October 25, 2016

Economists have no brains

Comment on Editor on ‘Economists have no ears’


You say: “Most introductory economics textbooks present a sanitised, uncritical rendition of conventional economic theory, and the courses in which these textbooks are used do little to counter this mendacious presentation.”

Economics textbooks explain the functioning of the economy using what Leijonhufvud famously called the Totem of Micro/Macro, that is, SS-curve―DD-curve―equilibrium. To this, the hint is added that general equilibrium theory has proven that an overall equilibrium for an arbitrary number of markets exists. The supply-demand-equilibrium explanation is, in fact, a test, albeit an unintended and unnoticed one. Those who accept supply-demand-equilibrium flunk the entry-level intelligence test of science.

It can be taken as a rule that no genuine scientist will ever accept this ridiculous construct as an explanation: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley, 2006)

The proven fact of the matter is that the worst scientific garbage can be presented to economists and it is swallowed hook, line, and sinker. This works reliably with every new generation of students for 150+ years. The proof is in the textbooks. Just take Samuelson’s classic as an example.

There is Orthodoxy with microfoundations and it has been nicely defined by Krugman: “... most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”#1

Methodologically, these premises are forever unacceptable.#2 A smart person realizes this at first glance. Textbook writers from Samuelson to Mankiw did not realize anything.

There is Keynesianism with macrofoundations.#3 These formal foundations are conceptually and logically defective because Keynes never came to grips with profit. Methodologically, Keynes’s premises are forever unacceptable. A smart person realizes this at first glance. From Samuelson onward textbook writers did not realize anything.

In Samuelson’s synthesis, the defective Walrasian microeconomic axioms and Keynes’ defective macroeconomic axioms were cobbled together. His textbook consists of two well-balanced halves: micro and macro. Needless to emphasize that both halves do not logically fit together.

Science is committed to material and formal consistency. Samuelson’s textbook had ― with a probability close to 1 ― the lowermost scientific content of all textbooks ever written. And nothing has improved in the last 69+ years. Supply-demand-equilibrium will forever stand out as the silliest model in the history of sciences and it is still at the core of economics teaching.#4

Let us face it: the disqualifying fault of modern-day economics students is NOT that they are insufficiently literate and insufficiently numerate. The fault is that they are scientifically incompetent. Unfortunately, this holds also for students with a heterodox bent. And this is why Heterodoxy trails Orthodoxy for more than 200 years but cannot overthrow and replace it.#5

Egmont Kakarot-Handtke

#1 More detailed, the starting point is given with these hardcore 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)
#2 For details and proofs see blog and working papers
#3 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)
#4 How to Get Rid of Supply-Demand-Equilibrium
#5 Where advanced Heterodoxy — represented by Steve Keen — took the wrong turn