Economics — from storytelling to science

Comment on Lars Syll on ‘Economics — an empty and inexact science’

Blog-Reference and Blog-Reference and Blog-Reference on Apr 17

Lars Syll argues: “Mainstream economics is in the story-telling business whereby economic theorists create make-believe analogue models of the real economic system.”

This, of course, is correct. The problem is that traditional Heterodoxy has NO alternative to offer but is for 200+ years also in the storytelling business. See:
► Redefining economics
► From the pluralism of false models to the true economic theory
► The futile synthesis of neoclassical rubbish and Keynesian garbage
► Economics and the social science delusion
► The Law of Economists’ Increasing Stupidity

In order that economics can speedily progress from cargo cult science to science, it is necessary that both orthodox and heterodox storytellers retire.

Egmont Kakarot-Handtke

Occasional X: Another example of economic storytelling/filibuster/blather (I)

 

#Econ#AllYouNeedToKnow

The representative economist NEVER understood #Profit and how the economic #System works. But after 200+ years they still parade their water-is-wet/grass-is-green trivialities as profound insights. Kalecki is a relevant example. ⇒https://t.co/IFclXX5Ak5

— E.K-H (@AXECorg) January 20, 2025

Occasional X: The role of narratives and storytelling in economics (II)

 

#Economics#FailedFakeScience#DisInfoTainment

“Disinformation isn't new, but its scale and impact are. Can we navigate a world where anyone can spread lies easily?”

For 200+ years, economics claims to be #Science but is NOT. The major approaches (#Walrasianism, #Keynesianism,…

— E.K-H (@AXECorg) June 6, 2024

Storytelling and facts

Comment on Blissex on ‘The F story about the Great Inflation’

Blog-Reference

You write: “His [Phillips's] original graph was essentially a hunch based on a very small dataset that in some cases there is a tradeoff between labour market pressure and accelerating inflation, ...” This is inaccurate.

(i) “The original Phillips Curve is about the relation of the rate of unemployment and the rate of change of the wage rate. Phillips studied more than a century's worth of data and established the stable inverse relation for the United Kingdom. Phillips's original curve was a remarkable empirical finding.” (2012, Sec. 6)
(ii) It is the bastard Phillips Curve of Samuelson/Solow which initiated the ensuing discussion and it is this dilettante construction that was later found wanting.

If the Phillips Curve debate proves one crucial fact beyond reasonable doubt it is that the representative economist is an utterly confused confuser. This goes down the line from Samuelson/Solow to Friedman, to Wren-Lewis, and finally to Blissex.


References
Kakarot-Handtke, E. (2012). Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL

Related 'The end of storytelling'. See also 'Mental messies and loose losers'. For details of the big picture see cross-references Incompetence

Politics, storytelling, and science

Comment on Asad Zaman on ‘ET1% — Economic Theory of the top 1%’

Blog-Reference

What told Marx us about economics?: “In the domain of Political Economy, free scientific enquiry meets not merely the same enemies as in all other domains. The peculiar nature of the material it deals with, summons as foes into the field of battle the most violent, mean and malignant passions of the human breast, the Furies of private interest.” (1906, M.10)

What tells Asad Zaman us?: “Now if we consider conventional economic theory, it is easy to show that nearly all of it is ET1% — it is DESIGNED to prove that policies which favor the top 1% are beneficial for all.”

What tells YouTube us about economics, politics, and all the rest? “Everything Is A Rich Man’s Trick.”

And finally, what tells us science? “Apologetics may be a laudable objective. Its practical importance is unquestioned. People need to be shown that the institutions of their own society are good, those of others bad. But there is no place for apologetics in science. Scientific economics inquires only into the How and Why, not into the Good or Bad, of what is. From the scientific point of view preoccupation with Good and Bad is worse than useless since it not only fails to illumine anything but keeps the lightbeam of inquiry from being turned in directions where answers to significant questions can be found.” (Murad, 1953, p. 2)

What is the underlying problem? Every one of us can only have a personal experience of a tiny section of space and time and it is not at all certain whether we interpret this personal experience correctly. The rest of reality consists of the extrapolation of limited experience, second-guessing of causes and motives, and of what society tells us. Society consists of family, peers, neighbors, teachers, philosophers, priests, gurus, artists, government, business, and the media.

