June 29, 2018

Hooray! The formalization issue is finally settled

Comment on Lars Syll on ‘Paul Krugman — a math-is-the-message-modeler’ and ‘Krugman’s formalization schizophrenia’

Blog-Reference and Blog-Reference and Blog-Reference on Jun 30 adapted to context and Blog-Reference

Many people think that economics is part of science. This is a superficial impression. Fact is that economics is part of the entertainment industry. One of the performances that feature regularly in the Circus Maximus is ‘The mysterious death of economics: formalism murdered realism ― or was it just the other way round?’

Of course, the question is not answered. The purpose of Circus Maximus is NOT to settle controversies, the purpose is to keep the show running. This is the main task of the impresario: “Paul Krugman, … is the impresario of this new age, a strident but pathologically clear headed critic of the way in which the macroeconomics of the business cycle actually retrogressed after the 1980s.”#1

Circus Maximus, of course, needs more than one impresario. Krugman introduces himself as orthodox loudspeaker: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...”. One of the loudspeakers of Heterodoxy is Lars Syll.

The formalization debate is a joint production of Orthodoxy and Heterodoxy that runs since the time of Jevons/Walras/Menger.#2, #3, #4, #5

Lars Syll delivers an almost lethal blow with the realism argument: “So when Krugman and other ‘modern’ mainstream economists use their models — standardly assuming rational expectations, Walrasian market clearing, unique equilibria, time invariance, linear separability and homogeneity of both inputs/outputs and technology, infinitely lived intertemporally optimizing representative agents with homothetic and identical preferences, etc. — and standardly ignoring complexity, diversity, uncertainty, coordination problems, non-market clearing prices, real aggregation problems, emergence, expectations formation, etc. — we are supposed to believe that this somehow helps them ‘to avoid motivated reasoning that validates what you want to hear’ and provide ‘legitimacy’.”

Indeed, nobody can take the foundational assumptions of Orthodoxy seriously.

Lars Syll, though, as an adherent of the Marshall/Keynes tradition of loose verbal reasoning never had much more to offer than common sense blather and storytelling.#6

Paul Krugman does not fail to put the finger on Heterodoxy’s irreparable defect: “I’ve seen quite a lot of what economics without math and models looks like — and it’s not good.”

And that’s it. Heterodoxy easily knocks down Orthodoxy and Orthodoxy easily knocks down Heterodoxy.

It is pretty obvious that this bunch of cargo cult scientists never understood what methodology is all about. Aristotle put it thusly: “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.”

The fact of the matter is that both Walrasian microfoundations and Keynesian macrofoundations are NOT “certain, true, and primary”. Methodology tells us that if the premises are false the whole analytical superstructure is false.

Formalization is just another word for what Aristotle described as the scientific method or what is called the axiomatic-deductive method: “I mean by this that formalization eliminates provincial and inessential features of the way in which a scientific theory has been thought about. … Formalization is a way of setting off from the forest of implicit assumptions and the surrounding thickness of confusion, the ground that is required for the theory being considered. … In areas of science where great controversy exists about even the most elementary concepts, the value of such formalization can be substantial.” (Suppes)

Fact is that both Orthodoxy and Heterodoxy got the most elementary concepts of economics, i.e. income and profit, badly wrong.#7, #8 This is like medieval physics before the concept of energy was clearly defined and fully understood. Faulty conceptualization, not formalization, is the ultimate cause of failure.#9

Premises have to be clearly stated and conclusions have to be derived in a logically unbroken chain. This minimum requirement applies to all branches of science. But economics is NOT a science but a clown show of confused orthodox and heterodox agenda pushers.

Both Orthodoxy and Heterodoxy got formalization wrong. Both Paul Krugman and Lars Syll are incompetent scientists. Time for the final curtain, time for the impresarios to get out of economics, time to make economics a science.

Egmont Kakarot-Handtke


#1 Gruen, A lucky boy from a golden age of economics
#2 Coming to terms with formalization
#3 Mathiness and the Ur-blunder
#4 Putting the production function back on its feet
#5 For details of the big picture see cross-references Math/Mathiness
#6 Marshall and the Cambridge school of plain economic gibberish
#7 Profit: after 200+ years, economists are still in the woods
#8 Shut up! Do first your macroeconomic homework!
#9 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It

Related 'Beware of the moralizing economist' and 'Why is economics such a scientific embarrassment?' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy' and 'Economics: 200+ years of scientific incompetence and fraud' and 'Enough! Economists, retire now!' and 'Truth by definition? The Profit Theory is axiomatically false for 200+ years'. For details of the big picture see cross-references Failed/Fake Scientists.' *

* Wikimedia, AXEC121e


***

REPLY to Dave Marsay on Jul 2

You say: “My assumption is that, as in GTE, Keynes intended his economic work to be interpreted by reference to his Treatise.”

Just the opposite. Keynes clearly distanced himself from the ToM.

“The relation between this book and my Treatise on Money … is probably clearer to myself than it will be to others; and what in my own mind is a natural evolution in a line of thought which I have been pursuing for several years, may sometimes strike the reader as a confusing change of view.”

“But my lack of emancipation from preconceived ideas showed itself in what now seems to me to be the outstanding fault of the theoretical parts of that work (namely, Books III and IV [of ToM]), that I failed to deal thoroughly with the effects of changes in the level of output.”

“The above definitions of income and of net income are intended to conform as closely as possible to common usage. It is necessary, therefore, that I should at once remind the reader that in my Treatise on Money I defined income in a special sense. … For this reason, and also because I no longer require my former terms to express my ideas accurately, I have decided to discard them—with much regret for the confusion which they have caused.”

