AXEC: New Foundations of Economics: Microfoundations

Showing posts with label Microfoundations. Show all posts

October 14, 2026

Occasional X: I=S ― the biggest idiocy in macroeconomics (X)

“Everything is a budget constraint or supply and demand, as in Principles of Micro.” (Brian Albrecht) The most important balance of economics —profit— is missing in Brian Albrecht's charts. This tells one that economists are too stupid for the elementary algebra that underlies macroeconomic accounting. Macroeconomic profit or loss Qm, i.e., the business sector's balance, is given by the axiomatically correct Profit Law Qm:=Yd+(I−Sm)+(G−T)+(X−M). This boils down to Qm:=(I−Sm) for the elementary case of a consumption-investment economy. Normally, I, the investment expenditures of the business sector, are greater than the saving Sm of the household sector. This is how profit comes into the world. In the case of I=Sm, macroeconomic profit is zero, and if I<Sm the economy breaks down. Microbrains like Brian Albrecht never understood the basics. The Principles of Micro are proto-scientific garbage. Let this sink in: economists still get the subject's foundational concept of profit wrong. They have been scientifically incompetent since Adam Smith. Economics is scientifically worthless to this day. For details, see Cross-references: Profit https://t.co/taznr3RMBt
— AXEC (@EgmontHandtke) October 14, 2026

Occasional X: The foul spirit of political economics (CCCLXXXIV)

“The Nobel Prize given to Mike Woodford and Bob Hall will re-trigger discussions about the so-called New Keynesian model. Some will hail it as an unambiguous success, building macro from micro foundations.” (Olivier Blanchard) Olivier Blanchard gets it methodologically wrong: it's not bottom-up, it's top-down; it's not individual-centric, it's system-centric. Economics has been failed/fake science since the Founding Fathers. It has defined itself as a social science and accordingly has been based on subjective/behavioral assumptions/axioms. This is the methodological ur-mistake. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory, axiomatically false, and materially/formally inconsistent. They all got profit wrong. When the subject's foundational concepts are inconsistent, the entire analytical superstructure is scientifically worthless. Actually, economics is about how the economy works. It is a genuine systems science. To finally become a science, economics needs a Paradigm Shift from false behavioral microfoundations and false Keynesian macrofoundations to true macrofoundations. Legacy economics is what Feynman called Cargo Cult Science. The EconNobel positively reinforces failed/fake science. Olivier Blanchard is not only an incompetent scientist, but an #EconBlocker.
— AXEC (@EgmontHandtke) October 14, 2026

October 13, 2026

Occasional X: Time to get the axioms of economics right (IX)

“Yes, the new-Keynesian models, the DSGEs, or even the 'microfounded' models are hardly taught in macroeconomics at the undergraduate level. Policymakers don’t really reason with these models either, as Adam Posen himself admitted in 2017.” (François Geerol) Economics has been failed/fake science since the Founding Fathers. It has defined itself as a social science and accordingly has been based on subjective/behavioral assumptions/axioms. This is the methodological ur-mistake. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory, axiomatically false, and materially/formally inconsistent. They all got profit wrong. When the subject's foundational concepts are inconsistent, the entire analytical superstructure is scientifically worthless. Actually, economics is about how the economy works. It is a genuine systems science. To finally become a science, economics needs a Paradigm Shift from false behavioral microfoundations and false Keynesian macrofoundations to true macrofoundations (⇓ AXEC121l) The EconNobel is a scientific fraud.
— AXEC (@EgmontHandtke) October 13, 2026

October 12, 2026

Occasional X: Scrap the EconNobel (XLXXII)

“2026 economic sciences laureates Robert E. Hall’s and Michael Woodford’s research has made us better equipped to manage economic downturns. They laid the foundation of the New Keynesian paradigm, in which models are built upon microfoundations, which means from the bottom up. ” (The Nobel Prize) Economics is failed/fake science, and the EconNobel is part of it. Microfoundations was dead from the start. It is the unassailable proof that the history of economic thought is the history of scientific failure. The Founding Fathers defined economics as a social science, and accordingly, it has been based on subjective/behavioral assumptions/axioms. This has been the methodological ur-mistake. For example, here are the Walrasian axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub) The methodological mistake is that economists put the behavioral assumption of constrained optimization and equilibrium into the premises. This is a petitio principii, but economists do not know what this means. Stupidity makes faithful worshippers: “And so — faithful to the theory's conceptual cornerstones and hoping against all hope that the unthinkable may still be achieved (i.e., a satisfactory theory of the price mechanism) — the tormented upholders of the validity of the paradigmatic core of economic equilibrium theory appear singularly reluctant to face the problem of comparing expectations and results and assessing the consistency of the theory.” (Ingrao et al., 1990, p. 346) Although microfoundations is methodologically a false concept, economists repeat it nonetheless: “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, 1941, pp. 369-370) Economics has been failed/fake science for 200+ years. The way forward is to reconstruct economics entirely without the concepts of constrained optimization, rational expectations, equilibrium, and other NONENTITIES. In methodology, this is called a Paradigm Shift: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362) It means, first, that legacy economics goes down the scientific drain for good. Senseless economic debate ends. Disinfotainment on social media ends. It means, secondly, to go forward and perform the Paradigm Shift (⇓ AXEC113h)
— AXEC (@EgmontHandtke) October 12, 2026

