MMT vs Mainstream: examining proto-scientific garbage in detail

Comment on Noah Smith on ‘Examining an MMT model in detail’

Blog-Reference and Blog-Reference and Blog-Reference

MMT claims that mainstream economics is defective. MMT is right. Noah Smith, in turn, claims that MMT is defective. Noah Smith is right. The scientific fact of the matter is that the major approaches ― Walrasianism, Keynesianism/MMT, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and that all get the foundational concept of the subject matter ― profit ― wrong. Economics is a failed science. By consequence, any discussion between Mainstream and MMT never gets above the level of moronic blather.

Noah Smith becomes concrete and debunks an MMT model of Pavlina Tcherneva. However, he messes up the debunking. Generally speaking, the blunder of MMT lies in the macroeconomic foundations. Noah Smith, though, gets stuck with criticizing this assumption: “The economy produces one service only, fighting fires.”

To make matters short here: the lethal blunder of MMT lies in the macroeconomic accounting identity G+I=T+S (i). Written as sectoral balances equation this gives (I−S)+(G−T)=0 (ii) or I=S (iii) for the elementary case of G,T=0.

I=S is provably false since Keynes’ General Theory (p. 63) but neither MMTers nor Mainstreamers like Noah Smith have realized it to this day.#1, #2 The reason is that economists are too stupid for the elementary mathematics that underlies macroeconomics.

The correct sectoral balances equation reads (I−S)+(G−T)−(Q−Yd)=0 (iv) with Q as macroeconomic profit and Yd as distributed profit. Curiously, the word profit does NOT appear in MMT models. Curiously, Noah Smith does not realize this. Without realizing it, the whole MMT vs Mainstream discussion goes about a zero profit economy. As long as this planet exists there NEVER was a zero profit economy. Macroeconomics is false since Keynes.

When the theory is false the policy guidance is false. Equation (iv) can be reduced to the limiting case Q=(G−T) (v) which says in plain words Public Deficit = Private Profit. In even plainer words, the MMT policy of permanent deficit-spending/money-creation is a permanent free-lunch for the Oligarchy. The empirical result is the somewhat biased distribution of income and financial wealth that most people find somewhat irritating. MMTers, though, sell their proto-scientific garbage as a benefit for the ninety-nine-percenters.

It holds with mathematical certainty: MMT is a scientific/social/political fraud ― just like the Mainstream.

Egmont Kakarot-Handtke


#1 Wikipedia and the promotion of economists’ idiotism
#2 For the full-spectrum refutation of MMT see cross-references MMT

Related 'MMT vs WSJ: Another futile exercise in moron bashing' and 'Refuting MMT’s Macroeconomics Textbook' and ''MMT: fundamentally false' and 'Dear idiots, time to get saving and investment straight (II)' and 'Dear idiots, time to get saving and investment straight (I)' and 'Dear idiots, government deficits do NOT cause inflation' and 'Dear idiots, government deficits do NOT fund private savings'.

Immediately following The canonical macroeconomic model.

Economics: 200+ years of scientific incompetence and fraud

Comment on Noah Smith on ‘Is economics a science?’

Blog-Reference

“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)

The fact of the matter is that economists do NOT have the true theory. More precisely, economists do not know how the price and profit mechanism works. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong.#1 With the pluralism of provably false theories economics sits squarely at the proto-scientific level.

The representative economist either does not realize it or cannot officially admit it. In this dire situation, the Pavlovian reaction is always and everywhere to muddy the waters and to retreat deeper into the swamp. Noah Smith is no exception, he rhetorically asks: “What the heck is a ‘science’?” and answers “No one knows.”

This is patently false. Science is ― since the ancient Greeks made the distinction between opinion (= doxa) and knowledge (= episteme) ― well-defined by material and formal consistency: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

The first question to Noah Smith: if no one knows what science is how does it come that we have a prize with the title “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.#2 And how does it come that economics is since Adam Smith/Karl Marx explicitly defined as science? And what does every economist learn in Econ 101?: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins)

The fact is that economics claims to be a science but is what Feynman called a cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

What is missing is the true theory. Economics is a failed science because none of the major approaches satisfies the criteria of material and formal consistency. When this is pointed out economists immediately retract and fire their barrage of brain-dead excuses.#3 Noah Smith applies the same old defense maneuvers. Needless to emphasize that every single of these excuses has been refuted long ago.

Economists have found a way to deal with the problem of manifest failure: they simply ignore and violate scientific standards. Or, as Blaug put it, they are playing tennis with the net down. Morgenstern reminded his fellow economists back in 1941: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.”

This is why Walrasianism is still around although it has already been dead in the cradle 150+ years ago. Standard economics has been based on provably false axioms but economists proudly cling to them until this day: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” (Krugman) Note in passing that maximization and equilibrium are NONENTITIES like angels or the Easter Bunny. Time for Krugman and the rest to end stubborn self-delusion: all equilibrium models are a priori false and this starts with textbook supply-demand-equilibrium.#4

Economics is a failed science because economists (i) are scientifically incompetent, and (ii), violate scientific standards/ethics on a daily basis. Since Adam Smith, economic policy guidance has never had sound scientific foundations. Both, orthodox and heterodox economists sell proto-scientific garbage in the bluff package of science.

In order to become a science, economics needs a Paradigm Shift.#5 Nothing less will do.

Egmont Kakarot-Handtke


#1 First Lecture in New Economic Thinking
#2 The real problem with the economics Nobel
#3 Failed economics: The losers’ long list of lame excuses
#4 The father of modern economics and his imbecile kids
#5 The identification problem and the dumping of the old guard

Related 'Yes, economics is a bogus science' and 'Media-fake-farce-fraud-storytelling-macro' and 'Schizonomics' and 'The miracle cure of economists’ micro-macro schizo'. For details of the big picture see cross-references Scientific Incompetence and cross-references Proto-Science/Cargo Cult Science/Science and cross-references Failed/Fake Scientists.

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REPLY to Jake Thompson on Jun 18

You argue: “It’s certainly, by a long shot, the most scientific of the social sciences.”

Your lethal methodological blunders are:
(i) The underlying binary code of science is true/false with NOTHING in between. Because of this, economics is either a science or not. The statement, that economics is more scientific than X, is entirely devoid of meaning. (Just like the statement, Jake Thompson is by a long shot more innocent than Lee Harvey Oswald. Guilty/not guilty is also binary with NOTHING in between.)
(ii) Scientific truth is well-defined by material and formal consistency. It is not an easy task to establish scientific truth but from these practical difficulties cannot be concluded that it does not exist or that anything goes.
(iii) The major approaches ― Walrasianism, Keynesianism, Marxianism, and Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept of profit wrong.

Conclusion: Economics is NOT a science.

