How to make economics a science

Comment on Dániel Oláh on ‘If You Look Behind Neoliberal Economists, You’ll Discover the Rich: How Economic Theories Serve Big Business’

Blog-Reference and Blog-Reference

The one question in science is about the truth of a theory, i.e. its material and formal consistency: “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)

Economists do not have the true theory. They have many different opinions but nothing in the way of scientific knowledge. Since the founding fathers, there is 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.

The fact is that the agenda pushers of political economics have captured theoretical economics (= science) from the very beginning with the result that economics has produced nothing of scientific value in the last 200+ years.#1 Economics has until this day no scientific truth-value, only some political use-value. This applies not only to Orthodoxy but also to Heterodoxy.

Orthodoxy is defined since Jevons/Walras/Menger by methodological individualism. The neoclassical concretization translates into the following hardcore propositions a.k.a. 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)

Obviously, this axiom set contains three NONENTITIES: (i) constrained optimization HC2, (ii) rational expectations HC4, (iii) equilibrium HC5. Every theory/model that contains a nonentity is A PRIORI false. As a consequence, the economics of the Walrasian-Arrow-Debreu type and its offspring until DSGE/RBC/New Keynesianism is scientifically worthless.

The wonder of economics is twofold: (i) how can it be that this rather obvious proto-scientific garbage has been swallowed hook, line, and sinker by the majority of every new generation of economists for 150+ years? and (ii), why did heterodox economists during this long time span only come up with repetitive critique but not with something better?#2

What Orthodoxy and Heterodoxy have in common is scientific incompetence and the erroneous belief that economics is a social science.#3 The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong.

Economics is one of the most embarrassing scientific failures of all time and the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is either an absurd self-delusion or a deliberate deception of the general public.#4

Since the founding fathers, economists violate the principle of the separation of science and politics. Economics is what Feynman famously called a cargo cult science and neither right-wing nor left-wing economic policy guidance has sound scientific foundations since the soapbox economists Adam Smith and Karl Marx.

In order that economics becomes a science, the following steps have to be taken:
• a public declaration that economics is a failed science,
• the abolition of the fake Nobel,
• the unceremonious shredding of Econ 101 textbooks,
• the strict institutional separation of science and politics,
• the eviction of all political economists from science,
• the Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to correct macrofoundations.

It is high time that economics frees itself from the all-pervasive and all-corrupting grip of political agenda pushers. New Economic Thinking does not consist of more lipstick on the dead pig but of the long-overdue Paradigm Shift.#5

Egmont Kakarot-Handtke


#1 For details of the big picture see cross-references Failed/Fake Scientists
#2 The stupidity of Heterodoxy is the life insurance of Orthodoxy
#3 A social science is NOT a science but a sitcom
#4 The economics Cargo Cult Prize
#5 This is New Economic Thinking? Give me a break!

Related 'Show first your economic axioms or get out of the discussion' and 'Economists: scientists or political clowns?' and 'Replacing sand with granite' and 'Basics of monetary theory: the two monies'. For details of the big picture see cross-references Political Economics and cross-references Axiomatization and cross-references Paradigm Shift.

New Economic Thinking = old scientific garbage

Comment on David Orrell on ‘Economyths: The Five Stages of Economic Grief’

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Myth, well told, is still the most convincing way to explain how the world and humankind came to be in their present form. To recall, Zeus was the god of sky and thunder. He oversaw the universe, assigned the various gods their roles, and was known for his erotic escapades. Zeus was emotional, spontaneous and had a lot of trouble with other gods, goddesses, and humans. To handle his problems, Zeus regularly fell back to chicanery, force, and violence.#1 Since antiquity, everybody “understands” Zeus and his actions.

Not much has changed since the ancient Greeks. Ninety-nine percent of human communication still consists of myth, storytelling, and psychologism. Storytelling and psychologism are scientifically worthless. The “explanation” consists of connecting phenomenological dots by simply imputing a plausible emotional motive (anger, greed, fear, jealousy, hubris, revenge, etcetera) to an assumed actor with extraordinary capabilities.

