Economics: No method to the madness

Comment on Lars Syll/Tom Hickey on ‘Econometrics and the problem of unjustified assumptions’

Blog-Reference

Neither Lars Syll nor Tom Hickey is known for having contributed anything of substance to the scientific progress of economics, yet they cannot stop waffling about methodology.

Lars Syll tells us: “Econometrics is basically a deductive method. Given the assumptions, it delivers deductive inferences. The problem, of course, is that we almost never know when the assumptions are right. Conclusions can only be as certain as their premises ― and that also applies to econometrics.”

Wake up, Lars Syll, this is a truism for about 2300 years: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle)

J. S. Mill was well aware of the pivotal question of methodology: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are is the opus magnum of the more recondite mental philosophy.”

Now, what are the foundational propositions of mainstream economics? The verbalized Walrasian axiom set reads: “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)

Because these foundational propositions are shock-full of NONENTITIES, all mainstream models that are based upon them are methodological garbage, and therefore, econometric testing cannot possibly work. This does NOT mean that econometrics has to be thrown on the muck heap. Lars Syll’s conclusion “Econometrics doesn’t establish the truth value of facts. Never has. Never will.” is plain methodological nonsense. What is called for is a Paradigm Shift, i.e., the replacement of the Walrasian axiom set.#1

Keynes understood that microfoundations are false, but he messed up macrofoundations. The historical fact is that Keynes was too stupid for the elementary math that underlies macroeconomics. To this day, Keynesians, Post-Keynesians, and MMTers use the sectoral balances equation (I−S)+(G−T)+(X−M)=0, which is provably false because it lacks the balance of the business sector, i.e., macroeconomic profit.

Macroeconomic profit is determined by macroeconomic accounting, which is nothing but elementary math. The philosopher Tom Hickey maintains: “Accounting is a formal method that is proto-scientific in the sense that double entry it is made up of tautologies. But the entries can be checked for substance against journals and inventories. … When accounting tautologies (identities) are interpreted causally, then causal explanation demands empirical corroboration through data, e.g., measurable changes in stocks and flows.”

The point is that economists are too stupid to get macroeconomic accounting right and to determine macroeconomic profit: “His [Keynes’] 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.)#2, #3

To this day, economists do not get the pivotal economic magnitude of profit right. Econometric testing cannot work when applied to misspecified models by folks who fail already at the level of the elementary mathematics of macroeconomic accounting.

There is no point in expecting Lars Syll/Tom Hickey or any other orthodox/heterodox methodological loser to ever produce the true macrofoundations or even to see them when they are just before their eyes. #4

Egmont Kakarot-Handtke


#1 For details of the big picture, see cross-references Methodology
#2 For details of the big picture, see cross-references Accounting
#3 For details of the big picture, see cross-references Profit
#4 The axiomatically correct balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0 with Q as macroeconomic profit. See also Wikipedia and the promotion of economists’ idiotism (II)

Related 'Economics ― not science, not ideology, just useful idiocy' and 'How to get out of the swamp of ignorance' and 'Warning: Einstein can be hazardous to heterodox methodology' and 'Heterodoxy, you have a problem' and 'The inexorable Paradigm Shift in economics' and 'True macrofoundations: the reset of economics' and 'Show first your economic axioms or get out of the discussion'.

***

AXEC121f

Links on Alfred Marshall

Comment on Timothy Taylor on ‘Alfred Marshall in 1885: The Present Position of Economics’*

Blog-Reference

Marshall got the subject matter of economics wrong. Economics is NOT about how humans behave but about how the economic system behaves. Time to bury Marshall in the darkest corner of the Flat-Earth-Cemetery. For details see

► Marshall: a monument of scientific incompetence
► A note on Marshall's Magic Wand
► From Marshall to Georgescu-Roegen
► Marshall and some skewed arguments
► What engine?
► Marshall and the Cambridge School of plain economic gibberish
► Misled by ordinary intuition and common sense
► Hooray! The formalization issue is finally settled

Egmont Kakarot-Handtke


* CONVERSABLE ECONOMIST

Related 'Show first your economic axioms or get out of the discussion' and 'The Cambridge crap curriculum'. For details of the big picture see cross-references Not a Science of Behavior.

Economics ― not science, not ideology, just useful idiocy

Comment on Simon Wren-Lewis on ‘How should academic economics cope with ideological bias’

Blog-Reference

A closer look at the history of economic thought reveals that 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; 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 historical fact 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: Walrasianism, Keynesianism, Marxianism, Austrianism, MMT are mutually contradictory, axiomatically false, and materially/formally inconsistent. This pluralism of provably false theories is NOT science.

