Occasional X: Economics still lacks correct macrofoundations (XXXVIII)

“50 years of macroeconomics in a nutshell: Lucas: 'Your Keynesian models are full of ad hoc assumptions. We need proper microfoundations!'” (Khazbi Budunov) The problem with modern macro is that it is axiomatically false. Economics is failed/fake science. Microfoundations was dead from the start. The Founding Fathers defined economics as a social science, and accordingly, it has been based on subjective/behavioral assumptions/axioms. This has been the methodological ur-mistake. For example, here are the Walrasian axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub) The methodological mistake is that economists put the behavioral assumption of constrained optimization and equilibrium into the premises. This is a petitio principii, but economists do not know what this means. Stupidity makes faithful worshipers: “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) Although microfoundations is methodologically a false concept, economists repeat it nonetheless: “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, pp. 369-370) The way forward is to reconstruct economics entirely without the concepts of constrained optimization, rational expectations, equilibrium, and other NONENTITIES. In methodology, this is called a Paradigm Shift: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362) It means, first, that legacy economics goes down the scientific drain for good. It means, second, to go forward and perform the Paradigm Shift (⇓ AXEC113i). It means, finally, to bury Lucas and his incompetent followers in the darkest corner of the Flat-Earth cemetery.

— AXEC (@EgmontHandtke) October 14, 2026

Occasional Tweets: From proto-scientific garbage to true macrofoundations

 

#Economics#FailedScience#FakeScience#Keynes messed up #MacroEconomics 80+ years ago because he was too stupid for elementary #Algebra. Nothing has improved since then.

Macroeconomics: Economists are too stupid for sciencehttps://t.co/vTNWwrNUxA pic.twitter.com/uVyJSkVuuz

— E.K-H (@AXECorg) March 26, 2021

Economists are not scientists but clowns and useful idiots in the political Circus Maximus.

For more about Paul Krugman, see AXECquery.

For more about Noah Smith, see AXECquery.

For more about macrofoundations, see AXECquery.

Occasional Xs: Economics still lacks correct macrofoundations (XVI)

 

#Economics#FailedFakeScience#MacroFoundations#Keynes got macroeconomic #Profit wrong bc he was too stupid for elementary #Algebra. #MacroFoundations are provably false, so the whole of #MacroEconomics is scientifically worthless to this day. #Economists don't get it at all. pic.twitter.com/WBZE02Yq5q

— E.K-H (@AXECorg) October 14, 2023

Occasional Xs: Economics still lacks correct macrofoundations (XVII)

 

#Econ#FailedFakeScience#Economics is about how the #Economy works. It is a #SystemsScience & NOT a #SocialScience i.e. NOT about #HumanNature / #Motives / #Behavior / #Choice / #Incentives / #Expectations / #Happiness / #Despair / or voting on presidential candidates. pic.twitter.com/gwPY6iltZg

— E.K-H (@AXECorg) October 20, 2023

Occasional Tweets: True macrofoundations (II)

 

#Economics it is #FailedFakeScience. #MacroFoundations are axiomatically false since Keynes but #Economists still don't get it. For the inescapable #ParadigmShift to the true set of economic #Axioms see cross-referenceshttps://t.co/rf8n0xkhRA pic.twitter.com/o8YpNsY6y0

— E.K-H (@AXECorg) January 12, 2023

 

For more about microfoundations see AXECquery.

For more about macrofoundations see AXECquery.

Occasional Tweets: First Economic Law of the macrofoundations Paradigm

 

#DearIdiots#LearnEconomics

First Economic Law® (attached) pic.twitter.com/bmLfGkSxpq

— E.K-H (@AXECorg) July 31, 2021

For more about macrofoundations see AXECquery.

***

This Tweet is a reply to @mattyglesias and @tylercowen but the reference has been "deleted by the Tweet author".

Occasional Tweets: Macrofoundations ― the Council of Economic Advisers, too, is clueless

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

The GDP-death-blow for the economics professionhttps://t.co/QJycQUyBLR

— E.K-H (@AXECorg) August 25, 2022

Occasional Tweets: The sufficient reason to reject MMT is that its macrofoundations are provably false

 

#MMT#BadScienceBadPolicyBadPeople

The MMT fraud in slow motion, so that even economists can get ithttps://t.co/OjXtDpiX7r pic.twitter.com/B7OVH8i6mr

— E.K-H (@AXECorg) July 24, 2022

For details of the big picture see cross-references MMT. 

