Ideology? Incompetence? Fake? Or all this together?

Comment on Asad Zaman on ‘Ideological Macroeconomics & Increasing Inequality’

Blog-Reference

There is political economics and theoretical economics. The founding fathers called themselves political economists; that is, they left no doubt that their main business was agenda pushing. Economists never got out of political economics. In other words, theoretical economics (= science) ultimately could not emancipate itself from political economics (= agenda-pushing). And this is how economics became one of the most embarrassing scientific failures of all time. #1

The fact of the matter is that economists do not know how the actual economy works. They do not even understand the foundational concepts of their subject matter, that is, profit and income. This holds for Orthodoxy AND Heterodoxy.

Economists have NO mandate to dabble in politics because (i) this violates the principle of separation of politics and science, and (ii) economists have no true economic theory; in other words, since Adam Smith, economic policy guidance has NO sound scientific foundation.

Asad Zaman cites the known absurdities of orthodox employment theory: “According to Lucas, the Great Depression was really the Great Vacation, where vast numbers of people suddenly decided to stop working in order to enjoy leisure.” However, Heterodoxy never managed to replace this obvious rubbish with a valid employment theory.

The short proof goes as follows. The 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 and is defined by these three OBJECTIVE SYSTEMIC axioms:
(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.

The investment goods sector comes in with the second step. So, what we have with (A1) to (A3) is the pure consumption economy as the most elementary economic configuration.

From these elementary, objective, transparent, and intuitively convincing premises follows the BASIC version of the macroeconomic Employment Law, which is shown on Graphic AXEC62

This equation says inter alia: an increase of the overall factor cost ratio ρ_F≡W/PR leads to higher employment. The complete Employment Law is a bit longer and contains, in addition, profit distribution, public deficit spending, and foreign trade. All these details are not needed at the moment.

The factor cost ratio ρ_F as defined above embodies the price mechanism which works very differently from what is usually assumed. As a matter of fact, overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R, and vice versa. This follows in an unbroken chain of transparent logical steps from (A1) to (A3). The SYSTEMIC Employment Law is entirely FREE of green cheese behavioral assumptions, consists entirely of measurable variables, and is readily testable.

However, what economists assert since time immemorial is this: “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. Applied to economy-wide unemployment, this doctrine places the blame on trade unions and governments, not on any failure of competitive markets.” (Tobin, 1997)

This is the worst piece of economic analysis and prescription. The advice to lower wages is based on a logically defective theory and leads to ever more unemployment, according to the correct Employment Law.

In their abysmal scientific incompetence, both orthodox and heterodox economists are ultimately responsible for the enormous social devastations of mass unemployment. #2 Consequently, they must immediately stop telling the general public that they have valid scientific ideas to save their fellow citizens from mass unemployment, depression, deflation, and stagnation. Both orthodox AND heterodox economists are fake scientists.

Egmont Kakarot-Handtke


#1 Failed economics: The losers’ long list of lame excuses
#2 Inequality: Market failure or theory failure?

Strange noise in the graveyard of economics

Comment on Noah Smith on ‘Cracks in the anti-behavioral dam?’

Blog-Reference

Economics is a failed science. More precisely, standard/orthodox economics from Jevons/ Walras/Menger to DSGE/RBC/New Keynesianism is scientific garbage or what Feynman called cargo cult science.

Standard economics is built upon this set of foundational propositions, a.k.a. axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to  equilibrium states.” (Weintraub, 1985)

Methodologically, these premises are forever unacceptable: (i) The ultimate reason can be stated as an impossibility theorem: NO way leads from the explanation of individual behavior to the explanation of how the economic system works. Because of this, the microfoundations approach has already been dead in the cradle. (ii) The standard/ orthodox/Walrasian axiom set contains three NONENTITIES: (a) constrained optimization (HC2), (b) rational expectations (HC4), (c) equilibrium (HC5). Every theory/model that contains a nonentity is a priori false. So, standard/orthodox economics is axiomatically false ― it is as simple as that.

The microfoundations speak about human behavior. As a matter of principle, human behavior is the subject matter of psychology, sociology, anthropology etcetera, and NOT of economics (Hudik, 2011). The error/mistake/idiocy of half-witted critics, though, has always been in the belief that it suffices to make behavioral assumptions ‘more realistic’. The classical case is the idea to replace the assumption of perfect rationality with bounded rationality.

What instead has to be done is to FULLY REPLACE the standard/orthodox microfoundations with methodologically correct macrofoundations, that is, to change the very definition of economics.

OLD behavioral definitions: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow, 1994) “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins, 1935)

NEW objective-systemic definition: “Economics is the science which studies how the monetary economy works.”

The move from the old behavioral definition to the new systemic=behavior-free definition of economics is called a Paradigm Shift. Nothing less will do to get economics out of its proto-scientific deadlock.

Noah Smith has spotted a new trend: “I’m seeing macro people taking behavioral ideas more seriously. ... in macro, most models use Rational Expectations, so let’s think of ‘behavioral’ as just meaning ‘non-RE’.”

