March 12, 2016

Low-IQ economics: the beginner’s guide

Comment on Thomas Palley on ‘Self-Protectionist Moment: Paul Krugman protects himself and the establishment’

Blog-Reference and Blog-Reference on Mar 13

Economics is a failed science, but the fatal flaw is not obvious, just the contrary. It holds in general that a false theory is in good accordance with common sense and naive empiricism, and vague enough so as to be almost irrefutable.  Because of this, false theories can survive for centuries. A case in point is the geocentric theory which is intuitively convincing. In marked contrast, the very characteristic of the heliocentric theory is that it is counter-intuitive. This paradigmatic case tells us that common sense and naive empiricism are the most obstinate hindrances to science. This is why J. S. Mill cursed them.

“People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcilable with the theory they held and with a totally different one. It seems strange that such an instance as this, ... , should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.” (Mill, 2006, p. 783)

While common sense/naive empiricism is a nuisance for all sciences they are less so in fields that are remote from ‘the ordinary business of life’ (Marshall) and more so in economics, sociology, psychology, etc. Everybody has something heartfelt to say about wealth, or class struggle, or greed, or sociopaths, or the Good Society, but only a few about quantum entanglement.

Because of this, the inflow of common sense and naive empiricism has always been disproportionally high in economics. This proved to be the intellectual dead weight that prevented the rise of economics above the proto-scientific level of storytelling until this very day.

Walrasianism, Keynesianism, Marxianism, and Austrianism contradict each other. Logic tells us that only one can be true or, more probable, that all are false. The latter is actually the case. The common defect of the familiar approaches is that neither ever came to grips with profit (Desai, 2008, p. 10).

From the fact that the representative economist does not understand the pivotal economic concept follows that economic policy discussions have no scientifically valid foundation whatever. Arguments are hanging in the air because of scientific incompetence on all sides.

Lack of scientific knowledge does not hinder participation in political debate. Rather the opposite. The prerequisites of political debate are opinion and rhetoric, and not knowledge and proof.

Political economics (= non-science, opinion) and theoretical economics (= science, knowledge) are based on different modes of thinking: “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack, 1997, p. 1)

The pseudo-inquirers of political economics use economic theory as a means to push an agenda. Thus, theoretical economics is hijacked and abused. Needless to emphasize that political economics has produced nothing of scientific value since Adam Smith. What we have are various narratives but not the formally and materially consistent economic theory.

What Thomas Palley calls gattopardo economics is good old political economics only a bit more specified in order to characterize the pseudo-inquirers of Orthodoxy. The characterization is spot on, but now we have a problem.

The situation is this: Krugman’s approach is provably false (2014). So far, Heterodoxy is on the safe side. But unfortunately, Post-Keynesianism is also provably false (2011). So, both Orthodoxy and Heterodoxy are good old political economics.

The general public can know by now that political economics is the domain of low-IQ agenda pushers.#1 The scientific content of every economic policy debate is zero. What students of Econ 101 have to clearly understand is that their choice is not between Walrasianism/Keynesianism/Marxianism/Austrianism or Orthodoxy/Heterodoxy but between political economics and theoretical economics.

The task of theoretical economics is to figure out how the actual monetary economy works — no less, no more. Political economists of all colors have failed at this task. Krugman is but one of the many low-IQ economists who can well be an agenda-pushing member of a party but never of the scientific community. The same holds, of course, for Keynes, Hayek, Friedman, Varoufakis, and all the rest of political economists.

The real antagonism in economics is not between Liberalism/Socialism/Communism/ Fascism/etc, the fundamental antagonism is between political economics and theoretical economics, that is, between storytelling and science. The history of economic thought proves that the representative economist is too stupid for science.

Egmont Kakarot-Handtke

Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online,1–11. Palgrave Macmillan, 2nd edition. URL
Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
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.

#1 How the intelligent non-economist can refute every economist hands down.

Related 'Krugman and the scientific implosion of economics' and 'What heterodox economists are embarrassed to admit' and 'Political economics: a playground for scientific deadbeats' and 'On economists’ stupidity' and 'Agenda pushing or science?' and 'Confused Orthodoxy vs. confused Heterodoxy'. For details of the big picture see cross-references Political Economics/Stupidity/ Corruption.