Our view of reality is the result of rather limited personal experience and storytelling. The bad thing is that we are sometimes confronted with facts, events, or claims/opinions that do not fit into our worldview. And this brings up the distinction between opinion and truth.

“There are always many different opinions and conventions concerning any one problem or subject-matter (such as the gods). This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides ... was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other ...” (Popper, 1994, pp. 39-40)

What the ancient Greeks called opinion/doxa is roughly the same as what Buddha called the Veil of Maya, what Marx called ideology, what Hollywood calls dream/nightmare, what Bernays called PR/advertising, what Plato called shadows on the cave wall, and what Orwell called big-brother mind-control.

Is Asad Zaman’s claim that ET1% influences opinion true? Yes. Is the claim that they influence science in general and economics in particular true? Yes. Can they determine the outcome of the research? No, because nobody knows the outcome in advance. It all depends on whether scientists stick to the well-defined rules of science. “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack, 1997, p. 1)

Asad Zaman’s claim amounts to the accusation that orthodox economists are fraudsters, that is, that they intentionally produce false theories. This brings us outside of science and into the criminal court (see also Lysenkoism on Wikipedia).

Heterodoxy stands before this question: We all agree that Orthodoxy is false so (i) let us forget this proto-scientific garbage and focus on developing the true theory (= materially and formally consistent), or (ii), let us bring Orthodoxy to court and prove that DSGE is not a failed approach but a political fraud. Option (i) is the scientific way to settle matters.

It all would be much simpler if Asad Zaman could present the true theory (= materially and formally consistent) of how the actual monetary economy works. In particular, I would like to know which one of the four different heterodox profit theories is correct.#1

Egmont Kakarot-Handtke


References
Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL
Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty. URL
Murad, A. (1953). Questions for Profit Theory. American Journal of Economics and Sociology, 13(1): 1–14. URL
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality. London, New York: Routledge.

#1 Heterodoxy, too, is proto-scientific garbage

Related 'Refocusing economics'.

Key Issues: Sloppiness, multi-senseism, storytelling ― thriving in the thickness of confusion

... economics is a big omnibus which contains many passengers of incommensurable interests and abilities. (Schumpeter, 1994, p. 827)

***

... he [Adam Smith] disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along. (Schumpeter, 1994, p. 185)

But though the Wealth of Nations contained no really novel ideas and though it cannot rank with Newton's Principia or Darwin's Origin as an intellectual achievement, it is a great performance all the same .... (Schumpeter, 1994, p. 185)

With Adam Smith, economics had a clumsy start and, despite great performances of whatever sort, fell further back over the long haul in comparison to physics and biology.

***

A good principles of economics teacher is a good storyteller. (Colander, 1995, p. 169)

Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. ... Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from “the richness of context.” (Coates, 2007, p. 87)

What a tricky business this all is! In his Treatise on Money, Mr. Keynes told the world that savings and investment are only equal in conditions of equilibrium; that an excess of investment over saving means rising prices, and vice versa. In his General Theory, he told us that saving and investment are always equal, and that this is a mere identity or truism, without significance for the determination of prices. As far as I can make out, there are relevant and important senses in which all these statements are each of them right and each of them wrong. (Hicks, 1939, p. 184)

This is the articulate methodological commitment to inconclusiveness that, on a deeper level, unites economists of all camps: "... there are relevant and important senses in which all these statements are each of them right and each of them wrong. " Many senses make no sense at all. However, empirical and logical inconclusiveness quite effectively secured the ecological niche of Political Economy as a separate science. Demarcation does not work in the "thickness of confusion" (Suppes, 1968, p. 654).

Contradictory statements are reconciled routinely by relating them to one of the following distinctions: short run/long run, ex ante/ex post, identity/equality. Inconclusiveness helps passably against outright refutation. With regard to empirical testing, the commitment to inconclusiveness implies the — self-defeating — assertion that in economics no experimentum crucis is feasible. All questions that cannot possibly be decided by experiment are out of science in the first place.