In order to rise above the proto-scientific level, economics needs a Paradigm Shift.#1 What failed economists first of all have to understand is that economics is NOT a social science but a systems science. To define economics as a social science has been the foundational blunder 200+ years ago. Being scientifically incompetent, though, economists will not understand this. It is Catch 22 and the representative economist is trapped in the scientific coal pit.#2


#1 For details see Redefining economics and cross-references Paradigm Shift
#2 “... but when the road ends at a coal-pit, he [the traveler] doesn’t need much judgment to know that he has gone wrong, and perhaps to find out what has led him astray.” (Hume) Obviously, you lack even this tiny quantity of judgment.

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REPLY to Anonymous on Jun 20

You argue: “Some parts of Econ are a science (game theory and I’d argue basic macro in simple markets) while the rest is more of an art (everything else).”

You are trying to evade a clear-cut conclusion and your argument is way beside the point.
(i) Economics is either a science or not. That some parts of it are acceptable is irrelevant. Every false theory has acceptable parts. Even the flat earth theory has some content that is true. False theories are always partially and commonsensically true. This is exactly why they can survive.
(ii) Game theory is NOT economics because economics does not deal with human behavior but with the behavior of the economic system. Economics is a systems science and all Human Nature/behavior issues belong to psychology, sociology, anthropology, and so on. To define economics as a social science has been the foundational blunder 200+ years ago.
(iii) Basic macro is provably false.#1
(iv) To call economics an art is simply a euphemism.

The conclusion is inescapable: Economics is NOT a science.


#1 For details see Textbooks and the mental cloning of dumb economists and Why Post Keynesianism Is Not Yet a Science.

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REPLY to Anonymous on Jun 24

You say: “Tell me your definition of science and we can debate this further.”

(i) Science is well-defined for 2300+ years. There is NO such thing as “my” or “your” definition. Because of this, there is NOTHING to debate.
(ii) Either one complies with the well-defined and well-known scientific standards or one is outside of science.
(iii) Economics is materially and formally inconsistent and therefore outside of science.#1
(iv) The definition of science has been given in the post above.#2 It seems that your attention span is less than that of a fruit fly.
(v) You say “I thought rational choice theory and behavioral economics was a thing.” Yes, this is the defining characteristic of the scientifically incompetent economist.#3
(vi) All of your arguments show that you are trying to play silly semantic games.


#1 “… suppose they [the economists] did reject all theories that were empirically falsified … Nothing would be left standing; there would be no economics.” (Hands)
#2 See here or here
#3 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist

Just one more absurdity

Comment on Noah Smith on ‘Occult Mysteries of the Heterodox’

Blog-Reference

The major problem of economics is not that the subject matter is occult but that economists are stupid.

From the Palgrave Dictionary, every student of economics can know: “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10)

Let this sink in: Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionalists, nor Monetary Economists, nor MMTers, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Therefore, ALL these approaches fail to capture the essence of the market economy.

It is self-evident: an economist who cannot tell the difference between income and profit has nothing worthwhile to say about how the economy works. Economics is at the level of medieval physics before the concept of energy and the difference between potential and kinetic energy was properly understood.

In fact, it is even worse. Not to understand a physical or social phenomenon is the natural state of human beings. But to offer an explanation that is false on the face of it is to violate well-defined scientific standards.

An orthodox economist subscribes to this set of 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, 1985, p. 109)

This set is unacceptable as the foundation of economics. Some economists have clearly seen this and drawn the logical conclusion: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)

And here is the crux: neither orthodox nor heterodox economists have until this very day any clue about ‘what it might mean’.

Orthodoxy is unacceptable and indefensible. Before he even opens his mouth, the orthodox economist has disqualified himself as scientifically incompetent. So, Noah Smith is, to begin with, not at all in the position to criticize Heterodoxy for a lack of methodologically sound foundations.

To top the absurdity, instead of refraining from spreading the provably false orthodox approach and doing his own research, Noah complains about not being spoon-fed with the true economic theory for free. To recall, the first thing every Econ 101 student learns as the gospel of Orthodoxy is that there is no such thing as a free lunch.

Indeed, logic has never been the strong point of economists and this is why they are for more than 200 years behind the curve: “We are not yet out of the wood; in fact, we are not yet in it.” (Schumpeter, 1994, p. 7)

This applies to Orthodoxy in general and to Noah Smith in particular.

Egmont Kakarot-Handtke


References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online,1–11. Palgrave Macmillan, 2nd edition. URL
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, etc.: Cambridge University Press.

Immediately preceding How to rise above proto-scientific garbage.

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REPLY  to rosserjb on Mar 5

It is widely known that the universal quantifier ALL may in some cases lead to a paradox (see Wikipedia). You are perfectly right to remind me of this.

By consequence, the statement ‘economists are stupid’ has to be replaced by ‘economists are stupid ― except those who assert that economists are stupid’. A good example is provided by Hausman: “If one takes seriously what Popper says about falsifiability and the critical attitude, then the methodological practice of economics is not only mistaken, it is stupid and intellectually reprehensible.” (1992, p. 275)

This applies to Orthodoxy in general and to Noah Smith and you in particular.


References
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.

Wrong question, wrong answer

Comment on Stephen Williamson on ‘Econ theory as signaling?’

Blog-Reference

Noah Smith starts his post with the circumspect question: “Assuming ... DSGE models really don’t work, why do so many macroeconomists spend so much time on them?”

Note, that he does not straightforwardly assert: “DSGE does not satisfy the scientific criteria of material and formal consistency.”

Stephen Williamson takes this clear signal of spinelessness as an invitation and shifts the issue rhetorically away from the crucial point by starting the second-guessing meta-communication game: “When I read that, here’s what I think you’re thinking. ‘Don’t work’ means useless.”

Noah Smith is now trapped in a very inconvenient corner and he gets the knockout: “Now, most of what I do would fall under ‘DSGE,’ if I take the term literally. I’m somewhat outside the mainstream, but I’ve bought into the idea that formal modeling is useful, optimization is useful, RE is useful. So, I think you’re telling me that what I know is useless, and what I do is useless. And I get paid to do what I do, which is full-time research in macro, giving policy advice, etc. By implication, it seems you’re saying that you could do my job as well or better than I can. Is that correct?”

No! For heaven's sake, no! Everybody knows that Noah Smith never wanted to say that he could do Stephen Williamson’s job better.

So, let us now get out of this ridiculous little game and put things straight.

(i) DSGE is provably false according to the scientific criteria of material and formal consistency.

(ii) What the proponents of DSGE including Stephen Williamson offer as knowledge is NOT knowledge=episteme but opinion=doxa. “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). DSGE is NOT the true economic theory. Just the contrary: DSGE is axiomatically false.

(iii) Because they do not have the true theory economic policy advice of the proponents of DSGE has NO scientific foundation but is at the same level as poultry entrails reading.

