October 11, 2016

The road that turned out to be a blind alley

Comment on David Glasner on ‘Rational Expectations, or, The Road to Incoherence’


A paradigm is defined by its axioms. Orthodox economics is built upon this set of foundational hardcore propositions: “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)

The representative economist has not realized it but methodologically these premises are forever unacceptable. It should be pretty obvious that the neo-Walrasian hardcore contains THREE NONENTITIES: (i) constrained optimization HC2, (ii) rational expectations HC4, and (iii) equilibrium HC5.

Nowadays, all scientists agree that angels, phlogiston, epicycles, Superman, and the Easter Bunny are NONENTITIES. As far as economics is concerned we can agree that utility, constrained optimization, intertemporal optimization, rational expectation, well-behaved production functions or supply-demand-equilibrium are NONENTITIES just like the Easter Bunny. Every model that contains a NONENTITY is a priory false. In practical terms: as soon as the word equilibrium/disequilibrium appears in an economic paper it can be thrown into the wastebasket. The same holds for all other NONENTITIES.

The discussion of models that contain NONENTITIES is vacuous. Nick Rowe, J. W. Mason, and David Glasner resemble medieval witch hunters who exchange their opinions about the difference between incubus and succubus.

Rethinking economics means discarding the failed paradigms and fully replacing Walrasian microfoundations and Keynes’ flawed macrofoundations with something better which has to be entirely free of NONENTITIES. As Romer has recognized, with DSGE, economics has hit the wall at the end of the blind alley.

Egmont Kakarot-Handtke

For details of the big picture see cross-references Failed/Fake Scientists and cross-references Paradigm Shift.

REPLY to Anonymous on Oct 14

I have proven#1 that:
― Walrasian microfoundations are materially/formally inconsistent for 150+ years,
― Keynesian macrofoundations are materially/formally inconsistent for 80+ years.

From this follows:
― economics is a failed science,
― economists are incompetent scientists.

Refute it or retire.

#1 For details see the blog