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Comment Lars Syll on 'Marginalising Heterodoxy hampers good teaching in economics'

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The Association for Heterodox Economics (AHE) writes: “What began as recognition of fundamental problems that require fundamental change is becoming a more modest set of alterations. A sense of failure is, for all intents and purposes, being translated into a context of relative success requiring more limited changes – though these are still being seen as significant.”

With the latest financial crisis, the argument that Orthodoxy is a failure gained wide popularity. It should not be forgotten, though, that most arguments against Orthodoxy are known at least since Veblen. The problem is that Heterodoxy has not come forward in the interim with a promising alternative.

“... we may say that ... the omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend, 2004, p. 72)

Things have not much improved lately.

The AHE writes: “As Perry Mehrling also states in the podcast, ‘This is a very unusual initiative from my point of view. It seems to be driven, actually, by wanting to make some intellectual change, and not knowing what kind of intellectual change we want to make’.”

Everybody knows that a Paradigm Shift is needed. But because Heterodoxy has no suitable alternative, it cannot take place. Hence the plea for pluralism. The idea of pluralism, though, refers to the social and political sphere. In science, things are different. There cannot be a pluralism of false theories. If Orthodoxy is false, it has to be replaced.

Developing the scientifically valid replacement of Orthodoxy is the task of constructive Heterodoxy. For the first two contributions to a new curriculum, see (2015b; 2015a).

Egmont Kakarot-Handtke


References

Feyerabend, P. K. (2004). Problems of Empiricism. Cambridge: Cambridge University Press.

Kakarot-Handtke, E. (2015a). Essentials of Constructive Heterodoxy: Say’s Law. SSRN Working Paper Series, 2556434: 1–10. URL

Kakarot-Handtke, E. (2015b). Essentials of Constructive Heterodoxy: The Market. SSRN Working Paper Series, 2547098: 1–10. URL

Wanted: The True Theory

Comment on Lars Syll on 'Economics curriculum reformulation'

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You write: “We should demand more of our economics textbooks.”

Yes, the true economic theory: “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, 1991, p. 30)

Heterodoxy has made abundantly clear that Orthodoxy is a failed approach. As Steve Keen resumed:  “So the textbooks are wrong.” (2011, p. 19)

This is consensus, however, there is a strong feeling that something is missing: “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)

Heterodoxy has shown what is wrong. Now it is of some interest to learn what is right. Appeals for interdisciplinary work and pluralism are always readily accepted. But running through open doors is not enough.

To develop the scientifically valid replacement of Orthodoxy is the task of Constructive Heterodoxy. Two pivotal contributions to the new curriculum are ready for adoption (2015b; 2015a).

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2015a). Essentials of Constructive Heterodoxy: Say’s Law. SSRN Working Paper Series, 2556434: 1–10. URL
Kakarot-Handtke, E. (2015b). Essentials of Constructive Heterodoxy: The Market. SSRN Working Paper Series, 2547098: 1–10. URL
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical
Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, Melbourne: Cambridge University Press.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.

See also the synopsis 'Textbooks: Learning without understanding' on AXEC.org.

Essentials of Constructive Heterodoxy: Say's Law {66}

Working paper at SSRN

Working paper at ARCHIVE

Abstract The core problem of economics is that the representative economist never managed to keep political and theoretical economics properly apart. The mixture is toxic indeed. As Joan Robinson said about what parades as economics: Scrap the lot and start again. Yet, the question then arises where to start. To solve the Starting Problem — first formulated by J. S. Mill — is the all-dominant initial step of a paradigm shift. The most urgent task of a constructive Heterodoxy is to rethink pivotal concepts like market, Say's Law, profit, etcetera. The reconstruction of the theoretical superstructure from scratch is an absolute methodological necessity.

Naive arithmetic

Comment on Lars Syll on 'NAIRU — more religion than science'

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You summarize: “It [NAIRU] has fallen out of favor partly because its conceptual foundation is weak and partly because its empirical track record does not inspire confidence.”

The conceptual foundation is not weak but false.

The original Phillips curve was about the relationship between the rate of unemployment and the rate of change of the wage rate (Phillips, 1958). Phillips studied more than a century's worth of data and established the stable inverse relation for the United Kingdom. Phillips's original curve was a remarkable empirical finding. It has to be emphasized that Phillips ‘had not made an explicit link between inflation and unemployment.’ (Ormerod, 1994, p. 120).

The original curve was transformed by Samuelson with the simple formula: rate of inflation = rate of wage growth − rate of productivity growth (Samuelson and Nordhaus, 1998, p. 590). This formula, according to Samuelson, is an ‘important piece of inflation arithmetic’, says that price inflation runs in tandem with wage inflation and that both have basically the same effect on employment, respectively, the rate of unemployment. The difference between the original and the bastard Phillips Curve consists of a 1 percent productivity growth. This naive arithmetical exercise led to the far-reaching policy conclusion that there exists an exploitable trade-off between inflation and unemployment.

Needless to say, this basic version experienced refinement, reinterpretation, and qualification in the sequel. It was completely overlooked in the ensuing filibuster, though, that, to begin with, the underlying arithmetic was fallacious. The lack of a sound theoretical foundation did not prevent the application of the Samuelson-Solow Phillips curve. Quite the contrary. Phillips is said to have remarked, ‘if I had known what they would do with the graph, I would never have drawn it.’ (Quiggin, 2010, p. 91).

You summarize: “Despite the extensive press coverage the NAIRU concept has received recently, the theory of the inflation-unemployment relationship that it is part of is quite controversial.”

