The new macroeconomic Paradigm

Comment on Brian Romanchuk on ‘DSGE Wars (Again)’

Blog-Reference and Blog-Reference adapted to context and Blog-Reference

(i) Every economist knows by now that DSGE is a failed approach. Strictly speaking, the microfoundations approach has already been dead in the cradle 150+ years ago.

(ii) The microfoundations approach is defined by this verbalized axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states. (Weintraub) The fact is that every model that contains just one of these axioms is false.

(iii) Because the microfoundations approach is axiomatically false, a Paradigm Shift is imperative. Methodologically, it holds: “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) The Paradigm Shift consists of the replacement of false premises, i.e., microfoundations, by true premises, i.e., macrofoundations. #1

(iv) This is the correct core of macroeconomic premises #2
(A0) The objectively given and most elementary systemic configuration of the (world-) economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm.
(A1) Y_w=WL wage income Y_w 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 expenditure C is equal to price P times quantity bought/sold X. ‡
These premises are certain, true, and primary, and therefore satisfy all methodological requirements. The set of premises is MINIMALISTIC, that is, it cannot be reduced further, only expanded. The graphical representation of the elementary production-consumption economy is given under the label Graphic. #3, #4

(v) The condition of market-clearing is X=O and of budget-balancing C=Y_w. From non-clearing and non-balancing follow the phenomena of inventory changes (O−X greater than 0 or less than 0), of monetary saving/dissaving (S_m≡Y_w−C greater than 0 or less than 0), and of monetary profit/loss (Q_m≡C−Y_w greater than 0 or less than 0). It always holds Q_m≡−Sm, in other words, loss is the counterpart of saving, and profit is the counterpart of dissaving. This is the most elementary form of the macroeconomic Profit Law. #5

(vi) Given the minimalist core propositions (A0) to (A3), one has to proceed top-down by successive DIFFERENTIATION until one arrives at the individual agent. Differentiation is the opposite of bottom-up or aggregation. The bottom-up = microfoundations approach has always been methodologically indefensible because it runs with necessity into the Fallacy of Composition.

(vii) Note that the macro axioms are composed of measurable variables. This is the precondition for testing the derived complex relationships = economic laws.

(viii) The correct systemic macrofoundations FULLY replace the false Walrasian microfoundations and the false Keynesian macrofoundations. There can be NO pluralism of axiom sets. For ALL economic research, the macroeconomic premises (A0) to (A3) are ABSOLUTELY necessary. It holds: If it isn’t macro-axiomatized, it isn’t economics.

Egmont Kakarot-Handtke

‡ The symbol C for consumption expenditures is in the following interchangeable with E_c.


#1 Keynes’s macrofoundations are false, see How Keynes got macro wrong and Allais got it right.
#2 For the complete set of macroeconomic axioms, see Section 14.7 Macrofoundations in Sovereign Economics

#3 Graphic AXEC31 The elementary production-consumption economy
#4 True macrofoundations: the reset of economics
#5 Graphic AXEC112c From the macroeconomic axiom set, follow the Basic Economic Laws

New Economic Thinking = old scientific garbage

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

Blog-Reference and Blog-Reference

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.

MMT: The economics moron as problem solver

Comment on Zero Hedge on ‘Even Bernie Sanders Thinks ‘Medicare For All’ Would Bankrupt America’

Blog-Reference

MMTers do not know how the profit- and price mechanism works but they offer a one-size-fits-all solution for all economic problems: A sovereign currency issuer has, as a matter of principle, a monopoly on the issuance of the currency and can exercise this monopoly through unrestricted deficit spending for any chosen purpose from basic income to healthcare to warfare.

This, of course, is trivially true and just another wording for what sovereignty entails. Sovereignty, though, is the pivotal concept of Political Science and NOT of economics. The subject matter of economics is how the economic system works and NOT how the political system works.

Fact is, to begin with, that economists do NOT know how the economy works. Economists cannot until this very day tell the difference between profit and income. And these mentally retarded folks, who do not understand the foundational concepts of their subject matter and the elementary mathematics of accounting, tell their fellow citizens how best to organize the economy.

