#Economics#Walrasianism, #Keynesianism, #Marxianism, #Austrianism etc. are axiomatically false & materially/formally inconsistent & ALL got #Profit wrong. Therefore, a #ParadigmShift is inevitable.
— E.K-H (@AXECorg) September 14, 2023
The Synthesis of Economic Law, Evolution, and Historyhttps://t.co/dHn56N7bbH
Showing posts with label Law. Show all posts
Showing posts with label Law. Show all posts
September 14, 2023
Occasional Xs: Clueless economists / Time & Evolution
February 12, 2021
Occasional Tweets: Basic economic laws and their implications
#Economics#FailedScience#Reset
— E.K-H (@AXECorg) February 12, 2021
The relationship between real wage W/P and productivity R follows from the macroeconomic Law of Supply and Demand.
10 steps to leave cargo cult economics behind for goodhttps://t.co/WPKN8I2Ien#NewParadigm #Science #MacroFoundations pic.twitter.com/5BBaGNRDvZ
September 17, 2019
The dirty secret of Capitalism: Capitalists have NO idea how Capitalism works
Comment on Nick Hanauer on ‘The dirty secret of capitalism ― and a new way forward’*
Blog-Reference
Tom Hickey summarizes: “Nick Hanauer says the mainstream economists have been captured by the oligarchs. He says how the evidence shows that a pure free market suppresses wages and employment so much that the demand falls off and a viscous circle sets in ― a lack of demand means underperforming companies, which means companies employ less people and pay them less, which generally decreases the demand for goods and services, and so on. Everyone loses, except the 0.1%, the oligarchs.”
Nick Hanauer introduces himself as a successful Capitalist and asks: “How do we manage to grab an ever-increasing share of the economic pie every year?” and “So, what is society to do?” His answer is “We need a new economics” because it is painfully obvious that “The fundamental assumptions that undergird neoliberal economic theory are just objectively false.” The apex of neoliberal falsity is the behavioral assumption of homo oeconomicus. However, the key to a prosperous, complex, and sustainable economy is cooperative behavior. The selfish and greedy behavior of homo oeconomicus is not good but sociopathic.#1
This is, of course, commonsensically true except that it is NOT economics. Economics is NOT about human behavior but about the behavior of the economic system. Human Nature/motives/behavior/action is the subject matter of psychology, sociology, anthropology, biology/evolution etcetera. The lethal blunder of economics is that it defines itself for 200+ years as a social science.#2, #3, #4
The methodological fact of the matter is: NO way leads from the second-guessing of Human Nature/motives/behavior/action to the understanding of how the economic system works. Behavioral microfoundations are the ultimate reason why economics is to this day proto-scientific garbage.
Nick Hanauer asserts: “Unless the laws of physics, the laws of economics are a choice. If we want a new economics all we have to do is chose to have it.” This, of course, is plain scientific incompetence. Profit for the economy as a whole, for example, does NOT depend on whether the one-percenters are sociopathic exploiters or cooperative and emphatic leaders.#5
The macroeconomic 4-sector Profit Law is objectively given by Q≡Yd+(I−S)+(G−T)+(X−M). In the most elementary case of the production-consumption economy, this reduces to Q≡−S, i.e. the mirror image of household sector saving S is business sector loss (−Q). The mirror image of household sector dissaving (−S) is business sector profit (+Q). The point to grasp is that profit for the business sector as a whole depends on the deficit spending of the household sector and NOT on the behavior or achievements of Capitalists. With regard to the state, the Profit Law boils down to Q=(G−T), i.e. Public Deficit = Private Profit. And this explains why Capitalists were able “to grab an ever-increasing share of the economic pie every year.”
Public deficit-spending/money-creation is a free-lunch program for the Oligarchy. The fact is that the so-called free-market economy is on the life support of the state, and Wall Street is on the life support of the Central Bank. Macroeconomic profit is in the main produced by public deficits. Financial wealth grows in lockstep with public debt. The Oligarchy, in turn, uses the opulent free lunches to corrupt what remains of the state’s legislative, executive, and judiciary institutions.
Nick Hanauer is NOT a scientist but an agenda pusher for the Oligarchy like the rest of self-styled New Economic Thinkers.#6 What he tells the TED audience is that Neoliberalism is dead and that he and other enlightened Capitalists are working for a better social and economic order. The fact is that he has NO idea what profit is and how the economy works.
Egmont Kakarot-Handtke
* TED
#1 Actually, this is rather old stuff “No science has been criticized by its own servants as openly and constantly as economics. The motives of dissatisfaction are many, but the most important pertains to the fiction of homo oeconomicus.” (Georgescu-Roegen, 1971)
#2 Economics is NOT about Human Nature but the economic system
#3 Overreach: Economists have their fingers in every pie except real economics
#4 The happy end of the social science delusion
#5 Capitalism, poverty, exploitation, and cross-over exploitation
#6 CORE: more lipstick on the dead economics pig
Blog-Reference
Tom Hickey summarizes: “Nick Hanauer says the mainstream economists have been captured by the oligarchs. He says how the evidence shows that a pure free market suppresses wages and employment so much that the demand falls off and a viscous circle sets in ― a lack of demand means underperforming companies, which means companies employ less people and pay them less, which generally decreases the demand for goods and services, and so on. Everyone loses, except the 0.1%, the oligarchs.”
Nick Hanauer introduces himself as a successful Capitalist and asks: “How do we manage to grab an ever-increasing share of the economic pie every year?” and “So, what is society to do?” His answer is “We need a new economics” because it is painfully obvious that “The fundamental assumptions that undergird neoliberal economic theory are just objectively false.” The apex of neoliberal falsity is the behavioral assumption of homo oeconomicus. However, the key to a prosperous, complex, and sustainable economy is cooperative behavior. The selfish and greedy behavior of homo oeconomicus is not good but sociopathic.#1
This is, of course, commonsensically true except that it is NOT economics. Economics is NOT about human behavior but about the behavior of the economic system. Human Nature/motives/behavior/action is the subject matter of psychology, sociology, anthropology, biology/evolution etcetera. The lethal blunder of economics is that it defines itself for 200+ years as a social science.#2, #3, #4
The methodological fact of the matter is: NO way leads from the second-guessing of Human Nature/motives/behavior/action to the understanding of how the economic system works. Behavioral microfoundations are the ultimate reason why economics is to this day proto-scientific garbage.
Nick Hanauer asserts: “Unless the laws of physics, the laws of economics are a choice. If we want a new economics all we have to do is chose to have it.” This, of course, is plain scientific incompetence. Profit for the economy as a whole, for example, does NOT depend on whether the one-percenters are sociopathic exploiters or cooperative and emphatic leaders.#5
The macroeconomic 4-sector Profit Law is objectively given by Q≡Yd+(I−S)+(G−T)+(X−M). In the most elementary case of the production-consumption economy, this reduces to Q≡−S, i.e. the mirror image of household sector saving S is business sector loss (−Q). The mirror image of household sector dissaving (−S) is business sector profit (+Q). The point to grasp is that profit for the business sector as a whole depends on the deficit spending of the household sector and NOT on the behavior or achievements of Capitalists. With regard to the state, the Profit Law boils down to Q=(G−T), i.e. Public Deficit = Private Profit. And this explains why Capitalists were able “to grab an ever-increasing share of the economic pie every year.”
Public deficit-spending/money-creation is a free-lunch program for the Oligarchy. The fact is that the so-called free-market economy is on the life support of the state, and Wall Street is on the life support of the Central Bank. Macroeconomic profit is in the main produced by public deficits. Financial wealth grows in lockstep with public debt. The Oligarchy, in turn, uses the opulent free lunches to corrupt what remains of the state’s legislative, executive, and judiciary institutions.
Nick Hanauer is NOT a scientist but an agenda pusher for the Oligarchy like the rest of self-styled New Economic Thinkers.#6 What he tells the TED audience is that Neoliberalism is dead and that he and other enlightened Capitalists are working for a better social and economic order. The fact is that he has NO idea what profit is and how the economy works.
Egmont Kakarot-Handtke
* TED
#1 Actually, this is rather old stuff “No science has been criticized by its own servants as openly and constantly as economics. The motives of dissatisfaction are many, but the most important pertains to the fiction of homo oeconomicus.” (Georgescu-Roegen, 1971)
#2 Economics is NOT about Human Nature but the economic system
#3 Overreach: Economists have their fingers in every pie except real economics
#4 The happy end of the social science delusion
#5 Capitalism, poverty, exploitation, and cross-over exploitation
#6 CORE: more lipstick on the dead economics pig
***
AXEC109i
April 29, 2019
Econ 101: Supply-Demand-Equilibrium is dead for 150+ years
Comment on Dirk Ehnts on ‘The problem with the supply curve’
Blog-Reference and Blog-Reference
Dirk Ehnts reports: “Steve Keen uses a 1952 paper to make a very important point about neoclassical economics: There is a problem with the supply curve.” and concludes: “Microeconomics, the behavior of firms and households, is very important. Starting the subject by repeating theories that should have long been discarded blocks more relevant approaches from being taught. These new approaches could provide proper foundations of the behavior of firms and households if they are not based on ‘economic laws’ that are refuted by reality.”
All this is true, of course, but ultimately not very helpful: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)
Because traditional Heterodoxy consistently failed at this methodological barrier economics students are still taught the ‘Totem of the Micro’, i.e. supply-demand-equilibrium.#1
The lethal blunder of microeconomics, though, does not start with the supply curve but with the neo-Walrasian axiom set: “HC1 There exist economic agents. HC2 Agents have preferences over outcomes. HC3 Agents independently optimize subject to constraints. HC4 Choices are made in interrelated markets. HC5 Agents have full relevant knowledge. HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985)
The pivotal propositions are HC3 and HC6. Methodologically, they are NONENTITIES like the Easter Bunny and Spiderman. The behavioral axiom HC3 makes economics marginalistic.#2, #3 In order to make constrained optimization work, a well-behaved production function is required. The production function is NOT the result of real-world observations but implicated by HC3.#4, #5, #6 The supply curve, in turn, follows from the assumed production function. So HC3 is the ultimate reason why there “is a problem with the supply curve”.