... you cannot prove a vague theory wrong. (Feynman, 1992, p. 158)

With enough fog emitted, almost anything becomes possible. (Mirowski, 2013, p. 344)

... nothing is clear and everything is possible. (Keynes, 1973, p. 292)

You can define anything you want, but as a sage once said,  “A rose by any other name will smell as sweet!” (P. Davidson, RWER-Blog, July 2, 2013)

For, on principle, we may call things what we please. (Schumpeter, 1994, p. 598)

This is a tough question to adjudicate on scientific grounds since the issue is largely definitional and, as Lewis Carroll pointed out, everyone is entitled to his own definitions. (Blinder, 1987, p. 131)

Let us mean by current income the value of current output, ... (Keynes, 1933, p. 699)

... twentieth-century neoclassical theory resembles nothing so much as the child's game of Mr. Potatohead – the fun comes in mixing and matching components with little or no concern for the coherence of the final profile. (Mirowski, 1995, p. 294)

Trying to pin down the essential ideas is sometimes difficult because neoclassical economics always seems to be a moving target. (Boland, 1992, p. 213)

Since everybody is indeed free to define whatever appears to be appropriate, it seems that a definition could not pose any real problem. This, indeed, is not true because the full freedom of definition holds but for the first definition. The subsequent definitions must be consistent with their predecessors. This continuously restricts the freedom of definition. It is by no means the case that anything can be defined as desired. This is a methodological illusion that is rather widespread among economists. It explains, for the most part, the discipline's state of manifest confusion. A consistent and agreed-upon framework of concepts is indispensable. Keynes's aforementioned determination of income, for example, invalidates the General Theory and all its legitimate and illegitimate offshoots (IS–LM, AD–AS) in one sentence (see Keynes's Missing Axioms URL or Why Post Keynesianism is Not Yet a Science URL).

***

We know from the history of science that entrenched classificatory schemes and misleading descriptive vocabularies have impeded scientific advance as much or more than the complexities and observational inaccessibility of the subject matter. (Rosenberg, 1980, p. 114)

As was standard with Marshall, the narrative told one story, the mathematics another. (Mirowski, 1995, p. 299)

Is it not a fact, which stares at us from the histories of all sciences, that it is much more difficult for the human mind to forge the most elementary conceptual schemes than it is to elaborate the most complicated superstructure when those elements are well in hand? (Schumpeter, 1994, p. 602)

The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts. (Schmiechen, 2009, p. 344)

The currently prevailing pattern of economic theorizing exhibits the following three characteristics: (1) a syncopated style of argument fluctuating back and forth between literary and symbolic modes of expression, (2) naive translation, or the loose paraphrasing of formulae into sentences, and (3) loose verbal reasoning for certain aspects of theoretical argumentation where explicit symbolic formulation is lacking. (Dennis, 1982, p. 698)

Thus, economics is apparently the study of the economy, the study of the coordination process, the study of the effects of scarcity, the science of choice, and the study of human behavior. One possible conclusion to draw from this lack of agreement is that the definition of economics does not really matter. (Backhouse and Medema, 2009, p. 221)

The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions. (Fisher, quoted in Mirowski, 1995, p. 86)

I think it is the lack of quite sharply defined concepts that the main difficulty lies, and not in any intrinsic difference between the fields of economics and other sciences. (von Neumann, quoted in Mirowski, 2002, p. 146 fn. 49)

Precision and rigor in the statement of premises and proofs can be expected to have a sobering effect on our beliefs about the reach of the propositions we have developed. (Hutchison, 1960, p. xxiii)

There has been no rigor and precision in the definition of income and profit for more than two centuries. The reach of conventional propositions is zero. That is more than sobering.

