Overreach: Economists have their fingers in every pie except real economics

Comment on Barkley Rosser on ‘Can Nudging Become A New Road To Serfdom?’

Blog-Reference

To this day, economists have no clue of what their subject matter is. While the sciences have specialized, economists follow the Renaissance ideal of the Homo Universalis.#1 Accordingly, they dabble in psychology, sociology, political sciences, geopolitics, law, history, anthropology, social philosophy, philosophy, theology, pedagogic, biology/ evolution, climatology, and whatnot.

People become progressively aware that in all these disciplines economists have not contributed anything of scientific value: “While he [Todd Zywicki] overdid it a bit he argued with some good reason that most legal decisions in the US relying on claimed behavioral economics foundations, especially on matters involving credit and consumer finance issues, have been seriously flawed. They have either relied on misinterpretations or else mere assertions that have not been empirically demonstrated. He raised a point of more general interest in charging that there has been a problem of ‘citation cascades,’ where a string of decisions has been based on people citing other people in a cascade that eventually boils down to an initial claim that has no clear basis.”

This is not correct. Economics has a clear basis and it is given with the set of neo-Walrasian axioms: “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)

Economists simply apply this set of behavioral assumptions or slight variants thereof or the subset of optimization-and-equilibrium to any question they come across. The tragicomedy is that this methodology has crushingly failed in their own field. Economists can to this day not tell how the price- and profit mechanism works or what profit is.#2, #3

The methodological blunder of economists and the ultimate reason why economics is one of the worst scientific failures of all times consists of defining economics as a social science.#4, #5

So, the definition of the subject matter has to be changed:

• Old (behavioral): Economics is the science that studies human behavior as a relationship between ends and scarce means which have alternative uses.
• New (systemic): Economics is the science that studies how the monetary economy works.

Orthodoxy and traditional Heterodoxy is lost for science. Economists cannot be taken seriously ― not when they speak about the economy and still less so when they blather about nudging as the new road to serfdom.

Egmont Kakarot-Handtke


#1 Wikipedia, Polymath
#2 Economists’ three-layered scientific incompetence
#3 Mental messies and loose losers
#4 Economics is NOT a social science
#5 For details of the big picture see cross-references Not a Science of Behavior

Related 'Dear philosophers, economics is a systems science'.

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AXEC113o

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REPLY to Barkley Rosser on Apr 22

Alone the titles of your posts ‘Can Nudging Become A New Road To Serfdom?’ or ‘Anniversary of Yeshua bin Yusuf dying on a cross’ tell everybody that you never understood what science is all about.

The dabbling of economists in Psychology, Sociology, Political Sciences, Geopolitics, Law, History, Anthropology, Social Philosophy, Philosophy, Theology, Pedagogic, Biology/ Evolution, Climatology, etcetera has never been anything else than dilettantish overreach, nuisance, and nerviness. All the more so, because economists messed up their own field in all dimensions and never rose above the proto-scientific level.

The lethal blunder of the microfoundations approach does NOT lie in any specific behavioral assumption like constrained optimization or bounded rationality but in the methodological incompetence of economists to realize that NO way leads from the second-guessing of Human Nature/motives/behavior/action to the understanding of how the economic system works.#1, #2

ALL human-centered/behavioral approaches invariably crash against the methodological wall of the Fallacy of Composition. NO way leads from the assumption of profit maximization to the macroeconomic Profit Law.#3 And this explains why the microfoundations approach has been doomed to failure from the very beginning in the 1870s.

Behavioral economics or Vernon Smith’s market experiments is partial analysis and the results of partial analysis cannot, as a matter of methodological principle, be generalized. From Vernon Smith’s market experiments cannot be concluded that the market economy is a self-adjusting system.

The fact of the matter is that correct macrofoundational analysis proves that the market economy is unstable and that it will eventually break down.#4 You can do behavioral experiments until you are blue in the face but this will not yield any results as to how the market system works.

Microeconomics has always been the playground of microbrains.#5

#1 Dear philosophers, economics is a systems science

#2 The economist as second-guesser, mind reader, and folk psychologist

#3 Ricardo and the invention of class war

#4 Capitalism, poverty, exploitation, and cross-over exploitation

#5 Economists ― standing on the shoulders of dwarfs

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Wikimedia AXEC121i

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REPLY to Barkley Rosser on Apr 23

You are off track. The point at issue is NOT the market experiments of Vernon Smith and others but that the subject matter of economics is ill-defined.

Imagine a physicist is asked to figure out how the universe works and after some time he comes back and says: The universe is much too large, not of direct relevance to our daily lives, and ultimately incomprehensible, so I have analyzed the molehills in my front garden — with surprising results.

If you want to understand the universe it is of no use to thoroughly examine molehills and if you want to understand the economy it is of no use to second-guess Human Nature/ motives/behavior/actions.

Macro is about the economic universe and micro is about mole-psychology-sociology. Behavioral economists are unable to look beyond their molehill horizon. But the methodological fact of the matter is that NO amount of molehill research ever leads to the understanding of how the universe works and NO way leads from the understanding of human behavior to the understanding of how the market economy works.#1, #2

This explains why the microfoundations approach has failed. However, from textbook to peer review to the fake Nobel, economists still cling to their false methodology: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow)

After 150+ years of methodological blunder, it is time for the Paradigm Shift from bottom-up to top-down.#3 Hitherto accepted economists are no longer accepted.

#1 Economics, methodology, and the Molehill Impossibility

#2 Economics is NOT about Human Nature but the economic system

#3 If it isn’t macro-axiomatized, it isn’t economics

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REPLY to Barkley Rosser on Apr 25

Akerlof’s AEA address is a fine compilation of the multiple idiocies of microfounded macroeconomics. Just take the microfounded = behavioral Phillips Curve and the macrofounded = structural Phillips Curve.#1

The microfoundations = behavioral approach is a scientific lemon since Jevons/Walras/ Menger but you have not realized it to this day. Methodologically it holds: If it isn’t macro-axiomatized, it isn’t economics.