There is no use to interpret Keynes for x-th time. Keynesianism is dead for 80+ years but After-Keynesians have not realized it. For details see cross-references Keynesianism.

***
REPLY to davetaylor1, Dave Marsay on Jul 3

In the preface of the GT, Keynes stated clearly how he wanted the book to be interpreted with reference to the Treatise on Money but he says no word that refers to the Treatise on Probability.

So, Dave Marsay’s statement is false independently of whether he refers to ToP or ToM

As the quotes from the GT above show, Keynes wrestled with the definition of income/saving and this has nothing to do with probability.

This is the key statement from the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes never came 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., 2010)

Because Keynes got the foundational concepts profit/income/saving wrong the whole analytical superstructure of Keynesianism is scientifically worthless, and no reinterpretation in the light of ToP or anything else can save it.

Keynesianism is dead for 80+ years. Walrasianism is dead for 140+ years. Asad Zaman is right: “a radical paradigm shift is required.”

***
LINK for userfriendlyyy on Jul 3

Kalecki’s profit equation is long dead. See Profit: after 200+ years, economists are still in the woods.


***
REPLY to Dave Marsay on Jul 3

There is science, and it is binary true/false with NOTHING in between. Truth is well-defined since 2000+ years by formal and material consistency. And there is the large swamp of cargo cult science where, as Keynes said, “nothing is clear and everything is possible.”

In the swamp, vagueness, indeterminacy, inconclusiveness, confusion dressed up as complexity, unresolved contradictions, storytelling, filibuster, gossip, finicky scholasticism (Popper), known/unknown unknowns, nonentities, and the Humpty Dumpty Fallacy are the prevailing components of communication.

Keynes was a swampie and a defender of the Cambridge tradition of lose verbal reasoning.#1 On rare occasions, Keynes wrote down an unambiguous syllogism, e.g. “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

Too bad that this rather elementary two-liner is provably false. This is sufficient to refute Keynesianism. Inconsistency is lethal in science. Fortunately for Keynes and After-Keynesian swampies, economics is only a titular science.#2 Because of this, people can have conversations about ‘What Keynes really meant’ until they are blue in the face. Zero outcomes guaranteed.#3



***
REPLY to Craig on Jul 4

You say: “Macro-economics will never solve the problems it has correctly identified because they aren’t looking in the right places to solve them …”

There is no point any longer in bashing or reinterpreting macro or micro.#1, #2 Orthodoxy, Heterodoxy, and Pluralism are provably false. More specifically, they are axiomatically false, that is, beyond repair.

In this situation, the representative economist has only this options left (i) to work on the paradigm shift or (ii) to throw himself under the bus.

Science is binary true/false with NOTHING in between.




***
REPLY to Craig on Jul 7

You violate the first rule of science: Do NOT apply religious/spiritual concepts in an economic argument.#1

Scientific truth is well-defined by material/formal consistency. The rest of human communication is just brain-dead blather.



***

REPLY to davetaylor1 on Jul 9

You say: “Forget Adam Smith’s invisible hand at your peril, but do realise it is a metaphor for a control system. A much less mystical metaphor… has long been available in the theory and practice of navigation, i.e. Cybernetics. As an economist Keynes did not think of that, but like a baby taking its tentative first steps, he did go some way to re-inventing it for steering economies.”

Take notice that Keynes got the whole thing wrong and Post-Keynesians blindly followed him. Methodologically, economics is a system science but economists second-guess for 200+ years Human Nature/motives/behavior/action.

To this day, economists have been unable to give a consistent description of how the monetary economy works. Economists do not even know what profit is. This is like medieval physics before the concept of energy was consistently defined and fully understood.

For this compelling methodological reason, a paradigm shift is necessary which means practically that Walrasianism, Keynesianism, Marxianism, Austrianism, is buried at the Flat-Earth Cemetery

Here are the correct systemic foundations of economics.#1, #2 The elementary production-consumption economy is, for a start, defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C). From this follows Qm=−Sm, that is, macroeconomic profit comes in the most elementary case from the growth of household sector debt.#3

Capitalists don’t know this. Workers don’t know this. Orthodox economists don’t know this. Heterodox economists don’t know this. And davetaylor1, too, does NOT know the most elementary fact about the economic system.




***

REPLY to Dave Marsay on Jul 10

You say: “Egmont, I think of science as having two types, the theory and application, rather like economics. The theory has to be definite and may appear dogmatic, as you suggest. But surely a dogmatic application of a theory to a real domain is just pseudo-science?”

NO, there are NOT two types of science but science is defined by material AND formal consistency. BOTH!

This is why Gauss, long before Hilbert, tested Euclidean geometry: “One of the most famous stories about Gauss depicts him measuring the angles of the great triangle formed by the mountain peaks of Hohenhagen, Inselberg, and Brocken for evidence that the geometry of space is non-Euclidean.” (Brown)

Genuine scientists, which excludes both orthodox and heterodox swampies, have very thoroughly thought about what distinguishes science/truth from blather, i.e. the demarcation problem: “So the idea of truth (of an ‘absolute’ truth) ... is our main regulative idea.” and “Although nowadays we have given up the idea of absolutely certain knowledge, we have not by any means given up the idea of the search for truth.” (Popper)

Scientists do not claim that a theory represents the absolute truth about a subject matter but that it is the best mental representation of reality that is humanly possible. This leaves the door open for anybody to come forward with an even better theory.

Neither orthodox nor heterodox economists ever understood this and that is why economics is a failed science or what Feynman called a cargo cult science.#1, #2, #3

Luckily for economists, scientific failure does not prevent a career as useful political idiot.