The characteristic of science is the rejection of storytelling and the insistence on material and formal consistency: “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)

The goal of science is the true theory. The true theory is the humanly best mental representation of reality. Economics is a failed science. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concepts profit and income wrong. Neither orthodox nor heterodox economists can explain how the economy works and why crises happen.

The methodologically proper measure to overcome scientific failure is a paradigm shift. This, though, is NOT what David Orrell proposes. Instead, he reinterprets the manifest scientific mess as a psychological problem and advocates therapy: “I’m sure there are plenty of sociologists and psychologists (even grief counsellors probably) who can help.”

Needless to emphasize that David Orrell’s story of sickness and healing appeals very much to the ninety-nine percenters who can only understand what is presented in the accustomed sitcom format. Psychologism is the mode of explanation of morons for other morons. Psychology, to recall, is a so-called social science and the so-called social sciences have been debunked by Richard Feynman as cargo cult science.

Economics is a systems science and the functioning of the economic system has to be explained without recourse to psychological concepts like utility or greed.#2

Economics is a failure ― NOT a psychological or communicative failure but a scientific failure ― and the ultimate cause is not some mysterious psychological disorder but plain scientific incompetence. Both orthodox and heterodox economics has never been more than storytelling. There is neither material or formal consistency. The representative economist can until this very day not tell what profit is.#3 This is like medieval physics before the concept of energy was properly understood.

Economists have no mysterious psychological disorder, they are fake scientists.#4 This scourge cannot be overcome with therapy but only with the immediate expulsion of economists from the sciences.

Egmont Kakarot-Handtke


#1 Wikipedia, Zeus
#2 First Lecture in New Economic Thinking
#3 Why economists don’t know what profit is
#4 CORE: more lipstick on the dead economics pig

Related 'Why is economics such a scientific embarrassment?' and 'Economics: the emancipation of science from politics' and 'What makes economics a failed science?' and 'Hunting down the economics body snatchers' and 'In search of new economists' and 'The myth of economics knowledge'  and 'How the representative economist gets it wrong big-time' and 'New Economic Thinking: the 10 crucial points'. For details of the bigger picture see cross-references Paradigm Shift.

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FACT: The comment above vanished within minutes from the Evonomics blog.

FICTION: This is how the New Economic Thinkers advertise themselves.

We are not yet out of the wood; in fact, we are not yet in it

Comment on Peter Turchin on ‘What Economics Models Really Say: A Review of Economics Rules’

Blog-Reference and Blog-Reference on Jul 10 and Blog-Reference

It is known for 2300+ years how science works: “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)

We know after 200+ years that economics is a failed science or what Feynman called a cargo cult science: “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: “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)#1

The true theory is defined by 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.

Now, every economist knows:
(i) The major approaches Walrasianism, Keynesianism, Marxianism, Austrianism are materially/formally inconsistent. What we actually have is the pluralism of false theories/models.
(ii) The foundational concept of profit is ill-defined (see Desai, Palgrave Dictionary). By implication income, too, is ill-defined.#2
(iii) The concept of capital is ill-defined (see Cambridge Capital Controversy CCC)
(iv) The concept of equilibrium is ill-defined: “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) see also (Ingrao et al.), (Ackerman et al.)

Therefore, ALL theories/models that apply the traditional concepts of profit, income, capital, equilibrium are A PRIORI false. The mathiness discussion misses the crucial point altogether.#3 It is not at all the question whether the axiomatic-deductive method is productively applicable in economics, the problem is (i) that the method works only if the premises are “certain, true, and primary”, and (ii), that the axiomatic foundations of economics are provably false.#4 Economists do not even apply the elementary mathematics of macro accounting correctly.#5

What we have is Walrasian microfoundations and Keynesian macrofoundations and both are cobbled together for 70+ years in something called synthesis. Needless to emphasize that both halves do not logically fit. Because the axiomatic foundations of both microeconomics and macroeconomics are false, ALL modern economics textbooks from Samuelson to Mankiw and Rodrik are false.#6 This has nothing to do with mathiness but much with scientific incompetence.

