Blog-Reference
To criticize silly supply-demand-equilibrium again and again is itself silly. For the FULL REPLACEMENT of the proto-scientific nuisance see:
• Essentials of Constructive Heterodoxy: The Market
• The Law of Supply and Demand: Here It Is Finally
• How to Get Rid of Supply-Demand-Equilibrium
Egmont Kakarot-Handtke
Related 'Refutation of Asad Zaman’s heterodox methodology: all arguments you ever need' and cross-references Failure of Heterodoxy.
October 17, 2017
When non-thinkers rethink
Comment on Carola Binder on ‘Rethinking Macroeconomic Policy’
Blog-Reference and Blog-Reference and Blog-Reference on Oct 18
This is the track record of economics: provably false:
• profit theory, for 200+ years,
• Walrasian microfoundations (including equilibrium), for 150+ years,
• Keynesian macrofoundations (including I=S, IS-LM), for 80+ years.
The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of profit wrong.#1
Economics is a failed science or what Feynman called a cargo cult science: “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.”
What is entirely missing among economists is scientific competence. The familiar research programs have produced nothing but proto-scientific garbage but neither orthodox nor heterodox economists have any clue of how to get out of the mess: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
This is why rethinking-this-and-that-and-everything is all the rage.#2 It cannot produce anything worthwhile for obvious reasons. Those economists who in their Econ101 youth unthinkingly swallowed supply-demand-equilibrium, which is one the worst proto-scientific idiocies of all time, are in NO position to perform the necessary Paradigm Shift: “A new idea is extremely difficult to think of. It takes a fantastic imagination.” (Feynman)#3
Carola Binder maintains: “The fact that the conference speakers are so distinguished is both an upside and a downside. They have the greatest understanding of our current models and policies, and in many cases were central to developing them. They can rethink, because they have already thought, and moreover, they have large influence and loud platforms. But they are also quite invested in the status quo, for all they might criticize it, in a way that may prevent really radical rethinking (if it is really needed, which I’m not yet convinced of).”
Obviously, Carola Binder is still in a hallucinatory state. The only thing the Blanchard’s and Summers’ and Bernanke’s and the rest of the rethinking-macro crowd can do for the advancement of economics is to get out of the way.
Egmont Kakarot-Handtke
#1 Where modern macroeconomics went wrong
#2 New Economic Thinking, or, let’s put lipstick on the dead pig
#3 Fact of life: your econ prof is scientifically incompetent
Related 'This is New Economic Thinking? Give me a break!' and 'New Economic Thinking = old scientific garbage' and 'How to make economics a science'. For details of the big picture see cross-references New Economic Thinking.
Blog-Reference and Blog-Reference and Blog-Reference on Oct 18
This is the track record of economics: provably false:
• profit theory, for 200+ years,
• Walrasian microfoundations (including equilibrium), for 150+ years,
• Keynesian macrofoundations (including I=S, IS-LM), for 80+ years.
The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of profit wrong.#1
Economics is a failed science or what Feynman called a cargo cult science: “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.”
What is entirely missing among economists is scientific competence. The familiar research programs have produced nothing but proto-scientific garbage but neither orthodox nor heterodox economists have any clue of how to get out of the mess: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
This is why rethinking-this-and-that-and-everything is all the rage.#2 It cannot produce anything worthwhile for obvious reasons. Those economists who in their Econ101 youth unthinkingly swallowed supply-demand-equilibrium, which is one the worst proto-scientific idiocies of all time, are in NO position to perform the necessary Paradigm Shift: “A new idea is extremely difficult to think of. It takes a fantastic imagination.” (Feynman)#3
Carola Binder maintains: “The fact that the conference speakers are so distinguished is both an upside and a downside. They have the greatest understanding of our current models and policies, and in many cases were central to developing them. They can rethink, because they have already thought, and moreover, they have large influence and loud platforms. But they are also quite invested in the status quo, for all they might criticize it, in a way that may prevent really radical rethinking (if it is really needed, which I’m not yet convinced of).”
Obviously, Carola Binder is still in a hallucinatory state. The only thing the Blanchard’s and Summers’ and Bernanke’s and the rest of the rethinking-macro crowd can do for the advancement of economics is to get out of the way.
Egmont Kakarot-Handtke
#1 Where modern macroeconomics went wrong
#2 New Economic Thinking, or, let’s put lipstick on the dead pig
#3 Fact of life: your econ prof is scientifically incompetent
Related 'This is New Economic Thinking? Give me a break!' and 'New Economic Thinking = old scientific garbage' and 'How to make economics a science'. For details of the big picture see cross-references New Economic Thinking.
October 16, 2017
Proof of the inherent instability of the market economy
Comment on Simon Wren-Lewis on ‘How Neoliberals weaponise the concept of an ideal market’
Blog-Reference and Blog-Reference and Blog-Reference on Oct 17
The foundational tenet of economics is that the interaction of free markets tends, in principle, to produce an inherently stable optimal outcome with all factors fully employed or, with regard to labor, at worst ‘naturally’ unemployed.
This tenet has NEVER been proven. General Equilibrium Theory is known to be a methodological disaster, and economics is known to be in need of a Paradigm Shift: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
As a result, economic policy guidance in ALL variants between the outer right wing and outer left wing has had no sound scientific foundations for 200+ years. It can be proved that the market economy is inherently unstable.
Economics is a systems science. Accordingly, the correct approach is not microfoundations but macrofoundations.#1 The elementary version of the objective, systemic, behavior-free, macrofounded Employment Law is shown with Graphic AXEC62
From this equation follows
(i) An increase in the expenditure ratio ρE leads to higher employment L (the Greek letter ρ stands for the ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
Items (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρF, as defined in (iii), embodies the macroeconomic price mechanism. The fact is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to the average price P and productivity R, and vice versa. This is the OPPOSITE of what microfounded economics teaches: “We economists have all learned, and many of us teach, that the remedy for excess supply in any market is a reduction in price. If this is prevented by combinations in restraint of trade or by government regulations, then those impediments to competition should be removed.” (Tobin)*
This is false: a reduction of the average wage rate W in the situation of unemployment INCREASES unemployment. In general terms, at the heart of the market economy is a positive feedback loop, i.e., the very OPPOSITE of what is required for a self-adjusting system.
The lethal methodological blunder of the microfounded market theory consists of the Fallacy of Composition, i.e., the illegitimate generalization of truths that hold for one firm/market for the economy as a whole.
The free market system is neither efficient, self-adjusting, nor stable. Neoliberalism has no sound scientific foundations.
Egmont Kakarot-Handtke
#1 New Economic Thinking: the 10 crucial points
Related 'How to overcome the manifest silliness of Econ 101 and save the economy'
Blog-Reference and Blog-Reference and Blog-Reference on Oct 17
The foundational tenet of economics is that the interaction of free markets tends, in principle, to produce an inherently stable optimal outcome with all factors fully employed or, with regard to labor, at worst ‘naturally’ unemployed.
This tenet has NEVER been proven. General Equilibrium Theory is known to be a methodological disaster, and economics is known to be in need of a Paradigm Shift: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
As a result, economic policy guidance in ALL variants between the outer right wing and outer left wing has had no sound scientific foundations for 200+ years. It can be proved that the market economy is inherently unstable.