Economists have NOT produced anything of scientific value since Adam Smith but award themselves each year a prize for their non-existing scientific achievements: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

Economics is a failed science, and MMT is NO exception:

• MMT’s sectoral balances equations are mathematically false,
• because the formal foundations are false the whole analytical superstructure is false,#1
• because MMT is materially/formally inconsistent, MMT policy guidance has NO sound scientific foundations,
• because MMT has no scientific content whatsoever it is nothing more than brainless political blather,
• because it holds that Public Deficit = Private Profit, MMT is a straightforward program for the unabated enrichment of the one-percenters,
• to claim that MMT delivers a scientific underpinning of the political program of Bernie Sanders or Jeremy Corbyn is just one more absurd/fraudulent claim in the long history of the fake science called economics.

Egmont Kakarot-Handtke


#1 For details see cross-references MMT

Related 'Solving Mill’s starting problem' and 'Who or what exactly did Keynes save?' and 'Why Bernie Sanders is unintentionally a godsend for the one-percenters' and 'Endtime for soapbox economists' and 'Garbage economics' and 'Krugman is not an economist' and 'Turning the bananatization of economics around' and 'Hayek was not an economist' and 'Corbynomics' and 'Time to get rid of political economics' and 'The new macroeconomic Paradigm'. For details of the big picture see cross-references Scientific Incompetence and cross-references Profit.

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REPLY to Matt Franko on Sep 18

The title of my post is ‘MMT ― the economics moron as problem solver’. This, obviously, means you.

You say: “Egmont doesn’t understand Basis of Accounting” and refer to Wikipedia’s entry about the difference between cash basis and accrual basis accounting.#1

You overlook that this difference plays NO role in the present context because, for a start, both accounting methods are synchronized in order not to get distracted by the technicalities of shifting profit between periods. So, both accounting methods lead to the SAME result in the present context. The term monetary profit Q_m makes it explicit that profit, as it appears in accrual accounting and profit as it appears physically in the cash box are numerically identical.

If you were not so stupid you would have realized that wage income as it accrues in the period under consideration is actually paid in this period.#2 The same holds for consumption expenditures. Hence it does NOT MATTER AT ALL whether accrual accounting or cash accounting is applied.

The fact is that MMTers got the macro accounting provably wrong#3 and this means that they are either morons or fraudsters. Take your pick.

#1 Wikipedia Basis of accounting
#2 

• Economists: just too stupid for counting
• Money and time
• A tale of three accountants

#3 Rectification of MMT macro accounting

Why is economics such a scientific embarrassment?

Comment on Christopher Snyder on ‘What are economists for?’

Blog-Reference and Blog-Reference

Economics is a failed science because economists are scientifically incompetent. This applies to both the orthodox and heterodox species. Heterodox economists persistently point at what they regard as the unacceptable portions of Orthodoxy but they have not come up with a valid alternative since Jevons/Walras/Menger.

Christopher Snyder defines economics thus: “One short answer is that economics is the social science focusing on people’s material well-being, the ‘business side’ of life.”

Christopher Snyder still clings to the fatal error of the founding fathers, i.e., that economics is a so-called social science. Obviously, he has not heard that Feynman has debunked the so-called social sciences wholesale as cargo cult sciences: “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.”

Economists, to begin with, lack a real understanding of science, they are cargo cult scientists. For the general public, it is important to know 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.

Economic policy presupposes knowledge of how the economic system works. This knowledge is embodied in 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)

Because of the lack of the true theory the policy guidance of economists ― Walrasians, Keynesians, Marxians, Austrians, MMTers, and Pluralists ― has NO sound scientific foundations.#1

Economics had the bad luck to start as Political Economy. This means that the political agenda had been given and the argumentation had to support the agenda. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). The methodological Ur-Blunder of economics consists of defining economics as a social science. Economics is a systems science.

Supply-demand-equilibrium economists are in a state of incorrigible self-delusion/idiocy/ corruption. They do not know what science is and ignore or even actively suppress refutation. As Morgenstern reminded his fellow economists 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.”

From the standpoint of science, the economist is worse than the snake oil seller and fraudster because as a fake scientist he causes severe economic damages.#2 This is known since Napoleon: “Late in life… he claimed that he had always believed that if an empire were made of granite the ideas of economists if listened to, would suffice to reduce it to dust.” (Viner)

Economics is NOT a science. Both orthodox and heterodox economics is just storytelling. There is neither material nor formal consistency. The ultimate cause of failure is the scientific incompetence of economists since Adam Smith.

