Why is 0!=1? And why is I≠S? And why economics teaching is rotten

Comment on Lars Syll on ‘Why is 0!=1?’

Blog-Reference

The failed economics teacher Lars Syll indulges in self-promotion: “The single most important factor behind successful education ― from kindergarten to university ― is, and has always been — having a good teacher!”

True, but the situation in economics is this: textbooks and teaching are provably false from microeconomic supply-demand equilibrium to macroeconomic I=S.#1

Here is what good teaching looks like.

Keynes started macroeconomics with: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

This proposition is false. Where is the mistake?

The first thing to do is always to clearly state the premises. The elementary production-consumption economy is defined by a set of macroeconomic axioms.

(A0) The objectively given and most elementary systemic configuration of the economy consists of the household sector 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 expenditures C is equal to price P times quantity bought/sold X.

In the elementary production-consumption economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

In case (i), the saving of the household sector S≡Yw−C is zero, and the profit of the business sector Q≡C−Yw, too, is zero. The product market is cleared, i.e., X=O in all three cases. Accordingly, the market-clearing price as the dependent variable is given by P=W/R.
In case (ii), saving S is positive and the business sector makes a loss, i.e., Q is negative. The market-clearing price P is less than W/R.
In case (iii), saving S is negative, i.e., the household sector dissaves, and the business sector makes a profit, i.e., Q is positive. The market-clearing price P is greater than W/R.

It always holds Q≡−S, in other words, the business sector’s profit is equal to the household sector’s dissaving, and the business sector’s loss is equal to the household sector’s saving.

And that’s it. The mistake in Keynes’ argument lies in the premise that income = value of output. The fact is that the value of output C=PX can be less than wage income Yw. The balance of the two flows, C−Yw is called loss. Loss, as the difference of flows, is different from the flow of wage income. Loss is NOT income.

Analogous in the opposite case, i.e., C>Yw and Q>0. Profit is NOT income either.

In the elementary investment economy, it holds Q≡I−S. Simple algebra and a look at reality tell one that saving is NEVER equal to investment. However, economics teachers explain to their students 80+ years after Keynes why I=S. #2 And every student generation swallows it with a straight face.

Something is rotten with economics teaching.

Egmont Kakarot-Handtke


#1 The father of modern economics and his imbecile kids
#2 #DrainTheScientificSwamp

Related 'Trust in economics as a science?' and 'Fact of life: your econ prof is scientifically incompetent' and 'Textbooks and the mental cloning of dumb economists' and 'How to Get Rid of Supply-Demand-Equilibrium' and 'Economics: 200+ years of scientific incompetence and fraud'. For details of the big picture, see cross-references Econ 101/Old Curriculum/New Curriculum.

New thinking, new teaching

Comment on Maria Alejandra Madi on ‘Real world economists and the economics curriculum’

Blog-Reference

Keynes' great merit was to speak out clearly that something was deeply wrong with economics. In this, he was far ahead of his fellow economists. However, he did not succeed in developing a satisfactory alternative. “But Keynes, too, sometimes gave the impression of not having fully grasped the logic of his own system.” (Laidler, 1999, p. 281)

The deeper reason is that Keynes — just like his predecessors and fellows — did not come to grips with profit (2014). What is worse, neither did the Post Keynesians (2011) nor Heterodoxy (including Minsky) until this very day.#1

Because neither Keynes nor his followers nor his opponents understood that deficit spending has a one-to-one positive side-effect on the overall profit of the business sector Keynesian policy is ultimately responsible for the extreme distortion of income and wealth distribution that we see today.#2

Because they lack the correct economic theory, economists in effect produce the problems they are supposed to solve.

The most important tasks of Heterodoxy are (i) to develop the materially and formally consistent economic theory, (ii) to develop the appropriate curriculum,#3 (iii) to fully replace Orthodoxy in academic and non-academic teaching.

At the moment, scientifically incompetent orthodox and heterodox economists are probably the greatest menace to their fellow men.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Laidler, D. (1999). Fabricating the Keynesian Revolution. Cambridge: Cambridge University Press.

