Confused Orthodoxy vs confused Heterodoxy

Comment on Simon Wren-Lewis on ‘Heterodox economists and mainstream eclecticism’

Blog-Reference and Blog-Reference

It is widely known, except among economists, how science works “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

Or, in simplified Popperian terms, science is an upward spiraling two-step process of conjecture, i.e., formulation of a theory/model, and either refutation or eventual admittance to the corpus of knowledge until a better theory/model appears.

Accordingly, refutation can take two routes: (i) proof of logical inconsistency, and (ii) proof of empirical inconsistency. The proof of one inconsistency is sufficient for the rejection of the whole theory/model.

The logical consistency of a theory/model is secured by applying the axiomatic-deductive method which is well-established since the ancient Greeks defined science as knowledge in contradistinction to a mere opinion “When the premises are certain, true, and primary and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle, Posterior Analytics) #1

The fundamental methodological mistake of Lars Syll consists in rejecting Orthodoxy because it applies the axiomatic-deductive method. Orthodoxy indeed has to be rejected because of gross methodological defects, but not for the application of the axiomatic-deductive method. So, in his rejection of Orthodoxy, Lars Syll is right but for the wrong reason.

Heterodoxy, in turn, has to be criticized for completely ignoring the requirement of logical consistency. It can readily be shown that the profit theories of Keynes, Kalecki, Minsky, and Keen are different. Elementary logic tells one that not all four can be true; in fact, all four are provably false. #2 So, Heterodoxy in its present shape and form has to be rejected because of logical inconsistency.

It is not possible to idealize inconsistency and conceptual confusion as pluralism or eclecticism. Scientific truth is strictly exclusive “There cannot be both opinion and knowledge of the same thing at the same time.” (Aristotle, Posterior Analytics)

Orthodoxy has been based upon a properly defined axiom set. The [neo-Walrasian] program is organized around the following hardcore propositions:
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)

The fact of the matter is that there is no such thing as an equilibrium in the economy.  Methodologically, HC6 is what is known since antiquity as petitio principii. This is a quite primitive methodological blunder. Likewise for HC3.

Clearly, when one axiom fails, the whole formal basis breaks apart and with it the whole theoretical superstructure. The Orthodox microfoundation approach is axiomatically flawed, and because of this, all variants of DSGE models are false and have to be rejected. There is no such thing as eclecticism of false models — except in Wren-Lewis’ confused methodology.

Neither Orthodoxy nor Heterodoxy satisfies scientific standards. Economics is a failed/fake science. Economic policy proposals have no valid theoretical foundations.

Egmont Kakarot-Handtke


References
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, etc.: Cambridge University Press.

#1 Wikipedia
#2 Heterodoxy, too, is proto-scientific garbage

Related 'Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist'

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AXEC113h  Beyond Orthodoxy and Heterodoxy

Bill Mitchell says that economists are fake scientists ― true, but MMTers are NOT different

Comment on Bill Mitchell on ‘Why economists kept getting the policies right!’

Blog-Reference

Bill Mitchell gives an inside report of academic economics: “But if you have been inside the profession all your life, as I have, then you get a pretty good feel for what is going on. And it is not what the rest of you think.”

“Economists are not fellow travellers ‘on a mission from god to do god’s work’ …” … “They are part of the capitalist establishment designed to safeguard capital and its profits and keep the working class in its place so that challenges are confined to disputes about wages and conditions around the margin, but, never question the basis of the system ― the ownership of the material means of production and the capacity of those unequal ownership relations to extract surplus value as profits from forcing workers to work longer than they have to to produce their (social) subsistence.” … “the development of neoclassical economics, from which the modern day Monetarism and New Keynesian economics emerged was no accident ― no scientific event.”

True, since the founding fathers, economists were not so much scientists as political agenda pushers: “Economists were hired by industrialists to come up with a body of work that made capitalism appear fair. It was in the second half of the C19th when Marxist thought was spreading among workers and the intellectual class and manifesting into social and political instability as evidenced by the ― Revolutions of 1848 ― and later, the ― 1871 Paris Commune ― among other uprisings.”

And he concludes: “Economists were part of that conspiracy to obfuscate the inner workings of capitalism. And it has been that way ever since.”

Except …

“Me, I was an aberration. A black sheep. That got through this system because my mathematics and mathematical statistics was first-rate and I could jump their hoops with ease.”

And now it turns out that Bill Mitchell and the MMTers got it right: “The author notes how everyone is jumping on the big deficits bandwagon now and no-one is talking much about the public debt issue any more.” #1

This is true; MMT has now become official doctrine. #2, #3, #4

While Bill Mitchell asserts that economists have always been “… part of the capitalist establishment designed to safeguard capital and its profits …” he tries to make the impression that he and MMTers and Progressives are different.

This is NOT the case.

The 3-sector macroeconomic Profit Law Q≡(G−T)+(I−S)+Yd implies Public Deficit = Private Profit. So, the MMT policy of deficit-spending/money-creation is a free lunch for the Oligarchy. Private financial wealth grows in lockstep with public debt. For public debt holds: #OligarchyOwnsIt and #WeThePeopleOwesIt. Public debt as interest cash cow produces perpetual income for the Oligarchy that is taxed from WeThePeople.#5 

COV19 is a godsend for the Oligarchy: more deficit-spending/money-creation produces a profit explosion. Best of all, it can be propagandized as a benefit for WeThePeople. Fact is, though, that in real terms, WeThePeople pay for the economic relief package through stealth taxation.

If anything, Bill Mitchell/MMTers/Progressives are “part of the capitalist establishment”. #6, #7 Like the rest of economists from Adam Smith onward, economists are NOT on a “mission from god to do god’s work”. Economics is failed/fake science. Economists are NOT scientists but clowns and useful idiots in the political Circus Maximus. MMTers are NO exception.

Egmont Kakarot-Handtke

#1 Look, how they jump on the deficit/profit bandwagon

#2 MMT ― now official doctrine

#3 Links on Austerity

#4 Keynes, Lerner, MMT, Trump, Biden, and exploding profit

#5 Twitter, CRFB.org Mar 17, 2021, Federal Government Spending On Interest Payments

#6 Deficit cheerleaders ― the Oligarchy’s useful idiots

#7 Economists are NOT scientists

For more about stealth taxation, see AXECquery.

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REPLY to Matt Franko on Mar 17

The deficiency of MMTers in literal language is that they are too stupid for the elementary algebra that underlies macroeconomics: Proof of MMT's inconsistency.

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REPLY to Matt Franko on Mar 18

I said that MMTers (the social media trolls, the academics in general, and Bill Mitchell, in particular) are too stupid for the elementary algebra that underlies macroeconomics and that the MMT sectoral balances equation is provably false. Every MMTer can check the proof.#1-#4

You argue: “Bill is well trained in Mathematics....”

If so, he knows that science is about material/formal consistency and proof. So, he should be able to understand the proof of the inconsistency of the foundational MMT sectoral balances equation. And, as an academic, he should know that science defines itself by the high standards of scientific ethics.