***

REPLY to Dave Marsay on Jul 10

You say: “I suspect (as I do with Lars) that our underlying thoughts and intentions are compatible, but our expressions are infected by our backgrounds and experience. I hope so!”

No, our underlying thoughts are definitely NOT compatible.

For example, you put Keynes, Russell, Whitehead in one row. So you give Keynes the status of a scientist who was seriously committed to material/formal consistency. Keynes’ inconsistency, though, was a running gag among contemporaries: “If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.” (Churchill)

So, what you are in effect trying is to erect a False-Hero-Memorial. Keynes was not a scientist but a political agenda pusher and an adherent of the Cambridge School of Lose Verbal Reasoning: “Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. . . . Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from ‘the richness of context’.” (Coates)

Between the Treatise on Probability, which applies with an entirely un-Keynesian consequence the axiomatic-deductive method (pp. 133-135) and the General Theory there is a plain methodological contradiction: “In the early thirties he [Keynes] confessed to Roy Harrod that he was ‘returning to an age-long tradition of common sense’.” (Coates)#1

Thus, Keynes became the idol of the anti-math crowd: “From his discussions with Wittgenstein, Keynes was well aware of the significance of vague concepts and the possible trade-off between precision and accuracy: This led him to conclude that formalization runs the risk of leaving behind the subject matter we are interested in. Formalization thus also runs the risk of increasing rather than decreasing muddle.” (Coates)

Keynes’ own muddle can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (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.)

The economist Keynes never understood the foundational concept of his subject matter. Because profit is ill-defined the whole analytical superstructure of Keynesianism is false.#2 Fact is that Keynes’ little syllogism is inconsistent and that, by consequence, all I=S/IS-LM models are false from Hicks to Krugman and beyond.#3

The problem with economics is NOT, as you argue, that a true theory is misapplied in a crisis but that there is no true theory, to begin with.#4 Economics is a cargo cult science. Macro is proto-scientific garbage for 80+ years and neither the mathematician Dave Marsay nor the heterodox economist Lars Syll has realized it to this day.

Who cannot be taken seriously in matters of logic cannot be taken seriously in matters of methodology.



***

Missing-Link message on Jul 11 Blog-Reference RWER

Reply somehow vanished. For the full text see
https://axecorg.blogspot.com/2018/06/hooray-formalization-issue-is-finally.html

***

REPLY to davetaylor1

You say: “Davetaylor1, then, does know something about the economy, having lived in for over eighty years and thought about it for sixtyfive.”

This is very interesting for any sitcom but annoying in a scientific discussion. See  Show first your economic axioms or get out of the discussion.

***

REPLY to Craig on Jul 12

Of course, you are right, in my post above I did not mention the cosmos. So here is the enlarged set of foundational propositions.

(A0i) The set of all things and all events is the logical cosmos.

(A0ii) The subset of the logical cosmos that is mentally/physically accessible to earthlings is the empirical cosmos.

(A0iii) The economy is a subset of the empirical cosmos.

(A0iv) The objectively given and most elementary systemic configuration of the world-economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.

(A0v) For a start,#1 the elementary production-consumption economy is given with three macroeconomic axioms.

(A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L.
(A2) O=RL output O is equal to productivity R times working hours L.
(A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

(A0vi) From the macroeconomic axioms follow models by specification.

(A0vii) The Ur-Model is given by two conditions (X=O, C=Yw) and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C).

The economic Ur-Model tells us two important things: (i) under the condition of market clearing X=O and budget balancing C=Yw, macroeconomic profit is zero and independent of employment, productivity, wage rate, etcetera, and (ii), because of Qm=−Sm macroeconomic profit comes in the most elementary case from dissaving, i.e. the growth of household sector debt.#2

From this, in turn, follows immediately that all microfounded (Walrasian) and macrofounded (Keynesian) profit theories are false.

(A1) to (A3) are the correct macroeconomic axioms to start with. The Prime Cosmic Directive says: If it isn’t macro-axiomatized it isn’t economics.



***
REPLY on Jul 13

Craig

The Second Law of Thermodynamics is implicit in (A0iii) and has been dealt with elsewhere.#1, #2

Dave Marsay

(i) Your questions have already been answered in the post that has vanished (see link). The punchline is: “Who cannot be taken seriously in matters of logic cannot be taken seriously in matters of methodology.” This refers to Keynes and you.

(ii) You ask: “So, not just as a mathematician, I would like to see how you might tackle Keynes’ microfoundational issues, as in his Treatise on Probability, to justify your macro-economics.” Keynes has been refuted in all dimensions.#3 So, forget Keynes.

In the current situation, the only question of interest is the paradigm shift from false Walrasian microfoundations and false Keynesian macrofoundations to the true macrofoundations.#4 If you have a superior set of axioms then it would be an excellent idea to present them.

(iii) You introduce yourself incessantly as a mathematician. This is irrelevant for the current discussion which deals with the foundations of economic theory and NOT with the CVs of participants. I wonder how it comes that you have not detected the logical blunder in Keynes’ foundational syllogism (GT, p. 63) which is by now 80 years old. Time enough for a mathematician to put things straight, one would think.#5


#3 For details see cross-references Keynesianism
#5 For details about how this is done see Jonathan Barzilai, Scientific Metrics

***

Missing-Link message on Jul 13 Blog-Reference RWER

The Reply somehow vanished. For the full text see
https://axecorg.blogspot.com/2018/06/hooray-formalization-issue-is-finally.html

***
REPLY to Craig on Jul 14

You say: “I have said here many times economists ARE NOT LOOKING AT double-entry bookkeeping and so are missing extremely relevant economic insights to be derived from doing so.”

