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Mish Shedlock summarizes: “Proponents of the Phillips Curve keep looking for ways in which it works. Yet, another study concludes it doesn’t. The Phillips Curve, an economic model developed by A. W. Phillips purports that inflation and unemployment have a stable and inverse relationship. This has been a fundamental guiding economic theory used by the Fed for decades to set interest rates. Various studies have proven the theory is bogus, yet proponents keep believing.”
The Phillips Curve (better: bastard Phillips Curve) is the centerpiece of standard employment theory. Economists get employment theory wrong for 200+ years. The Phillips Curve has always been the highly visible landmark of economists’ scientific incompetence.
“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)
The materially/formally inconsistent Phillips Curve has to be replaced by the correct macroeconomic Employment Law. For details see
• NAIRU, wage-led growth, and Samuelson’s Dyscalculia
• Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
• NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy
• Full employment, the Phillips Curve, and the end of Gaganomics
REPLY to Stuki on Jan 16
Economists claim to do science from Adam Smith/Karl Marx onward to the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. Fact is, though, that economics is a failed/fake science or what Feynman called a cargo cult science.
The problem does NOT lie in the subject matter but in the fact that economics is a science without scientists. Economics has been hijacked early on by political agenda pushers. These stupid/corrupt folks have produced NOTHING of scientific value in the last 200+ years. They do not understand to this day the elementary mathematics that underlies macroeconomic accounting.#1
Economists can always explain why they are still at the proto-scientific level. You, too, repeat merely worn-out slogans from the long list of lame excuses.#2
The scientific incompetence of economists consists of the fact that it is beyond their means to realize that NO way leads from the understanding of Human Nature/motives/behavior/ action to the understanding of how the economic system works. What makes things worse is that there is NO scientifically valid knowledge of Human Nature/motives/behavior/ action, to begin with.#3
What has to be done is (i) to get rid of all stupid/corrupt agenda pushers, (ii) to execute the Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.
#2 Failed economics: The losers’ long list of lame excuses
#3 Economics is NOT about Human Nature but the economic system
You say: “I want money that maintains its value over the years.”
Economic theory can show you the way but, of course, neither Austrianism nor MMT.
Let us start with the simplest possible economic configuration. The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (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.
Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price is given by P=W/R (1), i.e. the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.
The price is determined by the wage rate, which takes the role of the nominal anchor, and the productivity. From (1) follows W/P=R (2), i.e. the real wage is equal to productivity. Productivity determines the real value of money.
If one wants absolute price stability in the elementary production-consumption economy from beginning to eternity one has to apply the simple rule: change of wage rate = change of productivity.
Needless to emphasize that things become a bit more complex if investment, saving, government, and foreign trade are added. This, though, does NOT alter the core rule that the wage rate has to move synchronously with the productivity.
A fiat money system with perfect price stability is possible. Austrians have been too stupid to figure this out.
You say: “However, for a particular sale, cost is irrelevant to the subjective valuation of the ultimate buyer. ”
Oh no, the Austrian value theory. Take notice that the derivation of the market-clearing price above relates to the economy as a whole and NOT to a particular sale. The argument is based on objective-systemic macroeconomic axioms and not on silly Austrian individualistic subjectivism.
The macroeconomic profit Q≡C−Yw in the elementary production-consumption is zero because of the condition of budget balancing. This is fully compatible with, for example, the film industry making a huge profit and the rest of the economy making a loss of equal magnitude.
Macroeconomic profit, too, is an objectively given and well-defined magnitude. It does not come of wishful thinking or individual necessity but from dissaving, i.e. C greater Yw. Microeconomics in all variants is known by now as a methodological failure.
Get it, Austrianism is dead since its inception. The fact that it still appeals to brain-dead blatherers has to be taken as supporting evidence.
The Austrian core assertion is that laissez-faire would result in a stable economy with overall optimal outcomes. This assertion has never been proven. The provable fact of the matter is that the market economy is inherently unstable.#1
So, the very premise of Austrian economics is false and because of this, the whole verbal superstructure is false. Austrian economics is scientifically worthless and Austrians’ vacuous blather is only good for political agenda pushing.
You say: “There is no such thing as the ‘macro economy’.” You are a casualty of the methodological blunder called Fallacy of Insufficient Abstraction. Macroeconomic profit, for example, is measurable with the precision of two decimal places. Austrians cannot tell to this day what profit is.
It is macroeconomics that is objective. Microeconomics, on the other hand, has never been anything else than psychological/behavioral blather and pointless motive speculation.#2 Austrianism is a case in point.
#1 Proof of the inherent instability of the market economy
#2 The economist as second-guesser, mind reader, and folk psychologist
REPLY to Stuki on Jan 19
You say that economics cannot be a science. This is simply false.
Economics has been hijacked early on by political agenda pushers. These stupid/corrupt folks have produced NOTHING of scientific value in the last 200+ years.
The problem with economics is that it is a science without scientists. For details of the big picture see cross-references Failed/Fake Scientists.
LINKS on Roger Farmer’s ‘Replacing the Phillips Curve: I showed you my macro model. Now show me your macro model’ on Apr 22 and Blog-Reference EV
► NAIRU, wage-led growth, and Samuelson’s Dyscalculia
► Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
► Full employment, the Phillips Curve, and the end of Gaganomics
► NAIRU: an exhaustive dancing-angels-on-a-pinpoint blather
► The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
► NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy
► False economic theory makes bad economic policy
► The five pathetic blunders of Roger Farmer
► Modern macro moronism
► For more details of the big picture see cross-references Employment/Phillips Curve
|Source: Real-World Economics Blog|