#1 Heterodoxy, too, is proto-scientific garbage
#2 Keynesianism as ultimate profit machine
#3 For a start see cross-references New Curriculum

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AXEC117

Econ 101: Economists flunk the intelligence test at the first hurdle

Links on John Warner on ‘Indoctrinated by Econ 101’†

Blog-Reference and Blog-Reference

There is no such thing as economics. There are TWO economixes: 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 hijacked early on by political agenda pushers.

Political economics has produced NOTHING of scientific value in the last 200+ years. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong. Economics is a failed/fake science.

But there is nothing to worry about with regard to education. It is a fact that economics students swallow proto-scientific garbage hook, line, and sinker for generations. They are not particularly smart. Whoever accepts supply-demand-equilibrium as an explanation of how the market system works flunks the entry-level intelligence test of science.

For details, see:

• Are economics professors really that incompetent? Yes!
• The economist as storyteller
• To this day, economists have produced NOT ONE textbook that satisfies scientific standards
• Economics textbooks ― tombstones at the Flat-Earth-Cemetery
• Econ 101: supply-demand-equilibrium is dead for 150+ years
• The real trouble with Econ 101
• How to overcome the manifest silliness of Econ 101 and save the economy
• Econ 101: Dull teachers and dull students in the endless loop
• The disutility of debunking Econ 101
• What’s wrong with Econ 101? Economists, of course!
• Economism, vulgar economics, and the curse of goofy critics
• Econ 101 — worse than useless
• Econ 101 or How to train morons
• How to get out of the Econ 101 PsySoc woods
• Economists still don’t get Econ 101 right
• Econ 101 is dead ― and now?
• Methodology 101, economic filibuster, and the mother of all excuses
• Economics: Two centuries of scientific incompetence
• False on principle
• There is NO such thing as “smart, honest, honorable economists”
  
• The tragedy of economics: stupid/corrupt economists
• For details of the big picture, see cross-references Econ 101/Old Curriculum/New Curriculum

Egmont Kakarot-Handtke


† Inside Higher Ed

Related 'Mad but true: 200+ years after Adam Smith economists still have no idea what profit is' and 'Fact of life: Your econ prof is scientifically incompetent' and 'The economist’s pick: liar, moron or what?' and 'The false foundations of economics' and 'How the Intelligent Non-Economist Can Refute Every Economist Hands Down' and 'The real problem with the economics Nobel' and 'Econogenics in action' and 'Bang — the representative economist and supply-demand-equilibrium are dead' and 'Let's bury economics now' and 'The GDP-death-blow for the economics profession' and 'Profit: The most powerful formula of economics' and 'The new economic Paradigm requires a new textbook'.

***

AXEC144c

***

Twitter May 11, 2021 Constrained optimization: the making of an economist

Twitter May 15, 2022 No idea how the economy works

Twitter Dec 29, 2022

Let's bury economics now

Comment on Lars Syll on ‘Michael Woodford on models’

Blog-Reference and Blog-Reference Aug 14

Lars Syll argues against Michael Woodford: “This is — sad to say — a rather typical view among mainstream economists today. Defending the use of unrealistic and unsubstantiated models with the argument that models make it ‘easy for others to see what assumptions have been relied upon, and hence to challenge them’ is rather far-fetched.”

Yes, “unrealistic and unsubstantiated models” are indefensible. Yes, mainstream economics is proto-scientific garbage. Yes, mainstreamer are in the “story-telling business”.#1

Yes, yes, yes. All this is known for 150+ years. Yes, economics is failed/fake science. Yes, economists are stupid or corrupt or both. Yes, this applies in equal measure to Orthodoxy and Heterodoxy. It applies to economics in general and to Lars Syll, in particular.#2

The most important thing to realize is that there are theoretical economics and political economics. 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. Economic policy NEVER has had sound scientific foundations.