False. Macroeconomic accounting has already been rectified.#1

You say: “You can’t get any more empirical and grounded in the temporal universe than accounting, and it’s not just ‘bean counting’.”

True. For example the macroeconomic Profit Law Qm=−Sm.#2*


#2 For details of the big picture see cross-references Accounting

*  Wikimedia, AXEC143

June 28, 2018

Beware of the moralizing economist

Comment on David Glasner on ‘The Monumental Dishonesty and Appalling Bad Faith of Chief Justice Roberts’s Decision’

Blog-Reference and Blog-Reference on Jun 29

David Glasner applauds the exposure of “the moral rot underlying the horrific Supreme Court decision handed down today approving the Muslim ban, truly, …, a decision that will live in infamy …” and concludes his post with: “But in doing so, Chief Justice Roberts only provides further evidence of his own consciousness of wrongdoing and his stunning display of bad faith.”

The first thing to notice is that whatever the whole post is about it is NOT economics. Now, the economist as scientist is supposed to figure out how the monetary economy works. Science is about IS not OUGHT and because of this, a scientist is NOT supposed to pass moral judgment. Science is about knowledge with truth well-defined as material and formal consistency. As a matter of principle, all moral issues have to be discussed in the political realm and ultimately decided by the Legitimate Sovereign. The economist takes part in this process just like any other citizen and NOT in his capacity as scientist.#1

The problem with economists is that they are incompetent scientists and have NOT figured out to this day how the economy works. Fact is that neither right-wing nor left-wing policy guidance ever had sound scientific foundations. Walrasianism, Keynesianism, Marxianism, Austrianism is mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.

There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Theoretical economics (= science) had been captured from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.

Political economics is NOT science but agenda pushing and the communicative tools of agenda pushing are not proof or logical/empirical refutation but rhetoric and moralizing and attention management in all variants from like/dislike to hype/condemnation.

Science and politics are entirely different realms and they run on incompatible principles. Both realms have to be kept strictly apart because politics always and everywhere corrupts science. This happened in economics.#2, #3, #4

To comment on Supreme Court decisions is NOT the business of the economist. The exposure of “the moral rot” of the judiciary is NOT the business of the economist.

The morality of the economist consists of the adherence to the ethics of science. The ethics of science requires first and foremost to uphold the strict separation of science and politics.#5

Political economics is a monument of dishonesty and bad faith. The only problem of economists in general and David Glasner, in particular, is the “the moral rot” of economics.#6

Egmont Kakarot-Handtke


#1 The moralizing economist is not a good guy but a fake scientist
#2 For details of the big picture see cross-references Political Economics
#3 Economics: a science without scientists
#4 Mirowski, Money and the Unflappable Economist
#5 Scientific suicide in the revolving door
#6 For details of the big picture see cross-references Failed/Fake Scientists

Related 'Overreach: Economists have their fingers in every pie except real economics' and 'Economics: 200+ years of scientific incompetence and fraud' and 'The economist as moralist' and 'Knowledge vs. Belief'' and 'Ditch scientific incompetence!' and 'Political economists ― the village idiots of science' and 'The ethics of science is consistency ― economics is inconsistent' and 'Economics has arrived at the bottom of the proto-scientific shithole' and 'Economics, methodology, morals ― a creepy freak-show' and 'Shut up! Do first your macroeconomic homework!'.

***
REPLY to Frank Restly on Jun 30

You say: “Please remember that the science of economics is based upon political/legal constructs – not some ‘natural law’ that exists throughout the known universe.”

Please remember that the science of economics is NOT a social science but a system science.#1 And while there is NO such thing as behavioral/social laws there exist systemic laws. These are the subject matter of economics.

Please remember that economists have to this day not figured out the systemic laws of the monetary economy.

Please remember that economists can to this day not say what profit is and what the macroeconomic Profit Law states and implies.#2

Please remember that economics does not satisfy to this day the scientific criteria of material and formal consistency.

Please remember that it is the first duty of the scientist to look after the scientific and moral rot of his own discipline.#3


#1 For details see cross-references Not a Science of Behavior
#2 Profit: after 200+ years, economists are still in the woods
#3 For details see cross-references Failed/Fake Scientists

***
REPLY to Frank Restly on Jul 3

You say: “Those systemic laws are laws created by man and subject to change.”

You are playing with the double sense of the word law. Laws in the scientific sense are NOT created by man but are what Nozick has called invariances.#1

The monetary economy is a system and subject to objective-systemic laws e.g. the Profit Law or the Employment Law.#2

You say: “And sure there are accounting identities that equate one person’s expenditure with another’s income.”

These alleged accounting identities are provably false because economists are too stupid for the elementary mathematics of accounting.#3 The statement that one person’s expenditure is another person’s income is the fundamental blunder of economics.#4, #5, #6

Walrasianism, Keynesianism, Marxianism, Austrianism is mutually contradictory, axiomatically false, and materially/formally inconsistent. With this pluralism of provably false theories, economics does not satisfy the well-defined criteria of science.#7 Economics is a failed science but economists award themselves the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. This is the ultimate “Monumental Dishonesty and Appalling Bad Faith” that catapults economists forever out of the scientific community.


#1 Economics: stories, narratives, and disinformation
#2 False and true economic laws
#3 For details see cross-references Accounting
#4 Macro for dummies
#5 Humpty Dumpty is back again
#6 MMT and the magical profit disappearance
#7 The miracle cure of economists’ micro-macro schizo

***
REPLY to Frank Restly on Jul 5

You said: “Those systemic laws are laws created by man and subject to change.”

