What have economists contributed to the trash heap of the so-called social sciences? Utility maximization, bounded rationality, game theory, rational expectations, and so on to Behavioral Economics.
What the blathering dilettantes of PsySoc and soapbox economics cannot and do not grasp is: If it isn’t macro-axiomatized, it isn’t economics. And because of this proven incompetence, they have to be expelled from the sciences.
Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference
Economics is a failed science and because of this the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is an absurdity ― or worse.#1 The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.
Today’s economics is nothing but the pluralism of provably false theories or, in Feynman’s words, 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.”#2
What economists have not realized to this day is that economics is NOT a science of behavior.#3, #4 Behavioral Economics from Adam Smith’s Theory of Moral Sentiment to homo oeconomicus to bounded rationality to game theory to rational expectations to Richard Thaler’s nudge is not economics at all but the very subject matter of Sociology, Psychology, Anthropology, Political Science, History, etcetera.#5 The subject matter of economics is the economic system.
The lethal defect of economics is that it is microfounded, i.e. based on behavioral axioms. Now it holds that (i) there is NO such thing as an invariant of human behavior, and (ii), NO way leads from the second-guessing of Human Nature/motives/behavior/action to the explanation of how the economic system works.
After 200+ years of behavioral economics, economists still have no idea of how the market economy works. It is common knowledge that all profit theories are defective: “A satisfactory theory of profits is still elusive.”#6
This means, to this day, neither the Walrasian, nor the Keynesian, nor the Marxian, nor the Austrian cargo cultic sect can tell what macroeconomic profit is.#7 Hence, they all fail to capture the essence of the market economy. This is not exactly a noteworthy scientific achievement of the economics profession.#8
Does the world expect economists to find out how people behave? No, this is the very job of Psychology, Sociology, Anthropology, etcetera. Does the world expect economists to figure out what profit is? Yes, of course, no philosopher, psychologist, biologist, or sociologist will ever try to figure this out.
Have economists done their proper job? No. Do economists know what profit is? No. Does behavioral economics help to find out what profit is? No.
It is not the task of economists to dabble in the so-called social sciences. The subject matter of economics is the economy. Economics is a systems science and has to be based on macrofoundations. Economists are still caught in a cargo cultic paradigm. They do not deserve any prizes but to be thrown out of science.
Egmont Kakarot-Handtke
#1 Economics: 200+ years of scientific incompetence and fraud
#2 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#3 Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
#4 For details see cross-references Not a Science of Behavior
#5 PsySoc — the scourge of economics
#6 Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online
#7 You are fired!
#8 The real problem with the economics Nobel
Related 'A social science is NOT a science but a sitcom' and 'Economic policy guidance NEVER had sound scientific foundations'
***
REPLY to Barkley Rosser on Oct 12You are way behind the curve. For a quick Hudík-check see my 2013 post Economics is NOT a science of behavior.
***
REPLY to Barkley Rosser on Oct 16
Economics is NOT about human behavior but about the behavior of the economic system. The lethal blunder of economics is methodological individualism which comes in many psycho-sociological flavors and constitutes as the axiom of constrained optimization the core of Orthodoxy.
Science is well-defined for 2300+ years but economists somehow did not get it: “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)
Only certain knowledge (= materially/formally consistent) can be admitted to the corpus of science. And here is the crux of the so-called social sciences: “By having a vague theory it is possible to get either result. … It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (Feynman)
So, to begin with, economics cannot be built upon a behavioral axiom like constrained optimization or any other psycho-sociological premise.
This is the current state of economics: PsySoc-economists do NOT know how the economy works. Economists have not realized to this day that they are in a research program that has already been dead in the cradle: “Indeed, Alexander Rosenberg maintains that there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman)
What have economists contributed to the trash heap of the so-called social sciences? Utility maximization, bounded rationality, game theory, rational expectations, and so on to Behavioral Economics.
What the blathering dilettantes of PsySoc and soapbox economics cannot and do not grasp is: If it isn’t macro-axiomatized, it isn’t economics. And because of this proven incompetence, they have to be expelled from the sciences.