Both orthodox and heterodox economists are NOT scientists but clowns and useful idiots in the political Circus Maximus.#3, #4

The representative economist does not understand to this day what science is all about. So, here are eleven plain facts about ‘economic sciences’

1. Science manifests itself in the form of the true theory. 2. Truth is well-defined by material and formal consistency. 3. Logical consistency is secured by applying the axiomatic-deductive method and material consistency is secured by applying state-of-the-art testing. 4. The true theory/model is the humanly best mental representation of reality. 5. “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, 300 BC)  6. The main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. 7. Because the foundations are false the analytical superstructure is false. 8. Economists are too stupid for elementary algebra. 9. Both orthodox and heterodox economics is failed/fake science. 10. Economic policy has no sound scientific foundations. 11. The EconNobel for ‘economic sciences’ is a fraud.

And this is the cause of the mess: economists have since the founding fathers consistently violated the separation of science and politics. In hashtags

#LawOfTheExcludedMiddle

#TheScientistIsNoActivist

#TheActivistIsNoScientist

#PoliticsCorruptsScience.

All this is known and needs no repetition. The consequence is: Economics and economists go directly to the Flat-Earth-Cemetery.

What next? Craig thinks he has a brilliant idea: “Paradigms, especially extremely relevant and urgently needed new paradigms are everything.” Yes, this is also known for a long time: “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)

Except that the Paradigm Shift from provably false Walrasian microfoundations and provably false Keynesian macrofoundations to true macrofoundations is an accomplished fact.#5

And now, Lars Syll and all the other agenda-pushers/activists lead your own funeral cortege!

Egmont Kakarot-Handtke

#1 The economist as storyteller (II)

#2 Lars Syll is refuted on all counts. See blog query for details

#3 The tragedy of economics: stupid/corrupt economists

#4 Economics: The greatest scientific fraud in modern times

#5 Sovereign Economics BoD

Related 'Separation of politics and economics'.

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AXEC136g

Occasional Xs: Economics curriculum ― the transmutation of plain morons to graduate morons (VIII)

 

#Econ#Economics claims to be #Science but is NOT. The major approaches are mutually contradictory & axiomatically false & materially/formally inconsistent & ALL got #Profit wrong. When the foundational concepts of the subject matter are inconsistent the whole analytical…

— E.K-H (@AXECorg) March 29, 2024

No false-hero memorials (I)

Comment on Stephen Gordon on ‘A well-deserved tribute to Nick Rowe’

Blog-Reference

Source Reference: The Economist Aug 9th, 2018
Why is macroeconomics so hard to teach? Lessons from a master of the craft

Suggested links:

• Is Nick Rowe stupid or corrupt or both?
• I is never equal S and even Nick Rowe will eventually grasp it
• Cryptoeconomics ― the best of Nick Rowe’s spam folder

Egmont Kakarot-Handtke


For details of the big picture, see cross-references The Representative Economist.