***

To be sure, economics may perform a valuable social role without adding any significant understanding to knowledge of the economy – a “good myth,” economically speaking, can work not only in primitive tribal cultures but also in modern societies. ... Indeed, ... the religious function may have been the most important role throughout the history of modern economics since the Enlightenment. (Nelson, 2006, pp. 300-301)

Myth, well told, is still the most convincing way to explain how the world and humankind came to be in their present form. To recall, Zeus was the god of the sky and thunder. He oversaw the universe, assigned the various gods their roles, and was known for his erotic escapades. Zeus was emotional, spontaneous, and had a lot of trouble with other gods, goddesses, and humans. At Prometheus, for example, he was angry for three things: being tricked into making sacrifices, stealing fire for man, and refusing to tell him which of his children would dethrone him. To handle his problems, Zeus regularly fell back on chicanery, force, and violence (for an overview, see Wikipedia URL). Since antiquity, everybody "understands" Zeus, and he easily provokes like/dislike. Purified from all religious connotations, Greek myth is the stuff of psychology, literature, soap operas, blogs, newspapers, and history to this day. Let us call this all-embracing panorama of human motives and actions the gossip model of the world. It affords immediate access to subjective understanding, which, however, is barely distinguishable from a projection. With the gossip model, everything and its opposite can be explained. That makes it both popular and preposterous. Utility maximization is the economist's reduced version of the gossip model. Science started the very day when Greek philosophers threw the gossip model out of the window.

... observed acts of behavior allow an indefinite number of interpretations regarding the plans from which they are assumed to have sprung. (Morgenstern, 1941, p. 381)

Now, at any rate, we have an explanation for why the assumptions of economic theory about individual action have not been improved, corrected, sharpened, specified, or conditioned in ways that would improve the predictive power of the theory. None of these things have been done by economists because they cannot be done. The intentional nature of the fundamental explanatory variables of economic theory prohibits such improvement. (Rosenberg, 1992, p. 149)

***

Economics as a discipline faces the following alternative. If it wants to be accepted as a science, it has to stick to the rules. The rules are quite simple: material and logical consistency. No excuses (complexity, Duhem-Quine, etc.). If economics cannot deliver on principle, it has to join the Geisteswissenschaften/Humanities and try its luck with Verstehen/understanding. Feynman defended the standards in quite certain terms: "You don't like it? Go somewhere else!" Since J. S. Mill spoke — excusatory — of Political Economy as an inexact and separate science, economists attempted to water down the rules and to tergiversate material or logical consistency or both. Lower standards of Verstehen can, by its very nature, not lead to much more than a gossip model of the world. Homo oeconomicus may be replaced by the far more realistic homo socialis; this improvement, though, still remains within the confines of the gossip model and is not sufficient for a better understanding of how the economy works. No behavioral approach, whatever, is adequate. It is not a question of realism; it is a question of methodology. There is no such thing as an inexact and separate science. There is no hiding behind complexity. There is only science and non-science. The Unity of Sciences does not mean unity of science and its look-alikes.

***

The solution consists of replacing behavioral assumptions, both the sloppy and the axiomatized ones, with structural axioms. Structural axiomatization has the accessory advantage of putting off muddleheads, commonsensers, wishwashers, smatterers, storytellers, and all those "whom any discovery that brought quietus to a vexed question would inevitably vex because it would end the fun of arguing around it and about it and over it" (Peirce, 1931, 5.520). Objective/structural/systemic axiomatization strictly excludes the explanation or prediction of human behavior. Hence, there is no empty talk about it.

Filibuster economics may indeed have performed a multitude of useful social roles, but this is of no consequence for its scientific status. Social utility is not a criterion for the assessment of a theory. Sloppiness, incoherent definition, green cheese assumptionism, and self-protecting inconclusiveness are detrimental to the growth of knowledge. Social utility cannot exculpate proto-scientific garbage.

A Supreme Being would have no need for axioms, but they are often found quite useful for mere men. (Strotz, 1953, p. 390)

More specifically: The rigor and objectivity of structural/systemic axiomatization are needed to abandon the endemic sloppiness of economic argument and finally to advance from proto-science to science.


