November 2, 2019

Macroeconomics and the fake History of Economic Thought

Comment on George Akerlof on ‘What They Were Thinking Then: The Consequences for Macroeconomics during the Past 60 Years’*

Own post and Blog-Reference and Blog-Reference on Nov 7

Napoleon is supposed to have said “History is a myth agreed upon.” or “History is a set of lies people have agreed upon”. This, of course, holds also for the History of Economic Thought.

Economics is a scientific failure for 200+ years. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory, axiomatically false, and materially/formally inconsistent. Yet, on top of the heap of proto-scientific garbage, George Akerlof tries to erect a false-hero-memorial for MIT: “The primary public policy lesson of Keynesian economics ― that we now knew how to respond to economic downturns ― had been a hard-won fight. It had been fought for decades, with high stakes: nothing less than the maintenance of full employment, rather than lapses into Great Depression.” and “The great public policy question of the day ― how to fight underemployment ― had thus also been solved. This message, significantly homegrown at MIT, was revolutionary relative to the thinking of the early 1930s, when economists could reach no clear consensus regarding how to restore full employment.”

This is a clear case of auto-hypnosis which is the defining characteristic of economists and it traditionally finds expression in the self-propagation of economics as the Queen of Social Sciences.

And this is how MIT economists pulled off their PR stunt: “At the time, Paul Samuelson of MIT was the world’s most famous living economist, known for his Foundations of Economic Analysis and for his numerous articles, but especially for his bestselling introductory textbook. Its early editions began with macroeconomics based on the keystone ‘Keynesian cross’ diagram of Samuelson’s invention, which was the uncontested heart of macroeconomics at MIT.”#1

That much is correct, Samuelson started the economics textbook industry. Needless to emphasize that economics textbooks are scientifically worthless to this day.#2, #3

And this is in detail how the hallucinatory scientific revolution happened: “As a reminder, the Keynesian cross plots income on the horizontal axis and expenditures on the vertical axis. Equilibrium occurs where income and expenditures are equal ― along a 45-degree line from the origin ― but this equilibrium could occur either as a ‘deflationary gap’ below full employment, or at full employment, or as an ‘inflationary gap’ above full employment. The analysis behind the figure explored the consequences of observing that, as Keynes had claimed, equilibrium income occurs where desired savings equals desired investment.”

The first methodological blunder was, of course, to apply the equilibrium concept. Samuelson failed to realize that equilibrium is a NONENTITY.#4, #5, #6, #7 The second fatal blunder was inherited directly from Keynes.

The formal basis of the General Theory is given with: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This elementary two-liner 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.)#8

Let this sink in: Keynes had no idea of macroeconomic profit.

Because the foundational concepts of profit/income are ill-defined the whole analytical superstructure of Keynesianism is provably false. Samuelson, though, did not realize that the Keynesian macrofoundations were fatally flawed and neither did Post-Keynesians, New Keynesians, and Anti-Keynesians to this day.#9, #10, #11

Practically this means that economic policy guidance has NO sound scientific foundations since Adam Smith. Economists bear the intellectual responsibility for the social devastation of economic crises.#12

Because both Walrasian microfoundations and Keynesian macrofoundations are defective the so-called Keynesian-Neoclassical Synthesis is provably false, in particular, all IS-LM models #13, #14 and all Phillips-Curves #15, #16 (except the original one) are proto-scientific garbage.

This, of course, is not the conclusion of George Akerlof. The standard excuse for permanent failure is that economists are struggling scientists and prone to error and neglect like anybody else: “The Keynesian-neoclassical synthesis that had emerged by the early 1960s put constraints on macroeconomics. Foremost, it divorced macroeconomists from working on financial stability. Luckily, after the crash of 2008, the prior work of finance economists has been belatedly acknowledged, and the subfield of macro stability has also emerged as quite possibly the most vibrant research frontier in economics.”

The general public appreciates the humbleness of what it is told are Nobel-worthy scientific geniuses.#17 These repeating We-were-a-bit-wrong-then-but-now-we-are-vibrantly-on-the-right-track confessions are part of the PR stunt called economics. The fact of the matter is: economics is NOT science but political agenda-pushing and economists are NOT scientists but clowns and useful idiots in the political Circus Maximus.#18

The History of Economic Thought, including the History of Macroeconomic Thought#19, is a fake from Adam Smith onward to George Akerlof and beyond. All this stuff ends up with absolute necessity at the Flat-Earth-Cemetery.

Egmont Kakarot-Handtke


* George A. Akerlof, What They Were Thinking Then: The Consequences for Macroeconomics during the Past 60 Years, Journal of Economic Perspectives Vol. 33
#1 “The Keynesian cross diagram is a formulation of the central ideas in Keynes’ General Theory. It first appeared as a central component of macroeconomic theory as it was taught by Samuelson in his textbook, Economics: An Introductory Analysis.” (Wikipedia)
#2 The father of modern economics and his imbecile kids
#3 To this day, economists have produced NOT ONE textbook that satisfies scientific standards
#4 Equilibrium and the violation of a fundamental principle of science
#5 There is NO such thing as supply-demand-equilibrium
#6 What Keynes really meant but could not really prove
#7 Proof of the inherent instability of the market economy
#8 Keynes ― the poster boy for the weakness of the economist’s mind
#9 The elementary production-consumption economy is for a start defined by three macroeconomic axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (Qm≡C−Yw, Sm≡Yw−C). Legend: Yw wage income, W wage rate, L employment, O output, R productivity, C consumption expenditures, P price, X quantity bought/sold.