(iv) Right policy depends on true theory. Therefore, to say what the proponents of DSGE do is useless is a euphemism. As a matter of fact, they got price theory, profit theory, and employment theory wrong and therefore ultimately bear the intellectual responsibility for the social devastations of unemployment. DSGE is NOT a “healthy scientific activity” but a scientific failure.

What Noah Smith and Stephen Williamson are unmistakably signaling is that economists are not useless but a menace to their fellow citizens.

Egmont Kakarot-Handtke


References
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.

Related 'Economics is locked in idiocy: How could this happen?'

The flat-earth realism of economists

Comment on Noah Smith on ‘Realism in macroeconomic modeling’

Blog-Reference

Noah Smith discusses a cool paper: “Ljungqvist and Sargent have a new paper synthesizing much of the work that’s been done in labor search-and-matching theory over the past decade or so.”

Like Ljungqvist and Sargent and the 99-percent majority of scientifically incompetent economists, Noah Smith has not realized that microfoundations is a failed approach for 150+ years. This becomes as obvious as anybody could wish when microfoundations are applied to macroeconomic issues.

The Iron Law of Economic Methodology says: NO WAY leads from the explanation of individual/social human behavior to the explanation of how the monetary economy works. In other words, the microfoundations approach has already been dead in the cradle because it is bound to crash with absolute necessity into the Fallacy of Composition.

By consequence, not only macroeconomics but the whole of economics has to be macrofounded. #1 Macrofoundations provide a consistent framework for microanalysis. Economic analysis has to switch from bottom-up to top-down.

In the following, a sketch of the formally and empirically correct employment theory is given. #2 The basic version of the objective-structural-systemic Employment Law reads (Graphic AXEC62)

This macroeconomic equation is not merely “realistic” but REAL because it consists entirely of measurable variables. It follows:
(i) An increase in the expenditure ratio ρ_E leads to higher employment (the Greek letter ρ stands for ratio). An expenditure ratio ρ_E greater than 1 means dissaving or credit expansion, a ratio ρ_E less than 1 means saving or credit contraction.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρ_F≡W/PR leads to higher employment.

The complete AND testable Employment Law is a bit longer and contains, in addition, profit distribution, public deficit spending, and foreign trade.

Items (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρ_F as defined in (iii) embodies the price mechanism which, however, does not work as the microfounded cargo cult economist hallucinates. The fact is that overall employment INCREASES if the average wage rate W INCREASES relative to the average price P and productivity R. THIS is the key to full employment policy.

It is pretty obvious to anyone with one iota of scientific instinct that one cannot figure out the determinants of overall employment by applying a brain-dead, microfounded, “realistic”, maximization-and-equilibrium labor search-and-matching model.

It is time now for Ljungqvist and Sargent to retire and for Noah Smith to follow suit.

Egmont Kakarot-Handtke


#1 This is the minimalist set of macroeconomic axioms: (A0) The objectively given and most elementary systemic configuration of the production-consumption 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.
#2 For the comprehensive treatment, see Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster

Getting out of the economics swamp

Comment on Noah Smith on ‘Vast literatures as mud moats’

Blog-Reference and Blog-Reference adapted to context

You say: “The point is, a bunch of smart people can get very big things wrong for a very long period of time, and that period of time may include the present.”

True, this happened with geocentrism for roughly 1500 years, starting with the smart mathematician, astronomer, and geographer Ptolemy around 100 AD. It happened again with economics, starting 200+ years ago with the not-so-smart Adam Smith. As a result, it holds for economics in general that “the vast literature actually contains more misinformation than information.”

The situation in economics is special insofar as 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, and the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics, anything goes; in theoretical economics, scientific standards are observed.

Political economics as a whole is scientifically worthless. The proper place for this “vast literature” is the wastebasket. Political economics is easily recognizable by its swampiness. Swampiness is what Popper called an immunizing stratagem because: “Another thing I must point out is that you cannot prove a vague theory wrong.” (Feynman) Therefore, the political economist is mainly occupied with producing a methodological smoke screen that consists of vague concepts, anything goes, pluralism of false theories, alleged complexity, ontological uncertainty, unreliable data, the faux humility of ‘I know that I know nothing’, and the post-modern replacement of true theory by an emotional narrative. #1

The beauty of the swamp, ‘where nothing is clear, and everything is possible’ (Keynes), is that logical and empirical failure is inconsequential. #2 What you call the mud moat has indeed saved the life of the representative economist for 200+ years.

The other part of the “crappy vast literature” consists of methodological blunders, i.e. stuff that does not satisfy the scientific criteria of material and formal consistency. This holds for everything that comes under the banner of Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism. These approaches are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL got the pivotal economic concept of profit wrong.

There are the hard rocks of true or false and the swamp between them. The swamp is the natural habitat of agenda pushers, confused confusers, incompetent scientists, political economists, status-quo inertionalists, commonsensers, and anti-scientists. The very characteristic of science is to relentlessly drive the question under discussion to the point of a clear-cut decision between true or false, in other words, to get out of the swamp: “We are lost in a swamp, the morass of our ignorance. … We have to find the roots and get ourselves out! … Braids or bootstraps are necessary for two purposes: to pull ourselves out of the swamp and, afterwards, to keep our bits and pieces together in an orderly fashion.” (Schmiechen)

The braids or bootstraps of science are material and formal consistency. Formal consistency is established by the axiomatic-deductive method, and material consistency by state-of-the-art testing.

The very characteristic of economics is that the “vast literature” consists of inconsistent and inconclusive blather or politics dressed up as science. So, perhaps 90 per cent of the content of peer-reviewed quality journals consists of models/theories that are axiomatically false. Axiomatically false means based on false Walrasian microfoundations or false Keynesian macrofoundations or ad hoc, plucked out of thin air. Therefore, the one and only interesting question in the given situation is how to achieve the paradigm shift from defective microfoundations and macrofoundations to materially and formally consistent macrofoundations. #3

Accordingly, the straightforward criterion for disposing of the “crappy vast literature” speedily into the wastebasket is: If it isn’t macro-axiomatized, it isn’t economics.

Egmont Kakarot-Handtke


#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 The political economist and incompetent scientist Keynes was one of the loudest defenders of conceptual vagueness: “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)
#3 True macrofoundations: the reset of economics

Related 'Macroeconomics: Drain the scientific swamp' and '#DrainTheScientificSwamp' and 'What is so great about cargo cult science? or, How economists learned to stop worrying about failure' and 'Solving Mill’s starting problem' and 'A new curriculum for swampies?' and 'It is better to be precisely right than roughly wrong' and 'Economic recommendations out of the swamp between true and false' and 'And the answer is NCND ― economics after 200+ years of Glomarization' and 'Marshall and the Cambridge School of plain economic gibberish' and 'Why J. S. Mill had no friendly word for the bigots and votaries of common sense' and 'Mental messies and loose losers'.