This proves that you are methodologically light years behind the curve. In very general terms, science is about invariances: “An objective fact is one that is invariant under all admissible transformations.” (Nozick) Translated into economics this means that economists have to figure out the systemic economic laws that underlay the ever-changing historical surface.#1

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Economists lack the true theory. Fact is that economics is a failed science. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Economics is a cargo cult science but claims since Adam Smith/Karl Marx to be a science. This is nothing but “Monumental Dishonesty and Appalling Bad Faith”.


#1 The Synthesis of Economic Law, Evolution, and History

June 27, 2018

Profit: after 200+ years, economists are still in the woods

Comment on Brian Romanchuk on ‘Primer: The Kalecki Profit Equation (Part I)’

Blog-References and Blog-Reference

“A satisfactory theory of profits is still elusive.” (Palgrave Dictionary, Desai, 2008)#1 Isn’t this a bit strange? Economists never get tired of producing microeconomic and macroeconomic models and of giving policy advice and do not know what profit is? Strange but true, the fact is that Walrasians, Keynesians, Marxians, Austrians, and Pluralists are groping in the dark. Because of this, the whole of economics is scientifically worthless.

The ultimate blunder of economics is that both microfoundations and macrofoundations are provably false. As a result, one has multiple profit theories but not the materially and formally correct one.

Brian Romanchuk discuses the Kalecki profit equation and the Levy profit equation. This is a rather pointless exercise because all these equations are provably false.#2, #3, #4, #5, #6

Because economists messed up macroeconomics, more specifically, the axiomatic foundations* of economics,#7, #8 economics still stands at square one.

To make the argument short, the macroeconomic Profit Law for the open economy with a government is given as Q=Qm+Qn with Qm=Yd+(I−Sm)+(G−T)+(X−M). Legend: Q total profit, Qm monetary profit, Qn nonmonetary profit,#9 Yd distributed profit, Sm monetary saving, I investment expenditures,#10 G government spending, T taxes, X export, M import. Because all variables are measurable, the Profit Law is testable.

From the axiomatically correct Profit Law follows immediately that Keynes’ I=S and MMT’s balances equation (X−M)+(G−T)+(I−S)=0 are provably false.#11

The Profit Law is the essential relationship for the monetary economy. For 200+ years now, the Profit Theory is false because economics has not been correctly macro-axiomatized.#12 As Mirowski put it “... one of the most convoluted and muddled areas in economic theory: the theory of profit.”

Egmont Kakarot-Handtke


#1 Profit: after 200+ years still elusive
#2 What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example
#3 Rethinking deficit spending
#4 Kalecki got it wrong, Allais got it right
#5 Heterodoxy, too, is scientific junk
#6 For details of the big picture see cross-references Profit
#7 From false micro to true macro: the new economic paradigm
#8 Essentials of Constructive Heterodoxy: Profit
#9 Primary and Secondary Markets
#10 Squaring the Investment Cycle
#11 Rectification of MMT macro accounting
#12 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?

Related 'DSGE and profit―forget it! MMT and profit―forget it!' and 'The curious non-existence of profit in economics' and 'MMT and grassroots movements' and 'Macroeconomics for retarded economists' and 'The final implosion of MMT' and 'Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?' and 'Mathiness is NOT the problem — scientific incompetence is' and 'Economists: only good at excuses' and 'Ricardo and the invention of class war' and 'The Common Error of Common Sense: An Essential Rectification of the Accounting Approach' and 'MMT: How mathematical incompetence helps the Kelton-Fraud'.

* Macrofoundations


***

REPLY to djrichard on Jul 2

You say: ”I’ve been looking for something that gives a treatment/overview on Kalecki’s equation.”

The real question is why economists in general and you, in particular, don’t know what profit is. The short answer is because economists are scientifically incompetent. In fact, Walrasians, Keynesians, MMTers, Marxians, Austrians, and Pluralists have NO idea of profit ― the pivotal concept of their subject matter. From the viewpoint of science, economics is a failure, from the viewpoint of the general public, economics is a fraud.#1

In order to establish material consistency, one needs measurement and one of the most important measurement tools of economics is National Accounting. The importance of National Accounting for testing of economic models is comparable to CERN for testing in physics. Economists neither understand the significance nor the elementary mathematics of National Accounting.

Economic theory and accounting are like hand and glove. Therefore, it is of utmost importance that the foundational concepts are consistently defined and the SAME in theory and accounting. It is the worst mistake to play accounting against theory/model. At a deeper level, they have a common conceptual/formal core, i.e. the axioms of economics.

Because the nominal magnitudes of accounting are a subset of a comprehensive theory which is composed of nominal and real variables, the concepts have to be consistently defined in theory and then applied one-to-one in National Accounting. Theory has to take the lead.

It holds: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen) Fact is that Walrasian microfoundations and Keynesian macrofoundations are axiomatically false.#2 This is why economics is a failed science and why Michal Kalecki’s and Brian Romanchuk’s profit theory is false.#3


#3 For details see cross-references Kalecki

June 25, 2018

It has been said before but economists still don’t get it

Comment on Nick Rowe’s ‘Hydraulic Monetarism’

Blog-Reference and Blog-Reference

Nick Rowe concludes: “I’ve said all this before (and it’s all in Yeager and Clower and others). But maybe I’ve said it clearer this time.”

It has been said before: microfounded economics from utility maximization to supply-demand-equilibrium is false for 140+ years but one fraction of economists does not grasp it (= Orthodoxy) and the other fraction has never come forward with a superior alternative (= Heterodoxy). The theory of money circles in the endless loop of repetition ― except for MMT.