Behavioral economics has never been more than rather trivial folk-psychology/folk-sociology, i.e. an overreach of incompetent economists who do not understand since 200+ years the very basics of their own subject matter.#2, #3

#1 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster

#2 Ricardo, too, got profit theory wrong

#3 Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?

Heterodoxy: From bad to better or from bad to worse?

Comment on Asad Zaman on ‘The Education of an Economist’

Blog-Reference and Blog-Reference on Apr 26 adapted to context

“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, 1991, p. 30)

You say: “In our PhD Economics program at Stanford, we learnt nothing about the history of major economic events of the twentieth century. Instead, we were taught the rather arcane and difficult skill of building models.”

Yes, standard economics is cargo cult science and your education has been a waste of time and money. The question is, how does Heterodoxy proceed from this common understanding of the actual situation?

Obviously, criticizing model bricolage and mathiness and unrealism is fully justified but not very productive. What is the alternative? The flight to naive empiricism and history is the wrong way. The acceptance of the pluralism of false models is the wrong way. To discuss Trump vs. Clinton is the wrong way.

“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)

Orthodoxy has failed, no doubt, but traditional Heterodoxy has failed to develop a superior alternative. Economics, represented by the four sects Walrasians, Keynesians, Marxians, Austrians, is still at the proto-scientific stage.

One possible reaction to this embarrassment is to give up the idea of scientific truth in economics and to resort to anything goes. This attitude is rather popular among heterodox economists — and it is self-defeating.

“If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111). Without this aspiration, economics degenerates to mere opinion, pluralism of false theories, and in the last consequence to brain-dead political blather.

For economists the mission is clear since J. S. Mill: develop the true theory. The true theory of the market economy is neither to be found in Econ 101 nor in the textbooks nor in the journals nor in the newspapers nor in the history books. There is a lot to do for constructive Heterodoxy.

Egmont Kakarot-Handtke


References
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield: Edward Elgar.
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.

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REPLY to Nanikore on Apr 26

“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, 1991, p. 30)

Standard economics is cargo cult science. The question is, how does Heterodoxy proceed from this common understanding of the actual situation?

Obviously, criticizing model bricolage and mathiness and unrealism is fully justified but not very productive. What is the alternative? The flight to naive empiricism and history is the wrong way. The acceptance of the pluralism of false models is the wrong way. To discuss Trump vs. Clinton is the wrong way.

“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)

Orthodoxy has failed, no doubt, but Heterodoxy has failed to develop a superior alternative. Economics, represented by the four sects Walrasians, Keynesians, Marxians, Austrians, is still at the proto-scientific stage.

One possible reaction to this embarrassment is to give up the idea of scientific truth in economics and to resort to anything goes and storytelling. This attitude is rather popular among heterodox economists — and it is self-defeating.

“If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111). Without this aspiration, economics degenerates to mere opinion, pluralism of false theories, and in the last consequence to brain-dead political blather.

True, Krugman does “not understand the problem with models” but neither does Nanikore or the Swedish branch of Heterodoxy.


References
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield: Edward Elgar.
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.

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REPLY to David Chester on Apr 27

You remind me: “You are missing out the Georgist School of macroeconomic thought and philosophy.”

True, but my argument applies to the Georgist School as well.

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

It is perfectly legitimate to push an agenda. That’s NOT the point. The point is that agenda pushers use economic theory as a means to an end. And that is the wrong priority from the viewpoint of science.

Adam Smith, Ricardo, Marx, Henry George, Keynes, Hayek, or Friedman were political economists. I do not criticize their political objectives, I criticize that they were lousy scientists, that is, their respective theories do not satisfy the scientific criteria of formal and material consistency. In other words, when the underlying theory is provable false economic policy proposals are hanging in midair. It does no matter how good and sensible they appear, they are scientifically worthless.

This said I agree with the Georgist School that the treatment of land in standard economics is false since Ricardo (2011).

I do not agree, though, with this job description ‘consequential macroeconomics–rationalizing is about how our social system works.’

To figure out how the social system works is the task of sociology and/or political science. The task of economics is to figure out how the economic system works.

The ludicrousness of economists derives from the fact that they have failed on their mission and cannot explain how the actual monetary economy works (2015) but tell the world how to improve society — which is none of their business as scientists.


References
Kakarot-Handtke, E. (2011). When Ricardo Saw Profit, He Called it Rent: On the Vice of Parochial Realism. SSRN Working Paper Series, 1932119: 1–19. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL

Karl Marx, fake scientist

Comment on Jayati Ghosh on ‘150 years of ‘Das Kapital’: How relevant is Marx today?’

Blog-Reference and Blog-Reference

In the beginning, there was Political Economy. J. S. Mill defined it clearly as a social science: “The fundamental problem, therefore, of the social science, is to find the laws according to which any state of society produces the state which succeeds it and takes its place.” Or, a bit more specific with regard to economics: “The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.”

Economics started as a hodgepodge of sociology, history, folk psychology, and folk philosophy (a mixture of utilitarianism, Hegelianism, Malthusianism/Darwinism, Individualism/Protestantism). The two issues ‘how society works’ and ‘how the economy works’ were never properly kept apart.