Egmont Kakarot-Handtke


#1 Why economists don’t know what profit is
#2 Mass unemployment: The joint failure of orthodox and heterodox economics

Related 'The economist as storyteller' and 'Solving Mill’s starting problem' and 'The new macroeconomic paradigm' and 'Economics: The greatest scientific fraud in modern times' and 'Finally, the embarrassment of economics is over' and 'Econogenics: economists pose a hazard to their fellow citizens' and 'Mission accomplished: Economists as useful idiots of the Oligarchy'.

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Graphic AXEC158 Economics is fake science

Where modern macroeconomics went wrong

Comment on Lars Syll on ‘Where modern macroeconomics went wrong’

Blog-Reference and Blog-Reference on Sep 17

Eighty years ago, Keynes got macroeconomics wrong, and neither Keynesians nor anti-Keynesians noticed it until this very day.

Joseph Stiglitz maintains: “So both stories, the DSGE and the old-fashioned Keynesian, are simplifications. When they are incorporated into a simple macro-model, one is saying the economy acts as if… And then the question is, which provides a better description; a better set of prescriptions; and a better basis for future elaboration of the model.”

This is NOT the question. The real question is, how could economists ever take this whole proto-scientific garbage seriously?

Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a Paradigm Shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”

After Keynes, every economist who does not see the necessity of a Paradigm Shift is a scientifically incompetent moron. There are NO excuses.

Keynes, though, messed up the shift from microfoundations to macrofoundations. His methodological blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This syllogism is conceptually and logically defective because Keynes NEVER came to grips with 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.)#1

Because the foundational concepts of profit and income are ill-defined the whole theoretical superstructure of Keynesianism is false. #2 It was Allais who identified Keynes’s lethal blunder. #3 Obviously, neither Joseph Stiglitz nor Lars Syll got the message.

Both the DSGEers and the Keynesians have until this very day NO idea of the fundamental concepts of economics, viz., profit and income. Thus, both proto-scientific sects get the intertemporal relationship between income, consumption, saving, and profit badly wrong. #4 Needless to emphasize that neither Joseph Stiglitz nor Lars Syll nor other pseudo-thinkers came since Keynes one millimeter closer to the correct macroeconomic relationships. #5

Egmont Kakarot-Handtke


#1 For details, see cross-references Keynesianism
#2 Where economics went wrong (I)

Graphic AXEC121g

#3 How Keynes got macro wrong and Allais got it right
#4 Settling the Theory of Saving
#5 Graphic AXEC107e Elementary production-consumption economy, Elementary Economic Laws

Related 'Macroeconomics: Economists are too stupid for science' and 'Macroeconomics for dummies (II)' and 'The new macroeconomic Paradigm'

CORE: more lipstick on the dead economics pig

Comment on Bill Mitchell on ‘Paradigm shift ― not from the CORE Econ Project ― as mainstream as you will get’

Blog-Reference and Blog-Reference on Sep 18, adapted to context, and Blog-Reference on Sep 19

This is the track record of economics: provably false
• profit theory, for 200+ years,
• Walrasian microfoundations (including equilibrium), for 150+ years,
• Keynesian macrofoundations (including I=S, IS-LM), for 80+ years.
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.

In science, a "distinct set of concepts or thought patterns, including theories, research methods, postulates, and standards for what constitutes legitimate contributions to a field is called a paradigm." #1 Because the four main approaches are provably false, that is, materially or/and formally inconsistent, a Paradigm Shift is an absolute necessity.

Keynes put it thus 80 years ago: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”

In methodological terms, a Paradigm Shift is “a fundamental change in the basic concepts and experimental practices of a scientific discipline.” The Keynesian Paradigm Shift, though, failed because Keynes messed up the move from microfoundations to macrofoundations. #2 As a result, economics fell back on the Jevons/Walras/Menger paradigm. As Krugman so nicely put it, “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”.

The Neoclassical paradigm is defined by methodological individualism = microfoundations, which translates into the neo-Walrasian axiom set: “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)

These axioms (or slight variations thereof) define the orthodox paradigm. These microfoundations are false in multiple dimensions. This is a methodological fact. By consequence, the necessary Paradigm Shift consists of fully replacing ALL variants of behavioral microfoundations by systemic macrofoundations.

