Separation of politics and economics

Comment on Blissex on ‘Euro — the antithesis of democracy’

Blog-Reference

“To be sure, economics may perform a valuable social role without adding any significant understanding to knowledge of the economy — a “good myth,” economically speaking, can work not only in primitive tribal cultures but also in modern societies. ... Indeed, ... the religious function may have been the most important role throughout the history of modern economics since the Enlightenment.” (Nelson, 2006, pp. 300-301)

We had the separation of church and state; what is needed next is the separation of politics and economics.

The task of the economist is to figure out how the actual Economy works, just like the physicist figures out how Nature works. What the economist has first of all to do is to take an objective observer standpoint — as far as possible. This is not compatible with taking a political side.

I am, of course, not against taking a political side. What I emphasize is that it is humanly impossible to do politics and science simultaneously. Because of this, institutional separation is necessary.

I have no trouble acknowledging that, for example, Hayek has the right to write political pamphlets, defend Capitalism, support Thatcher, and found a political club as he did with the Mont Pèlerin Society (MPS). What I say is, the moment he or any other economist starts with politics, the same moment he leaves economics understood as a science for good. It is the mixture that is toxic. Independent of this, Hayek is simply unacceptable as an economist. His economics is proto-scientific garbage.

You cite many cases of economists involved simultaneously in academia/business/politics that simply are not compatible with scientific ethics. Now, I cannot check them and, most importantly, I do not want to occupy myself with corrupt people in science, politics, business, and elsewhere. Something went wrong with these institutions; that much is clear at the moment. A lot of corruption fighters are needed; that much is also clear. Finally, a lot of institution-builders are needed, obviously. But the rest is hanging in the air at the moment.

This is why I urge heterodox economists not to become redundant quacking frogs in the swamp of political economics but instead to focus on economics as a science. The first step is to refute political economists according to well-defined scientific rules. As Feynman put it: "So we really ought to look into theories that don't work, and science that isn't science." (1974, p. 11) #1

Orthodox economics is scientifically substandard. Heterodoxy is not any better. There is much opportunity to develop something better.

Egmont Kakarot-Handtke


References
Feynman, R. P. (1974). Cargo Cult Science. Engineering and Science, 37(7): 10–13. URL
Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania: Pennsylvania State University Press.

#1 The Farce That Is Economics: Richard Feynman On The Social Sciences

For more about the separation of science and politics, see AXECquery.

***

Graphic AXEC166a

***

Twitter/X Sep 11, 2024, The separation of science and politics is gaining ground

How to get out of psychology/sociology/wish-wash

Comment on Bruce Edmond on ‘Economic Value is NOT Price’

Blog-Reference

At the end of the day, value theory has to explain the exchange value expressed as the price relation P₁/P₂, P₁/P₃, and so on. This is what can be observed and measured with the precision of two decimal places.

Somehow, the agent must translate preferences, utility, expectations, targets, physical needs, budget restrictions, cultural norms, and what not into a subjective valuation price which is comparable with the market price and this helps him to decide whether to buy/sell or not. This process of translation is opaque. We can only speculate about it or turn to introspection. All this psychologism is a waste of time for the economist. Nothing useful follows from this exercise.

Prices and exchange relations are an objective result of all interactions of the whole economy including production.

The first important distinction for value theory is between primary and secondary markets (2011a). Already at this juncture neoclassical theory and all subjective value theories run into the wrong direction.

For the most elementary economic configuration exchange value is given by P1/P2=R2/R1, that is, the price relation is the inverse of the productivity relation. This is an objective and testable proposition. It can be generalized to the price structure, i.e. relative prices, are determined by the productivity structure. To recall, this holds for the most elementary economic configuration (2014; 2011b).

The beauty of this solution is that there is absolutely no need to speculate further about what goes on in the agents' brains. It has long been known that this leads to nowhere.

“It is possibly very encouraging for the economist to hear that compared with the natural scientist the psychological method saves him “ages of laborious research” but it is curious and a pity that this huge start has not enabled him to formulate any considerable body of reliable prognoses such as the natural sciences have managed to achieve.” (Hutchison, 1960, p. 132)

The structural-axiomatic approach yields a testable proposition. So, let us get out of wish-wash and proceed to testing.

Egmont Kakarot-Handtke


References
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York, NY: Kelley.
Kakarot-Handtke, E. (2011a). Primary and Secondary Markets. SSRN Working Paper Series, 1917012: 1–26. URL
Kakarot-Handtke, E. (2011b). The Pure Logic of Value, Profit, Interest. SSRN Working Paper Series, 1838203: 1–27. URL
Kakarot-Handtke, E. (2014). The Logic of Value and the Value of Logic. SSRN Working Paper Series, 2399550: 1–20. URL

In science, NO is the answer

Comment on Paul Schächterle on ‘In Greece, NO is the answer’

Blog-Reference

OK then, here is my final comment.

