Comment on Simon Wren-Lewis on ‘Do not underestimate the power of micro foundations's
Blog-Reference
Wren-Lewis writes: “First, economists are usually not comfortable talking about methodology.” (See thread intro)
As a matter of fact, there is not much to talk. All that is necessary to know about methodology is this. “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)
Now, everybody who looks at economics can convince himself that over more than 200 years economists have failed to produce a formally and materially consistent theory.
Worse, economists do not even understand that science always has to satisfy two criteria. What are they told instead? “So, for example, you will be told that internal consistency is clearly an essential feature of any model, even if it is achieved by abandoning external consistency. You will hear how the Lucas critique proved that any non-microfounded model is inadequate for doing policy analysis, rather than it simply being one aspect of a complex trade-off between internal and external consistency.” (See intro)
Methodology says there is no trade-off. You always have to deliver both.
Wren-Lewis writes: “In essence, many macroeconomists today are blind to the fact that adopting microfoundations is a methodological choice, rather than simply a means of correcting the errors of the past.” (See intro)
True, but unfortunately economists have made the wrong choice. They second-guess the behavior of agents and do not come to grips with the behavior of the economy. This is the consequence of the self-imposed imperative that all explanations must run in terms of the actions and reactions of individuals (Arrow, 1994, p. 1).
The decisive point is that no way leads from the understanding of the actions and interactions of individuals to the understanding of the working of the economy as a whole. 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.
Methodology demands a Paradigm Shift which consists in abandoning the obsolete subjective-behavioral axioms of standard economics and in adopting objective-structural axioms (2014).
Until now, the majority of economists has been unfit for a Paradigm Shift and this neatly explains why proto-scientific NK, NC, and RBC modeling is still around. This has nothing to do with explanatory power but much with intellectual weakness.
Egmont Kakarot-Handtke
References
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
April 12, 2015
Bygones are bygones
Comment on Lars Syll on ‘On the irrelevance of general equilibrium theory’
Blog-Reference
The student of economics either understands in his first course of Econ 101 that neoclassical economics is unrealistic, irrelevant, absurd, consumptive of time, senseless, dilettantish, logically defective, methodologically unacceptable, useless, etcetera etcetera, or he throws himself out of science.
When we take this mass phenomenon of adverse self-selection simply as a fact what follows? Telling people who cannot see this for themselves that equilibrium is a nonentity and that general equilibrium is zombie economics (Quiggin, 2010) is Sisyphean.
The alternative is to focus on developing the correct theory of market interaction and to fully replace the unacceptable supply-demand-equilibrium gadget (see 2015).
General equilibrium is gone. It is against the economic principle to spend more than these four words on it.#1
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: The Market. SSRN Working Paper Series, 2547098: 1–10. URL
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.
#1 See also here and here
Blog-Reference
The student of economics either understands in his first course of Econ 101 that neoclassical economics is unrealistic, irrelevant, absurd, consumptive of time, senseless, dilettantish, logically defective, methodologically unacceptable, useless, etcetera etcetera, or he throws himself out of science.
When we take this mass phenomenon of adverse self-selection simply as a fact what follows? Telling people who cannot see this for themselves that equilibrium is a nonentity and that general equilibrium is zombie economics (Quiggin, 2010) is Sisyphean.
The alternative is to focus on developing the correct theory of market interaction and to fully replace the unacceptable supply-demand-equilibrium gadget (see 2015).
General equilibrium is gone. It is against the economic principle to spend more than these four words on it.#1
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: The Market. SSRN Working Paper Series, 2547098: 1–10. URL
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.
#1 See also here and here
April 11, 2015
Angels-on-a-pinpoint scholasticism
Comment on Lars Syll on ‘The Bernanke-Summers imbroglio’
Blog-Reference
What is science? “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)
Everybody who looks at economics can convince themselves that over more than 200 years, economists have failed to produce a formally and materially consistent theory.