According to these standards, he is obliged to check the proof of the inconsistency of MMT as soon as it comes to his notice and to either point to the exact location where the proof is faulty or to openly confirm the refutation of MMT so that others are no longer misled.

Neither Bill Mitchell nor any other MMTer has done the right thing to this day. MMTers have disqualified themselves and therefore have to be expelled with shame and disgrace from the scientific community.#5

#1 Wikipedia, economics, scientific knowledge, or political agenda pushing? ⇒ Section Provably False/MMT

#2 Proving Bill Mitchell wrong ― burying MMT for good

#3 Modern Moronomic Theory

#4 Proof of MMT's inconsistency

#5 AXEC144f 

Related 'MMT-Refutation for Dummies'.

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REPLY to Peter Pan on Mar 18

You ask: “Bill has never addressed your critique on his blog?”

Obviously, you still do not understand how economics works, although Bill Mitchell has given you a clear description. Economics does not work according to the principles of science. And this is long known: “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.” (Morgenstern, 1941)

Economists violate scientific standards from Adam Smith/Karl Marx onward and this is why Walrasianism, Keynesianism, Marxianism, Austrianism, and other long-refuted proto-scientific garbage is still around.#1 What we have is the pluralism of false theories.

Bill Mitchell knows this but claims that MMT is different. That is NOT the case. MMT is refuted but MMTers push it “as if nothing had happened”. Academic economics is politically corrupted and MMT is an integral part of it.#2

#1 The history of economic thought is the history of scientific failure

#2 Political fraud and the silence of academia

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REPLY to Dean on Mar 22

Answers/continuing links to your 3 questions.

1 Capitalists' consumption

Profit follows from the Profit Law. It can be distributed or not. So one gets distributed profit Yd as a part of total income Y=Yw+Yd. Distributed profit, in turn, splits into consumption expenditures and saving of “capitalists”. See section 7 of Essentials of Constructive Heterodoxy: Profit.

2 Cash

You assume “cash on hand to begin with”. In a fiat money system, things start with zero cash. Money is created ex nihilo by the central bank for the financing of the wage bill.

How money emerges out of nothing ― the functional account

3 Investments

You say “investments create fixed capital” and “Investments only create profits because of a time lag between borrowing and repaying”. For the exact relationship of investment expenditures and profits see Squaring the Investment Cycle.

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NOTE on Barkley Rosser on Mar 31

You take toilet paper shortages in Venezuela as proof that they are “corrupt and incompetent”. These two keywords bring us immediately to the current state of economics.

Bill Mitchell gives an inside report of academic economics:#1 “But if you have been inside the profession all your life, as I have, then you get a pretty good feel for what is going on. And it is not what the rest of you think.”

“Economists are not fellow travellers ‘on a mission from god to do god’s work’ …” … “They are part of the capitalist establishment designed to safeguard capital and its profits and keep the working class in its place so that challenges are confined to disputes about wages and conditions around the margin, but, never question the basis of the system ― the ownership of the material means of production and the capacity of those unequal ownership relations to extract surplus value as profits from forcing workers to work longer than they have to to produce their (social) subsistence.” … “the development of neoclassical economics, from which the modern day Monetarism and New Keynesian economics emerged was no accident ― no scientific event.”

True, since the founding fathers, economists were not so much scientists as political agenda pushers and disinfotainment clowns in the political Circus Maximus.#2

The temporary shutdown of the Suez Canal may trigger physical toilet paper shortages in Western markets. Due to the superiority of Capitalism over Saint-Simonianism, though, this does not affect the production of intellectual toilet paper in US academia.#3

#1 Why economists kept getting the policies right!

#2 Economists are NOT scientists

#3 Macroeconomics ― still dead after 80+ years

Economics: The chief demerit is inconsistency

Comment on Lars Syll on ‘How evidence is treated in modern macroeconomics’

Blog-Reference and Blog-Reference on Aug 4

Scientists know it, but economists do not: “The chief demerit is inconsistency, including inconsistency with the results of experiments that a competing theory can explain.” (Popper, 1994, p. 160)

Scientists know it, but economists do not: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

So, science is about formal AND material consistency ― BOTH simultaneously, NOT either/or. The outstanding characteristic of economists is that they still think there is something to choose from: “Is it better to start deductively from axioms or inductively from facts? When the time comes to choose between internal consistency and consistency with observations, which side should we take? (Blinder, 1987, p. 135)

BOTH SIDES, blind Blinder! There is NO trade-off in science, neither between formal and material consistency nor between rigor and relevance nor between theory and practice. As Kant famously put it: “There is nothing so practical as a good theory.”

Needless to emphasize that the DSGE folks never got the pivotal point of methodology: “The unique property that DSGE models have is internal consistency. Take a DSGE model, and alter a few equations so that they fit the data much better, and you have what could be called a structural econometric model. It is internally inconsistent, but because it fits the data better it may be a better guide for policy.” (Wren-Lewis, see intro)

Never had methodological idiocy been expressed so clearly. Mind you, a theory that does not fit the data is falsified and has to be abandoned. Economists, though, do not abandon their proto-scientific garbage but desperately cling to it. This is the Original Sin: “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.” (Morgenstern, 1941, p. 369)

The fact of the matter is that economics is a failed science. This is well-known among scientists but economists simply have no idea how to get out of the cul-de-sac: “And so ― faithful to the theory’s conceptual cornerstones and hoping against all hope that the unthinkable may still be achieved (i.e., a satisfactory theory of the price mechanism) ― the tormented upholders of the validity of the paradigmatic core of economic equilibrium theory appear singularly reluctant to face the problem of comparing expectations and results and assessing the consistency of the theory.” (Ingrao et al., 1990, p. 346)

One tends to think that Heterodoxy is methodologically superior to Orthodoxy, but this is not the case. Keynes, too, played material consistency against formal consistency: “... the brave army of heretics ..., who, following their intuitions, have preferred to see the truth obscurely and imperfectly rather than to maintain error, reached indeed with clearness and consistency and by easy logic but on hypotheses inappropriate to the facts.” (Keynes, 1973, p. 371)

Brave Post Keynesians echoed the master’s methodological kitsch with their silly motto: “... it is better to be roughly right than precisely wrong!” (Davidson, 1984, p. 574)

Roughly right is NOT a scientific criterion. Science is bivalently true/false with nothing in between. Roughly right = roughly wrong. Non-scientists, of course, are at home in the swamp of wish-wash and inconclusiveness between true and false, where anything goes and “nothing is clear and everything is possible.” (Keynes, 1973, p. 292)

It is a methodological tragicomedy that Keynes spotted the all-decisive point correctly: “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)

Krugman clearly spoke out about what the premises are: “... most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”

Like Keynes, Keen got the decisive point: “... real progress involves radically revising or even abandoning that starting point.” (Keen, 2011, p. 35)

Twisting, doctoring, and tampering with assumptions, equations, and/or data is NOT compatible with scientific standards. A Paradigm Shift is inevitable, which means in concrete and unmistakable terms: abandoning microfoundations. #1 And this is what Keynes attempted: he replaced microfoundations with macrofoundations. #2

Keynes, too, got it provably wrong, yet neither Keynesians nor Post-Keynesians nor New-Keynesians nor the Anti-Keynesians ever spotted the logical inconsistency in Keynes’s macrofoundations. Not very profound thinkers these Walrasian, Keynesian, Marxian, and Austrian folks. There is NO hope that these dilettantish orthodox or heterodox economists will ever understand what the unity of formal AND material consistency means (2013). #3 After all, they did not get it in the last 200+ years. There is only one option left: to expel economics as we know it from the sciences.