Economics is a systems science. Accordingly, the correct approach is not microfoundations but macrofoundations.#1 The elementary version of the objective, systemic, behavior-free, macrofounded Employment Law is shown with Graphic AXEC62
From this equation follows
(i) An increase in the expenditure ratio ρE leads to higher employment L (the Greek letter ρ stands for the ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
Items (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρF, as defined in (iii), embodies the macroeconomic price mechanism. The fact is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to the average price P and productivity R, and vice versa. This is the OPPOSITE of what microfounded economics teaches: “We economists have all learned, and many of us teach, that the remedy for excess supply in any market is a reduction in price. If this is prevented by combinations in restraint of trade or by government regulations, then those impediments to competition should be removed.” (Tobin)*
This is false: a reduction of the average wage rate W in the situation of unemployment INCREASES unemployment. In general terms, at the heart of the market economy is a positive feedback loop, i.e., the very OPPOSITE of what is required for a self-adjusting system.
The lethal methodological blunder of the microfounded market theory consists of the Fallacy of Composition, i.e., the illegitimate generalization of truths that hold for one firm/market for the economy as a whole.
The free market system is neither efficient, self-adjusting, nor stable. Neoliberalism has no sound scientific foundations.
Egmont Kakarot-Handtke
#1 New Economic Thinking: the 10 crucial points
Related 'How to overcome the manifest silliness of Econ 101 and save the economy'
For more about self-adjusting, see AXECquery.
* Lars P. Syll blog, James Buchanan, Wall Street Journal
***
October 14, 2017
Why does Heterodoxy not abolish the fake Nobel?
Comment on Lars Syll on ‘Thaler and behavioural economics — some critical perspectives’
Blog-Reference and Blog-Reference on Oct 15
The core message of Heterodoxy is that Orthodoxy has failed on all theoretical and empirical counts and that New Economic Thinking is required. Heterodoxy claims to be the living example of New Thinking which, however, has NOT produced the true economic theory but the pluralism of provably false theories. Worse, Heterodoxy argues that the criteria of science do not literally apply to economics as a social science and that to insist on the well-defined standards of material and formal consistency is merely physics envy.
While it is true that Orthodoxy has abysmally failed, it is important to stress that Heterodoxy, too, has achieved nothing of scientific value.#1 The simple reason is that orthodox and heterodox economists share the same mental handicap: they do not understand what science is all about. What we have underneath the conspicuous hick-hack of the diverse schools is the grand unity and solidarity of the scientifically incompetent.#2 Well knowing that economics is not a science, no economics school puts the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” in earnest into question.
What the Bank of Sweden does, though, is either (i) a self-delusional overreach, (ii) an arrogation of scientific competence, (iii) an arrogation of legitimacy, or/and (iv), a deception of the general public.
The question is, why have heterodox economists never made a serious attempt to abolish the fake Nobel which makes the ridiculous claim that economics is science[s]. There is a blatant contradiction between reality and what the Bank of Sweden declares.
The Bank of Sweden has no legitimacy whatsoever to elevate a proto-science to the status of a science. The four major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economists do not even understand the foundational concept of their subject matter, that is, macroeconomic profit. Economics is not a science, and economists are not scientists.
What neither orthodox nor heterodox economists have realized until this day is that economics is NOT a science of behavior. Behavioral Economics from Adam Smith’s Theory of Moral Sentiment to homo oeconomicus to bounded rationality to game theory to Richard Thaler’s nudge is not economics at all but the very subject matter of Sociology, Psychology, Anthropology, Political Science, History, etcetera. The subject matter of economics is the economic system.
Lars Syll entirely misses the point with his patronizing critique: “So — although it is good that people like Kahneman and Thaler are rewarded ‘Nobel prizes’ and that much of their research has vastly undermined the lure of axiomatic-deductive mainstream economics, there is still a long way to go before economics has become a truly empirical science.”
There is no other way to go for failed/fake scientists than to apply for immediate retirement. This, of course, includes the misdirected methodologist, confused blatherer, and clueless heterodox prophet Lars Syll.#3
Egmont Kakarot-Handtke
#1 Economics: 200+ years of scientific incompetence and fraud
#2 For details of the big picture see cross-references Scientific Incompetence
#3 The stupidity of Heterodoxy is the life insurance of Orthodoxy
Related 'The real problem with the economics Nobel' and 'The economics Cargo Cult Prize' and 'A social science is NOT a science but a sitcom' and 'Schizonomics' and 'There is NO such thing as an economic expert' and 'The economist as stand-up comedian' and 'Is Lars Syll’s stupidity really infinite?' and 'Legitimacy lost'. For details of the big picture see cross-references Not a Science of Behavior and cross-references Heterodoxy and cross-references Political Economics/Stupidity/Corruption.
Blog-Reference and Blog-Reference on Oct 15
The core message of Heterodoxy is that Orthodoxy has failed on all theoretical and empirical counts and that New Economic Thinking is required. Heterodoxy claims to be the living example of New Thinking which, however, has NOT produced the true economic theory but the pluralism of provably false theories. Worse, Heterodoxy argues that the criteria of science do not literally apply to economics as a social science and that to insist on the well-defined standards of material and formal consistency is merely physics envy.
While it is true that Orthodoxy has abysmally failed, it is important to stress that Heterodoxy, too, has achieved nothing of scientific value.#1 The simple reason is that orthodox and heterodox economists share the same mental handicap: they do not understand what science is all about. What we have underneath the conspicuous hick-hack of the diverse schools is the grand unity and solidarity of the scientifically incompetent.#2 Well knowing that economics is not a science, no economics school puts the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” in earnest into question.
What the Bank of Sweden does, though, is either (i) a self-delusional overreach, (ii) an arrogation of scientific competence, (iii) an arrogation of legitimacy, or/and (iv), a deception of the general public.
The question is, why have heterodox economists never made a serious attempt to abolish the fake Nobel which makes the ridiculous claim that economics is science[s]. There is a blatant contradiction between reality and what the Bank of Sweden declares.
The Bank of Sweden has no legitimacy whatsoever to elevate a proto-science to the status of a science. The four major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economists do not even understand the foundational concept of their subject matter, that is, macroeconomic profit. Economics is not a science, and economists are not scientists.
What neither orthodox nor heterodox economists have realized until this day is that economics is NOT a science of behavior. Behavioral Economics from Adam Smith’s Theory of Moral Sentiment to homo oeconomicus to bounded rationality to game theory to Richard Thaler’s nudge is not economics at all but the very subject matter of Sociology, Psychology, Anthropology, Political Science, History, etcetera. The subject matter of economics is the economic system.
Lars Syll entirely misses the point with his patronizing critique: “So — although it is good that people like Kahneman and Thaler are rewarded ‘Nobel prizes’ and that much of their research has vastly undermined the lure of axiomatic-deductive mainstream economics, there is still a long way to go before economics has become a truly empirical science.”
There is no other way to go for failed/fake scientists than to apply for immediate retirement. This, of course, includes the misdirected methodologist, confused blatherer, and clueless heterodox prophet Lars Syll.#3
Egmont Kakarot-Handtke
#1 Economics: 200+ years of scientific incompetence and fraud
#2 For details of the big picture see cross-references Scientific Incompetence
#3 The stupidity of Heterodoxy is the life insurance of Orthodoxy
Related 'The real problem with the economics Nobel' and 'The economics Cargo Cult Prize' and 'A social science is NOT a science but a sitcom' and 'Schizonomics' and 'There is NO such thing as an economic expert' and 'The economist as stand-up comedian' and 'Is Lars Syll’s stupidity really infinite?' and 'Legitimacy lost'. For details of the big picture see cross-references Not a Science of Behavior and cross-references Heterodoxy and cross-references Political Economics/Stupidity/Corruption.