However, from Adam Smith/Karl Marx onward to the faux ‘Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel’, academic economists claim to do science. As Simon Wren-Lewis asserts, “Economics can only be called a science because it embraces the scientific method. The moment evidence is routinely ignored by academics because it does not help some political project economics stops being the science it undoubtedly is.”

It is NOT. The fact is that economists continuously violate scientific standards, which are well-defined since antiquity: “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 scientific method implies the elimination of falsified approaches/hypotheses/theories. This does NOT happen in economics as Morgenstern criticized back in 1941: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” Or as Hands put it: “... suppose they did reject all theories that were empirically falsified ... Nothing would be left standing; there would be no economics.”

Economists never managed to produce more than proto-scientific garbage or to rise above the level of what Feynman called 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 to this day is the materially/formally consistent theory of how the monetary economy works. Economists do NOT strive for clear-cut true/false answers but instead, keep everything in the swamp between true and false, where “nothing is clear and everything is possible.” (Keynes) #1 Vagueness is a tried and tested survival strategy because “… you cannot prove a vague theory wrong.” (Feynman)

The historical fact is that economists are too stupid for the elementary math that underlies macroeconomics. To this day, Keynesians, Post-Keynesians, and MMTers use the sectoral balances equation (I−S)+(G−T)+(X−M)=0, which is provably false because it lacks the balance of the business sector, i.e., macroeconomic profit. #2 This is not a minor mistake, but it invalidates the whole of macroeconomics and microeconomics. Because economic theory is false, economic policy guidance has NEVER had sound scientific foundations.

The heap of inconsistent economic approaches has no truth-value; however, this does not matter much in the political realm, where all that counts is propagandistic use-value. This is why proto-scientific garbage is still around. Economics has always been a well-stocked rummage table for arguments that help to secure the status quo. More has not been expected by the founders and funders of economics departments, chairs, and institutions. And this has always been delivered. Rockefeller called the university ‘the best investment’ he ever made.

This is the built-in bias of economics since J. S. Mill, who was 35 years on the payroll of the East India Company and defined economics as “inexact and separate science”. Economics is NOT a science and NOT an ideology. #3 Economics is agenda-pushing in the cloak of science. To this day, economics lacks valid scientific foundations. This holds for both orthodox and heterodox economics, and Simon Wren-Lewis is no exception. #4-#7

Egmont Kakarot-Handtke


#1 And the answer is NCND ― economics after 200+ years of Glomarization
#2 The axiomatically correct balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0. See also: Wikipedia and the promotion of economists’ idiotism (II)
#3 An ideology is a manufactured ensemble of ideas/beliefs/norms/symbols as a means of creating/upholding/mobilizing group identity, i.e., a more or less sharp distinction between We (inclusion) and the Rest (exclusion). See also Wikipedia.
#4 Macro ignorance: Why Simon Wren-Lewis does not come to grips with the plain MMT-fraud
#5 Economic policy and the skirmishes of failed/fake scientists
#6 Are economics professors really that incompetent? Yes!
#7 The retirement of a fake scientist and real agenda pusher

Related 'Links on the Economics Nobel' and 'The end of political economics (I) and 'The end of political economics (II)'. For details of the big picture, see cross-references Political Economics/Stupidity/Corruption'.

MMT: The new Center of the Universe of political fraud

Comment on Warren Mosler on ‘Full Employment AND Price Stability’*

Own post, no external Blog-Reference

MMT claims that mainstream employment theory is false. So far, MMT is correct, mainstream economics is proto-scientific garbage since Adam Smith. But MMT claims also that MMT’s employment theory is superior. This claim is known to be false.#1, #2, #3

MMT is for the greater part storytelling and for the smaller part proper scientific analysis. The analysis is based on the MMT sectoral balances equation, i.e. (I−S)+(G−T)+(X−M)=0. This equation is provably false. The correct balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0.#4 It boils down to Public Deficit (G−T) = Private Profit Q. Proper scientific analysis tells one that the MMT policy of deficit-spending/money-creation is a free-lunch program for the Oligarchy.#5

Needless to emphasize that such a program cannot be sold to WeThePeople. This is why MMT is repackaged as a social program. The argument of the MMT snake oil sellers is simply that MMT has the solution for all problems beginning with unemployment and ending with global warming.#6 This is just a political fraud.#7 Because MMT’s foundational equation is false the whole analytical superstructure is false. Because the theory is false, MMT’s economic policy advice has NO valid scientific foundations.

