Blog-Reference and Blog-Reference
Simon Wren-Lewis’ talk is a fine example of what may be called an epicycle explanation. Essentially, like a Ptolemaic astronomer, he argues that it was with the 23rd epicycle where an error sneaked in and this explains why the theory failed.
Simon Wren-Lewis maintains: “The mistake was the revolution part. In the US, DSGE models replaced traditional modelling within almost a decade. In my view DSGE models should have coexisted with more traditional modelling, each tolerating the other.”
No. Both DSGE modeling and more traditional modeling are methodologically defective and the first step on the way forward is to bury both for good at the Flat-Earth-Cemetery. As Joan Robinson put it: “Scrap the lot and start again.”
What is needed is NOT the repair of the 23rd epicycle but a Paradigm Shift from false microfoundations to true macrofoundations. Nothing less will do.
This is the state of economics. Provably false:
• profit theory, for 200+ years,
• microfoundations, for 150+ years,
• macrofoundations, for 80+ years,
• the application of elementary logic and mathematics since the founding fathers.
The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory, axiomatically false, and materially/formally inconsistent. Because of this, economic policy guidance NEVER had sound scientific foundations from Adam Smith/Karl Marx onward to DSGE and New Keynesianism.
It was Keynes who spotted the fatal flaw of mainstream economics: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (Keynes)
In the same vein: “For it can fairly be insisted that no advance in the elegance and comprehensiveness of the theoretical superstructure can make up for the vague and uncritical formulation of the basic concepts and postulates, and sooner or later ... attention will have to return to the foundations.” (Hutchison)
Clearly, it is microfoundations that are false. The Walrasian approach is defined by this axiom set: “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) Every model that is built upon HC1 to HC5 or contains a subset thereof is false.
On the other hand, the Keynesian macrofoundations approach is defined by this set of foundational propositions: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63) Every model that is built upon this elementary syllogism is false, in particular, all I=S/IS-LM models and the whole of MMT.
Because both the microfoundations approach and the macrofoundations approach are axiomatically false, roughly 90 percent of the content of peer-reviewed journals is scientifically worthless.
A Paradigm Shift is imperative.#1 Who still accepts and applies Walrasian microfoundations or Keynesian macrofoundations or a combination thereof goes straight to the Flat-Earth-Cemetery.
It is known for 2300+ years: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle) Economists’ premises have NEVER been certain, true, and primary. Economics went wrong from the very beginning.
Egmont Kakarot-Handtke
#1 From false microfoundations to true macrofoundations
Related 'Where modern macroeconomics went wrong' and 'Where economics went wrong (I)''. For details of the big picture see cross-references Failed/Fake Scientists and
cross-references Political Economics/Stupidity/Corruption and
cross-references Paradigm Shift.
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Wikimedia AXEC144c
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LINK to The science that never was, Blog-Reference on Oct 12
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REPLY to Kien, tom m on Oct 13
Your blather about good intentions and Pareto Optimality is an indicator that you simply don’t get the obvious facts straight:
• Economics is a cargo cult science,
• Both Nordhaus and Romer are fake scientists,
• The EconNobel is a fraud.
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REPLY to Daniel Schiffman on Oct 16
William Nordhaus is the co-author of the textbook Economics. This textbook was “first published in 1948, and it immediately became the authority for the principles of economics courses.” (Amazon, product information)
There is Orthodoxy with microfoundations and there is Keynesianism with macrofoundations. Both Walrasian microfoundations and Keynesian macrofoundations are provably false, i.e. materially/formally inconsistent.
In the Samuelson/Nordhaus synthesis the defective Walrasian micro axioms and Keynes’ defective macro axioms were cobbled together. Needless to emphasize that both halves do not logically fit together.
The Samuelson/Nordhaus textbook has the lowermost scientific content of all textbooks ever written. And nothing substantial has improved in the last 70 years. Supply-demand-equilibrium will forever stand out as the silliest construct in the history of sciences and it is still at the core of economics teaching.
William Nordhaus cannot by any stretch of the imagination be taken seriously as a scientist – except in a cargo cult science. Feynman defined it as follows: “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.”
Indeed, they have not realized for 80+ years that economics is proto-scientific garbage and they even award a cargo cult Nobel to the co-author of a cargo cult textbook.