For more on top-down, see AXECquery.

September 22, 2026

Occasional X: The foul spirit of political economics (CCCLXI)

“My ideology: …” (Matias)

Economics has been failed/fake science since the Founding Fathers. It has defined itself as a social science and accordingly has been based on subjective/behavioral assumptions/axioms. This is the methodological ur-mistake.

The major approaches… pic.twitter.com/fGHdFsBqxy
— AXEC (@EgmontHandtke) September 22, 2026

July 31, 2026

Occasional X: Econ 101― still proto-scientific garbage (XIX)

Sales promotions don't help.

Economics has been failed/fake science since the founding fathers. It has defined itself as a social science and accordingly has been based on subjective/behavioral assumptions/axioms. This is the methodological ur-mistake.

Economics is about how…
— AXEC (@EgmontHandtke) July 31, 2026

June 6, 2026

Occasional X: Clueless economists / Science (CCCXXXVII)

“If an idea sounds compassionate but ignores incentives and basic market realities, it’s not an economic principle, it’s an emotional reaction dressed up as policy. That’s why left policies like minimum wage or rent controls, contradicting basic economics, just make things… pic.twitter.com/ltDKJtQZWP
— AXEC (@EgmontHandtke) June 6, 2026

For more about the Totem of the Micro, see AXECquery.

June 3, 2026

Occasional X: Paradigm Shift (CXIV)

“A great comment from hidetomitanaka on the magisterial paper by guido_lorenzoni and IvanWerning and one I endorse.” (Roger Farmer)

General Equilibrium Theory was dead from the start. It is the unassailable proof that the history of economic thought is the history of scientific… pic.twitter.com/mje42klaur
— AXEC (@EgmontHandtke) June 3, 2026

June 2, 2026

Occasional X: Clueless economists / Science (CCCXXXV)

“This comes from the tradition of econometrics. The idea is that everything in economics has to be measurable like in physics. So economists have to keep denying the inexact reality of economics at every turn. A good example of this is the most inexact field in economics: macro.”… pic.twitter.com/KCG3rw2NWU
— AXEC (@EgmontHandtke) June 2, 2026

May 24, 2026

Occasional X: Clueless economists / Science (CCCXXVII)

“Smith did not invent free markets. He explained why the markets that already existed produced order without anyone intending it. The insight was descriptive before it was prescriptive. He was watching something happen and asking: why does this work? Most people who cite him have… pic.twitter.com/vYDVRUEi4s
— AXEC (@EgmontHandtke) May 24, 2026

May 16, 2026

Occasional X: The futile attempt to recycle Austrianism (CV)

“A professor proposed ethno-mathematics: maybe 2+2 could be something else in your culture.” (Mises Media)

Yes, question the premises, but don't stop there. Advance to the Paradigm Shift. The new premises represent the ultimate critique of the old ones.

This applies primarily…
— AXEC (@EgmontHandtke) May 16, 2026

Occasional X: Clueless economists / Science (CCCXX)

“… economics studies purposeful human action, not inanimate objects.“ (NReadMoore)

No. Austrians are in the wrong film.

Human Nature/motives/behavior/action are the subject matter of psychology, sociology, political science, social philosophy, history, anthropology, biology,…
— AXEC (@EgmontHandtke) May 15, 2026

May 13, 2026

Occasional X: Clueless economists / Science (CCCXVIII)

“Very much looking forward to the 𝐙𝐮𝐫𝐢𝐜𝐡 𝐐𝐮𝐚𝐧𝐭𝐢𝐭𝐚𝐭𝐢𝐯𝐞 𝐌𝐚𝐜𝐫𝐨 𝐖𝐨𝐫𝐤𝐬𝐡𝐨𝐩 next week! Excited to welcome an outstanding group of macroeconomists pushing the very frontier …” (Yucheng Yang)

Keynes, too, misunderstood the concept of profit because he was… pic.twitter.com/up9loOrYhm
— AXEC (@EgmontHandtke) May 13, 2026

For more about the Starting Problem, see AXECquery.

