Comment on ‘The Fed Must Banish the 1970’s Inflation Devil’
Blog-Reference
The question is about the relationship between average price, employment, average wage rate, average productivity, total demand, and quantity of money. This relationship has been discussed extensively in the 70s under the heading Phillips curve, but never solved.
The testable relationship between the aforesaid variables is given with Graphic AXEC46. The theoretical underpinning is given here (2012; 2014). The two working papers also make it understandable why the representative economist cannot do anything but senselessly repeat his well-trodden path on the Econ 101 Möbius strip. Better the Fed banishes this guy first.
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
September 9, 2015
September 8, 2015
Lack of understanding
Comment on David Beckworth on ‘Revealed Preferences: Fed Inflation Target Edition’
Blog-Reference
You quote: “A recent Wall Street Journal article reporting from the Jackson Hole Fed meetings led with this opening sentence: ‘central bankers aren't sure they understand how inflation works anymore’."
The fact of the matter is that central bankers never really understood inflation. This was not a problem, however, as long as their naive quantity theory seemed to work. We know from the history of science that false theories — e.g., Aristotle’s theory of motion — work satisfactorily in everyday situations. Most of the time, the falseness of false theories is invisible to the naked eye.
The current economic situation is a clear refutation of both the commonplace employment and quantity theory. The core of the unemployment/deflation problem is that the price mechanism does not work as standard economics suggests.
This theory failure cannot be overcome by speculation about the Fed’s motives. This second-guessing invariably ends with the aha-insight ‘they’ serve themselves or their buddies.
This misplaced psychologism obviously cannot explain inflation/deflation. Science works differently. The correct formula for the market-clearing price in the simplified consumption good industry is shown with Graphic AXEC41.
Roughly, the formula says that the consumer price index declines if (i) the average expenditure ratio falls, (ii) the wage rate falls, (iii) the productivity increases, and (iv) the employment in the investment good industry shrinks relative to the employment in the consumption goods industry. The formula follows from (2014, Sec. 5).
The crucial message is that the wage rate is the nominal numéraire of the price system. If at all, the quantity of money plays an indirect role via the expenditure ratio and the employment relation of the investment good and the consumption good industry.
The rule of thumb says: if wage increases for the business sector as a whole lag behind productivity increases, deflation occurs (the rest of the price formula kept constant).
Science is not about producing pointless behavioral speculation but about producing testable systemic laws. This is how economists could really help the clueless Fed to understand inflation/deflation better.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Blog-Reference
You quote: “A recent Wall Street Journal article reporting from the Jackson Hole Fed meetings led with this opening sentence: ‘central bankers aren't sure they understand how inflation works anymore’."
The fact of the matter is that central bankers never really understood inflation. This was not a problem, however, as long as their naive quantity theory seemed to work. We know from the history of science that false theories — e.g., Aristotle’s theory of motion — work satisfactorily in everyday situations. Most of the time, the falseness of false theories is invisible to the naked eye.
The current economic situation is a clear refutation of both the commonplace employment and quantity theory. The core of the unemployment/deflation problem is that the price mechanism does not work as standard economics suggests.
This theory failure cannot be overcome by speculation about the Fed’s motives. This second-guessing invariably ends with the aha-insight ‘they’ serve themselves or their buddies.
This misplaced psychologism obviously cannot explain inflation/deflation. Science works differently. The correct formula for the market-clearing price in the simplified consumption good industry is shown with Graphic AXEC41.
Roughly, the formula says that the consumer price index declines if (i) the average expenditure ratio falls, (ii) the wage rate falls, (iii) the productivity increases, and (iv) the employment in the investment good industry shrinks relative to the employment in the consumption goods industry. The formula follows from (2014, Sec. 5).
The crucial message is that the wage rate is the nominal numéraire of the price system. If at all, the quantity of money plays an indirect role via the expenditure ratio and the employment relation of the investment good and the consumption good industry.
The rule of thumb says: if wage increases for the business sector as a whole lag behind productivity increases, deflation occurs (the rest of the price formula kept constant).
Science is not about producing pointless behavioral speculation but about producing testable systemic laws. This is how economists could really help the clueless Fed to understand inflation/deflation better.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Trapped in false alternatives
Comment on ‘Validity is NOT enough’
Blog-Reference
It is not such a big mystery why economics is a failed science. The IT-crowd aptly sloganized the explanation with garbage-in-garbage-out, that is to say in more general terms, if the premises are false the result will be false even if the reasoning between premises and conclusions is impeccable. It is pretty obvious that standard economics is based on nonenties (utility, expected utility, rationality, equilibrium, constrained optimization, well-behaved production functions, etcetera). Nothing of scientific value will ever follow from these premises.