Currently, neither orthodox nor heterodox economists understand how the economy works. Worst of all, they cannot even tell the difference between income and profit. This, of course, is the very condition for any meaningful discussion about any economic problem. What we have instead is a lively debate about NONENTITIES like equilibrium, utility, or rational expectation.
Scientifically, economics is in the Dark Ages, and the Bernanke-Summers imbroglio is just another case of vacuous scholasticism.
Constructive Heterodoxy gets out of the intellectual Circus Maximus and comes to grips with the real world.
The correct relationship between profit, saving, investment, and distributed profit is given with the Profit Law on Graphic AXEC09c
Blog-Reference
What is science? “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)
Everybody who looks at economics can convince themselves that over more than 200 years, economists have failed to produce a formally and materially consistent theory.
Currently, neither orthodox nor heterodox economists understand how the economy works. Worst of all, they cannot even tell the difference between income and profit. This, of course, is the very condition for any meaningful discussion about any economic problem. What we have instead is a lively debate about NONENTITIES like equilibrium, utility, or rational expectation.
Scientifically, economics is in the Dark Ages, and the Bernanke-Summers imbroglio is just another case of vacuous scholasticism.
Constructive Heterodoxy gets out of the intellectual Circus Maximus and comes to grips with the real world.
The correct relationship between profit, saving, investment, and distributed profit is given with the Profit Law on Graphic AXEC09c
The formula says that there is no such thing as an identity or equality or equilibrium of saving and investment, that is, the loanable funds story and all variants of IS-LM are untenable (for details, see 2014).
The correct relationship between employment, saving, and investment is given with the Employment Law on Graphic AXEC46
The correct relationship between employment, saving, and investment is given with the Employment Law on Graphic AXEC46
This testable formula explains secular stagnation (for details, including the monetary/ financial side, see 2015a; 2015b).
It is not too late for Ben Bernanke and Larry Summers to become scientists.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Kakarot-Handtke, E. (2015a). Essentials of Constructive Heterodoxy: Employment. SSRN Working Paper Series, 2576867: 1–11. URL
Kakarot-Handtke, E. (2015b). Essentials of Constructive Heterodoxy: Money, Credit, Interest. SSRN Working Paper Series, 2569663: 1–19. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
It is not too late for Ben Bernanke and Larry Summers to become scientists.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Kakarot-Handtke, E. (2015a). Essentials of Constructive Heterodoxy: Employment. SSRN Working Paper Series, 2576867: 1–11. URL
Kakarot-Handtke, E. (2015b). Essentials of Constructive Heterodoxy: Money, Credit, Interest. SSRN Working Paper Series, 2569663: 1–19. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
April 10, 2015
MIT dilettantes (II)
Comment on ‘Bernanke-Summers Debate II: Savings glut, investment shortfall, or Monty Python?’
Blog-Reference
Steve Keen is right and there is almost universal consensus: MIT economics is — let there be no ambiguity — proto-scientific garbage (2014). The decisive question is where to proceed from this consensus. To repeat ad nauseam that Orthodoxy is a failure is not sufficient.
“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, 1998, p. 703)
Let Bernanke, Summers, and the rest of beaten Orthodoxy twitter, leave MIT economics behind, proceed with the Paradigm Shift.
Egmont Kakarot-Handtke
References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Blog-Reference
Steve Keen is right and there is almost universal consensus: MIT economics is — let there be no ambiguity — proto-scientific garbage (2014). The decisive question is where to proceed from this consensus. To repeat ad nauseam that Orthodoxy is a failure is not sufficient.
“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, 1998, p. 703)
Let Bernanke, Summers, and the rest of beaten Orthodoxy twitter, leave MIT economics behind, proceed with the Paradigm Shift.
Egmont Kakarot-Handtke
References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
No difference
Comment on Lars Syll on ‘What’s the difference between heterodox and orthodox economics?’
Blog-Reference
First of all, one has to distinguish between theoretical and political economics. The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works.
It is important to clearly understand that political economics is not and never can be part of science.
A look a Lavoie's table shows that in the column Presupposition the item Political core appears. This shows that Lavoie has not grasped what science is all about. Solely the first four items of the table belong to the realm of science.