References
Backhouse, R. E., and Medema, S. G. (2009). On the Definition of Economics. Journal of Economic Perspectives, 23(1): 221–233.
Blinder, A. S. (1987). Keynes, Lucas, and Scientific Progress. American Economic Review, 77(2): 130–136. URL
Coates, J. (2007). The Claims of Common Sense. Moore, Wittgenstein, Keynes and the Social Sciences. Cambridge, New York, etc.: Cambridge University Press.
Boland, L. A. (1992). The Principles of Economics. Some Lies My Teacher Told Me. London, New York: Routledge.
Colander, D. (1995). The Stories We Tell: A Reconstruction of AS/AD Analysis. Journal of Economic Perspectives, 9(3): 169–188. URL
Dennis, K. (1982). Economic Theory and the Problem of Translation (I). Journal of Economic Issues, 16(3): 691–712. URL
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hicks, J. R. (1939). Value and Capital. Oxford: Clarendon Press, 2nd edition.
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York: Kelley
Keynes, J. M. (1933). Mr. Robertson on "Saving and Hoarding". Economic Journal, 43(172): 699–712. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
Mirowski, P. (2013). Never Let a Serious Crisis Go to Waste. London, New York: Verso.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania: Pennsylvania State University Press.
Peirce, C. S. (1931). Collected Papers of Charles Sanders Peirce, volume I. Cambridge: Harvard University Press. URL
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.
Rosenberg, A. (1992). Economics - Mathematical Politics or Science of Diminishing Returns? Chicago: University of Chicago Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Strotz, R. H. (1953). Cardinal Utility. American Economic Review, 43(2): 384–397. URL
Suppes, P. (1968). The Desirability of Formalization in Science. Journal of Philosophy, 65(20): 651–664.

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


© 2013 EKH, except original quotes

Storytelling vs Theory = Politics vs Science

Comment on Thomas Palley on ‘Inequality, the financial crisis and stagnation: competing stories and why they matter’

Blog-Reference

You say: “Theory shapes the way we understand the world, thereby shaping how we respond to it.” True, but you say also: “Theory is a form of storytelling, and the stories we tell shape our understanding of the economy and economic policy. That means the stories we tell are critical.” (p.1)

To equate theory with storytelling is a gross methodological blunder because theory belongs to the realm of science, while storytelling belongs to the realm of politics. This distinction is of utmost importance. The main differences are:
(i) The goal of political economics is to push an agenda; the goal of theoretical economics is to explain how the actual economy works.
(ii) In political economics, anything goes; in theoretical economics, scientific standards are observed.

Theoretical economics has to be judged according to the criteria true/false and nothing else. Scientific truth is well-defined as formal and material consistency (Klant, 1994, p. 31).

The fact of the matter is that economists have failed for more than 200 years to develop the true theory. What we have is Walrasianism, Keynesianism, Marxianism, and Austrianism. Neither of these approaches satisfies the scientific criteria of formal and material consistency. So ALL have to be abandoned: what economics urgently needs is a Paradigm Shift.

The fatal mistake/error of Heterodoxy is to argue that Orthodoxy tells a biased story and then replace it with another biased story. This is NOT a Paradigm Shift. A Paradigm Shift replaces ALL stories with the scientifically true theory. In marked contrast to politics, science is neither capitalist-friendly nor worker-friendly but simply true.

Storytelling is ultimately a means to a political end. What looks like a theory lacks the essential properties of formal and material consistency. What looks like science is cargo cult science (Feynman). The outer features of science are cultivated in order to signal credibility and authority.

Accordingly, you argue: “Given the vital significance of ‘getting the story right’, progressive action aimed at policy change must be accompanied by vigorous efforts to challenge and replace the mainstream economic story.” (p. 16) Thus, your agenda determines your story.

What you call a ‘purely analytical exercise’ in distribution theory fails. It is indeed true that Orthodoxy in both the Chicago and the MIT variant does not satisfy scientific criteria by any stretch of the imagination, yet the problem of Post Keynesianism is that it is also defective (2011). The common error/mistake is located in profit theory, and because of this, the whole neoclassical and Post Keynesian distribution theory falls apart (2014).

Because both orthodox and heterodox economists lack the true theory, all their arguments and policy proposals are freely floating in midair. Whatever is uttered about economic policy has no sound scientific foundations and is not different from reading poultry entrails.

The answer to the cargo cult science of Chicago and MIT is to expel both from the sciences. To combat malpractice with just another political bias is not such a good idea.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.

