January 21, 2018

Rethinking macroeconomics

Comment on Michael Roberts on ‘The macro: what’s the big idea?’

Blog-Reference and Blog-Reference and Blog-Reference on Jan 25

Eighty years ago, Keynes got macro wrong and neither pro-Keynesians nor anti-Keynesians noticed it until this very day.

Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a Paradigm Shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”

After Keynes, an economist who does not see the necessity of a Paradigm Shift is a scientifically incompetent moron.#1

Keynes, though, messed up the shift from microfoundations to macrofoundations. His methodological blunder can be exactly located in the GT “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This syllogism is conceptually and logically defective because Keynes did not come to grips with profit “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Because profit and income are ill-defined the whole theoretical superstructure of Keynesianism is false. It was Allais who identified Keynes’ lethal blunder.#2 Obviously, neither orthodox nor heterodox economists got the message.#3

Until this very day economists did not get the foundational concepts of their subject matter ― profit and income ― right. The major approaches ― Walrasianism, Keynesianism, Marxianism,#4 Austrianism#5 ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economic policy guidance NEVER has had sound scientific foundations from Adam Smith/Karl Marx onward.

So what is the big idea?

It is pretty obvious that one has to go back before Keynes’ failed General Theory and perform the Paradigm Shift from false microfoundations to true macrofoundations.#6 This cannot be done by the present generation of orthodox and heterodox economists who have thoroughly proven their utter scientific incompetence.#7 No idea ― neither big nor small ― will ever come from them.

Egmont Kakarot-Handtke

#1 Microfoundations R.I.P.
#2 How Keynes got macro wrong and Allais got it right
#3 Economists never understood how the price mechanism works
#4 Profit for Marxists
#5 Austrian idiocy ― the case of Hayek
#6 If it isn’t macro-axiomatized, it isn’t economics, Wikimedia AXEC121i