In order to make progress the nonentities have to be replaced with something that has a correspondence in the real world. There is no choice between valid evidence and sound evidence and there is no trade-off between empiricism and deductivism. Both are needed, and both have been thoroughly misunderstood throughout history.
One of the best examples of idiotic empiricism has been given by Bacon: “Bacon, the philosopher of science, was, quite consistently, an enemy of the Copernican hypothesis. Don’t theorize, he said, but open your eyes and observe without prejudice, and you cannot doubt that the Sun moves and that the Earth is at rest.” (Popper, 1994, p. 84)
On the other hand, one of the best examples of idiotic deductivism is to be found in economics and has been delivered by Debreu’s General Equilibrium Theory.
The pitfalls of methodological argument are twofold:
(i) Sound empiricism, e.g. Tycho Brahe, has been played against idiotic deductivism.
(ii) Genial deductivism, e.g. Euler, Newton, Einstein, has been played against idiotic empiricism.
Unfortunately, traditional Heterodoxy has not manged to get out of this quagmire of false alternatives.
What should be evident by now to every economist is that science is not defined by either/or but by the synthesis of sound empiricism and genial deductivism. The hallmark of economics is that it lacks both.
Egmont Kakarot-Handtke
References
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Science: Problems, Aims, Responsibilities, pages 82–111. London, New York, NY: Routledge.
Blog-Reference
It is not such a big mystery why economics is a failed science. The IT-crowd aptly sloganized the explanation with garbage-in-garbage-out, that is to say in more general terms, if the premises are false the result will be false even if the reasoning between premises and conclusions is impeccable. It is pretty obvious that standard economics is based on nonenties (utility, expected utility, rationality, equilibrium, constrained optimization, well-behaved production functions, etcetera). Nothing of scientific value will ever follow from these premises.
In order to make progress the nonentities have to be replaced with something that has a correspondence in the real world. There is no choice between valid evidence and sound evidence and there is no trade-off between empiricism and deductivism. Both are needed, and both have been thoroughly misunderstood throughout history.
One of the best examples of idiotic empiricism has been given by Bacon: “Bacon, the philosopher of science, was, quite consistently, an enemy of the Copernican hypothesis. Don’t theorize, he said, but open your eyes and observe without prejudice, and you cannot doubt that the Sun moves and that the Earth is at rest.” (Popper, 1994, p. 84)
On the other hand, one of the best examples of idiotic deductivism is to be found in economics and has been delivered by Debreu’s General Equilibrium Theory.
The pitfalls of methodological argument are twofold:
(i) Sound empiricism, e.g. Tycho Brahe, has been played against idiotic deductivism.
(ii) Genial deductivism, e.g. Euler, Newton, Einstein, has been played against idiotic empiricism.
Unfortunately, traditional Heterodoxy has not manged to get out of this quagmire of false alternatives.
What should be evident by now to every economist is that science is not defined by either/or but by the synthesis of sound empiricism and genial deductivism. The hallmark of economics is that it lacks both.
Egmont Kakarot-Handtke
References
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Science: Problems, Aims, Responsibilities, pages 82–111. London, New York, NY: Routledge.
September 7, 2015
Confounding Is and Ought: the economist as moralist
Comment on Robert Reich on ‘What Happened to the Moral Center of American Capitalism?’
Blog-Reference
What is the proper job of the economist qua scientist? “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (Mill, 2006, p. 950)
The economist qua scientist brings knowledge to the table, not his personal opinion. It is the legitimate political institution that determines the political ends. This is the Ought-part, science is concerned exclusively with the Is-part of reality. The Is/Ought difference is reasonably clear since Hume but, beginning with Adam Smith, it has been mostly ignored by economists.
However, for science this difference is fundamental. Moralizing and scientific discourse are strictly antithetical. Economists never got the point. “Economists think of themselves as scientists, but ... they are more like theologians.” (Nelson, 2006, p. xv)
Economics is a failed science because moralists always outnumbered genuine enquirers. “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack, 1997, p. 1)
The economist who moralizes and politicizes is out of science. As Keen put it: “Even some of the most committed economists have conceded that, if economics is to become less of a religion and more of a science, then the foundations of economics should be torn down and replaced.” (2011, p. 35)
A moralizing economist is a living proof that scientific ethics, which consists of never trespassing the demarcation line between Is and Ought, is desperately lacking.
Egmont Kakarot-Handtke
References
Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania: Pennsylvania State University Press.
