Cranks? What cranks? That’s economics!

Comment on Bradford DeLong on ‘Social Credit and "Neutral" Monetary Policies: A Rant on "Helicopter Money" and "Monetary Neutrality"’

Blog-Reference and Blog-Reference

You say: “Badly-intentioned or incompetent policymakers can mess up any system of macroeconomic regulation.” True enough.

But there is another alternative: macroeconomic regulation and policy advice of economists is not worth much, to begin with. So, ultimately, it is incompetent economists and not politicians who mess up the economy.

“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)

To this simple fact, policymakers and the general public wake up at the moment. As you observe: “And the answer, of course, is that by now centuries of painful experience have taught central bankers one thing: All advocates, wittingly or unwittingly, were simply selling snake oil.”

The irony of the matter is that it was not some soapbox agitators who were selling snake oil; it was the most respected members of the economics profession who traditionally tell central bankers how to conduct monetary policy. Economics, to be sure, is a honeypot for cranks, but the most destructive effects are not brought about by borderline populists but by orthodox mainstream economists themselves.

The general point is that, as a rule, economic policy advice has no sound scientific foundations. Orthodoxy, that is, Walrasianism with a grain of short-term Keynesian imperfections, is fundamentally defective.

All variants of Orthodoxy are 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, but the representative economist swallows them hook, line, and sinker for more than 150 years. Only scientific crackpots can do this. NOT ONE of the axioms holds water, but in the new form of DSGE models, HC1|HC5 underlay current monetary guidance. And this fully explains why, over more than 150 years, “Their advice was bad then. It is bad now.”

Economics is a failed science. The common fatal defect of Walrasianism, Keynesianism, Marxianism, and Austrianism is that the profit theory is false (Desai, 2008, p. 10). Mistakes/errors/blunders in the axiomatic foundations affect all parts of the logical superstructure. This means that the familiar theories of market coordination, the functioning of the price mechanism, distribution, employment, and money are false, too (2015).

Broadly speaking, economics, understood as the collective scientific knowledge of economists, should be able to tell with certainty how the economy works, what the critical functions are, and how institutions have to be designed in order to guarantee the proper functioning of subsystems and the integrated whole. Thus defined, there is no economics.

As Krugman put it on his blog, “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”. Because these axiomatic foundations are provably false, most of what economists produce is proto-scientific garbage. To avoid further frustration, the first thing to do is to communicate clearly to the general public that no scientifically sound advice is ever to be expected from people who have not figured out, since Adam Smith, what profit is.

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
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. 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

Related 'There are NO crank scientists in economics because economics is NOT a science' and 'Money, cranks, and morons' and 'Crisis, cranks, and scientists' and  'Your economics is refuted on all counts: here is the real thing'.

For more about cranks, see AXECquery.

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Graphic AXEC82

Occasional Tweets: "Nowadays we have plenty of cranks." (Joan Robinson)

 

#Economics#FailedScience#FakeScience#KarlMarx never understood what #Profit is and his retarded followers did not realize it to this day.

Cranks? What cranks? That’s economics!https://t.co/lwYOWQz40R#NousSommesTousImbeciles

— E.K-H (@AXECorg) June 6, 2021

For more about cranks see AXECquery. 

Crisis, cranks, and scientists

Comment on David Ruccio on ‘A gathering storm?’

Blog-Reference

The normal course of events is this: people look at the global/national economy or their regional/personal environment and see an acute or chronic defect (distribution of income/wealth/power/resources, unemployment, stagnation, exploitation, pollution/ depletion/extinction, asset bubbles, inflation/deflation, abuse/fraud/hype/deceit/ corruption, dysfunctional institutions, etc) and then come forward with the solution.

“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. In the thirties we had Major Douglas, and social credit — it can all be done with a fountain pen — and Warren and Pearson who convinced President Roosevelt that raising the dollar price of gold would raise the price of everything else and bring the slump to an end. The cranks are to be preferred to the orthodox because they see that there is a problem. Nowadays we have plenty of cranks taking up the problems that the economists overlook.” (Robinson, 1972, p. 8)

This is certainly NOT what science is all about. Broadly speaking: economics, understood as the collective scientific knowledge of economists, can tell with a sufficiently high degree of certainty how the economy works, what the critical functions are, how institutions have to be designed to guarantee the proper functioning of subsystems and the integrated whole and thereby contribute to the prevention of major crises in the short and long run. Thus defined, there is NO economics.

Crises are the high time for political economists and the normal course of events is that suggestive quick fixes are applied. A grossly simplified example is to fight unemployment with prolonged deficit spending, which leads to growing debt, which at some point calls for helicopter money, which then can ‘be done with a fountain pen’.