***

Graphic AXEC75

Occasional X: The role of narratives and storytelling in economics (VI)

 

#Economics#AllYouNeedToKnow

Economics claims to be science but is NOT. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory & axiomatically false & materially/formally inconsistent & ALL got #Profit wrong.…

— AXEC (@EgmontHandtke) May 13, 2025

The end of storytelling

Comment on Simon Wren-Lewis on ‘The F story about the Great Inflation’

Blog-Reference

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)

Because economists have been aware at least since the 1930s that they lack the true theory they let a change of rules happen. The true/false criterion of science vanished and had been replaced by the first rule of communication: “A good principles of economics teacher is a good storyteller.” (Colander, 1995, p. 169)

This is how economics eventually became a sitcom or proto-scientific shitshow.

This blog makes no exception. Already, the third sentence of the intro is incorrect. You write: “After Phillips discovered his curve, which relates inflation to unemployment, ...” It has to be emphasized that Phillips ‘had not made an explicit link between inflation and unemployment’ (Ormerod, 1994, p. 120).

The original curve was bastardized by Samuelson with the formula: rate of inflation = rate of wage growth minus the rate of productivity growth (Samuelson and Nordhaus, 1998, p. 590). This ‘important piece of inflation arithmetic’ was fallacious, but this did not prevent the acceptance of the Samuelson/ Solow ‘Phillips’ curve. Phillips is said to have remarked ‘if I had known what they would do with the graph I would never have drawn it.’ (Quiggin, 2010, p. 91).

The storytelling then continued with Friedman and the vacuous filibuster about expectations and the natural rate of unemployment.

The axiomatically correct Phillips curve is shown with Graphic AXEC36

This testable structural curve asserts inter alia (2012, Sec. 7):
• An increase in the average wage rate leads to a lower unemployment rate. This is in accordance with the correlation of Phillips's original study, but clearly against conventional labor market wisdom (2015).
• A price increase is conducive to lower employment. This is in accordance with the stagflation of the 1970s.

The structural Phillips curve contains vastly more variables than the methodologically inferior bastard versions. All that has to be done is to stop storytelling and to check how data and formulas fit together. Time to make economics a science.

Egmont Kakarot-Handtke


References
Colander, D. (1995). The Stories We Tell: A Reconstruction of AS/AD Analysis. Journal of Economic Perspectives, 9(3): 169–188. URL
Kakarot-Handtke, E. (2012). Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Ormerod, P. (1994). The Death of Economics. London: Faber and Faber.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.
Samuelson, P. A., and Nordhaus, W. D. (1998). Economics. Boston, MA, Burr Ridge, etc.: Irwin, McGraw-Hill, 16th edition.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.

Occasional X: Another example of economic storytelling/filibuster/blather (II)

 

#Econ#AllYouNeedToKnow

von Mises never understood #Profit and how the economy works. Austrianism has been scientifically worthless from the get-go. Science is about true/false and NOT about mustaches. Economists have finally arrived at the IQ distribution's zero lower bound. pic.twitter.com/RRd28FxKvE

— E.K-H (@AXECorg) January 23, 2025

Occasional X: The role of narratives and storytelling in economics (IV)

 

#Economics#FailedFakeScience#DisInfoTainment

The history of economic thought is the history of scientific failure. The major approaches (#Walrasianism, #Keynesianism, #Marxianism, #Austrianism, and their derivatives) are mutually contradictory & axiomatically false &…

— E.K-H (@AXECorg) October 7, 2024

Occasional Tweets: Economics is neither constrained optimization nor storytelling

 

#Walrasianism, #Keynesianism, #Marxianism, #Austrianism, #MMT are mutually contradictory, axiomatically false, materially/formally inconsistent. ALL got #Profit wrong. Both mathematical and storytelling #Econ is proto-scientific garbage. #Economists are too stupid for #Science. pic.twitter.com/8TRwbxpVuH

— E.K-H (@AXECorg) February 9, 2022

For more about storytellers see AXECquery. 

Economics as storytelling and entertainment for the masses

Comment on John T. Harvey on ‘Does Modern Monetary Theory Have Any Scholarly Validity?’

Blog-Reference

Clint Ballinger advertises his latest project: “I am trying to make a non-technical book that the public and students will actually read, and a book that actually that gets all the operational basics right.”

As Simon Wren-Lewis once observed: “Narratives are a way people can try to understand things they know little about, and most people know little about economics or politics.”