Related 'Scientific suicide in the revolving door' and 'When fake scientists call out on fake politicians' and 'Economics and corruption' and 'FakeNews, FakeScience: economics in the information age' and 'How economists murdered the economy and got away with it' and 'Krugman and the scientific implosion of economics' and 'On economists’ stupidity' and 'Economists’ proto-scientific shell games'
“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)
It is widely known that economists still lack the true theory and from this follows de facto that it is beyond their means to offer scientifically valid advice. Strictly speaking, scientific ethics is not yet an issue for economists because economics has not risen above the proto-scientific level.
The idea, for example, that Hayek gave Mrs. Thatcher scientific advice is of unsurpassable silliness. Things have not improved since then.
Blog-Reference
What is the proper job of the economist qua scientist? “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (Mill, 2006, p. 950)
The economist qua scientist brings knowledge to the table, not his personal opinion. It is the legitimate political institution that determines the political ends. This is the Ought-part, science is concerned exclusively with the Is-part of reality. The Is/Ought difference is reasonably clear since Hume but, beginning with Adam Smith, it has been mostly ignored by economists.
However, for science this difference is fundamental. Moralizing and scientific discourse are strictly antithetical. Economists never got the point. “Economists think of themselves as scientists, but ... they are more like theologians.” (Nelson, 2006, p. xv)
Economics is a failed science because moralists always outnumbered genuine enquirers. “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack, 1997, p. 1)
The economist who moralizes and politicizes is out of science. As Keen put it: “Even some of the most committed economists have conceded that, if economics is to become less of a religion and more of a science, then the foundations of economics should be torn down and replaced.” (2011, p. 35)
A moralizing economist is a living proof that scientific ethics, which consists of never trespassing the demarcation line between Is and Ought, is desperately lacking.
Egmont Kakarot-Handtke
References
Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania: Pennsylvania State University Press.
Related 'Scientific suicide in the revolving door' and 'When fake scientists call out on fake politicians' and 'Economics and corruption' and 'FakeNews, FakeScience: economics in the information age' and 'How economists murdered the economy and got away with it' and 'Krugman and the scientific implosion of economics' and 'On economists’ stupidity' and 'Economists’ proto-scientific shell games'
***
ICYMI (DrDick, September 7)“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)
It is widely known that economists still lack the true theory and from this follows de facto that it is beyond their means to offer scientifically valid advice. Strictly speaking, scientific ethics is not yet an issue for economists because economics has not risen above the proto-scientific level.
The idea, for example, that Hayek gave Mrs. Thatcher scientific advice is of unsurpassable silliness. Things have not improved since then.
September 5, 2015
Deflation? Oops, price theory, too, is wrong
Comment on ‘Deflation and Money’
Blog-Reference
The current economic situation is a clear refutation of both the commonplace employment and quantity theories. The core of the unemployment/deflation problem is that the price mechanism does not work as standard economics claims.
The correct formula for the market-clearing price in the simplified consumption good industry is shown with Graphic AXEC41
Roughly, the formula says that the consumer price index declines if (i) the average expenditure ratio falls, (ii) the wage rate falls, (iii) the productivity increases, and (iv) the employment in the investment good industry shrinks relative to the employment in the consumer goods industry. The formula follows from (2014, Sec. 5). The more differentiated and therefore better testable formula is given with Graphic AXEC39
Blog-Reference
The current economic situation is a clear refutation of both the commonplace employment and quantity theories. The core of the unemployment/deflation problem is that the price mechanism does not work as standard economics claims.
The correct formula for the market-clearing price in the simplified consumption good industry is shown with Graphic AXEC41
Roughly, the formula says that the consumer price index declines if (i) the average expenditure ratio falls, (ii) the wage rate falls, (iii) the productivity increases, and (iv) the employment in the investment good industry shrinks relative to the employment in the consumer goods industry. The formula follows from (2014, Sec. 5). The more differentiated and therefore better testable formula is given with Graphic AXEC39
The crucial message is that the wage rate is the numéraire of the price system. If at all, the quantity of money plays an indirect role via the expenditure ratio and the employment relation of the investment good and the consumption good industry.
The rule of thumb says: if wage increases for the business sector as a whole lag behind productivity increases, deflation occurs (the rest of the formula kept constant for the moment).
For the rectification of the naive quantity theory, see (2011) (I)/(II).