October 12, 2017
The economics Cargo Cult Prize
Comment on Barkley Rosser on ‘On Richard Thaler Receiving The Nobel Prize’
Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference
Economics is a failed science, and because of this the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is an absurdity ― or worse. #1 The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.
Today’s economics is nothing but the pluralism of provably false theories or, in Feynman’s words, cargo cult science: “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.” #2
What economists have not realized to this day is that economics is NOT a science of behavior. #3, #4 Behavioral Economics from Adam Smith’s Theory of Moral Sentiment to homo oeconomicus to bounded rationality to game theory to rational expectations to Richard Thaler’s nudge is not economics at all but the very subject matter of Sociology, Psychology, Anthropology, Political Science, History, etcetera. #5 The subject matter of economics is the economic system.
The lethal defect of economics is that it is microfounded, i.e., based on behavioral axioms. Now it holds that (i) there is NO such thing as an invariant of human behavior, and (ii) NO way leads from the second-guessing of Human Nature/motives/behavior/action to the explanation of how the economic system works.
After 200+ years of behavioral economics, economists still have no idea of how the market economy works. It is common knowledge that all profit theories are defective: “A satisfactory theory of profits is still elusive.” #6
This means, to this day, neither the Walrasian, nor the Keynesian, nor the Marxian, nor the Austrian cargo cultic sect can tell what macroeconomic profit is. #7 Hence, they all fail to capture the essence of the market economy. This is not exactly a noteworthy scientific achievement of the economics profession. #8
Does the world expect economists to find out how people behave? No, this is the very job of Psychology, Sociology, Anthropology, etcetera. Does the world expect economists to figure out what profit is? Yes, of course; no philosopher, psychologist, biologist, or sociologist will ever try to figure this out.
Have economists done their proper job? No. Do economists know what profit is? No. Does behavioral economics help to find out what profit is? No.
It is not the task of economists to dabble in the so-called social sciences. The subject matter of economics is the economy. Economics is a systems science and has to be based on macrofoundations. Economists are still caught in a cargo cultic paradigm. They do not deserve any prizes but to be thrown out of science.
Egmont Kakarot-Handtke
#1 Economics: 200+ years of scientific incompetence and fraud
#2 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#3 Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
#4 For details see cross-references Not a Science of Behavior
#5 PsySoc — the scourge of economics
#6 Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online
#7 You are fired!
#8 The real problem with the economics Nobel
Related 'A social science is NOT a science but a sitcom' and 'Economic policy guidance NEVER had sound scientific foundations'
You are way behind the curve. For a quick Hudík-check, see my 2013 post Economics is NOT a science of behavior.
REPLY to Barkley Rosser on Oct 16
Economics is NOT about human behavior but about the behavior of the economic system. The lethal blunder of economics is methodological individualism which comes in many psycho-sociological flavors and constitutes as the axiom of constrained optimization the core of Orthodoxy.
Science is well-defined for 2300+ years but economists somehow did not get it: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)
Only certain knowledge (= materially/formally consistent) can be admitted to the corpus of science. And here is the crux of the so-called social sciences: “By having a vague theory it is possible to get either result. … It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (Feynman)
So, to begin with, economics cannot be built upon a behavioral axiom like constrained optimization or any other psycho-sociological premise.
This is the current state of economics: PsySoc-economists do NOT know how the economy works. Economists have not realized to this day that they are in a research program that has already been dead in the cradle: “Indeed, Alexander Rosenberg maintains that there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman)
What have economists contributed to the trash heap of the so-called social sciences? Utility maximization, bounded rationality, game theory, rational expectations, and so on to Behavioral Economics.
What the blathering dilettantes of PsySoc and soapbox economics cannot and do not grasp is: If it isn’t macro-axiomatized, it isn’t economics. And because of this proven incompetence, they have to be expelled from the sciences.
Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference
Economics is a failed science, and because of this the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is an absurdity ― or worse. #1 The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.
Today’s economics is nothing but the pluralism of provably false theories or, in Feynman’s words, cargo cult science: “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.” #2
What economists have not realized to this day is that economics is NOT a science of behavior. #3, #4 Behavioral Economics from Adam Smith’s Theory of Moral Sentiment to homo oeconomicus to bounded rationality to game theory to rational expectations to Richard Thaler’s nudge is not economics at all but the very subject matter of Sociology, Psychology, Anthropology, Political Science, History, etcetera. #5 The subject matter of economics is the economic system.
The lethal defect of economics is that it is microfounded, i.e., based on behavioral axioms. Now it holds that (i) there is NO such thing as an invariant of human behavior, and (ii) NO way leads from the second-guessing of Human Nature/motives/behavior/action to the explanation of how the economic system works.
After 200+ years of behavioral economics, economists still have no idea of how the market economy works. It is common knowledge that all profit theories are defective: “A satisfactory theory of profits is still elusive.” #6
This means, to this day, neither the Walrasian, nor the Keynesian, nor the Marxian, nor the Austrian cargo cultic sect can tell what macroeconomic profit is. #7 Hence, they all fail to capture the essence of the market economy. This is not exactly a noteworthy scientific achievement of the economics profession. #8
Does the world expect economists to find out how people behave? No, this is the very job of Psychology, Sociology, Anthropology, etcetera. Does the world expect economists to figure out what profit is? Yes, of course; no philosopher, psychologist, biologist, or sociologist will ever try to figure this out.
Have economists done their proper job? No. Do economists know what profit is? No. Does behavioral economics help to find out what profit is? No.
It is not the task of economists to dabble in the so-called social sciences. The subject matter of economics is the economy. Economics is a systems science and has to be based on macrofoundations. Economists are still caught in a cargo cultic paradigm. They do not deserve any prizes but to be thrown out of science.
Egmont Kakarot-Handtke
#1 Economics: 200+ years of scientific incompetence and fraud
#2 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#3 Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
#4 For details see cross-references Not a Science of Behavior
#5 PsySoc — the scourge of economics
#6 Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online
#7 You are fired!
#8 The real problem with the economics Nobel
Related 'A social science is NOT a science but a sitcom' and 'Economic policy guidance NEVER had sound scientific foundations'
***
REPLY to Barkley Rosser on Oct 12You are way behind the curve. For a quick Hudík-check, see my 2013 post Economics is NOT a science of behavior.
***
REPLY to Barkley Rosser on Oct 16
Economics is NOT about human behavior but about the behavior of the economic system. The lethal blunder of economics is methodological individualism which comes in many psycho-sociological flavors and constitutes as the axiom of constrained optimization the core of Orthodoxy.
Science is well-defined for 2300+ years but economists somehow did not get it: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)
Only certain knowledge (= materially/formally consistent) can be admitted to the corpus of science. And here is the crux of the so-called social sciences: “By having a vague theory it is possible to get either result. … It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (Feynman)
So, to begin with, economics cannot be built upon a behavioral axiom like constrained optimization or any other psycho-sociological premise.