Since Adam Smith/Karl Marx economics defined itself as science. It was obvious, however, that the subject matter of what was the epitome of science, physics, and mathematics, was qualitatively different from the so-called social sciences. Concerning the subject matter, there is no difference between Mill and Marx: “My stand-point, from which the evolution of the economic formation of society is viewed as a process of natural history, …” (Marx)

This is the exact point where things went wrong because history is storytelling: “That is why Descartes said that history was not a science ― because there were no general laws which could be applied to history.” (Berlin)

Science, in contradistinction, is ahistorical and universal because it looks for laws, or more generally, for invariances (Nozick), i.e. for that which does NOT change but remains invariant below the surface of phenomenological change. Marx understood this in principle: “That in their appearances things are often presented in an inverted way is something fairly familiar in every science, apart from political economy.” The fact is, though, that Marx never rose above the level of storytelling and agenda-pushing, which is the definition of political economics. The goal of theoretical economics (= science) is the true theory with truth defined by material and formal consistency.

Economics always claimed to be a science but never rose above the level of a proto- or cargo cult science. Feynman defined it as follows: “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.”#1

What is missing among economists of ALL political colors is (i) an idea of what science is all about, and (ii), a commitment to the scientific standards of material and formal consistency. The lethal scientific blunder of Marx was to confound sociology and economics. This disqualifies him as a scientist. To recall, Marx’s cardinal facts are:

• capital is a social relation,
• ownership of capital gives power analogous to state power,
• capitalist production is characterized by commodity fetishism, alienation, unfreedom,
• capitalism as a system is characterized by contradiction, competition, aggression, destruction, conflict, class war, Darwinian struggle, worldwide expansion,
• the capitalistic system is dysfunctional with recurring crises and a final big crunch.

All this is descriptively, commonsensically, and phenomenologically convincing as far as it relates to society.

The fact is, though, that Marx never understood how the economic system works, or more specifically, how the profit and price mechanism works: he

• got profit, the foundational concept of all of economics, wrong,#2
• did not realize that what appears as exploitation is, in fact, cross-over exploitation,#3
• got the breakdown of the market system wrong,#4
• failed to see that there are no ‘natural’ economic classes and that class war is a sociological construct.#3

When the foundational concept of profit is false the whole analytical superstructure falls apart.

What economists including Marxians do not get to this day is that economics is NOT a science of Human Nature or individual/social/political behavior but of the behavior of the monetary economy.#5 Accordingly, the correct definition of the subject matter is objective/structural/systemic: “Economics is the science which studies how the monetary economy works.”

What Marx failed to understand is that economics is neither a social science nor a natural science but a systems science. The scientific incompetence of Marxians consists of not having figured out to this very day what profit is.

Marxian economics is as scientifically worthless as it was 150+ years ago.

Egmont Kakarot-Handtke


#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 Profit for Marxists
#3 The abject failure of orthodox and heterodox distribution theory
#4 Mathematical Proof of the Breakdown of Capitalism
#5 For details of the big picture see cross-references Profit and cross-references Not a Science of Behavior

Related 'Marx and the curious coexistence of provably false economic theories' and 'Marx, the moron' and 'No exploitation, no classes' and 'Ricardo, too, got profit theory wrong' and 'Ricardo and the invention of class war' and '200 years in the dark ― how Marx got it wrong' and 'Profit: after 200+ years, economists are still in the woods' and 'Capitalism, poverty, exploitation, and cross-over exploitation' and 'If we only had classes'. For details of the big picture see cross-references Failed/Fake Scientists.

External references Wissenschaftlicher Sozialismus and Scientific socialism.

The abject failure of orthodox and heterodox distribution theory

Comment on Lars Syll on ‘Trading in Myths’

Blog-Reference and Blog-Reference on Aug 30

For most people, economics is a story about wealth and riches, the conflicts between capitalists and workers, the fraud and deception of the corrupt one-percenters, and the hardships of the honest and exploited/alienated 99-percenters. This is the soap-opera view of economics.

The scientific view is not focused on the human drama/farce/myth but on the functioning of the economic system as a whole. Economics leaves all questions about Human Nature/ motives/behavior/action to psychology, sociology, anthropology, history, political science, biology, etcetera.#1, #2

Because NO way leads from the explanation of Human Nature/motives/behavior/action to the explanation of how the economic system works all behavioral approaches have failed. The actual state of economics is this: Walrasianism, Keynesianism, Marxianism, and Austrianism are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. The fact is that the Walrasian approach = microfoundations and the Keynesian approach = macrofoundations have already been dead in the cradle.

Therefore, economics has to undergo a Paradigm Shift. Economic analysis has to be based on entirely new macrofoundations and the fundamental questions have to be put again at the top of the agenda and answered with the help of better analytical tools. The key concepts of classical economics were profit, capital, exploitation, and classes. So let us, first of all, revisit profit.

The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household 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 expenditure C is equal to price P times quantity bought/sold X.#3

Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price is given by P=W/R (1), i.e. the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. It translates into W/P=R (2), i.e. the real wage is equal to the productivity. For the graphical representation see Wikimedia.#4

Monetary profit is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm≡−Sm, in other words, the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the macroeconomic Profit Law.

In the elementary production-consumption economy, labor gets the whole product according to (2), and profit for the business sector as a whole is zero because of C=Yw. All changes in the system are reflected by the market-clearing price. As a matter of principle, the elementary production-consumption economy can go on indefinitely at any level of employment L. The living standard of the workers is defined by productivity.

Now, the business sector is split into two identical firms and firm 1 is supposed to cut the wage rate W1 by half. From this follows that the market-clearing price P declines if all other variables are unchanged. Firm 2 is affected because total income Yw falls and with it consumption expenditures C and the market-clearing price P.

The reduction of the wage rate W1 increases the profit of firm 1 and produces a loss in firm 2. When we look alone at firm 1 we see what Smith, Mill, Ricardo, and Marx have seen before, to wit, wages down―profit up. This fits the time-honored stereotype of wages and profits as antagonists.

However, this situation cannot last for long if profit has been zero in the initial period. In this limiting case, firm 2 makes a loss that is exactly equal to firm 1’s profit. The arbitrary wage rate cut of firm 1 does NOT increase the profit for the business sector as a WHOLE but only REDISTRIBUTES it between the firms.