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AXEC123e

Econ 101/Old Curriculum/New Curriculum: cross-references

Posts

• Your economics is refuted on all counts: here is the real thing   here
• The GDP-death-blow for the economics profession   here
• Let's bury economics now   here
• Bang — the representative economist and supply-demand-equilibrium are dead   here
• The tragedy of economics: stupid/corrupt economists   here
• The new economic Paradigm requires a new textbook   here
• Price theory — more than beating the dead horse again and again   here
• All behavior-based economic textbooks are false   here
• Wikipedia, economics, scientific knowledge, or political agenda pushing?   here
• Your economics is refuted on all counts: here is the real thing   here
• MMTers: too stupid for simple math   here
• The problem with economics as a discipline   here
• Econ 101: Economists flunk the intelligence test at the first hurdle   here
• Economics textbooks ― tombstones at the Flat-Earth-Cemetery   here
• Econ 101: supply-demand-equilibrium is dead for 150+ years   here
• To this day*, economists have produced NOT ONE textbook that satisfies scientific standards   here 
• Refuting MMT’s Macroeconomics Textbook   here
• Why is 0!=1? And why is I≠S? And why economics teaching is rotten   here
• “I never learned maths, so I had to think” ― another false-hero memorial   here
• No false-hero memorials (I)   here
• Knowledge is attainable ― even in economics   here
• New insight from Meta-Learning: delete economics   here
• Fact of life: your econ prof is scientifically incompetent   here
• Economists: scientists or political clowns?   here
• The minimum wage debate: a showpiece of economists’ hereditary idiocy   here
• Empiricism, or looking through the microscope at the universe   here
• The end of political economics   here
• Economics and the Fallacy of Insufficient Abstraction   here
• The role of labor and business in a well-organized society   here
• Morons on math   here
• How Heterodoxy got lost in the methodological woods   here
• Economics: 200+ years of scientific incompetence and fraud   here
• Simpleminded losers   here
• Textbooks and the mental cloning of dumb economists   here
• Just another wreck   here
• Soapbox economics   here
• Profit and distribution: a primer   here
• Hijackers, agenda pushers, PsySocs, and other morons   here
• How to overcome the manifest silliness of Econ 101 and save the economy   here
• Schizonomics   here
• Failed economics: The losers’ long list of lame excuses   here
• Complexity and stupidity   here
• Economics: Two centuries of scientific incompetence   here
• Economics: The pathetic story of two failures   here
• The monetary circuit and how economists got it wrong   here
• Equilibrium is a nonentity like dancing angels on a pinpoint   here
• Methodology 101, economic filibuster, and the mother of all excuses   here
• Econ 101 is dead ― and now?   here
• Economists still don’t get Econ 101 right   here
• The disutility of debunking Econ 101   here
• A new curriculum for swampies?   here
• Economics pedagogy: an un- and anti-scientific exercise   here
• The Cambridge crap curriculum   here
• Feeble thinkers, feeble rethinkers: the perennial misery of economics   here
• Unemployment ― the toughest challenge for economics students   here
• The father of modern economics and his imbecile kids   here
• From false micro to true macro: the new economic paradigm   here
• Economists: No legitimacy whatever   here
• Don’t tell me that Krugman’s economics is false, tell me instead what is true   here
• What’s wrong with Econ 101? Economists, of course!   here
• Econ 101: Dull teachers and dull students in the endless loop   here
• The real trouble with Econ 101   here
• Econ 101 — worse than useless   here
• How to leave proto-scientific economics behind   here
• How to get out of the Econ 101 PsySoc woods   here
• Society, you have a problem   here
• Heterodoxy: From bad to better or from bad to worse?   here
• If You Meet the Storyteller on the Road, Kill Him   here
• Econ 101 or How to train morons   here
• Economics: ‘a tale told by an idiot ... signifying nothing’   here
• The monstrous utility-supply-demand-equilibrium failure   here
• Lucas: Confession of a scientific write-off   here
• Low-IQ economics: the beginner’s guide   here
• Why economics is a failed science ― 24 excuses and 1 explanation   here
• The labor market and the consistent failure of 101-economics   here
• Orthodoxy?―NO, Heterodoxy?―NO: Scrap ALL this crap!   here
• Accounting for dummies   here
• Coming soon: the canonical economics textbook   here
• Economists cannot do the simple math of profit — better keep them out of politics   here
• False on principle   here
• The intelligent student's predicament   here
• Lazy or stupid or both?   here

Working papers

• Economics for Economists   here
• Objective Principles of Economics   here
• Geometrical Exposition of Structural Axiomatic Economics (I): Fundamentals   here

New Curriculum see cross-references  here

Meta-References

Occasional Tweets: Economics teaching has never had valid scientific foundations

 

#FailedFakeScience#Econ101#Walrasianism, #Keynesianism, #Marxianism, #Austrianism, #MMT are axiomatically false & materially/formally inconsistent & ALL got #Profit wrong. So, #EconomicsTeaching NEVER has had sound scientific foundations. #EconomicsForPeople is NO exception.