May 2, 2026

Occasional X: Forget supply-demand-equilibrium (XXII)

“It always feels very funny when I'm looking at a journal article and they pull up the basic supply and demand graph.” (Jack Whitcomb)

There is no such thing as supply-demand-equilibrium. The Totem of the Micro needs to be replaced by the macroeconomic Unit Circle ⇓.

For the… pic.twitter.com/2wkJRbWypc
— AXEC (@EgmontHandtke) May 2, 2026

April 28, 2026

Occasional X: Forget supply-demand-equilibrium (XXI)

“This is art for economists.” (Vincent Geloso)

No, there is no such thing as supply-demand-equilibrium. The Totem of the Micro needs to be replaced by the macroeconomic Unit Circle ⇓.

For details, see
The monstrous utility-supply-demand-equilibrium failure… pic.twitter.com/4Rf389yC4V
— AXEC (@EgmontHandtke) April 28, 2026

April 27, 2026

Occasional X: Clueless economists / Science (CCLXXXVI)

“We have to deal not with certainties but with probabilities and chances. We constantly take risks and decide on the basis of economic considerations whether a particular precaution is worthwhile.” (Friedrich Hayek)

Yes, but economics is NOT about human behavior. This is a…
— AXEC (@EgmontHandtke) April 27, 2026

Occasional X: The futile attempt to recycle behavioral economics (XVI)

“all these people saying they’d risk their lives for the social good yet not even 10k could give this guy a heart for providing the discussion for two days” (Robert Murphy)

The basic behavioral assumptions are a matter of methodological indifference because, to begin with,… pic.twitter.com/2mXvccoqc0
— AXEC (@EgmontHandtke) April 27, 2026

April 11, 2026

Occasional X: Clueless economists / Science (CCXCXIV)

“This issue, I believe, is a (but not the) great divide between macroeconomic theories, with Keynes, Friedman, MMT in one camp and Menger, Bohm-Bawerk, Mises, Fetter, Hutt, Salerno in the other.” (Jonathan Newman, quoted by Robert Murphy)

The Founding Fathers defined economics… pic.twitter.com/HpBLd6t4Wr
— AXEC (@EgmontHandtke) April 11, 2026

April 2, 2026

Occasional X: Clueless economists / Science (CCXCV)

“Especially recommend chapter 3 on why ideas like marginalism took so long to develop.” (Dwarkesh Patel)

Marginalism is the worst example of scientific failure.

For over 200 years, economics has said it is a science, but it isn't. The major approaches (Walrasianism,…
— AXEC (@EgmontHandtke) April 2, 2026

March 23, 2026

Occasional X: The futile attempt to recycle Milton Friedman (XLXII)

“The price system works so well, so efficiently, that we are not aware of it most of the time.” (Milton Friedman)

Milton Friedman's hallmark was psychological triviality. He never understood profit and, as a consequence, how the economic system works. That's self-disqualifying.…
— AXEC (@EgmontHandtke) March 23, 2026

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Knowledge only — no opinion

Science does not explain everything, but non-science explains nothing.

Neither orthodox nor heterodox economics satisfies the scientific criteria of material and formal consistency.

Economists cannot explain how the economy works. The Profit Theory is false since Adam Smith. There is much opinion and little knowledge.

Opinion is the realm of political economics, knowledge is the realm of theoretical economics.

Political economics is scientifically worthless.

Theoretical economics is built upon clearly stated premises, i.e., upon a set of axioms.

Orthodoxy got the axiomatic foundations wrong and Heterodoxy has none at all.

Economics is a failed science. Economists are incompetent scientists.

Profit

Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionialists, nor Monetary Economists, nor MMTers, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they all fail to capture the essence of the market economy.

Because of this, economists have nothing to offer in the way of a scientifically founded economic policy guidance.

The hybrid science

As a first approximation, one can agree on the general characteristic that the economy is a complex system.

However, with the term system one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system the market economy should be characterized more precisely as a complex hybrid human/system entity.

The scientific method is straightforwardly applicable to the sys-component but not to the hum-component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons the analysis has to start with the objective system-component.