Seen from the perspective of a single firm, the antagonism between wages and profits is real. This, though, is parochial realism. The complete picture reveals that firm 1 is better off to the disadvantage of firm 2 and the workers of firm 2 are better off to the disadvantage of the workers of firm 1 because at a lower market clearing price they absorb a bigger share of output O with their unaltered income. The situation of the business sector as a WHOLE is unchanged, i.e. Qm=0, and the same is true for the household sector as a WHOLE, i.e. X=O and W/P=R. If there is exploitation it happens WITHIN the sectors. A partial wage rate change leads only to a redistribution of profits between the firms and of output between the workers.

For the economy as a whole, the classical antagonism of wages and profits is an optical illusion. This has a bearing on the POLITICAL notion of classes. There is NO distributional conflict about output between profits and wages. When classes are defined according to these economic categories the actual conflict materializes WITHIN the classes.

When, in the limiting case, there are two groups of workers and two groups of capitalists and the first group of capitalists exploits the first group of workers by slashing the wage rate, then the exploiters OBJECTIVELY act in the interest of the second group of workers whatever their own subjective motives may be. The second group of workers has no economic interest to overcome the wage discrimination of the first group, yet the second group of capitalists has indeed because its profit is indirectly affected. On a deeper level, the relationship between the two groups of capitalists is antagonistic. The same holds for the two groups of workers. What looks like exploitation is, in fact, CROSSOVER EXPLOITATION WITHIN the Marxian classes. This explodes the idea of a ‘natural’ common class interest and, by consequence, of a ‘natural’ class war.

The myopic agents, workers and capitalists alike, are blind to the interdependencies of crossover exploitation and therefore prone to the Fallacy of Composition. The generalization of partial effects has the compelling logic of the profit and loss account and the irrefutable empirical evidence of firm 1 on its side. Indeed, what could be more convincing? Wages down ― profits up, it works. The INVISIBLE redistribution of profit and output is anonymously effected behind the agents’ backs by the market-clearing price. Neither capitalists nor workers understand how the market system works. Neither do economists since Smith, Ricardo,#5 and Marx.#3 Neither does Lars Syll.

Because the profit theory is false since Adam Smith, both orthodox and heterodox distribution theories are false until this very day. There is no such thing as good heterodox guys and bad orthodox guys or vice versa; economists ― ALL of them ― have to be expelled from the sciences.

Egmont Kakarot-Handtke

#1 Economics is NOT about Human Nature but the economic system
#2 Economics is NOT a social science
#3 Profit for Marxists
#4 Wikimedia AXEC31 Elementary production-consumption economy
#5 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism

Related 'No exploitation, no classes'

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REPLY to Yoshinori Shiozawa on Sep 6

You say: “His axiomatic system is a set of statistical concepts by which to describe what happened in the past. There is no observation or arguments on laws of economics, i.e. on how the economic system works.”

This is false. The axioms refer to one period and the periods are seamlessly interconnected.#1. The four basic laws are listed on Wikimedia.#2

You say: “His starting point in construction his economics is pure consumption economy. He is wrong to start from consumption economy because it only leads to pure exchange economy.”

This is false. What I call the elementary production-consumption economy is the same thing that Keynes meant with “monetary theory of production”. The elementary consumption economy is ANALYTICALLY PRIOR to the more complex investment economy. It should perhaps more precisely be called the elementary production-consumption economy.

You say: “He is based on a wrong dichotomy of micro and macro and seeks macrofoundations. He is not aware that there are cyclic causal relations between the whole structure and processes and people’s behaviors as a result of evolution in this macro structure and processes.”

This is false. Macrofoundations are the correct axiomatic starting point.#3 Given the macro axioms, which refer explicitly to ONE giant firm, 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. It is microfoundations and bottom-up that are the defining idiocy of Walrasianism, which literally produces the aggregation problem.

There is NO dichotomy: Walrasian microfoundations have to be FULLY replaced with the correct macrofoundations.#4


#1 The Synthesis of Economic Law, Evolution, and History
#2 Econ Starter Kit: First Economic Law, Law of Supply and Demand, Profit Law, Employment Law
#3 First Lecture in New Economic Thinking
#4 Economic methodology for the little guy

How Adam Smith messed up economics

Comment on Ken Zimmerman on 'Adam Smith’s idea is still the basis of the discipline of economics'

Blog-Reference

The history of economic thought is the history of scientific failure. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Because of this, the whole analytical superstructure of economics is scientifically worthless. Because of this, economic policy guidance NEVER has had sound scientific foundations.

Now, the problem is this: “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 economists do not have the true theory, economics boils down to brain-dead agenda-pushing. Economists are not scientists but clowns, useful idiots, and agenda pushers in the political Circus Maximus. Economics is proto-scientific garbage and because of their scientific incompetence, economists are a hazard to their fellow citizens.#1

The mental misery can be traced back to Adam Smith: “Smith … disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

Or, as Ken Zimmerman spins it: “The real start of modern Western economics as a discipline is usually traced to Adam Smith (1723–1790). Beginning as a moral philosopher concerned with human motives, Smith later wrote The Wealth of Nations in 1776 as a series of lectures on public policy. The task he set for himself was that of a natural scientist, to discover the workings of a vast machine ― the economy. From this philosophical foundation, Smith builds a powerful argument that the individual’s self-interest generates the society’s best interests. Beginning with a rational individual motivated by positive natural impulses, he undertakes a series of dramatic political attacks on monopolists, corrupt governments, tariffs promoted by strong business lobbyists, guilds, colonialists, and ‘the capricious ambitions of kings and ministers’ (1937, 460). Though based on self-interest, a well-working economy, he said, should not cater to the selfish interests of a small class or group. Instead, it furthers the wealth of the nation as a whole ― and it is not a great step from here to the idea of democracy, of rule ‘of, by, and for’ the people of the nation.”

