August 31, 2015

Disoriented and lost in folk psychology

Comment on stevepostrel on ‘Romer v. Lucas’


Economics is a failed science. Economists can not see this because they never understood what science is. The fundamental methodological blunder is located in the commonsensical intuition that economics is first and foremost about human behavior (Hudík, 2011).

The representative economist cannot get their heads around the fact that economics is about the behavior of the economic system. What the behaviorals are talking about belongs entirely to the realm of Sociology, Psychology, Anthropology, Political Science, History, etcetera. What most behaviorals are practicing is a variant of psycho-sociology that works reasonably well on an easy-to-overview small scale where not much more than common sense and some readily available statistics is required.

The subject matter of economics has to be redefined. No way leads from the understanding of human behavior to the understanding of how the actual economy works.

Methodologically correct economics starts with the systemic behavior of the monetary economy. There are systemic laws, for instance, the Profit Law (2015), but no behavioral laws. The economist’s task is to find these objective systemic laws and to empirically verify/falsify them.

Does the world expect economists to find out how people behave? Not really, this is the proper job of psychology, sociology, anthropology, political science, history, etcetera. Does the world expect economists to figure out what profit is? Yes, of course, no philosopher, physicist, biologist, or sociologist will ever do this. Have economists done their proper job? No.#1 They have wasted more than 200 years second-guessing their fellow men’s behavior and telling stories that have less real-world content than Greek mythology.

You say: “These broadbrush criticisms of economics are ludicrous.” What is indeed ludicrous is that economists are so disoriented that they cannot properly define the subject matter of economics and — deeply embarrassing indeed — cannot tell the difference between profit and income, which are indisputably the most important phenomena in their universe. How would you characterize a physicist who cannot tell the difference between velocity/ acceleration or force/energy?

Time for economists to leave the scientific Neanderthal!

Egmont Kakarot-Handtke

Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. URL

#1 See also Mental messies and loose losers and The Humpty Dumpty methodology and Economics: the honeypot for know-nothingers

Related 'Whatever it is, let's call it conservatism'.