May 8, 2015

Framing the economic discourse

Comment on Lars Syll/Noah Smith on ‘Seven principles to guard you against economics silliness’


Noah Smith writes “In the increasingly contentious world of pop economics, you … may find yourself in an argument with an economist.” (See intro) He then enumerates seven principles to deal with the situation. As one would expect from a twittering economist, his advice is rather shallow. The fact of the matter is: there is no real guard against economists' all-pervasive silliness. Yet much can be done to minimize collateral damage. For any economic discourse, it helps to have a frame of reference.

Rule of discrimination: There are political economics and theoretical economics. The former deals with agenda-pushing, the latter with scientific knowledge. The former is scientifically worthless, the latter barely existent.

Rule of economics studies: As soon as somebody starts an explanation by painting something like a supply and demand curve you can be sure you have a silly person before you.

Rule of anything goes: Economics is awash with manifest contradictions and economists are not much disturbed by either formal or material inconsistency. Because of this, economists can explain everything and the opposite of it.

Rule of problem-solving: The answer to any economic problem is inconclusive wish-wash because, after all, the economy is rather complex. Because of this, it is almost impossible to prove an economist wrong. As Keynes once put it: 'nothing is clear and everything is possible.'

Rule of false premises: Economists do not even get their bookkeeping identities right. Keynes, for example, wrote Y=C+I and ended with I=S. All models that contain I=S are logically defective but still much in use. The same holds for Y=W+P, i.e., total income is equal to wages plus profits. To be sure, bookkeeping is elementary mathematics. It is important to always bear in mind that economists fail already at this stage.

Rule of futility: Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionalists, nor Monetary Economists, 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 fail to capture the essence of the market economy.

Rule of credentials: True, there are intelligent and silly heterodox economists, but there can be no such creature as an intelligent orthodox economist. Orthodoxy is indefensible.

Rule of non-acceptance: Ask any economist whether he applies one of these items: supply-demand-equilibrium, general equilibrium, marginal utility, well-behaved production functions, total income = value of output, total income = wages + profits, I=S, behavioral premises like optimization? If he says yes tell him to come back after he has done his scientific homework.

Rule of New Economic Thinking: We do not know whether Heterodoxy is true, but we know that Orthodoxy is false.

Schumpeter's overarching principle: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

Egmont Kakarot-Handtke