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REPLY to Barkley Rosser & other swampies on May 21

Noah Smith’s post has been titled “Vast literatures as mud moats” and deals with the use of cargo cult science for agenda pushing. Mud moats are just another term for the phenomenon which I call swampiness.

Noah Smith’s argument does not only apply to the production of scientifically worthless papers but a fortiori to blog posts.#1 It is pretty obvious that EconoSpeak is in the business of swampification. The proof is in Barkley Rosser’s recent posts about Trump, Putin, populism etcetera which do not contain one single atom of valid economics.

When Barkley Rosser occasionally turns to economics, swampiness goes into hyperdrive. To recall, Noah Smith’s argument has been: “If you and your buddies have a political argument, a vast literature can help you defend your argument even if it’s filled with vague theory, sloppy bad empirics, arguments from authority, and other crap.”

This is the actual situation in economics: economic policy arguments and proposals have NO sound scientific foundation. How does Barkley Rosser counter this argument, which applies to Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism alike? With the recommendation to read good review essays. This is off the point, like recommending not to drink leaded water but to take the lead in the more convenient pill form.

Good review essays, of course, are NOT the way to get rid of the “crappy vast literature” that has been produced by incompetent scientists and agenda pushers. Good review essays only preserve the swamp. Harcourt’s review of the capital controversy is a case in point.

The ambition of science is, of course, to drain the swamp of mere opinion and to eventually reach the firm ground of true theory. Lifelong swampies who see their natural habitat in jeopardy quite naturally defend it.#2 This is why Walrasians, Keynesians, Marxians, and Austrians are currently so busy producing even more mud in the econblogosphere. Barkley Rosser and his buddies, in their utter scientific incompetence, are setting up new records in mud production.


#1 Feynman Integrity, fake science and the econblogosphere
#2 Failed economics: The losers’ long list of lame excuses

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Graphic AXEC121g

Macroeconomics: Economists are too stupid for science

Comment on Noah Smith on ‘Beware of Economic Theories Claiming to Explain Everything’*

Blog-Reference and Blog-Reference (Link) and Blog-Reference (Link)

“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)

The goal of science is the true theory. The true theory is the human's best mental representation of reality. Science has been defined for 2300+ years by material and formal consistency. Logical consistency is secured by applying the axiomatic-deductive method, and empirical consistency is secured by applying state-of-the-art testing.

According to the criteria of material/formal consistency, economics is a failed science. Economists do not possess a true theory. The fact of the matter is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter ― profit ― wrong.

Non-science is the swamp between true and false where ‘nothing is clear and everything is possible’ (Keynes). This corresponds approximately to Noah Smith’s mistaken idea of science: “What it [orthodox macroeconomics] is, is science. Not the clean, idealized lab science of physics or chemistry, or the simple, convincing studies of microeconomics. But as messy and limited as it is, empirical macro represents a real, honest, ongoing attempt by dedicated researchers to explore the ins and outs of a hideously complex and hard-to-measure system. Someday, thanks to their modest, diligent efforts, we will probably understand the phenomena of booms and busts much better than we do now.”

Noah Smith thinks that Orthodoxy has a communication problem: “But elected politicians looking for a bold policy program and asset managers looking for a bold investment thesis are frequently tempted by heterodox economic theories claiming to have simple, sweeping solutions. Two examples are Austrian economics and modern monetary theory.” And: “The boldness and confidence of these predictions — and the comparative lack of math — makes these theories much more attractive to politicians and investors compared to the turgid scribblings of professors.”

No, communication is neither the problem of Orthodoxy nor of Heterodoxy. Scientific content is the problem. Both Orthodoxy and Heterodoxy are proto-scientific garbage. Both orthodox and heterodox economists are scientifically incompetent. As a consequence, Noah Smith’s conclusion misses the point: “In other words, both policy makers and politicians should be reluctant to embrace the sweeping claims of unconventional theorists. Instead, a cautious approach, relying on judgment, data, and an eclectic mix of theories, seems best.”

There is no way around it: economics does NOT need an “eclectic mix” of provably false theories but the true theory. After 200+ years, economics has to get out of the swamp of what Feynman called cargo cult science. In methodological parlance, economics has to abandon false Walrasian microfoundations#1 and false Keynesian macrofoundations#2 and move to true macrofoundations.#3 Economics needs a Paradigm Shift. The materially/ formally inconsistent orthodox and heterodox models have to be buried at the Flat-Earth Cemetery. All orthodox and heterodox economists have to be expelled from the scientific community.

To this day, the axiomatic foundations of economics are provably false. This holds for Walrasianism, Keynesianism, Marxianism, Austrianism, and also for MMT.#4 MMT has the methodological advantage that it is based on a clearly defined sectoral balances equation. This enables the straightforward application of the scientific method. Accordingly, the question is which of the two foundational macroeconomic equations is true, i.e., materially and formally consistent:

• the MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 or
• the axiom-based equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0.

Both equations consist of measurable variables and are testable with the precision of two decimal places. This is a clear-cut true/false question that can be unambiguously decided according to well-established scientific criteria.

The MMT equation is logically/mathematically false. Economists are too stupid for the elementary mathematics that underlies macroeconomics.#5 Because of this, the whole analytical superstructure of MMT is false. Because the theory is false, MMT policy guidance has NO sound scientific foundations ― just like Walrasianism, Keynesianism, Marxianism, and Austrianism.

Right policy depends on true theory. To this day, economists do NOT have the true theory. There is no escape: false theory becomes political fraud#6 and incompetent scientists become useful political idiots. This is the state of present-day economics.

Egmont Kakarot-Handtke


* BloombergOpinion
#1 Microfoundations are given with this axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub) Accepting these axioms has always been a reliable indicator of idiocy.
#2 How Keynes got macro wrong and Allais got it right
#3 True macrofoundations are given with this axiom set: (A0) The 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.
#4 Hooray! The formalization issue is finally settled
#5 Wikipedia and the promotion of economists’ idiotism (II)
#6 MMT: How mathematical incompetence helps the Kelton-Fraud

Related 'Economists: too stupid for counting' and 'Knowledge is attainable ― even in economics' and 'How economists murdered the economy and got away with it' and 'Economics is locked in idiocy: How could this happen?' and 'Dani Rodrik, fake scientist' and 'Still beyond the reach of economists: The Holy Grail of Science' and 'Are economists natural born scientific failures?' and 'Confused Orthodoxy vs. confused Heterodoxy' and 'Eclecticism, anything goes, and the pluralism of false theories' and 'The creative destruction of Wren-Lewis' and 'The biggest scientific mistake of the last centuries, and it has much to do with academic economists' and 'Why is economics a total scientific failure?' and 'Economists: Either stupid or corrupt or both' and 'From Keynes’ fatal blunder to the true economic model' and 'Mad but true: 200+ years after Adam Smith economists still have no idea what profit is' and 'Smart young empirically-minded economists: another vain hope' and 'Media-fake-farce-fraud-storytelling-macro' and 'Economists: Either stupid or corrupt or both' and 'Proving Bill Mitchell wrong ― burying MMT for good' and 'The canonical macroeconomic model' and 'There is NO such thing as “smart, honest, honorable economists”' and 'Profit' and 'Your economics is refuted on all counts: here is the real thing'.