From this follows that the microfoundations HC1/HC6 have to be discarded. And this is the end of Econ 101 as we know it. Economics textbooks are worthless since Samuelson’s firstling of 1948.#7
The end of proto-scientific economics, though, is the beginning of scientific economics which is no longer based on false microfoundations but on true macrofoundations.#8, #9, #10
From the devastating critique of supply-demand-equilibrium follows the necessity of a Paradigm Shift. Traditional Heterodoxy never performed the Paradigm Shift but was content with the endless repetition of how “unrealistic” Orthodoxy is.
Because of this, both Orthodoxy and traditional Heterodoxy go down the scientific drain.
Egmont Kakarot-Handtke
#1 Where advanced Heterodoxy — represented by Steve Keen — took the wrong turn
#2 The solemn burial of marginalism
#3 Marginalism is the landmark of scientific incompetence
#4 Putting the production function back on its feet
#5 Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?
#6 Mathiness and the Ur-Blunder
#7 The father of modern economics and his imbecile kids
#8 Essentials of Constructive Heterodoxy: The Market
#9 How to Get Rid of Supply-Demand-Equilibrium
#10 The Law of Supply and Demand: Here It Is Finally
Related 'There is NO such thing as supply-demand-equilibrium' and 'How the Intelligent Non-Economist Can Refute Every Economist Hands Down' and 'Why you should NEVER use supply-demand-equilibrium' and 'The monstrous utility-supply-demand-equilibrium failure'. For details of the big picture see cross-references Econ 101/Old Curriculum/New Curriculum and cross-references Paradigm Shift and the textbook Sovereign Economics. The macroeconomic Law of Supply and Demand is shown on Wikimedia AXEC64
Blog-Reference and Blog-Reference
Dirk Ehnts reports: “Steve Keen uses a 1952 paper to make a very important point about neoclassical economics: There is a problem with the supply curve.” and concludes: “Microeconomics, the behavior of firms and households, is very important. Starting the subject by repeating theories that should have long been discarded blocks more relevant approaches from being taught. These new approaches could provide proper foundations of the behavior of firms and households if they are not based on ‘economic laws’ that are refuted by reality.”
All this is true, of course, but ultimately not very helpful: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)
Because traditional Heterodoxy consistently failed at this methodological barrier economics students are still taught the ‘Totem of the Micro’, i.e. supply-demand-equilibrium.#1
The lethal blunder of microeconomics, though, does not start with the supply curve but with the neo-Walrasian axiom set: “HC1 There exist economic agents. HC2 Agents have preferences over outcomes. HC3 Agents independently optimize subject to constraints. HC4 Choices are made in interrelated markets. HC5 Agents have full relevant knowledge. HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985)
The pivotal propositions are HC3 and HC6. Methodologically, they are NONENTITIES like the Easter Bunny and Spiderman. The behavioral axiom HC3 makes economics marginalistic.#2, #3 In order to make constrained optimization work, a well-behaved production function is required. The production function is NOT the result of real-world observations but implicated by HC3.#4, #5, #6 The supply curve, in turn, follows from the assumed production function. So HC3 is the ultimate reason why there “is a problem with the supply curve”.
From this follows that the microfoundations HC1/HC6 have to be discarded. And this is the end of Econ 101 as we know it. Economics textbooks are worthless since Samuelson’s firstling of 1948.#7
The end of proto-scientific economics, though, is the beginning of scientific economics which is no longer based on false microfoundations but on true macrofoundations.#8, #9, #10
From the devastating critique of supply-demand-equilibrium follows the necessity of a Paradigm Shift. Traditional Heterodoxy never performed the Paradigm Shift but was content with the endless repetition of how “unrealistic” Orthodoxy is.
Because of this, both Orthodoxy and traditional Heterodoxy go down the scientific drain.
Egmont Kakarot-Handtke
#1 Where advanced Heterodoxy — represented by Steve Keen — took the wrong turn
#2 The solemn burial of marginalism
#3 Marginalism is the landmark of scientific incompetence
#4 Putting the production function back on its feet
#5 Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?
#6 Mathiness and the Ur-Blunder
#7 The father of modern economics and his imbecile kids
#8 Essentials of Constructive Heterodoxy: The Market
#9 How to Get Rid of Supply-Demand-Equilibrium
#10 The Law of Supply and Demand: Here It Is Finally
Related 'There is NO such thing as supply-demand-equilibrium' and 'How the Intelligent Non-Economist Can Refute Every Economist Hands Down' and 'Why you should NEVER use supply-demand-equilibrium' and 'The monstrous utility-supply-demand-equilibrium failure'. For details of the big picture see cross-references Econ 101/Old Curriculum/New Curriculum and cross-references Paradigm Shift and the textbook Sovereign Economics. The macroeconomic Law of Supply and Demand is shown on Wikimedia AXEC64
For more about supply-demand-equilibrium see AXECquery.
***
Wikimedia AXEC121i
November 14, 2018
Causality in economics
Comment on Lars Syll on ‘In search of causality’
Blog-Reference and Blog-Reference and Blog-Reference on Nov 19
Lars Syll summarizes: “In a time when scientific relativism is expanding, it is important to keep up the claim for not reducing science to a pure discursive level. We have to maintain the Enlightenment tradition of thinking of reality as principally independent of our views of it and of the main task of science as studying the structure of this reality. Perhaps the most important contribution a researcher can make is revealing what this reality that is the object of science actually looks like. Science is made possible by the fact that there are structures that are durable and are independent of our knowledge or beliefs about them.”
These structures (invariances in Nozick’s terminology) relate to the economic system and NOT to economic behavior. Hence, the lethal methodological blunder consists of thinking of economics as a social science instead of a systems science.#1 The blunder started with Adam Smith and this explains why economists have achieved nothing of scientific value in the past 200+ years. Economics is a cargo cult science; economists have misspecified their subject matter from the very beginning.#2
The heterodox economist Lars Syll is no exception and part of the wholesale failure.
Systemic laws are invariances much like physical laws but do not entail the physicists’ specific notion of causality. So, the concept of causality has to be redefined for the economic system. There is no use to turn to philosophy and seeking help from Aristotle.
The elementary version of the economic system is formally given with the First Economic Law as shown on Wikimedia.#3
As it stands, the Law as a whole is deterministic but causality-free. Systemic causality consists of the fact that if one variable is altered the others must change such that the equation is satisfied. However, it is NOT predetermined which of the other variables is altered and to what extent. The First Economic Law is an invariance with undetermined multiple inner causalities. The inner causalities can be said to be opportunistic or to follow the path of least resistance.
In order to establish a simple unidirectional causality, it is necessary that two of the four variables are fixed by the policymaker. So if, for example, ρE and ρX are fixed and ρD is changed, then the change of ρF is causally determined with absolute precision by the systemic interrelations. The problem is that the four ratios ρF, ρE, ρX, ρD consist, in turn, of multiple variables, ρF, for example, is given as the quotient of wage rate W, price P, and productivity R, i.e ρF≡W/PR. This multiplies the number of variables to be controlled.
So, causality in economics is real but consists of undetermined multiple inner systemic causalities. As far as the required number of variables can be controlled, a politically defined causality can be established. Without knowledge of the systemic laws, this is impossible.
It holds: “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)
To this day, neither orthodox nor heterodox economists have more to offer than common sense blather.#4, #5
Egmont Kakarot-Handtke
#1 Economics is NOT a science of behavior (III)
#2 The economics Cargo Cult Prize
#3 Wikimedia First Economic Law
#4 The Law of Economists’ Increasing Stupidity
#5 A brief history of soapbox economics
You ask “… what would your ‘system’ imply should be done to make wellbeing higher?”
The axiomatically correct economic theory implies that the well-being of humanity is greatly increased if all stupid/corrupt political agenda pushers are expelled from economics. Draining the economics swamp is the precondition for scientific progress and should be done immediately. Scientific progress is, as everybody remembers from the Neanderthal, the only way to increase the physical and cultural well-being of humanity.
Political, religious, psychological, sociological, and philosophical blather has produced nothing positive throughout human history.
What has become of Lars Syll? He writes: “I can’t but agree with Clint Ballinger on the so called ‘comments’ with which E.K-H pollutes this and other blog sites. E.K-H is a troll. He should be banned.”
What has become of the man who does not get tired of praising unconquerable freedom fighters on his own blog site?#1
What has become of the man whose evening prayer is Rosa Luxemburg’s “Freedom is always, and exclusively, freedom for the one who thinks differently.”
What has become of the tireless fighter for pluralism in economics?#2, #3
What has become of the man who has been refuted on all counts with regard to Keynesianism, Post-Keynesianism, and methodology?#4
What has become of the man who has quietly censored/manipulated his own blog site for a long time?#5
This man now forgets himself and desperately demands that E.K-H is banned from Mike Norman Economics.
In fact, nothing has changed. Behind the idealistic kitsch, Lars Syll has always been a scientifically incompetent political agenda pusher.#6
#1 Nelson Mandela — the captain of my soul
Nelson Mandela In Memoriam
The captain of an unconquerable soul
An unconquerable soul
Edward Snowden — unbroken and unconquerable
Unbroken and unconquerable
For my unconquerable soul
#2 Heterodoxy and pluralism in economics
#3 On the importance of pluralism
#4 Kalecki and Keynes: The double macroeconomic false start
#5 Cryptoeconomics ― the best of Lars Syll’s spam folder
#6 Feynman Integrity, fake science, and the econblogosphere
Again: “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)
Neither you nor Lars Syll has the true economic theory. You do not even get the elementary mathematics that underlies macroeconomics right. You have not produced one tiny bit of sound economics.
Next time you board an airplane with the expectation to land safely at a distant place be aware that this is possible due to the work of scientists/engineers and not to political, religious, psychological, sociological, and philosophical blather and certainly not to the brain-dead agenda pushing of stupid/corrupt economists since Smith/Marx.
Your and Lars Syll’s contribution to the welfare of humanity is less than zero.
Blog-Reference and Blog-Reference and Blog-Reference on Nov 19
Lars Syll summarizes: “In a time when scientific relativism is expanding, it is important to keep up the claim for not reducing science to a pure discursive level. We have to maintain the Enlightenment tradition of thinking of reality as principally independent of our views of it and of the main task of science as studying the structure of this reality. Perhaps the most important contribution a researcher can make is revealing what this reality that is the object of science actually looks like. Science is made possible by the fact that there are structures that are durable and are independent of our knowledge or beliefs about them.”
