August 9, 2020

Disgrace again ― is economics really that bad?

Comment on David Glasner on ‘Why The Wall Street Journal Editorial Page is a Disgrace’


There is a lot of talk about the disgrace of economics these days.#1, #2, #3, #4 Now, David Glasner is pouring petrol on the fire by characterizing The Wall Street Journal’s editorial page as “a self-parody of obnoxious, philistine anti-intellectualism.”

What is the rage all about? It is about Mr. Moore’s claim “Because too often economic theories defy common sense.” This, indeed, is a recurring issue since J. S. Mill debunked the “bigots of common sense” a long time ago.#5 Obviously, there has not been much progress in the meantime.

The fact of the matter is that economists lack the true theory for 200+ years now and therefore regress periodically to common sense: “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)

David Glasner argues: “But Keynesian ideas are also rooted in certain common-sense notions, for example, the idea that income and expenditure are mutually interdependent, the income of one person being derived from the expenditure of another.”

Yes, Keynes famously stated in the General Theory: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This elementary syllogism is false because the premise is false. It is quite commonsensical but nonetheless false that “Income = value of output”. The value of output is normally greater than income and the difference is macroeconomic profit. Profit, though, is a balance of flows and not a flow like wage income. Against common sense: profit is NOT income. A balance and a flow are different things.

Keynes NEVER understood 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.)

What did Keynes do? “In the early thirties he confessed to Roy Harrod that he was ‘returning to an age-long tradition of common sense’.”#6

A fatal move, but After-Keynesians did not spot the blunder to this day.

Economists got macroeconomic profit wrong. Because of this foundational blunder, the whole of economics is proto-scientific garbage. See Ch. 13, The indelible scientific disgrace of economics, in Sovereign Economics.#7

Common sense naively assumes that so many economists can not be wrong for such a long time. As always, common sense is mistaken.

Egmont Kakarot-Handtke