Egmont Kakarot-Handtke


References
Blinder, A. S. (1987). Keynes, Lucas, and Scientific Progress. American Economic Review, 77(2): 130–136. URL
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT 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
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. London, Basingstoke: Macmillan.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality, chapter Models, Instruments, and Truth, 154–184. London, New York: Routledge.

#1 Orthodoxy is built upon this set of hardcore propositions, a.k.a. premises, a.k.a. starting point, 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)
#2 Keynesianism is built upon this set of foundational propositions: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (Keynes, 1973, 63)
#3 For more details and references, see The problem with macro in two words.

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Graphic AXEC121i

Occasional Tweets: Economics is materially/ formally inconsistent, i.e. proto-scientific garbage

 

#Economics#FakeScience#Economists#StupidOrCorruptOrBoth

The ethics of science is consistency ― economics is inconsistenthttps://t.co/mtqIoUDM2x#DefundEconomics #FireEconomists #ScrapTheLot

— E.K-H (@AXECorg) February 19, 2021

Material/formal consistency

• The ethics of science is consistency ― economics is inconsistent
• Additional proof of MMT’s inconsistency
• Micro and macro inconsistency
• Economics: The chief demerit is inconsistency 

Micro and macro inconsistency

Comment on Jo Michell on ‘Consistent modelling and inconsistent terminology’

Blog-Reference

“Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

Economics is a failed science because Walrasianism, Keynesianism, Marxianism, and Austrianism are provably inconsistent. This includes Godley’s and Lavoie’s approach. More precisely, Godley’s and Lavoie’s program ― the integrated approach to credit, money, income, production, and wealth ― is basically correct, but at some point, an inconsistency slipped in, and that happened exactly in Section 8.2, p. 262 (Godley et al., 2007).

The inconsistency relates to the definitions of profit (monetary, nonmonetary), distributed profit, retained profit, total income, and the definition of total saving (monetary, nonmonetary). Roughly speaking, monetary profit results from objectively measurable market transactions, nonmonetary profit results from the highly subjective valuation of assets, and these are totally different things (2011b).

The problem of the accounting approach is twofold: (i) as a rule, economists do not understand the elementary mathematics that underlies accounting, which leads to an inconsistent definition of total income and GDP (2012), (ii) the approach is axiomatically incomplete because it defines only the relationships of nominal variables.

All purely nominal models, as well as all purely real models, are false because the economy constitutes itself through the interaction of real AND nominal variables. Therefore, the methodologically correct framework is given by — what Keynes called — the ‘monetary theory of production’.

The overall failure of economics lies in the fact that economists argue from false premises/axioms, that is, Walrasianism in all shapes and forms (DSGE, RBC, AD/AS, etc.) argues from forever unacceptable microfoundations, and Keynesianism in all shapes and forms argues from false macrofoundations. To get out of failed economics requires nothing less than a Paradigm Shift from inconsistent to consistent foundations/axioms.

The correct macrofoundations are shown under the label AXEC137b.

Post/New/After-Keynesians have not realized until this very day that Keynes had messed up the formal foundations of the General Theory (1973, p. 63). The fatal flaw of Keynes’s and Godley’s/Lavoie’s approach is that the underlying profit theory is false (2011a). Clearly, if one gets the foundational concept of economics wrong, all the rest of one’s theory is worthless. The present state of economics is that neither the microfounded Walrasians nor the macrofounded Keynesians have a formally and materially consistent theory of how the market economy works. Because of this, economic policy guidance has ― for more than 200 years ― zero scientific content. This also applies to the shop talk of Jo and Simon.

Egmont Kakarot-Handtke


References
Godley, W., and Lavoie, M. (2007). Monetary Economics. An Integrated Approach to Credit, Money, Income and Wealth. Houndmills, Basingstoke, New York: Palgrave Macmillan.
Kakarot-Handtke, E. (2011a). The Emergence of Profit and Interest in the Monetary Circuit. SSRN Working Paper Series, 1973952: 1–22. URL
Kakarot-Handtke, E. (2011b). Primary and Secondary Markets. SSRN Working Paper Series, 1917012: 1–26. URL
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. London, Basingstoke: Macmillan.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.

Related: 'Wikipedia, economics, scientific knowledge, or political agenda pushing?' and 'The GDP-death-blow for the economics profession'.

Economists’ scientific incompetence is worse than the plague

Comment on Michael Roberts on ‘Ending the pandemic slump — a return to Keynes?’

Blog-Reference and Blog-Reference

Michael Roberts summarizes the situation: “The Great Lockdown has tipped the global economy into recession in 2020 on a scale not witnessed since the 1930s.” And “UNCTAD economists note … that the world economy was already heading for a slump before the pandemic hit.”

This leads quite naturally to the question: “What economic policies should be adopted to end this ‘lockdown slump’ and avoid or reduce the hit to the livelihoods of billions? That depends on the analysis of the causes of the slump itself.”

Right, good policy depends on true theory. The problem of economics as a science is this: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

And here is the snag: to this day, economists do NOT have the true theory but many silly opinions. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. Economics is a failed science. As lousy scientists, economists are a hazard to their fellow citizens — not any different from quack doctors.#1

This has never hindered economists to give economic policy advice: “UNCTAD economists openly follow the Keynesian ‘explanation’ for the lost decade … since 2009. And their solution is a re-adoption of Keynesian policies to manage capitalism better. For UNCTAD, slumps start with a collapse in demand ie in investment spending and above all in household consumption.”

At this point, Michael Roberts begs to differ: “In a capitalist, profit-making, economy, it is profits and profitability that drive investment and when profitability drops, investment in the means of production and in labour will contract, leading to unemployment and loss of consumer incomes and demand.” And “Indeed, on occasion even Keynes recognised that profitability (which he called the ‘marginal efficiency of capital’) was an important factor in causing slumps.” As he said: “Unemployment … exists because employers have been deprived of profit. The loss of profit may be due to all sorts of causes. But, short of going over to Communism, there is no possible means of curing unemployment except by restoring to employers a proper margin of profit.”#2

And Michael Roberts continues: “You see, in the last 40 years, the share of profits in the national incomes of the major economies has risen at the expense of wages and so the crisis of capitalist production is ‘wage-led’ not ‘profit-led’.”

And then he finishes off UNCTAD: “There is no mention of profit or profitability in the whole of the long UNCTAD report. Instead we are asked to accept that slumps are caused by low wages and consumption and by low investment caused by a switch to financial speculation leading to ‘instability’.”