These structures (invariances in Nozick’s terminology) relate to the economic system and NOT to economic behavior. Hence, the lethal methodological blunder consists of thinking of economics as a social science instead of a systems science.#1 The blunder started with Adam Smith and this explains why economists have achieved nothing of scientific value in the past 200+ years. Economics is a cargo cult science; economists have misspecified their subject matter from the very beginning.#2
The heterodox economist Lars Syll is no exception and part of the wholesale failure.
Systemic laws are invariances much like physical laws but do not entail the physicists’ specific notion of causality. So, the concept of causality has to be redefined for the economic system. There is no use to turn to philosophy and seeking help from Aristotle.
The elementary version of the economic system is formally given with the First Economic Law as shown on Wikimedia.#3
As it stands, the Law as a whole is deterministic but causality-free. Systemic causality consists of the fact that if one variable is altered the others must change such that the equation is satisfied. However, it is NOT predetermined which of the other variables is altered and to what extent. The First Economic Law is an invariance with undetermined multiple inner causalities. The inner causalities can be said to be opportunistic or to follow the path of least resistance.
In order to establish a simple unidirectional causality, it is necessary that two of the four variables are fixed by the policymaker. So if, for example, ρE and ρX are fixed and ρD is changed, then the change of ρF is causally determined with absolute precision by the systemic interrelations. The problem is that the four ratios ρF, ρE, ρX, ρD consist, in turn, of multiple variables, ρF, for example, is given as the quotient of wage rate W, price P, and productivity R, i.e ρF≡W/PR. This multiplies the number of variables to be controlled.
So, causality in economics is real but consists of undetermined multiple inner systemic causalities. As far as the required number of variables can be controlled, a politically defined causality can be established. Without knowledge of the systemic laws, this is impossible.
It holds: “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)
To this day, neither orthodox nor heterodox economists have more to offer than common sense blather.#4, #5
Egmont Kakarot-Handtke
#1 Economics is NOT a science of behavior (III)
#2 The economics Cargo Cult Prize
#3 Wikimedia First Economic Law
#4 The Law of Economists’ Increasing Stupidity
#5 A brief history of soapbox economics
***
REPLY to Clint Ballinger on Nov 15You ask “… what would your ‘system’ imply should be done to make wellbeing higher?”
The axiomatically correct economic theory implies that the well-being of humanity is greatly increased if all stupid/corrupt political agenda pushers are expelled from economics. Draining the economics swamp is the precondition for scientific progress and should be done immediately. Scientific progress is, as everybody remembers from the Neanderthal, the only way to increase the physical and cultural well-being of humanity.
Political, religious, psychological, sociological, and philosophical blather has produced nothing positive throughout human history.
***
REPLY to Lars Syll on Nov 16What has become of Lars Syll? He writes: “I can’t but agree with Clint Ballinger on the so called ‘comments’ with which E.K-H pollutes this and other blog sites. E.K-H is a troll. He should be banned.”
What has become of the man who does not get tired of praising unconquerable freedom fighters on his own blog site?#1
What has become of the man whose evening prayer is Rosa Luxemburg’s “Freedom is always, and exclusively, freedom for the one who thinks differently.”
What has become of the tireless fighter for pluralism in economics?#2, #3
What has become of the man who has been refuted on all counts with regard to Keynesianism, Post-Keynesianism, and methodology?#4
What has become of the man who has quietly censored/manipulated his own blog site for a long time?#5
This man now forgets himself and desperately demands that E.K-H is banned from Mike Norman Economics.
In fact, nothing has changed. Behind the idealistic kitsch, Lars Syll has always been a scientifically incompetent political agenda pusher.#6
#1 Nelson Mandela — the captain of my soul
Nelson Mandela In Memoriam
The captain of an unconquerable soul
An unconquerable soul
Edward Snowden — unbroken and unconquerable
Unbroken and unconquerable
For my unconquerable soul
#2 Heterodoxy and pluralism in economics
#3 On the importance of pluralism
#4 Kalecki and Keynes: The double macroeconomic false start
#5 Cryptoeconomics ― the best of Lars Syll’s spam folder
#6 Feynman Integrity, fake science, and the econblogosphere
***
REPLY to Clint Ballinger on Nov 17Again: “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)
Neither you nor Lars Syll has the true economic theory. You do not even get the elementary mathematics that underlies macroeconomics right. You have not produced one tiny bit of sound economics.
Next time you board an airplane with the expectation to land safely at a distant place be aware that this is possible due to the work of scientists/engineers and not to political, religious, psychological, sociological, and philosophical blather and certainly not to the brain-dead agenda pushing of stupid/corrupt economists since Smith/Marx.
Your and Lars Syll’s contribution to the welfare of humanity is less than zero.
March 11, 2018
MMT is idiocy and fraud
Comment on Steve Roth/Asymptosis on ‘Wealth and the National Accounts: Response to Matthew Klein’
Blog-Reference and Blog-Reference
Randall Wray says about the foundations of MMT: “In this blog we are going to begin to build the necessary foundation to understand modern money. Please bear with us. It may not be obvious, yet, why this is important. But you cannot possibly understand the debate about the government’s budget (and critique the deficit hysteria that has gripped our nation across the political spectrum from right to left) without understanding basic macro accounting. So, be patient and pay attention. No higher math or knowledge of intricate accounting rules will be required. This is simple, basic, stuff. It is a branch of logic. But it is extremely simple logic.”
This is true, of course, the point is that economists in general and MMTers, in particular, do not even get the extremely simple logic of accounting right. In other words, MMTers are just as incompetent as the representative economist.#1
There is no need to plow through the heap of MMT verbiage about income/profit/saving/ wealth. The elementary points MMTers do not get is (i) that business sector profit/loss is the mirror image of household sector dissaving/saving, and (ii), that profit is NOT a flow like wage income but a difference of flows, hence the simple operation 'add profit and wage income' is a methodological blunder called Humpty Dumpty Fallacy.*
MMT policy advice is patently false because MMT theory is false, more specifically, MMTers do not know how the price- and profit mechanism works. They do not know the difference between profit and income, between profit and distributed profit, between monetary profit Qm and nonmonetary profit Qn, and between monetary saving Sm and nonmonetary saving Sn.#2 Monetary profit emerges in the production-consumption economy, nonmonetary profit/saving stems from the revaluation of real and financial assets/ liabilities.
In order to go back to the ultimate foundations of economics, 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 (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C).#3
It always holds Qm≡−Sm, 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. This Law refutes the MMT profit theory. So, the whole of MMT is scientifically dead already at this point.
Money is needed by the business sector to pay the workers who receive the wage income Yw per period (econ-speak for wages + salaries). The workers/employees spend C per period. Given the two conditions, the market-clearing price is derived for a start as P = W/R. So, the price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R. This is the macroeconomic Law of Supply and Demand.
As collateral, this macroeconomic Law kills the commonplace Quantity Theory because the “Quantity of Money” is NOT among the price determinants. The average stock of transaction money follows as M=κYw, with κ determined by the payment pattern. In other words, the “Quantity of Money” M is determined by the autonomous transactions of the household and business sector and created out of nothing by the central bank. The economy never runs out of money.
Starting from the elementary production-consumption economy, complexity is then successively increased.To make matters short, the axiomatically correct relationships are given here without further explanation. It holds, with Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Yd distributed profit:
(i) Qm≡−Sm in the elementary production-consumption economy,
(ii) Qm≡I−Sm in the elementary investment economy,
(iii) Qm≡(G−T)+(I−Sm) in the investment economy with government deficit/surplus,
(iv) Qm≡Yd+(X−M)+(G−T)+(I−Sm) in the open economy with distributed profit.
From (i)/(ii) follows immediately that saving and investment are NEVER equal and that ALL I=S/IS-LM models are false since Keynes/Hicks and that ALL After-Keynesians are stupid.#4
From (iii) follows that ― given business sector investment I and household sector monetary saving Sm ― Public Deficit = Private Profit.
It never follows the MMT tripartite balances equation (I−S)+(G−T)+(X−M)=0. Because this foundational equation is provably false the whole of MMT is worthless.
Right policy depends on true theory. MMT is proto-scientific garbage because it NEVER got the foundational concepts of economics right. Politically, MMT is a fraud because it claims to benefit the ninety-nine-percenters but, in fact, benefits the one-percenters.
Egmont Kakarot-Handtke
#1 For an ― masochists only ― overview see
The Basics of Macro Accounting
Deficits are here to stay … get used to it
JKH on the recent MMR/MMT Debates
Where MMT Gets Its Accounting Wrong — And Right
Wealth and the National Accounts: Response to Matthew Klein
Savings ― Explaining the Humpty Dumpty word
The Upside-Down World of MMT
#2 For the full-spectrum refutation of MMT see cross-references MMT
#3 True macrofoundations: The reset of economics
#4 For details see cross-references Refutation of I=S
Related 'Why economists don’t know what profit is' and 'Why economists know nothing' and 'Note on saving and investment' and 'The Common Error of Common Sense: An Essential Rectification of the Accounting Approach' and 'Primary and Secondary Markets'. For details of the big picture see cross-references Accounting.
*
Blog-Reference and Blog-Reference
Randall Wray says about the foundations of MMT: “In this blog we are going to begin to build the necessary foundation to understand modern money. Please bear with us. It may not be obvious, yet, why this is important. But you cannot possibly understand the debate about the government’s budget (and critique the deficit hysteria that has gripped our nation across the political spectrum from right to left) without understanding basic macro accounting. So, be patient and pay attention. No higher math or knowledge of intricate accounting rules will be required. This is simple, basic, stuff. It is a branch of logic. But it is extremely simple logic.”
