Homo oeconomicus: the never-ending folk-psychological clown show

Comment on Jonathan Rowe on ‘Why Economics Is Really Psychology on Steroids’*

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Jonathan Rowe has important news: “What is called ‘economics’ is really psychology on steroids. It starts with a model of human nature and extrapolates an entire scenario for how the world works from that. The model is homo economicus, the myopic protagonist of the economics texts. This hypothetical person has no social affinities, no lapses of judgment or hang-ups, no capacity even for thinking about anyone besides him or herself.” and “Today, psychologists can only roll their eyes at this naïve portrayal. People who have to deal with actual humans in market settings ― such as advertisers and corporate managers ― find it borderline irrelevant.”

This may be news for the retarded trolls of the econblogosphere. Actually, it is worn-off stuff for 200+ years.  #1

• “No science has been criticized by its own servants as openly and constantly as economics. The motives of dissatisfaction are many, but the most important pertains to the fiction of homo oeconomicus.” (Georgescu-Roegen, 1971)

• “The reason for the Austrian failure seems to lie in a faulty conception of human nature … The hedonistic conception of man is that of a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area but leave him intact …” (Veblen, 1898)

• “The science then proceeds to investigate the laws which govern these several operations, under the supposition that man is a being who is determined, by the necessity of his nature, to prefer a greater portion of wealth to a smaller in all cases, without any other exception than that constituted by the two counter-motives already specified. Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed. (Mill, 1874)

• “Political Economy, therefore, reasons from assumed premises ― from premises which might be totally without foundation in fact, and which are not pretended to be universally in accordance with it. The conclusions of Political Economy, consequently, like those of geometry, are only true, as the common phrase is, in the abstract; that is, they are only true under certain suppositions, in which none but general causes ― causes common to the whole class of cases under consideration ― are taken into the account.” (Mill, 1874)

The founding fathers were fully aware that their behavioral assumptions were NOT “realistic” from a psychological standpoint. Homo oeconomicus has always been justified with methodological considerations, i.e., as a necessary abstraction that serves as an analytical starting point.

Homo oeconomicus was meant to solve the starting problem: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are is the opus magnum of the more recondite mental philosophy.” (J. S. Mill)

Eventually, the starting point was defined with these hardcore propositions, a.k.a. neo-Walrasian axioms: “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) This is the foundation of standard economics on which the analytical superstructure of General Equilibrium Theory rests.

The fault of the axiom set HC1 to HC5 is NOT that it is bad psychology but that it is bad science. Economics is NOT about human behavior but about the behavior of the economic system. Human Nature/motives/behavior/action is the subject matter of psychology, sociology, political science, anthropology, biology, etcetera. The subject matter of economics is the behavior of the economic system, which is an objective non-human entity. Because of this, economics has to start not from subjective-behavioral microfoundations but from objective-structural macrofoundations. #2, #3

The outstanding characteristic of the representative economist is that he has dabbled for 200+ years now in all Human-Nature disciplines, but has NO idea how the economic system works. Because of this, economic policy guidance has NEVER had valid scientific foundations.

However, “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)

Economists do not have the true theory. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives ― are axiomatically false. To this day, economics is not more than folk-psychological blather, proto-scientific garbage, and concealed political agenda-pushing. Economics is NOT psychology on steroids, but rather scientific incompetence on steroids.

New Economic Thinking consists NOT of folk-psychological “realism” but of a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.

Egmont Kakarot-Handtke


* evonomics Why Economics Is Really Psychology on Steroids
#1 Economics is NOT about Human Nature but the economic system
#2 From false micro to true macro: the new economic paradigm
#3 For details of the big picture, see cross-references Axiomatization

Related 'PsySoc — the scourge of economics' and 'What is so great about cargo cult science? or, How economists learned to stop worrying about failure' and 'The ethics of science is consistency ― economics is inconsistent' and 'Economics is NOT a social science' and 'Economics between physics and psychiatry' and 'How to get out of the Econ 101 PsySoc woods' and 'The happy end of the social science delusion' and 'How to Stop Thinking Like an Economist and Start Thinking Like a Scientist'. For details of the big picture, see cross-references Not a Science of Behavior and cross-references Methodology and Sovereign Economics.

***

Graphic AXEC139d

Throwing soap bubbles at time wasters

Comment on Lars Syll on 'Microfounded DSGE models ― a total waste of time!'

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One defect is a bad thing, but countless defects are a good thing. This keeps the critics busy, the discussion lively, and the outcome forever inconclusive. Accordingly, Hahn was very happy with the critics of the neoclassical research program. “The enemies, on the other hand, have proved curiously ineffective and they have very often aimed their arrows at the wrong targets.” (Hahn, 1980, p. 127)

He even warned his colleagues of exuberance: “For as I said at the outset, the citadel is not at all secure and the fact that it is safe from a bombardment of soap bubbles does not mean that it is safe.” (Hahn, 1984, p. 78)

When homo oeconomicus was young and a simple-minded utility maximizer, people laughed at him because of his unrealism. Poincaré, to be sure, choose his words: “Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge 'perhaps requires a certain reserve'.” (Porter, 1994, p. 154)

What happened in the second approximation? Has nonsense been reduced since Walras? It has been multiplied by making it rigorous. This is what we actually have: 'an infinitely lived intertemporally optimizing representative household/consumer/producer, agents with homothetic and identical preferences, etc.' In the early days, homo oeconomicus had only perfect foresight; now he has also eternal youth. Scientific progress is something different: “The last thirty years seem to this observer to have been downhill almost all the way. So much of the literature ... I see as silly beyond all expectation and unscholarly beyond all endurance.” (Leijonhufvud, 1998, p. 234)

Why have critics been so ineffective? They always focus on the most obvious weak link of the chain, but do not understand the logic of the chain. J. S. Mill did, and he clearly stated the key question: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (Mill, 2006, p. 746)

The fault of an approach lies always in the first element of the chain: in the axiomatic foundations. Keynes knew this: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (Keynes, 1973, p. xxi)

An effective critique does not waste time with the plain unrealism of some heroic assumption in the middle of the chain. An effective critique finds a new hook to hang an impeccable logical chain on; that is, an effective critique changes the axiomatic foundations (2014; 2014).

