“We are storytellers, operating much of the time in worlds of make believe. We do not find that the realm of imagination and ideas is an alternative to, or retreat from, practical reality. On the contrary, it is the only way we have found to think seriously about reality.” (Lucas, 1988, see intro)
Something is wrong with this argument.
Imagine, you tell a group of medieval philosophers that their prolonged inconclusive talk about how many angels can dance on a pinpoint is senseless/weird/stupid/fallacious and get the answer “this the only way we have found to think seriously about reality.”
Think twice, to talk about blatant NONENTITIES like utility, equilibrium, rational expectations, and so on is the ONLY way you have found to think about REALITY? Clearly, you have found nothing at all.
And it is not exactly storytelling what is going on since Jevons/Walras/Menger, it is pseudo-scientific blather: “The currently prevailing pattern of economic theorizing exhibits the following three characteristics: (1) a syncopated style of argument fluctuating back and forth between literary and symbolic modes of expression, (2) naive translation, or the loose paraphrasing of formulae into sentences, and (3) loose verbal reasoning for certain aspects of theoretical argumentation where explicit symbolic formulation is lacking.” (Dennis, 1982, p. 698)
What everybody understands is that Lucas cannot possibly say: ‘I am a scientifically incompetent blatherer’. So let us take “storytelling” or “loose verbal reasoning” for it.
This is the actual situation: economics is a failed science and the ultimate cause is the scientific incompetence of both orthodox and heterodox economists.#1 Walrasianism, Keynesianism, Marxianism, and Austrianism contradict another. 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).
And, lo and behold, monetary profit is — in contradistinction to the paradigmatic NONENTITY utility — a very real and measurable magnitude. Everybody can touch it in the cash box or see it on the bank account with the precision of two decimal places. The fact of the matter is that economists have not figured out to this day what the overall profit of an economy is and what its determinants are (2014).
The very characteristic of scientific thinking is to deal with entities, preferably with measurable entities like profit, and NOT with blatant NONENTITIES like utility/maximization/ equilibrium. The foundational error/mistake of economics has been to miss the subject matter altogether.
From the fact that the representative economist does not understand the foundational economic concept profit follows that economic policy discussions have no scientifically valid foundations whatsoever. Arguments are hanging in midair because of scientific incompetence on all sides. The economist’s contribution to the solution of economic problems is at the same level as any witch doctor’s or agenda pusher’s proposal. This is what storytelling implies.
Storytelling is disqualifying for a scientist. The only way out of the cul-de-sac economics has trapped itself in is to avoid NONENTITIES like the plague and to deal exclusively with entities. For a start, here is a shortlist of the most obvious NONENTITIES: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions, supply/demand functions, simultaneous adaptation, rational expectation, total income = value of output, I=S, real-number quantities/prices, ergodicity. Every theory/model that contains one of these NONENTITIES goes directly into the wastebasket. Only what then remains is acceptable for real scientific discussion and peer review.
Lucas and other storytellers, who have swallowed NONENTITIES hook, line, and sinker since Econ 101, are beyond help. They are out of science for good.
Dennis, K. (1982). Economic Theory and the Problem of Translation (I). Journal of Economic Issues, 16(3): 691–712. URL
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
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
#1 Why economics is a failed science: the 25 best explanations/excuses