Egmont Kakarot-Handtke


* Title taken from Schumpeter
#1 Economics: 200+ years of scientific incompetence and fraud
#2 Economists: scientists or political clowns?
#3 Morons on math
#4 First Lecture in New Economic Thinking
#5 A crash course in macro accounting
#6 The father of modern economics and his imbecile kids

The long genealogical tree of economic storytelling

Comment on Dániel Oláh on ‘The Amazing Arab Scholar Who Beat Adam Smith by Half a Millennium’

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Dániel Oláh reports: “The biggest merit of Khaldun lies in his revolutionary methodological thinking. … Based on this it’s easy to understand that Ibn Khaldun presented very similar ideas as Adam Smith, but hundreds of years before the Western philosopher. But Khaldun said even more about the economy. He analyzed markets which arise based on the division of labor and examined market forces in a simple didactic way which is very similar to the attitude of Alfred Marshall. The invention of supply and demand analysis wasn’t invented in the 19th century …”

The fault of this argument lies in the fact that economics is, to begin with, NOT a social science.#1 Worse, to define economics as social science has been the foundational blunder 200+ years ago. Worst, not to realize this to this day is the very proof of utter scientific incompetence of the representative economist.

Adam Smith was NOT a scientist but a storyteller: “… he had no such ambitions; in fact, he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

Schumpeter had to argue against the plain fact that the supply and demand story is not much better than the commonsensical story of how the sun travels from east to west over the firmament: “The primitive apparatus of the theory of supply and demand is scientific. But the scientific achievement is so modest, and common sense and scientific knowledge are logically such close neighbors in this case, that any assertion about the precise point at which the one turned into the other must of necessity remain arbitrary.”

Neither Smith nor Marshall ever rose above the level of proto-scientific storytelling.#2 The same holds true for Ibn Khaldun. To put this in perspective is not to deny that Ibn Khaldun marked progress in comparison to his precursors who limited themselves “to transmit knowledge without modifying, editing or adding any remarks to the tradition.”

Ibn Khaldun deserves credit as a forerunner of Adam Smith. But Smith was more a political blatherer than a scientist. So Ibn Khaldun is not the forerunner of economics as a science. The current state of economics is this: the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. With the pluralism of provably false theories economics sits squarely at the proto-scientific level.#3

It is, first of all, of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to push an agenda, the goal of theoretical economics is to 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 has to be judged according to the criteria true/false and nothing else. The history of political economics since Adam Smith can be summarized as a perpetual violation of scientific standards. Theoretical economics had been hijacked from the very beginning by the agenda pushers of political economics. Smith and Ricardo fought for Liberalism, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Keen.

Political economics has produced NOTHING of scientific value since Adam Smith. This is not the fault of Ibn Khaldun, of course, but of scientifically incompetent economists who have not realized to this day that economics is NOT a social science but a systems science.#4 What is required since Ibn Khaldun is to double down on revolutionary methodological thinking.

Egmont Kakarot-Handtke


#1 Economics is NOT a social science
#2 Marshall and the Cambridge school of plain economic gibberish
#3 Economics: 200+ years of scientific incompetence and fraud
#4 First Lecture in New Economic Thinking

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AXEC179

New Economic Thinking, or, let’s put lipstick on the dead pig

Comment on Eric Beinhocker on ‘It’s Time for New Economic Thinking Based on the Best Science Available, Not Ideology’

Blog-Reference

For non-economists, the most important thing to know about economics is that there is NO economic science. Yes, there is a prize with the title: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” but NOTHING REAL corresponds to the word Sciences.

For non-economists, the most important thing is to keep political and theoretical economics apart. The main differences are: (i) The goal of political economics is to successfully push an agenda; 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.

The goal of theoretical economics is the 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)

For non-economists, the most important thing to realize is that theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. Economics is a failed science.