After more than a century, it is pointless to repeat Poincaré's critique of homo oeconomicus. Homo emotionalis or homo sociologicus are not the solutions. Simply take ALL behavioral assumptions out of the formal foundations of economic theory. Second-guessing the agents is a waste of time: “... there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman, 1992, p. 320), (Rosenberg, 1980, pp. 2-3)

Egmont Kakarot-Handtke


References
Hahn, F. H. (1980). General Equilibrium Theory. Public Interest. Special Issue: The Crisis in Economic Theory, 123–138.
Hahn, F. H. (1984). Equilibrium and Macroeconomics. Cambridge: MIT Press.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Kakarot-Handtke, E. (2014a). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes, Vol. VII. London, Basingstoke: Macmillan.
Leijonhufvud, A. (1998). Discussion: Involuntary Unemployment One More Time. In R. E. Backhouse, D. M. Hausman, U. Mäki, and A. Salanti (Eds.),
Economics and Methodology. Crossing Boundaries. 225–235. Houndmills, Basingstoke, London: Palgrave.
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund. URL (1866).
Porter, T. M. (1994). Rigor and Practicality: Rival Ideals of Quantification in Nineteenth-Century Economics. In P. Mirowski (Ed.), Natural Images in Economic
Thought, pp. 128–170. Cambridge: Cambridge University Press.
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.

The dirty secret of Capitalism: Capitalists have NO idea how Capitalism works

Comment on Nick Hanauer on ‘The dirty secret of capitalism ― and a new way forward’*

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Tom Hickey summarizes: “Nick Hanauer says the mainstream economists have been captured by the oligarchs. He says how the evidence shows that a pure free market suppresses wages and employment so much that the demand falls off and a viscous circle sets in ― a lack of demand means underperforming companies, which means companies employ less people and pay them less, which generally decreases the demand for goods and services, and so on. Everyone loses, except the 0.1%, the oligarchs.”

Nick Hanauer introduces himself as a successful Capitalist and asks: “How do we manage to grab an ever-increasing share of the economic pie every year?” and “So, what is society to do?” His answer is “We need a new economics” because it is painfully obvious that “The fundamental assumptions that undergird neoliberal economic theory are just objectively false.” The apex of neoliberal falsity is the behavioral assumption of homo oeconomicus. However, the key to a prosperous, complex, and sustainable economy is cooperative behavior. The selfish and greedy behavior of homo oeconomicus is not good but sociopathic.#1

This is, of course, commonsensically true except that it is NOT economics. Economics is NOT about human behavior but about the behavior of the economic system. Human Nature/motives/behavior/action is the subject matter of psychology, sociology, anthropology, biology/evolution etcetera. The lethal blunder of economics is that it defines itself for 200+ years as a social science.#2, #3, #4

The methodological fact of the matter is: NO way leads from the second-guessing of Human Nature/motives/behavior/action to the understanding of how the economic system works. Behavioral microfoundations are the ultimate reason why economics is to this day proto-scientific garbage.

Nick Hanauer asserts: “Unless the laws of physics, the laws of economics are a choice. If we want a new economics all we have to do is chose to have it.” This, of course, is plain scientific incompetence. Profit for the economy as a whole, for example, does NOT depend on whether the one-percenters are sociopathic exploiters or cooperative and emphatic leaders.#5

The macroeconomic 4-sector Profit Law is objectively given by Q≡Yd+(I−S)+(G−T)+(X−M). In the most elementary case of the production-consumption economy, this reduces to Q≡−S, i.e. the mirror image of household sector saving S is business sector loss (−Q). The mirror image of household sector dissaving (−S) is business sector profit (+Q). The point to grasp is that profit for the business sector as a whole depends on the deficit spending of the household sector and NOT on the behavior or achievements of Capitalists. With regard to the state, the Profit Law boils down to Q=(G−T), i.e. Public Deficit = Private Profit. And this explains why Capitalists were able “to grab an ever-increasing share of the economic pie every year.”

Public deficit-spending/money-creation is a free-lunch program for the Oligarchy. The fact is that the so-called free-market economy is on the life support of the state, and Wall Street is on the life support of the Central Bank. Macroeconomic profit is in the main produced by public deficits. Financial wealth grows in lockstep with public debt. The Oligarchy, in turn, uses the opulent free lunches to corrupt what remains of the state’s legislative, executive, and judiciary institutions.

Nick Hanauer is NOT a scientist but an agenda pusher for the Oligarchy like the rest of self-styled New Economic Thinkers.#6 What he tells the TED audience is that Neoliberalism is dead and that he and other enlightened Capitalists are working for a better social and economic order. The fact is that he has NO idea what profit is and how the economy works.

Egmont Kakarot-Handtke


* TED
#1 Actually, this is rather old stuff “No science has been criticized by its own servants as openly and constantly as economics. The motives of dissatisfaction are many, but the most important pertains to the fiction of homo oeconomicus.” (Georgescu-Roegen, 1971)
#2 Economics is NOT about Human Nature but the economic system
#3 Overreach: Economists have their fingers in every pie except real economics
#4 The happy end of the social science delusion
#5 Capitalism, poverty, exploitation, and cross-over exploitation
#6 CORE: more lipstick on the dead economics pig

***

AXEC109i

Yes, orthodox economics is poor science, but can Heterodoxy raise hope?

Comment on Lars Syll on 'Modern macroeconomics and the perils of using ‘Mickey Mouse’ models'

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In 1898 the heterodox economist Thorstein Veblen asked: “Why is Economics Not an Evolutionary Science?”

What Veblen pointed out was that the petty mechanical models of his neoclassical fellow economists were mistaken, useless, and misleading.

He famously ridiculed homo oeconomicus: “The hedonistic conception of man is that of a lightning calculator of pleasures and pains who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact.”

Well said, indeed, and true to this day. Yet, one has to ask: Why did Veblen spend much time questioning and ridiculing Orthodoxy instead of developing evolutionary economics? If he knew what was wrong, why did he not demonstrate how to do it properly? Why is the very personification of Mickey Mouse economics ― homo oeconomicus ― still busy with maximizing utility in our days?

Yes, Orthodoxy is a failure. Yes, the heterodox critique is fully justified. Yes, the emperor has no clothes. Yes, the textbooks are wrong. Yes, linear models are unsatisfactory. Yes, equilibrium is a NONENTITY, and rational expectations are a physical impossibility.

We have known all this since Veblen or even longer. Time enough, one would think, to develop something better.