We can cut off the policy argument here because it is pointless. Obviously, there is something fatally wrong with the theoretical foundations and the concept of profit. The blunder is evident in the expression “share of profits in the national incomes”.

Because profit is NOT income (it is a difference of flows and not a flow like wage income) there is NO such thing as a “share of profits in the national incomes”.#3-#5

Because economists get the foundational economic concept of profit wrong the whole analytical superstructure of economics is false ― provably false. This means that economic policy NEVER has had sound scientific foundations. For 200+ years now political economics is nothing but brain-dead agenda-pushing. UNCTAD and Michael Roberts are no exception. Like the rest of the profession, both have no idea of what profit is.

Egmont Kakarot-Handtke

#1 Iatrogenic economics

#2 Keynes, too, got profit theory badly wrong. See Ch. 13, The indelible scientific disgrace of economics, in Sovereign Economics

#3 The Profit Law for the 3-sector economy is given by Qm≡Yd+(I−Sm)+(G−T)

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

#5 Links on McKinsey’s ‘A new look at the declining labor share of income in the United States’

For more about iatrogenic economics, see AXECquery.

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Source: Michael Robert's Blog

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REPLY to Matt Franko on Oct 1

You say: “Yes... They have big problems recognizing Minuends, Subtrahends and Differences.”

Indeed, this is the Flow-Balance Inconsistency (not to be confused with the Stock-Flow Inconsistency). In simple terms, “they” are too stupid for the elementary algebra that underlies macroeconomics.#1, #2

The Flow-Balance Inconsistency makes that the whole of MMT is proto-scientific garbage ― only good for trolling and deceiving #WeThePeople.

#1 Is Nick Rowe stupid or corrupt or both?

#2 For more about the Humpty Dumpty Fallacy, see AXECquery.

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AXEC172

Occasional Tweets: Flow-Balance-Inconsistency ― inscription on the gravestone of economics

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

The Flow-Balance-Inconsiststency invalidates all micro- and macroeconomics of the last 200+ years.

The GDP-death-blow for the economics professionhttps://t.co/QJycQUh0Uj pic.twitter.com/ySKW1UxqSy

— E.K-H (@AXECorg) August 4, 2021

For more about inconsistency see AXECquery.

For more about fallacy see AXECquery.

For more about Humpty Dumpty Fallacy see AXECquery.

Better precisely right than roughly wrong (II)

Comment on Lars Syll on ‘Why it is better to be roughly right than precisely wrong’

Blog-Reference

Scientists know it, but economists do not: “The chief demerit is inconsistency, including inconsistency with the results of experiments that a competing theory can explain.” (Popper, 1994)

Scientists know it, but economists do not: “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)

So, science is about formal AND material consistency ― BOTH simultaneously, NOT either/or. It is all simple and clear.

But in all walks of life, there is always the original and a look-alike. Accordingly, there is science and cargo cult science. Feynman characterized the look-alikes: “they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

What is missing is an understanding of what science is all about. Science 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. All the rest is storytelling, gossip, sitcom, and blather.

Vague blather, untestable wish-wash, inconclusive either-or, and storytelling have always been the hallmark of political economists. Political economics is the look-alike of theoretical economics. Walrasianism, Keynesianism, Marxianism, and Austrianism are political economics.

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 morons, agenda pushers, confused confusers,#1 trolls, and incompetent scientists.

Economists are natural-born swampies. This explains why economics is a failed science. Walrasianism, Keynesianism, Marxianism, and Austrianism are mutually contradictory, and the proponents fight each other. But this does not go very deep, and it never goes to the final refutation of one approach or the other. Every swampie respects the other swampie's wish to fool around in the swamp.

In marked contrast, scientists drive the question under discussion to the point of a clear-cut decision between true and false. And they do not touch questions that cannot be decided by the accepted means, that is, by logic and testing.

The swamp cronies have no genuine interest in a definite true/false outcome but seek to stay, for whatever reasons, in the status quo swamp. Swampies subscribe to a common methodological hallucination: it is better to be roughly right than precisely wrong, anything goes, truth is subjective and relative, reality is a social construct; nobody has the truth with a big T, everybody has some truth with a small t, and finally, to the pluralism of provably false theories. Swampies have produced the gigantic heap of toxic scientific waste that is called economics.

Swampies simply do not understand what science is all about. As Feynman put it: “The first principle is that you must not fool yourself ― and you are the easiest person to fool. So you have to be very careful about that. After you’ve not fooled yourself, it’s easy not to fool other scientists. You just have to be honest in a conventional way after that.”

Neither orthodox nor heterodox economists fit this description of a scientist. But BOTH orthodox and heterodox economists fit the description of lookalike scientists, political agenda pushers, and self-foolers. And this is exactly why it is best to throw BOTH now speedily out of the scientific community.

Egmont Kakarot-Handtke


#1 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist

Related 'There is NO such thing as an economic expert' and 'The father of modern economics and his imbecile kids' and 'How Keynes got macro wrong and Allais got it right' and 'From false micro to true macro: the new economic paradigm' and 'New Economic Thinking: the 10 crucial points' and 'There is NO such thing as “smart, honest, honorable economists”' and 'Your economics is refuted on all counts: here is the real thing'.

MMTers: too much thought-reading, too little thinking

Comment on Bill Mitchell/Tom Hickey on ‘ECB denial is just embarrassing’

Blog-Reference and Blog-Reference

Tom Hickey recounts the highlights of his spiritual development: “There as been a running debate for some time here in the comments over whether the drivel about about MMT that appears in the corporate media from so-called experts in economics and finance is owing to ignorance or a desire to malign and marginalize MMT, or perhaps a combination thereof. I have taken the position that experts are expected to know better, so the presumption is bad faith and malicious intent. However, I have had to change my mind on this. Now it seems to me that what I have been reading is a matter of ignorance and that the supposedly top people in economics and finance, who should know the realities of what they dealing with, e.g., the relevant institutional arrangements and accounting, don’t. They are almost uniformly clueless. Worse, many don’t want to know, since their minds are already made up.”

This follows immediately Bill Mitchell’s lengthy psychological study about groupthink among mainstream economists.#1 And somebody recently asked Why does everyone hate MMT?#2 Not surprisingly, as shrewd psychologists, MMTers put forward a plausible explanation: MMT is rejected because of “ignorance or a desire to malign and marginalize MMT, ….” This exemplary psycho-social diarrhea is the main constituent of economic debates since time immemorial.#3

True, there is a lot of BS in the media about MMT but this does NOT justify answering it with counter-BS. What one has to realize is that the whole Mainstream vs MMT blather is way beside the point. As Schumpeter admonished his mentally retarded co-economists long ago: “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 point is NOT whether MMT is loved or hated but whether it is true or false. This whole psychological/motivational mind-reading exercise is nothing but a distraction from the scandal that both Mainstream and MMT are proto-scientific garbage.

The fact is that MMT has been refuted on all counts.#4, #5, #6, #7, #8 More specifically, it is a mathematical fact that the MMT sectoral balances equation is false.#9 Because the foundations are false the whole analytical superstructure and the economic policy guidance are false.

