April 28, 2016

Economic recommendations out of the swamp between true and false

Comment on Anonymous on Noah Smith on ‘Policy recommendations and wishful thinking’


The swamp between the hard rocks of true and false is the natural habitat of quacking frogs, of which there are four species: Walrasians, Keynesians, Marxians, Austrians. These approaches contradict each other. As a matter of logic, only one can be true, but all four can be false. The latter is actually the case. This leaves economists with (i) the scientific alternative, i.e. to initiate the necessary paradigm shift, and (ii), the political alternative, i.e. to be content with the pluralism of false theories and to continue fooling around in the swamp between true and false where “nothing is clear and everything is possible.” (Keynes)

Because economics, as represented by the four failed sects, has never risen above the level of a proto-science it has become popular among economists to question the standards, to lower them or, as Blaug aptly put it, ‘to play tennis with the net down’. When this is pointed out, economists make the Pavlovian salto mortale backward. Here is the complete list of silly excuses.

“Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that. As already mentioned, rival theories cannot be put to an experimental test. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the ‘laws’ of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses.” (Solow)

The bottom line of this verbiage is that economists are incompetent scientists and that economics is what Feynman called a cargo cult science. But having no idea about how the actual economy works means that economists are in NO position to give policy recommendations.

This is not a problem, though. Economists need only give up the claim that what they do is science as explicitly expressed in the title “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” in order to bring public perception in line with reality.

Science is about true/false, all else is sitcom claptrap. After more than 200 years of scientific failure, the world has enough of brain-dead economic blather, worthless policy recommendations, and silly excuses.

Egmont Kakarot-Handtke

Immediately preceding Why don’t economists simply shut up for a while?

REPLY to Kain on Apr 29

You say: ‘Of course they [profit theories] can be different and correct at the same time.’ Only in the intellectual swamp of economics which is the preferred habitat of confused confusers and compulsive blatherers.

(i) Take notice that The Profit Theory is False Since Adam Smith.

(ii) As a consequence of (i) the concept of GDP is false, see ‘The Common Error of Common Sense: An Essential Rectification of the Accounting Approach’ and 'The GDP-death-blow for the economics profession'.

(iii) As a consequence of (i)/(ii) Walrasianism, Keynesianism, Marxianism, and Austrianism are provably false. Because profit is the pivotal concept in economics it holds without exception: when profit is ill-defined the whole theoretical superstructure falls apart.

(iv) Because economists do not understand profit they do not understand how the actual monetary economy works.

(v) Because of the abysmal logical incompetence of economists since Adam Smith economics is a failed science. There is nothing to choose between Orthodoxy and Heterodoxy. See The nothing-to-choose dilemma.

(vi) Because the axiomatic foundations of economics are provably false economists are in NO position to give any economic policy advice. Instead, they have urgently to do some scientific homework: “For it can fairly be insisted that no advance in the elegance and comprehensiveness of the theoretical superstructure can make up for the vague and uncritical formulation of the basic concepts and postulates, and sooner or later ... attention will have to return to the foundations.” (Hutchison)

Conclusion: Because the axiomatic foundations of economic theory are provably false economic policy guidance is worthless or even counter-productive. Economists are a menace to their fellow citizens.

REPLY to Anonymous on Apr 29

You say “... spare me the true/false bullshit.”

(i) Science is about true/false and nothing else. Scientific criteria are well-defined as formal and material consistency.

(ii) Science was there before economics was there. Economists either accept the rules/ethics of science or are not accepted as scientists.

(iii) Economics is a failed science. For the main approaches, proof of either logical or material inconsistency has already been provided.

(iv) Economists are proof-deniers: “... suppose they did reject all theories that were empirically falsified ... Nothing would be left standing; there would be no economics.” (Hands)

(iv) Proof-denial violates scientific standards. Economists violate them on a daily basis at least since the 1940s: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern, 1941)

(v) Economic policy proposals have no sound scientific foundations. Thus, policy disputes resemble nothing so much as a quarrel between poultry entrails readers. Krugman’s application of IS-LM is a case in point.

REPLY to Kain on Apr 30

(i) You insist that there are multiple ways to define profit/income. This widespread methodological hallucination is the hallmark of confused confusers and explains why economists fall regularly over their own conceptual feet. See The Humpty Dumpty Methodology.

(ii) Your advocacy of Post Keynesianism is futile because the formal foundations of Post Keynesianism are provably false. See Why Post Keynesianism Is Not Yet a Science.

(iii) Godley/Lavoie have moved farthest in the right direction but they, too, got profit wrong. See proof in The Emergence of Profit and Interest in the Monetary Circuit.

(iv) Post Keynesians have not realized in more than 70 years that Keynes messed up macrofoundations. See Finalizing the Keynesian Revolution.

(v) For the overdue paradigm shift from microfoundations to macrofoundations see The problem with macro in two words.

(vi) Post-Keynesianism is over just like Walrasianism. Time to come up to speed.

REPLY to Kain on May 2

You say: “So basically you would have to refute Kalecki’s profit equation and claim your own is better than his, if you want to truly debunk the Post Keynesians.”

High time for you to come up to speed, see What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example and 'The Levy/Kalecki Profit Equation is false'.

The refutation of Keynes, Marx, Keen you could also find on SSRN if you were not too much occupied with giving silly advice.