— E.K-H (@AXECorg) April 4, 2023

For details of the big picture see cross-references Econ 101/Old Curriculum/New Curriculum. 

The answer is: No

Comment on ‘Ditch ‘ceteris paribus’!’

Blog-Reference

You say: “Rigorous deductions from precise axioms is mathematics, not economics, not science.”

“It is my conviction that pure mathematical construction enables us to discover the concepts and the laws connecting them which give us the key to the understanding of the phenomena of Nature. Experience can of course guide us in our choice of serviceable mathematical concepts; it cannot possibly be the source from which they are derived; experience of course remains the sole criterion of the serviceability of a mathematical construction for physics, but the truly creative principle resides in mathematics.” (Einstein, 1934, p. 167)

It is pretty obvious that you do not understand the relationship between science and mathematics and in particular of economics, science, and mathematics.*

The answer to your question ‘Do we have to keep saying it over and over?’ is therefore No.

Egmont Kakarot-Handtke


References
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL

* The study of the new heterodox curriculum is strongly recommended

Occasional Xs: Stupid or corrupt? ― for 200+ years, economists get economics wrong (IV)

 

#Walrasianism, #Keynesianism, #Marxianism, #Austrianism etc. are axiomatically false & materially/formally inconsistent & ALL got #Profit wrong. #Economics is scientifically worthless. So, in order to improve the #CultureOfScience, the faculties of #Economics have to be closed.

— E.K-H (@AXECorg) September 11, 2023

Occasional Xs: The futile attempt to recycle Keynesianism (XXXIV)

 

#Economics#FailedFakeScience#Keynesianism#Keynes got macroeconomic #Profit wrong bc he was too stupid for elementary #Algebra. #MacroFoundations are provably false, so the whole of #MacroEconomics is scientifically worthless. #AfterKeynesians don't get it to this day. pic.twitter.com/2M1oOmfc07

— E.K-H (@AXECorg) November 11, 2023

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 under the label of Graphic AXEC64

For more about supply-demand-equilibrium see AXECquery.

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AXEC121i

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

 

#Economics#AllYouNeedToKnow

“Good luck to all the A-Level economists taking their exam this morning.” (EconomicsInTen)

If you have not realized until now that economics is not much more than silly political blather you have wasted your time/money. So, you messed up the real IQ…

— AXEC (@EgmontHandtke) May 12, 2025

Related 'Economists still don’t get Econ 101 right'. 

Occasional X: Teaching failed/fake science (II)

 

#Economics#FailedFakeScience#Econ101

The history of economic thought is the history of scientific failure. The major approaches (#Walrasianism, #Keynesianism, #Marxianism, #Austrianism, and their derivatives) are mutually contradictory & axiomatically false &… pic.twitter.com/P0peWQNMBW

— E.K-H (@AXECorg) October 18, 2024

Occasional Tweets: Economic textbooks ― pulp science

 

#Economics#Walrasianism, #Keynesianism, #Marxianism, #Austrianism, #MMT are mutually contradictory, axiomatically false, and materially/formally inconsistent.

To this day‡, economists have produced NOT ONE textbook that satisfies scientific standardshttps://t.co/Gw6Qa1CKtI pic.twitter.com/NR6pMV7oJD

— E.K-H (@AXECorg) November 26, 2021

For details of the big picture see cross-references Econ 101/Old Curriculum/New Curriculum.

Occasional Tweets: Economics teaches many things except how the economic system works

 

#Econ

One can learn many things from #Orthodoxy & #Heterodoxy except how the #Economy works. #Walrasianism, #Keynesianism, #Marxianism, #Austrianism, #MMT, are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL get #Profit wrong. pic.twitter.com/0mIQlaAbKV

— E.K-H (@AXECorg) April 15, 2023

Occasional Xs: Stupid or corrupt? ― for 200+ years, economists get economics wrong (II)

 

#FailedFakeScience#Walrasianism, #Keynesianism, #Marxianism, #Austrianism et al. are axiomatically false & materially/formally inconsistent & ALL got #Profit wrong. #Economics is scientifically worthless. This holds for mainstream, pluralist & feminist econ. pic.twitter.com/R9zuaq00Gm