It is a curious fact that MMTers do not answer to the proof of material/formal inconsistency. Instead, they do what they accuse the Mainstream of denial, PsySoc filibuster, blocking, and censoring. Applying Tom Hickey’s mind-reading to MMT itself: “Most of the these people are heavily invested reputationally in a wrong paradigm and admitting this would be disastrous for them. So at least some self-protection is also likely involved.”

In combination with the proven material/formal inconsistency of the MMT approach, this leaves but one psycho-social conclusion: MMTers are stupid or corrupt or both.

Egmont Kakarot-Handtke


#1 Fake surveys and Groupthink in the economics profession
#2 Love and hate in economics: the PsySoc shell game
#3 The economist as second-guesser, mind reader, and folk psychologist
#4 The final implosion of MMT
#5 Refuting MMT’s Macroeconomics Textbook
#6 MMT: fundamentally false
#7 The canonical macroeconomic model
#8 For the full-spectrum refutation of MMT see cross-references MMT
#9 The MMT equation (I−S)+(G−T)+(X−M)=0 is false, the AXEC equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0 is true. The equations are testable with the precision of two decimal places.

Related 'Economics: the honeypot for know-nothingers' and 'Ditch scientific incompetence!' and 'Economics is NOT a social science' and 'Social science is NOT a science but a sitcom' and 'Economics is NOT about Human Nature but the economic system' and 'Overreach: Economists have their fingers in every pie except real economics' and 'How to get rid of the silly Queen' and 'New economic thinking = old political fake' and 'PsySoc — the scourge of economics' and 'Disoriented and lost in folk psychology' and 'How economists became the scientific laughing stock' and 'Opinion, conversation, interpretation, blather: the economist’s major immunizing stratagems' and 'The economics Cargo Cult Prize' and 'Failed economics: The losers’ long list of lame excuses' and 'Meet the MMT smart arses' and 'Economists/MMTers: agenda pushers, distractors, blockers, muters, censors'.

Do economists finally wake up from their methodological delirium?

Comment on Lars Syll on ‘Does it — really — take a model to beat a model? No!’

Blog-Reference

Lars Syll maintains: “A more realistic approach needs to be adopted, which means one that is more practical in its methodological assumptions, more comprehensive in its substantive assumptions and more modest in its aims. At minimum, this means adopting an institution and accounting-based approach instead of a strictly axiomatic one. For starters, a stock-flow consistent approach such as advanced by Wynne Godley based on accounting.”

Right. Macroeconomic accounting is the objective-systemic core of economics and NOT some silly behavioral assumption. Methodological rule #1: If it isn't macro-axiomatized, it isn't economics.

Economics is a failed science because the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives ― are provably false. This includes Godley’s and Lavoie’s approach. More precisely, Godley’s and Lavoie’s program ― the integrated approach to credit, money, income, production, and wealth ― is basically correct, but at some point, a lethal inconsistency slipped in, and that happened exactly in Section 8.2, page 262, eq. 8.25 (Godley et al., 2007). #1-#5 This blunder carries over to MMT and invalidates it also.

Lars Syll is a bit slow. The Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations is an accomplished fact. #6

Egmont Kakarot-Handtke

#1 Godley, W., and Lavoie, M. (2007). Monetary Economics. An Integrated Approach to Credit, Money, Income, and Wealth. Houndmills, Basingstoke, New York: Palgrave Macmillan.

#2 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

#3 Micro and macro inconsistency

#4 MMT-Refutation for Dummies

#5 MMT: Time to say goodbye

#6 The Paradigm Shift is an accomplished fact

For more about Godley, see AXECquery.

For more about Syll, see AXECquery.

Economics debates ― just another variant of hardcore wrestling

Comment on Bill Mitchell on ‘Inflation hysteria as central bankers discuss yield curve control’

Blog-Reference and Blog-Reference

“Hardcore wrestling (also known as Garbage Wrestling) is a form of professional wrestling that eschews traditional concepts of match rules in favor of matches that take place in unusual environments, using foreign objects that are not normally permitted. … The term garbage wrestling is attributed to Japanese wrestler Giant Baba who used it originally to describe a style of wrestling which required little wrestling athletic ability and often involved no wrestling at all, which is rather common in much of hardcore wrestling.” #1

This is an accurate description of the degenerate state of economics.

Economics defines itself as science and, as a consequence, economics debates are supposed to have scientific content and form. It is well-known what this entails: “And a critical discussion is well-conducted if it is entirely devoted to one aim: to find a flaw in the claim that a certain theory presents a solution to a certain problem.” and “Thus critical discussion is essentially a comparison of the merits and demerits of two or more theories (usually more than two). . . . The chief demerit is inconsistency, including inconsistency with the results of experiments that a competing theory can explain.” (Popper)

The most striking feature of economics is schizophrenia: there are 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, the scientific standards of material and formal consistency are observed. 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 approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

As a consequence, economics debates are not much more than intellectual hardcore wrestling. #2, #3, #4

Bill Mitchell complains: “It is also a pity that journalists who have jumped on the ‘we hate the MMT’ train don’t spend at least a few seconds conducting research to see if the MMT experts might have said or have written something about the topic they were inferring MMT was related to.” and “I did this search in Google: Zimbabwe+MMT.” and “Surrounding those entries are the hysterical criticisms of MMT, none of which … goes anywhere near to understanding what actually happpening as historical fact in Zimbabwe that set up the conditions for the hyperinflationary episode. They all just repeat the lie that the hyperinflation was caused by out-of-control fiscal defcits and wrongly associate MMT with the policies that Robert Mugable followed.”

All this is accurate, of course. What is false is the unspoken message that economics debates are about establishing the scientific truth of the point at issue. They are NOT, for the simple reason that economics is not science but political agenda-pushing. #5, #6

Academic MMTers, like their mainstream colleagues, are NOT legitimate members of the scientific community because they are not really committed to scientific standards and ethics. MMT is provably false. #7 MMT policy guidance has NO sound scientific foundations. MMTers deceive the general public by claiming that MMT policy is for the benefit of WeThePeople. Like mainstreamers, MMTers ignore refutation and use all features of social media to suppress substantive critique. What they are debating instead with great enthusiasm is easy-to-refute slogans like ‘Zimbabwe’, which are thrown in by journalists who bear the sign of idiocy on their foreheads.

There is no such thing as a scientific debate in economics because economics is fake science. MMTers, clearly, are not scientists but agenda pushers for the Oligarchy. #7 The same holds for their opponents.

Egmont Kakarot-Handtke


#1 Fandom Hardcore wrestling
#2 Economics a science? Surely you are joking, Mr. Cochrane
#3 MMT vs Mainstream: examining proto-scientific garbage in detail
#4 Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage
#5 Economics: The greatest scientific fraud in modern times
#6 Economists: “a bevy of camp-following whores”
#7 For the full-spectrum refutation of MMT, see cross-references MMT

Related 'Settling the MMT―Inflation issue for good' and 'The not so funny MMT vs Neoliberalism slapstick' and 'Macroeconomics: Economists are too stupid for science' and 'Economics as storytelling and entertainment for the masses' and 'Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion' and Economics: A pointless left-right wrestling show' and 'From true/false to hardcore wrestling and back'. For details of the big picture, see cross-references Political Economics/Stupidity/Corruption.

