March 5, 2017

NAIRU ― letting one more NONENTITY go

Comment on Lars Syll on ‘More NAIRU bashing’

Blog-Reference and Blog-Reference

NAIRU is an inept analytical construct just like supply-demand-equilibrium. Nothing real corresponds to it. This, though, does not stop economists from discussing the issue with the same fervor as medieval theologians discussed the question of whether Adam had a navel or not.

The common methodological blunder of theologians and economists consists of the inability to recognize that they are dealing with NONENTITIES. As John Stuart Mill observed long ago: “Mankind in all ages have had a strong propensity to conclude that wherever there is a name, there must be a distinguishable separate entity corresponding to the name; ...”. It is one of the great achievements of science to identify nonentities and put them to rest (e.g. epicycles, ether, phlogiston, perpetual motion machines, absolute space). Scientists have still a lot of nonentity-busting to do in economics but the NAIRU issue has now been settled, see NAIRU and economists’ lethal swampiness.

For details see

Egmont Kakarot-Handtke


REPLY to Ralph Musgrave on Mar 6

You confound TWO issues. The question is: Is the labor market theory as embodied in the NAIRU-Phillips curve true or false? The well-defined criteria for a true theory are material and formal consistency.

The fact of the matter is that the NAIRU-Phillips curve is provable false, that is, it does not satisfy the criteria of material and formal consistency.

It is an entirely DIFFERENT matter what the Bank of England did around five years ago. If they in fact applied the NAIRU-Phillips curve this does NOT prove that the underlying labor market theory is true. It shows only that the BoE believed in a provable false theory.

The two issues of true or false theory and right or wrong policy have to be strictly kept apart. Incompetent economists constantly mix them up, see Schizonomics.


REPLY to Tom Hickey, Ralph Musgrave on Mar 6

There are MULTIPLE interlocking methodological blunders in New Keynesian models. For example, Roger Farmer’s version consists of THREE components each of which is false.

― The Walrasian framework is given with this axiom set: “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)
The representative economist has not realized it but methodologically these premises are forever unacceptable. It should be pretty obvious that the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every model that contains a NONENTITY is A PRIORI false.

― “… an investment equals saving equilibrium condition (IS curve) describing the optimal consumption/savings decision of the representative individual …”. Every I=S/IS-LM model since Keynes and Hicks is false.

― “… a short-run Phillips Curve that expresses actual inflation as a function of expected future inflation and the output gap.”. Every Phillips Curve since Phillips’s original is false.

For details and references see Modern macro moronism.

It holds as a GENERAL rule for every model: If it isn’t macro-axiomatized, it isn’t economics.


Wikimedia AXEC36b Structural-axiomatic Phillips Curve


Wikimedia AXEC121i