***

Graphic AXEC118d

Economists’ proto-scientific shell games

Comment on Noah Smith on ‘Can rationalist communities still change the world?’

Blog-Reference

Changing the world is easy. From history and fresh personal experience, we know that any moron can change the world. Change is a weasel word that covers both improvement and deterioration. In public discourse, it is therefore regularly used to euphemize a deterioration. When a politician speaks of change people know that things are NOT going to be better but worse.

The word change is ideally suited for verbal shell games. The same holds for rational community. Without these weasel words, Noah Smith’s question should read: ‘Can scientists still improve the world?’ His answer is, with some caveats, in the affirmative: “… I think it’s still clear that a relatively small community of smart people [e.g. “a group of physicists, mathematicians, and engineers who came out of Europe in the early 20th century”] can change the world.”

After this framing, the shell game begins: “Another group that changed the world was the Chicago School of economics.” By simple association we now have: economics = science, smart people = Chicago School, change = improvement.

The first thing to notice is that there is NO such thing as economics: there is theoretical economics and political 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.

Theoretical economics has to be judged according to the criteria true/false and NOTHING else. A closer look at the history of economic thought shows that theoretical economics had been hijacked from the very beginning by the agenda pushers of political economics. Smith, Ricardo, Malthus, Marx, Keynes, Hayek, Friedman, Krugman, Lucas and almost everybody in-between falls into the category of political economist.

Political economics has produced NOTHING of scientific value in the last 200+ years. And if there ever was a political sect that violated the scientific standards of material and formal consistency then the Chicago School.

So, Noah Smith’s shell game has to be set right: economics = cargo cult science, agenda pushers = Chicago School, change = deterioration. To be sure “Gary Becker, Robert Lucas, Milton Friedman, Ronald Coase, Frank Knight, and many others” will never be accepted in the community of scientists. They have to be content with the membership of the political club Mont Pelerin.

Egmont Kakarot-Handtke


Immediately following Toward the New Academy.

Related 'Scientists and science actors'.

Stephanie and Noah ― economics at the intellectual zero lower bound

Comment on Stephanie Kelton/Noah Smith on ‘Just When Should We Start Worrying About Deficits?’

Blog-Reference and Blog-Reference

This is the point at issue: “The Congressional Budget Office just said it expects the deficit to top $1 trillion in 2019, a record. Should we be worried?”

This is an open invitation for Stephanie Kelton to enthusiastically push the agenda of the oligarchy:#1

• “What I find interesting is … the fact that Republicans added roughly $2 trillion in stimulus at a time when nearly everyone said it shouldn’t be done, citing proximity to full employment. ‘You don’t do stimulus at full employment,’ was basically the argument. Well, here we are well into the experiment and ... what’s the problem? Inflation remains in check, unemployment has ticked down a bit further, small business confidence is at a 45-year high and growth has accelerated.”

• “And, as you note, they helped without raising inflation, which tells me they didn’t overstimulate, which further tells me there may be room to do even more. Tax Cuts 2.0, anyone?”

• “And so while critics use terms like, ‘blowing up the deficit’ or ‘drowning in red ink’ to describe what’s happening to the government’s finances, Republicans seem more interested in the fact that their deficits will improve the private sector’s finances, especially the biggest corporations and wealthiest people in America. In other words, the GOP seems to understand that the government’s red ink is our black ink!”

• “The most intuitive way to show this is through the sector financial balances. This becomes clear if you listen to Hatzius explain why he thinks sector-balance analysis can send a signal when the private sector’s financial positions are becoming overly fragile. And because it’s nothing more than accounting, it also tells us that the crowding-out story is 100 percent wrong — a government deficit raises private sector incomes; it doesn’t crowd out private finance.” #2

The economic blunder/fraud is in the reference to MMT’s sectoral balances equation and in the assertion “the government’s red ink is our black ink.” No, it is not OUR black ink but THEIRS = the oligarchy’s black ink. #3

Noah Smith does not spot the lethal fault in Stephanie Kelton’s argument and merely waves with the inflation red-herring: “It seems like you’re agreeing with me that accelerating inflation is a risk of deficits. The question is whether that would come slowly or quickly.”

What, then, is the lethal fault in Stephanie Kelton’s argument? Fact is:

• The MMT sectoral balances equation, i.e. (I−S)+(G−T)+(X−M)=0, is provably false.#4 MMT has no sound scientific foundations.

• Neither Stephanie nor Noah ever mentions the profit effect of deficit-spending/money-creation.#5

• From the axiomatically correct Profit Law Qm≡Yd+(I−Sm)+(G−T)+(X−M) follows Public Deficit = Private Profit. #6

• Therefore, MMT economic policy ultimately boils down to the permanent growth of public debt, which is nothing else than the permanent self-alimentation of the oligarchy.

MMT is failed/fake science #7, and the proponents of MMT in general and Stephanie Kelton, in particular, are stupid/corrupt agenda pushers.

Egmont Kakarot-Handtke


#1 MMT: So-called Progressives as trailblazers for Trumponomics
#2 MMT = Modern Monetary Trash
#3 MMT and the single most stupid physicist
#4 Down with idiocy!
#5 Why the MMT benefactors of humanity never talk about profit
#6 Keynes, Lerner, MMT, Trump and exploding profit
#7 For the full-spectrum refutation, see cross-references MMT

***

REPLY to Ralph Musgrave on Sep 25

Noah Smith asked rhetorically ‘Just When Should We Start Worrying About Deficits?’

Stephanie Kelton answers with the MMT refrain Don’t worry, be happy. You parrot her with: “Personally, if my assets exactly equalled my debts, and I got a check from some sugar daddy, I would be LESS WORRIED (silly me) than prior to receiving the check.”

So, nothing to worry about except that what is unfolding in the grand political Circus Maximus is ― to use Stephanie Kelton’s words ― “one of the greatest cons ever perpetrated on the American people.”#1

The facts to worry about are:

• With their plea for deficit-spending/money-creation, Stephanie Kelton, her MMT colleagues, and the social media sales trolls push the agenda of Wall Street. #2

• MMTers claim to promote the cause of WeThePeople (care for jobs, health, education, social cohesion, public infrastructure, environment, etc.). These issues, though, are abused as talking points and door openers. MMTers call themselves Progressives, but de facto undermine the genuine social grassroots movements. #3, #4, #5

• In the Stephanie-Noah fake debate on Bloomberg, Stephanie Kelton does not talk any longer about her care for humanity but straightforwardly pushes for the next round of MMT deficit-spending/money-creation: “Tax Cuts 2.0, anyone?”