This is true, of course, the point is that economists in general and MMTers, in particular, do not even get the extremely simple logic of accounting right. In other words, MMTers are just as incompetent as the representative economist.#1
There is no need to plow through the heap of MMT verbiage about income/profit/saving/ wealth. The elementary points MMTers do not get is (i) that business sector profit/loss is the mirror image of household sector dissaving/saving, and (ii), that profit is NOT a flow like wage income but a difference of flows, hence the simple operation 'add profit and wage income' is a methodological blunder called Humpty Dumpty Fallacy.*
MMT policy advice is patently false because MMT theory is false, more specifically, MMTers do not know how the price- and profit mechanism works. They do not know the difference between profit and income, between profit and distributed profit, between monetary profit Qm and nonmonetary profit Qn, and between monetary saving Sm and nonmonetary saving Sn.#2 Monetary profit emerges in the production-consumption economy, nonmonetary profit/saving stems from the revaluation of real and financial assets/ liabilities.
In order to go back to the ultimate foundations of economics, 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 (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C).#3
It always holds Qm≡−Sm, 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. This Law refutes the MMT profit theory. So, the whole of MMT is scientifically dead already at this point.
Money is needed by the business sector to pay the workers who receive the wage income Yw per period (econ-speak for wages + salaries). The workers/employees spend C per period. Given the two conditions, the market-clearing price is derived for a start as P = W/R. So, the price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R. This is the macroeconomic Law of Supply and Demand.
As collateral, this macroeconomic Law kills the commonplace Quantity Theory because the “Quantity of Money” is NOT among the price determinants. The average stock of transaction money follows as M=κYw, with κ determined by the payment pattern. In other words, the “Quantity of Money” M is determined by the autonomous transactions of the household and business sector and created out of nothing by the central bank. The economy never runs out of money.
Starting from the elementary production-consumption economy, complexity is then successively increased.To make matters short, the axiomatically correct relationships are given here without further explanation. It holds, with Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Yd distributed profit:
(i) Qm≡−Sm in the elementary production-consumption economy,
(ii) Qm≡I−Sm in the elementary investment economy,
(iii) Qm≡(G−T)+(I−Sm) in the investment economy with government deficit/surplus,
(iv) Qm≡Yd+(X−M)+(G−T)+(I−Sm) in the open economy with distributed profit.
From (i)/(ii) follows immediately that saving and investment are NEVER equal and that ALL I=S/IS-LM models are false since Keynes/Hicks and that ALL After-Keynesians are stupid.#4
From (iii) follows that ― given business sector investment I and household sector monetary saving Sm ― Public Deficit = Private Profit.
It never follows the MMT tripartite balances equation (I−S)+(G−T)+(X−M)=0. Because this foundational equation is provably false the whole of MMT is worthless.
Right policy depends on true theory. MMT is proto-scientific garbage because it NEVER got the foundational concepts of economics right. Politically, MMT is a fraud because it claims to benefit the ninety-nine-percenters but, in fact, benefits the one-percenters.
Egmont Kakarot-Handtke
#1 For an ― masochists only ― overview see
The Basics of Macro Accounting
Deficits are here to stay … get used to it
JKH on the recent MMR/MMT Debates
Where MMT Gets Its Accounting Wrong — And Right
Wealth and the National Accounts: Response to Matthew Klein
Savings ― Explaining the Humpty Dumpty word
The Upside-Down World of MMT
#2 For the full-spectrum refutation of MMT see cross-references MMT
#3 True macrofoundations: The reset of economics
#4 For details see cross-references Refutation of I=S
Related 'Why economists don’t know what profit is' and 'Why economists know nothing' and 'Note on saving and investment' and 'The Common Error of Common Sense: An Essential Rectification of the Accounting Approach' and 'Primary and Secondary Markets'. For details of the big picture see cross-references Accounting.
*
March 2, 2018
Economies are culturally different but economic laws are universal
Comment on Tom Hickey on ‘Ellen Brown ― Funding Infrastructure: Why China Is Running Circles Around America’
Blog-Reference
The economic laws for the monetary economy are the SAME under capitalism and communism or anything in between, just as the laws of aerodynamics are the same for a bird or a plane and whether one flies to the South Sea or to Antarctica.
Of course, the cultural superstructure of different economies is different. So, universal economic laws and national culture together produce concrete historical outcomes for different economies. Analytically, though, both things have to be kept apart. Economics deals with objective-systemic laws of the monetary economy and not with the sociology or history of an individual country. This is analogous to physics where the Law of Gravity is the same for different countries and for different cultures and for people with different worldviews.
The crucial point for the economist to understand is that economics deals neither primarily nor secondarily with individual human behavior or society at large. This is the realm of psychology, sociology, anthropology, history, political science, social philosophy, biology/evolution etcetera. It is high time that economists take their sticky fingers out of these pies.#1
The Employment Law and the Profit Law are the same for China, the USA, or Germany.#2 The macroeconomic profit in an economy is the same whether firms are run by owner-appointed managers or state-appointed managers and it is given by Qm≡Yd+(I−Sm)+(G−T)+(X−M).#3
Obviously, the philosophy of society/state/politics is different in different national economies. In China the underlying state ethics is Confucian, in Germany it is Prussian, and in the USA it is Utilitarian. The former two have a strong social component that manifests itself in economic institutions like banking or old age assurance.
Different overall profitabilities in different countries are NOT due to cultural differences, or the ownership order, or the proficiency of workers, or the greediness of managers but uniquely and exclusively to the macroeconomic Profit Law. Put bluntly, if ‘capitalist’ American firms appear on average to be more profitable than ‘communist’ Russian firms this is because public and private deficit spending in the USA is a bit over the top. The mirror image of corporate/private financial wealth is the public debt of the US government. In other words, overall profit Qm in the USA is for the greater part state-determined.
Therefore, in a systemic comparison, it is NOT the case that the US economic order is superior to the Chinese economic order or vice versa. The fact is that ALL monetary economies are identical with regard to the underlying systemic economic laws. The differences are in the social philosophies. But philosophy is NOT an issue for economists. All the more so, because economists have not yet understood the foundational concept of their subject matter, i.e. profit. How can they understand anything else?
Egmont Kakarot-Handtke
#1 Economics: Poor philosophy, poor psychology, poor science
#2 Full employment: thinking like the macro-boss
#3 For details of the big picture see cross-references Profit
Blog-Reference
The economic laws for the monetary economy are the SAME under capitalism and communism or anything in between, just as the laws of aerodynamics are the same for a bird or a plane and whether one flies to the South Sea or to Antarctica.
Of course, the cultural superstructure of different economies is different. So, universal economic laws and national culture together produce concrete historical outcomes for different economies. Analytically, though, both things have to be kept apart. Economics deals with objective-systemic laws of the monetary economy and not with the sociology or history of an individual country. This is analogous to physics where the Law of Gravity is the same for different countries and for different cultures and for people with different worldviews.
The crucial point for the economist to understand is that economics deals neither primarily nor secondarily with individual human behavior or society at large. This is the realm of psychology, sociology, anthropology, history, political science, social philosophy, biology/evolution etcetera. It is high time that economists take their sticky fingers out of these pies.#1
The Employment Law and the Profit Law are the same for China, the USA, or Germany.#2 The macroeconomic profit in an economy is the same whether firms are run by owner-appointed managers or state-appointed managers and it is given by Qm≡Yd+(I−Sm)+(G−T)+(X−M).#3
Obviously, the philosophy of society/state/politics is different in different national economies. In China the underlying state ethics is Confucian, in Germany it is Prussian, and in the USA it is Utilitarian. The former two have a strong social component that manifests itself in economic institutions like banking or old age assurance.
Different overall profitabilities in different countries are NOT due to cultural differences, or the ownership order, or the proficiency of workers, or the greediness of managers but uniquely and exclusively to the macroeconomic Profit Law. Put bluntly, if ‘capitalist’ American firms appear on average to be more profitable than ‘communist’ Russian firms this is because public and private deficit spending in the USA is a bit over the top. The mirror image of corporate/private financial wealth is the public debt of the US government. In other words, overall profit Qm in the USA is for the greater part state-determined.
Therefore, in a systemic comparison, it is NOT the case that the US economic order is superior to the Chinese economic order or vice versa. The fact is that ALL monetary economies are identical with regard to the underlying systemic economic laws. The differences are in the social philosophies. But philosophy is NOT an issue for economists. All the more so, because economists have not yet understood the foundational concept of their subject matter, i.e. profit. How can they understand anything else?
Egmont Kakarot-Handtke
#1 Economics: Poor philosophy, poor psychology, poor science
#2 Full employment: thinking like the macro-boss
#3 For details of the big picture see cross-references Profit
February 16, 2018
Ricardo and the invention of class war
Comment on Sandwichman on ‘No Other Way of Keeping Profits Up’
Blog-Reference and Blog-Reference on Feb 17
Ricardo asserted the seemingly obvious “There is no other way of keeping profits up, but by keeping wages down.” This assertion is pure common sense, plain and immediately convincing as “the sun goes up”. Needless to emphasize that both assertions are scientifically false.#1
By asserting an antagonism between wages and profits, Ricardo provided the economic underpinning for Marx’s sociological/political concept of class struggle or class war. In the following the proof is given that there is NO antagonism between wages and profits and that classes are an optical illusion.
The elementary production-consumption economy is defined with this set of macro axioms: (A0) The objectively given and most elementary configuration of 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.#2
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. It translates into W/P=R (2), i.e. the real wage is equal to productivity. For the graphical representation see Wikimedia.#3
Monetary profit is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm≡−Sm, in other words, the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the macroeconomic Profit Law. It says that profit/loss has NOTHING to do with labor time, wages, productivity, greed, monopoly, power etcetera but with the change of private and public debt.
In the elementary production-consumption economy, labor gets the whole product according to (2), and profit for the business sector as a whole is zero because of C=Yw. All changes in the system are reflected by the market-clearing price. As a matter of principle, the elementary production-consumption economy can go on indefinitely at any level of employment L. The living standard of the workers is defined alone by productivity.
Obviously, there is NO such thing as antagonism of wages and profits in the elementary production-consumption economy. If the wage rate W goes up the market-clearing price goes up according to (1) and the real wage remains unchanged according to (2).
This means, first of all, that Ricardo’s theory of profit and rent is proto-scientific garbage. This is fatal for Marx who built on Ricardo.
The business sector is now split into two identical firms and firm 1 is supposed to cut the wage rate W1 arbitrarily by half. From this follows that the market-clearing price P declines if all other variables are unchanged. Firm 2 is affected because total income Yw falls and with it consumption expenditures C and the market-clearing price P.