This is the current state of economics: PsySoc-economists do NOT know how the economy works. Economists have not realized to this day that they are in a research program that has already been dead in the cradle: “Indeed, Alexander Rosenberg maintains that there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman)
What have economists contributed to the trash heap of the so-called social sciences? Utility maximization, bounded rationality, game theory, rational expectations, and so on to Behavioral Economics.
What the blathering dilettantes of PsySoc and soapbox economics cannot and do not grasp is: If it isn’t macro-axiomatized, it isn’t economics. And because of this proven incompetence, they have to be expelled from the sciences.
October 8, 2017
Social science is NOT a science but a sitcom
Comment on David B. Feldman on ‘Is Psychology Really a Science?’
Blog-Reference
The so-called social sciences have been identified by Feynman as cargo cult sciences: “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.”
What is missing is the true theory, with scientific truth well-defined as material and formal consistency. The problem is this, psychologists, for example, know that they do not satisfy scientific standards but they insist nonetheless on the title social science. It has immediately been obvious that Freud’s storytelling and adoption of Greek myth had not much to do with science (for example to Popper) but more with a modern alternative to religion/superstition and with a new format for the entertainment industry. The similarity between a therapy setting and a sitcom simply cannot be overlooked.
All problems would end immediately if the social sciences could stop calling themselves sciences. For whatever reason, they cannot. And because science relies on self-government and the voluntary adherence to scientific ethics and because there is no such thing as science police who expels cargo cult sciences and jails fake scientists, the so-called social sciences continue with what in commonplace terms is a fraud, i.e. with pretending what they not are.
As far as economics defines itself as social science, the same untenable situation prevails. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. It is fraudulent to present this indefensible proto-scientific garbage as science.#2
Because economists lack the true theory their economic policy guidance has NO sound scientific foundations since Adam Smith/Karl Marx. In order to become a science, economics needs a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true systemic macrofoundations. Economics is NOT a social science but a systems science.
The simple reason why economics is a failed science is that both orthodox and heterodox economists share the foundational self-delusion that economics is a social science.
Until this day, economists have NOT gotten the foundational concepts of their subject matter, i.e. profit and income, right. This is like medieval physics before the foundational concept of energy was properly understood.#3
When economists are told that economics does not satisfy the scientific standards of material and formal consistency they invariably fall back on J. S. Mill’s slogan of economics as ‘inexact and separate science’. This, of course, is merely one of the economists’ numerous unacceptable excuses.#4 There is NO such thing as an inexact and separate science. There is only science and non-science respectively cargo cult science. The so-called social sciences and economics fall into the latter category.
Egmont Kakarot-Handtke
#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 The real problem with the economics Nobel
#3 Economists’ three-layered scientific incompetence
#4 Failed economics: The losers’ long list of lame excuses
Related 'Economics is NOT a social science' and 'Still on the wrong track' and 'PsySoc — the scourge of economics' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy'. For details of the big picture see cross-references Not a Science of Behavior
You say: “Economics and some of these other unsuccessful disciplines don't attract the best people...”
In order to understand the obvious lack of scientific success, it is crucial to realize that there are political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, and the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
Theoretical economics (= science) has been body-snatched by political economists (= agenda pushers). Indeed, it is a fact that political economics does NOT attract the best people. Political economics has achieved NOTHING of scientific value in the last 200+ years. Political economics attracts people that are stupid or corrupt or both.
Science consists of two essential elements: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant) Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-art testing.
Science is well-defined for 2300+ years. Economics is a failed science because economists are incompetent scientists. This applies to both Orthodoxy and Heterodoxy.#1 MMT is part of the mess.
What has been proven is that the formal foundations, i.e. the balances equations, of MMT are false.#2 Because of this, the whole analytical superstructure of MMT is false.
So, how MMTer in general, and Stephanie Kelton, in particular, think and op-ed about the deficit is mostly wrong.#3 Obviously, MMT attracts the wrong folks. These underperformers and storytellers do not even get the elementary math of National Accounting right.
#1 The stupidity of Heterodoxy is the life insurance of Orthodoxy
#2 Rectification of MMT macro accounting
#3 MMT: Redistribution as wellness program
You ask “Is psychology a science?!?!?!" = ‘is gold money?!?!?!’ something can be analyzed by ‘the scientific method’ but it may be just a figure of speech to say something IS a ‘science’.”
Psychology is NOT a science, and neither is economics. Science is well-defined for 2300+ years by material and formal consistency. Neither psychology nor economics satisfies these criteria. Because of this, they are cargo cult sciences: “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.” (Feynman)
The problem with economics is that each year the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is awarded.#1 In order NOT to mislead the general public, the word ‘sciences’ has to be deleted from the title.#2
#1 The real problem with the economics Nobel
#2 Economics is NOT a science of behavior
Every layperson who is confronted with the statement: Mr. A has been murdered and you are the murderer, understands immediately the concept of scientific truth. Truth is (i) binary true/false with NOTHING in between, and (ii), truth is objective, that is provable in principle, and (iii), that it is worth every effort to find out the truth even if we cannot be absolutely sure that we will be successful. As Popper put it “Although nowadays we have given up the idea of absolutely certain knowledge, we have not by any means given up the idea of the search for truth. (Popper)
Admitting that there is no absolute certain knowledge is compatible with the assertion that the Law of the Lever represents certain knowledge. In fact, science is defined as the body of certain knowledge.
While genuine scientists have no problem with the idea of certain knowledge philosophers, who are known for having produced blather instead of knowledge throughout recorded history, desperately try to keep things in the swamp between true and false where ‘nothing is clear and everything is possible’ (Keynes). This insistence on inconclusiveness is a survival strategy of incompetent scientists and political agenda pushers, in other words, of failed and fake scientists. Needless to emphasize that these folks are the most enthusiastic followers of Feyerabend and tireless proponents of anything-goes.
Philosophers, social scientists, and economists are the traditional clientele of political clowns like the younger Feyerabend. How can science keep these folks at bay?
Let us make a thought experiment. There are two aircraft called PHI and SCI waiting in the maneuvering area. PHI has been designed/constructed by philosophers, psychologists, economists, and other fake scientists. SCI has been designed/constructed by folks who subscribe to the methodology of material/formal consistency as explained in the foreword of every physics textbook. Which aircraft will the fake scientists try to board? Clearly, in order to get rid of these folks, one has to make sure that they risk their lives with their own crappy constructs.
Of course, there is certain truth in economics but after 200+ years economists still have no idea what it looks like. The major approaches ― Walrasianism, Keynesianism/MMT, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent, and all got profit wrong.
Blog-Reference
The so-called social sciences have been identified by Feynman as cargo cult sciences: “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.”
What is missing is the true theory, with scientific truth well-defined as material and formal consistency. The problem is this, psychologists, for example, know that they do not satisfy scientific standards but they insist nonetheless on the title social science. It has immediately been obvious that Freud’s storytelling and adoption of Greek myth had not much to do with science (for example to Popper) but more with a modern alternative to religion/superstition and with a new format for the entertainment industry. The similarity between a therapy setting and a sitcom simply cannot be overlooked.
All problems would end immediately if the social sciences could stop calling themselves sciences. For whatever reason, they cannot. And because science relies on self-government and the voluntary adherence to scientific ethics and because there is no such thing as science police who expels cargo cult sciences and jails fake scientists, the so-called social sciences continue with what in commonplace terms is a fraud, i.e. with pretending what they not are.