Let all dreams come true, and imagine for a moment that each orthodox economics professor is replaced by a heterodox professor. What could he teach? That there is something good and right with the Classics, with Marx, Walras, Keynes, the Austrians, Sraffa, Kalecki, and Minsky, but we do not know exactly what it is and how it fits together. Is the pluralism of partial or even falsified theories something that can be justified and taught as science?

The fact of the matter is that there is no heterodox alternative. To replace a paradigm means to replace obsolete axioms with new axioms. This effects a change of the whole theoretical superstructure, and that is what a Paradigm Shift is all about. At the moment, there exists no heterodox common ground in the form of a set of well-defined axioms and therefore nothing to consistently build upon.

Orthodoxy is unacceptable, but its proponents have taken the pain to formulate its premises and conclusions in such a way that errors/mistakes can be identified with accepted scientific procedures. This is the minimum condition, and this made it possible that General Equilibrium Theory could be refuted by its own proponents.

“The enemies, on the other hand, have proved curiously ineffective and they have very often aimed their arrows at the wrong targets. Indeed if it is the case that today General Equilibrium Theory is in some disarray, this is largely due to the work of General Equilibrium theorists, and not to any successful assault from outside.” (Hahn, 1980, p. 127)

Yes, nobody needs the Mickey Mouse models of Orthodoxy. But this is no sufficient reason to jump to heterodox Donald Duck models.

The common error lies in the assumption that there must be something like behavioral laws or at least regularities. There is no such thing. No way leads from behavioral assumptions to an understanding of how the actual economy works. The problem is not with the econometricians; the problem is with economic theory. From the assumption of utility maximization follows no testable relationship. It is the same with other green cheese assumptions like rational expectations, perfect competition, supply and demand functions, twice differentiable production functions, and all the rest (2013). Nonentities are not testable, and that is not a weakness of statistical methods with a well-defined field of application. Standard economics simply falls outside this field.

As long as Heterodoxy, or anybody else for that matter, cannot replace the obsolete set of foundational assumptions with a consistent alternative, economics is caught in a cul-de-sac.

“Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992, p. 248)

Or, as Mirowski put it: “The task of producing knowledge against the grain requires imagination.” (2013, p. 4)

It is a scarce resource in economics.

Egmont Kakarot-Handtke


References
Hahn, F. H. (1980). General Equilibrium Theory. Public Interest. Special Issue: The Crisis in Economic Theory, 123–138.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Mirowski, P. (2013). Never Let a Serious Crisis Go to Waste. London, New York: Verso.

Related 'A social science is NOT a science but a sitcom' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy' and 'Homo oeconomicus: the never-ending folk-psychological shitshow'. For details of the big picture, see cross-references NOT a Science of Behavior and cross-references Failed/Fake Scientists.

Groundhog Day (economics)

Comment on Lars Syll on 'Extraordinarily absurd things called ‘Keynesian’' 

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Lars Syll writes: “All the neoclassical professors were there. Their theories were totally mangled and no one ― absolutely no one ― had anything to say even remotely reminiscent of a defense.”

A field day for Heterodoxy. One of many.

In 1898, the heterodox economist Thorstein Veblen asked: “Why is Economics Not an Evolutionary Science?” What he pointed out was that the equilibrium models of his neoclassical fellow economists were mistaken, useless, and misleading.

He famously ridiculed homo oeconomicus: “The hedonistic conception of man is that of a lightning calculator of pleasures and pains who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact.”

Well said. Yes, Orthodoxy is a failure. Yes, the emperor has no clothes. Yes, the textbooks are wrong. Yes, equilibrium is a NONENTITY, and rational expectations are a green cheese assumption. Yes, the economy is non-ergodic. Yes, Keynes has been distorted beyond recognition. Yes, economics is the finest salmagundi of all time.

We know all this. It does not help. More than 100 years after Veblen, homo oeconomicus is still with us. How to get out of the time loop?

“... if we wish to place economic science upon a solid basis, we must make it completely independent of psychological assumptions and philosophical hypotheses.” (Slutzky, quoted in Mirowski, 1995, p. 362)

Time for Heterodoxy to switch from deconstruction to construction (2015).

Egmont Kakarot-Handtke

References

Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: The Market. SSRN Working Paper Series, 2547098: 1–10. URL

Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.

For more about Veblen, see AXECquery.

Essentials of Constructive Heterodoxy: behavior {72}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  For a host of compelling methodological reasons, homo oeconomicus has to be replaced. This is consensus, the open question is how this could be accomplished. What is required first is the separation of the formal foundations into a structural and a behavioral part. This paper introduces the propensity function as a general formalization of Economic Man/Woman. The propensity function is a compact formal expression of random, semi-random, and deterministic behavioral assumptions. It is shown how, in a random environment, target-oriented behavior produces stochastic stability and optimality in the product market. With homo oeconomicus, the conception of simultaneous equilibrium, too, vanishes.

For the complete set of foundational equations — structural axioms and behavioral propensity function — see Graphic AXEC61.

Occasional Tweets: The futile attempt to recycle homo oeconomicus (II)

 

#Economics#FailedScience#FakeScience#MicroFoundations

Economics is NOT a social science but a systems science.

Homo oeconomicus: the never-ending folk-psychological shitshowhttps://t.co/QCJtT0MEFh

— E.K-H (@AXECorg) June 29, 2022

For details of the big picture see cross-references Not a Science of Behavior. 

Occasional Tweets: The futile attempt to recycle homo eeconomicus (I)

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

Homo oeconomicus: the never-ending folk-psychological shitshowhttps://t.co/QCJtT0MEFh

— E.K-H (@AXECorg) November 24, 2021

For more about homo oeconomics see AXECquery. 

Lacking the Midas touch of science

Comment on Lars Syll on 'Real world filters and economic models'

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The characteristic capability of science ― to turn whatever it might touch into knowledge ― obviously has eluded economics. Currently, economists do not understand how the economy works. And there is no real difference between Orthodoxy and Heterodoxy despite much discussion on secondary points. The differences between the schools only demonstrate that there are many ways to get it wrong.

J. S. Mill excused economics in the inescapable benchmark comparison with physics as a separate and inexact science. Indeed, when one compares the respective starting points — Newton and Smith — and the actual state of the fields, then one is driven to the conclusion that in the course of time, economics has fallen behind even further.