With regard to the political dimension, the difference between Orthodoxy and Heterodoxy consists of different agendas. With regard to the scientific dimension, there is no difference, both approaches are outside of science.
Currently, neither orthodox nor heterodox economists understand how the economy works. Marc Lavoie is right: economics needs a Paradigm Shift. To provide the new foundations of economics is the task of Constructive Heterodoxy.#1
By the way, the difference between agenda pushing and science is known since J. S. Mill.
“A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (Mill, 2006, p. 950)
Egmont Kakarot-Handtke
References
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, Vol. 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
#1 For details of the big picture see cross-references Paradigm Shift.
Blog-Reference
First of all, one has to distinguish between theoretical and political economics. The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works.
It is important to clearly understand that political economics is not and never can be part of science.
A look a Lavoie's table shows that in the column Presupposition the item Political core appears. This shows that Lavoie has not grasped what science is all about. Solely the first four items of the table belong to the realm of science.
With regard to the political dimension, the difference between Orthodoxy and Heterodoxy consists of different agendas. With regard to the scientific dimension, there is no difference, both approaches are outside of science.
Currently, neither orthodox nor heterodox economists understand how the economy works. Marc Lavoie is right: economics needs a Paradigm Shift. To provide the new foundations of economics is the task of Constructive Heterodoxy.#1
By the way, the difference between agenda pushing and science is known since J. S. Mill.
“A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (Mill, 2006, p. 950)
Egmont Kakarot-Handtke
References
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, Vol. 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
#1 For details of the big picture see cross-references Paradigm Shift.
April 8, 2015
MIT dilettantes (I)
Comment on Steve Keen on ‘The inbred Bernanke-Summers debate on secular stagnation’
Blog-Reference
Steve Keen correctly observed: “So the textbooks are wrong.” (2011, p. 19)
The mess started with Samuelson's textbook of 1948. The pivotal point is that Samuelson's profit theory is logically defective and this invalidates the greater part of the theoretical superstructure.
Here is the smoking gun: “GDP, or gross domestic product, can be measured in two different ways: (1) as the flow of final products, or (2) as the total costs or earnings of inputs producing output. Because profit is a residual, both approaches will yield exactly the same total GDP.” (Samuelson and Nordhaus, 1998, p. 392)
This quote is paradigmatic for the flimsy logic and the loose verbal reasoning that is endemic in economics. The fundamental mistake/error lies in the premise that total income is equal to the value of output (2012, Sec. 1.6).
The scientific incompetence of the MIT crowd does not consist in sharing the same approach but in sharing the same logical defect for more than 50 years.
The sad fact of the matter is that not only MIT cannot tell the difference between income and profit but critical Heterodoxy also. Steve Keen and others of the heterodox camp still think that total income is the sum of wages and profits (2013).
The final debunking of MIT economics from Samuelson to Summers consists of the rigorous proof that their profit theory is false (2014).
The scientific embarrassment of both Orthodoxy and Heterodoxy is that the representative economist fails to capture the essence of the market economy. The idea that economists understand how the economy works and therefore can help to steer it is ludicrous. What we have at the moment is the pluralistic inbreeding of provably false theories.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Kakarot-Handtke, E. (2013). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Samuelson, P. A., and Nordhaus, W. D. (1998). Economics. Boston, Burr Ridge, etc.: Irwin, McGraw-Hill, 16th edition.
Blog-Reference
Steve Keen correctly observed: “So the textbooks are wrong.” (2011, p. 19)
The mess started with Samuelson's textbook of 1948. The pivotal point is that Samuelson's profit theory is logically defective and this invalidates the greater part of the theoretical superstructure.
Here is the smoking gun: “GDP, or gross domestic product, can be measured in two different ways: (1) as the flow of final products, or (2) as the total costs or earnings of inputs producing output. Because profit is a residual, both approaches will yield exactly the same total GDP.” (Samuelson and Nordhaus, 1998, p. 392)
This quote is paradigmatic for the flimsy logic and the loose verbal reasoning that is endemic in economics. The fundamental mistake/error lies in the premise that total income is equal to the value of output (2012, Sec. 1.6).
