The trouble with economics prizes begins here: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.
The keyword is science[s]. Why not simply “Bank of Sweden Prize in Economics”? The original title clearly communicates the claim that economics is a science. This claim is as old as Adam Smith/Karl Marx. But economists never lived up to the claim.
Science is well-defined by the criteria of formal and material consistency: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994)
Neither orthodox nor heterodox economics satisfies the criteria of formal and material consistency. Worse, economists violate scientific standards since the founding fathers. There is no exception: Walrasian, Keynesian, Marxian, or Austrian economics is provably inconsistent.
There are political economics and theoretical economics. The founding fathers were straightforward people and called themselves political economists, that is, they left no doubt that their main business was agenda-pushing. Economics never really got out of political economics. In other words, theoretical economics (= science) ultimately could not fully emancipate itself from political economics (= agenda-pushing). How economics became one of the most embarrassing failures in the history of scientific thought requires a more detailed account.
Standard economics is built upon this set of foundational propositions, a.k.a. axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub 1985)
Methodologically, these premises are forever unacceptable but economists swallowed them hook, line and sinker from Jevons/Walras/Menger onward to DSGE. The failure of methodological individualism is indisputable. The ultimate reason can be stated as an impossibility theorem: NO way leads from the explanation of individual behavior to the explanation of how the economic system works.
Because of this, the microfoundations approach has already been dead in the cradle. Methodologically, this leaves only one option. As Joan Robinson put it: “Scrap the lot and start again.”
Keynes started the macrofoundations research program in the General Theory formally as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)
These formal foundations are conceptually and logically defective because Keynes never came to grips with profit and therefore “discarded the draft chapter dealing with it.” (Tómasson et al., 2010)
Keynes’ original blunder kicked off a chain reaction of errors/mistakes. As a result, all I=S/IS-LM models are worthless. Most importantly, Keynes’s profit conundrum remained unsolved. To this day neither Walrasians, Keynesians, Marxians, nor Austrians got profit right. As the Palgrave Dictionary puts it: “A satisfactory theory of profits is still elusive” (Desai). Because economists have no idea of the pivotal concept of their subject matter they cannot explain how the actual economy works. No doubt, economists bear the intellectual responsibility for the social devastations of the Great Depression and other economic crises since then. Economic policy guidance never had a sound scientific foundation. Why are economists awarded prizes and not simply thrown out of science because of manifest incompetence?