Occasional Tweets: Economics still lacks correct macrofoundations (III)

 

#Economics#FailedFakeScience#Keynes got macroeconomic #Profit wrong because he was too stupid for elementary #Algebra. So, #MacroEconomics has been scientifically worthless from the beginning. The representative #Economist doesn't get it to this day. pic.twitter.com/HqcnhxYe9M

— E.K-H (@AXECorg) June 30, 2023

Occasional Xs: Economics still lacks correct macrofoundations (X)

 

#Econ#FailedFakeScience#Keynes got macroeconomic #Profit wrong bc he was too stupid for elementary #Algebra. #MacroFoundations are provably false, so the whole of #MacroEconomics is scientifically worthless. Whatever approach one picks it's always proto-scientific garbage. pic.twitter.com/4gla4FjJ1E

— E.K-H (@AXECorg) August 21, 2023

Occasional X: Economics still lacks correct macrofoundations (XXXVII)

Robert Heilbroner saw the light for a short moment before he fell back into the darkness of political economics: “Surely the recognition of the inextricably social roots of all behavior leads to the view that macrofoundations must precede microbehavior, not the other way round,… pic.twitter.com/zNf9HppX8W

— AXEC (@EgmontHandtke) June 19, 2026

For more about Robert Heilbroner, see AXECquery. 

AXEC121e Axiom Set, macrofoundations

 

Occasional Tweets: Economics still lacks correct macrofoundations (I)

 

#FakeScience

The history of economic thought is the history of scientific failure. #Economists are too stupid for the elementary #Algebra that underlies #MacroEconomics. Since Keynes, they get the foundational concept of macroeconomic #Profit wrong. ⇒https://t.co/vTNWwrNUxA pic.twitter.com/jK4vaJ9fhm

— E.K-H (@AXECorg) January 14, 2022

For more about macrofoundations see AXECquery. 

Occasional X: Economics still lacks correct macrofoundations (XXXIX)

“A new book that presents an alternative to mainstream economics, grounded in the principle of effective demand and the post-Keynesian perspective on money and finance.” (Nacho Álvarez) Keynes got macroeconomics axiomatically wrong. His scientifically incompetent followers never spotted the methodological defect. Post-Keynesian macrofoundations are not a real improvement of the legacy microeconomic approach. Both are axiomatically false; therefore, an integration is logically impossible. Keynes, too, misunderstood the concept of profit because he was too stupid for elementary algebra. ⇓ Consequently, he botched the long-overdue Paradigm Shift from microfoundations to macrofoundations. This initial blunder means that the entire field of economics (both micro and macro) is proto-scientific garbage. As a result, economics has never been more than silly blather for a low-IQ audience. The Post-Keynesian critique of mainstream economics is spot on, but their alternative is also scientifically worthless. To finally become a science, economics needs a Paradigm Shift from false behavioral microfoundations and false Keynesian macrofoundations to true macrofoundations.

— AXEC (@EgmontHandtke) October 15, 2026

Occasional Tweets: Because macrofoundations are false, economics is proto-scientific garbage

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

Macroeconomics ― still dead after 80+ yearshttps://t.co/D20TrmDMsi pic.twitter.com/5e0IwCE2kj

— E.K-H (@AXECorg) July 30, 2021

Occasional Xs: Economics still lacks correct macrofoundations (XIX)

 

#Economics#FailedFakeScience#Keynes got macroeconomic #Profit wrong bc he was too stupid for elementary #Algebra. #MacroFoundations are provably false, so the whole of #MacroEconomics is scientifically worthless to this day. #Economists don't get it at all. pic.twitter.com/1dwaUoyCkk

— E.K-H (@AXECorg) October 24, 2023

Profit and macrofoundations

Comment on James Galbraith on ‘A global macroeconomics ― yes, macroeconomics, dammit ― of inequality and income distribution’*

Blog-Reference

James Galbraith observes with regard to the JEL classification codes: “Under Macroeconomics there is nothing, unless you count E25 ‘Aggregate Factor Income Distribution,’ which surely means the analysis of factor shares ― Wages, Profits, Rent ― also known as the functional distribution.” and “From a theoretical standpoint distribution is the essence of micro, of market relations and of supply-and-demand. The discipline exists, largely, to explain factor returns. If it doesn’t explain ― I don’t say ‘justify’ ― the pay of the worker and the return to capital, then the rest of what it does would not sustain it.”