So, yes indeed, new economic thinking is urgently needed. This new thinking has to advance from political agenda-pushing to science. This, though, is not what Eric Beinhocker understands by new economic thinking. For him, new economic thinking means replacing the old political agenda with a new political agenda.

The political economist introduces himself as the emphatic person who fights for a good cause. He listens to the downtrodden people and takes them seriously: “But they [the populist movements] also contain many normal people who are fed up with a system that doesn’t work for them. People who have seen their living standards stagnate or decline, who live precarious lives one paycheque at a time, who think their children will do worse than they have. And their issues aren’t just economic; they are also social and psychological. They have lost dignity and respect, and crave a sense of identity and belonging.”

After this depressing reality check, everybody understands that the old agenda has failed and that a new one is urgently needed: “After we listen we then have to give new answers. New narratives and policies about how people’s lives can be made better and more secure, how they can fairly share in their nation’s prosperity, how they can have more control over their lives, how they can live with dignity and respect, how everyone will play by the same rules and the social contract will be restored, how openness and international cooperation benefits them not just an elite, and how governments, corporations, and banks will serve their interests, and not the other way around.”

Conclusion: “This is why we need new economic thinking.”

This new thinking does NOT consist in replacing the existing false theories with the true theory but in replacing the old narrative with a new narrative: “... communications is critical ... stories, narratives, visuals, and memes are needed to shift the media and public thinking.”

And exactly at this point, ‘new economic thinking’ turns into sheer political blathering: “So what might such a new narrative look like? ... I believe it will contain four stories: A new story of growth; A new story of inclusion; A new social contract; A new idealism.”

There is no better example of soapbox economics and how science is hijacked by politics. False economic theory is not replaced by the true theory, but the age-old storytelling continues with a made-over narrative. Evolutionary economists have listened to the good people and learned that the old rational models and all this mathiness stuff piss them off.

The fact of the matter is, though, that “stories, narratives, visuals, and memes” are simply euphemisms for proto-scientific garbage. The average person dislikes an objective explanation (e.g., the thunderbolt is an electromagnetic phenomenon subject to physical laws) and likes a subjective explanation (e.g., Zeus threw the thunderbolt because he was angry). The scientific explanation takes the form of a theory; the non-scientific explanation takes the form of an emotionally reinforced narrative. Ninety-nine percent of all societal communication consists of storytelling/blather/wish-wash/truisms/propaganda/gossip, and only one percent has scientific content.

The very problem of economics is that it has ZERO scientific content. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives ― are mutually contradictory, axiomatically false, and ALL got profit wrong. #1 This includes evolutionary economics.

Economics claims to be a science, yet it has never risen above the level of storytelling. Within the tiny box of folk psychology, folk sociology, folk history, and folk politics, economic storytelling has taken place since Adam Smith: “Smith ... disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

The sole purpose of Eric Beinhocker’s new economic narrative is to make the dull folks feel comfortable again. The claim that his polit-kitsch is based on the best science available is a bad joke at the expense of the downtrodden masses. #2

Egmont Kakarot-Handtke


#1 The Profit Theory is False Since Adam Smith
#2 Economists and the destructive power of stupidity

Related 'Scientific suicide in the revolving door' and 'Evolutionary economics: Just another degenerate research program' on 'The bigots of common sense' and 'New economic thinking ― false promises and hopes' and 'The x-th reinvention of evolutionary economics' and 'Yes, orthodox economics is poor science, but can Heterodoxy raise hope?' and 'First Lecture in New Economic Thinking' and 'How economists missed out on the essential relationship of economics' and 'Your economics is refuted on all counts: here is the real thing'.

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Graphic AXEC121g

The futile synthesis of neoclassical rubbish and Keynesian garbage

Comment on Roger Farmer on ‘Keynes betrayed’

Blog-Reference and Blog-Reference on Jan 26, 2017

The Keynesian Revolution had already died in the cradle, but economists have not realized it until this day. For 80+ years, orthodox and heterodox economists have been involved in the insoluble deep semantic riddle of whether there is involuntary unemployment or not.

