August 7, 2021

What is economics? (II)

Comment on James Galbraith on ‘What is economics?’*

James Galbraith claims that
  • economics is a policy discipline,
  • economics co-evolves with circumstances, and is historically contingent,
  • economic theories are a byproduct of the social order that spawns them,
  • the economy is a complex system, appropriate generalizations, simplifications, heuristics, and principles are to be derived from a study of the actual world,
  • mathematical systems are inadequate when they start from the dead dogmas of the neoclassical mainstream: ex nihilo nihil fit,
  • the history of economic thought/hallucination crashed against the wall of reality with the Great Financial Crisis 2007-09 and the Pandemic of 2020.

Without going into details the sum is: economics as a policy discipline is scientifically worthless from the founding fathers onward to this day. The problem is this: “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)

Lacking sound scientific foundations, economic policy guidance has never been more than personal opinion.#1

However, these things, “… even the dimmest observer of real-existing capitalism already knew.” The point is, again and again: “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)

Even the dimmest economist knows by now that it takes a Paradigm Shift to get out of the swamp of cargo cult science. However, this is beyond the means of the representative economist. To this day, neither orthodox nor heterodox economists got the foundational concept of economics ― profit ― right.

Here is the unassailable proof: in his General Theory, Keynes asserted: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This syllogism is conceptually and logically defective because Keynes never came to grips with 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.)#2, #3

So, Keynes never got macroeconomic profit right and neither did pro- or anti-Keynesians to this day. Folks who cannot do the elementary algebra of macrofoundations cannot do the Paradigm Shift. Their contribution to human welfare/progress consists of burying themselves in a dark corner of the Flat-Earth-Cemetery.

James Galbraith maintains: “The purpose of economic reasoning is to inform and buttress political and social choices.” That sounds plausible but is false. It is the credo of the agenda pusher.#4 The credo of the scientist is: “The purpose of economic reasoning is to figure out how the economy works.”

The criterion for the scientist is truth, i.e. material/formal consistency, and NOT usefulness. The scientist produces new knowledge and nobody can know in advance whether and for whom it is “useful”.

Economists never understood this, but genuine scientists did: “At one point in that 100 years, Lord Ernest Rutherford was visited by a minister of the Queen. He proudly and busily demonstrated what he had learned about radio. The minister said that’s all very good, but what is it good for. Lord Rutherford replied that he did not know, but he guaranteed that at some point the government would tax it.”#5

To this day, economists are not scientists but useful idiots for the Oligarchy. This is what “economics is a policy discipline” means. All these fake scientists have to be expelled from the sciences.#6

Egmont Kakarot-Handtke

* RWER blog

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For more about Paradigm Shift see AXECquery.

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