Blog-Reference and Blog-Reference on Nov 20 and Blog-Reference on Nov 21
As Hume said, “... when the road ends at a coal-pit, he [the traveler] doesn’t need much judgment to know that he has gone wrong, and perhaps to find out what has led him astray.”
With DSGE, Walrasian economics has, after 150+ years, reached the end of the coal-pit. Lacking sound scientific judgment, though, Christiano/Eichenbaum/Trabandt maintain: “People who don’t like dynamic stochastic general equilibrium (DSGE) models are dilettantes. By this we mean they aren’t serious about policy analysis…”
Science is NOT about like/dislike but about true/false. The fact is that DSGE is provably false. Because of this, all policy proposals that have ever been derived from DSGE models lack sound scientific foundations.
Science is about the true theory. The characteristic of science is the insistence on consistency: “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)
Economics pretends to be a science but is what Feynman called a cargo cult science “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”
Economists lack genuine scientific instinct/ambition: “The highest ambition an economist can entertain who believes in the scientific character of economics would be fulfilled as soon as he succeeded in constructing a simple model displaying all the essential features of the economic process by means of a reasonably small number of equations connecting a reasonably small number of variables. (Schumpeter, 1946)
Theory construction starts since 2300+ years with clearly stated premises#1: “To Senior belongs the signal honor of having been the first to make the attempt to state, consciously and explicitly, the postulates that are necessary and sufficient in order to build up … that little analytic apparatus commonly known as economic theory, or to put it differently, to provide for it an axiomatic basis.” (Schumpeter)#2
Not only DSGE has failed at constructing the Simple Ur-Model. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept profit wrong.
At the end of the coal-pit, the lethal methodological blunder of DSGE is quite obvious: microfoundations are false since Jevons/Walras/Menger. And Keynes’ attempt to move from microfoundations to macrofoundations failed.#3
The methodologically correct action in the given situation is the Paradigm Shift. False Walrasian microfoundations and false Keynesian macrofoundations have to be replaced by true macrofoundations.
Economics is a failed/fake science. At the end of the coal-pit, it is now quite obvious that scientific dilettantism leads the representative orthodox/heterodox economist astray for 200+ years.
#1 “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)
#2 Microfoundations are given with this verbalized 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)
#3 How Keynes got macro wrong and Allais got it right
Related 'Yes, economics is a bogus science' and 'From false microfoundations to true macrofoundations' and 'Heterodoxy and Pluralism, too, are proto-scientific garbage' and 'First Lecture in New Economic Thinking' and '10 steps to leave cargo cult economics behind for good'. For details of the big picture see cross-references Scientific Incompetence and cross-references Failed/Fake Scientists.
The simple Ur-Model is given with the Economics God Equation on Wikimedia AXEC25.
|The Economics God Equation