“Beginning with a rational individual”, Adam Smith inaugurated methodological individualism and led the profession straight into the Fallacy of Composition. The fact of the matter is, that NO way leads from the second-guessing of Human Nature/motives/behavior/action to the understanding of how the economic system works.

What Adam Smith did was a mixture of psychology and sociology ― PsySoc for short#2 ― including moralizing and agenda-pushing but NOT economics proper. Economics is about the behavior of the economic system and NOT the behavior of people. Adam Smith never understood the behavior of the system as a whole, i.e. “the workings of a vast machine”, and he never understood macroeconomic profit.#3 The supply-demand-equilibrium narrative that culminated in General Equilibrium Theory is a bad joke to this day. An economist who does not understand profit, i.e. the foundational concept of economics, is a laughing stock.

However, the economy is an abstract entity that defies intuitive understanding, and human behavior is something every moron claims to understand from his own personal experience. As a consequence, Adam Smith's blather about the baker and the butcher and their rational self-interest won the popular vote. The beauty of PsySoc is that one can speculate and talk and moralize about human nature/behavior without ever arriving at scientific knowledge about how the economic system works. People do not like science, people like storytelling and talk shows.

In his scientific incompetence, Adam Smith took the wrong path. He led economics away from science and helped it finally become a subcontractor of the disinfotainment industry.#4

To this day, economics has no scientific truth-value#5 but only political use-value. Politically, Smith's invisible-hand economics forwarded the illusion of Democracy and the reality of Oligarchy. And this is why “Adam Smith's idea is still the basis of the discipline of economics”.

Egmont Kakarot-Handtke

#1 Econogenics: economists pose a hazard to their fellow citizens

#2 PsySoc — the scourge of economics

#3 The profit theory is false since Adam Smith

#4 Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion

#5 Wikipedia, economics, scientific knowledge, or political agenda pushing?

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REPLY to mameerop, Dec 13 [not published because of comments closed]

Economics has a long tradition of the pointless exercise called exegesis: “Exegesis is a critical explanation or interpretation of a text. Traditionally, the term was used primarily for work with religious texts, especially the Bible. In modern usage, exegesis can involve critical interpretations of virtually any text, …”#1, #2

At some point in any economic discussion, the issue is no longer how the economy works but about what XYZ has said about how the economy works. In other words, folks get lost in metacommunication.

This is NOT an accident but a built-in feature of political economics.

“Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. ... Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from ‘the richness of context’.” (Coates, 2007, p. 87)

In other words, the reader is encouraged to substitute almost any meaning he likes. The result is well-known. Keynes' loose verbal reasoning triggered an enthusiastic exegesis movement that circled for some decades around the question ‘What Keynes really meant?’ Predictably, the question has never been answered. The richness of meaning only generated a wealth of blah blah.

The same holds, of course, for Adam Smith's Invisible Hand.

Take notice that every text that contains this metaphor has NO scientific content but is pure disinformation and that every author who applies this metaphor is NOT a scientist but a mentally retarded political agenda-pusher.

Adam Smith has to be buried at the Flat-Earth Cemetery together with all folks who ever tried to ‘explain’ what Smith ‘really’ meant.

Economics is a failed/fake science and needs a Paradigm Shift. This means that Adam Smith's idea is NO LONGER the “basis of the discipline of economics”.

#1 Wikipedia

#2 For more about exegesis see AXECquery

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AXEC121i

Politics vs Science

Comment on Peter Radford on 'Economics and civil society'

Blog-Reference

First of all, one has to distinguish between theoretical and political economics. The goal of political economics is to push an agenda, and the goal of theoretical economics is to explain how the actual economy works. From the viewpoint of science political economics as a whole is a no-go. The first problem of economics is that many economists are not scientists but agenda pushers of one sort or another. This, and not the peculiarities of the subject matter, explains the secular stagnation of economics in comparison to the real sciences.

Currently, economists do not understand how the economy works.

“As Joan Robinson said, our essential object in economics is "to understand how the economic system works"; or, putting the emphasis differently, as did Keynes, "Is the economic system self-adjusting?" Sadly, we economists have so far done little to address, much less provide satisfying answers to the issues posed by Newcomb, Robinson, and Keynes. ... we know little more now about "how the economy works," or about the modus operandi of the invisible hand than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” (Clower, 1999, p. 401)

Science is a trial-and-error process: ignorance is the starting point, and great insights are few and far between. Economics is, in its present condition, a failed science. This, however, does not hinder economists from giving policy advice. And this is not only ridiculous but illegitimate. J. S. Mill stated clearly the distinction between positive and normative economics: “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.” (2006, p. 950)

To recall, it was the ancient Greeks who first introduced the distinction between doxa and episteme, opinion, and knowledge. And then they drew the line of demarcation between non-science and science.

Clearly, Smith and Mill were agenda pushers against feudalism. Marx and Keynes were agenda pushers and so were Hayek and Friedman. However, all these economists insisted that they were doing science.

It is not the question of whether one or the other of the above-mentioned fought for the good or the evil cause. ALL abused science for their agenda-pushing. As economists, they have to be judged according to their scientific merits. As far as economics is concerned, Hayek and Friedman have to be criticized for zero scientific content, not for their political commitment, and Keynes has to be praised for his attempted Paradigm Shift but not for his political commitment.

Economists are expected to deliver the true economic theory and not to save the world. Up to the present, they have not accomplished their primary task. In order to become a science, economics has to get rid of agenda pushers of all sorts. This is the theoretical economist's most valuable and only legitimate political contribution to civil society.

Never allow any economist to advertise poor theory as a contribution to the betterment of the world we live in.

Egmont Kakarot-Handtke


References
Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post Keynesian Economics, 21(3): 399–414. URL
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.