MMT has made the valid point that orthodox monetary theory is stuck with ridiculous barter stories and entirely misses the reality of fiat money. Fiat money does not circulate but is permanently created and destroyed. So, there is no fixed stock of money, to begin with. Let us call this lethal blunder of Orthodoxy the Moneybag Fallacy.

The Moneybag Fallacy was rectified by Wicksell and his giro system but for some reason, the news never illuminated the mental darkness of the Quantity Theory folks.

In the monetary economy, there is no direct barter, i.e. part of the stock of good 1 against part of the stock of good 2, but indirect barter, i.e. flow of labor time against the flow of goods. Money is created by wage payments and destroyed by consumption expenditures. In the most elementary case C=Yw, that is, consumption expenditures are equal to wage income, that is, money is zero at the beginning of the period under consideration, is then created and destroyed through the transactions between the business and the household sector, and is zero at the end of the period. NO moneybag there! No circulation there! NO hydraulics there!

In the elementary production-consumption economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.
  • In case (i) the monetary saving of the household sector Sm≡Yw−C is zero and the monetary profit of the business sector Qm≡C−Yw, too, is zero. The product market is cleared, i.e. X=O, in all three cases.
  • In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative.
  • In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive.#1
It always holds Qm+Sm=0 or Qm=−Sm, in other words, at the heart of the monetary economy is an identity: the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Put bluntly, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the macroeconomic Profit Law.

In case (ii)
  • the household sector ends up with a stock of money = deposits at the central bank and the business sector ends up with overdrafts,
  • the change of the household sector’s stock is given by ΔM=Yw−C,
  • the economy falls into recession.
In case (iii) it is just the other way round.

The household sector’s stock at the end of period t is given as the discrete numerical integral Mt=∑ΔM+M0 with M0=0.

Both the commonplace Quantity Theory and Hydraulic Monetarism is proto-scientific garbage.

Egmont Kakarot-Handtke


#1 Money and time

***
REPLY to Nick Rowe on Jun 26

You said in the intro: “If everyone wants to increase their stock of land, and the aggregate stock of land does not increase to satisfy their desire, there is nothing they can do in aggregate, and there is nothing they can do as individuals.”

To compare money with land is as gaga as it gets. MMTers don’t get tired of shouting from every rooftop that money is produced out of nothing at almost no costs. As a matter of principle, the economy NEVER runs out of transaction money if the central bank understands what their primary task is.#1, #2

The apparatus of supply-demand-equilibrium is inapplicable to fiat money. To speak of a money “supply” is the Moneybag Fallacy all over again.

If every household “wants to increase their stock of money” they reduce their consumption expenditures. In this case, C is less than Yw and the deposits of the household sector (= money) increase and the overdrafts of the business sector increase also because the business sector makes a loss and both sides of the central bank’s balance sheet are always equal.

The same holds for a gold-coin economy. If the business sector pays the workers in gold coins and they fully spend their income, i.e. C=Yw, then the coins return to the business sector. If the households save, i.e. C less than Yw, then the household sector’s stock of coins increases until the end of the period under consideration and the business sector’s stock decreases. The business sector makes a macroeconomic loss and this triggers a recession.

In the elementary production-consumption economy, nobody can stop the households from increasing their stocks of money as long as they receive a wage income. The form of money, fiat money or gold coins, is irrelevant.

The household sector’s stock of money develops according to the discrete numerical integral Mt=∑ΔM+M0, and the business sector’s stock is the exact mirror image except for the initial stock which, however, is zero in a fiat money system.#3

Economists never got the relationship between macroeconomic flows, differences of flows, change of stocks, and stocks straight.


#1 The creation and value of money and near-monies
#2 MMT: Richard Murphy’s battle-for-money hoax
#3 Reconstructing the Quantity Theory

***

REPLY to Benjamin Cole, louis, Majromax, Jeremy Fox, Frank Restly, Roger Sparks on Jun 27

The history of money from the cowrie shell to bullion to coins to notes and to the credit card shows a clear tendency of progressive abstraction. The conclusion of the history of money is that money is information and that the concrete forms of monies are nothing but different data carriers. In the monetary economy of the digital age, the ultimate data carrier is the server at the central bank.

The pathetic blunder of monetary theory is the Fallacy of Insufficient Abstraction. Your idiocy consists of getting caught by the numerous outer forms of money. The abstract essence of the phenomenon is this: Money = Information. There is no ambiguity about money. Money is deposits at the central bank. Bank deposits are near money, not money.#2 And all other historical forms have to be treated as surrogates/substitutes/prefigurations of the real thing.

The theory of money is macro. Some people have realized this: “However, Post Keynesians and Circuitists both hold strongly to the view that the orthodox approach of firstly analyzing a barter economy, and then adding on money as an afterthought, is unhelpful as a foundation for any economic analysis.” (Fontana)

So, you are way behind the curve. The theory of money has to be built upon macrofoundations and not upon silly microeconomic barter or casino stories. The analytical framework is given by the ‘monetary theory of production’. (Keynes)

The remark “I have seen casino chips used for cash in Las Vegas” is not a contribution to the theory of money but proof that the representative economist has no idea about how the monetary economy works and how money functions. It is a wonder of Nature that a dead brain does not impair the faculty of blathering in the econoblogosphere.


#1 Money: from silly stories to the true theory
#2 Basics of monetary theory: the two monies

***
REPLY to Frank Restly on Jun 28

You say: “Simplistic stripped down models can aid in understanding ― it all depends on your audience.”