For more about economists' hardcore wrestling, see AXECquery.

***

Twitter Nov 17, 2021 Perhaps an even better metaphor for economic debate: pillow fight

Twitter Dec 19, 2021

Twitter Oct 22, 2022

MMTers at the end of their wits

Comment on Bill Mitchell on ‘Intergenerational Report ― the past is catching up with the government and the game is up’*

Blog-Reference and Blog-Reference

Bill Mitchell comments the 2021 Intergenerational Report as follows: ridiculous, smokescreen-creating, jam-packed with scaremongering, latest nonsense, madness, designed to deflect the damage that the government surpluses were creating in the mid-1990s, embarrassing for Treasury workers to be coerced by their bosses into producing this garbage.” and “What parades as economic analysis is just the usual neo-liberal mainstream nonsense that currency-issuing governments have run out of money and fiscal deficits are dangerous.” and “We have also seen that the government can spend what it likes without taxes going up and without bond markets declaring the government insolvent. We have now lived with large deficits as a result of the pandemic and the game is up on the deficits are bad and the sky will crash down story line.“

All this, of course, is not a scientifically valid argument but desperate political shit throwing. As such it is just another example of the abysmal level of academic economics. To this day, economists are too stupid for the elementary algebra of macroeconomics.#1

MMT has been refuted by the proof of its inconsistency. Because the foundational concepts of MMT are false the whole analytical superstructure of MMT is scientifically worthless.#2 That is, MMT's policy guidance has NO sound scientific foundations. It is just political agenda pushing for the benefit of the Oligarchy. The claim that MMT policy is for the benefit of WeThePeople is a political fraud.#3

MMTers debate every crappy argument that comes their way but has never attempted to refute the proof of the inconsistency of the MMT sectoral balances equation.#4

MMT is refuted on all counts and a sure sign that MMTers are at the end of their wits is that all that they do is to repeat their thoroughly refuted silly slogans of the harmlessness of a continuously growing public debt.#5

It is a mathematical certainty that the macroeconomic Profit Law implies Public Deficit = Private Profit. By the same token, it is a political certainty that MMTers are agenda-pushers for the Oligarchy and false Friends-of-the-People.

Egmont Kakarot-Handtke

* Bill Mitchell's blog

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

#2 MMT has been conclusively refuted and MMTers can do NOTHING about it

#3 For details of the big picture see cross-references MMT

#4 MMTers still don't get the foundational sectoral balances right

#5 No MMT illusions! YOU are going to pay for it

Related 'Links on Austerity' and 'From the debt economy to the gift economy: how America is brainwashed to love budget deficits' and 'Hype does not help: MMT is toast' and 'Clueless economists / Macrofoundations'.

***

AXEC118d

When numbers don't add up

Comment on Merijn Knibbe on ‘Keenonomics, aggregate demand/change of debt, and some misleading critique’

Blog-Reference

Thank you for the link to Why Steve Keen is even more right than he thinks. In this 2011 thread, you have already pointed out that Keen's argument leads directly to accounting. Basically, this dovetails with Stützel's balance mechanics approach. So we have an analytical square consisting of Keen-Reissl-Stützel-Knibbe, which encloses the general issue of accounting.

With regard to the whole formalization and mathiness debate, it is worth remembering that accounting is the natural formal tool of the economist and the indispensable integrating hub of all empirical work.

“Somewhere between the Political Arithmetician, alias the National Income Accountant, and the Financial Analyst, alias the Accountant lies the task of the quantitative economist’s analytical role, and none of the theoretical or applied tasks of these two pragmatic and paradigmatic figures requires anything more than arithmetic, statistics, and the rules of compound interest.” (Velupillai, 2005, pp. 866-867)

The trouble is, as you point out, that the representative economist cannot handle this tool properly, and this applies first and foremost to Orthodoxy.

I have addressed the inconsistency between theory and accounting/balance mechanics in (2012). As you say, this inconsistency has to be eliminated first from the current discussion.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Velupillai, K. (2005). The Unreasonable Ineffectiveness of Mathematics in Economics. Cambridge Journal of Economics, 29: 849–872

Related 'Keenonomics, aggregate demand/change of debt, and some misleading critique' and  'More than two centuries of waffling in the dark'.

The misleading nitty-gritty defense of MMT principles

Comment on Bill Mitchell on ‘Operationalising core MMT principles’

Blog-Reference

Yes, there is a lot of idiotic critique of MMT. Yes, there are tons of rubbish on the Internet about MMT from some “economics PhD student at a low-tier US university” or non-economists who either play dumb in order to derail a discussion or claim to know how to rectify economics and to save humanity and the planet.#1

This is nothing new in economics: “A sure sign of a crisis is the prevalence of cranks. It is characteristic of a crisis in theory that cranks get a hearing from the public which orthodoxy is failing to satisfy.” (Joan Robinson)

Bill Mitchell takes it upon himself to defend MMT against all types of misinterpretation and rubbish by going at great length into the details of Inflation Theory and of the practical realization of a Job Guarantee. His arguments are sound and there is not much to say against them except that they are beside the point.

By addressing a lot of nitty-gritty stuff, Bill Mitchell deflects from the fact that MMT has been refuted at the level of principles. The formal inconsistency of MMT has been proved, and the material inconsistency is testable.#2, #3, #4 The fact of the matter is that MMT is dilettante macroeconomics.

Bill Mitchell’s defense of MMT is as absurd as the answer of a bloodletter#5 who is told that his underlying theory of humors is false and that bloodletting does more harm than good: “What do you want, my handling of leeches is second to none and I have practically demonstrated this time and again.”

The fault of MMT does NOT lie at the operational level of how money can be created out of nothing and spent into the economy for all kinds of social purposes but at the level of theory.

This is the core of MMT’s scientific failure. The false MMT balances equation reads (I−S)+(G−T)+(X−M)=0, the correct equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0 and it boils down to Public Deficit = Private Profit. In other words, the MMT policy of permanent deficit-spending/money-creation amounts to a permanent free lunch for the Oligarchy. MMT policy is NOT social as claimed, just the opposite.

Because the foundational sectoral balances equation is false the whole analytical superstructure of MMT is false. Because the theory is false, the policy is counter-productive and it does not matter much whether the operational execution is perfect or not.

Bill Mitchell fills his blog with the nitty-gritty defense of MMT policy but never addresses the refutation of the theoretical foundations of this policy. Compared to the low-IQ critique of an “economics PhD student at a low-tier US university” and other trolls, Bill Mitchell’s defense is well-argued and convincing at the operational level. Unfortunately, he cannot disprove that MMT does not satisfy the scientific criteria of material and formal consistency. Bill Mitchell never addresses the argument that MMT amounts to bloodletting WeThePeople.