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Economists still do not understand how the price mechanism works. No surprise after endless repetition of the silly supply-demand-equilibrium model. The pivotal relationship is given by the relative changes of average price/wage/productivity. These changes should secure full employment if the standard price theory were correct. It never was. The current unemployment/deflation situation is the mirror image of the unemployment/inflation situation of the ’70s. After New Classicals and New Keynesians have long enough fooled around, it is now high time to finally solve the Phillips curve puzzle. See Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster.
The effective alternative to monetary and fiscal policy fixes is to put the price mechanism to work.
The rule of thumb says: if wage increases for the business sector as a whole lag behind productivity increases, deflation occurs (the rest of the formula kept constant for the moment).
For the rectification of the naive quantity theory, see (2011) (I)/(II).
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
***
ICYMI (September 7)Economists still do not understand how the price mechanism works. No surprise after endless repetition of the silly supply-demand-equilibrium model. The pivotal relationship is given by the relative changes of average price/wage/productivity. These changes should secure full employment if the standard price theory were correct. It never was. The current unemployment/deflation situation is the mirror image of the unemployment/inflation situation of the ’70s. After New Classicals and New Keynesians have long enough fooled around, it is now high time to finally solve the Phillips curve puzzle. See Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster.
The effective alternative to monetary and fiscal policy fixes is to put the price mechanism to work.
September 4, 2015
Time to get rid of political economics
Comment on Peter Radford on ‘Libertarian Economics’
Blog-Reference
You say: “The libertarian worldview thus infects economics thoroughly. And it also means that much of economics is not scientific in the sense that it tries to understand aspects of reality, but is rather ideological in that it tries to advocate a particular way of organizing society.” (See intro)
Indeed, it is of utmost importance to distinguish between political and theoretical economics. The main differences are:
(i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works.
(ii) In political economics anything goes; in theoretical economics, scientific standards are observed.
Theoretical economics has to be judged according to the criteria true/false and nothing else. The history of political economics, on the other hand, can be summarized as the perpetual violation of well-defined and crystal-clear scientific standards.
The fact of the matter is that theoretical economics has from the very beginning been dominated by the agenda pushers of political economics. Smith and Mill defined themselves as political and fought against the feudal order, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Keen.
Political economists of all stripes are characterized by three common traits:
(i) They are mainly occupied with sociology, psychology, anthropology, political science, history, that is, with explaining reality by second-guessing the motives of agents. By consequence, they miss the essentials of economics proper, i.e. the objective systemic relations.
(ii) They use theoretical economics as a means/support for their agenda. By this, they abuse science.
(iii) As far as they have tried to underpin their agenda theoretically it can be rigorously demonstrated in each case that their approaches lack formal and material consistency.
It is not decisive what the political agenda is: all of political economics is worthless cargo cult science (Feynman).
Ask yourself: when Krugman supports the Democrats, when Wren-Lewis and Keen support Corbyn, when Varoufakis fights for democratizing the Eurozone, has this anything to do with scientific research? Just the contrary, as Marx well knew.
“In the domain of Political Economy, free scientific enquiry meets not merely the same enemies as in all other domains. The peculiar nature of the material it deals with, summons as foes into the field of battle the most violent, mean and malignant passions of the human breast, the Furies of private interest.” (1906, M.10)
In economics, it is even more important than in other disciplines to realize that politics and science do not go together. Heterodoxy has this choice: to fight Orthodoxy politically, i.e. to become/join/support a party, or to refute and replace Orthodoxy by the true economic theory.
There is nothing to choose between the ‘Libertarian’ Hayek and the ‘Statist’ Keynes: both were incompetent scientists and this holds for their followers until this very day.
Egmont Kakarot-Handtke
References
Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty. URL
If you want to go to Mars the precondition is that you get your physics right first. If you want to solve the problem of unemployment or poverty the precondition is that you get your economics right. It is as simple as that.
Economics is a laughing stock because it claims to know how overall welfare can be achieved while it is pretty obvious that already supply-demand-equilibrium is a logically defective construct.
Because the theory of the interaction of markets (known as general equilibrium theory) is false, the labor market theory is false by implication. That is, economists bear the intellectual responsibility for the socially devastating unemployment during the Great Depression and for the currently worsening unemployment/deflation situation.
Economics is a failed science and because of this, the best contribution to human welfare economists can make at the moment is to get out of political blather and to do proper science. They are late by more than 200 years.
See also The case for pure economics.
Blog-Reference
You say: “The libertarian worldview thus infects economics thoroughly. And it also means that much of economics is not scientific in the sense that it tries to understand aspects of reality, but is rather ideological in that it tries to advocate a particular way of organizing society.” (See intro)
Indeed, it is of utmost importance to distinguish between political and theoretical economics. The main differences are:
(i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works.
