December 31, 2014

Deconfusing confused confusers

Comment on Peter Radford on  'Economic Realism'


With reference to the thread 'Mainstream macroeconomics distorts our understanding of economic reality' (here) you write “I don’t want to get dragged into what appears to be an endless, and pointless, debate … but.”

So you do not want to participate in the discussion but instead, do a bit of meta-communication. This is not exactly the way to steer a discussion to worthwhile conclusions.

In the style of a film critic, you sum up: endless and pointless. As a matter of fact, the discussion arrived at some clear-cut results. Everybody can convince himself that your resume is far from reality. These were the major results (here):

  • Orthodoxy is a failure.
  • Heterodoxy is a failure.

In more detail, there can be no longer any reasonable doubt about:
  • Neither orthodox nor heterodox economists have a clear idea of the fundamental concepts income and profit.
  • The profit theory is false since Adam Smith.
  • Because economists fail to capture the essence of the market system they have no valid theory about how the economy works.
  • Keynes' fundamental equations of macroeconomics, i.e. Income = value of output = consumption + investment. Saving = income – consumption. Therefore saving = investment, are indefensible. That is why Keynesianism is a failure.
  • At present, economics is not built upon a set of acceptable premises or axioms. 
  • Heterodoxy does not meet the formal minimum standards of theoretical economics.
  • Psychology / Sociology / Philosophy is outside of science.
  • Orthodoxy is built upon unacceptable behavioral axioms, therefore, a paradigm shift is inevitable.
  • The definition ‘Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses’ has misled research in the direction of pseudo-sociology and pseudo-psychology.
  • Economics is the science that studies how the economic system works.

First of all, one has to distinguish between theoretical and political economics. The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works. From the viewpoint of science political economics as a whole is a no-go. The first problem of economics is that many economists are not scientists but agenda pushers of one sort or another.

Political economics is, as everybody knows, scientifically worthless.

You write: “But, of course, humans are inherently political. We were political before we were economical.”

This is true, of course. But this is the subject matter of Politics/Psychology/Sociology / Anthropology ― NOT of economics. The task of economists is to explain how the actual economy works. Economics is not a science of behavior. No way leads from any assumption about human behavior to the understanding of the economic system.

There is only one way to get out of the scientific slums of political economics and that is: to move from subjective to objective axiomatic foundations.

While political economics is indeed thriving on endless confusion, theoretical economics has an answer that is unsurpassable in its definitive clarity

► there is no alternative to the Structural Axiomatic Paradigm

That is down-to-earth scientific realism.

Egmont Kakarot-Handtke