April 20, 2018

Stop beating mainstream economics ― it is long dead

Comment on Lars Syll on ‘The tractability hoax in modern economics’

Blog-Reference and Blog-Reference

Lars Syll describes how economists proceed: “The theories and models that mainstream economists construct describe imaginary worlds using a combination of formal sign systems such as mathematics and ordinary language. The descriptions made are extremely thin and to a large degree disconnected to the specific contexts of the targeted system than one (usually) wants to (partially) represent. This is not by chance. These closed formalistic-mathematical theories and models are constructed for the purpose of being able to deliver purportedly rigorous deductions that may somehow by be exportable to the target system.” And he concludes: “What is wrong with mainstream economics is not that it employs models per se, but that it employs poor models. They are poor because they do not bridge to the real world target system in which we live.”

All this is true. The curious thing is, it is true since 140+ years. So, the real question is how can this be?

Standard economics is well-articulated and it is built upon this verbalized neo-Walrasian axiom set:
HC1 There exist economic agents.
HC2 Agents have preferences over outcomes.
HC3 Agents independently optimize subject to constraints.
HC4 Choices are made in interrelated markets.
HC5 Agents have full relevant knowledge.
HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub)

It is all in the open, everyone with one milligram of scientific competence can see that these premises are absurd. HC3, HC5, and HC6 are plain NONENTITIES. Every theory/model that contains just one NONENTITY is a priori false and scientifically worthless. Methodology tells us that when the axioms are false the whole analytical superstructure is false.

So, what has to be done is to simply throw the neo-Walrasian axiom set out of the window and start anew. This act is called a Paradigm Shift. But nothing of the sort happens. The journalistic loudspeaker of the profession proudly declares: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” (Krugman).

There is no use to apply any of the propositions of the set HC1/HC6 and there is no use to accuse standard economics of unrealism and mathiness. However, this is what happens day in day out. Economists play this silly game since 140+ years.

Orthodoxy simply recycles long refuted stuff as already Morgenstern criticized: “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.”

Heterodoxy, on the other side, tirelessly repeats its trivial criticism. And that’s it. No conclusion is drawn, no consequences follow, no methodologist steps in, nobody resigns, nobody is fired, all ends in a draw and the status quo goes on.#1

Heterodoxy, clearly, never tried in earnest to overthrow Orthodoxy: “… 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) Heterodoxy’s ambition never went beyond the pluralism of false theories and a bigger share of the academic curriculum. That is human-all-too-human, but it is not science.#2*

What is economic debate these days? A wrestling show of useful political idiots with zero scientific content and no result that ever disturbs the pluralism of provably false proto-scientific theories/models.

Egmont Kakarot-Handtke

#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 New Economic Thinking: The 10 crucial points

Related 'The stupidity of Heterodoxy is the life insurance of Orthodoxy' and 'Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?' and 'Economics between misguided and lethal critique' and 'Both orthodox and heterodox economists are cargo cult scientists'. For details of the big picture see cross-references Incompetence.