What is even more remarkable: the keyword Profit neither appears under Microeconomics nor Macroeconomics. The first problem of Distribution Theory is that economists obviously do not know what profit is.

Fact is: “A satisfactory theory of profits is still elusive” (Desai, Palgrave Dictionary) and this is the most damning verdict about economics. After 200+ years, economists cannot tell the difference between profit and income. This is the present state of economics: the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter ― profit ― wrong. #1, #2, #3

Because Profit Theory is false, Distribution Theory is false by logical implication.

James Galbraith identifies the point where things went wrong: “Lucas made the wrong choice. He decreed that micro takes precedence ― that the house is built on microfoundations. Godley did not have patience for this. Surely the house is better built on solid steel-and-concrete pilings, on macrofoundations, with micro-shingles on the roof?”

Indeed, that’s it. Economics needs a Paradigm Shift from false microfoundations to true macrofoundations. At this point, though, James Galbraith stops and turns to the prospects and problems of empirical research. He does not specify what the true macrofoundations are.#4, #5

From the true macrofoundations follows the macroeconomic Profit Law as Qm≡Yd+(I−Sm)+(G−T)+(X−M). Legend: Qm monetary profit, Yd distributed profit, Sm monetary saving, G government expenditures, T taxes, X exports, M imports. This reduces to the core Qm≡−Sm, i.e., the business sector’s profit is equal to the household sector’s dissaving, and vice versa, the business sector’s loss is equal to the household sector’s saving.

Macroeconomic profit has nothing to do with greed/exploitation/productivity but with growing/shrinking debt. Lo and behold, this is one of James Galbraith’s key findings: “1. There are global turning points in the path of pay inequality. They occur around 1971, around 1980, and around 2000. These correspond in each case to major shifts in the worldwide financial regime: to the breakdown of Bretton Woods, to the outbreak of the global debt crisis, and to return to low interest rates and rising commodity prices that followed the NASDAQ slump and the 9/11 attacks, along with the rise of China in world trade.”

Macroeconomic profit is an objectively given and well-defined magnitude. The first thing to notice is that profit is qualitatively different from income.#6 Loss or profit is NOT income. Distributed profit is income. Because of this, it is inadmissible to speak of ‘profit income’ because profit is the difference of flows and not a flow like wage income. Wage income and profit cannot be added together to total income, and profit is not a share of total income. In their utter scientific incompetence, economists get the basics of distribution theory wrong from Adam Smith and David Ricardo onward to this day. #7, #8, #9

James Galbraith is right: “A global macroeconomics ― yes, macroeconomics, dammit” is the key to Profit Theory and Distribution Theory. Microfoundations are proto-scientific garbage since Jevons/Walras/Menger. Economics has to be based on macrofoundations. Get it: If it isn’t macroaxiomatized, it isn’t economics.

Egmont Kakarot-Handtke


* Review of Keynesian Economics
#1 Profit and distribution: a primer
#2 Essentials of Constructive Heterodoxy: Profit
#3 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#4 First Lecture in New Economic Thinking
#5 From false microfoundations to true macrofoundations (II)
#6 Macro for dummies (II)
#7 Profit and distribution: a primer
#8 There is NO such thing as a “labor share of income”
#9 Ricardo, too, got profit theory wrong

Related 'The actual distribution is unacceptable? Do NOT seek economic advice!' and 'Income distribution: No market failure but theory failure' and 'The Levy/Kalecki Profit Equation is false'. For details of the big picture, see cross-references Profit/Distribution.