As far as economics defines itself as social science, the same untenable situation prevails. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. It is fraudulent to present this indefensible proto-scientific garbage as science.#2
Because economists lack the true theory their economic policy guidance has NO sound scientific foundations since Adam Smith/Karl Marx. In order to become a science, economics needs a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true systemic macrofoundations. Economics is NOT a social science but a systems science.
The simple reason why economics is a failed science is that both orthodox and heterodox economists share the foundational self-delusion that economics is a social science.
Until this day, economists have NOT gotten the foundational concepts of their subject matter, i.e. profit and income, right. This is like medieval physics before the foundational concept of energy was properly understood.#3
When economists are told that economics does not satisfy the scientific standards of material and formal consistency they invariably fall back on J. S. Mill’s slogan of economics as ‘inexact and separate science’. This, of course, is merely one of the economists’ numerous unacceptable excuses.#4 There is NO such thing as an inexact and separate science. There is only science and non-science respectively cargo cult science. The so-called social sciences and economics fall into the latter category.
Egmont Kakarot-Handtke
#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 The real problem with the economics Nobel
#3 Economists’ three-layered scientific incompetence
#4 Failed economics: The losers’ long list of lame excuses
Related 'Economics is NOT a social science' and 'Still on the wrong track' and 'PsySoc — the scourge of economics' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy'. For details of the big picture see cross-references Not a Science of Behavior
***
REPLY to Matt Franko on Oct 8You say: “Economics and some of these other unsuccessful disciplines don't attract the best people...”
In order to understand the obvious lack of scientific success, it is crucial to realize that there are political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, and the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
Theoretical economics (= science) has been body-snatched by political economists (= agenda pushers). Indeed, it is a fact that political economics does NOT attract the best people. Political economics has achieved NOTHING of scientific value in the last 200+ years. Political economics attracts people that are stupid or corrupt or both.
Science consists of two essential elements: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant) Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-art testing.
Science is well-defined for 2300+ years. Economics is a failed science because economists are incompetent scientists. This applies to both Orthodoxy and Heterodoxy.#1 MMT is part of the mess.
What has been proven is that the formal foundations, i.e. the balances equations, of MMT are false.#2 Because of this, the whole analytical superstructure of MMT is false.
So, how MMTer in general, and Stephanie Kelton, in particular, think and op-ed about the deficit is mostly wrong.#3 Obviously, MMT attracts the wrong folks. These underperformers and storytellers do not even get the elementary math of National Accounting right.
#1 The stupidity of Heterodoxy is the life insurance of Orthodoxy
#2 Rectification of MMT macro accounting
#3 MMT: Redistribution as wellness program
***
REPLY to Ignacio on Oct 9You ask “Is psychology a science?!?!?!" = ‘is gold money?!?!?!’ something can be analyzed by ‘the scientific method’ but it may be just a figure of speech to say something IS a ‘science’.”
Psychology is NOT a science, and neither is economics. Science is well-defined for 2300+ years by material and formal consistency. Neither psychology nor economics satisfies these criteria. Because of this, they are cargo cult sciences: “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.” (Feynman)
The problem with economics is that each year the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is awarded.#1 In order NOT to mislead the general public, the word ‘sciences’ has to be deleted from the title.#2
#1 The real problem with the economics Nobel
#2 Economics is NOT a science of behavior
***
REPLY to Tom Hickey on Oct 9Every layperson who is confronted with the statement: Mr. A has been murdered and you are the murderer, understands immediately the concept of scientific truth. Truth is (i) binary true/false with NOTHING in between, and (ii), truth is objective, that is provable in principle, and (iii), that it is worth every effort to find out the truth even if we cannot be absolutely sure that we will be successful. As Popper put it “Although nowadays we have given up the idea of absolutely certain knowledge, we have not by any means given up the idea of the search for truth. (Popper)
Admitting that there is no absolute certain knowledge is compatible with the assertion that the Law of the Lever represents certain knowledge. In fact, science is defined as the body of certain knowledge.
While genuine scientists have no problem with the idea of certain knowledge philosophers, who are known for having produced blather instead of knowledge throughout recorded history, desperately try to keep things in the swamp between true and false where ‘nothing is clear and everything is possible’ (Keynes). This insistence on inconclusiveness is a survival strategy of incompetent scientists and political agenda pushers, in other words, of failed and fake scientists. Needless to emphasize that these folks are the most enthusiastic followers of Feyerabend and tireless proponents of anything-goes.
Philosophers, social scientists, and economists are the traditional clientele of political clowns like the younger Feyerabend. How can science keep these folks at bay?
Let us make a thought experiment. There are two aircraft called PHI and SCI waiting in the maneuvering area. PHI has been designed/constructed by philosophers, psychologists, economists, and other fake scientists. SCI has been designed/constructed by folks who subscribe to the methodology of material/formal consistency as explained in the foreword of every physics textbook. Which aircraft will the fake scientists try to board? Clearly, in order to get rid of these folks, one has to make sure that they risk their lives with their own crappy constructs.
Of course, there is certain truth in economics but after 200+ years economists still have no idea what it looks like. The major approaches ― Walrasianism, Keynesianism/MMT, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent, and all got profit wrong.
October 6, 2017
MMT: Redistribution as wellness program
Comment on Stephanie Kelton/Op-Ed on ‘How We Think About the Deficit Is Mostly Wrong’
Blog-Reference
What the layperson and most economists cannot see is that MMT has NO sound scientific foundations. The MMT models are based on Keynesian macro, which has been refuted long ago. #1 As a rule of thumb, economic policy proposals of MMTers cannot be taken seriously.
First of all, false MMT macrofoundations have to be fully replaced. As the correct analytical starting point, the elementary production-consumption economy is defined with this set of macro axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
Under the conditions of market-clearing X=O and budget-balancing C=Yw, the price is given by P=C/X=W/R (1), i.e., the market-clearing price is in the initial period equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation, see Figure 1. #2
From (1) follows that the real wage is equal to productivity, i.e., W/P=R (2). The wage income receivers get the whole product.
Monetary profit for the economy as a whole is defined as Qm≡C−Yw , and monetary saving as Sm≡Yw−C. It always holds Qm≡−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing, total monetary profit is zero.
Now, the sovereign government decides, following Stephanie Kelton, that every American shall get a pony for free, or in more abstract terms, that a part of output shall be redistributed. This measure is intended to increase employment and output and to improve the distribution of output.
It is assumed for simplicity that in the next period the business sector doubles initial employment L0, i.e., L1=2L0. The wage rate W remains unchanged, and therefore total wage income doubles, i.e., Yw1=W2L0. Under the condition of budget balancing, the household sector’s consumption expenditures, too, double Ch1=Yw1=2WL0.
The market-clearing price is again P=W/R, and since neither wage rate W nor productivity R changes, the price, too, remains unchanged, i.e., P1=P0. So does the real wage (2). Again, the wage income receivers get the whole product.
However, if government expenditures in period 1 are Cg1 and taxes are zero, then things change. Total expenditures are now C1=Ch1+Cg1=2Ch0+Cg1, that is, are more than double the expenditures in the initial period. On the other hand, output exactly doubles O1=RL1=R2L0. The market-clearing price is now P1=C1/X1=(2Ch0+Cg1)/2X0=P0+Cg1/2X0, that is, the market-clearing price rises compared to the situation with no government deficit spending. This is a one-shot increase and has NOTHING to do with inflation. #3 The price increase effects the redistribution of output O first between the household and the government sector and ultimately within the household sector. The real wage of the wage income receivers is now lower, i.e., W/P1 instead of W/P with P1 higher than P. The wage income receivers no longer get the whole product. Part of the output is transferred via the government to other households. What happens in effect is a redistribution of output without visible taxation. The wage income recipients are taxed via the price increase.