To see hope or even progress in this pathetic putting-lipstick-on-a-dead-pig is as self-debunking as it can get. Standard economics is scientifically dead for 150+ years and it will NOT come to life by replacing RE with non-RE.

Egmont Kakarot-Handtke

Economics: Poor philosophy, poor psychology, poor science

Comment on Lars Syll/Tom Hickey on ‘A philosophical look at economics’

Blog-Reference

The Classicals called themselves Political Economists, and they never left anybody in doubt what agenda they pushed. However, there was an ambiguity right from the beginning. The Classicals also had high scientific ambitions. They were aware that with simple good/bad moralizing, they were in the same boat with religion ― a no-go in the age of enlightenment: “The backward state of the Moral Sciences can only be remedied by applying to them the methods of Physical Science, duly extended and generalized.” (Mill, 2006, p. 833)

There was a political need to formulate a new moral philosophy, and Adam Smith responded to it: “Adam Smith, when he wrote his Wealth of Nations ... understood by political economy  a branch of the science of the statesman or legislator, ...” (Halévy, 1960, p. 104)

To get economics off the ground as a science, it is imperative to say something general about human behavior in the economic realm. John Stuart Mill was the first to state a behavioral axiom: “Just in the same manner [as geometry] does Political Economy presuppose an arbitrary definition of man, as a being who invariably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained in the existing state of knowledge.” (Mill, 1874, V.46)

Mill regarded this proposition, which includes what today is called rent-seeking, as a limiting case, as an empirical law that resembles, but has to be carefully distinguished from, universal deterministic physical laws. Empirical laws are neither deterministic nor universal; they express merely a local and temporary tendency: “In political economy, for instance, empirical laws of human nature are tacitly assumed by English thinkers, which are calculated only for Great Britain and the United States.” (Mill, 2006, p. 906)

This can be taken as a real-world description of human Nature/behavior in a concrete historical setting. In other words, it says that people in the UK/US subscribe to the philosophy of utilitarianism. Mill always remained within the confines of empirical science. However, the methodological question is, what has this rather dull philosophy to do with economics and, more importantly, with science?

After 200+ years, we know that to build economics upon the behavioral assumption of utility maximization leads only to general equilibrium theory ― one of the greatest failures in the history of scientific thought.

The preoccupation with utilitarian folk philosophy, folk psychology, and folk sociology somehow took economists down the wrong path. After 200+ years, they still do not know how the monetary economy works.

Does the world expect economists to find out how people think and behave? No, this is the proper job of psychology, sociology, anthropology, etc. Does the world expect economists to figure out what profit is? Yes, of course, no philosopher, physicist, biologist, or sociologist will ever try to figure this out.

Have economists done their proper job? NO! (2014). The profit theory is false since Adam Smith gave his contemporaries the moral sentiments and the utilitarian folk philosophy they so urgently needed.

Economists have always been lousy philosophers; what is worse, they have always been the most incompetent scientists. Today, everybody knows that economics is a failed/fake science.

Egmont Kakarot-Handtke


References
Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston: Beacon Press.
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. 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
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, Vol. 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.

Related ‘Failed economics: The losers’ long list of lame excuses’ and 'True macrofoundations: the reset of economics' and 'Does economics matter more for bread or for circuses?'

Economics is indefensible

Comment on Chris Dillow on ‘On defences and attacks on economics’

Blog-Reference and Blog-Reference

Economics is a failed science, that is, the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory and axiomatically false. More specifically, it is not only so that orthodox/standard/mainstream economics is false as Heterodoxy ritually asserts, but traditional Heterodoxy, too, is false and never provided a valid alternative. What we actually have is the pluralism of false theories.

The current state of economics is that of a cargo cult or fake science. The point is this: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991)

Economists do NOT have the true theory. Lacking the true theory, in turn, means that economists do not understand how the monetary economy works, and from this follows finally that they are, as a matter of principle, in NO position to give economic policy guidance.

Scientific truth is well-defined by material and formal consistency. The argument that economists have not predicted the 2008 crash is somewhat beside the point because ― as a matter of principle ― scientists do not predict the future.#1 This is the business of political charlatans.

Chris Dillow argues “Quite simply, economists were not, for the most part, responsible for the 2008 crash ...“ This is true but they are indeed responsible for the enormous social devastations of mass unemployment since the Great Depression because unemployment is ultimately the result of a provably false labor market theory.#2

To argue against economists that they have not predicted crises is a mere distraction from the fact that economists are scientifically incompetent and that economics as a whole is a failed science. ALL explanations of failure are mere excuses.#3

Egmont Kakarot-Handtke


#1 Science does NOT predict the future
#2 The one stone that kills orthodox and heterodox employment theory
#3 Failed economics: The losers’ long list of lame excuses

Related 'The united tribe of the scientifically incompetent' and 'Nothing to choose between Orthodoxy and traditional Heterodoxy' and 'Post Keynesianism, science, and universal idiocy' and 'Economists’ last Hurrah' and 'Where advanced Heterodoxy — represented by Steve Keen — took the wrong turn' and 'Economics: The pluralism of false theories is over'

The united tribe of the scientifically incompetent

Comment on Noah Smith on ‘Tribal Warfare in Economics Is a Thing of the Past’

Blog-Reference and Blog-Reference

Economics is a failed science, that is, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory and axiomatically false. More specifically, it is not only so that orthodox/standard/mainstream economics is false as Heterodoxy ritually asserts, but traditional Heterodoxy, too, is false and never provided a valid alternative. What we actually have is the pluralism of well-established false theories.