As an answer to both fundamental and superficial refutation, economists talk much about New Economic Thinking, a new paradigm, and more social commitment. #3 The members of the CORE project are no exception. #4

The fact is, the new CORE textbook does NOT present the urgently needed new paradigm but the maximization-and-equilibrium world in a redesigned user-friendly format that has been worked out by the marketing and PR folks in order to satisfy the demands of the new generation of dull economics students. These students do not want economics as objective scientific truth but as an easy way to understand the narrative. The new target group does not care about the material and formal consistency of theoretical economics but about the political message of political economics.

Economics had the bad luck to start as Political Economy. This means that the political agenda had been given and the argumentation had to support the agenda. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers).

From this false start, economics never recovered, and it developed into what Feynman called cargo cult science, which he defined as: “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, with scientific truth well-defined as material and formal consistency. Economics is a failed science. The claim, as expressed in the title “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a false claim. Both orthodox and heterodox economists are cargo cult scientists. #5

Economics does not need a new marketing thinking of opportunistic orthodox and heterodox proto-scientific losers #6 but a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to the true macrofoundations. #7 Nothing less will do. The first rule of the Paradigm Shift says: If it isn’t macro-axiomatized, it isn’t economics.

The CORE textbook is NOT economics; it is cargo cult economics in a new Zeitgeist outfit. The overdue replacement of the proto-scientific textbook garbage from Samuelson to Mankiw #8 lies still in the future.

Egmont Kakarot-Handtke


#1 Wikipedia Paradigm, Paradigm shift
#2 Post Keynesianism, too, is indefensible
#3 New Economic Thinking, or, let’s put lipstick on the dead pig
#4 Samuel Bowles, Wendy Carlin A new paradigm for the introductory course in economics
#5 Fact of life: your econ prof is scientifically incompetent
#6 In search of new economists
#7 First Lecture in New Economic Thinking
#8 The father of modern economics and his imbecile kids

Related 'Economics: the emancipation of science from politics' and 'What makes economics a failed science?' and 'MMT: scientific incompetence or political fraud?' and 'The flat-earth realism of economists' and 'Why economists don’t know what profit is' and 'A bitter pill for political economists' and 'You are fired!' and 'To this day, economists have produced NOT ONE textbook that satisfies scientific standards'

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LINK at Economist's View on Sep 14

Comment on A New Way to Learn Economics ― The New Yorker. See
CORE: more lipstick on the dead economics pig

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Graphic AXEC121e

Economics: the emancipation of science from politics

Comment on Simon Wren-Lewis on ‘Revolutions in Economic Policy’

Blog-Reference

There is the political realm and there is the scientific realm. Roughly speaking, the issue in the political realm is about the realization of the Good Society and the issue in the scientific realm is to gain knowledge about how the universe or one of its numerous sub-domains works. Knowledge takes the form of a theory that fits the criteria of material and formal consistency. The true theory is the humanly best mental representation of reality.

In politics, open questions are decided by the legitimate sovereign, in science they are decided by proof/disproof. 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)

There is 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.

Political economics has produced NOTHING of scientific value in the last 200+ years. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. The pluralism of false theories is the characteristic of what Feynman called cargo cult science.

The lack of the true theory has grave consequences: since Adam Smith, economic policy guidance has NO sound scientific foundation. The general public always sees and discusses the policy proposals of economists but never the underlying theory, therefore it fails to see that there is a total disconnect between the two. The economists’ proposals do not follow from a valid theory because there is none.

Thomas Kuhn’s The Structure of Scientific Revolutions refers to science and by no stretch of the imagination to economic policy. A political revolution is something quite different from a scientific revolution. A scientific revolution, i.e. a paradigm shift, is caused by a failure of the current paradigm and not by political upheaval or because of populist pressure. Scientific laws do not change when POTUSes come and go.

In economics, a paradigm shift is urgently needed because economic theory in its four incarnations ― Walrasianism, Keynesianism, Marxianism, Austrianism ― is provably false, that is, materially and formally inconsistent.

Economists do not understand until this day how the profit- and price mechanism works. Economics has no truth-value, only some political use-value. The economist is NOT appreciated as a scientist only as a useful idiot.

A Scientific Revolution in economics means that theoretical economics (= science) emancipates itself from the corrupting grip of politics (= agenda-pushing).

Egmont Kakarot-Handtke


For details of the big picture see cross-references Political Economics/Stupidity/Corruption.