October 29, 2017

How to make economics a science

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, 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.

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. By consequence, 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 junk has been swallowed hook, line, and sinker by the majority of every new generation of economists since 140+ 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 four main 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 in the long overdue paradigm shift.#5

Egmont Kakarot-Handtke


#1 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 '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.