Blog-Reference and Blog-Reference adapted to context
Lars Syll maintains: “The basic problem with [the] definition of neoclassical (mainstream) economics ― arguing that its differentia specifica is its use of demand and supply, utility maximization and rational choice ― is that it doesn’t get things quite right. As we all know, there is an endless list of mainstream models that more or less distance themselves from one or the other of these characteristics. So the heart of mainstream economic theory lies elsewhere. The essence of mainstream economic theory is its almost exclusive use of a deductivist methodology. A methodology that is more or less used without a smack of argument to justify its relevance.”
Arrow formulated the essence of the neoclassical approach in more general terms: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.”
This translates into this set of neoclassical hardcore propositions, a.k.a. verbalized axioms: “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)
There is a simple test of scientific competence: if you do not feel ― after thinking about HC1/HC5 for a second ― the urge to vomit you lack elementary scientific reflexes. And if you think the axiom set is acceptable as the starting point of economic analysis you are forever beyond help.
The point is: economics is NOT about the behavior of agents but about the behavior of the economic system. Economics is NOT a social science but a systems science. From this follows methodologically that economics has NOT to be based on microfoundations but on macrofoundations. Microfoundations are the lethal methodological blunder of economics and the reason why both orthodox and heterodox economics are scientifically worthless. So, microfoundations have to be abandoned. The move from false microfoundations to true macrofoundations is called Paradigm Shift. It was Keynes who messed it up 80+ years ago but economists have not realized it to this day.
So, every economist faces the option to do the Paradigm Shift or to be buried at the Flat-Earth-Cemetery together with the preceding Walrasian, Keynesian, Marxian, Austrian losers and their heap of proto-scientific garbage.
► Where economics went wrong (I)
► Where economics went wrong (II)
► Where modern macroeconomics went wrong
► Modern macro moronism
► Macroeconomics: Drain the scientific swamp
► Macro of and for the scientifically blind and deaf
► Funny folks in the big omnibus
► Macroeconomics and the fake History of Economic Thought
► Rethinking macro
► The new macroeconomic Paradigm
► From false microfoundations to true macrofoundations (II)
► True macrofoundations: the reset of economics
► The canonical macroeconomic model
► For details of the big picture see cross-references Axiomatization