The reduction of the wage rate W1 increases the profit of firm 1 and produces a loss in firm 2. When we look alone at firm 1 we see what Smith, Mill, Ricardo, and Marx have seen before, to wit, wages down ― profit up. This fits the time-honored stereotype of wages and profits as antagonists.
The error/mistake/blunder of Ricardo et al. was to generalize what is true for a single firm and this is known as Fallacy of Composition.
If profit has been zero in the initial period because of budget-balancing C=Yw then firm 2 makes a loss which is exactly equal to firm 1’s profit. Hence, the arbitrary wage rate cut of firm 1 does NOT increase the profit of the business sector as a whole but only REDISTRIBUTES profit/loss between the firms that constitute the business sector.
Seen from the perspective of a single firm, the antagonism of wages and profits is absolutely real. This, though, is parochial realism. The complete picture reveals that firm 1 is better off to the disadvantage of firm 2 and the workers of firm 2 are better off to the disadvantage of the workers of firm 1 because at a lower market clearing price they absorb a bigger share of output O with their unaltered income. The situation of the business sector as a whole is unchanged and the same is true for the household sector as a whole. If there is exploitation it happens within the sectors. A partial wage rate change leads only to a redistribution of profits between the firms and of output between the workers. A global wage rate change leads under the condition of budget balancing and market clearing only to a price hike.
For the economy as a whole, the Ricardian antagonism of wages and profits is an optical illusion. This has a bearing on the political notion of classes. Because Ricardo’s profit theory is false Marx’s theory of class war is false. What looks like exploitation is, in fact, cross-over exploitation WITHIN the Marxian classes.
The myopic agents, workers and capitalists alike, are blind to these interdependencies and therefore prone to the Fallacy of Composition. This is excusable. But that economists suffer from the same delusions is inexcusable.
As One of the Old School put it in 1829 “That which bears the name of Political Economy, is now taught at your University, …, as a science equally true in its principles with Geometry. If it be not a science, but a mass of fictions, you are, by teaching it, deeply disgracing your University, and destroying your own reputation as men of science.”#5
Egmont Kakarot-Handtke
#1 Ricardo, too, got profit theory wrong
#2 For details see Profit for Marxists
#3 Wikimedia AXEC31 Elementary Production-Consumption Economy
#4 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
#5 The real problem with the economics Nobel
Related 'Profit and stupidity' and 'The abject failure of orthodox and heterodox distribution theory' and 'No exploitation, no classes' and 'Marx, the moron' and 'Your profit theory is false' and 'If we only had classes'. For details of the big picture see cross-references Profit.
You say “Well, Egmont, you forget that if the owners of capital BELIEVE that profits are a subtraction from wages (and/or vice versa) and act accordingly it becomes a self-fulfilling prophecy.”
Obviously, you have never heard of the Invisible Hand. It does not matter what people believe they are doing. They think they follow their own interest but, in fact, promote the overall optimum optimorum. Self-delusion is the whole point of the free market system and the ultimate justification since Mandeville’s Private Vices = Public Benefits. Of course, this is economic storytelling and proto-scientific garbage.
Overall net-profits do NOT come into existence because people dream or hallucinate about them but ultimately because of the increase of private/public debt. This is the Invisible Hand. If the budget is balanced C=Yw there is NO overall profit, NO matter what capitalists believe or how they act. With regard to profit, there is NO self-fulfilling prophecy only the Iron-Objective-Eternal-Testable Profit Law.
My proof shows how the Invisible Hand works. What people believe is NOT AT ALL a matter of economics but of psychology and sociology.
Take notice that economics is NOT a science of Human Nature/motives/beliefs/ expectations/behavior/action but a systems science. Economics has since 200+ years been on the wrong track and has produced nothing but folk psychology and folk sociology. Economics is a failed science because economists are incompetent scientists who suffer from the social science delusion.#1
The Profit Law consists of measurable variables. It is testable and it will be corroborated without exception in all countries with a scientific infrastructure without bothering one second about people’s silly beliefs.
#1 For details of the big picture see cross-references Failed/Fake Scientists
You say “The ‘invisible hand’ is a lump of labor”
Obviously, you have not realized that your lump-of-labor (EXPLETIVE DELETED) has already been refuted. See Unemployment is the outcome of political economics.
Scientific standards are well-defined: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)
Because a theory must satisfy TWO criteria ― material AND formal consistency ― it is sufficient for a refutation to prove that it is EITHER materially OR formally inconsistent.
I have proven that Ricardo’s profit/distribution theory is formally inconsistent. More specifically, that Ricardo committed the Fallacy of Composition and the Humpty Dumpty Fallacy by defining total income as the sum of wage income and profit.#1, #2 More specifically, the macroeconomic definition of total income as Y=W+P translates algebraically into 1=1/(1+P/W)+1/(1+W/P) and this translates verbally into Ricardo’s pivotal claim “… profits would be high or low in proportion as wages were low or high.” (Principles, p. 110) but because the premise is false Ricardo’s assertion is false.
By consequence, Ricardian economics is refuted. Now, the ball is in your field. If you do not agree with me ― and you obviously don’t ― you have to demonstrate where my logical error/mistake/blunder lies. Blah blah is NOT sufficient.
What you could alternatively do is to demonstrate that I am empirically wrong because from the axiomatically correct profit theory follows the sectoral balances equation (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 while from Ricardo’s false profit theory follows the Post Keynesian balances equation (I−S)+(G−T)+(X−M)=0.
The experimentum crucis ― which of the two equations is empirically true? ― has never been performed for the simple reason that macroeconomics runs since Keynes blindly on the false profit theory and the false Post-Keynesian balances equation.#3 MMT is the Smoking Gun proof.
But again, the ball is in your field. If you know in your profound academic erudition that there is an empirical study that has corroborated the Post Keynesian balances equation or refuted my balances equation it is your scientific duty to present it in the current discussion. Again, blah blah is NOT sufficient.
As One of the Old School said in 1829: “If it [economics] be not a science, but a mass of fictions, you are, by teaching it, deeply disgracing your University, and destroying your own reputation as men of science.”
#1 Ricardo, too, got profit theory wrong
#2 Profit, income, and the Humpty Dumpty Fallacy *
#3 How Keynes got macro wrong and Allais got it right
*
Blog-Reference and Blog-Reference on Feb 17
Ricardo asserted the seemingly obvious “There is no other way of keeping profits up, but by keeping wages down.” This assertion is pure common sense, plain and immediately convincing as “the sun goes up”. Needless to emphasize that both assertions are scientifically false.#1
By asserting an antagonism between wages and profits, Ricardo provided the economic underpinning for Marx’s sociological/political concept of class struggle or class war. In the following the proof is given that there is NO antagonism between wages and profits and that classes are an optical illusion.
The elementary production-consumption economy is defined with this set of macro axioms: (A0) The objectively given and most elementary configuration of 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.#2
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. It translates into W/P=R (2), i.e. the real wage is equal to productivity. For the graphical representation see Wikimedia.#3
Monetary profit is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm≡−Sm, in other words, the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the macroeconomic Profit Law. It says that profit/loss has NOTHING to do with labor time, wages, productivity, greed, monopoly, power etcetera but with the change of private and public debt.
In the elementary production-consumption economy, labor gets the whole product according to (2), and profit for the business sector as a whole is zero because of C=Yw. All changes in the system are reflected by the market-clearing price. As a matter of principle, the elementary production-consumption economy can go on indefinitely at any level of employment L. The living standard of the workers is defined alone by productivity.
Obviously, there is NO such thing as antagonism of wages and profits in the elementary production-consumption economy. If the wage rate W goes up the market-clearing price goes up according to (1) and the real wage remains unchanged according to (2).
This means, first of all, that Ricardo’s theory of profit and rent is proto-scientific garbage. This is fatal for Marx who built on Ricardo.
The business sector is now split into two identical firms and firm 1 is supposed to cut the wage rate W1 arbitrarily by half. From this follows that the market-clearing price P declines if all other variables are unchanged. Firm 2 is affected because total income Yw falls and with it consumption expenditures C and the market-clearing price P.
The reduction of the wage rate W1 increases the profit of firm 1 and produces a loss in firm 2. When we look alone at firm 1 we see what Smith, Mill, Ricardo, and Marx have seen before, to wit, wages down ― profit up. This fits the time-honored stereotype of wages and profits as antagonists.
The error/mistake/blunder of Ricardo et al. was to generalize what is true for a single firm and this is known as Fallacy of Composition.
If profit has been zero in the initial period because of budget-balancing C=Yw then firm 2 makes a loss which is exactly equal to firm 1’s profit. Hence, the arbitrary wage rate cut of firm 1 does NOT increase the profit of the business sector as a whole but only REDISTRIBUTES profit/loss between the firms that constitute the business sector.
Seen from the perspective of a single firm, the antagonism of wages and profits is absolutely real. This, though, is parochial realism. The complete picture reveals that firm 1 is better off to the disadvantage of firm 2 and the workers of firm 2 are better off to the disadvantage of the workers of firm 1 because at a lower market clearing price they absorb a bigger share of output O with their unaltered income. The situation of the business sector as a whole is unchanged and the same is true for the household sector as a whole. If there is exploitation it happens within the sectors. A partial wage rate change leads only to a redistribution of profits between the firms and of output between the workers. A global wage rate change leads under the condition of budget balancing and market clearing only to a price hike.
For the economy as a whole, the Ricardian antagonism of wages and profits is an optical illusion. This has a bearing on the political notion of classes. Because Ricardo’s profit theory is false Marx’s theory of class war is false. What looks like exploitation is, in fact, cross-over exploitation WITHIN the Marxian classes.
The myopic agents, workers and capitalists alike, are blind to these interdependencies and therefore prone to the Fallacy of Composition. This is excusable. But that economists suffer from the same delusions is inexcusable.