From this follows that both academic and non-academic MMTers are either stupid or corrupt or both. MMT is a plain political fraud and Warren Mosler is one of Wall Street’s loudest and busiest agents.#8-#14

Egmont Kakarot-Handtke


* The Center of the Universe
#1 Full employment through the price mechanism
#2 Full employment, the Phillips Curve, and the end of Gaganomics
#3 For details of the big picture see cross-references Employment/Phillips Curve
#4 Controlled demolition of MMT ― an exercise in elementary logic
#5 MMT’s true program
#6 MMT: If you’ve got a problem, I don’t care what it is, let me help
#7 MMT Progressives: The knife in the back of WeThePeople
#8 MMT, Warren Mosler, and the little helpers from Wall Street and Academia
#9 Warren Mosler: scientific dilettante and political fraudster
#10 You know you are in the political Circus Maximus when economists talk about Democracy/Liberty/Freedom
#11 Very busy these days: Wall Street’s agents
#12 MMT: fundamentally false
#13 MMT: The one deadly error/fraud of Warren Mosler
#14 Stephanie Kelton: MMT’s public farce

Related 'Keynes, Lerner, MMT, Trump, etc. and exploding profit'. For the full-spectrum refutation of MMT see cross-references MMT.

***

Twitter Oct  30

Source: Twitter

Stephanie Kelton: MMT’s public farce

Comment on Tom Hickey on ‘MMT in the news’

Blog-Reference

The philosopher Tom Hickey is happy: “Stephanie Kelton is solidifying in the role of being the public face the MMT. This is doubly beneficial. Not only is it good for popularizing MMT, but also there are not many other women among economists that the public is familiar with.”

For a philosopher, this may be important. For a scientist, the person/messenger is of NO importance at all. For a scientist, only content counts. The crucial question is always and everywhere: Is it true or false what the person says? Scientific truth is well-defined by material and formal consistency.

Now it is known that the MMT sectoral balances equation, i.e., (I−S)+(G−T)+(X−M)=0, is false.#2 Because the foundational equation is false, the whole analytical superstructure of MMT is false. Because the theory is false, economic policy advice has NO sound scientific foundations. Any statement that has no sound scientific foundations is merely gossip or propaganda or entertainment or disinformation or storytelling, or blather.

This applies to the communication of MMT’s public face, Stephanie Kelton. For details of the proto-scientific farce, see #3-#9

Egmont Kakarot-Handtke


#1 The axiomatically true balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0.
#2 For the full-spectrum refutation of MMT, see cross-references MMT
#3 The Kelton-Fraud
#4 Down with idiocy!
#5 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
#6 How Stephanie Kelton brainwashes a lovely young English girl
#7 Prophet Stephanie divines the seizure of the means of production of currency
#8 Stephanie Kelton and the self-destructive stupidity of the super-rich
#9 Stephanie and Noah ― economics at the intellectual zero lower bound

Related 'Show first your economic axioms or get out of the discussion' and 'MMT, Warren Mosler, and the little helpers from Wall Street and Academia' and 'Mission impossible: economists join WeThePeople' and 'MMT = proto-scientific garbage + deception of the 99-percenters' and 'MMT and grassroots movements' and 'Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople' and 'MMT: So-called Progressives as trailblazers for Trumponomics' and 'MMT: The new Center of the Universe of political fraud' and 'MMT’s true program' and 'The state of MMT? Stone-dead!'

***

The midwives' manual for the Birth of the "People's Economy"

The gender-neutral version

MMT: Wondering where the catastrophe is

Answering Michael Norman’s Tweet

Blog-Reference

Michael Norman asks: “Can anyone in the debt/doomsday crowd explain why, after rising nearly 30-fold since 1980, the debt hasn’t created catastrophe? And why interest rates and inflation are lower? Do they care or is it just about incessantly spewing hysterics? Do they even pay attention?” #1

The macroeconomic Profit Law Q≡Qm+Qn with Qm≡Yd+(I−Sm)+(G−T)+(X−M) boils down to Public Deficit (G−T) = Private Profit Qm. So, by deficit-spending/money-creation, the government continuously fills the coffers of the Oligarchy, which, in turn, is looking out for some safe and juicy assets. Again, the government lends a helping hand and offers treasuries/bonds/etc, thereby consolidating its overdrafts at the Central Bank. This is a case of simultaneous supply/demand creation: the government continuously accumulates overdrafts at the Central Bank, and the Oligarchy continuously accumulates deposits. All other influences excluded, this should drive the interest rate for ultra-safe treasuries down over time because, in a fiat money regime, the Oligarchy needs safe financial assets more than the government needs the Oligarchy’s money.

