December 17, 2016

Economics ― a Zombie wrestling show

Comment on Lars Syll on ‘Microfoundationalist fantasies’

Blog-Reference and Blog-Reference

Lars Syll summarizes the critique of representative-agent models: “Kevin Hoover has been writing on microfoundations for now more than 25 years, and is beyond any doubts the one economist/econometrician/methodologist who has thought most on the issue.” (See intro)

This argument is intended to give additional weight to the critique of the Lucasian microfoundational program. The followers of this program are encouraged “to do some reflection and at least try to come up with a sound methodological justification for their position.”

How weird is this? Hoover criticizes the representative-agent approach for 25 years! Did it never occur to him that this is a pointless exercise and that the main task of a scientist is NOT to endlessly elaborate on a false theory but to speedily come up with the true theory? Physics did not make progress because of the critique of every single of the 20+ epicycles but by throwing the whole geo-centric thing out of the window and replacing it with heliocentrism. With this effective action, the object of criticism simply vanished into thin air. Criticism is either promptly followed by a Paradigm Shift or it is a distraction that leads even deeper into the swamp of disinformation.

How can anyone waste 25 years by occupying himself with constructs that are so obviously false that scientifically trained non-economists can see it when they open an economic textbook? “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)

To see the utter scientific dilettantism, it suffices to spell out the foundational propositions of standard economics: “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)

These premises of orthodox economics are not merely ‘unrealistic’ but downright silly,#1 yet Heterodoxy has not managed to replace them in the last 150+ years. Heterodoxy instead bloviates about eschatological justification and ontology and methodology.

Obviously, Heterodoxy is as clueless as Orthodoxy: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1991)

What it means is this: Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory and axiomatically false. There is no use at all of one approach criticizing the other. Because all four approaches are provably false they ALL have to go out of the window and be replaced by a superior approach. To do the Paradigm Shift is the mission of a scientifically competent Heterodoxy.

This, obviously, has not happened. To this day, there has not been a competent Heterodoxy. So we are left with the Perpetuum Mobile of four garbage-recycling approaches.

Neither approach can admit to having produced nothing of scientific value for generations and to be falsified according to the well-defined criteria of material and formal consistency. Instead, pluralism is proclaimed. Pluralism is the peaceful coexistence of false theories. The methodological prime directive of pluralism is anything-goes. And when truth, defined as material/formal consistency, is abolished as a guiding principle then there is no falsification. And when there is no serious falsification proto-scientific garbage prevails.

Economics is not part of science but has become a subcontractor of the entertainment industry. Heterodoxy is the black-hatted guy in the Circus Maximus which is set up to keep the audience amused by presenting intellectual Pygmies fidgeting with funny gadgets called models and making some political sound and fury.

To get out of Circus Maximus requires a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations#2 to true macrofoundations. This ― and doing away with both Orthodoxy and traditional Heterodoxy ― is the mission of constructive Heterodoxy.

Egmont Kakarot-Handtke

#1 Ground Control to David Glasner
#2 How Keynes got macro wrong and Allais got it right

For more on macrofoundations see AXECquery.

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