Farmer, in a new book, writes: “Macroeconomics has taken the wrong path. The error has nothing to do with classical versus New Keynesian approaches. It is a more fundamental error that pervades both.”

The fact of the matter is, though, that Farmer does not spot the fundamental error in macro that pervades all of economics. To see this, one has to go back to Keynes.

Keynes realized that the classical microfoundations approach had led to a cul-de-sac and therefore switched to macrofoundations. This was, in principle, the right first step towards a Paradigm Shift, except for the fact that Keynes messed up his macrofoundations. This is why Keynesianism, too, is a failure. #1

What neither Orthodoxy nor Keynes ever understood was profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010)

An economist who cannot tell the difference between the fundamental economic magnitudes profit and income is a laughing stock. This applies to Walrasians and Keynesians of all colors. The messed-up profit theory is the “more fundamental error” that pervades both microeconomics and macroeconomics.

In Samuelson’s synthesis, the defective Walrasian microfoundations and the defective Keynesian macrofoundations were cobbled together. Samuelson’s textbook consisted of two well-balanced halves: micro and macro. Needless to emphasize that both halves did not logically fit together.

Science is committed to material and formal consistency. Samuelson’s textbook had, with a probability close to 1, the lowest scientific content of all textbooks ever written. The fact of the matter is: the micro axioms are inconsistent, the macro axioms are inconsistent, and the synthesis of the two sets is, by consequence, also inconsistent.

Macroeconomics does NOT need another brain-dead discussion about voluntary/ involuntary unemployment, nor about what Keynes really meant, nor about IS-LM, nor about what went wrong 80 or 150 years ago, nor about a new synthesis of old trash. Economics needs a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to consistent structural/systemic macrofoundations.

Egmont Kakarot-Handtke


#1 How Keynes got macro wrong and Allais got it right

Why economists know nothing

Comment on Steve Roth on ‘Why Economists Don’t Know How to Think about Wealth (or Profits)’

Blog-Reference and Blog-Reference

The short answer is that economists are scientifically incompetent. The Profit Theory is false since Adam Smith, or, as the Palgrave Dictionary puts it, “A satisfactory theory of profits is still elusive.” (Desai, see also 2014; 2015). In fact, Walrasians, Keynesians, Marxians, and Austrians have NO idea of the foundational concept of their subject matter.

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, 1994, p. 31)

In order to establish material consistency, one needs measurement, and one of the most important measurement tools of economics is national accounting. The importance of national accounting for testing of economic models is comparable to CERN for testing in physics. The MMTers got the point, yet in general, it holds that economists neither understand the significance nor the elementary algebra of national accounting. The most idiotic argument of the morons who overpopulate economics is ‘That’s just an accounting identity.’

Economic theory and accounting are like hand in glove. Therefore, it is of utmost importance that the foundational concepts are consistently defined and the SAME in theory and accounting. It is the worst mistake to play accounting against theory/model. At a deeper level, they have a common conceptual/formal core. But at the moment, both spheres are disjunct, and the foundational concepts are wildly inconsistent.

Because the nominal magnitudes of accounting are a subset of a comprehensive theory that is composed of nominal and real variables, the concepts have to be consistently defined in theory and then applied one-to-one in national accounting. Theory has to take the lead. The mistake of MMT is that faulty accounting takes the lead.

From methodology, it is known that “The often heard rule that concepts are to be defined before they are used in a discussion is much too simple-minded pre-Hilbertian. The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen, 2009, p. 344)

The fact of the matter is that Walrasian microfoundations and Keynesian/MMT macrofoundations are axiomatically false. This is why economics is a failed science.

Steve Roth names two big discrepancies between theory and national accounting, i.e., ‘The Paradox of Monetary Profits’ and ‘Saving and Investment’. These discrepancies can only be resolved with a Paradigm Shift, that is, with a move from false Walrasian microfoundations and false Keynesian macrofoundations to entirely new macrofoundations.#1

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Kakarot-Handtke, E. (2015). How the Intelligent Non-Economist Can Refute Every Economist Hands Down. SSRN Working Paper Series, 2705395: 1–6. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition. URL

#1 For details of the big picture, see cross-references Profit, I=S, Accounting

Related 'Marx and Marxists ― too stupid for the elementary algebra of profit'

For more about Steve Roth, see AXECquery.

