June 28, 2016

Does economics advance the understanding of economic reality?

Comment on Dean Baker on ‘In the wake of Brexit, will the EU finally turn away from austerity?’


In part 1 of his post Dean Baker writes: “In the lead up to the Brexit vote, there was much discussion of punishment. Wolfgang Schäuble, the finance minister of the European Union, had made several comments implying that the UK would be punished if its people voted to leave the European Union.”

In part 2 of his post, he writes: “The EU leadership apparently likes balanced budgets. It may be something their parents told them. But the EU and the world ... needs to use real economics. And in real economics, the message is clear, they need to run larger budget deficits to boost economies and reduce unemployment.”

The first part is a fine example of folk psychology which informs us that actions are conditioned by the principle of punishment/reward. This kind of ‘explanation’ goes back at least to Mesopotamian angry-good-drowns-humanity stories and it appeals very much to neurotics of the sado-maso-type. Heterodoxy cannot contribute much to the advancement of economics by repeating this psycho-crap that has been ladled out at every street corner for 5000 years.

Economics is about how the monetary economy works and NOT about second-guessing politicians or the people.

The second part alludes to Keynes’s employment theory and advocates deficit spending. There is not much to say against deficit-spending except that it is rather commonsensical and NOT based on valid economic theory. The reason is simple: there is no valid employment theory. More precisely, both orthodox and Keynesian employment theories are PROVABLY false. In other words, neither Orthodoxy nor Heterodoxy understands economic reality.

So, all that society gets from the failed science of economics is folk psychology, confused and scientifically unfounded economic policy advice, and brain-dead political propaganda.#1

Egmont Kakarot-Handtke

#1 For the correct Employment Law see Unemployment ― the fatal consequence of economists' scientific incompetence. See also Iatrogenic economics.