As One of the Old School put it in 1829 “That which bears the name of Political Economy, is now taught at your University, …, as a science equally true in its principles with Geometry. If it be not a science, but a mass of fictions, you are, by teaching it, deeply disgracing your University, and destroying your own reputation as men of science.”#5
Egmont Kakarot-Handtke
#1 Ricardo, too, got profit theory wrong
#2 For details see Profit for Marxists
#3 Wikimedia AXEC31 Elementary Production-Consumption Economy
#4 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
#5 The real problem with the economics Nobel
Related 'Profit and stupidity' and 'The abject failure of orthodox and heterodox distribution theory' and 'No exploitation, no classes' and 'Marx, the moron' and 'Your profit theory is false' and 'If we only had classes'. For details of the big picture see cross-references Profit.
***
REPLY to Sandwichman on Feb 16You say “Well, Egmont, you forget that if the owners of capital BELIEVE that profits are a subtraction from wages (and/or vice versa) and act accordingly it becomes a self-fulfilling prophecy.”
Obviously, you have never heard of the Invisible Hand. It does not matter what people believe they are doing. They think they follow their own interest but, in fact, promote the overall optimum optimorum. Self-delusion is the whole point of the free market system and the ultimate justification since Mandeville’s Private Vices = Public Benefits. Of course, this is economic storytelling and proto-scientific garbage.
Overall net-profits do NOT come into existence because people dream or hallucinate about them but ultimately because of the increase of private/public debt. This is the Invisible Hand. If the budget is balanced C=Yw there is NO overall profit, NO matter what capitalists believe or how they act. With regard to profit, there is NO self-fulfilling prophecy only the Iron-Objective-Eternal-Testable Profit Law.
My proof shows how the Invisible Hand works. What people believe is NOT AT ALL a matter of economics but of psychology and sociology.
Take notice that economics is NOT a science of Human Nature/motives/beliefs/ expectations/behavior/action but a systems science. Economics has since 200+ years been on the wrong track and has produced nothing but folk psychology and folk sociology. Economics is a failed science because economists are incompetent scientists who suffer from the social science delusion.#1
The Profit Law consists of measurable variables. It is testable and it will be corroborated without exception in all countries with a scientific infrastructure without bothering one second about people’s silly beliefs.
#1 For details of the big picture see cross-references Failed/Fake Scientists
***
REPLY Sandwichman on Feb 16You say “The ‘invisible hand’ is a lump of labor”
Obviously, you have not realized that your lump-of-labor (EXPLETIVE DELETED) has already been refuted. See Unemployment is the outcome of political economics.
***
REPLY to Barkley Rosser on Feb 17Scientific standards are well-defined: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)
Because a theory must satisfy TWO criteria ― material AND formal consistency ― it is sufficient for a refutation to prove that it is EITHER materially OR formally inconsistent.
I have proven that Ricardo’s profit/distribution theory is formally inconsistent. More specifically, that Ricardo committed the Fallacy of Composition and the Humpty Dumpty Fallacy by defining total income as the sum of wage income and profit.#1, #2 More specifically, the macroeconomic definition of total income as Y=W+P translates algebraically into 1=1/(1+P/W)+1/(1+W/P) and this translates verbally into Ricardo’s pivotal claim “… profits would be high or low in proportion as wages were low or high.” (Principles, p. 110) but because the premise is false Ricardo’s assertion is false.
By consequence, Ricardian economics is refuted. Now, the ball is in your field. If you do not agree with me ― and you obviously don’t ― you have to demonstrate where my logical error/mistake/blunder lies. Blah blah is NOT sufficient.
What you could alternatively do is to demonstrate that I am empirically wrong because from the axiomatically correct profit theory follows the sectoral balances equation (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 while from Ricardo’s false profit theory follows the Post Keynesian balances equation (I−S)+(G−T)+(X−M)=0.
The experimentum crucis ― which of the two equations is empirically true? ― has never been performed for the simple reason that macroeconomics runs since Keynes blindly on the false profit theory and the false Post-Keynesian balances equation.#3 MMT is the Smoking Gun proof.
But again, the ball is in your field. If you know in your profound academic erudition that there is an empirical study that has corroborated the Post Keynesian balances equation or refuted my balances equation it is your scientific duty to present it in the current discussion. Again, blah blah is NOT sufficient.
As One of the Old School said in 1829: “If it [economics] be not a science, but a mass of fictions, you are, by teaching it, deeply disgracing your University, and destroying your own reputation as men of science.”
#1 Ricardo, too, got profit theory wrong
#2 Profit, income, and the Humpty Dumpty Fallacy *
#3 How Keynes got macro wrong and Allais got it right
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REPLY to vertegaa@vcn.bc.ca on Feb 18
A theory must satisfy TWO criteria ― material AND formal consistency. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing. This is known for 2300+ years: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle)
So, the first problem to solve is the Starting Problem. J. S. Mill put it thus: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.”
Krugman, for one, is quite explicit about how he has solved the Starting Problem: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
Krugman, of course, is an idiot. Maximization and equilibrium cannot serve as axioms because they are NOT certain, true, and primary. For various methodological reasons, given elsewhere#1, I propose to start with this core of macroeconomic and behavior-free 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. *
These premises are certain, true, and primary, and therefore satisfy all methodological requirements. All variables are measurable in principle. The set of premises is minimalistic, that is, Occam’s Razor has been applied and the set cannot be reduced further, only expanded. The set contains no nonentities like utility, constrained maximization, equilibrium, and no normative assertions.
You can NOT refute these axioms by doubting and nagging, only by replacing them with a superior set. Or, in Feynman’s words: “The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy.” (Feynman)
I am sure that you cannot do it, and nobody else, for that matter because you cannot have an axiom set for the most elementary production-consumption economy with less than three axioms. The set (A1)/(A3) replaces the neo-Walrasian set and the Keynesian set of foundational propositions.
You say: “because the ‘axioms’ you come up with are inherently insufficient to glean a systematic meaning, or purpose, from.” Yes, but the idea that some purpose must be put into the axioms indicates that you do not yet fully understand what axiomatization is all about.
You say: “You ‘axiomatically’ split total profit Q into Qm (monetary profit) and Qn (non-monetary profit). If the system allows the latter to become part of the former and/or vice-versa, however, then not only are these not ‘entirely different kinds of profits’ as you claim but you’ll have to show a common numeraire as well, or the premise and hence your theory of profit is false, …”
Perhaps the terminology is a bit unfamiliar. Both monetary Qm and nonmonetary profit Qn are nominal magnitudes, e.g. Dollar, Yen, Euro, etc., but monetary profit can be read off a bank account or touched in the cash box, non-monetary profit is the not-yet-realized increase of an asset’s value or what is commonly called a paper profit.#2
You say “Come to think of it, what is your theory of money? Every factor/element in your identities numerated in the latter needs it!”
True, accordingly, money has already been treated extensively elsewhere.#3
You say “what makes you now think that such a static depiction has merit in a known to be dynamically operating economy.”
The ‘general balances equation’ is not static and has nothing to do with equilibrium. It is more like reading a speedometer in a moving car.#4
#1 For details of the big picture see cross-references Axiomatization
#3 For a start see Fixing the loanable funds blunder
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REPLY to Sandwichman on Feb 19
You ask: “What is your motivation for expending what must be considerable time, effort and frustration in promulgating your ‘science’?”
Moot question as you could know from Schumpeter: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”
More clues for the clueless are to be found in A heap of scientific rubbish.
Yous ask: “Do you ever experience self-doubt or are you 100% certain that your discovery is 100% foolproof?”
No, yes. More clues for the clueless are to be found in John Hicks, fake scientist.
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REPLY to vertegaa@vcn.bc.ca on Feb 19
Roughly speaking, the distinction between science and non-science corresponds to the ancient Greek’s distinction between episteme (= knowledge) and doxa (= opinion). Aristotle relates to episteme while the Sophists relate to doxa: “Sophistry is a productive art, human, of the imitation kind, copy-making, of the appearance-making kind, uninformed and insincere in the form of contrary-speech-producing art.” (Wikipedia) Economics has never risen above sophistry.
You say: “All your axioms involve accounts; “ False. The 2nd axiom, i.e. O=RL, involves NO accounts. Only the subset of nominal variables Yw, C reappears in macro accounting. The axioms involve elementary algebra, and accounting is only part of the story.
Thank you for the link to your preface. I have read your three axioms and, as you let me know “I don’t think you are capable of teaching me much”, you dispense me from the obligation to comment on them.
Here some minor points for general clarification.
You say: “You’re not saying much about objectivity, i.e. your quasi-subjective approach,” I have clearly stated that economics is not a social science but a systems science. Accordingly, it has to be based on objective axioms. My approach is objective-structural-systemic and this is exactly what makes it superior.
You say: “Or do you perhaps also hold that the economy is meaninglessly meandering through time?” Meaning is a religious/philosophical/psychological category that is NOT axiomatizable, to begin with. You are still lost in the social science delusion.
You mention Koopmans’ monetary theory and ask: “The dissertation was written in German, did you investigate it in your quest to destroy conventional economics?”
No. Koopmans was one of the founding fathers of General Equilibrium Theory. If he had a superior theory of money it did not reappear in GT, see Hahn: ‘On some problems of proving the existence of an equilibrium in a monetary economy.’ Anyway, Koopmans has not realized in time that Walrasian equilibrium is a dead end and therefore he failed the scientific competence test.
“At long last, it can be said that the history of general theory from Walras to Arrow-Debreu has been a journey down a blind alley, and it is historians of economic thought who seem to have finally hammered down the nails in this coffin.” (Blaug, 1997)
The GT folks have put equilibrium in the axioms and this is a rather ordinary petitio principii.#1
By the way, I just stumbled across a quote of Hahn which makes my point: “It is pretty clear that usable economics will have to be of some sort of macro character. But what sort?” This dovetails with my meme: “If it isn’t macro-axiomatized it isn’t economics.”
With regard to the balances equation, I retract the metaphor with the speedometer. The balances equation (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 relates to a period of a given length and shows the accounting balances = residuals of the four sectors (business, household, government, RoW). It has NOTHING to do with equilibrium. The beauty of the axiomatically correct balances equation is that it is testable against the After-Keynesian balances equation.
With regard to empirical testing, things do not end with the sectoral balances equation. From the objective systemic axioms follows the rather complex Employment Law which is ideally suited for a test against the Phillips curve.#2
I do not see that anything comparable follows from your axioms which resemble more a declaration of human rights.