From these macrofoundations follows the market-clearing price P=W/R (1), which defines the core of inflation/deflation theory, and the average amount of fiat money M=κYw (2).

It always holds Q≡−S (3), in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving and, vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. Eq. (3) refutes the Keynesian I=S. For the elementary investment economy holds Q≡I−S. Saving and investment are NEVER equal, neither ex-ante nor ex-post.
#10 Economics for Economists
#11 Keynes’s Missing Axioms
#12 Econogenics in action
#13 The IS-LM macro imbeciles
#14 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#15 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#16 Links on the Phillips Curve
#17 Scrap the EconNobel
#18 There is NO such thing as “smart, honest, honorable economists”
#19 Wikipedia History of macroeconomic thought

Related 'Failed economics: The losers’ long list of lame excuses' and 'Squaring the Investment Cycle'.

***
REPLY to Barkley Rosser on Nov 4

You say: “And thus has what to do with this thread, Egmontt? Not a damn ed thing, near as I can tell, and you have bored us with this stuff previously numerous times.”

Time to face reality. The readers of EconoSpeak are tired of your kill-and-dump murder stories (Bin Laden, Khashoggi, Al-Baghdadi). You may be bored reading that macroeconomics is proto-scientific garbage since Keynes. However, it is certainly a sensation for the EconoSpeak audience to learn that your whole academic cohort got the elementary algebra of macro wrong. From this, one may conclude that your foreign policy comments, too, are worth even less than a fart.

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REPLY to Barkley Rosser on Nov 5

I=S ⇒ false macro algebra ⇒ Keynes et al.
Q≡I−S ⇒ correct algebra.

The formal proof has been given in the References which were not uploaded because of space restrictions at EconoSpeak. See #9.

***
REPLY to Barkley Rosser on Nov 7

You say: “You have just confirmed that I am right and verified that you are mathematically incompetent and innumerate. There is no algebra problem here. The issue is simply one of competing definitions.”

When confronted with a clear-cut true/false question, the swampies of economics always take the emergency exit of ‘That’s just a matter of definition’. This is excuse No. 26 from my 54-item compilation of economists’ brain-dead methodological blather: “The issue is largely definitional and, as Lewis Carroll pointed out, everyone is entitled to his own definitions. (Blinder)”#1 This is the Humpty Dumpty Fallacy.#2 Definitions have to be consistent. The methodological fact of the matter is that the definitions of profit/income/ saving are inconsistent for 200+ years.

You say: “So, Egmont, as I have pointed out here on numerous occasions, the US National Income and Product Accounts (NIPS), whose practices are imitated in nearly all nations now, defines investment and savings in a way that I=S, simply by definition.”

Keynes’ I=S rests on the premise “Income = value of output”#3 which is provably false because it implies that macroeconomic profit is zero which is obviously NOT the case. So I=S is NOT true “simply by definition” but empirically false. Q≡I−S is materially and formally correct. The remaining question is whether economists are too stupid for elementary algebra or whether they intentionally let profit disappear from the sectoral balances equations.#4-#10

I am well aware of the practice of NIPS accounting and I have shown in detail where it goes wrong.#11 See, in particular, section 1.9 Cooked transaction recording.

As a fake scientist, you do not address the clear-cut challenge [I=S ⇒ false, Q≡I−S ⇒ true) but appeal to authority (NIPS) and majority (nearly all nations).

From the fact that all national accountants define things “in a way that I=S, simply by definition” does NOT logically follow that I=S is true but that all national accountants are either stupid or corrupt or both.

What is known for 2300+ years ― except to economists ― is: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen)

The methodological fact of the matter is that both microeconomic axioms and macroeconomic axioms are materially/formally inconsistent and this explains why economics is not more than incoherent blather and why the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a fraud.

Economics has NEVER been anything else than brain-dead political agenda-pushing and your Al-Baghdadi post just proves it again.


#1 Failed economics: The losers’ long list of lame excuses
#2 Humpty Dumpty is back again
#3 “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)
#4 Wikipedia and the promotion of economists’ idiotism (II)
#5 The magic circuit and how economists got it wrong
#6 Why economists know nothing
#7 Substandard reasoners
#8 Economists’ proto-scientific methodology
#9 Mental messies and loose losers
#10 How to get out of the swamp of ignorance
#11 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

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REPLY to Barkley Rosser on Nov 8

You say: “So, Egmont, as I have pointed out here on numerous occasions, the US National Income and Product Accounts (NIPS), whose practices are imitated in nearly all nations now, defines investment and savings in a way that I=S, simply by definition.”

I say: “I am well aware of the practice of NIPS accounting and I have shown in detail where it goes wrong.#11 See, in particular, section 1.9 Cooked transaction recording.”

I conclude: “From the fact that all national accountants define things “in a way that I=S, simply by definition” does NOT logically follow that I=S is true but that all national accountants are either stupid or corrupt or both.”

You conclude: “Sorry, but this is definitional, and you do not have the rght to imposee your defnition on others, …”

I do not impose anything on anybody, I just bury macroeconomics from Keynes to Hicks to Samuelson to Akerlof to Krugman#1 to Barkley Rosser, including the peer-reviewed economic journals and textbooks of the last 80+ years, at the Flat-Earth-Cemetery.


#1 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It