August 20, 2015

Unsmart allocators

Comment on Lars Syll on ‘General equilibrium theory — a gross misallocation of intellectual resources and time’


“Thousands upon thousands of scholars, as well as thousands of statesmen and men of affairs, have contributed their efforts to the attempt to understand the course of events of the economic world. And today this field of investigation is being cultivated more extensively, than ever before. How is it, then, that in all these years, and with all the undoubted talent that has been lavished upon it, the subject of economics has advanced so little?” (Schoeffler, 1955, p. 2)

Since science is a trial and error process, a fair amount of time is inevitably wasted groping in the dark and following blind alleys. This, however, is not as big a loss as it seems at first. The positive result consists in knowing better which approach does not work and — most importantly — why. The gargantuan wasting sets in with sticking to a degenerating research program.

With regard to equilibrium theory, we have the peculiar phenomenon that it took the representative economist so long — about 100 years or so — to realize that he is in a cul-de-sac.

Every heterodox economist worth his or her salt knows that all theories/models that take at least one of the following concepts into the premises are scientific black holes: utility, expected utility, rationality/bounded rationality, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity. All these items are economic nonentities comparable to the perpetual motion machine, unicorns, or dancing-angels-on-a-pinpoint.

Orthodox economists have no clue how to do economics without these concepts and are hopelessly chained to their degenerating program. They are simply not up to the challenge: “A new idea is extremely difficult to think of. It takes a fantastic imagination.” (Feynman, 1992, p. 172)

Unfortunately, a scarcity of imagination and an abundance of confusion has always been the hallmark of the representative economist.#1

Egmont Kakarot-Handtke

Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Schoeffler, S. (1955). The Failures of Economics: A Diagnostic Study. Cambridge, MA: Harvard University Press.

#1 Secular intellectual stagnation