January 30, 2016

How Heterodoxy keeps the Naked-Emperor Zombie alive

Comment on Asad Zaman on ‘Fundamental Flaws of Conventional Economics’


All thinking economists are agreed: orthodox economics is, as Keen famously put it, a naked emperor (2011), or as Quiggin put it, a zombie (2010). This is not news, the embarrassment is well advanced in years “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)

The list of defects is indeed almost endless — and exactly this is the problem. As a matter of methodological principle, the proof of one inconsistency should be enough to refute a theory. Ironically, Orthodoxy has delivered this proof themselves “The enemies, on the other hand, have proved curiously ineffective and they have very often aimed their arrows at the wrong targets. Indeed if it is the case that today General Equilibrium Theory is in some disarray, this is largely due to the work of General Equilibrium theorists, and not to any successful assault from outside.” (Hahn, 1980, p. 127)

The orthodox approach is refuted by every trick in the book — yet it is still trolling around with silly model bricolage. It seems that critique and refutation are not enough to get rid of a failed approach. This, though, is also well known.

• “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)
• “If we feel misgivings ..., all we have to do is to start appropriate research. Anything else is pure filibustering.” (Schumpeter, 1994, p. 577)
• “There is no evidence to suggest that economists abandon degenerating programs in the absence of a progressive alternative.” (Weintraub, 1985, p. 148)
• “There is no alternative that is so obviously superior that it would justify everyone abandoning the current orthodoxy.” (Hausman, 1992, p. 255)
• “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)

Let us call this the problem of the missing alternative or the nothing-to-choose dilemma. What is common to Orthodoxy and Heterodoxy is the incompetence to find a superior alternative to what is easily recognizable as a failed approach: “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992, p. 248) This is a program for secular stagnation. Until a promising alternative is available, the Zombie cannot die.

A repetitive critique of Orthodoxy is a waste of time. Students need to know how the market economy works and need no historical account of how their ancestors messed up both theory and methodology. The sooner all this scientific garbage is referred to the historians of economic thought, the better.

Asad Zaman has not yet got the point but repeats the multitude of already known defects. The curious fact is that Keynes has already pointed the way: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (1973, p. xxi)

These premises are well-known for more than 150 years “For it would not be too much of an oversimplification to present the field as having progressed smoothly and steadily, developing theories of ever greater power and broader scope within an essentially unchanged explanatory framework, based on the concepts of optimizing individual behavior and market equilibrium, that were already central to economic thought in the previous century.” (Woodford, 1999, p. 2)

Or, in the blog version of Krugman: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”.

And here you have it! What we know with absolute certainty is that the new economic paradigm has to be free of these green cheese assumptions. So, there is no need at all to take notice of any peer-reviewed article or textbook or any post which contains maximization-and-equilibrium. Economic policy proposals of marginalists can simply be laughed out of every debate. Because of this, there is no need at all to criticize and discuss DSGE or RBC or the freshwater/saltwater junk on a heterodox blog. What is more, there is no need to criticize and discuss Walrasianism, Keynesianism, Marxianism, and Austrianism. All this is obsolete stuff.

The ground has been cleared over and over again. Debunking has been wildly successful, now the only worthwhile task is construction, or, to paraphrase the great economist and methodologist J. S. Mill: ‘Doubtless, the most effectual mode of showing how the science of Economics may be constructed, would be to construct it ...’ (2006, p. 834)#1

Egmont Kakarot-Handtke

Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Hahn, F. H. (1980). General Equilibrium Theory. Public Interest. Special Issue: The Crisis in Economic Theory, 123–138.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, Vol. 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
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, Melbourne: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Woodford, M. (1999). Revolution and Evolution in Twentieth-Century Macroeconomics. Mimeo, 1–32. URL

#1 How to restart economics