You say: “The collection of knowledge about particular facts *is* part of science. On what basis could you otherwise come up with theory?”

Yes, this is an essential part of science, and I never characterized science as a fact-free armchair fantasy. I agree with you that utility theory is a fact-free armchair fantasy, and general equilibrium theory, too, and DSGE, and so on. That is why Orthodoxy is not a science.

But a scientific fact is not what you get by simply looking out of the window or into the newspaper. The physicists never saw a quant but arrived at this ultimate reality by a long, long chain of theoretical reasoning. So you need a theory to get hold of reality. You cannot ‘see’ the economy without a theory.

This is what J. S. Mill told economists. “Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the social science, while we look at the facts in the concrete, clothed in all the complexity with which nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details; there remains no other method than the à priori one, or that of ‘abstract speculation’.” (Mill, 1874, V.55)

And this is what Popper said. “Indeed, there is no such thing as an uninterpreted observation, an observation which is not theory-impregnated.” (Popper, 1994, p. 58)

And this is what Marx already knew: "That in their appearance things often represent themselves in inverted form is pretty well known in every science except political economy.” (Marx, 1906, VI.XIX.7)

So, what we can agree upon about Orthodoxy and Heterodoxy and political economics is this: “If one takes seriously what Popper says about falsifiability and the critical attitude, then the methodological practice of economics is not only mistaken, it is stupid and intellectually reprehensible.” (Hausman, 1992, p. 275)

Is this acceptable to an economist with a scientific conscience? NO is the answer!

Egmont Kakarot-Handtke

References
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality, Ch. Science: Problems, Aims, Responsibilities, 82–111. London, New York: Routledge.

Regarding politics, see also here and here

Heterodoxy's big fat Greek error

Comment on Paul Schächterle on ‘In Greece, NO is the answer’

Blog-Reference

You say: “I am by no means against theorising as a part of an economic science.”

Theorizing is not a nice add-on, it is the very task of science. What we expect from physics is the correct theory of how Nature works, from the universe down to the smallest particle. Along the same line, we expect from economics the correct theory of how the economy works. Theory is not some exotic and inconsequential speculation, it is the incorporation of knowledge — the best thing we can achieve as humans.

The situation in economics is this: what has been produced in the last 200+ years has objectively not much scientific value. Take Newton and Smith as the baseline, then physics has arrived in the meantime at quantum theory while economics has not even produced something like the law of the lever.

Could economists have been too much occupied with playing political games and writing pamphlets instead of doing serious scientific work?

The crucial point is this: “Whatever knowledge we possess is either knowledge of particular facts or scientific knowledge.” (Russel, 1961, p. 620)

What you can learn in business schools and most universities is knowledge of particular facts, eg. how the Federal Reserve System or the gold standard works. This is all good and fine and useful but it is not science.

Heterodoxy criticizes Orthodoxy, and rightfully so. But here care has to be taken. Is it on political grounds or on scientific grounds?

My point is that both Orthodoxy and Heterodoxy are mired in political agenda-pushing. What they have both produced so far is good political ammunition = bad proto-scientific garbage.

In my view, Heterodoxy is not another political movement, nor a charity for the Greeks that suffer much from financial deficits but most from deficiencies in institution-building which cannot be repaired by throwing money at it. In my view, Heterodoxy's task is to get economics out of the political swamp and to make it a science.

You say “I mean, we should try, but we should not see it as an easy task.”

No, it's not easy — to become another quacking frog in the swamp is much easier.

Egmont Kakarot-Handtke


References
Russel, B. (1961). The Basic Writings of Bertrand Russel, chapter Limitations of Scientific Method, 620–627. London: Routledge.

Beware of the 9th circle

Comment on Paul Schächterle on ‘In Greece, NO is the answer’

Blog-Reference

(i) I agree about the “unfortunate way that neoclassical economists actually do make politics by giving advice towards a very specific and highly disputed set of policies, but hide their political attitudes and beliefs behind a veil of pseudo-science.”

If there is a scientific analogon to Dante's Inferno all political economists will eventually meet again in the 9th circle.

(ii) The Greek referendum was a political manifestation and has to be accepted as such. It compares directly to political manifestations of the other European democracies which are uncomprehending.