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Wikimedia AXEC108l

Marx and the curious coexistence of provably false economic theories

Comment on Radhika Desai/counterpunch on ‘Marx’s “Capital” at 150: History in Capital, Capital in History’

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, 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.

Economics consists of the major approaches Walrasianism, Keynesianism, Marxianism, and Austrianism which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational economic concept of profit wrong. What we actually have is the peaceful coexistence of provably false theories. Pluralism, to recall, is a political ideal that does NOT apply to science. The goal of science is the one true theory.

Political economics is scientifically worthless and it does not matter at all whether it is right-wing or left-wing. Both, orthodox and heterodox economics has achieved NOTHING of scientific value in the last 200+ years.

The practical consequence of scientific failure is that economic policy guidance has had NO sound scientific foundations since Adam Smith/Karl Marx. Political economics never had been more than poultry entrails reading and storytelling and agenda-pushing.#1 Scientifically incompetent economists are the major cause of economic crises.

What is missing among economists of ALL political colors is (i) an idea of what science is all about, and (ii), a commitment to the scientific standards of material and formal consistency. The lethal scientific blunder of Marx was to confound sociology/history/ political science and economics. To recall, Marx’s cardinal facts are
• capital is a social relation,
• ownership of capital gives power analogous to state power,
• capitalist production is characterized by commodity fetishism, alienation, unfreedom,
• capitalism as a system is characterized by contradiction, competition, aggression, destruction, conflict, class war, Darwinian struggle, worldwide expansion,
• the capitalistic system is dysfunctional with recurring crises and a final big crunch.
All this is descriptively, commonsensically, and phenomenologically convincing as far as it relates to society.

Fact is, though, that Marx never understood how the economic system works, or more specifically, how the profit- and price mechanism works
• he got profit, the foundational concept of all of economics, wrong,#2
• he did not realize that what appears as exploitation is, in fact, cross-over exploitation,#3
• he got the breakdown of the market system wrong.#4
• he failed to see that there are no ‘natural’ economic classes and that class war is a sociological construct.#3

What economists including Marxians do not get to this day is that economics is NOT a science of Human Nature or individual/social/political behavior but of the behavior of the monetary economy. Accordingly, the correct definition of the subject matter is objective/structural/systemic: “Economics is the science that studies how the monetary economy works.”

What Marx failed to understand is that economics is neither a social science nor a natural science but a systems science. The scientific incompetence of Marxians consists of not having figured out to this very day what profit is.

Marxian economics is scientifically worthless since it came into being. This is, what Marxianism has in common with Walrasianism, Keynesianism, and Austrianism. All these approaches have no truth-value but merely political use-value. This is why this proto-scientific garbage is still around.

Egmont Kakarot-Handtke


#1 The end of political economics
#2 Profit for Marxists
#3 The abject failure of orthodox and heterodox distribution theory
#4 Mathematical Proof of the Breakdown of Capitalism

Related 'Karl Marx, fake scientist' and 'Austerity and the total disconnect between economic policy and science' and 'Ricardian vice and Keynesian confusedness' and 'The Law of Economists’ Increasing Stupidity' and 'Why not simply throw all economists under the bus?'

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

Questions and answers about economics

Comment on Peter Radford on ‘I am a know-nothing’

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. From the viewpoint of science political economics as a whole is a no-go. The first problem of economics is that many economists are not scientists but agenda pushers of one sort or another. This means that economics is exploited for other purposes.

Political economics is essentially moralizing and the explanation consists usually in a good-guy-bad-guy story. In political economics anything goes; in theoretical economics, scientific standards are observed.

“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)

Theoretical economics starts with ignorance and the attempt to clarify what the subject matter is and how to approach it. As a first approximation, we can agree here 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 fact that humans are an essential component of the economy we could perhaps better say that the economy is a complex hybrid human/system entity.

The scientific method is straightforwardly applicable to the sys-half but not to the hum-half. 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 sys-half.

In gestalt-psychological terms, the economic system is the foreground, individual behavior the background. Common sense wrongly insists that the hum-half must always be in the foreground. This fallacy compares to geo-centrism. 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.

Whether the outcome of the human/system interaction is good or bad is a political question that lies outside of theoretical economics. Theoretical economics explains how the actual economy works — no less, no more.

Since Veblen, Heterodoxy has been mainly occupied with debunking the assumptions and claims of equilibrium theory. However, the fatal errors/mistakes of Orthodoxy do not lie so much in particular green cheese assumptions but in the complete failure to understand what the scientific method is all about.

NONENTITIES like equilibrium, rational expectation, constrained optimization, or utility maximization for that matter, are perfectly in line with the accepted methodology: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow, 1994, p. 1); see also (Arnsperger and Varoufakis, 2006)

The fundamental methodological blunder resides in the idea that economics is about human behavior. Let us call this the social science delusion. The irony is that Heterodoxy is even more convinced that economics is essentially a social science. It differs from Orthodoxy only insofar as it claims that their behavioral assumptions are more realistic.

The fact of the matter is that economics is about the behavior of the economic system and not about the behavior of individuals. This, indeed, is the realm of psychology, sociology, anthropology, history, etcetera. To speculate about rational or irrational human behavior is not economic analysis at all (Hudík, 2011).

This means that the subject matter of economics has to be redefined. NO way leads from the understanding of human behavior to the understanding of how the actual economy works. This fully explains why economics is a failed science.

You sum up: “And I remain confused about the purpose of an economist — although I will check with Aristotle to clear that up.”

No need to check it. All answers are in Wikipedia and this is what Aristotle said about how to do science: “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.” (Resume of Aristotle's Posterior Analytics)

And from this follows for the economist's job description: “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)

Certainly, this is not what the political economist thinks his true mission is. The problem with political economists, though, is not that agenda pushing is illegitimate. The problem is that the scientific claims are illegitimate. This, unfortunately, is what unites Orthodoxy and Heterodoxy. Both are talking scientific nonsense.