Economics has always taken its inspiration from the real sciences. This includes methodology and theory design (Mirowski, 1995). It did not escape economists that the simplicity argument played a great role in physics: “... in my opinion, there is the correct path and, moreover, that it is in our power to find it. Our experience up to date justifies us in feeling sure that in Nature is actualized the ideal of mathematical simplicity.” (Einstein, 1934, p. 167)

As untalented plagiarists, economists used this argument and abused it for the justification of their cargo cult science.

This is the correct way of simplification, abstraction, and idealization: “The Principia begins with an idealized world, a simple mental construct, a 'system' of a single mathematical particle and a centrally directed force in a mathematical space. Under these idealized conditions, Newton freely develops the mathematical consequences of the laws of motion that are the axioms of the Principia. At a later stage, after contrasting this ideal world with the world of physics, he will add further conditions to his intellectual construct — for example, by introducing a second body that will interact with the first one and then exploring further mathematical consequences. ... In this way he can approach by stages nearer and nearer to the condition of the world of experiment and observation, introducing bodies of different shapes and composition and finally bodies moving in variant types of resistant mediums rather than in free space.” (Cohen, 1994, p. 77)

Standard economics, too, starts with an idealized world, but then it does not move nearer and nearer to the world of experiment and observation, but in the opposite direction in order to rationalize an unsuccessful initial idealization. Thus, idealization, which is indispensable, becomes counterproductive. There is only a thin line between fruitful abstraction and barren absurdity. To assume that the moon is a mass point is unrealistic but fruitful, to assume that it is made of green cheese is unrealistic but nothing else. Most assumptions of conventional microeconomics fall into the green cheese category. The fundamental methodological blunder of economists is the Fallacy of Insufficient Abstraction.

While science turns the garbage of ignorance into the gold of knowledge, economics merely turns common sense garbage into rigorous garbage. Newton's most important methodological message was: hypotheses non fingo. Economists have done the opposite with much alacrity but little success.

Now, what is the fundamental error that unites Orthodoxy and Heterodoxy? It is psychologism: “Psychologism is the view that in any explanation (individualist or otherwise) the only exogenous givens other than natural constraints allowed are those representing psychological states of either individuals or groups.” (Boland, 1992, pp. 147-148)

To paraphrase H. L. Mencken: Psychologism is commonsensical, convincing, and wrong.

“The notion that microeconomics is a branch of applied mathematics does economists more credit than several possible alternative explanations for its empirical weakness. ... It isolates the limitations of the theory in a factual supposition about the determinants of human behavior, one that economists share with all of us. But the supposition we all share is false, and so economics rests on a purely contingent, though nevertheless central, mistaken belief ....” (Rosenberg, 1992, p. 247)

As a matter of fact, no way leads from psychologism of any sort to the understanding of how the actual economy works. The solution does not consist of replacing the 'unrealistic' homo oeconomicus with the 'realistic' homo socialis. The solution consists of replacing behavioral axioms with objective structural/ systemic axioms.

It is as simple as that: “The basic concepts and laws which are not logically further reducible constitute the indispensable and not rationally deducible part of the theory. It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience.” (Einstein, 1934, p. 165)

The scientific method is 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) Logical consistency is secured by applying the axiomatic-deductive method, and empirical consistency is secured by applying state-of-the-art testing.

There is only one scientific method. And, in its present state, economics is not a separate/inexact science but a failed/fake science.

Egmont Kakarot-Handtke


References
Boland, L. A. (1992). The Principles of Economics. Some Lies My Teacher Told Me. London, New York: Routledge.
Cohen, I. B. (1994). Natural Images in Economic Thought, chapter Newton and the Social Sciences, With Special Reference to Economics, or, the Case of the Missing Paradigm, 55–90. Cambridge: Cambridge University Press.
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Rosenberg, A. (1992). Economics - Mathematical Politics or Science of Diminishing Returns? Chicago: University of Chicago Press.

Related 'Economics and the Fallacy of Insufficient Abstraction' and 'Failed economics: The losers’ long list of lame excuses'. For details of the big picture, see cross-references Failed/Fake Scientists and cross-references Methodology and cross-references Paradigm Shift.

For more about the Fallacy of Insufficient Abstraction, see AXECquery.

How to get rid of the silly Queen

Comment on Lars Syll on ‘Economics — spending time doing silly things’

Blog-Reference and Blog-Reference

Currently, economists are in the mode of thorough self-critique. Yes, we have done too much math, yes, our reduction of multi-dimensional homo sapiens to one-dimensional homo oeconomicus has been rather one-sided, yes, the Chicago free market philosophy has gone over the top, yes, there has been too much abstract model building and too little empirics and, yes, we have done all these silly things because “the profession” has told us so. Economics, it seems, has all these years not at all been about the economy but about signaling: “So DSGE might be an expensive way of proving that you’re willing to spend a lot of time and effort doing silly stuff that the profession tells you to do.” (See intro)

Why are the once-proud heralds of the famous Queen of the so-called social sciences all of a sudden so conspicuously back-pedaling, ducking, and discounting relevance? This question opens a wide field for speculation and second-guessing. But, clearly, to enter this playground of storytellers, gossipers, and wish-washers would be beyond silly. The very practical point is to take the opportunity and to get people who have disqualified themselves by doing silly things and talking nonsense, finally out of science.

Economics is a failed science. Let us briefly spot the causal blunders. These are NOT located in the theoretical superstructure: “For it can fairly be insisted that no advance in the elegance and comprehensiveness of the theoretical superstructure can make up for the vague and uncritical formulation of the basic concepts and postulates, and sooner or later ... attention will have to return to the foundations.” (Hutchison 1960)

Standard economics is built upon this set of foundational propositions, a.k.a. axioms: “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 1985)

Methodologically, these premises are forever unacceptable, but economists swallowed them hook, line, and sinker from Jevons/Walras/Menger onward. The failure of methodological individualism and all other psycho/socio-approaches can be stated as an impossibility theorem: NO way leads from the explanation of human nature/behavior/action to the explanation of how the economic system works.

Keynes, as the other main protagonist, defined his set of foundational propositions in the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.”

This elementary syllogism is conceptually defective because Keynes never came to grips with profit. As a result, all I=S models and the Keynesian multiplier are false.