• Academic economics has entirely abandoned scientific standards and integrity. Not only have MMTers become full-time media clowns and useful political idiots. Academia, too, has become a failed institution.

• Economically, the point to worry about is that the US economy will die as soon as the growth of public and private debt slows down and eventually reverses. The axiomatically correct Profit Law says: increasing debt ⇒ macroeconomic profit up, decreasing debt ⇒ macroeconomic loss up. To this day, we have only experienced the first half of the debt story.


#1 MMT = Modern Monetary Trash
#2 MMT and the promotion of Wall Street's idea of social policy
#3 MMT and grassroots movements
#4 Political economics: Who hijacks British Labour?
#5 MMTers are NOT Friends-of-the-People

Econ 101 — worse than useless

Comment on Noah Smith on ‘Michael Strain and James Kwak debate Econ 101’

Blog-Reference

You summarize: “People like Krugman and Smith aren’t saying that Economics 101 is useless; ... The problem is that many people believe ... that those models are a complete description of reality from which you can draw policy conclusions ... “

Where the heck do people get these silly beliefs from?

Imagine a person has seen the promotional clips for a new car and decides to buy one. He jumps into the driver’s seat, starts the roaring engine, rolls a few meters, and then the car breaks down in a cloud of black smoke. The person takes the dealer to task, and he explains that there is no problem with the car, but ‘The problem is that many people believe that those promotion clips are a complete description of reality.’

It is exactly the same with economics. Economists advertise their stuff as science, well knowing that their theories/models break down at the next corner: “... suppose they did reject all theories that were empirically falsified ... Nothing would be left standing; there would be no economics.” (Hands, 2001, p. 404)

In fact, there is NO economics; there is merely Walrasianism, Keynesianism, Marxianism, and Austrianism, and all are provably false.

Given the proto-scientific state of economics, Noah Smith’s pedagogical advice, “It seems bad to give kids too strong of a false sense of certainty about the way the world works,” borders on absurdity. Obviously, it would be much better not to teach the kids this scientific garbage in the first place.

The very purpose of Econ 101 is to teach students the true theory and not a false theory with the disclaimer not to take it seriously. “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)

And this is the crux: economists do not have a true theory. The root cause is that 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, p. 147)

Methodologically, these premises are forever unacceptable because constrained optimization, rational expectations, equilibrium, etc., are NONENTITIES. This invalidates the whole theoretical superstructure from distribution to employment theory (2014a; 2014b). This, in turn, fully explains why empirical tests run into a vacuum. NONENTITIES simply have no real counterpart. What has to be done first is to fix the theory. This means the axioms HC1|HC5 have to go out of the window for good. Economics has to be rebuilt from scratch. #1

Right policy depends on true theory; everything else merely amplifies the confusion.

The necessary Paradigm Shift, though, is not to be expected from people who have not realized until this day that supply-demand-equilibrium or IS-LM are methodologically indefensible constructs that cannot be taken seriously for one minute. Economics, though, is caught in secular stagnation: “... most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992, p. 248).

Econ 101 is not entirely useless; it provides ample evidence that one can sell any green cheese behavioral assumption, any absurd claim, any proto-scientific garbage, and any silly excuse to economics students.

As far as the future of economics is concerned, that much is certain: it will take place without hand-waving half-wits like Strain and Kwak and Krugman and Smith or, for that matter, without scientifically incompetent Walrasians, Keynesians, Marxians, and Austrians.

Egmont Kakarot-Handtke


References
Hands, D.W. (2001). Reflection without Rules. Economic Methodology and Contemporary Science Theory. Cambridge, New York, etc: Cambridge University Press.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Kakarot-Handtke, E. (2014a). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Kakarot-Handtke, E. (2014b). Towards Full Employment Through Applied Algebra and Counter-Intuitive Behavior. SSRN Working Paper Series, 2456184: 1–25. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

#1 From microfoundations to macrofoundations

***

Graphic AXEC121k This is what the Paradigm Shift is all about

Heterodoxy

Comment on Noah Smith on ‘Economics Without Math Is Trendy, But It Doesn’t Add Up’

Blog-Reference and Blog-Reference adapted to context

Noah Smith is only partly correct. The whole truth is that Walrasianism, Keynesianism, Marxianism, and Austrianism are PROVABLY false, i.e. materially and formally inconsistent. It is not just about Orthodoxy and Heterodoxy. The ultimate reason for the all-around failure is the scientific incompetence of economists (including Noah Smith, of course).

For more details about the actual state see The scientific self-elimination of Heterodoxy and cross references Heterodoxy.

Egmont Kakarot-Handtke


Related 'Orthodoxy/Heterodoxy/Metadoxy'

Smart young empirically-minded economists: another vain hope

Comment on Noah Smith on ‘How should theory and evidence relate to each other?’

Blog-Reference and Blog-Reference adapted to context and Blog-Reference on May 17

Economics fits perfectly Feynman’s description of a cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

Economists have realized that science consists of two components theory and evidence: “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)

But, for some reason, economists do not get the two components properly together.#1 With regard to the criteria of material and formal consistency, economics is a failed science.

Currently, economists are in the mode of thorough self-critique. Yes, we have done too much math, yes, there has been too much abstract model building and too little empirics, etc. But then, all this was what ‘thinking like an economist’ was meant to be: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow)

Economists readily admit obvious blunders. But then these are declared the faults of the old guard and now the smart young economists are on the right track. The fact is, though, that the new guard, just like the old, does not really understand what science is all about.

Science is about general and invariant features of reality. In marked contrast, history is about unique event configurations on the surface that never repeat themselves. Science abstracts from all spatiotemporal details, which are so dear to the commonsenser and realist, because NO way leads from the history of falling apples to the universal Law of Falling Bodies. Nozick defines invariance in general terms: “An objective fact is one that is invariant under all admissible transformations.”

Non-scientists and historians are glued to the ever-changing surface, so they produce stories while scientists try to get hold of the underlying structure and produce laws = invariances. Economists are dimly aware of this: “That’s a good reason to want a good structural model.” (Noah Smith)

The lethal defect of economics is that it is microfounded, i.e. based on behavioral axioms.#2 Now it holds that (i) there is NO such thing as an invariant of human behavior, and (ii), NO way leads from the explanation of Human Nature/motives/behavior/action to the explanation of how the economic system works.

Economics is NOT AT ALL about human behavior, this is the subject matter of psychology, sociology, anthropology, biology, political science, etc., but about the behavior of the economic system. As a consequence, economics has to be macrofounded.#3

Economics has to step down as the fake Queen of the so-called social sciences in order to eventually become an honorable member of the systems sciences. This Paradigm Shift, clearly, is beyond the means of Noah Smith's smart young empirically-minded economists’.

