October 22, 2015

Not yet in and not yet out of the wood

Comment on Lars Syll on ‘Phelps’ smackdown on Lucas’ rational expectations’


(i) “In their mind, the scientific way is to suppose price and wage setters form their expectations with every bit as much understanding of markets as the expert economist seeking to model, or predict, their behavior.” (See intro)
(ii) Expert economists have no scientific understanding of how the market economy works.
(iii) Well-informed and rational agents do not take orthodox economics seriously. Ergo: the rational expectations approach is self-contradictory.

It is crystal clear by now that Orthodoxy badly missed ‘the scientific way’ or, as Schumpeter already realized “We are not yet out of the wood; in fact, we are not yet in it.” (1994, p. 7)

Unfortunately, Heterodoxy, too, is not out of the wood because it wastes too much time with debunking silly behavioral assumptions instead of putting economics on methodologically sound foundations and thereby leading it out of the proto-scientific wood of Lucas, Frydman, Phelps and all the quacking rest.

The scientific way has been shown by Joan Robinson: ‘Scrap the lot and start again.’*

Egmont Kakarot-Handtke

Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.

* For the new curriculum see cross-references New curriculum