Conclusion: The one silliness of economists consists of the inability to spot the errors/mistakes in their respective axiom sets and to blindly build their respective theoretical edifices higher and higher upon unsuitable foundations. This also holds for Marxianism and Austrianism. The other silliness consists of the repetitive critique of well-known defects: “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)

And here is how to transcend the silliness of Orthodoxy and Heterodoxy: the forever unacceptable microfoundations have to be replaced by macrofoundations. This is achieved with this set of objective-structural foundational propositions. (A0) The objectively given and most elementary 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) 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.

The investment goods sector and more and more individual firms come in at a later stage. This increases complexity step by step. So, what we initially have with (A1) to (A3) is the pure consumption economy as the most elementary economic configuration. These premises are certain, true, primary, entirely free of green cheese behavioral assumptions, and therefore perfectly suited as the foundations of an “edifice that one wishes to expand and to build higher while preserving its stability.” (Hilbert 2005)

Human behavior, tastes, choices, or society have no durable underlying structure, but the monetary economy has, and it is given in the most elementary case by (A1) to (A3). A system can be unambiguously defined.

Economics has to step down as Queen of the so-called social sciences in order to eventually become King of the systems sciences. This Paradigm Shift, clearly, is beyond the means of the silly folks of traditional orthodox and heterodox economics.

Egmont Kakarot-Handtke

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REPLY to Ken Zimmerman on Jun 24

You write: “As sociologist Edward Ross pointed out to the AEA in 1889, ignorance of custom, tradition and authority left economists ill-equipped to carry out their analysis of trade. It’s my view Ross hit the error of economists today on the head.”

The fundamental error of Ross and you is to assume that economics is about ‘how society works’. No! This is the subject matter of sociology. Economics is about ‘how the economy works.’ Society and economy are intertwined but must be separated analytically.

Since Adam Smith, economics claims to be a science. Methodologically, it started as a mixture of sociology and political science: “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, ...” (J. S. Mill, 1874, V.39)

With respect to 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, 1906, M.9)

With Jevons/Walras/Menger, the focus shifted to methodological individualism, and economics became a mixture of dilettantish psychology, sociology, and political science. This approach has failed abysmally.

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 which studies how the monetary economy works.”

As a consequence, the overdue Copernican turn in economics consists in the methodological switch from behavior-centered bottom-up, i.e., subjective microfoundations, to structure-centered top-down, i.e., objective macrofoundations of the world economy. All Human-Nature issues are the subject matter of other disciplines (psychology, sociology, anthropology, biology/Darwinism/evolution theory, political science, social philosophy, etcetera) and are taken in from these by way of multidisciplinary cooperation, IF NEEDED.

Economics is NOT a science of behavior (Hudík, 2011). #1 Economics is not a so-called social science like psychology/sociology, and not a natural science like physics, but a systems science.

By the way, it seems to have escaped your attention that Luhmann has defined sociology as a systems science (1995), and this, indeed, is the common methodological platform of sociology and economics (2014). With Edward Ross of 1889, you are way behind the curve.


References
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Luhmann, N. (1995). Social Systems. Stanford: Stanford University Press.
Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL

#1 See also cross-references

***

REPLY to Ken Zimmerman on Jun 27

For somebody with a small horizon, the earth is, for all practical purposes, flat, and all empirical evidence is so convincing that it is almost impossible to transcend this commonsensical worldview and ever get out of the tiny box. All the more so because science is, as a rule, counterintuitive and requires the emancipation from small-scale idiosyncratic personal experience.

Because of this, nothing seems more commonsensical than your assertion: “All that happens, I repeat, ALL is created via interactions (relationships) among a number of actors.” As a matter of fact, this view ― let us call it the Science-of-Man fallacy ― is as old as the hills. It goes back to Hume.

“And as the science of man is the only solid foundation for the other sciences, so the only solid foundation we can give to this science itself must be laid on experience and observation.” (2012, Introduction)

It reappears with the Austrian sect.

“Mises’ contribution was very simple and at the same time extremely profound. He pointed out that the whole economy is the result of what individuals do.” (Foreword, von Mises, 2007, p. v)

And it is the tenet of Orthodoxy.

“It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow, 1994, p. 1)

The common denominator of all Science-of-Man approaches is that they are scientific failures. Not much profound insight about how the economy works has come from them. Until this day the representative economist cannot even tell the difference between income and profit.

Consistent with the low performance of flat-earthers in general, you have not put forward one single testable proposition about an important economic relationship. This is rather odd for a person who claims to apply the right methodology. In science, claims and opinions do not count for much; only proof counts.


References
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Hume, D. (2012). A Treatise of Human Nature. Project Gutenberg EBook. URL
von Mises, L. (2007). Human Action. A Treatise on Economics, Vol. I. Indianapolis: Liberty Fund. (1949).

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REPLY to Ken Zimmerman on Jun 28

(i) You say: “The entire structure of western (but not all sciences) rests on the assumption that’s possible to go from an observation to conclusions about that observation.”

False. This holds only for the proto-scientific stage. For details, see the chart Graphic AXEC77.

The scientific stage starts with a well-articulated theory that is based on axioms. Axioms, in turn, are NOT DIRECTLY based on naive observation/experience but are a sophisticated logical construct: “If then it is the case that the axiomatic basis of theoretical physics cannot be an inference from experience, but must be free invention, have we any right to hope that we shall find the correct way?” (Einstein, 1934, p. 167)

As we know from history, scientists have found the correct way. You definitively do not understand the specific characteristics of science and mess it up with observationism: “The Baconian dogma I have in mind asserts the supreme merits of observation and the viciousness of theorizing speculation. I shall call this dogma, briefly, by the name ‘observationism’.” (Popper, 1994, p. 84)

(ii) You say: “Putting forth testable propositions about economic interactions is not my job. I’m not an economist. Rather, it’s your job as an economist. As a historian, I don’t test propositions, I examine the stories of how humans live together.”

True. Historians are storytellers and second-guessers, but not scientists. Because of this, they have NOTHING useful to say about methodology. Psychologists, too, have not much to say because economics is NOT about human psychology/behavior but about the behavior of the economic system. Economics is NOT a so-called social science but a systems science. For more about the cargo-cult science psychology, see Feynman on Wikipedia or YouTube.

(iii) You say: “Finally, following this dictum, if you can find some other variables to measure and test except relational ones let me know. That would change everything. A brand new universe would emerge.”