The government runs a deficit, i.e., Cg is greater than zero, and T is zero. The money comes from the central bank, i.e., is created out of nothing.
The profit of the business sector Qm was zero in the initial period, because of C=Yw, and is now positive, i.e., Qm=Cg1, i.e., equal to the budget deficit. It always holds Public Deficit = Private Profit.
This can go on for an indefinite time with public debt vis-a-vis the central bank rising continuously, and with the business sector’s pile of money rising continuously, and with the redistribution of output going on continuously and without inflation.
MMT has no valid scientific foundations #4 but achieves four stunning feats of shell-game economics, (i) stealth taxation = real redistribution among the households, a.k.a. working-class, a.k.a ninety-nine-percenters, via the anonymous price mechanism instead of open taxation, and (ii), a profit boost for the business sector, and (iii), safe interest revenues for the business sector in subsequent periods if profits are invested in government bonds which are supposed to consolidate the government’s debt, and (iv), a deflation of indefinite length because of government’s tax-financed interest payments. #3
The thing Stephanie Kelton and MMTers are really good at is economic policy marketing for the one-percenters.
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
#2 Graphic AXEC31 Elementary production-consumption economy
#3 Gov-Deficits do NOT cause inflation
#4 For the full-spectrum refutation of MMT, see cross-references MMT
Related 'MMT: Just political heat, no scientific light' and 'Why is MMT so false?' and 'MMT and the promotion of Wall Street's idea of social policy' and 'Profit and the collective failure of economists' and 'A social science is NOT a science but a sitcom'
(i) You maintain “I think that Keynes would likely agree with the MMT position that automatic stabilization results in the fiscal balance expanding and contracting counter-cyclically, but that stimulus could be required in certain situations, in which case it would be diminished and withdrawn as conditions indicate.”
This is fruitless speculation. The fact is that Keynes got macro wrong and, after 80+ years, Post Keynesians and MMTers are still behind the curve. #1
(ii) Stephanie Kelton says: “Perhaps no one is more skilled in the dark art of deficit deception than Representative Paul Ryan, the House speaker.”
In fact, Stephanie Kelton is second to none. In the Pavlovian exchange of worn-out arguments, she avoids carefully mentioning the pivotal economic concept of profit.
• “Government spending adds new money to the economy, and taxes take some of that money out again. It’s a constant churning of pluses and minuses, and their minuses become our pluses.”
False, their minuses become the pluses of the business sector = overall macro profit.
• “And since many Americans are missing it, too, they end up applauding efforts to balance the budget, even though it would mean erasing the surplus in the private sector.”
For private sector read business sector.
• “When there’s a deficit, some of that new money can be traded in for a government bond. What’s often missed in the public debate is the fact that the money to buy the bond comes from the deficit spending itself.”
Right, a certain part of the accumulated = non-distributed profit is used for bond-buying and getting riskless additional interest revenues courtesy of the government’s taxing power. That’s benefit squared for the business sector: profit plus interest on non-distributed profit.
• “… the math always adds up.”
True, it holds Qm =(I−Sm )+(G−T) or Public Deficit = Private Profit. #2
MMTers are the perfect example of ‘How We Think About the Deficit Is Mostly Wrong’. #3
#1 Keynesians ― terminally stupid or worse?
#2 Rectification of MMT macro accounting
#3 For the full-spectrum refutation, see cross-references MMT
Thank you for the numbers. You say, “so the main part of earnings isn’t put into bonds by firms anyway.”
You probably overlook two things
• accumulated profit means NOT the total profit per period (= flow) but the sum of non-distributed profits = retained profits (= stock),
• so the number under discussion is the ratio of the stock of bonds to the sum of retained profits for the business sector as a whole.
The comparison of the business sector’s retained profits per period to the total stock of bonds makes no sense. This stock is mainly held by foreigners, pension funds, insurance companies, banks, etc.
I have clarified the sentence thus “a certain part of the accumulated = non-distributed profit is used for bond-buying …”
Keynes got the paradigm shift from microfoundations to macrofoundations wrong. His methodological blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)
This two-liner is conceptually and logically defective because Keynes did not come 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.) #1, #2
Keynes NEVER grasped what macroeconomic profit is. That is disqualifying for an economist.
The axiomatically correct relationships are:
Qm≡−Sm in the case of the production-consumption economy,
Qm≡I−Sm in the case of the investment economy,
Qm≡(I−Sm)+Yd+(G−T)+(X−M) in the general case.
Legend: Qm monetary profit, Sm monetary saving, I investment expenditures, Yd distributed profit, G government expenditures, T taxes, X export, M import.
Therefore, all I=S and IS-LM models are provably false #3, Post Keynesianism and MMT, too, is false. Macroeconomics is proto-scientific rubbish since Keynes. Macro policy guidance is based upon materially and formally inconsistent economic theory.
#1 How Keynes got macro wrong and Allais got it right
#2 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
#3 For the details of the big picture, see cross-references Refutation of I=S
You say: “I don’t listen people who make bold claims that are not backed by some kind of empirical evidence.”
Obviously, you have never heard that bold claims are the very essence of science.
Take notice that economics is about how the economy works and NOT in need of silly announcements to whom a retarded blogosphere blatherer prefers to listen.
You say: “Guess what? I will not waste my time reading your references.”
That’s OK. But why do you waste so much time parading as a moron in the economics blogosphere?
Science consists of two essential elements: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant) Logical consistency is secured by applying the axiomatic-deductive method, and empirical consistency is secured by applying state-of-the-art testing.
Because BOTH logical AND empirical consistency is needed, it is sufficient for a refutation to prove EITHER logical OR empirical inconsistency.
What has been proven is that the formal foundations, i.e., the balances equations, of MMT are false. #1 Because of this, the whole analytical superstructure of MMT is false.
This is the big claim: “Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionalists, nor Monetary Economists, nor MMTers, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they all fail to capture the essence of the market economy.” (see also Palgrave Dictionary, Profit, Dessai, 2008)
Guess what, you do neither understand the significance of this claim nor can you refute it. #2 And this brings us back to the point at issue: How Stephanie Kelton and the rest of MMT think about the deficit is mostly wrong because they, too, got profit wrong. For proof, see the cross-references. #3
#1 Rectification of MMT macro accounting
#2 10 steps to leave cargo cult economics behind for good
#3 Cross-references Profit
You say: “As I said before, I will not waste my time reading #1, #2, or #3, because there is nothing there, just big claims without any real content.”
MMT is a scientific failure because MMTers are incompetent. And you are one of the worst examples of the absence of logic and the lack of scientific standards.
The proof that the MMT balances equations are false has been given here #1 and at some other places #2. Because you do not waste time reading references, you missed it. You do not read the proofs, not to speak of understanding them, you just idiotically repeat that the proofs have not been given.
The proof that the Keynesian macro equations, on which MMT is based, are false has already been given by Allais (Nobel Prize 1988). #3 Because you do not waste time reading references, you missed it.