(ii) In political economics anything goes; in theoretical economics, scientific standards are observed.
Theoretical economics has to be judged according to the criteria true/false and nothing else. The history of political economics, on the other hand, can be summarized as the perpetual violation of well-defined and crystal-clear scientific standards.
The fact of the matter is that theoretical economics has from the very beginning been dominated by the agenda pushers of political economics. Smith and Mill defined themselves as political and fought against the feudal order, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Keen.
Political economists of all stripes are characterized by three common traits:
(i) They are mainly occupied with sociology, psychology, anthropology, political science, history, that is, with explaining reality by second-guessing the motives of agents. By consequence, they miss the essentials of economics proper, i.e. the objective systemic relations.
(ii) They use theoretical economics as a means/support for their agenda. By this, they abuse science.
(iii) As far as they have tried to underpin their agenda theoretically it can be rigorously demonstrated in each case that their approaches lack formal and material consistency.
It is not decisive what the political agenda is: all of political economics is worthless cargo cult science (Feynman).
Ask yourself: when Krugman supports the Democrats, when Wren-Lewis and Keen support Corbyn, when Varoufakis fights for democratizing the Eurozone, has this anything to do with scientific research? Just the contrary, as Marx well knew.
“In the domain of Political Economy, free scientific enquiry meets not merely the same enemies as in all other domains. The peculiar nature of the material it deals with, summons as foes into the field of battle the most violent, mean and malignant passions of the human breast, the Furies of private interest.” (1906, M.10)
In economics, it is even more important than in other disciplines to realize that politics and science do not go together. Heterodoxy has this choice: to fight Orthodoxy politically, i.e. to become/join/support a party, or to refute and replace Orthodoxy by the true economic theory.
There is nothing to choose between the ‘Libertarian’ Hayek and the ‘Statist’ Keynes: both were incompetent scientists and this holds for their followers until this very day.
Egmont Kakarot-Handtke
References
Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty. URL
***
ICYMI (John McDonald, September 5)If you want to go to Mars the precondition is that you get your physics right first. If you want to solve the problem of unemployment or poverty the precondition is that you get your economics right. It is as simple as that.
Economics is a laughing stock because it claims to know how overall welfare can be achieved while it is pretty obvious that already supply-demand-equilibrium is a logically defective construct.
Because the theory of the interaction of markets (known as general equilibrium theory) is false, the labor market theory is false by implication. That is, economists bear the intellectual responsibility for the socially devastating unemployment during the Great Depression and for the currently worsening unemployment/deflation situation.
Economics is a failed science and because of this, the best contribution to human welfare economists can make at the moment is to get out of political blather and to do proper science. They are late by more than 200 years.
See also The case for pure economics.
DSGE is just another perpetual motion machine
Comment on Wim Nusselder on ‘The day macroeconomics changed’
Blog-Reference
Your fundamental error consists in the commonsensical intuition that economics is first and foremost about human behavior. The representative economist simply cannot get his head around the fact that economics is about the behavior of the economic system.
No way leads from the understanding of human behavior to the understanding of how the actual economy works. Standard economics is a manifest failure and the ultimate methodological reason is that it is built upon false premises.
All theories/models that take one or more of the following concepts into the premises are scientifically worthless: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity. All these items are economic NONENTITIES.
From an economist who accepts one of these NONENTITIES, nothing of scientific value is to be expected. DSGE is caught in the proto-scientific cul-de-sac. To discuss its technical details is not any better than to discuss the mechanics of just another perpetual motion machine. Real scientists refuse to do this because they know for sure that this thing cannot work in principle.
Egmont Kakarot-Handtke
Related 'Much change, no progress'.
Blog-Reference
Your fundamental error consists in the commonsensical intuition that economics is first and foremost about human behavior. The representative economist simply cannot get his head around the fact that economics is about the behavior of the economic system.
No way leads from the understanding of human behavior to the understanding of how the actual economy works. Standard economics is a manifest failure and the ultimate methodological reason is that it is built upon false premises.
All theories/models that take one or more of the following concepts into the premises are scientifically worthless: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity. All these items are economic NONENTITIES.
From an economist who accepts one of these NONENTITIES, nothing of scientific value is to be expected. DSGE is caught in the proto-scientific cul-de-sac. To discuss its technical details is not any better than to discuss the mechanics of just another perpetual motion machine. Real scientists refuse to do this because they know for sure that this thing cannot work in principle.
Egmont Kakarot-Handtke
Related 'Much change, no progress'.
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