Yes, indeed. Here you have the First Economic Law (Graphic AXEC06), which defines the measurable and testable economic relations for the elementary consumption economy, which in turn are entirely FREE of green cheese psychological/behavioral assumptions. #1 If you think this equation is false, you can try to empirically refute it. This is how science works.


References
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality, Ch. Science: Problems, Aims, Responsibilities, 82–111. London, New York: Routledge.

***

REPLY to Ken Zimmerman on Jun 29

Science is well-defined by material AND formal consistency and scientists judge and are judged according to these criteria. Genuine scientists have NO problem with these methodological essentials but the so-called social scientists have. Their persistent attempts to redefine science are understandable but pointless: either one plays according to the rules of science or one is OUT. Your view “that science is the study of the relationships among all the things, forces, thoughts, etc. that make the world and are made by it” is simply irrelevant.

Economics for philosophers

Comment on David Ruccio on ‘Richard Rorty, postmodernism, and Trump’

Blog-Reference

Currently, economists are in the mode of conspicuous self-critique: Yes, we have done too much math, yes, our reduction of multi-dimensional homo sapiens to one-dimensional homo oeconomicus has been rather one-sided, yes, the Chicago free-market philosophy has gone over the top, yes, there has been too much abstract model building and too little empirics, yes, something has gone badly wrong with the distribution of income and wealth, yes, free trade is not the summum bonum. Paul Romer even characterized macroeconomics as a math-obsessed pseudoscience.#1

This is rather spooky because economists normally do not admit failure but simply explain it away. They have even convinced the general public that the worst social catastrophe in history, the Great Depression, had nothing to do with their abysmally crappy economic theory and policy guidance but that it was all the Fed’s fault.

The question is, what is going on in economics?

As it happens, philosophers ― the specialists in making sense of everything in this universe and all parallel universes ― have conveniently come up with an explanation. It carries the label postmodernism: “Me, I think Rorty should remain on our reading lists, if only because postmodernism has been blamed ... for a wide range of recent disasters, from 9/11 to Donald Trump.” (See intro)

How did postmodernism achieve such a breathtaking overdose of disasters?

“This equaling out of truth and falsehood is both informed by and takes advantage of an all-permeating late post-modernism and relativism, which has trickled down over the past thirty years from academia to the media and then everywhere else. This school of thought has taken Nietzsche’s maxim, there are no facts, only interpretations, to mean that every version of events is just another narrative, where lies can be excused as ‘an alternative point of view’ or ‘an opinion’, because ‘it’s all relative’ and ‘everyone has their own truth’ (and on the internet they really do).”#2

Does anyone remember among these half-witted philosophers that the ancient Greeks started science with the distinction between doxa (= opinion) and episteme (= knowledge)? And that scientific knowledge is well-defined as material and formal consistency. And that Aristotle was quite clear about how science works: “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.” (Wikipedia, Posterior Analytics)

The fact of the matter is that economics has not been undermined by postmodernism but that it has been postmodern since the founding fathers.

The state of economics is this: there are political economics and theoretical economics. The founding fathers called themselves political economists, that is, they left no doubt that their main business was agenda pushing. Economists never got out of political economics. In other words, theoretical economics (= science) ultimately could not emancipate itself from political economics (= agenda-pushing).

To speak of economics without qualification is misleading. 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, and 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.

So, there are the hard rocks of true and false and the bottomless swamp between them where “nothing is clear and everything is possible” (Keynes). The swamp is the natural habitat of blathering economists, of which there are four main schools: Walrasianism, Keynesianism, Marxianism, and Austrianism. None of these has achieved anything of scientific value, all four approaches are axiomatically false.

To proceed from failed political economics to scientifically valid economics requires a Paradigm Shift from Walrasian microfoundations and Keynes’ flawed macrofoundations to entirely new macrofoundations.

This is achieved with the following set of objective-systemic foundational propositions: (A0) The objectively given and most elementary 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) 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

These premises are certain, true, primary, entirely free of green cheese behavioral assumptions, and therefore perfectly suited as the foundations of an “edifice that one wishes to expand and to build higher while preserving its stability.” (Hilbert)

To do the Paradigm Shift, i.e. to fully replace the obsolete Orthodoxy, is normally the mission of Heterodoxy. In economics, traditional Heterodoxy has failed because it sits in the proto-scientific swamp of political economics just like Orthodoxy but only in another corner.#4

Political economics, postmodern philosophy, and Trump have, indeed, one thing in common: all lack the concept of truth.

Egmont Kakarot-Handtke


#1 The economist as stand-up comedian and How to get rid of the silly Queen
#2 Peter Pomerantsev
#3 Objective Principles of Economics
#4 For details of the big picture see cross-references Heterodoxy.

Related 'Economists: the Trumps of science' and 'Orthodoxy vs. Heterodoxy: the squabbling of quacks' and 'When proto-scientific Heterodoxy calls Orthodoxy pseudo-scientific' and 'Heterodoxy’s scientific self-deception' and 'Economics: a science without scientists'

Occasional Tweets: The futile attempt to recycle homo oeconomics (III)

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

The history of economic thought is the history of scientific failure.

Homo oeconomicus: the never-ending folk-psychological shitshowhttps://t.co/QCJtT0NcuP

— E.K-H (@AXECorg) September 21, 2022

Links on Neoliberalism

Comment on Luke Savage on ‘Neoliberalism? Never Heard of It’

Blog-Reference and Blog-Reference on Nov 10

For the general public, the most important thing to know about economics is that there is NO economic science. Yes, there is a prize with the title: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” but NOTHING REAL corresponds to the word Sciences.

For the general public, the crucial thing is to keep political and theoretical economics apart. 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.

For the general public, the most difficult thing is to realize that theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.

The major variants of political economics come under the heading of Walrasianism, Keynesianism, Marxianism, Austrianism, and MMT. These approaches are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economics is proto-scientific garbage since Adam Smith.

Economic policy guidance ― left/center/right does not matter ― has NO valid scientific foundations. The lack of scientific content, though, is not a problem because economics has no scientific function but a propaganda function, i.e. to push the current agenda of the Oligarchy.

At the moment, one can observe the switch from a direct pro-Oligarchy neoliberal propaganda to a more social/emphatic/inclusive/populist/WeThePeople/save-the-world propaganda. In real terms that does not matter much, it is just a change in the Oligarchy’s communication strategy.