There is little to say against deficit spending or helicopter money as a commonsensical quick fix in case of emergency except that it has no valid foundation in something resembling a valid economic theory. No economist is needed to figure out this kind of ‘solution’. In many cases, they are not even innovative, e.g.: “Public works to relieve the unemployed is an idea as old as the Bible; ...” (Blaug, 1998, p. 662). The same holds for debt jubilees.

When a Heterodox economist sees a meltdown coming three ideas immediately cross his mind (i) confirmation, i.e. Orthodoxy is indeed a failed approach, and (ii), regret, i.e. Heterodoxy has failed to come up in due time with the superior Paradigm, and (iii), to go with panic makers and cranks is not exactly what Heterodoxy is meant to be.

The grand task of Heterodoxy was and still is to figure out what an economy looks like that is free of major crises in a way that is scientifically more convincing than general equilibrium theory.

Egmont Kakarot-Handtke


References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Robinson, J. (1972). The Second Crisis of Economic Theory. American Economic Review, 62(1/2): 1–10. URL.

Related 'Misplaced augurs of doom'.

Money, cranks, and morons

Comment on Norbert Häring on ‘Randall Wray attacks “debt-free-money cranks” based on sloppy arguments’

Blog-Reference and pointer to this post at Naked Capitalism

Sloppy thinking has always been the hallmark of economists, and their natural mental state since Adam Smith is utter confusion.#1 This thread shows that it is not clear what money is and what the relationship between money and debt is and, most important of all, how the monetary economy works.

Norbert Häring maintains that “the MMT-people are among the ones who understand money best.” That is not the case, the formal foundations of MMT are defective.#2

It is decisive to start with an elementary production-consumption economy without government and taxes in order to make it absolutely transparent how the quite different functions of the transaction unit and the credit unit of the Central Bank fit together. The specific historical form of money (token, coin, note, deposit, etc.) is irrelevant to the general theory of money.

Money and debt are produced like any other good by the banking industry which can be at first reduced to the Central Bank alone. If in the simplest case, interest on the debt is equal to the total wage bill of the Central Bank then profit is zero. In this case, the rate of interest depends on the productivity of the Central Bank. To charge interest for creating money ‘out of nothing’ is therefore in principle not different from charging a price for any other produced good/service. The credit rate of interest is in the grand scheme of things just another price. If this rate is set to zero the central bank makes a loss. Things are obviously different if the debit rate is set to zero.

The case is a bit different for the creation of pure transaction money (= financing the total wage bill of the monetary economy). For the special case of interest-free helicopter money see (2015, Sec. 7).

What neither the orthodox nor the heterodox would-be economists realize is the relationship between the change of debt and profit/loss, which is of existential importance for the functioning of the monetary economy, and how all is related to the quantity of money (2011a; 2011b).

Not before the elementary relationship between household sector debt and money is crystal clear the case of government sector debt can be tackled. It is moronic to throw all forms of money (token, coin, note, deposit, etc.) and debt (household-, government-, business sector) together.

Debt-free money is ultimately a debt that the Central Bank owes to itself.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2011a). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL
Kakarot-Handtke, E. (2011b). Reconstructing the Quantity Theory (II). SSRN Working Paper Series, 1903663: 1–20. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL

#1 How the intelligent non-economist can refute every economist hands down
#2 Modern Moronomic Theory

Related 'Crisis, cranks, and scientists' and 'Political economics and intellectual corruption' and 'The irrelevance of economics' and 'Money and debt in six elementary steps'.

There are NO crank scientists in economics because economics is NOT a science

Comment on Blair Fix on ‘How do you spot a crank?’

Blog-Reference

Crank-spotting is a recurrent issue 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. In the thirties we had Major Douglas, and social credit ― it can all be done with a fountain pen ― and Warren and Pearson who convinced President Roosevelt that raising the dollar price of gold would raise the price of everything else and bring the slump to an end. The cranks are to be preferred to the orthodox because they see that there is a problem. Nowadays we have plenty of cranks taking up the problems that the economists overlook.” (Joan Robinson, 1972)#1

Blair Fix takes up the issue for our time and clarifies it for himself: “I think about everything I know about neoclassical economics ― its flaws, its absurdities. I reassure myself that I’ve made the right choice. I’m not a crank. I’m a rational critic of an absurd theory.”

Well, that is what all cranks say, so Blair Fix has to go a little deeper: “The only way to judge if someone is a crank is to think rationally for yourself. You must become knowledgeable in the subject matter. You must immerse yourself in the crank’s arguments, and in the counterarguments. You must study the evidence, and if needed, run your own tests. In short, to identify a ‘crank’ you must become a scientist yourself.”

And this brings us immediately to the end of the road: “You likely see the problem with this approach. Few people have the time to become experts in one subject. And no one has the time to become an expert in every subject. So the best way to identify a crank (do science for yourself) is out of most people’s reach.”