Deficit-spending/money-creation causes a one-off price hike but NO inflation. Inflation depends on the relation between wage rate increases and productivity increases. #2

MMT is a free lunch program for the Oligarchy. Financial wealth and public debt grow in lockstep. The Profit Law explains how billionaires are able to accumulate that much money and why they can buy all the bonds the Treasury issues and cash in the ultra-safe interest that is reliably taxed from WeThePeople as long as the debt is rolled over. This can function for a very long time, but eventually, the economy breaks down because infinite growth is impossible on a finite planet, and this also holds for public debt. #3

In the meantime, the catastrophe Michael Norman is wondering about has already materialized in the distribution of income and wealth. After the debt rising 30-fold since 1980: “The 400 richest Americans, the top 0.00025%, have tripled their share of the nation’s wealth.” #4 Admittedly, in the eyes of Michael Norman and the rest of Wall Street, this does not exactly fit the definition of catastrophe.

The MMT Ponzi scheme works (i) as long as public debt grows, (ii) as long as the redistributive interest payments on government debt do not wreck the budget, (iii) as long as the Oligarchy sticks to the scheme even at negative interest rates, (iv) as long as the general public can maintain the illusion that public debt is nobody’s debt, (v) as long as the Central Bank supports the scheme.

Egmont Kakarot-Handtke


#1 Twitter
#2 Gov-Deficits do NOT cause inflation
#3 The decisive reason to worry about government debt
#4 Washington Post

The apocalypse of stupidity

Comment on Richard Westra/Tom Hickey on ‘Apocalypse economics and economic apocalypse’*

Blog-Reference

Richard Westra argues: “… economic reproduction is an existential facet of all existing human societies it had always been intermeshed with other social practices–culture, religion, ideology, politics, and so on–and indistinguishable from them. Only under capitalism does economic life emerge transparently, as a separate sphere, permitting systematic study of ‘the economy’ in economic theory.” and “Mainstream economics in the neoclassical tradition which gained hegemonic status across much of the world by the early 20th century never problematizes the above important ontological fact.”

And the philosopher Tom Hickey adds: “A further complicating factor is that human knowledge is based on conceptual structures that are not fully systematized. That is, they are not algorithms. Rather, the basis of human known is narrative, a world view that is embedded in the cultural narrative.”

This is certainly true for the crap that fills the heads of ninety-nine percent of any population. The remarkable conclusion from archaeologically well-documented history is that one can tell people virtually any impossibility between prelife, the talking apple-tree snake, the apocalypse, and the afterlife and they will take it for real. The ninety-nine percenters live in the narrative fog that has been produced by storytellers, priests, historians, propagandists, the entertainment industry, and politicians. Only the one percent of scientists apprehend reality, at least a significant part of it.

Economists have not made it into the ranks of scientists in the last 200+ years. They started as political agenda pushers with pamphlets like The Wealth of Nations or Das Kapital and never got above the proto-scientific level.

Tom Hickey summarizes: “It [modern economics] is the attempt to explain the ‘economic life’ of society in terms of mechanistic and naturalistic principles that are based on equating naturalism as a methodological assumption with materialism as an ontological assumption. The units of society are viewed as individuals functioning like atoms in physics so that economics is assumed to be based on laws of nature which do not differ materially from the laws of nature discovered in physics. Thus the assumption that the methodological debate is decided, with methodological individualism and microfoundations established as key assumptions along with equilibrium and rational maximization of economic benefit for the agent.”

True enough. Standard economics is built upon this verbalized 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)

This set of hardcore propositions is shock-full of NONENTITIES and therefore requires the same level of counterfactual belief (credo quia absurdum) as any religious narrative. HC1 to HC6 makes it abundantly clear that economics is NOT a science but 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.” (Feynman)

What is missing? Scientific competence! Neither orthodox nor heterodox nor pluralist economists are scientists but political agenda pushers. To this day, economists do not understand how the monetary economy works. Walrasianism, Keynesianism, Marxianism, Austrianism, MMT are mutually contradictory, axiomatically false, materially/formally inconsistent, and all approaches got profit ― the foundational concept of the subject matter ― wrong.

“The result is caricature rather than science.” (Hickey) Make no mistake, though, this plain scientific failure is not due to some insurmountable methodological difficulties of the economist’s subject matter but to the fact that economists to this day have neither grasped the difference between absurd narrative and true theory nor between showmanship and scientific competence nor between confused blather and material/ formal consistency.#1, #2

Egmont Kakarot-Handtke


* MRonline
#1 Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion
#2 How to spot economics trolls