Egmont Kakarot-Handtke


#1 Debunking idiots does not prove that MMT is valid
#2 MMT sucks
#3 The final implosion of MMT
#4 Down with idiocy!

#5 “Bloodletting, whether by a physician or by leeches, was based on an ancient system of medicine in which blood and other bodily fluids were regarded as ‘humours’ that had to remain in proper balance to maintain health. It is claimed to have been the most common medical practice performed by surgeons from antiquity until the late 19th century, a span of almost 2,000 years.” (Wikipedia)

For more about iatrogenic economics see AXECquery.

Down and out

Comment on Henry of Nov 3 on ‘Keynes on the Theory of Interest’

Blog-Reference

You bring in a seemingly new aspect “As a matter of interest, Keynes in his ‘Treatise on Money’, did actually develop a model using entrepreneur’s income — he ended up with a relationship similar to yours, i.e. saving − investment = normal enterprise profit − actual enterprise profit. He discarded this approach in the GT. See p. 60-61 of GT.”

Correct, Keynes caught a glimpse of the solution and then went the other way. But, as is obvious from the General Theory, in this direction, he did not come to grips with profit. Let this sink in: Keynes had no idea of the essential phenomenon of the market economy! An economist who does not understand how the actual economy works lectures politicians who know even less.

Now, the new aspect you bring in is not new at all. I have dealt with it in Section 16 ‘Treatise and General Theory as limiting cases’ in the working paper Keynes’s Missing Axioms.

And I have refuted your redundant definition of “economy-wide aggregate saving” in Section 17. There is, though, no need to read or understand the paper because staying behind the curve is the natural place for After-Keynesians.

You ask rhetorically, “You define income as household income. Why not use wages income? Why not use entrepreneur’s income?” Because the definition of income and profit is by no means arbitrary. It is known since Senior that it is all-important to state ‘consciously and explicitly’ the basic concepts: “To Senior belongs the signal honor of having been the first to make the attempt to state, consciously and explicitly, the postulates that are necessary and sufficient in order to build up … that little analytic apparatus commonly known as economic theory, or to put it differently, to provide for it an axiomatic basis.” (Schumpeter, 1994, p. 575)

Only dilettantes think that they can define whatever seems convenient. “In fact, the history of every science, including that of economics, teaches us that the elementary is the hotbed of the errors that count most.” (Georgescu-Roegen, 1970, p. 9)

These errors are fatal because they bring down the whole 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, p. 5)

The irony is that Keynes understood the crucial methodological point better than the After-Keynesians. “Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (1973, p. 16) and “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.” (1973, p. xxi)

The unfortunate fact of the matter is that Keynes messed up his ‘non-Euclidean’ axioms. Again: the formal foundations of Keynesianism are provably false until this very day. #1

This is not a minor point but has consequences for the scientific status of Keynesianism in particular and economics in general. Because economics does not satisfy the scientific criteria of material and formal consistency and cannot even tell what income and profit are it has to leave the academic community of sciences. #2

Egmont Kakarot-Handtke


References
Georgescu-Roegen, N. (1970). The Economics of Production. American Economic Review, Papers and Proceedings, 60(2): 1–9. URL
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York: Kelley.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.

#1 It is recommended that Keynesians make a full mental reset and start with this New curriculum, which correctly applies the axiomatic-deductive method.
#2 Free academia from economics

Related 'Humpty Dumpty is back again'

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ICYMI (comment on Henry of Nov 3 on Nov 4)

Theories do not consist of a heap of statements that describe a certain part of reality; they have an architectonic structure. In purely formal terms, they consist of premises and logical conclusions. The well-structured whole has to meet the criteria of material and formal consistency. “The chief demerit is inconsistency, including inconsistency with the results of experiments that a competing theory can explain.” (Popper, 1994, p. 160)

Methodologically, therefore, J. S. Mill’s Starting Problem has always to be dealt with first. The crucial question is: “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.” (2006, p. 746)

At present, economics is not built upon a set of acceptable premises or axioms. Orthodoxy is based on the behavioral axiom of constrained optimization. Heterodoxy lacks a consistent foundation. That is, both approaches do not meet the formal minimum standards of theoretical economics. #1 There is nothing to choose from.

Conclusion: “Scrap the lot and start again!” (Joan Robinson). The Paradigm Shift is not to be delayed. #2 The correct formal foundations of economics are given under the label of Graphics AXEC04c.

The next step is to reconstruct the theoretical superstructure. In the course of reconstruction, it turns out that the Keynesian I=S is untenable and has to be replaced by  Q≡I−S, respectively Q≡Yd+I−S (see preceding posts). This immediately affects the theory of interest.

Whether the new axiomatic foundations are acceptable is not to be decided by argument but by empirical testing of propositions that are deductively derived from the axioms (the employment multiplier, for example, or the Profit Law).

Keynes explicitly addressed (with his call for ‘non-Euclidean’ axioms) but failed to solve J. S. Mill’s Starting Problem. Because its formal basis is defective, Keynesianism is irrevocably outside of science. Keynesian policy proposals have no sound theoretical foundations.


References
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
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality, Chap. Models, Instruments, and Truth,154–184. London, New York: Routledge.


#1 How Orthodoxy buffaloed Heterodoxy
#2 Replacing sand with granite

Related 'Are economists methodological retards?'

Key Issues: Demarcation and the Midas Touch of science

 . . . since we are all humans everything reduces to psychology.  (Boland, 2003, p. 107)

 

We content ourselves therefore with the following simple psycho-economic postulate: Each individual acts as he desires. (Fisher, 2006, p. 11)

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)

But a method that can explain everything that might happen explains nothing. (Popper, 1960, p. 154)

Psychologism is the most congenial mode of explanation. The ancient Greeks regarded myths as ‘true stories’ and distinguished them from fables as ‘false stories’. Xenophanes made his contemporaries aware that their true stories were what is now called a projection (cf. Popper, 1994, p. 39).

With this, the problem of demarcation arose for the first time. And it was easily solved. The Pre-Socratics rejected the mythological explanations of the world because they saw that everything could be explained by the human-like actions of gods, which meant, on closer inspection, nothing. This methodological insight set science on its track.

Rejecting gods as a valid explanation, however, caused an obvious problem. If myth is not truth, what then is truth? And to this question, the Pre-Socratics could not offer an immediate answer but only a vague research program. They sought the material principle of things, and they came up with different answers. This was not an entirely satisfactory outcome because, as a matter of principle, only one of the answers could be true. The demarcation problem appeared in a new form within the compass of the infant science.

All finer points of methodology are derivatives of the primordial demarcation.

The finer points arose quite naturally. It is easy to keep Zeus out of the discussion. But what about notions like the Absolute, the One, Logos, and what about the invisible atom or the somewhat fantastic harmony of numbers, music, and celestial spheres? Demarcation became more subtle. Basically, however, it remained a purely methodological question.