In gestalt-psychological terms the economic system is the foreground, individual behavior the background. Common sense wrongly insists that the hum-component must always be in the foreground. This fallacy compares to geo-centrism. The economic system has its own logic which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the Invisible Hand.

There are systemic laws but no behavioral laws. Systemic laws have the same methodological status as physical laws.

Neither Orthodoxy nor Heterodoxy can tell what the systemic laws of the actual monetary economy are.

Whether the outcome of the human/system-interaction is good or bad is a politcal question that lies outside of theoretical economics. Theoretical economics explains how the actual economy works - no less, no more.

Narrative vs.Theory

Psychological, sociological or behavioral assumptionism cannot yield anything other than a gossip model of the world. Second-guessing the agents is not economic analysis.

Science deals exclusively with propositions that can in principle be decided by objective means. The rest is opinion, faith, phantasy, motive speculation, allegation, hallucination, myth, paranoia, ink-blot association, psychology, philosophy, in one word: storytelling.

Storytelling is the original mode of communication in the social realm — except science.

Political economics is storytelling and, by default, the natural habitat of confused confusers. Walrasianism, Keynesianism, Marxianism, Austrianism are social narratives and not scientifically valid representations of reality.

"The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions." (Fisher)

In marked contrast, theoretical economics lives up to the standards of material and formal consistency. A scientific theory is the best mental representation of reality that is humanly possible.

Theory starts with a set of objective and consistent axioms.

Paradigm Shift

"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)

"As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction." (Nell)

"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)

"Is it not a fact, which stares at us from the histories of all sciences, that it is much more difficult for the human mind to forge the most elementary conceptual schemes than it is to elaborate the most complicated superstructure when those elements are well in hand?" (Schumpeter)

"The task of producing knowledge against the grain requires imagination." (Mirowski)

"A new idea is extremely difficult to think of. It takes a fantastic imagination." (Feynman)

"The scientific imagination dreams of explanations and laws." (Peirce)

"It is brilliance of imagination which makes the glory of science." (Evans)

"... we know little more now about ‘how the economy works,’ ... than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations." (Clower)

Selftest and to watch for

You apply one of these items

• supply-demand-equilibrium,

• general equilibrium,

• marginal utility,

• well-behaved production functions,

• total income = value of output,

• total income = wages + profits,

• I=S,

• wage rate down - employment up,

• behavioral axioms?

Then you are out of science because of unnoticed material or formal inconsistency.

Every economist who uses the concept of equilibrium is scientifically incompetent because she/he failed to notice that equilibrium is an economic nonentity.

Practically this means: as soon as the word equilibrium appears in an economic text it can be thrown into the waste basket. The same holds for all other nonentities.

The vast majority of economists deals mainly with nonentities. This is why Walrasianism, Keynesianism, Marxianism, Austrianism is scientifically worthless.

Since Adam Smith, economic policy guidance has no sound scientific foundations.

To be replaced (1)

The core premises of Orthodoxy are uncertain and false and this fully explains the failure of the research program.

“As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

The inescapable Paradigm Shift consists of the move from this obsolete hard core to the superior set of structural axioms.

To be replaced (2)

The fundamental equations of macroeconomics have been formulated by Keynes in two lines.

"Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment."

This elementary syllogism is demonstrably false. The demonstration consists in the proof that Keynes could not solve the Profit Puzzle. Neither did Post-Neo-New-Keynesians.

In the most general terms, the economics Paradigm Shift consists in switching from the behavior-centric bottom-up approach to the structure-centric top-down approach. This is comparable to the Copernican turn from geo-centrism to helio-centrism.

Consensus

Economics is a science without scientists. Because they are ignorant of the elementary difference between profit and income, the present generation of economists has not made and cannot make a significant contribution to the discussion about how the actual economy works.

Every orthodox or heterodox economist can convince himself/herself that their profit theory is defective.

Every non-economist can — by applying elementary logic — convince himself that conventional profit theories are false. See 'How the intelligent non-economist can refute every economist hands down'.

Because the profit theory is false the whole of conventional economic theory has to be rejected.

"What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse." (McCauley)

No scientist will ever accept Walrasianism, Keynesianism, Marxianism, or Austrianism. These approaches are logically and/or empirically refuted. This is the actual methodological state-of-art. Walrasians, Keynesians, Marxians, or Austrians are still at the proto-scientific stage. These approaches cannot be improved, only abandoned.

Economists are a public nuisance because they have an opinion on everything but knowledge of nothing.