► Macroeconomics and the fake History of Economic Thought
► Keynes, Lerner, MMT, Trump, etc. and exploding profit
► Economics as storytelling and entertainment for the masses
► Mission impossible: economists join WeThePeople
► Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion
► Deficit cheerleaders ― the Oligarchy’s useful idiots
► No MMT illusions! YOU are going to pay for it
► Stephanie Kelton sells children into debt slavery
► Is MMT Alt-Right? No, it is fake science
► The end of political economics (II)
► Why do workers not tar and feather economists?
► For details of the big picture see cross-references Political Economics/Stupidity/ Corruption

Egmont Kakarot-Handtke


Related 'Scrap the EconNobel' and 'MMT Progressives: stupid or corrupt or both?' and 'The dirty secret of Capitalism: Economists have NO idea how Capitalism works' and 'Economics ― not science, not ideology, just useful idiocy' and 'MMT undermines democracy' and 'Why economists always seem to lose the fight against inequality' and 'Economists: Trolls with a mortarboard' and 'Economists, stupid or corrupt or both?' and 'Economics: a hereditary mental disease with scientific incompetence as father and political fraud as mother' and 'Links on MMTers push Wall Street’s agenda'

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#PointOfProof
Nov 5
Post missing
#EconBlocker

***

Blog-Reference Nov 2

Links on Christine Berry’s ‘Neoliberalism Tells Us We’re Selfish Souls — How Can We Promote Other Identities?’

To begin with, economics is NOT about souls and identities. This is the business of other disciplines. Economics is a systems science, i.e. more like aviation than psycho-socio carpet flying. While carpet flying is inclusive and free for everybody, systems science is exclusive, that is, folks who cannot put 2 and 2 together are NOT admitted.

► Homo oeconomicus: the never-ending folk-psychological shitshow
► PsySoc — the scourge of economics
► Economics is NOT about Human Nature but the economic system
► Economics as storytelling and entertainment for the masses
► Economics is NOT a social science and NOT a science of behavior, see cross-references
► Beware of the moralizing economist
► Essentials of Constructive Heterodoxy: Behavior

***

Blog-Reference Nov 5

Links on Joseph E. Stiglitz’s ‘The End of Neoliberalism and the Rebirth of History’

Joseph Stiglitz is a co-winner of the 2001 EconNobel. The EconNobel has nothing to do with scientific achievements but is an Oligarchy-promoted reward for successful agenda-pushing. So, when Joseph Stiglitz declares the “End of Neoliberalism” this is a signal to the average academic economist that the Oligarchy has changed the communication strategy. Roughly speaking, buzzwords like market and efficiency and growth and competition vanish into the background and buzzwords like WeThePeople and social empathy and sustainability and cooperation are put in the foreground. MMT’s Stephanie Kelton is the personification of the socially attractive repackaging of Wall Street’s economic policy. Needless to emphasize that the new agenda is the emotionally botoxed old agenda.

► Scrap the EconNobel
► Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
► MMT Progressives: stupid or corrupt or both?
► Links on MMTers push Wall Street’s agenda
► MMT’s true program
► MMT and the Green New Deal: Where is the snag? (I)
► MMT Progressives: The knife in the back of WeThePeople
► MMT/GND: Another case of bad people capturing a good cause
► MMT: So-called Progressives as trailblazers for Trumponomics
► MMT vs Neoliberalism: Just another clown show
► The not-so-funny MMT vs Neoliberalism slapstick
► Right troll left troll pack your bag and get out of economics
► Economics: A pointless left-right wrestling show
► The end of political economics (II)
► Political economics and intellectual corruption

The economics Cargo Cult Prize

Comment on Barkley Rosser on ‘On Richard Thaler Receiving The Nobel Prize’

Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference

Economics is a failed science, and because of this the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is an absurdity ― or worse. #1 The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Today’s economics is nothing but the pluralism of provably false theories or, in Feynman’s words, cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.” #2

What economists have not realized to this day is that economics is NOT a science of behavior. #3, #4 Behavioral Economics from Adam Smith’s Theory of Moral Sentiment to homo oeconomicus to bounded rationality to game theory to rational expectations to Richard Thaler’s nudge is not economics at all but the very subject matter of Sociology, Psychology, Anthropology, Political Science, History, etcetera. #5 The subject matter of economics is the economic system.

The lethal defect of economics is that it is microfounded, i.e., based on behavioral axioms. Now it holds that (i) there is NO such thing as an invariant of human behavior, and (ii) NO way leads from the second-guessing of Human Nature/motives/behavior/action to the explanation of how the economic system works.

After 200+ years of behavioral economics, economists still have no idea of how the market economy works. It is common knowledge that all profit theories are defective: “A satisfactory theory of profits is still elusive.” #6

This means, to this day, neither the Walrasian, nor the Keynesian, nor the Marxian, nor the Austrian cargo cultic sect can tell what macroeconomic profit is. #7 Hence, they all fail to capture the essence of the market economy. This is not exactly a noteworthy scientific achievement of the economics profession. #8

Does the world expect economists to find out how people behave? No, this is the very job of Psychology, Sociology, Anthropology, etcetera. Does the world expect economists to figure out what profit is? Yes, of course; no philosopher, psychologist, biologist, or sociologist will ever try to figure this out.

Have economists done their proper job? No. Do economists know what profit is? No. Does behavioral economics help to find out what profit is? No.

It is not the task of economists to dabble in the so-called social sciences. The subject matter of economics is the economy. Economics is a systems science and has to be based on macrofoundations. Economists are still caught in a cargo cultic paradigm. They do not deserve any prizes but to be thrown out of science.

Egmont Kakarot-Handtke


#1 Economics: 200+ years of scientific incompetence and fraud
#2 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#3 Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
#4 For details see cross-references Not a Science of Behavior
#5 PsySoc — the scourge of economics
#6 Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online
#7 You are fired!
#8 The real problem with the economics Nobel

Related 'A social science is NOT a science but a sitcom' and 'Economic policy guidance NEVER had sound scientific foundations'

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REPLY to Barkley Rosser on Oct 12

You are way behind the curve. For a quick Hudík-check, see my 2013 post Economics is NOT a science of behavior.