— E.K-H (@AXECorg) September 9, 2023

From PsySoc to SysHum

Comment on Lars Syll on ‘Rational expectations — totally incredible bogus’

Blog-Reference

The student of economics either understands at his very first encounter with Econ 101
• that behavioral assumptions like utility, optimization, rational expectation, supply/ demand functions, and equilibrium are NONENTITIES;
• that in mathematics there exists a ‘whole crop of monster-structures, entirely without application’ (Bourbaki, 2005, p. 1275, fn. 9);
or unfortunately not.

The student with a modicum of scientific guts becomes by logical necessity a heterodox economist. He will avoid NONENTITIES and inapplicable monster structures and debunk them wherever they appear.

This is right and good, but it is not good enough.

What everybody wants and needs are the correct theory and congenial math. What nobody needs is another surrealistic discussion about rational expectations, ergodicity, the fixpoint theorem, or multiple equilibria.

The reason why Heterodoxy has only been marginally successful is that it shares the foundational blunder with Orthodoxy.

The crucial point is that economics deals — in the first place — not with individual human behavior or society at large. This is the realm of psychology, sociology, anthropology, history, political science, etcetera. Insofar as economics deals with behavioral assumptions like utility maximization, greed, power-grabbing, etcetera, it is a dilettantish variant of Psycho-Sociology or PsySoc.

What is the real subject matter of economics?

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 system/human entity or SysHum (Luhmann, 1995).

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, and individual behavior is in the background. Common sense wrongly insists that the hum component must always be in the foreground. This fallacy compares to geocentrism. The economic system has its own logic which is different from the behavioral logic of humans. Systemic logic is what Adam Smith called the Invisible Hand.

Heterodoxy will be inextricably tied to failed Orthodoxy as long as it is content with making homo oeconomicus ‘more realistic.’ The student with a modicum of scientific guts goes beyond flat behavioral common sense, quits PsySoc altogether, and turns to SysHum.#1

Egmont Kakarot-Handtke


References
Bourbaki, N. (2005). The Architecture of Mathematics. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, Vol. II, 1265–1276. Oxford, New York,  Oxford University Press.

Luhmann, N. (1995). Social Systems, Stanford, Stanford University Press.

#1 For details of the big picture see cross-references Paradigm Shift and cross-references New Curriculum

Related 'The Science-of-Man fallacy' and 'The Ur-Blunder of economics and its rectification'

New Curriculum: cross-references

1 Core
Complete formal foundations (economic structure and behavior) overview

2 Application
Essentials of Constructive Heterodoxy: profit    paper at SSRN
Essentials of Constructive Heterodoxy: the market    SSRN
Essentials of Constructive Heterodoxy: employment    SSRN
Essentials of Constructive Heterodoxy: money, credit, interest    SSRN
Essentials of Constructive Heterodoxy: financial markets    SSRN
Essentials of Constructive Heterodoxy: aggregate demand    SSRN
Essentials of Constructive Heterodoxy: Say's Law    SSRN
Essentials of Constructive Heterodoxy: institutions    SSRN
Essentials of Constructive Heterodoxy: behavior    SSRN

3 New economic thinking/teaching
Paradigm Shift

4 Cross-references Econ 101/Old Curriculum/New Curriculum

5 See also posts with the label Curriculum

6 Textbook Sovereign Economics, Amazon.de, BoD, Amazon.com, etc.

Meta references

Why economics is a failed science ― 24 excuses and 1 explanation

Comment on Lars Syll on ‘Krugman’s textbook — mistaking the map for the territory’

Blog-Reference  extended version of 'The 22 best explanations/excuses'

1. It is all just a matter of opinion and negotiation; there is no such thing as a clear-cut objective true/false conclusion in economics.