The problem of finding a criterion which would enable us to distinguish between the empirical sciences on the one hand, and mathematics and logic as well as ‘metaphysical’ systems on the other, I call the problem of demarcation. This problem was known to Hume, who attempted to solve it. With Kant, it became the central problem in the theory of knowledge. (Popper, 1980, p. 34), original emphasis

Being humans, ‘a muddled horde of erring mortals, always in two minds about things’ (Parmenides), it was inevitable that demarcation eventually became a social issue. The early philosopher-scientists organized themselves in schools, and this brought with it the necessity to define their relations towards their social and political surroundings. This they did. The Pythagoreans preferred to keep their thoughts and findings for themselves. Others spoke on the agora to their fellow citizens. Demarcation was a real issue.

In our day, McCloskey, among others, solved the demarcation problem by simple deconstruction, that is, by muddying the epistemic and the social. After all, the pursuit of scientific truth, whatever that may be, is undeniably a social activity and, as things are, ultimately boils down to the usual social status quarrels:

In practice, methodology serves chiefly to demarcate Us from Them, demarcating science from nonscience. Once the modernists have found a Bantustan for nonscience such as astrology, psychoanalysis, acupuncture, nutritional medicine, Marxist economics, spoonbending, or anything else they do not wish to discuss, they can get on with the business at hand with a clear head. Methodology and its corollary, the Demarcation Problem (What is Science? How is It to be distinguished from nonscience?), are ways at stopping conversation by limiting conversation to people on our side of the demarcation line. (McCloskey, 1998, p. 161)

Popper, for one, was as clear on the difference between epistemic demarcation and social discrimination as anyone could wish. And he was quite explicit that he was not much interested in the latter:

And my doubts increase when I remember that what is to be called a ‘science’ and who is to be called a ‘scientist’ must always remain a matter of convention or decision. (Popper, 1980, p. 52)

Within McCloskey's framework of rhetoric, the demarcation problem is correctly perceived as a conversation-stopper. And that is meant as a denial because, for the socio-psychological mindset, communication is the summum bonum. However, conversation per se is the ideal of the talk show, not of science. Here, the regulative idea is quite different:

A critical discussion is well-conducted if it is entirely devoted to one aim: to find a flaw in the claim that a certain theory presents a solution to a certain problem. ... Thus critical discussion is essentially a comparison of the merits and demerits of two or more theories ... The chief demerit is inconsistency, including inconsistency with the results of experiments that a competing theory can explain. (Popper, 1994, pp. 160-161)

Demarcation cannot be debunked as social ostracism, and the demarcation problem cannot be solved once and for all:

... we have seen that a characteristic feature of science is that it develops canons of rationality for evaluating knowledge claims and deciding what to admit into the domain of knowledge. ... these canons of rationality change, evolve, and become more sophisticated as science develops. (Suppe, 1977, p. 724)

The task of methodology is to defend the integrity of science, and this means to demarcate. To preach anything-goes, Verstehen, methodological opportunism, to describe what scientists are actually doing, to certify the ruling paradigm, all this is no part of the methodologist's job description. Methodologists, above all, take care that demarcation is not abused for other purposes. The methodologist who complains that no foolproof criteria to discriminate between science and nonscience are available does not understand his very task. The methodologist's professional risk is to reject the true theory and accept the false theory. This risk is eliminated by reverting to pluralism. Pluralism is the self-abandonment of methodology.

We are in danger of losing our grip on the concepts of truth, evidence, objectivity, disinterested inquiry. (Haack, 1997, p. 1)

To date, the demarcation problem has not been answered satisfactorily for economics:

Economics is a perplexing subject. Though I have spent the better part of my academic career thinking about its aims and methods, I have never been confident that I or anyone else for that matter really understand its cognitive status. ... Without assurance about the cognitive status of the theory; there is no basis of confidence in it.  (Rosenberg, 1994, pp. 216-217)

This neutral résumé is, with different accentuation, shared by Blaug, Mirowski, and Klant, to name only a few methodologists who do not see economics on the safe side of the line that demarcates science from nonscience.

***

Modern psychology and psychotherapy have made us familiar with a habit of our mind we call rationalization. This habit consists in comforting ourselves and impressing others by drawing a picture of ourselves, our motives, our friends, our enemies, our vocation, our church, our country, which may have more to do with what we like them to be than with what they are." (Schumpeter, 1994, pp. 34-35)

Rationalization is the most reduced form of psychologism. Psychologism has not achieved much scientific value in economics.

It is possibly very encouraging for the economist to hear that compared with the natural scientist the psychological method saves him "ages of laborious research” but it is curious and a pity that this huge start has not enabled him to formulate any considerable body of reliable prognoses such as the natural sciences have managed to achieve. (Hutchison, 1960, p. 132) 

***

Why, indeed, is economics not yet a science, in the sense of representing a body of knowledge that grows cumulatively over time and has something of value to teach men and women of practical affairs? (Eichner, 1983, p. 508)

When Galileo stood in the cathedral of Pisa and watched the swinging chandelier, as certainly many had done before him without much reflection, he asked himself: How much time does the pendulum need for a full swing, and what does the period depend on? He did not ask: do my fellow citizens pursue happiness, or do they maximize utility, or who will eventually go to heaven, to hell, or to Bedlam? He somehow felt that the chances were good that he could answer the first question and nil that he could answer the second. As a genuine scientist, he was content with the petty problem of time, length, and weight and left the really big, important, interesting, fateful, and insoluble questions of humankind to the so-called social sciences. And there they remained, after countless promising attempts and the application of the most powerful analytical tools, unsolved up to the present day.

When they founded science and sought the material principle of things, the ancient Greeks, in effect, excluded psychology. We know today that this was a wise demarcation. Confronted with Boland's, Fisher's, von Mises's, or McCloskey's populist trivialities, the founding fathers would find "almost unbelievable the degradation in standards of analysis" over two millennia (cf. Suppes, 1968, p. 660).

Economics could not emancipate itself from the social sciences. The axioms of rationality formalize a rather unconvincing variety of psychology. There is nothing wrong with axiomatization, to be sure, only with psychology. An economist who philosophizes about optimizing human behavior is dislocated — he finds himself on the wrong side of the line that demarcates science from nonscience. Neither naive empirical realism, nor ill-understood formalization, nor rhetoric helps us over to the other side. Demarcation may be difficult in every concrete case, but it is not negotiable. No serious methodologist could ever let standard economics pass as science. The flaws are obvious and numerous.

The role of philosophy in science is to clarify conceptual problems and to make explicit the foundational assumptions of each scientific discipline. The clarification of conceptual problems or the building of an explicit logical foundation are tasks that are neither intensely empirical nor mathematical in character. They may be regarded as proper philosophical tasks directly relevant to science. (Suppes, 1968, p. 653)

Instead:

Much of the work in methodology over the last ten years has thus consisted of methodological analysis of what economists do and how they argue. (Dow, 1997, p. 78)

Economic methodology has given up demarcation, and because of this, economic methodology has to be given up.

***

Psychologism inverts the Midas Touch of science — to turn whatever it might touch into knowledge — into a Midas curse: to turn whatever it might touch into opinion and balderdash.

References
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© 2013 EKH, except original quotes