November 30, 2015

The tragedy of Heterodoxy

Comment on Lars Syll on ‘Confusing statistics and research’


“Science is a process that does lead to a broadly shared consensus. It is arguably the only social process that does. Consensus forms around theoretical and empirical statements that are true.” (Romer, 2015, p. 89)

This does not happen in economics because the representative economist is an incompetent scientist. Incompetence, though, comes in two forms. This is due to the fact, that scientific research consists of two essential and inseparably linked elements: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

Formal consistency is established by the axiomatic-deductive method. Material consistency is established by empirical testing, i.e. by correctly applying well-defined statistical methods.

Accordingly, the incompetence of economists consists of two blunders, that is, (i) of one-sided vacuous formalism, and (ii) of one-sided blind application of statistical tools to poorly defined data sets.

From the undeniable fact that economists have messed up both sides cannot be concluded that scientific methodology does not apply to economics or, as J. S. Mill put it, that economics is a “separate” science. There is no such thing. There is only science and non-science.

To this day economics belongs to the category of what Feynman called cargo cult science, that is, the outer appearance is perfect but somehow it simply does not work.#1 Theory is vacuous without empirical content, data analysis is blind without guidance from theory.

Despite all the political sound and fury, there is no real difference between Walrasians, Keynesians, Marxians, or Austrians (2013). All these approaches fail to satisfy the two criteria of science. The tragedy of Heterodoxy is that it is well aware of all blunders but that it has no idea of how to get out of the proto-scientific cul-de-sac.

Debunking is good, yet a Paradigm Shift is better: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)#2

There is nothing to choose between obsolete Orthodoxy and clueless Heterodoxy.

Egmont Kakarot-Handtke

Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Romer, P. (2015). Mathiness in the Theory of Economic Growth. American Economic Review: Papers & Proceedings, 105(5): 89–93. DOI

#1 Wikipedia
#2 For details of the big picture see cross-references Paradigm Shift.