Egmont Kakarot-Handtke


References
Arnsperger, C., and Varoufakis, Y. (2006). What Is Neoclassical Economics? The Three Axioms Responsible for its Theoretical Oeuvre, Practical Irrelevance and, thus, Discursive Power. Paneconomicus, 1: 5–18.
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
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.

Deconfusing confused confusers

Comment on Peter Radford on  'Economic Realism'

Blog-Reference

With reference to the thread 'Mainstream macroeconomics distorts our understanding of economic reality' (here) you write “I don’t want to get dragged into what appears to be an endless, and pointless, debate … but.”

So you do not want to participate in the discussion but instead, do a bit of meta-communication. This is not exactly the way to steer a discussion to worthwhile conclusions.

In the style of a film critic, you sum up: endless and pointless. As a matter of fact, the discussion arrived at some clear-cut results. Everybody can convince himself that your resume is far from reality. These were the major results (here):

• Orthodoxy is a failure.
• Heterodoxy is a failure.

In more detail, there can be no longer any reasonable doubt about:

• Neither orthodox nor heterodox economists understand the fundamental concepts of income and profit.
• The profit theory has been false since Adam Smith.
• Because economists fail to capture the essence of the market system they have no valid theory about how the economy works.
• Keynes' fundamental equations of macroeconomics, i.e. Income = value of output = consumption + investment. Saving = income – consumption. Therefore saving = investment is indefensible. That is why Keynesianism is a failure.
• At present, economics is not built upon a set of acceptable premises or axioms. 
• Heterodoxy does not meet the formal minimum standards of theoretical economics.
• Psychology / Sociology / Philosophy is outside of science.
• Orthodoxy is built upon unacceptable behavioral axioms, therefore, a Paradigm Shift is inevitable.
• The definition ‘Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses’ has misled research in the direction of pseudo-sociology and pseudo-psychology.
• Economics is the science that studies how the economic system works.

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. From the viewpoint of science political economics as a whole is a no-go. The first problem of economics is that many economists are not scientists but agenda pushers of one sort or another.

Political economics is, as everybody knows, scientifically worthless.

You write: “But, of course, humans are inherently political. We were political before we were economical.”

This is trivially true, of course. But this is the subject matter of Politics/Psychology/Sociology / Anthropology ― NOT of economics. The task of economists is to explain how the actual economy works. Economics is not a science of behavior. No way leads from any assumption about human behavior to the understanding of the economic system.

There is only one way to get out of the scientific slums of political economics and that is: to move from subjective to objective axiomatic foundations.

While political economics is indeed thriving on endless confusion, theoretical economics has an answer that is unsurpassable in its definitive clarity

► there is no alternative to the Structural Axiomatic Paradigm◄

That is down-to-earth scientific realism.

Egmont Kakarot-Handtke

The Science-of-Man Fallacy

Comment on Merijn Knibbe on ‘Don’t throw away Angus Deaton with the bathwater of the Riksbank prize — he’s good!’

Blog-Reference and Blog-Reference

What Angus Deaton is practicing is essentially sociology. Sociology belongs to the so-called social sciences. Strictly speaking, the social sciences are what Feynman called cargo cult science.

The program of the social sciences has been defined by Hume: “It is evident, that all the sciences have a relation, greater or less, to human nature: and that however wide any of them may seem to run from it, they still return back by one passage or another. Even. Mathematics, Natural Philosophy, and Natural Religion, are in some measure dependent on the science of MAN; since they lie under the cognizance of men, and are judged of by their powers and faculties.” (Hume, 2012, Introduction)

Hume’s program has been explicitly taken over by Pareto: “The foundation of political economy and, in general, of every social science, is evidently psychology. A day will come when we shall be able to deduce the laws of social science from the principles of psychology ...” (Pareto, 2014, p. 20)

Pareto gives us the Science-of-Man Fallacy in a nutshell. As a matter of fact: NO way leads from the understanding of human behavior or the ‘principles of psychology’ to the understanding of how the actual economy works.

The crucial point is that economics deals — in the first place — not with individual human behavior or society at large (Hudík, 2011). 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 human/system entity or SysHum.

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 (2014).

Methodologically, the economic system is in the foreground. Common sense wrongly insists that the hum-component must always be in the foreground. This is the Science-of-Man Fallacy which compares to geo-centrism. 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.

Economic analysis has to make the Invisible Hand visible, that is, it has first of all to uncover the systemic laws of the monetary economy.

The Science-of-Man approach has abysmally failed in economics. Heterodoxy better gets out of PsySoc before the so-called social sciences — and this is overdue — are for cogent methodological reasons expelled from the sciences.

Egmont Kakarot-Handtke


References
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Hume, D. (2012). A Treatise of Human Nature. Project Gutenberg EBook. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Pareto, V. (2014). Manual of Political Economy. Oxford: Oxford University Press. URL

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ICYMI  (comment on anne of October 15, on October 16)

Cargo cult is a well-defined description of the actual state of economics: “Suffice it to say that, in my opinion, what we presently possess by way of so-called pure economic theory is objectively indistinguishable from what the physicist Richard Feynman, in an unflattering sketch of nonsense ‘science,’ called ‘cargo cult science’.” (Clower, 1994, p. 809)

The precise meaning is: “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, ...”#1

What is missing is an understanding of what science is all about. Feynman had this understanding, the representative economist never came even close to it, see ‘The Farce That Is Economics: Richard Feynman On The Social Sciences.’ (Tavares, 2014)

As a simple rule of thumb, it holds: the student who accepts supply-demand-equilibrium as an explanation of how the market system works disqualifies himself irrevocably as a scientist. The actual state of economics is that the representative economist cannot even tell the difference between profit and income (2015). Economists have no idea of the most important phenomenon of their universe and hallucinate that economics is a science.


