March 18, 2019

To this day‡, economists have produced NOT ONE textbook that satisfies scientific standards

Comment on Peter Dorman on ‘Introductory Econ Textbooks: A Different Take on the Issues’

Blog-Reference and Blog-Reference and Blog-Reference Mar 19 and Blog-Reference Mar 22

Peter Dorman summarizes: “Mankiw lays out three alternatives, teaching the mainstream and suppressing your own views, teaching minority or fringe views (i.e. your own), or not teaching introductory econ at all. … Whenever possible, I point out where other disciplines differ, and while I encourage students to judge for themselves, I don’t pressure them into adopting any one point of view. This is called critical thinking, and it barely exists in the world of economics textbooks, which proselytize shamelessly.”

No, this is NOT critical thinking. This is post-modern anything-goes, i.e. the pluralism of provably false theories. Economics is scientifically indefensible: “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)

And this is the crux of the matter: economists do not have the true theory. This is where we stand today: provably false
• profit theory, for 200+ years,
• microfoundations, for 150+ years,
• macrofoundations, for 80+ years,
• the application of elementary logic and mathematics since the founding fathers.

Economics is what Feynman called a cargo cult science and the textbooks reflect this. Economics is in need of a Paradigm Shift.#1 Since Samuelson started the textbook industry in 1948, economists have produced NOT ONE textbook that satisfies scientific standards.#2 Since generations, economics students swallow proto-scientific garbage without batting an eyelid. Not very smart, these folks.#3

Needless to emphasize that there have been multiple attempts to improve the situation. The latest initiative comes from MMT. MMT claims to be the new approach that beats failed Orthodoxy. This is accurate with regard to the long-overdue shift from microfoundations to macrofoundations. Microfounded approaches are dead already since Walras/Jevons/ Menger.#4 The problem is that economists messed up the shift from microfoundations to macrofoundations.

MMT is NO exception. And the proof is in the new MMT Textbook, more specifically in the premises of MMT.#5 The premises are laid out on pp. 13-16 and pp. 83-86.

“One of the most basic propositions in macroeconomics that MMT emphasizes is the notion that at the aggregate level, total spending equals total income and total output.” (p. 14)

Unfortunately, the most basic proposition in macroeconomics is false since Keynes, and MMTers have not realized it to this day. Here is the short proof that economists in general and MMTers, in particular, get the elementary mathematics that underlies macroeconomics wrong.

(i) The elementary production-consumption economy is given by 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.

(ii) The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. X=O.

(iii) The monetary profit of the business sector is defined as Q≡C−Yw,

(iv) The monetary saving of the household sector is defined as S≡Yw−C.

(v) Ergo Q≡−S.

The balances add up to zero. The counterpart of household sector saving S is business sector loss −Q. The counterpart of household sector dissaving (-S) is business sector profit Q. Both Q and S are measurable with the precision of two decimal places.

For the elementary investment economy holds Q≡I−S. For the elementary investment economy plus government holds Q≡(I−S)+(G−T). And so on with growing complexity.*

In sum: (1) profit is NOT income, i.e. a flow, but a balance, i.e. the difference of flows,#6 (2) distributed profit Yd is income and adds up with wage income Yw to total income, (3) total income is NEVER equal to total spending, (4) in the most elementary case, the difference between total spending of the household sector C and total wage income Yw is saving/dissaving, (5) profit/loss of the business sector is the mirror image of dissaving/ saving of the household sector, i.e Q≡−S, (6) saving and investment are causally INDEPENDENT and NEVER equal, (7) all I=S/IS-LM models are false since Keynes/Hicks, (8) Keynesianism, Post-Keynesianism, New Keynesianism and all variants are scientifically worthless, (9) the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false because it lacks the balance of the business sector Q, (10) because profit is false, the whole of MMT is false, (11) because the theory is false, MMT policy guidance has no sound scientific foundations.

What holds for the new MMT Textbook holds mutatis mutandis for ALL predecessors including Peter Dorman’s Microeconomics and Macroeconomics: A Fresh Start.

Egmont Kakarot-Handtke

#1 New Economic Thinking: The 10 crucial points
#2 The father of modern economics and his imbecile kids
#3 There is NO such thing as “smart, honest, honorable economists”
#4 The problem with macro in two words
#5 William Mitchell, L. Randall Wray, and Martin Watts Macroeconomics
#6 The Profit Theory is False Since Adam Smith

Related 'False on principle' and 'Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist' and 'Nothing to choose between Orthodoxy and traditional Heterodoxy' and 'Heterodoxy ― an axiomatic failure just like Orthodoxy' and 'Economists’ three-layered scientific incompetence' and 'Textbooks and the mental cloning of dumb economists' and 'Refuting MMT’s  Macroeconomics Textbook' and 'Economics textbooks ― tombstones at the Flat-Earth-Cemetery' and 'All behavior-based economic textbooks are false' and 'Occasional Tweets #210103: Economics textbooks to throw away' and 'The new economic Paradigm requires a new textbook'.

Wikimedia AXEC143d

REPLY to Barkley Rosser on Mar 19

Above, Peter Dorman recounts: “We just saw a ‘Nobel’ prize awarded to an economist, Bill Nordhaus, whose primary claim to fame is an application of the welfare framework to climate change. Nearly every economist working on climate issues adopts the same approach. It would not be an exaggeration, however, to say that the vast majority of climate scientists regard their work as nuts.”

It is a plain fact that economics textbooks are the main medium for the faithful reproduction of nutters.#1

Everybody who ever accepts microfoundations#2 and supply-demand-equilibrium proves conclusively his scientific incompetence.

As Hahn put it in 1980: “I often wonder whether other subjects suffer as much from textbook writers.” Certainly not, because in the genuine sciences nutty textbook writers like Samuelson are not awarded fake Nobels.

#2 Microfoundations are given with this or a similar behavioral 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)


‡ "To this day" means precisely June 25, 2020. See, BoD,, etc.

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