2. Economists do not care much about consistency. Pluralism/anything goes/eclecticism/ wish-wash is almost instinctively preferred to clear-cut true/false. With postmodern flexibility economists model/explain every contingency and the opposite of it. WYWIWYG — what you want is what you get.

3. Economics as a ‘separate and inexact science’ (J. S. Mill) has its own criteria for success/ failure. Given the peculiarities of the subject matter, economics is always reasonably successful according to its own criteria. This is known as playing tennis with the net down.

4. Strictly speaking, economics as a science does not yet exist. Economics has always been dominated by politics and has served various agendas independent of any scientific content.

5. Economics is not a Science with a capital S (Solow, 1998, p. x).

6. Economics lacks the experimental method as a way of testing hypotheses.

7. Rival theories cannot be put to an experimental test. This is why the contradictions between various approaches cannot be resolved and false theories cannot be eliminated.

8. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once.

9. The inferences that can be made from history are always uncertain, and always disputable.

10. The ‘laws’ of behavior change and evolve.

11. Economists cannot predict, and novelty/emergence is unpredictable in principle.

12. Economists employ a host of nonentities (utility, equilibrium, rational expectations, etc) that are not testable in principle.

13. Ontological uncertainty: “We simply do not know.” (Keynes, 1937, p. 214)

14. Too much abstraction, distorting simplification, mathiness, flawed formalization, misplaced rigor, and phony precision.

15. Economists cannot keep the scientific realm of true/false and the political realm of good/bad apart. Because of positive/normative confusion, they mess up both.

16. Economists violate well-defined scientific standards on a daily basis.

17. Economic methodology is borrowed from old-fashioned physics (instead of evolution theory, chaos theory, complexity theory, information theory, sociology, history, new EconoPhysics, etc).

18. To begin with, the definition of the subject matter is dead wrong: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins, 1935, p. 16)

19. Economists never realized that economics is not a social science but a systems science. A system can be unambiguously defined, but human behavior cannot: “The human or personal factor will remain the irrational element in most, or all, institutional social theories.” (Popper, 1960, pp. 157)

20. False axiomatic foundations: “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). Maximization-and-equilibrium are inadmissible as axioms.

21. Economists oscillate between vacuous model bricolage and crude empiricism but never managed to formulate a logically consistent and testable theory of how the monetary economy works.

22. There is ineradicable scientific incompetence of both orthodox and heterodox economists since Adam Smith.

23. Bad luck: “But we can never make sure that the right man will be attracted to scientific research.” (Popper, 1960, p. 157) It seems that economics somehow got more than a fair share of lemons.

24. Economics was never meant to be a science but a placebo: “But he [Adam Smith] 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, 1994, p. 185) And this is why economics teachers pass on until this very day the silly story of supply-demand-equilibrium to their dull 101 students (2013).

25. Economists have not figured out for more than 200 years what macroeconomic profit is (2015). When the foundational economic concepts of profit and income are inconsistent all the rest of the analytical superstructure is logically defective and, as a consequence, bound to fail when applied as economic policy guidance.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2013). How to Get Rid of Supply-Demand-Equilibrium. SSRN Working Paper Series, 2263172: 1–24. URL
Kakarot-Handtke, E. (2015). How the Intelligent Non-Economist Can Refute Every Economist Hands Down. SSRN Working Paper Series, 2705395: 1–6. URL
Keynes, J. M. (1937). The General Theory of Employment. Quarterly Journal of Economics, 51(2): 209–223. URL
Popper, K. R. (1960). The Poverty of Historicism. London, Henley: Routledge and Kegan Paul.
Robbins, L. (1935). An Essay on the Nature and Significance of Economic Science. London, Bombay, etc.: Macmillan, 2nd edition.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The Academic Scribblers. Princeton: Princeton University Press, 3rd edition.

Related 'How economics finally became a science' and 'Coming soon: the canonical economics textbook' and 'MIT dilettantes' and 'How to restart economics' and 'Sickness and remedy' and 'Macroeconomics: Economists are too stupid for science' and 'OMG, after 200+ years, economics becomes a science'.