January 19, 2016

Economists’ last Hurrah

Comment on Simon Wren-Lewis on ‘Economics Rules by Dani Rodrik’

Blog-Reference and Blog-Reference

Economists do not understand how the market system works. Every interested non-economist with a modicum of scientific instinct or background in the genuine sciences gets this after reading one of the popular textbooks: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley, 2006, p. 17)#1

According to the scientific criteria of material and formal consistency orthodox economics is not acceptable.#2 Because of this, every thinking economist finds himself by default in the heterodox camp. But here only one obvious fact is agreed upon, the rest is blank.

“As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)

Construction never happened. So, there is nothing to choose from. Economics is a failed science. Traditional Heterodoxy offers no hope. For lack of an alternative, Orthodoxy vegetates as a scientific zombie (Quiggin, 2010). There is only one way out of the stalemate: a paradigm shift. This much was already clear after the grand debacle of general equilibrium theory.

“There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)

Until this day, neither Orthodoxy nor Heterodoxy has an idea of what a ‘completely new research program and conceptual approach’ might mean.

In their intellectual stalemate, economists just doctor on the symptoms and continuously repackage the same old garbage. Because the ambition of a general theory admittedly produced merely hot air there is a retreat to partial, small-scale models and theoryless empiricism. Because he cannot explain how the economic universe works the humbled economist now researches the economic goldfish bowl.

The resulting heap of incoherent models is superficially held together by the joint concepts maximization-and-equilibrium. Unfortunately, these concepts are nonentities and methodologically inadmissible as foundational premises of theoretical economics. Nothing can ever be really explained with maximization-and-equilibrium — just because seemingly everything can be explained. Explanation, though, is not worth anything if does not satisfy the criteria of material and formal consistency.

“Everything can be ‘explained’ if we place no restrictions on what we mean by ‘explanation’.” (Blaug, 1994, p. 123)

Wren-Lewis is methodologically anesthetic and does not feel anything when he shots himself in the foot: “The key idea is that there are many valid models, and the goal is to know when they are applicable to the problem in hand.” This is the very definition of ad hocery.

The painful irony of methodologically degenerate economics is that the genuine sciences follow the program of the great economist and methodologist J. S. Mill “... but underneath the complexities [of string theory] is a modern version of John Stuart Mill’s desideratum of fundamental physics: a unified description of all fundamental interactions.” (Farmelo, 2009, p. 436)

Economists are incompetent scientists and never understood their proper task: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)

Economists lack the true theory. But they had always many opinions for the politicians to choose from.#3 Eclecticism, pluralism, and ad hocery is not a virtue in science. Just the contrary: a heap of loosely connected and contradicting models is the very proof of scientific failure. Nothing short of a Paradigm Shift will do.

Wren-Lewis’ and Rodrik’s sales talk about the models-to-go version of the maximization-and-equilibrium approach is the last Hurrah before this 150 years old embarrassment is buried in the Encyclopedia of Proto-Science directly adjacent to the Flat-Earth theory.

Egmont Kakarot-Handtke

Blaug, M. (1994). Why I am Not a Constructivist. Confessions of an Unrepentant Popperian. In R. E. Backhouse (Ed.), New Directions in Economic Methodology, 109–136. London, New York, NY: Routledge.
Farmelo, G. (2009). The Strangest Man. The Hidden Life of Paul Dirac, Quantum Genius. London: Faber and Faber.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
McCauley, J. L. (2006). Response to "Worrying Trends in EconoPhysics". EconoPhysics Forum, 0601001: 1–26. URL
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, NY, Melbourne: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, NJ, Oxford: Princeton University Press.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge, MA: MIT Press.

#1 How the intelligent non-economist can refute every economist hands down
#2 Are economists natural-born scientific failures?
#3 “If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.” (Churchill)