(iii) When I speak of economic laws I clearly do not mean man-made laws but objective and testable structural laws. I agree, of course, that in economics any silly behavioral assertion is illegitimately advertised as a law.

(iv) You say “those well-defined scientific criteria *is* a somewhat political question.” That criteria are to some extent negotiable is, in fact, the representative economist's greatest self-delusion. The scientific criteria are material and logical consistency. And there is absolutely no way around this. There is true/false and nothing in-between. Economists know that neither Walrasianism nor Keynesianism nor the rest satisfies these criteria.

“... suppose they [the economists] did reject all theories that were empirically falsified ... Nothing would be left standing; there would be no economics.” (Hands, 2001, p. 404)

Because of this, economists have moved from science's true/false to Hollywood's good guy/bad guy. Actually, that's more fun for all.

(v) The task of Heterodoxy is to refute Orthodoxy according to well-defined scientific rules and not to complain about political bias. It is too easy to return this compliment and thus all ends with the pluralism of false theories and the uneasy coexistence of confused confusers.

Economics has to get out of politics before it drowns with it in idiocy. Better one iota of knowledge than a heap of opinion.

Egmont Kakarot-Handtke


References
Hands, D.W. (2001). Reflection without Rules. Economic Methodology and Contemporary
Science Theory. Cambridge, New York, etc: Cambridge University Press.

True/false is different from good/bad

Comment on merijnknibbe on ‘In Greece, NO is the answer’

Blog-Reference

Yes, the Classics called themselves political economists. But at the same time, they claimed to do science, even Marx, who arguably was the most political of all political economists. This is where schizophrenia started. However, as the quote from J. S. Mill shows, it was quite clear from the very beginning what it meant to be an economist who is committed to science.

Economics has been, but is no longer, about the economy of the polis. Nowadays, it is about the world economy. Because of this, there is no such thing as American, European, or Greek economics as there is no American, European, or Greek physics or mathematics. Economic laws apply everywhere.

Of course, economics is intertwined with politics. As a matter of fact, political economics has hijacked theoretical economics. The conclusion from this is that economics has to emancipate itself from politics.

The only relevant criterion for economics as a science is true/false and not whether it serves any political party, social group, or nation.

To instrumentalize/weaponize economics for any power struggle, whatever is the original intellectual corruption in economics and incompatible with the ethics of science. The fact of the matter is that it is simply beyond human capacities to be a politician and a scientist at the same time. All this is long known.

“But if a man occupies himself with investigating the truth of some question for some ulterior purpose, such as to make money, or to amend his life, or to benefit his fellows, he may be ever so much better than a scientific man, if you will — to discuss that would be aside from the question — but he is not a scientific man.” (Peirce)

So, eventually, a decision has to be made. To be more precise, (i) you can look at the actual economic conditions in a country like the US or Greece and come to the conclusion that they are unacceptable for a number of good reasons and therefore have to be changed; this is a political decision, or (ii), you can look at economics and come to the conclusion that it is unacceptable according to well-defined scientific criteria and therefore has to be changed; this is a scientific decision that eventually leads to a Paradigm Shift.

What I say is that to flip-flop between the two spheres has not yielded results for over two hundred years. The proof is in the dismal state of economics as a science and of too many economies in dire straits as the inevitable practical result. The false theory makes bad policy. As economists, our task is to fix the former.

Egmont Kakarot-Handtke

***

Graphic AXEC108l

A lesson for Heterodoxy

Comment on merijnknibbe on ‘In Greece, NO is the answer’

Blog-Reference

There have been two essentially different, although intertwined, issues (i) economics, austerity, default, euro/drachma, etcetera, and (ii) democracy, independence, honor, and the European identity of the Greek people.

No doubt, good answers have to be found for both issues. The problem is that humans are serial thinkers, that is, they can tackle only one problem at a time. Because of this, political economics is an approach that almost guarantees that both issues are botched up.

Yanis Varoufakis's task as a Greek finance minister and economist has been to solve the economic problem. What he has achieved is something else: “Our NO is a majestic, big YES to a democratic, rational Europe!” (Yanis Varoufakis on Twitter 7 July 2015)

This is the perfect moment to recall what the economist's task is: “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.” (J. S. Mill)

Heterodoxy is at a crossroads and has to decide between becoming a political movement or a scientific endeavor with one and only one goal, that is, to replace Orthodoxy.

As Keynes put it: “If economists could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid!”

Seen from the perspective of science, political economics has always appeared as a rare mental disorder, that is, a constant flip-flop between two fundamentally different issues that frustrate the solution of either.

To recall, economics is a failed science.

Egmont Kakarot-Handtke