September 11, 2015

The very real problem of zero scientific utility

Comment on Scott Sumner on ‘The very real problem of wage inequality’


Some day in the history of economic thought economists left science and became part of the entertainment industry. Thinking, of which there was never much in the first place, has now been entirely replaced by storytelling and gossip. Fittingly, you conclude your post with “That’s because an economy that allows Cruise to be very rich will generate more good films for me to watch.”

This economy will hopefully also allow you to get entirely out of economics and devote all your time to action movie watching.

It is rather obvious that your data-decorated distribution theory is a cartoon.

(i) There is no such thing as ‘a share of profit in income’ but there is ‘a share of distributed profit in income’. Most economists do not realize that profit and distributed profit are fundamentally different economic entities. Profit is not a factor income and it cannot be functionally attributed to capital. Because of this, the distribution of the period output has nothing to do with any marginal product of labor or capital. Because the profit theory is false since Adam Smith. distribution theory is fundamentally flawed for more than 200 years (2014b).

(ii) The representative economist cannot tell the difference between profit and income to this very day. This is comparable to a physicist who cannot tell the difference between force/energy or acceleration/velocity.

(iii) Keynes, too, messed up the profit theory and he knew it. “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson and Bezemer, 2010, pp. 12-13, 16)

(iv) This failure kicked off a chain reaction of errors/mistakes because when profit is not correctly defined, income is not correctly defined, and then saving is not correctly defined. Therefore, as collateral damage, all I=S models are junk.

(v) All this happened in the 1930s. To this very day, economists have not realized that all IS-LM models are logically defective — among them Paul Krugman and you (2014a). Otherwise, it is not explicable that you label your post ‘Praising Krugman’.

You characterize yourself as utilitarian, so let me sum up thus: the total and marginal scientific utility of your distribution theory is exactly zero.

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2014a). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
Kakarot-Handtke, E. (2014b). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL

ICYMI (ssumner, September 13)

The point of my post is not to ‘engage in a discussion’ but to inform you that you violate scientific standards.

“In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern, 1941)

Please take notice: the issue has been decided, and your distribution theory is provably false. The correct distribution formula is testable and refutable and this is how matters are settled in science.

“Accordingly, scientists, in their critical discussions, do not attack the arguments which might be used to establish, or even to support, the theory under examination. They attack the theory itself, qua solution of the problem it tries to solve.” (Popper, 1994)

ICYMI (ssumner, September 13)

You ask with reference to your distribution theory: “How can you know it’s wrong, if you don’t know what it is?”

(i) All theories/models that take one or more of the following concepts into the premises are scientifically worthless: utility, expected utility, rationality/bounded rationality/animal spirits, 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.

(ii) You call yourself a utilitarian.

(iii) No way leads from false premises, i.e. nonentities, to the understanding of how the actual economy works. From (i) and (ii) follows that your approach as a whole is methodologically unacceptable and this implies the distribution theory as a logical part thereof. That is sufficient. There is no need to discuss details as there is — in analogy — no need to discuss epicycles when geocentrism as a whole has been refuted. It is as simple as that but I’ll give 100 to 1 odds that you couldn’t understand nor accept it.