Having told lay people that they have no chance of spotting a crank, Blair Fix then turns around and tells them how to spot cranks and how he spotted them in economics, more specifically, in neoclassical economics.

But in the end it amounts again to a big frustration for laypeople: “Philosophers of science have thought for a long time about the ‘crank identification problem’. But they don’t call it this, of course. They call it the ‘demarcation problem’. The demarcation problem is about how to distinguish between ‘science’ and ‘non-science’. It’s a problem that has kept many philosophers up at night. Karl Popper thought he had the solution with ‘falsifiability’. Scientific theories, Popper proposed, make falsifiable predictions. Pseudoscience, in contrast, does not. Many scientists (including me) still think that falsifiability is the bare-bones standard of a good theory.”

Note that Blair Fix has just played a trick on you. By citing philosophers of science he implicitly suggested that economics is a science and he, too, is a scientist: “Many scientists (including me) still think …”. The point is that Blair Fix is a fake scientist who has to be expelled from the scientific community.

The methodological fact of the matter is that economists claim from Adam Smith/Karl Marx onward to the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” that they are doing science. They do NOT. Economics is what Feynman called cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”#2

What economics is still missing after 200+ years is the true theory. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter ― profit ― wrong. As a result of the utter scientific incompetence of the representative economist, what has been achieved is the pluralism of provably false theories.

Economics is a failed science. Blair Fix, though, cannot admit that economists are incompetent scientists but pulls the complexity argument out of the top hat#3: “But as we move to more complex systems, theory becomes more difficult to test. And for that reason, knowledge becomes less secure. Chemistry is more complex than physics, and so less secure knowledge. Biology is more complex than chemistry, and so less secure still. And the social sciences? They study impossibly complex systems. So knowledge in the social sciences is orders of magnitude less secure than in the natural sciences.”

It is worth recalling that this lame excuse has already been used by the founding fathers: “There is a property common to almost all the moral sciences, and by which they are distinguished from many of the physical; this is, that it is seldom in our power to make experiments in them. In chemistry and natural philosophy, we can not only observe what happens under all the combinations of circumstances which nature brings together, but we may also try an indefinite number of new combinations. This we can seldom do in ethical, and scarcely ever in political science. We cannot try forms of government and systems of national policy on a diminutive scale in our laboratories, shaping our experiments as we think they may most conduce to the advancement of knowledge. We therefore study nature under circumstances of great disadvantage in these sciences; being confined to the limited number of experiments which take place (if we may so speak) of their own accord, without any preparation or management of ours; in circumstances, moreover, of great complexity, and never perfectly known to us; and with the far greater part of the processes concealed from our observation. (J.S. Mill)#4

Sounds plausible but is completely beside the point because economics is NOT a social science and not a science of human behavior but a systemsm science.

What economists tell the world is that the failure of economics is due to the subject matter and not to the scientific incompetence of economists. On this point, there is unanimity among economists of all schools. The fact of the matter is, though, that economists are even too stupid for the elementary algebra that underlies macroeconomics.#5, #6

Economics is a failed science. Economists are NOT scientists but political agenda pushers, i.e. clowns and useful idiots in the political Circus Maximus.#7 Blair Fix is no exception.

Egmont Kakarot-Handtke


#1 For the history of crank-spotting see Wikipedia Fads and Fallacies in the Name of Science
#2 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#3 Failed economics: The losers’ long list of lame excuses
#4 Complexity and stupidity
#5 In principle, everybody can check it out for themselves: How the Intelligent Non-Economist Can Refute Every Economist Hands Down
#6 MMT: How mathematical incompetence helps the Kelton-Fraud
#7 Cross-references Political Economics/Stupidity/Corruption

Related 'Complexity, scientific incompetence, and the art of asking the right questions' and 'There is no soft science only soft brains' and 'The problem with economics as a discipline' and 'Microfoundations have been for 150+ years: high time to move on' and 'Why is economics such a scientific embarrassment?' and 'Economics: The greatest scientific fraud in modern times' and 'Economics: Not a pretty story' and 'Ending the pluralism of provably false economic theories with the long-overdue Paradigm Shift' and 'Your economics is refuted on all counts: here is the real thing'.

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#PointOfProof

Feb 10

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Scientific American May 2020

Hermits and Cranks: Lessons from Martin Gardner on Recognizing Pseudoscientists

Source: Scientific American ‡

‡ This has been a test. If you felt the urge to vomit while reading Gardner's text you have good scientific instincts. Scientists prove and refute but never resort to psychologizing. In science, the criterion is true/false with truth well-defined since the ancient Greeks by material/formal consistency. Psychologizing is what Popper called an immunizing stratagem.