The correct inflation-unemployment relationship is given for the most elementary case by this equation with Graphic AXEC34

Roughly speaking, this structural Phillips curve says: if price inflation is ‘stronger’ than wage inflation, unemployment increases; if price inflation is ‘weaker’ than wage inflation, unemployment decreases; if both are of ‘equal strength’, then the structural Phillips Curve is vertical at the actual unemployment rate. For the details, see (2012).

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2012). Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL
Ormerod, P. (1994). The Death of Economics. London: Faber and Faber.
Phillips, A. W. (1958). The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. Economica, 25: 283–299. URL
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.
Samuelson, P. A., and Nordhaus, W. D. (1998). Economics. Boston, Burr Ridge, etc.: Irwin, McGraw-Hill, 16th edition.

***

Twitter/X May 5, 2025 Phillips' original

No religion, merely incompetence

Comment on Lars Syll on 'NAIRU — more religion than science'

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The discussion about NAIRU has always been vacuous because employment is given by the testable formula GraphicAXEC07

For the scientifically valid derivation, see (2014) or (2012).

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2012). Keynes’s Employment Function and the Gratuitous
Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL

Substandard thinkers

Comment on Lars Syll on 'Who is bullshiting who here?'

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Lars Syll writes: “Sorry, but what Krugman and Mankiw do is economics. They’re leading economists, and if you don’t like what they do, fine, but that just means there’s some aspect of economics that you don’t like. It’s silly to restrict “economics” to just the stuff you like.”

First of all, one has to distinguish between theoretical and political economics. The goal of political economics is to push an agenda, and the goal of theoretical economics is to explain how the actual economy works. In political economics anything goes; in theoretical economics, scientific standards are observed.

The core problem of economics is that the representative economist never could get out of the intellectual swamp of political economics. This is why economics is a failed science.

To say that what Krugman and Mankiw do is economics is at once true and false. It is like saying Ptolemy did astronomy. In a way, he did but only until it was found out that his epicycles were just figments of the imagination.

Krugman never realized that IS-LM is a figment of the imagination and ― worse ― that it is logically defective (2014). He obviously lacks scientific acumen. The problem is not that Krugman's economics is politically unpopular in some quarters, the problem is that it is cargo cult science.

It is a minor irritation that Krugman or Mankiw is “parading as economics.” The real embarrassment is that political economics is parading as science.

It is silly to restrict economics to what economists think is economics. Economists are in a state of manifest self-delusion (2013). As Joan Robinson said about the stuff that parades as economics: Scrap the lot and start again.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL

Prophets of Preemptive Vanitization (II)

Comment on Lars Syll on 'On abstraction and idealization in economics'

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Paul Davidson has already given the resume “To throw up one’s hand and say we can not know what will happen — is to surrender to fools!”

Of, course, science does not explain everything. Of course, there are different modes of explanation. Of course, they are legitimate. Why? Because we are in a trial-and-error process. That means, we have a distinct feeling that known answers are unsatisfactory or false. And we have a distinct feeling that there must be better answers. This, in a nutshell, is the scientific stance.

Not all people share this stance. They need not! The curious thing is: Why do these people climb on a soapbox and do not get tired of telling everyone that the real world is fuzzy, vague, indeterminate, complex, that there is no absolute knowledge, that there are undecidable questions, that something cannot be done, that something other cannot be known in principle, that nobody can predict the path of a flying feather, and — finally — that they have no clue either.

I leave it to anybody’s guess why these people climb on a soapbox. Suffice it to say that they contribute nothing to science because science is concerned with questions that — with a positive probability — do have a definite answer that satisfies the criteria of material and formal consistency. The rest is for the birds.

The crucial point is: Science does not explain everything, but non-science explains nothing.

Trivially true, we cannot know everything, but from this does not follow that we cannot know something. It is this Something that science is all about, and it this Something that theoretical economics is all about.

In economics, we face a specific problem: there is theoretical and political economics. The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works. From the viewpoint of science political economics as a whole is a no-go. The first problem of economics is that many economists are not scientists but agenda pushers of one sort or another.

Because of this, the argument of complexity, inconclusiveness, incompleteness, or futility means something different in economics than Socrates's 'I know that I know nothing' or Newton's 'playing on the sea-shore ... whilst the great ocean of truth lay all undiscovered before me'.

It is worth recalling that Hayek has recruited Socrates for his own agenda with the well-known argument that because the market system is so complex and we cannot know much about it all government action is futile and therefore all should be left to the invisible hand of the market. And it is quite consequent indeed that Hayek dismissed science as scientism. He simply let the key vanish from sight. If you know nothing, you cannot do anything.

All this is perfectly legitimate in the context of political economics. What has to be emphasized, though, is that political economics is scientifically worthless.

And at this juncture, things become a bit absurd. A heterodox economist simply cannot say all is so complex and we cannot be sure of anything and that empirical tests are inconclusive and that the axiomatic-deductive method is inapplicable in economics. Because in this case, all he has to say is: I do not like orthodox economics. This may be politically relevant but it is of no scientific consequence.

From the fact that abstraction, idealization, or the axiomatic-deductive method have been misapplied by Orthodoxy follows only that the representative economist is scientifically incompetent. It does not follow that abstraction, idealization, or the axiomatic-deductive method cannot or should not be applied by heterodox economists.

Just the contrary, or, in Paul Davidson's words: not to apply them is to surrender to fools.


Egmont Kakarot-Handtke