October 28, 2016

The truth about truth in economics

Comment on Lars Syll on ‘What is truth in economics?’


“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)

Economists are aware that they do not have the true theory and because of this they play the issue down by advancing new definitions or, as Blaug put it, by ‘playing tennis with the net down’.

One example is Aumann who simply abolishes the guiding principle of science: “In my view, scientific theories are not to be considered ‘true’ or ‘false.’” (See intro) Relativism and anything goes is and has always been the methodological tenet of political economists ― for obvious reasons.

Scientific truth is well defined for more than 2300 years but economists still have troubles getting their heads around it: “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 Walrasianism, nor Keynesianism, nor Marxianism, nor Austrianism fits the criteria of material/formal consistency and because of this economics is a failed science. More specifically, the scientific embarrassment is this: Orthodoxy is provable false but traditional Heterodoxy has failed to develop a superior alternative.

One possible reaction to this embarrassment is to give up the idea of scientific truth in economics and to resort to anything-goes or to theoryless empiricism. This attitude is rather popular among economists — and it is self-defeating: “If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.”

The truth of the matter is: economists give economic policy advice without having a scientifically true theory. If, by some extraterrestrial intervention, all Walrasians, Keynesians, Marxians, Austrians just vanish tomorrow science suffers no loss and there is a greatly improved chance of finally overcoming unemployment, depression, deflation, and stagnation.

Egmont Kakarot-Handtke