Because economics is a science the primary audience is the scientific community. The scientific community never had any problems with stripped down models but with FALSE models.

The story of how Zeus threw his thunderbolt at Typhon is NOT a stripped down model of how electricity works but a false model. The same holds for all barter stories. The defining characteristic of the economy is that labor time is exchanged for IOUs/money and money is exchanged for goods. The subject matter of economics is NOT barter or barter with a money-good but the ‘monetary theory of production’ (Keynes).

So, the most simplistic stripped down model in economics has to be a macro model. The ultimate methodological blunder of economics is microfoundations.

The scientific failure of economics is due to economists clinging to microfoundations. A scientist needs to read the microeconomic axioms#1 only once and knows for sure that they are proto-scientific garbage. And methodology tells us that if the axiomatic foundations are false the whole analytical superstructure is false.

Not to see that monetary theory has to be macrofounded is the disqualifying scientific blunder of Nick Rowe. It is not the only one.#3


#1 “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)
#2 Buddha on the microeconomic men in the dark
#3 Nick Rowe’s soapbubbling about money
Is Nick Rowe stupid or corrupt or both?
I is never equal S and even Nick Rowe will eventually grasp it
Cryptoeconomics ― the best of Nick Rowe’s spam folder
Getting out of IS-LM = Getting out of despair
Nick Rowe: Bury me at the end of coal-pit
Macro poultry entrails reading
Worthless Canadian model bricolage
The Humpty Dumpty methodology

***
REPLY to Jacques René Giguère on Jul 4

You say: “Money, cowrie shells or script, was formalized when the village grew too big and exceeded the Dunbar limit.”

You confound historical storytelling with scientific theory. A historical account of the various forms of money is NO substitute for the theory of money, just as the history of the burning of Rome, London, San Francisco etcetera is no substitute for the theory of thermodynamics.

The theory of money has to be embedded in a consistent macroeconomic framework or in what Keynes called the ‘monetary theory of production’.#1, #2

The subject matter of economics is how the actual monetary economy works and NOT historical storytelling.#3


#1 The ultimate ― analytical ― origin of money
#2 How money emerges out of nothing ― the functional account
#3 It has been said before but economists still don’t get it

June 24, 2018

Political economists ― the village idiots of science

Comment on Anonymous on ‘Goebbels or Gompers Addendum’

Blog-Reference

You say: “I should add that I am very concerned about current widespread vilifying of China among American opinion makers both conservative and supposedly liberal.”

I should add that I am also concerned about vilifying China but even more about climate change, growing populism, foreign and domestic hackers, Middle Eastern rogue states, the caged children in the detention camps, the plastic apocalypse in the Pacific, the mass extinction of bees, the new Space Force, the swamp in Washington, Mr. Trump’s tax returns, fake news but most of all about the utter ignorance of economists.

How does it come that economists are not concerned about the state of their discipline?

  • Employment theory has not risen since the founding fathers above the level of Lump-of-Labor polemics.
  • Profit theory is false since Adam Smith/Karl Marx.
  • Walrasianism, Keynesianism, Marxianism, Austrianism is mutually contradictory, axiomatically false, and materially/formally inconsistent.
  • Theoretical economics (= science) has been captured and corrupted by political economists (= agenda pushers).
  • Political economics has produced NOTHING of scientific value. All that has been achieved is a pluralism of provably false theories.
  • Economic policy guidance never had sound scientific foundations.
  • Economists collectively deceive the general public by claiming that they are doing science.
  • Economists reconstruct their history of scientific failure as a history of progress and continuously erect False-Hero-Memorials with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

I am concerned that economists are not at all concerned about their absolute lack of knowledge of how the economic system works but are instead permanently distracted by the vilification of China and any other issue that is blown up by the opinion makers.#1

Economists seem to have forgotten, or have never been told during their substandard education, that their business is NOT opinion (= doxa) or phony concerns but knowledge (= episteme).#2

Egmont Kakarot-Handtke


#1 Shut up! Do first your macroeconomic homework!
#2 Right troll left troll pack your bag and get out of economics

Related 'Yes, economics is a bogus science' and 'Economics: When the scientifically unfit blather about science'. For details of the big picture see cross-references Failed/Fake Scientists and cross-references Scientific Incompetence and cross-references Political Economics.

***
REPLY to Sandwichman on Jul 25

Like Anonymous, we all are “completely impressed, though of course still surprised and dismayed at the racial attacks by Gompers.”

Being on a blog called EconoSpeak, though, we all should now turn to contemporary economics and be “completely impressed, though of course still surprised and dismayed” at the utter idiocy and corruption of economists and the most embarrassing failure in the history of modern science.

June 22, 2018

Right troll left troll pack your bag and get out of economics

Comment on Sandwichman’s ‘War is Peace, Freedom is Slavery, Ignorance is Strength’

Blog-Reference

When one Sandwichman calls one Anonymous on an economics blog a racist and right-wing troll then it is pretty obvious that two morons are abusing economics as a cover for political agenda pushing.

Most people have lost sight of the fact that there is a political realm and a scientific realm. Both run on different principles and therefore have to be kept strictly apart. The reason is simple: science cannot improve politics but politics always and everywhere corrupts science. Economics is a case in point.

There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.#1 And this means, in turn, that economic policy guidance has NO sound scientific foundations since Adam Smith/Karl Marx.

Economists are failed/fake scientists: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum) Fact is that economists do not have the true theory. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational economic concept profit wrong.