Note on saving and investment

Comment on Steve Roth on 'Note To Economists: Saving Doesn’t Create Savings'

Blog-Reference

Like most economists, Steve Roth has some serious troubles with elementary logic and the mathematics of accounting. The saving-investment blunder is as old as Adam Smith and has NOT been rectified since then, neither by Orthodoxy nor by traditional Heterodoxy.

The most elementary relationship says monetary saving = monetary loss and monetary dissaving = monetary profit. For details see The tiny little problem with economics and for more details see cross-references Refutation of I=S

Egmont Kakarot-Handtke


Related 'How Keynes got macro wrong and Allais got it right' and 'A new episode of one of the worst blunders of economics' and 'Keynesian macrofoundations are defective' and 'Dear idiots, time to get saving and investment straight'.

The economist’s hajj from Mordor to Mecca

Comment on David Sloan Wilson on ‘Economics — still in the land of Mordor’

Blog-Reference and Blog-Reference on Feb 2

Always, when economics is in the methodological doldrums, it looks around for success stories. In the 1890s, Newtonian physics fell somewhat out of favor as an archetype, and the heterodox economist Thorstein Veblen asked: “Why is Economics Not an Evolutionary Science?” The next was Marshall with his famous call for a new methodological hajj “The Mecca of the economist lies in economic biology.”

Now David Sloan Wilson tells economists: “The [neoclassical] edifice is based upon a conception of human nature that is profoundly false, defying the dictates of common sense, before we even get to the more refined dictates of psychology and evolutionary theory.”

Strictly speaking this is an old hat since J. S. Mill: “The science then proceeds to investigate the laws which govern these several operations, under the supposition that man is a being who is determined, by the necessity of his nature, to prefer a greater portion of wealth to a smaller ... Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed.” (1874, V.38)

The first thing every layman recognizes is that there is something wrong with equilibrium economics in general and with constrained optimization in particular. Hence, there have been countless attempts to borrow from Darwinism, which seems to be more conversant with Human Nature than economics. Closer inspection, though, showed quickly that all suggestive resemblances between natural and economic evolution remain on the surface.

“In a recent series of publications, ‘Generalized Darwinism’ has been proposed as a new overarching research strategy that is based on the assumption of a fundamental homology between evolution in nature and the evolution of the economy. The principles of variation, selection, and retention that have been distilled from evolutionary biology by isolating abstraction are claimed to be generally valid. It is suggested to apply these abstract principles as a unifying framework for all evolutionary theories. By a brief reconstruction of the different historical forms of Darwinism, we have shown that the identification of these abstract principles with Darwinism is misleading. Moreover, on a priori grounds, other principles — non-Darwinian or even anti-Darwinian ones, like e.g., orthogenesis, saltationism, or neo-Lamarckism — could claim a similar plausibility in explaining economic evolution.

The crux with such allegedly unifying abstract principles derived by isolating abstraction from findings in other domains is that they provide but an abstract hull. In order to become a useful heuristic device, they need to arrive at domain-specific explanations which, in turn, would require adding substance by hypotheses on the disciplinary ‘details’ of actual evolutionary processes, e.g., in the economy. This is, of course, what is done in the first place in a bottom-up research strategy as it has fruitfully been practiced in the development of Darwinism in evolutionary biology." (Levit et al., 2011, p. 559)

David Sloan Wilson advertises a common-sense approach. This, of course, appeals to all economists who have not much more than that. As a matter of fact, Wilson’s approach is fundamentally flawed. The first thing is to be clear about the subject matter: economics is not about psychology, human behavior, sociology, politics, biology, evolution, etcetera. Economics is about the properties and the working of the economic system. All Human-Nature approaches are a detour.