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REPLY to Barkley Rosser on Feb 20
The Humpty Dumpty Fallacy ― one of the worst idiocies of economics
In the elementary investment economy, macroeconomic profit Q is defined as the sum of profit in the consumer goods industry, i.e. Qc≡C−Ywc, and the investment goods industry, i.e. Qi≡I−Ywi, that is, Q≡(C−Ywc)+(I−Ywi) or Q≡C+I−Yw (i). Profit Q is greater than zero if the value of output C+I is greater than total wage income Yw.
Now, Humpty Dumpty introduces a redundant definition by saying that profit may be called “income of the business sector” and that this “income” can be added up with the wage income of the household sector to “total income” Ψ thus
(a) Ψ≡Q+Yw and now (i) is rewritten
(b) Q+Yw ≡C+I and then, hey presto,
(c) Ψ≡C+I that is, “total income” is “by definition” identical to “value of output” or in the usual sloppy parlance “income = value of output” which obviously contradicts (i) and ― strangely enough ― makes profit disappear.
This definitional idiocy can be traced back to Keynes “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT p. 63)
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REPLY to vertegaa@vcn.bc.ca on Feb 20
The first sentence of your preface reads: “The methodology used in our quest to establish how the economy of ours functions, involves persuasion by logical reasoning that existing theories either got it all wrong, or are at least lacking in consistency to be able to explain how an economy in a human-central world works.”
Feynman said: “Perhaps it is because their horizons are limited in this way that some people are able to imagine that the centre of the universe is man.”
Persons with a limited horizon invariably end up in the so-called social sciences where they are doing cargo cult science. Cargo cult science comes in the format of the sitcom with much storytelling, second-guessing other people’s motives, plain common sense arguments of the type ‘the sun goes up’, moralizing, and appeal to emotions. People like explanations in the form X happened because A did Y to B because she is a good/bad person and good/bad persons are supposed to act in this way as we know since Adam and Eve. The emotionally charged narrative is the only form non-scientists can connect the dots and make sense of reality.
The scientists’ certain knowledge of reality is incorporated into a theory. A theory satisfies the criteria of material and formal consistency. The true theory is the humanly best mental representation of reality.
The truth value of a theory does not in any way depend on the understanding of non-scientists or whether they like/dislike it. Populism is non-existent in science.
Populism is the dominant form of communication in the political realm where the appearance of majority assent is needed because legitimacy is defined in this way.
In the preface you appeal directly to the populace: “The purpose of this book is to explain what an economy is and how it works; and it will set out to do so in a way that aspires to make it understandable for just about everyone moderately educated.”
This tells everyone that you are in the business of political agenda pushing and by implication entirely outside of science.
Your three axioms bear this out: “1. our economy is an all human-made systematic construct of accounts, having boundaries that are open to a natural existence into which we are born and live as aspiring to better ourselves beings, and whose price to do so all the economy's accounts are made-up from; 2. it exists for the sole purpose of adding an extensive variety of use-values to humanity, that couldn’t as commonly be obtained in the absence of a formal economic structure, whereby the exogenously existent living standards of human beings are to be enhanced in perpetuity; and 3. no one can be denied the opportunity to participate in it on the supply side. Short of criminal behaviour towards the stated second axiom, there are no exceptions to the third one; since there are no longer opportunities for human beings to make a living outside of an economy, it is a human right’s issue.”
This axiom set does not contain the words profit or income nor does it ever logically follow from it what profit is, and this is sufficient to prove that it relates to society but not to the economy. So what you are defining with your three axioms is the subject matter of sociology but not economics. You make the same economics-is-a-social-science mistake as Orthodoxy and traditional Heterodoxy.
Note that there is NO way that leads from the understanding of human behavior to the understanding of the behavior of the economic system. All human-centered approaches invariably crash against the methodological wall of the Fallacy of Composition. In other words: If it isn’t macro-axiomatized, it isn’t economics.
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October 24, 2017
Economics: Stories, narratives, and disinformation
Comment on David Glasner on ‘The Standard Narrative on the History of Macroeconomics: An Exercise in Self-Serving Apologetics’
Blog-Reference and Blog-Reference
Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a Paradigm Shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”
After Keynes, every economist who still does not see the necessity of a Paradigm Shift is simply scientifically incompetent. One spokesperson of this prevailing majority is Krugman who debunks himself with: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
The fact is that maximization-and-equilibrium economics has already been dead in the cradle 150+ years ago.
Keynes, though, messed up the shift from microfoundations to macrofoundations. His lethal blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This elementary syllogism is conceptually and logically defective because Keynes never came to grips with profit. (Tómasson et al.)
Because profit is ill-defined, the whole analytical superstructure of Keynesianism is false.#1 Yet one of the outstanding characteristics of the cargo cult science economics is that refutation is persistently ignored: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern)
As a result of the continuous violation of scientific standards, the history of economic thought boils down to a narrative of incompetence, failure, self-deception, and lame excuses.#2 What we have today is the pluralism of provably false theories.
After-Keynesians never realized Keynes’ foundational blunder and thereby became part of the abysmal failure of what was meant as a Paradigm Shift.#3, #4 Neither DSGEers nor Post Keynesians up to MMT can define macroeconomic profit until this very day.
Science is indeed the search for invariances (Nozick) a.k.a. laws. In economics, though, the invariances are NOT in Human Nature/motives/behavior/action but in the properties of the economic system. Because of this, economics has to move from subjective-behavioral microfoundations to objective-systemic macrofoundations.#5 Nothing less than a Paradigm Shift will do and it is overdue for 150+ years. It holds: If it isn’t macro-axiomatized, it isn’t economics.
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
#2 Failed economics: The losers’ long list of lame excuses
#3 Why Post Keynesianism Is Not Yet a Science
#4 Heterodoxy, too, is proto-scientific garbage
#5 Ten steps to leave cargo cult economics behind for good
Related 'Narrative economics and the imperatives of the sitcom' and 'How the representative economist gets it wrong big-time' and 'United in the social science delusion' and 'Macroeconomics and the fake History of Economic Thought' and 'Econogenics in action' and 'Econogenics: economists pose a hazard to their fellow citizens' and 'Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion' and Ch. 13, The indelible scientific disgrace of economics, in Sovereign Economics.
Wikimedia AXEC112a Basic Laws of the elementary production-consumption economy
Blog-Reference and Blog-Reference
Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a Paradigm Shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”
After Keynes, every economist who still does not see the necessity of a Paradigm Shift is simply scientifically incompetent. One spokesperson of this prevailing majority is Krugman who debunks himself with: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
The fact is that maximization-and-equilibrium economics has already been dead in the cradle 150+ years ago.
Keynes, though, messed up the shift from microfoundations to macrofoundations. His lethal blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This elementary syllogism is conceptually and logically defective because Keynes never came to grips with profit. (Tómasson et al.)
Because profit is ill-defined, the whole analytical superstructure of Keynesianism is false.#1 Yet one of the outstanding characteristics of the cargo cult science economics is that refutation is persistently ignored: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern)
As a result of the continuous violation of scientific standards, the history of economic thought boils down to a narrative of incompetence, failure, self-deception, and lame excuses.#2 What we have today is the pluralism of provably false theories.
After-Keynesians never realized Keynes’ foundational blunder and thereby became part of the abysmal failure of what was meant as a Paradigm Shift.#3, #4 Neither DSGEers nor Post Keynesians up to MMT can define macroeconomic profit until this very day.
Science is indeed the search for invariances (Nozick) a.k.a. laws. In economics, though, the invariances are NOT in Human Nature/motives/behavior/action but in the properties of the economic system. Because of this, economics has to move from subjective-behavioral microfoundations to objective-systemic macrofoundations.#5 Nothing less than a Paradigm Shift will do and it is overdue for 150+ years. It holds: If it isn’t macro-axiomatized, it isn’t economics.
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
#2 Failed economics: The losers’ long list of lame excuses
#3 Why Post Keynesianism Is Not Yet a Science
#4 Heterodoxy, too, is proto-scientific garbage
#5 Ten steps to leave cargo cult economics behind for good
Related 'Narrative economics and the imperatives of the sitcom' and 'How the representative economist gets it wrong big-time' and 'United in the social science delusion' and 'Macroeconomics and the fake History of Economic Thought' and 'Econogenics in action' and 'Econogenics: economists pose a hazard to their fellow citizens' and 'Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion' and Ch. 13, The indelible scientific disgrace of economics, in Sovereign Economics.
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Wikimedia AXEC112a Basic Laws of the elementary production-consumption economy
October 8, 2017
Social science is NOT a science but a sitcom
Comment on David B. Feldman on ‘Is Psychology Really a Science?’
Blog-Reference
The so-called social sciences have been identified by Feynman as cargo cult sciences: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”
What is missing is the true theory, with scientific truth well-defined as material and formal consistency. The problem is this, psychologists, for example, know that they do not satisfy scientific standards but they insist nonetheless on the title social science. It has immediately been obvious that Freud’s storytelling and adoption of Greek myth had not much to do with science (for example to Popper) but more with a modern alternative to religion/superstition and with a new format for the entertainment industry. The similarity between a therapy setting and a sitcom simply cannot be overlooked.
All problems would end immediately if the social sciences could stop calling themselves sciences. For whatever reason, they cannot. And because science relies on self-government and the voluntary adherence to scientific ethics and because there is no such thing as science police who expels cargo cult sciences and jails fake scientists, the so-called social sciences continue with what in commonplace terms is a fraud, i.e. with pretending what they not are.
As far as economics defines itself as social science, the same untenable situation prevails. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. It is fraudulent to present this indefensible proto-scientific garbage as science.#2
Because economists lack the true theory their economic policy guidance has NO sound scientific foundations since Adam Smith/Karl Marx. In order to become a science, economics needs a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true systemic macrofoundations. Economics is NOT a social science but a systems science.
The simple reason why economics is a failed science is that both orthodox and heterodox economists share the foundational self-delusion that economics is a social science.
Until this day, economists have NOT gotten the foundational concepts of their subject matter, i.e. profit and income, right. This is like medieval physics before the foundational concept of energy was properly understood.#3
When economists are told that economics does not satisfy the scientific standards of material and formal consistency they invariably fall back on J. S. Mill’s slogan of economics as ‘inexact and separate science’. This, of course, is merely one of the economists’ numerous unacceptable excuses.#4 There is NO such thing as an inexact and separate science. There is only science and non-science respectively cargo cult science. The so-called social sciences and economics fall into the latter category.