The proof that economists, in general, are too stupid to get the foundational concept of profit right has been given here #4. Because you do not waste time reading references, you missed it.
That the profit theory is false since Adam Smith is plainly stated in the Palgrave Dictionary: “A satisfactory theory of profits is still elusive.” (Desai, 2008). Because you do not waste time reading references, you missed it.
Because you can neither read nor think, you do not understand anything. You say “I can also add that I and everyone that have discussed with you around here knows that ‘the formal foundations, i.e., the balances equations, of MMT’ are not ‘false’ as you claim.” This tells you only that your MMT buddies are just as far behind the curve as you are.
That the foundational MMT equations are false is not a claim but a mathematical proof. And neither you nor any other MMTer has refuted the proof. If you had more than MMT-buddy-blah-blah you would certainly present it, wouldn’t you?
The question of the empirical proof of the objective macroeconomic axioms has been dealt with elsewhere at length. #5 Because you do not waste time reading references, you missed it.
MMTers are not only too stupid to understand a plain mathematical proof but violate scientific standards by not properly responding to it: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern)
The issue has been decided: the MMT balances equations are formally refuted. MMT is scientifically dead. Whether you realize, understand, or accept it is a matter of indifference. People who do not ‘waste time’ following references and take notice of an indisputable refutation are the worst possible advocates of MMT. The living proof of the failure of MMT is MMTers.
#1 Rectification of MMT macro accounting
#2 For the full-spectrum refutation of MMT see cross-references MMT
#3 How Keynes got macro wrong and Allais got it right
#4 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
#5 Just make a search run with ‘testable’ on the AXEC blog
You do not waste your time reading references and taking notice of proofs; perhaps you can waste a minute on reading your own stuff.
You will realize that in your filibuster, there is NOT ONE iota of the point at issue, i.e., that Stephanie Kelton’s policy proposals are based on provably false balances equations.
No living soul is interested in what you have read once and why you disliked it. Like/dislike is for the gossip on Facebook, true/false is the sole criterion in an economics debate.
Either you can demonstrate that the elementary Profit Law Qm≡−Sm as derived from the objective-systemic axiom set is false, or you cannot. Obviously, you cannot, therefore the refutation of Stephanie Kelton’s soapbox economics is final. In sum:
• MMT’s sectoral balances equations are mathematically FALSE,
• MMT’s policy proposals have NO sound scientific foundations,
• MMTers are scientifically INCOMPETENT.
Inflation is a pseudo-issue; see Gov-Deficits do NOT cause inflation.
Blog-Reference
What the layperson and most economists cannot see is that MMT has NO sound scientific foundations. The MMT models are based on Keynesian macro, which has been refuted long ago. #1 As a rule of thumb, economic policy proposals of MMTers cannot be taken seriously.
First of all, false MMT macrofoundations have to be fully replaced. As the correct analytical starting point, the elementary production-consumption economy is defined with this set of macro axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
Under the conditions of market-clearing X=O and budget-balancing C=Yw, the price is given by P=C/X=W/R (1), i.e., the market-clearing price is in the initial period equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation, see Figure 1. #2
From (1) follows that the real wage is equal to productivity, i.e., W/P=R (2). The wage income receivers get the whole product.
Monetary profit for the economy as a whole is defined as Qm≡C−Yw , and monetary saving as Sm≡Yw−C. It always holds Qm≡−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing, total monetary profit is zero.
Now, the sovereign government decides, following Stephanie Kelton, that every American shall get a pony for free, or in more abstract terms, that a part of output shall be redistributed. This measure is intended to increase employment and output and to improve the distribution of output.
It is assumed for simplicity that in the next period the business sector doubles initial employment L0, i.e., L1=2L0. The wage rate W remains unchanged, and therefore total wage income doubles, i.e., Yw1=W2L0. Under the condition of budget balancing, the household sector’s consumption expenditures, too, double Ch1=Yw1=2WL0.
The market-clearing price is again P=W/R, and since neither wage rate W nor productivity R changes, the price, too, remains unchanged, i.e., P1=P0. So does the real wage (2). Again, the wage income receivers get the whole product.
However, if government expenditures in period 1 are Cg1 and taxes are zero, then things change. Total expenditures are now C1=Ch1+Cg1=2Ch0+Cg1, that is, are more than double the expenditures in the initial period. On the other hand, output exactly doubles O1=RL1=R2L0. The market-clearing price is now P1=C1/X1=(2Ch0+Cg1)/2X0=P0+Cg1/2X0, that is, the market-clearing price rises compared to the situation with no government deficit spending. This is a one-shot increase and has NOTHING to do with inflation. #3 The price increase effects the redistribution of output O first between the household and the government sector and ultimately within the household sector. The real wage of the wage income receivers is now lower, i.e., W/P1 instead of W/P with P1 higher than P. The wage income receivers no longer get the whole product. Part of the output is transferred via the government to other households. What happens in effect is a redistribution of output without visible taxation. The wage income recipients are taxed via the price increase.
The government runs a deficit, i.e., Cg is greater than zero, and T is zero. The money comes from the central bank, i.e., is created out of nothing.
The profit of the business sector Qm was zero in the initial period, because of C=Yw, and is now positive, i.e., Qm=Cg1, i.e., equal to the budget deficit. It always holds Public Deficit = Private Profit.
This can go on for an indefinite time with public debt vis-a-vis the central bank rising continuously, and with the business sector’s pile of money rising continuously, and with the redistribution of output going on continuously and without inflation.
MMT has no valid scientific foundations #4 but achieves four stunning feats of shell-game economics, (i) stealth taxation = real redistribution among the households, a.k.a. working-class, a.k.a ninety-nine-percenters, via the anonymous price mechanism instead of open taxation, and (ii), a profit boost for the business sector, and (iii), safe interest revenues for the business sector in subsequent periods if profits are invested in government bonds which are supposed to consolidate the government’s debt, and (iv), a deflation of indefinite length because of government’s tax-financed interest payments. #3
The thing Stephanie Kelton and MMTers are really good at is economic policy marketing for the one-percenters.
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
#2 Graphic AXEC31 Elementary production-consumption economy
#3 Gov-Deficits do NOT cause inflation
#4 For the full-spectrum refutation of MMT, see cross-references MMT
Related 'MMT: Just political heat, no scientific light' and 'Why is MMT so false?' and 'MMT and the promotion of Wall Street's idea of social policy' and 'Profit and the collective failure of economists' and 'A social science is NOT a science but a sitcom'
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REPLY to Tom Hickey on Oct 6(i) You maintain “I think that Keynes would likely agree with the MMT position that automatic stabilization results in the fiscal balance expanding and contracting counter-cyclically, but that stimulus could be required in certain situations, in which case it would be diminished and withdrawn as conditions indicate.”
This is fruitless speculation. The fact is that Keynes got macro wrong and, after 80+ years, Post Keynesians and MMTers are still behind the curve. #1
(ii) Stephanie Kelton says: “Perhaps no one is more skilled in the dark art of deficit deception than Representative Paul Ryan, the House speaker.”
In fact, Stephanie Kelton is second to none. In the Pavlovian exchange of worn-out arguments, she avoids carefully mentioning the pivotal economic concept of profit.
• “Government spending adds new money to the economy, and taxes take some of that money out again. It’s a constant churning of pluses and minuses, and their minuses become our pluses.”