***

AXEC109i

Occasional X: Economics still lacks correct macrofoundations (XXXII)

#Economics#AllYouNeedToKnow

“The field of macroeconomics could benefit from much more humility.” (Jon Hartley)

A lack of humility is not the most serious fault of economists; a lack of brains is.

Economics is the study of how economic systems work. However, even today,… pic.twitter.com/iSqLWM5Syc

— AXEC (@EgmontHandtke) October 31, 2025

Occasional Tweets: Economics still lacks correct macrofoundations (VI)

 

#Econ#FailedFakeScience

The history of #EconomicThought is the history of #ScientificFailure. #Keynes got macroeconomic #Profit wrong bc he was too stupid for elementary #Algebra. Bc of this, #MacroEconomics is scientifically worthless to this day. pic.twitter.com/ybXnjaqOtW

— E.K-H (@AXECorg) August 3, 2023

For details of the big picture see cross-references Axiomatization. 

Keynesian macrofoundations are defective

Comment on J. W. Mason and Lance Taylor on ‘Saving, investment and the natural rate’

Blog-Reference

J. W. Mason gives a summary of Lance Taylor’s recent paper #1 without realizing that Lance Taylor continues the tradition of messing up the saving-investment issue.

Lance Taylor asks: “Today’s New ‘Keynesians’ have tremendous intellectual firepower. The puzzle is why they revert to Wicksell on loanable funds and the natural rate while ignoring Keynes’s innovations.” #1

Lance Taylor’s answer consists of a conspiracy hypothesis: “Wicksell and Keynes planted red herrings for future economists by concentrating on household saving and business investment.” Reality is much simpler, economists produce false theories because they are scientifically incompetent. The loanable funds theory is a case in point.

Roughly speaking, the loanable funds theory says that saving and investment are equalized by the interest rate mechanism, which is a variant of standard supply-demand-equilibrium. What economists have not realized until this day is that all three elements of the general market model (supply function, demand function, equilibrium) are NONENTITIES. This means that the Wicksellian model has already been dead in the cradle. However, as the saying goes: “The difficulty lies, not in the new ideas, but in escaping from the old ones …” This applies to Walrasians AND Keynesians.

Keynes formulated the formal core of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.”

This elementary syllogism is conceptually and logically defective because Keynes never came to grips with profit (Tómasson et al., 2010). #2
 
Let this sink in: Keynes had NO idea of the fundamental concepts of economics, that is, of profit and income. His error/mistake carried over to National Accounting. #3 Therefore, it is NO surprise at all that loanable funds macro models do not fit the data.

The axiomatically correct profit equation for the investment economy reads Qm≡Yd+I−Sm. Legend: Qm monetary profit, Yd distributed profit, Sm monetary saving, I investment expenditures. The profit equation gets a bit longer when government and foreign trade are included.

The difference between investment and saving I-Sm, plus distributed profit Yd, determines monetary profit Qm for the economy as a whole. Saving is NEVER equal to investment, neither ex-ante nor ex-post, and there is NO mechanism to equalize them, that is, NO such thing as supply-demand-equilibrium. The whole discussion about whether the Wicksellian interest rate mechanism or the Keynesian income mechanism establishes the equality/equilibrium of saving and investment is entirely vacuous. Because of this, the whole discussion about monetary policy and fiscal policy has NEVER had sound scientific foundations.

To conclude:
(i) All I=S/IS-LM models from Keynes/Hicks to the present are provably false.
(ii) The loanable funds/natural interest rate theory is provably false.
(iii) The classical and Keynesian profit theories are provably false.
(iv) The representative economist has not gotten (i) to (iii) for 80+ years. #4 This includes J. W. Mason and Lance Taylor.

Egmont Kakarot-Handtke


#1 The ‘Natural’ Interest Rate and Secular Stagnation: Loanable Funds Macro Models Don’t Fit the Data
#2 How Keynes got macro wrong and Allais got it right
#3 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#4 For details of the big picture, see cross-references Refutation of I=S

Related  'A new episode of one of the worst blunders of economics' and 'Loanable funds, lack of scientific firepower and abundance of political fartpower' and 'Wikipedia, economics, scientific knowledge, or political agenda pushing?'.