About me

“Bottom line is that your profit law is just a definition you made up nobody else agrees with, nobody. You are all alone with your precious tautology.” Barkley Rosser

“In any event, your entire theory is based on you doing macro accounting in wacky fashion that nobody agrees with.” Brian Romanchuk

"Your stuff is at least original: it's quite cool after a couple of decades at this to see a fresh Economics. But real promises are not advanced: they were around for millennia until the Greeks obscured them with Metaphysics." Chris Cook

"No mate, they're you-blockers. You have all the personality traits of a crank, and the rest of them have tired of you. You could be 100% right, and you'd still die as your only follower." Steve Keen

"What you are doing fills is all with joy, your constructive critique is most welcome!"

Achim Truger,

German Council of Economic Experts,

in a failed attempt to be ironic

"200+ years of thought and yet you are the only one who gets it—or even understands your argument. Thank god we have you, pseudonymous Twitter user. Otherwise no one would know."

William Luther

Assistant Professor of Economics

in a failed attempt to be funny

"Egmonts profit law is the perfect equation that demonstrates this in action. Put the equation into a spreadsheet and then add government spending and watch how it flows into profits. Enter in some debt (-Sm) and watch too how that flows into profits. It can't go anywhere else."

Dean

About the rest of economics

Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, Pluralism are mutually contradictory, axiomatically false, materially/ formally inconsistent. Economics is a failed science.

“There are three classes of people: those who see. Those who see when they are shown. Those who do not see.” Leonardo da Vinci

In economics, the overwhelming majority belongs to Class III. This explains why economics is after 200+ years still at the proto-scientific level.

The obvious task for every economist is to advance from cargo cult science and political agenda-pushing to science. This is absolutely beyond the means of Class III people.

For 200+ years now, economists are not scientists but agenda pushers, useful idiots, clowns in the political Circus Maximus.

Nopopop

This blog does not add to any popular/un- popular opinion.

This blog does not hand out advice about how to avoid taxes, to get rich on the stock market, to be successful in business, to increase the wealth of nations, to run an economy, to maximize welfare, to prevent national/global bankruptcy, to improve the institutional setup of society, to get out of national/global depression, nor about how to save humankind or any subgroup thereof.

This blog is about the true theory of the actual monetary economy.

"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)

Focus

Science is of primary interest and importance. Scientists are of secondary interest.

With regard to science, most people lose focus easily because of a natural preference for anecdotes and gossip over facts or subjectivity over objectivity.

Hence, Schumpeter once considered it necessary to remind his habitually disoriented fellow economists: “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.”

Science is about true/false and nothing else.

Disclaimer

Missing Blog-Reference links: AXEC does not guarantee that their comments can at any time be recovered from where they have been posted intitially because the availability depends on the publication policy of the blog owner which is implicitly accepted on entering a debate. See also: 'Economists: Incompetent? Stupid? Corrupt?'

Texts: Parts of arbitrary length of any of the author's texts is and will be used again by the author in papers, books, websites, blogs, and other media without explicit reference. The right to make corrections or minor textual improvements on reutilization is reserved. Therefore, it is always a good idea to double-check for the latest version.

Caution: Do not expect a corroboration of your political view. Neither a refutation. Political economics has been scientifically worthless since Adam Smith. Politics has to be separated from economics because it is categorically different from science. The best science can do and has always done is to prove beyond reasonable doubt that you have been objectively wrong or ignorant until now. Science goes beyond the naive common sense of today and becomes the sophisticated common sense of tomorrow.

See also Terms of Use and Legal at www.AXEC.org

Outlook

To recall, while political economics is storytelling, theoretical economics adheres to scientific standards.

The first task of theoretical economics is to get the axiomatic foundations right. This is what J. S. Mill called the opus magnum. Neither Orthodoxy nor Heterodoxy came up with a reasonable solution to this day. This explains the secular stagnation of economics.

There is no serious alternative to structural axiomatic economics. This is not a matter of opinion but of proof. The sole criteria are material and formal consistency.

All of economics has to be reconstructed from the ground up.

Major economic policy implication

The price mechanism does not work as standard economics hypothesizes. The axiom-based Employment Law states that overall employment increases if the average wage rate increases relative to average price and productivity. This gives one the lever to improve the employment situation all over the world and to fend off deflation without rising debt and without artificial capacity growth. To increase the average price relative to the average wage rate and productivity increases unemployment.

Right policy depends on true theory.

“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)

Lacking the true theory, economists promote for more than 200 years opinion instead of knowledge.