Blog-Reference and Blog-Reference and Blog-Reference on Mar 1
A theory must satisfy TWO criteria ― material AND formal consistency. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing. This is known for 2300+ years: “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 Wikipedia)
Paul Krugman, for one, is quite explicit about how he has solved the Starting Problem: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
Paul Krugman has not realized since his student days that neoclassical economics has already been dead in the cradle 150+ years ago. In other words, the neoclassical premises are NOT certain, true, and primary. In still other words, neoclassical economics is axiomatically false. And when the axiomatic foundations are false the whole analytical superstructure is false.#1 As a result, the microfoundations approach from Jevons/Walras/ Menger onward to DSGE is scientifically worthless.
But Paul Krugman is also a Keynesian, sorta-kinda. Keynes built macro on these premises: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)
Unfortunately, Keynes got macroeconomic profit wrong: “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 is ill-defined the whole theoretical superstructure of Keynesianism is false, in particular, all I=S/IS-LM models.#2
Paul Krugman, of course, realized nothing and used and praised IS-LM as a superior tool for macroeconomic analysis.#3
Needless to emphasize that Walrasian microfoundations and Keynesian macrofoundations do not fit together. Therefore, a synthesis of the two is methodological madness since Samuelson’s 1948 textbook.
To this day, Paul Krugman’s economic policy guidance has NO sound scientific foundations but is plucked out of the thin air of political populism. Because both Walrasianism and Keynesianism are axiomatically false, economic policy advice is to this day no different from the poultry entrails reading of the old Roman haruspex.
#1 For details of the big picture see cross-references Axiomatization.
#2 For details of the big picture see cross-references Keynesianism.
#3 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
Related 'Krugman and the scientific implosion of economics' and 'The Krugman curse' and 'Paul the Menace'. For details of the big picture see cross-references Failed/Fake Scientists.