***

REPLY to Barkley Rosser on Oct 16

Economics is NOT about human behavior but about the behavior of the economic system. The lethal blunder of economics is methodological individualism which comes in many psycho-sociological flavors and constitutes as the axiom of constrained optimization the core of Orthodoxy.

Science is well-defined for 2300+ years but economists somehow did not get it: “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)

Only certain knowledge (= materially/formally consistent) can be admitted to the corpus of science. And here is the crux of the so-called social sciences: “By having a vague theory it is possible to get either result. … It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (Feynman)

So, to begin with, economics cannot be built upon a behavioral axiom like constrained optimization or any other psycho-sociological premise.

This is the current state of economics: PsySoc-economists do NOT know how the economy works. Economists have not realized to this day that they are in a research program that has already been dead in the cradle: “Indeed, Alexander Rosenberg maintains that there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman)

What have economists contributed to the trash heap of the so-called social sciences? Utility maximization, bounded rationality, game theory, rational expectations, and so on to Behavioral Economics.

What the blathering dilettantes of PsySoc and soapbox economics cannot and do not grasp is: If it isn’t macro-axiomatized, it isn’t economics. And because of this proven incompetence, they have to be expelled from the sciences.

From PsySoc to SysHum

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

Blog-Reference

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

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

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

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

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

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

What is the real subject matter of economics?

As a first approximation, one can agree on the general characteristic that the economy is a complex system.

However, with the term system, one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system, the market economy should be characterized more precisely as a complex hybrid system/human entity or SysHum (Luhmann, 1995).

The scientific method is straightforwardly applicable to the sys component but not to the hum component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons, the analysis has to start with the objective system component.

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

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

Egmont Kakarot-Handtke


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

Luhmann, N. (1995). Social Systems, Stanford, Stanford University Press. (For Luhmann's methodological development to AI, see link Apr 20, 2026)

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

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

Occasional Tweets: Oops, the scientific reset in economics already happened

 

#Economics#FailedScience#Reset#NewParadigm

Take notice that the move from false Walrasian #MicroFoundations and false Keynesian #MacroFoundation to #TrueMacroFoundations is an accomplished fact. Details:

The Paradigm Shift is an accomplished facthttps://t.co/cdG8xpZohk

— E.K-H (@AXECorg) February 13, 2021

Reset / New Economic Thinking / Paradigm Shift

• Paradigm Shift
• The Paradigm Shift is an accomplished fact
• Ending the pluralism of provably false economic theories with the long-overdue Paradigm Shift
• Forget mainstream economics, scrap MMT, move on to the new Paradigm
• The inexorable Paradigm Shift in economics
• Traditional Heterodoxy’s paradigmatic impotence
• Homo oeconomicus: the never-ending folk-psychological shitshow
• Critique is good, refutation is better, Paradigm Shift is best
• From false micro to true macro: the new economic Paradigm
• The new macroeconomic Paradigm
• First Lecture in New Economic Thinking
• Cross-references Paradigm Shift

The existence of economic laws and the nonexistence of behavioral laws

Comment on Lars Syll on ‘The non-existence of economic laws’

Blog-Reference

Economists, like most human beings, are most interested in watching other human beings, interpreting their actions, and second-guessing their motives. After all, between the individual human being and Nature or the Universe stands society and all the stories the respective societies tell about Nature or the Universe or reality or history or the hereafter. From the history of the sciences, we know that virtually all of societal storytelling is logical and factual rubbish. The greater part of humanity never transcends parochial social rubbish. Plato famously described the epistemological condition with the cave metaphor, and Buddha with the metaphor of the blind men and the elephant.

Accordingly, the representative economist is as deeply convinced as any flat-earther that economics is about the behavior of human beings as far as it relates to what Marshall called ‘the ordinary business of life’. And this is why standard economics is built upon the behavioral axiom that homo oeconomicus is a utility maximizer (Weintraub, 1985, p. 147).

And this is the fundamental methodological blunder because there is no behavioral assumption whatever that can play the role of an axiom. Why? Let us go back to Aristotle’s first principle of 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.” (Posterior Analytics)

Now, there is no proposition about human behavior that is ‘certain, true, and primary’ because human actions are original. This has been known to the scientists of all ages: “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown, 2011, p. 211)

Scientists of all ages knew that there is, as a matter of principle, no such thing as a behavioral law or anything close to it. Economists, of course, are incompetent scientists and therefore never had much compunction to postulate/accept constrained optimization as their foundational premise. The other methodological lunacy has been to take equilibrium into the set of axioms (Weintraub, 1985, p. 147).

The representative economist has not gotten the point until this very day. As Krugman put it on his blog, “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...” More than 100 years after Jevons/Walras/Menger and the total failure of the neoclassical program, this is simply self-debunking idiotism.

All the more so as economics, to begin with, is not a science of behavior (Hudík, 2011). #1 Economics is not a so-called social science like psychology/sociology, and not a natural science like physics, but a systems science.

Methodologically correct economics starts with the systemic behavior of the monetary economy. There are systemic laws, for instance, the Profit Law (2015) or the macroeconomic Law of Supply and Demand (2014), but no behavioral laws. Utility-based demand and supply functions have traditionally been swallowed by economists hook, line, and sinker, but will never be accepted by anybody with a modicum of scientific instinct. The economist’s proper task is to look out for objective systemic laws and to empirically verify/falsify them. Science is about the invariants beneath changes on the surface and not a commonsensical description of what happens here and now.

The representative economist never got the crucial methodological point, and this is why economics is a failed science. Orthodoxy builds from false premises, and Heterodoxy is stuck in the methodological cul-de-sac that economics is a social science. On this premise, all that is possible in economics is vacuous blather about beneficial/harmful self-interest, the alleged functioning of markets, the mind-boggling complexity of reality, and the ultimately incomprehensible governance of the Invisible Hand.

The fact of the matter is that the monetary economy is governed by systemic laws that are comprehensible to the scientific mind, which in turn necessarily excludes economists of the Walrasian, Keynesian, Marxian, and Austrian sect.

Egmont Kakarot-Handtke


References
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Kakarot-Handtke, E. (2014). The Law of Supply and Demand: Here it is, finally. SSRN Working Paper Series, 2481840: 1–17. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. URL
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

#1 For details of the big picture, see cross-references Not a Science of Behavior.

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Objective-systemic (= non-behavioral) Economic Laws on Graphic AXEC112c