Egmont Kakarot-Handtke
#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 The real problem with the economics Nobel
#3 Economists’ three-layered scientific incompetence
#4 Failed economics: The losers’ long list of lame excuses
Related 'Economics is NOT a social science' and 'Still on the wrong track' and 'PsySoc — the scourge of economics' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy'. For details of the big picture see cross-references Not a Science of Behavior
You say: “Economics and some of these other unsuccessful disciplines don't attract the best people...”
In order to understand the obvious lack of scientific success, it is crucial to realize that there are political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, and the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
Theoretical economics (= science) has been body-snatched by political economists (= agenda pushers). Indeed, it is a fact that political economics does NOT attract the best people. Political economics has achieved NOTHING of scientific value in the last 200+ years. Political economics attracts people that are stupid or corrupt or both.
Science consists of two essential elements: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant) Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-art testing.
Science is well-defined for 2300+ years. Economics is a failed science because economists are incompetent scientists. This applies to both Orthodoxy and Heterodoxy.#1 MMT is part of the mess.
What has been proven is that the formal foundations, i.e. the balances equations, of MMT are false.#2 Because of this, the whole analytical superstructure of MMT is false.
So, how MMTer in general, and Stephanie Kelton, in particular, think and op-ed about the deficit is mostly wrong.#3 Obviously, MMT attracts the wrong folks. These underperformers and storytellers do not even get the elementary math of National Accounting right.
#1 The stupidity of Heterodoxy is the life insurance of Orthodoxy
#2 Rectification of MMT macro accounting
#3 MMT: Redistribution as wellness program
You ask “Is psychology a science?!?!?!" = ‘is gold money?!?!?!’ something can be analyzed by ‘the scientific method’ but it may be just a figure of speech to say something IS a ‘science’.”
Psychology is NOT a science, and neither is economics. Science is well-defined for 2300+ years by material and formal consistency. Neither psychology nor economics satisfies these criteria. Because of this, they are cargo cult sciences: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.” (Feynman)
The problem with economics is that each year the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is awarded.#1 In order NOT to mislead the general public, the word ‘sciences’ has to be deleted from the title.#2
#1 The real problem with the economics Nobel
#2 Economics is NOT a science of behavior
Every layperson who is confronted with the statement: Mr. A has been murdered and you are the murderer, understands immediately the concept of scientific truth. Truth is (i) binary true/false with NOTHING in between, and (ii), truth is objective, that is provable in principle, and (iii), that it is worth every effort to find out the truth even if we cannot be absolutely sure that we will be successful. As Popper put it “Although nowadays we have given up the idea of absolutely certain knowledge, we have not by any means given up the idea of the search for truth. (Popper)
Admitting that there is no absolute certain knowledge is compatible with the assertion that the Law of the Lever represents certain knowledge. In fact, science is defined as the body of certain knowledge.
While genuine scientists have no problem with the idea of certain knowledge philosophers, who are known for having produced blather instead of knowledge throughout recorded history, desperately try to keep things in the swamp between true and false where ‘nothing is clear and everything is possible’ (Keynes). This insistence on inconclusiveness is a survival strategy of incompetent scientists and political agenda pushers, in other words, of failed and fake scientists. Needless to emphasize that these folks are the most enthusiastic followers of Feyerabend and tireless proponents of anything-goes.
Philosophers, social scientists, and economists are the traditional clientele of political clowns like the younger Feyerabend. How can science keep these folks at bay?
Let us make a thought experiment. There are two aircraft called PHI and SCI waiting in the maneuvering area. PHI has been designed/constructed by philosophers, psychologists, economists, and other fake scientists. SCI has been designed/constructed by folks who subscribe to the methodology of material/formal consistency as explained in the foreword of every physics textbook. Which aircraft will the fake scientists try to board? Clearly, in order to get rid of these folks, one has to make sure that they risk their lives with their own crappy constructs.
Of course, there is certain truth in economics but after 200+ years economists still have no idea what it looks like. The major approaches ― Walrasianism, Keynesianism/MMT, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent, and all got profit wrong.
Blog-Reference
The so-called social sciences have been identified by Feynman as cargo cult sciences: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”
What is missing is the true theory, with scientific truth well-defined as material and formal consistency. The problem is this, psychologists, for example, know that they do not satisfy scientific standards but they insist nonetheless on the title social science. It has immediately been obvious that Freud’s storytelling and adoption of Greek myth had not much to do with science (for example to Popper) but more with a modern alternative to religion/superstition and with a new format for the entertainment industry. The similarity between a therapy setting and a sitcom simply cannot be overlooked.
All problems would end immediately if the social sciences could stop calling themselves sciences. For whatever reason, they cannot. And because science relies on self-government and the voluntary adherence to scientific ethics and because there is no such thing as science police who expels cargo cult sciences and jails fake scientists, the so-called social sciences continue with what in commonplace terms is a fraud, i.e. with pretending what they not are.
As far as economics defines itself as social science, the same untenable situation prevails. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. It is fraudulent to present this indefensible proto-scientific garbage as science.#2
Because economists lack the true theory their economic policy guidance has NO sound scientific foundations since Adam Smith/Karl Marx. In order to become a science, economics needs a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true systemic macrofoundations. Economics is NOT a social science but a systems science.
The simple reason why economics is a failed science is that both orthodox and heterodox economists share the foundational self-delusion that economics is a social science.
Until this day, economists have NOT gotten the foundational concepts of their subject matter, i.e. profit and income, right. This is like medieval physics before the foundational concept of energy was properly understood.#3
When economists are told that economics does not satisfy the scientific standards of material and formal consistency they invariably fall back on J. S. Mill’s slogan of economics as ‘inexact and separate science’. This, of course, is merely one of the economists’ numerous unacceptable excuses.#4 There is NO such thing as an inexact and separate science. There is only science and non-science respectively cargo cult science. The so-called social sciences and economics fall into the latter category.
Egmont Kakarot-Handtke
#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 The real problem with the economics Nobel
#3 Economists’ three-layered scientific incompetence
#4 Failed economics: The losers’ long list of lame excuses
Related 'Economics is NOT a social science' and 'Still on the wrong track' and 'PsySoc — the scourge of economics' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy'. For details of the big picture see cross-references Not a Science of Behavior
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REPLY to Matt Franko on Oct 8You say: “Economics and some of these other unsuccessful disciplines don't attract the best people...”
In order to understand the obvious lack of scientific success, it is crucial to realize that there are political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, and the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
Theoretical economics (= science) has been body-snatched by political economists (= agenda pushers). Indeed, it is a fact that political economics does NOT attract the best people. Political economics has achieved NOTHING of scientific value in the last 200+ years. Political economics attracts people that are stupid or corrupt or both.
Science consists of two essential elements: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant) Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-art testing.
Science is well-defined for 2300+ years. Economics is a failed science because economists are incompetent scientists. This applies to both Orthodoxy and Heterodoxy.#1 MMT is part of the mess.
What has been proven is that the formal foundations, i.e. the balances equations, of MMT are false.#2 Because of this, the whole analytical superstructure of MMT is false.
So, how MMTer in general, and Stephanie Kelton, in particular, think and op-ed about the deficit is mostly wrong.#3 Obviously, MMT attracts the wrong folks. These underperformers and storytellers do not even get the elementary math of National Accounting right.
#1 The stupidity of Heterodoxy is the life insurance of Orthodoxy
#2 Rectification of MMT macro accounting
#3 MMT: Redistribution as wellness program
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REPLY to Ignacio on Oct 9You ask “Is psychology a science?!?!?!" = ‘is gold money?!?!?!’ something can be analyzed by ‘the scientific method’ but it may be just a figure of speech to say something IS a ‘science’.”
Psychology is NOT a science, and neither is economics. Science is well-defined for 2300+ years by material and formal consistency. Neither psychology nor economics satisfies these criteria. Because of this, they are cargo cult sciences: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.” (Feynman)
The problem with economics is that each year the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is awarded.#1 In order NOT to mislead the general public, the word ‘sciences’ has to be deleted from the title.#2
#1 The real problem with the economics Nobel
#2 Economics is NOT a science of behavior
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REPLY to Tom Hickey on Oct 9Every layperson who is confronted with the statement: Mr. A has been murdered and you are the murderer, understands immediately the concept of scientific truth. Truth is (i) binary true/false with NOTHING in between, and (ii), truth is objective, that is provable in principle, and (iii), that it is worth every effort to find out the truth even if we cannot be absolutely sure that we will be successful. As Popper put it “Although nowadays we have given up the idea of absolutely certain knowledge, we have not by any means given up the idea of the search for truth. (Popper)
Admitting that there is no absolute certain knowledge is compatible with the assertion that the Law of the Lever represents certain knowledge. In fact, science is defined as the body of certain knowledge.
While genuine scientists have no problem with the idea of certain knowledge philosophers, who are known for having produced blather instead of knowledge throughout recorded history, desperately try to keep things in the swamp between true and false where ‘nothing is clear and everything is possible’ (Keynes). This insistence on inconclusiveness is a survival strategy of incompetent scientists and political agenda pushers, in other words, of failed and fake scientists. Needless to emphasize that these folks are the most enthusiastic followers of Feyerabend and tireless proponents of anything-goes.
Philosophers, social scientists, and economists are the traditional clientele of political clowns like the younger Feyerabend. How can science keep these folks at bay?
Let us make a thought experiment. There are two aircraft called PHI and SCI waiting in the maneuvering area. PHI has been designed/constructed by philosophers, psychologists, economists, and other fake scientists. SCI has been designed/constructed by folks who subscribe to the methodology of material/formal consistency as explained in the foreword of every physics textbook. Which aircraft will the fake scientists try to board? Clearly, in order to get rid of these folks, one has to make sure that they risk their lives with their own crappy constructs.
Of course, there is certain truth in economics but after 200+ years economists still have no idea what it looks like. The major approaches ― Walrasianism, Keynesianism/MMT, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent, and all got profit wrong.
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