False, their minuses become the pluses of the business sector = overall macro profit.
• “And since many Americans are missing it, too, they end up applauding efforts to balance the budget, even though it would mean erasing the surplus in the private sector.”
For private sector read business sector.
• “When there’s a deficit, some of that new money can be traded in for a government bond. What’s often missed in the public debate is the fact that the money to buy the bond comes from the deficit spending itself.”
Right, a certain part of the accumulated = non-distributed profit is used for bond-buying and getting riskless additional interest revenues courtesy of the government’s taxing power. That’s benefit squared for the business sector: profit plus interest on non-distributed profit.
• “… the math always adds up.”
True, it holds Qm =(I−Sm )+(G−T) or Public Deficit = Private Profit. #2
MMTers are the perfect example of ‘How We Think About the Deficit Is Mostly Wrong’. #3
#1 Keynesians ― terminally stupid or worse?
#2 Rectification of MMT macro accounting
#3 For the full-spectrum refutation, see cross-references MMT
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REPLY to Matt Franko on Oct 7Thank you for the numbers. You say, “so the main part of earnings isn’t put into bonds by firms anyway.”
You probably overlook two things
• accumulated profit means NOT the total profit per period (= flow) but the sum of non-distributed profits = retained profits (= stock),
• so the number under discussion is the ratio of the stock of bonds to the sum of retained profits for the business sector as a whole.
The comparison of the business sector’s retained profits per period to the total stock of bonds makes no sense. This stock is mainly held by foreigners, pension funds, insurance companies, banks, etc.
I have clarified the sentence thus “a certain part of the accumulated = non-distributed profit is used for bond-buying …”
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COMMENT on Neil Wilson on Oct 7Keynes got the paradigm shift from microfoundations to macrofoundations wrong. His methodological blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)
This two-liner is conceptually and logically defective because Keynes did not come 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.) #1, #2
Keynes NEVER grasped what macroeconomic profit is. That is disqualifying for an economist.
The axiomatically correct relationships are:
Qm≡−Sm in the case of the production-consumption economy,
Qm≡I−Sm in the case of the investment economy,
Qm≡(I−Sm)+Yd+(G−T)+(X−M) in the general case.
Legend: Qm monetary profit, Sm monetary saving, I investment expenditures, Yd distributed profit, G government expenditures, T taxes, X export, M import.
Therefore, all I=S and IS-LM models are provably false #3, Post Keynesianism and MMT, too, is false. Macroeconomics is proto-scientific rubbish since Keynes. Macro policy guidance is based upon materially and formally inconsistent economic theory.
#1 How Keynes got macro wrong and Allais got it right
#2 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
#3 For the details of the big picture, see cross-references Refutation of I=S
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REPLY to André on Oct 8You say: “I don’t listen people who make bold claims that are not backed by some kind of empirical evidence.”
Obviously, you have never heard that bold claims are the very essence of science.
Take notice that economics is about how the economy works and NOT in need of silly announcements to whom a retarded blogosphere blatherer prefers to listen.
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REPLY André on Oct 8You say: “Guess what? I will not waste my time reading your references.”
That’s OK. But why do you waste so much time parading as a moron in the economics blogosphere?
Science consists of two essential elements: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant) Logical consistency is secured by applying the axiomatic-deductive method, and empirical consistency is secured by applying state-of-the-art testing.
Because BOTH logical AND empirical consistency is needed, it is sufficient for a refutation to prove EITHER logical OR empirical inconsistency.
What has been proven is that the formal foundations, i.e., the balances equations, of MMT are false. #1 Because of this, the whole analytical superstructure of MMT is false.
This is the big claim: “Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionalists, nor Monetary Economists, nor MMTers, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they all fail to capture the essence of the market economy.” (see also Palgrave Dictionary, Profit, Dessai, 2008)
Guess what, you do neither understand the significance of this claim nor can you refute it. #2 And this brings us back to the point at issue: How Stephanie Kelton and the rest of MMT think about the deficit is mostly wrong because they, too, got profit wrong. For proof, see the cross-references. #3
#1 Rectification of MMT macro accounting
#2 10 steps to leave cargo cult economics behind for good
#3 Cross-references Profit
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REPLY to André on Oct 9You say: “As I said before, I will not waste my time reading #1, #2, or #3, because there is nothing there, just big claims without any real content.”
MMT is a scientific failure because MMTers are incompetent. And you are one of the worst examples of the absence of logic and the lack of scientific standards.
The proof that the MMT balances equations are false has been given here #1 and at some other places #2. Because you do not waste time reading references, you missed it. You do not read the proofs, not to speak of understanding them, you just idiotically repeat that the proofs have not been given.
The proof that the Keynesian macro equations, on which MMT is based, are false has already been given by Allais (Nobel Prize 1988). #3 Because you do not waste time reading references, you missed it.
The proof that economists, in general, are too stupid to get the foundational concept of profit right has been given here #4. Because you do not waste time reading references, you missed it.
That the profit theory is false since Adam Smith is plainly stated in the Palgrave Dictionary: “A satisfactory theory of profits is still elusive.” (Desai, 2008). Because you do not waste time reading references, you missed it.
Because you can neither read nor think, you do not understand anything. You say “I can also add that I and everyone that have discussed with you around here knows that ‘the formal foundations, i.e., the balances equations, of MMT’ are not ‘false’ as you claim.” This tells you only that your MMT buddies are just as far behind the curve as you are.
That the foundational MMT equations are false is not a claim but a mathematical proof. And neither you nor any other MMTer has refuted the proof. If you had more than MMT-buddy-blah-blah you would certainly present it, wouldn’t you?
The question of the empirical proof of the objective macroeconomic axioms has been dealt with elsewhere at length. #5 Because you do not waste time reading references, you missed it.
MMTers are not only too stupid to understand a plain mathematical proof but violate scientific standards by not properly responding to it: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern)
The issue has been decided: the MMT balances equations are formally refuted. MMT is scientifically dead. Whether you realize, understand, or accept it is a matter of indifference. People who do not ‘waste time’ following references and take notice of an indisputable refutation are the worst possible advocates of MMT. The living proof of the failure of MMT is MMTers.
#1 Rectification of MMT macro accounting
#2 For the full-spectrum refutation of MMT see cross-references MMT
#3 How Keynes got macro wrong and Allais got it right
#4 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
#5 Just make a search run with ‘testable’ on the AXEC blog
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REPLY to André on Oct 8You do not waste your time reading references and taking notice of proofs; perhaps you can waste a minute on reading your own stuff.
You will realize that in your filibuster, there is NOT ONE iota of the point at issue, i.e., that Stephanie Kelton’s policy proposals are based on provably false balances equations.
No living soul is interested in what you have read once and why you disliked it. Like/dislike is for the gossip on Facebook, true/false is the sole criterion in an economics debate.
Either you can demonstrate that the elementary Profit Law Qm≡−Sm as derived from the objective-systemic axiom set is false, or you cannot. Obviously, you cannot, therefore the refutation of Stephanie Kelton’s soapbox economics is final. In sum:
• MMT’s sectoral balances equations are mathematically FALSE,
• MMT’s policy proposals have NO sound scientific foundations,
• MMTers are scientifically INCOMPETENT.
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COMMENT on Salsabob on Oct 12Inflation is a pseudo-issue; see Gov-Deficits do NOT cause inflation.
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