Because of this, economics has to develop its own methodology and neither copy it from Newton nor from Darwin, nor from chaos theory, nor from complexity theory, nor from anywhere else. #1

Where Wilson is right is that neoclassical economics is unacceptable. This, though, has been known for more than 150 years.

Egmont Kakarot-Handtke


References
Levit, G. S., Hossfeld, U., and Witt, U. (2011). Can Darwinism be "Generalized" and of What Use Would This Be? Journal of Evolutionary Economics, 21(4): 545–562. DOI10.1007/s00191-011-0235-3. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL

#1 How to restart economics

Related 'The three pillars of English philosophy: Individualism, Darwinism, Political Economics'

The x-th reinvention of evolutionary economics

Comment on ‘We Had It All Wrong. Adam Smith Isn’t the True Father of Economics’

Blog-Reference

You say that current Walrasianism is the wrong approach. That is true, of course. You take ‘Society is an Organism’ as a ‘hook for getting people to think in the right way’. This, unfortunately, is also a failed approach since Veblen founded the subdiscipline of evolutionary economics (strictly speaking, Malthus founded it and Darwin borrowed it). Here are the reasons why.

• Are economists methodological retards?
• The Science-of-Man fallacy
• From PsySoc to SysHum
• Getting out of proto-scientific garbage
• PsySoc — the scourge of economics
• Redefining economics

Economics has to develop its own methodology and neither copy it from Newton nor from Darwin. Imitation is exactly, as Feynman pointed out, what makes a cargo cult science (see Wikipedia). Evonomics does not pass the scientific fitness test but has some survival chances as a sitcom.

Hayek: mad, bad, or just another incompetent economist?

Comment on David S. Wilson on ‘The Road to Ideology. How Friedrich Hayek Became a Monster’

Blog-Reference

You say “Science is necessary to solve the problems of modern existence but it is not sufficient on its own. There must also be compelling narratives capable of reaching and animating large audiences.” (See intro)

This is a huge misunderstanding. Science is about knowledge and not about animating large audiences. Genuine scientists are as happy as can be when the large audience goes to the Circus Maximus and makes a thumb up when the gladiator kills the lion or vice versa. Remember what Plato wrote above the entrance of the first academy about non-scientists?: "Let None But Geometers Enter Here."

Your second misunderstanding is that Hayek was an economist and that economics is a science. This is downright ridiculous.

First of all, it is of the utmost importance to distinguish between political and theoretical economics. The main differences are
(i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works.
(ii) In political economics anything goes; in theoretical economics, scientific standards are observed.

Theoretical economics has to be judged according to the criteria true/false and nothing else. The history of political economics since Adam Smith can be summarized as a perpetual violation of well-defined scientific standards.

The fact of the matter is that theoretical economics has been hijacked by the agenda pushers of political economics. Smith and Ricardo fought against the precapitalistic order, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Varoufakis.

Hayek, of course, had the right to write political pamphlets, defend capitalism, support Thatcher, and found a political club like Mont Pelerin. One thing, though, should be perfectly clear: the moment an economist starts with politics he leaves economics, understood as a science, for good. It is the mixture that is toxic.

Ask yourself: when Krugman supports the Democrats, Wren-Lewis and Keen support Corbyn, and Varoufakis fights for democratizing the Eurozone, has this anything to do with scientific research? What have they and Hayek in common? Neither has a scientifically valid theory about how the economy works. Hayekian economics never satisfied the criteria of material and formal consistency. His economics was not good enough for science but good enough for politics.

Political economics is for animating large audiences, theoretical economics is not and never will be. Politics has to be separated from science and thrown out of economics — the sooner, the better. Let’s start with Hayek!

Egmont Kakarot-Handtke


Related 'Free academia from economics' and 'The Science-of-Man fallacy and 'How to be a good scientist' and 'The case for pure economics' and 'Separation of politics and economics'

For more about Hayek see AXECquery.

Twitter Aug 21 From the official history of the Mont Pelerin Soc