Egmont Kakarot-Handtke


#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 The happy end of the social science delusion
#3 True macrofoundations: the reset of economics

Related 'What is REALLY wrong with macro' and 'Does Asad Zaman fly with POL or SCI Airlines?' and 'Macro imbeciles' and 'From the pluralism of false models to the true economic theory'

***

COMMENT on GW on May 17

You say: “I’d recommend closely reading and translating Blanchard’s ”

That is not such a good idea. Blanchard, too, is in deep methodological confusion. For details see:
► From the pluralism of false models to the true economic theory
► Eclecticism, anything goes, and the pluralism of false theories
► Getting out of IS-LM = Getting out of despair

Just for the record: Economics is dead

Comment on Noah Smith on ‘The new heavyweight macro critics’

Blog-Reference

Economics these days is NOT about criticizing macroeconomics in its DSGE/RBC incarnation but fully replace it because it is beyond repair.

Noah Smith writes “... recently, there have been a number of respected macroeconomists posting big, comprehensive criticisms of the way academic macro gets done.” (See intro)

What the respected macroeconomists overlook, though, is that there is NO WAY to improve a dead theory. There is nothing left to do but to bury it. So, what the critique of respected macroeconomists amounts to is the zombification of economics. These critical folks cannot be taken seriously as scientists. A scientist does not waste too much time with the critique of an obsolete research program but moves on to a progressive paradigm.

The first thing to notice is that the critical heavyweights miss the crucial point. Noah Smith reports: “Romer basically says that macro ... a community of believers, dogmatically following the ideas of revered elders and ignoring the data. The elders he singles out are Bob Lucas, Ed Prescott, and Tom Sargent.” (See intro)

Depicting the DSGE/RBC crowd as a quasi-religious sect is a silly ad hominem argument. Every economist should know from Schumpeter: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

The decisive argument against DSGE/RBC is that it is scientifically forever unacceptable because it is materially and formally INCONSISTENT. Whether the adherents of DSGE/RBC appear weird to non-adherents is absolutely IRRELEVANT. Science is well-defined for more than 2300 years: “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)

The simple fact is that DSGE/RBC is PROVABLY inconsistent and needs to be replaced. The more embarrassing fact, though, is that this holds to the same extent for Walrasianism, Keynesianism, Marxianism, Austrianism, MMT which means that there is nothing left of economics to be taken seriously.

How can we be absolutely sure that the critical heavyweights are as scientifically incompetent as the DSGE/RBC crowd? Well, simply look at their ad hominem arguments and their ridiculous solutions: “As a solution, Romer suggests chucking formal modeling entirely and going with more general, vague but flexible ideas about policy and the macroeconomy, supported by simple natural experiments and economic history.” (See intro)

Lo and behold, this has always been the methodological mantra of those microfoundations lacking Keynesians: “It is better to be roughly right than precisely wrong!”#1 Science, though, is digital=binary=true/false and NOTHING in between. There is NO such thing in science as roughly right or roughly wrong, it is only materially/formally true/false.

Vague blather, untestable wish-wash, and storytelling have always been the hallmark of what Feynman famously called cargo cult science: “Another thing I must point out is that you cannot prove a vague theory wrong.” (Feynman, 1992). To immunize a theory/model against refutation and thereby to save their job has always been the apex of smartness of the scientifically incompetent.

Economics has not lived up to scientific standards in the last 200+ years. Economists are well aware of this and therefore try to question the standards and to ‘play tennis with the net down’ (Blaug). Unsurprisingly, the representative economist’s methodology of choice turns out to be postmodern-new-age-pluralistic-anything-goes. Make no mistake, the ‘throng of superfluous economists’ (Joan Robinson) feels at home in the swamp where “nothing is clear and everything is possible” (Keynes).

Critique and good advice of Romer, Kocherlakota, Krugman, Rodrik, and other scientific underweight are worthless: “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)

What the Grand Coalition of Failed Economists (Walrasians, Keynesians, Marxians, Austrians, MMT) wants least but economics needs most is a new theory, or in methodological terms, a Paradigm Shift.#2 The only thing left to do for these scientific deadweights is to get out of the way.

Egmont Kakarot-Handtke


#1 How Keynes got macro wrong and Allais got it right
#2 For details of the big picture see cross-references Paradigm Shift

Related 'Modern economics is dead' and 'Economics: failure, fake, fraud' and 'Macroeconomics: Economists are too stupid for science' and 'Economics: The greatest scientific fraud in modern times' and 'Macroeconomics and the fake History of Economic Thought' and 'MMT and the canonical macroeconomic model' and 'Wikipedia, economics, scientific knowledge, or political agenda pushing?'

From Keynes’ fatal blunder to the true economic model

Comment on Merijn Knibbe on ‘What’s in a model … (an economic one, that is)’

Blog-Reference

Merijn Knibbe refers to a post of Noah Smith: “This time he however stated: ‘accounting is not a model of the economy’. Which is wrong. The national accounts are a model of the economy. And economists have to learn it is. The way the entities are conceptually defined matters as this also defines the monetary relations we see.”

Under the heading Formal Models vs. Guru-Based Theories Noah Smith demanded: “These days, most economic theories are collections of mathematical models. If you want to know what the theory says, you can parse out the models and see for yourself. You don’t have to go ask Mike Woodford what New Keynesian theory says. You don’t have to go ask Ed Prescott what RBC theory says. You can go read a New Keynesian model or a Real Business Cycle model and figure it out on your own. MMT is different. There are many wordy explainers and videos that will explain some of the concepts behind MMT, or tell you some of MMT’s policy recommendations. But that’s different than having a formal model of the economy.”#1

The problem with economics is this: microfoundations are false and because of this, ALL microeconomic models are false. Supply-demand-equilibrium is proto-scientific garbage. However, macrofoundations are also false and because of this, ALL macroeconomic models are false since Keynes. Proofs have been given elsewhere.#2

The question of correct macrofoundations is closely related to macroeconomic accounting. Merijn Knibbe is spot on: “National accounts do use a model of the economy, the accounting identities are based on the fundamental social properties of money and monetary transactions but for the way we measure them a conceptual model is key.”

The problem with both orthodox and heterodox economists is that they are too stupid for the elementary mathematics that underlies macroeconomic accounting.#3, #4, #5

From the overall failure of economics follows that a new theory has to be macrofounded but not Keynesian because Keynes messed things up. What is required is the Paradigm Shift from false microfoundations and false Keynesian macrofoundations to true macrofoundations.

From true macrofoundations follows the macroeconomic Profit Law as Q≡Yd+(I−S)+(G−T)+(X−M). The Profit Law, in turn, yields the correct macroeconomic sectoral balances equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0 which compares to the false Keynesian/Post-Keynesian/MMT equation (I−S)+(G−T)+(X−M)=0. The equations are testable with the precision of two decimal places. Exactly here, macroeconomic accounting is needed in order to settle matters empirically.