As a consequence, the heap of scientific rubbish grows with every peer-reviewed issue of ranked quality journals. All grand debates end where they started, that is, in the swamp of conceptual confusion, undecidability, impenetrable mishmash, a category error, inconsistent definitions, cross-talk, and inconclusiveness. Accordingly, the scientific content of economics textbooks from Samuelson to Mankiw and Rodrik is below the level of a Donald Duck cartoon.

Neither orthodox nor heterodox economists can explain how the economy works and they have no idea how to get out of the deadlock: “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992)

Because economists cannot explain the macroeconomic universe they have (i) regressed to the study of microeconomic molehills which are easy to understand by any half-wit, and (ii), they have formed one big tribe at the lowermost scientific level of anything-goes.

Egmont Kakarot-Handtke


Related ‘Failed economics: The losers’ long list of lame excuses’ and 'Economists’s real job problem' and 'Heterodoxy, too, is proto-scientific garbage' and 'Economics is indefensible' and 'The economic machine is broken? Don’t call the heterodox repairman!' and 'Economics: The pluralism of false theories is over' and 'Substandard reasoners'

Economists’ real job problem

Comment on Justin Fox on ‘Economists Contemplate Life on the Outs’

Blog-Reference and Blog-Reference and Blog-Reference on Jan 18

The current state of economics is that of a cargo cult or fake science. The skirmishes with Mr. Trump cannot distract from the fact that economists are incompetent scientists. The real problem is NOT AT ALL that they are kept out of the new administration. For society, the real problem is how economists as fake scientists can be expelled as fast as possible from the scientific community.

For details see
► Inequality: Market failure or theory failure?
► Failed economics: The losers’ long list of lame excuses

Egmont Kakarot-Handtke


Related 'Economists cannot do the simple math of profit — better keep them out of politics' and 'Economic policy advice has never had sound scientific foundations' and 'The economist as stand-up comedian' and 'There is NO such thing as an economic expert' and 'Narrative economics and the imperatives of the sitcom' and 'Wikipedia, economics, scientific knowledge, or political agenda pushing?'

Inequality: Market failure or theory failure?

Comment on Asher Schechter on ‘Nobel Laureates: Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality’

Blog-Reference and Blog-Reference and Blog-Reference on Jan 12

Every economist can know from the Palgrave Dictionary that the profit theory is false (Desai, 2008). Or, as Mirowski put it, “... one of the most convoluted and muddled areas in economic theory: the theory of profit.” In other words: the confused confusers of economics have NO idea what the pivot of their subject matter is.

It is pretty obvious that without the true profit theory there is no true distribution theory.#1 So everybody can know for sure, without bothering much about the insane behavioral assumptions of utility and profit maximization, that the standard marginal theory of income distribution must be dead wrong. More, because neither Walrasianism, Keynesianism, Marxianism, nor Austrianism gets profit right all other distribution theories are false, too. This includes the theory of rent-seeking which stood in the center at this year’s ASSA discussions.

The trouble with distribution theory started with Ricardo who got the distinction between wage, profit, and rent wrong.#2 Then Marx got the class theory of profit wrong.#3 Neoclassical marginal distribution theory, of course, is unsurpassable idiocy, but Keynesianism did not perform much better, and Heterodoxy has actually multiple profit theories that do not fit together.#4

Distribution theory has always been the deepest point in the swamp of economics. Do not expect that orthodox or heterodox economists who spent their clueless lives there will find a way out any time soon. The profit theory is false since Adam Smith#5 and the folks at the ASSA are lost in a parallel universe. Let this sink in: NOT ONE of the participants has an idea about the pivotal concept of economics.

Economics has produced NOTHING of scientific value in the last 200+ years. The current state of economics is that of a cargo cult or fake science.#6 The proof is in the distribution theory.

Egmont Kakarot-Handtke


#1 Essentials of Constructive Heterodoxy: Profit
#2 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
#3 Profit for Marxists
#4 Heterodoxy, too, is proto-scientific garbage
#5 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#6 The real problem with the economics Nobel

Related 'Economists’ real job problem' and 'The GDP-death-blow for the economics profession'. For details of the big picture see cross-references Profit/Distribution.

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REPLY to Bob on Jan 11

After more than 200 years, economists cannot tell the difference between the foundational concepts of profit and income. This is comparable to medieval physics before the concepts of energy, mass, force, etcetera were clearly defined and properly understood.

For details see The false foundations of economics.