Scientific incompetence and political fraud are two sides of the same coin. When folks, who are supposed to know how the monetary economy works but failed to this day to figure it out, climb on a soapbox and start talking about democracy, liberty, freedom, the road to serfdom, the invisible hand, sovereignty, capitalism, communism, fascism, populism, the state as monster/savior, the open society, the deep state, and the alleged lessons of history, then the 200+ years old fraud of Political Economy is reenacted.#2

In order that economics finally becomes a science, all political clowns have to be thrown out. Right-wing or left-wing counts for nothing. In the political Circus Maximus anybody has the right of free speech, in the scientific realm only those who are determined and able to contribute to the growth of knowledge.#3

Egmont Kakarot-Handtke


#1 Economics: 200+ years of scientific incompetence and fraud
#2 For details of the big picture see cross-references Political Economics
#3 Shut up! Do first your macroeconomic homework!

Related 'Nietzsche, entropy, full employment, and NO class war' and 'Political economists ― the village idiots of science'.

***
REPLY to Sandwichman on Jun 23

The core issue of economics is, of course, employment theory. Keynesians claim to this day that Keynes has solved the unemployment problem in principle in his General Theory of Employment, Interest and Money. This is a plain self-delusion, employment theory is still at the proto-scientific level. One reliable indicator of the desperate state is that the Lump-of-Labor ‘theory’ is still around.

The situation will NOT be improved by documenting in great detail how the ‘theory’ has been used and abused by politicians and economists alike over the last 200+ years. Economists should know that science has never been advanced by sifting through political BS.

Fact is, though, that economics is a science without scientists.#1 Economists have not produced one small piece of science but one giant heap of propaganda material. In order to see this, one has only to scan economic texts for keywords like democracy, liberty, freedom, slavery, serfdom, exploitation, happiness, free/perfect markets, the invisible hand, sovereignty, capitalism, communism, fascism, populism, the open society, the faceless bureaucracy, inspiring/corrupt managers, historical cliches from the decline of Rome to Weimar, and finally personal cliches from Nero to Hitler and Stalin. The title of Sandwichman’s post is an example of brain-dead rhetoric: ‘Goebbels or Gompers?: A Closer Look at Stephen Miller’s Immigration Manifesto.’

Without reading more than the first three words, one can know that the whole piece is about anything but economics.#2

It is pretty obvious that any scientific ambition economics may once have had is now gone. Economics has degenerated to storytelling/journalism/sitcom and the only hope left is that it cannot get worse and that EconoSpeak has finally arrived at the bottom of the proto-scientific shithole.#3


#1 For details of the big picture see cross-references Failed/Fake Scientists
#2 Right troll left troll pack your bag and get out of economics
#3 Economics has arrived at the bottom of the proto-scientific shithole

***
REPLY to Anonymous on Jun 23

From the title ‘Why Economists Dislike a Lump of Labor’ alone everybody with an IQ above room temperature can safely conclude that Sandwichman is lost in the proto-scientific woods. Science is about true/false and NOT about like/dislike.

Only people who have been conditioned at Facebook with Skinner’s like/dislike reflex button have some weird interest in what retarded economists feel about the 200+ years old Lump-of-Labor corpse.

What do you think about burying the whole issue at the Flat-Earth-Cemetery?

June 21, 2018

Shut up! Do first your macroeconomic homework!

Comment on Lars Syll on ‘The microfoundations crusade’

Blog-Reference and Blog-Reference

Lars Syll summarizes: “But one thing I do know, is that the kind of microfoundationalist macroeconomics that New Classical economists in the vein of Lucas and Sargent and the so-called New Keynesian economists in the vein of Mankiw et consortes are pursuing, are not methodologically coherent … And that ought to be rather embarrassing for those ilks of macroeconomists to whom axiomatics and deductivity are the hallmark of science tout court.”

What the representative economist has to realize is:

• Microfoundations are dead for 140+ years. Because of this, microfoundatlist macro has never been anything else than a stillborn approach.

• All microfounded approaches invariably crash against the methodological wall of the Fallacy of Composition. Methodologically, there is no such thing as microfounded macro.

• Being content with superficial criticism, Heterodoxy never realized what the lethal defect of Orthodoxy was and never developed an alternative. In methodological terms, Heterodoxy never executed the overdue paradigm shift from microfoundations to macrofoundations.

• Keynes came very close to the paradigm shift but then messed it up. After-Keynesians, with the exception of Allais, failed to this day to spot the blunder in Keynes’ macrofoundations.

Walrasian microfoundations and Keynesian macrofoundations are proto-scientific garbage. Walrasianism, Keynesianism, Marxianism, Austrianism is axiomatically false. Methodologically it holds for the inescapable paradigm shift: If it isn’t macro-axiomatized, it isn’t economics. *

Egmont Kakarot-Handtke


Macroeconomics ― dead since Keynes
How Keynes got macro wrong and Allais got it right
The demise of phony experts: macroeconomics is provably false
True macrofoundations: the reset of economics
How to restart economics
First Lecture in New Economic Thinking
The new macroeconomic paradigm
From false microfoundations to true macrofoundations
Macroeconomics: self-delusion and empty promises
Macro for retarded economists
Macro for dummies
Finalizing the Keynesian Revolution
Keynesians ― terminally stupid or worse?
How to finally hammer down the nails in the coffin of Monty Python economics
If it isn’t macro-axiomatized, it isn’t economics

Related 'Economics: a science without scientists' and 'The fundamental problem of economics: scientific incompetence aka stupidity' and 'Getting out of the economics swamp' and 'Beware of the moralizing economist' and 'Show first your economic axioms or get out of the discussion'. For details of the big picture see cross-references Scientific Incompetence and cross-references Failed/Fake Scientists and cross-references Axiomatization.

*