Because neither orthodox nor heterodox economists got the foundational concepts, the elementary math, and the basic accounting identities right, ALL macroeconomic models are provably false from Keynes onward to this day.#6

Egmont Kakarot-Handtke


#1 Noah Smith Examining an MMT model in detail
#2 The miracle cure of economists’ micro-macro schizo
#3 Wikipedia and the promotion of economists’ idiotism (II)
#4 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#5 For details of the big picture see cross-references Accounting
#6 The canonical macroeconomic model

Economics between science and magic

Comment on Anonymous on Noah Smith on ‘Do economists have physics envy?  Pt2’

Blog-Reference and Blog-Reference on Oct 26

You say: “Yes, magic is orders of magnitude more abundant in physics than in economics. But Economists make more money...uhmm, ...”.

The emotionally powerful common core of magic, physics, alchemy, biology, and economics is the idea of the creatio ex nihilo, the creation out of nothing, the making of gold out of dreck, life out of dead matter, the perpetual motion machine, the free lunch, something for nothing.

So, you are plainly wrong. In fact, magic and magical thinking are more abundant in economics than anywhere else. Actually, economists are occupied with nothing else. And, let us face it, it seems that economists have made the gold makers' dream come true. They have uncovered the magic formula, and it spells free-market economy.

The classical economists advertised themselves as gold makers: “... in the introduction to Book IV we read that Political Economy ‘proposes to enrich both the people and the sovereign,’ and it is this definition which expresses both what Smith wanted above everything and what interested his readers more than anything else.” (Schumpeter, 1994, p. 186)

Marx was a real spoilsport. He, too, was occupied with the magic formula M―C―M+ (alternatively written as M―C―M'), that is, how it is possible to make more money (= M+) out of money (= M). His answer is known as surplus theory, or in simple pejorative terms, exploitation. C in his formula stands for capital/capitalism.

Nowadays, the focus has moved from the sphere of production to the monetary sphere and more and more people get crazy about the fact that the Fed can create money out of nothing and that bankers can charge interest for this feat.

Ordinary people have discovered that home-sweet-home, too, creates wealth over time seemingly out of nothing and can, therefore, be turned into an ATM.

The magical phenomenon of the market economy is profit. And the true magician knows how to make it. However, there is a nagging problem. Physicists have shown that because of the law of energy conservation something like value creation, i.e. something out of nothing, is impossible in principle. Only energy transformation is possible. Physical reality is a zero-sum game (with entropy ignored).

This idea also occurred to economists: “... since it is impossible to have an economy where everyone is making profits. Aggregate profit for an entire (closed) economy must be zero, hence if any firm is making profits, some other firm must be making losses.” (Boland, 1992, p. 80)

On the other hand, one can point to the indisputable fact that the market economy is NOT a zero-sum game. In the last 200+ years, overall profit in the market economies has been greater than zero. Something is very strange and magical here: profit seems to prove that something can come out of nothing. This, though, is against the iron rule of all of economics: “There is no such thing as a free lunch.”

What is even more strange: economics claims to be a science but cannot explain profit, or as Mirowski put it: “... one of the most convoluted and muddled areas in economic theory: the theory of profit.”

According to scientific criteria, economics is a failure. Neither Walrasians, Keynesians, Marxians, nor Austrians have figured out what profit is or can tell the difference between profit and income.#1 Economics is a proto-science and still stands where physics stood in the Middle Ages before the elementary concepts of force, mass, and energy were properly defined and clearly understood.

Compared to physicists, economists have achieved virtually nothing of scientific value in the last 200+ years. How, then, does it come that they make more money than physicists, as Noah Smith gleefully points out to debunk the old cliche of physics envy?

Quite simply, economists are magicians and have found the formula for how to transmute scientific trash into gold.

Egmont Kakarot-Handtke


#1 The Profit Theory is False Since Adam Smith

Related 'Gold-making, wine from water, M―C―M+, perpetuum mobile, free lunch, beating the stock market, and the perennial human dream' and 'Mathematical Proof of the Breakdown of Capitalism'.

Related 'Economics between physics and psychiatry'

Economics is not post-truth but pre-truth

Comment on Noah Smith on ‘Academic signaling and the post-truth world’

Blog-Reference

Noah Smith observes “For one thing, rising distrust of science long predates the current political climate; ...”. This is true, the ‘distrust of science’ is literally built into the core of politics because science is the very antithesis of politics. The guiding principle of science is the distinction between true and false. Scientific truth is well-defined as material and formal consistency. Science has NOTHING to do with trust or credibility or belief but with proof, transparency, explicitness, and acceptance of falsification. All this is antithetical to politics.

The very signature of politics is to give a shit about scientific standards: “As someone has said, it would seem that even the theorems of Euclid would be challenged and doubted if they should be appealed to by one political party as against another.” (Fisher, 1911)

To say that we live in a post-truth world is utterly misleading. The fact of the matter is that politics has hijacked science and gradually adapted it to its own modus operandi. Much of what parades as science nowadays is what Feynman famously called cargo cult science, that is, the outer form looks like science, but it is not science, and it does not work.#1

To say that we live in a post-truth world is to insinuate that politics has been successful in its age-old attempt to corrupt science.

This is true as far as economics is concerned.#2 Economists claim to do science since Adam Smith/Karl Marx. What they, in fact, have done is cargo cult science or, more specifically, political economics. Political economics is agenda pushing and fundamentally different from theoretical economics.

The proper definition of theoretical economics is the science that tries to figure out how the actual economy works. Scientific knowledge takes the form of a theory that satisfies the criteria of material and formal consistency. A theory is the humanly best mental representation of reality.

Economics is a failed science. The four major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism — are mutually contradictory and axiomatically false. Political economics has not produced much if anything, of scientific value in the last 200+ years.

The actual state of economics is that of a proto-science, that is, the representative economist lives in a pre-truth world. This is why the word sciences has to be deleted from the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. The claim that economics is ‘sciences’ cannot be upheld. It is provably false.

Theoretical economics (= science) could never emancipate itself from political economics (= agenda-pushing). Political economics is fake science. And all agenda pushers from Smith, Ricardo, Marx to Keynes, Hayek, Friedman, and onward to Krugman and Varoufakis are fake scientists. The general public's distrust in political economics is fully justified.

The most urgent task in economics is to implement the separation of politics and science and to throw all political economists out of the scientific community.#3 This is the only way to de-incentivize incompetent scientists to “crank out crap”.

Egmont Kakarot-Handtke


#1 For details and references see Wikipedia
#2 Economists: the Trumps of science
#3 For details see cross-references Political Economics and cross-references Incompetence

Related 'Economics and corruption' and 'Political economics: a deadhead sitcom' and 'Lousy scientists' and 'Politics, storytelling, and science' and 'Pre-truth and post-truth in economics'.