The scientific incompetence of the MIT crowd does not consist in sharing the same approach but in sharing the same logical defect for more than 50 years.
The sad fact of the matter is that not only MIT cannot tell the difference between income and profit but critical Heterodoxy also. Steve Keen and others of the heterodox camp still think that total income is the sum of wages and profits (2013).
The final debunking of MIT economics from Samuelson to Summers consists of the rigorous proof that their profit theory is false (2014).
The scientific embarrassment of both Orthodoxy and Heterodoxy is that the representative economist fails to capture the essence of the market economy. The idea that economists understand how the economy works and therefore can help to steer it is ludicrous. What we have at the moment is the pluralistic inbreeding of provably false theories.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Kakarot-Handtke, E. (2013). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Samuelson, P. A., and Nordhaus, W. D. (1998). Economics. Boston, Burr Ridge, etc.: Irwin, McGraw-Hill, 16th edition.
Related 'Profit' and 'The GDP-death-blow for the economics profession'. For details of the big picture see cross-references Profit/Distribution.
Lazy or stupid or both?
Comment on Lars Syll on ‘Modern macroeconomics — an intellectually lazy ideology’
Blog-Reference
Diane Coyle writes: “I think an honest conventionally-trained economist has to at least acknowledge that we grew intellectually lazy about this [the assumption of rational choice].” (See intro)
This statement implies that the representative economist is capable of thinking but only too lazy to apply his full capacities. An alternative explanation for the manifest scientific failure of economists could be that they are substandard thinkers.
Students in any scientific discipline are expected to find out whether their teacher's theory is true or false or incomplete. The growth of knowledge is what science is all about. Hence, the acceptance of basic tenets of conventional economics is strongly indicative of a lack of scientific acumen. From a student who has accepted utility maximization, rational choice, or supply-demand equilibrium as an explanation no contribution to real scientific progress is to be expected.
At the moment economics is the mindless perpetuation of proto-scientific stuff. An honest conventionally-trained economist has to at least ask himself how it could happen that he and other seemingly intelligent persons could ever accept the green cheese assumptionism and the logical defects of Econ 101.
The wonder of economics is a large number of generations of well-trained students that have faithfully recycled intellectual garbage.
In the final analysis, it is not a question of honesty but of scientific intuition to realize that the present state of economics calls for a Paradigm Shift#1 and not for another ridiculous discussion about efficient markets.
Egmont Kakarot-Handtke
#1 For details of the big picture see cross-references Paradigm Shift.
Blog-Reference
Diane Coyle writes: “I think an honest conventionally-trained economist has to at least acknowledge that we grew intellectually lazy about this [the assumption of rational choice].” (See intro)
This statement implies that the representative economist is capable of thinking but only too lazy to apply his full capacities. An alternative explanation for the manifest scientific failure of economists could be that they are substandard thinkers.
Students in any scientific discipline are expected to find out whether their teacher's theory is true or false or incomplete. The growth of knowledge is what science is all about. Hence, the acceptance of basic tenets of conventional economics is strongly indicative of a lack of scientific acumen. From a student who has accepted utility maximization, rational choice, or supply-demand equilibrium as an explanation no contribution to real scientific progress is to be expected.
At the moment economics is the mindless perpetuation of proto-scientific stuff. An honest conventionally-trained economist has to at least ask himself how it could happen that he and other seemingly intelligent persons could ever accept the green cheese assumptionism and the logical defects of Econ 101.
The wonder of economics is a large number of generations of well-trained students that have faithfully recycled intellectual garbage.
In the final analysis, it is not a question of honesty but of scientific intuition to realize that the present state of economics calls for a Paradigm Shift#1 and not for another ridiculous discussion about efficient markets.
Egmont Kakarot-Handtke
#1 For details of the big picture see cross-references Paradigm Shift.
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