April 12, 2017

Redefining economics (II)

Comment on Simon Wren-Lewis on ‘Economics is an inexact science’

Blog-Reference and Blog-Reference on Apr 13

Science is well-defined: “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)

Science is cumulative. Only certain knowledge can be admitted to the corpus of science because nothing can be built upon uncertain knowledge or mere opinion. And here is the crux of the so-called social sciences: “By having a vague theory it is possible to get either result. … It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (Feynman)

This is why there is no growth of knowledge in the so-called social sciences: “Indeed, Alexander Rosenberg maintains that there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman)

Manifest failure, in turn, is the main reason why the so-called social sciences stubbornly try to soften scientific standards wherever they can, or, as Blaug put it, to play tennis with the net down. This is what the talk of economics as ‘inexact and separate science’ amounts to.

For 200+ years economists bridge the chasm between scientific appearance and proto-scientific reality with excuses: “Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. … There are always differences of opinion at the cutting edge of a science, … But they last longer in economics . . . and there are reasons for that. As already mentioned, rival theories cannot be put to an experimental test. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, … You can’t even count on a long and undisturbed run of history, because the ‘laws’ of behavior change and evolve. ” (Solow)

Economists have to redefine their subject matter. To explain individual and social behavior is NOT their business but the task of psychology, sociology, political science, social philosophy, history, anthropology, biology, Darwinism/evolution theory, etcetera.

Explaining how the actual economy works is the proper task of economics. Economists have failed at this task. After more than 200 years they have not even figured out what profit is, that is, they do not understand the pivotal phenomenon of their subject matter.

For deeper methodological reasons, the so-called social sciences cannot rise above the level of storytelling. And this is what Walrasianism, Keynesianism, Marxianism, Austrianism, and MMT are. Neither approach satisfies the non-negotiable criteria of science, i.e., material and formal consistency.

Economists face this option: to continue with storytelling and to be expelled from the sciences or to restart economics as a systems science. This means in concrete terms to move from false behavioral microfoundations and false Keynesian macrofoundations to objective/structural/behavior-free/consistent macrofoundations. This paradigm shift yields exact and testable systemic laws.#1

Economists have to this day not understood how science works: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle). This means that economics cannot be built upon NONENTITIES like constrained optimization, rational expectations, or equilibrium. After more than 150 years of stagnation at the proto-scientific level patience with economists’ incompetence and excuses wears thin.

Egmont Kakarot-Handtke

#1 For details of the big picture see cross-references Paradigm Shift.