References
Clower, R. W. (1994). Economics as an Inductive Science. Southern Economic Journal, 60(4): 805–814.
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Tavares, E. (2014). The Farce That Is Economics: Richard Feynman On The Social Sciences. Zerohedge blog post. URL


#1 Wikipedia Cargo Cult Science

Related 'The real problem with the economics Nobel'. For details of the big picture see cross-references Not a Science of Behavior and cross-references Failed/Fake Scientists and cross-references Paradigm Shift.

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Wikimedia AXEC121i

Paul’s and Stephanie’s economic delirium talk

Links on Stephanie Kelton’s ‘Paul Krugman Asked Me About Modern Monetary Theory. Here Are 4 Answers.’

Blog-Reference and Blog-Reference on Mar 5

First answer: “Fiscal policy works by driving income into people’s pockets.”
False. Instead: “MMT deficit-spending/money-creation works by driving profit into rich people’s pockets.”

Stephanie Kelton is a scientifically incompetent agenda pusher for the Oligarchy:
► Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
► The Kelton-Fraud
► Down with idiocy!
► Economists: Either stupid or corrupt or both
► How counterfeiters save America with an extra profit and make WeThePeople pay for it
► MMT for beginners

Paul Krugman, of course, is already a little longer known as a failed/fake scientist (see Related).

Egmont Kakarot-Handtke


Related 'Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It' and 'Krugman vs MMT ― like the blind talking about colors' and 'Economics: A pointless left-right wrestling show' and 'Krugman and the scientific implosion of economics' and 'Paul Krugman and economic poultry entrails reading' and 'Enough! Economists, retire now!' and 'Just another wreck' and 'The Krugman curse' and 'Krugman is not an economist' and 'Not a question of simplicity but of stupidity' and 'The general theory of scientific incompetence' and 'Is Paul Krugman necessary?' and 'When fake scientists call out on fake politicians' and 'On economists’ stupidity' and 'Paul the Menace' and 'Economics and corruption' and 'Forget Krugman, forget Keynes, forget economists' and 'Hooray! The formalization issue is finally settled' and 'Dear idiots, government deficits do NOT cause inflation' and 'MMT-Refutation for Dummies' and 'The clock runs down on economics'.

For more on Kelton see AXECquery.

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REPLY to Noah Way, Konrad, Detroit Dan, Ralph Musgrave, S400 on Mar 2

The notation of the sectoral balances equations is as follows
MMT (I−S)+(G−T)+(X−M)=0
AXEC (I−S)+(G−T)+(X−M)−(Q−Yd)=0.

Because the MMT equation is provably false (it describes a zero-profit economy), the whole of MMT is false. As a consequence, MMT and its proponents are flushed down the scientific toilet. This is how mental hygiene works. And this is how science works for 2300+ years.

Genuine scientists settle matters by material/formal refutation and then move on to a superior approach. To this day, economists are unable to get out of their proto-scientific delirium.#1 Paul Krugman, Stephanie Kelton and you are the living proof.


#1 Economists: Either stupid or corrupt or both

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REPLY to Calgacus on Mar 2

People who invoke Jesus in an economic argument have disqualified themselves and are NOT allowed to utter any methodological pronouncements.#1

Obviously, you cannot stop making a fool of yourself: “Egmont, people are trying to make a point I have made in vain to you. These equations are meaningless if you don’t define your terms.”

Guess what, Calgacus and other people who invoke Jesus and cannot put 2 and 2 together: the variables in the AXEC sectoral balances equations are axiomatically well-defined, identical with the subset of the MMT equation, and measurable with the precision of two decimal places.#2, #3, #4, #5

So, if the subset of variables in the MMT equation is correctly defined then the same set of variables in the AXEC equation is also correctly defined. The AXEC set contains, in addition, the well-defined variables profit Q and distributed profit Yd that are missing in the MMT equation.

The problem with MMTers is that they do not even understand what their own balances equation actually says. It actually says that macroeconomic profit is zero.#6 Note that a zero-profit economy is a NONENTITY like the Easter Bunny or Spiderman or the Tooth Fairy or an intelligent MMTer.


#1 How counterfeiters save America with an extra profit and make WeThePeople pay for it, post of Feb 27
#2 From false micro to true macro: the new economic paradigm
#3 A crash course in macro accounting
#4 Wikipedia and the promotion of economists’ idiotism (II)
#5 The final implosion of MMT
#6 Dear idiots, time to get saving and investment straight (II)

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REPLY to Bob Roddis, Andrew Anderson, Konrad, Noah Way

Your talk about greed and violence is folk psychology/sociology, or PsySoc for short. It may surprise you to learn that economics is NOT AT ALL about Human Nature/motives/ behavior/action.#1, #2

Economics is about how the economic system works. More precisely, economics deals with the objective systemic laws that govern the behavior of the monetary economy.

Economists, in an analogy, are like scientists/engineers who figure out the laws of aerodynamics, thermodynamics etcetera and manage in the end to get something heavier than air off the ground and safely to some distant destination. Except that economists have NOT figured out anything about how the economy works. Instead, they have for 200+ years now a brain-dead palaver about utility maximization, rational expectations, animal spirits, supply-demand-equilibrium, greed, and other PsySoc BS.

To this day, neither MMTers nor Austrians nor Walrasians nor Keynesians nor Marxians get the interaction of the macroeconomic balances right.#3 So, economics is at a level analogous to physics before Archimedes had figured out the Law of the Lever about 2300 years ago.

Society is cursed with the fact that economic policy has to this day NO sound scientific foundations. What society got instead is incessant PsySoc blather at the intellectual zero lower bound.


#1 Economics is NOT about Human Nature but the economic system
#2 PsySoc — the scourge of economics
#3 MMT-Refutation for Dummies

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