This is an accurate observation. Where knowledge is lacking a story fills the void. The media have always been in the business of storytelling. This goes from the so-called Holy Books to Rome’s Circus Maximus to Hollywood to Paul Krugman’s NYT blather to economics supply-demand-equilibrium textbooks.#1

Economics is storytelling since the founding fathers. Adam Smith was NOT a scientist but a storyteller: “… he had no such ambitions; in fact, he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

All appearances to the contrary, economics is NOT a science but political agenda pushing. The format of popular propaganda is, of course, NOT the abstract theory but a concrete narrative. For a narrative, there is NO need to satisfy the scientific criteria of material and formal consistency. Basically, a narrative emotionally re-enacts a deep-seated archetype. The three great economic narratives are the story of the Schlauraffen Land of Plenty and Freedom, the story of the Alchemist who transmutes dirt into gold, and the story of the struggle of Capitalists vs Workers.

Economics is failed/fake science. All attempts to make economics a science remained on the surface. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit ― the foundational concept of the subject matter ― wrong. With the pluralism of provably false theories, economists have not achieved anything of scientific value but produced a lot of talk-show stuff.

So, they blather on and on. To this day, economists are storytellers.#2-#11 Clint Ballinger’s 1000 CASTAWAYS: Fundamentals of Economics is the latest example of populism, i.e. of low-life political agenda pushing. Clint Ballinger is just one of the many economists who explain things in non-technical terms that they do not understand in scientific terms.

Egmont Kakarot-Handtke


#1 Economics and encephalomalacia
#2 Economics: ‘a tale told by an idiot ... signifying nothing’
#3 Storytelling vs Theory = Politics vs Science
#4 The economist as storyteller
#5 Narrative economics and the imperatives of the sitcom
#6 Economics: stories, narratives, and disinformation
#7 Media-fake-farce-fraud-storytelling-macro
#8 How to save the economy from storytelling economists
#9 The end of storytelling
#10 Politics, storytelling, and science
#11 Economics — from storytelling to science

Related 'Economists cannot do the simple math of profit — better keep them out of politics' and 'New Economic Thinking, or, let’s put lipstick on the dead pig' and 'Does Asad Zaman fly with POL or SCI Airlines?' and 'The long genealogical tree of economic storytelling' and 'A political stench is in the air' and 'Macroeconomics: Drain the scientific swamp' and 'Profit Theory in less than 5 minutes' and 'Scientists and science actors' and 'The economist as second-guesser, mind reader, and folk psychologist' and 'Employment theory as an example of proto-scientific soapbubbling' and 'Economics: communication without content' and 'Ricardo and the invention of class war' and 'The Law of Economists’ Increasing Stupidity' and 'Wrapping up the MMT narrative' and 'MMT and the overall political corruption of economics' and 'MMT: How the Oligarchy communicates with WeThePeople' and 'MMTers are NOT Friends-of-the-People' and 'The Kelton-Fraud' and 'Krugman and the scientific implosion of economics' and 'End of a storyteller' and 'Storytelling and facts' and 'Around the world: storytelling vs. science' and 'The consistent ancients and the confused moderns' and 'The intelligent layperson's guide through vacuonomics' and 'Low-IQ economics: the beginner’s guide' and 'Entertainment vs. Science' and 'The economist as stand-up comedian' and '10 steps to leave cargo cult economics behind for good' and 'Economics textbooks ― tombstones at the Flat-Earth-Cemetery' and 'Mad but true: 200+ years after Adam Smith economists still have no idea what profit is' and 'Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion'. For details of the big picture see cross-references Political Economics/Stupidity/Corruption.

***

Twitter/X Mar 23, 2024 Michael Hudson on science fiction

Occasional Tweets: The fatal methodological flaws of economics have always been brain-dead storytelling and misapplication of math

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

The economist as storytellerhttps://t.co/Lroo52OWDQ

— E.K-H (@AXECorg) February 28, 2022

For more about math see AXECquery.

For more about storytelling see AXECquery. 

The long genealogical tree of economic storytelling

Comment on Dániel Oláh on ‘The Amazing Arab Scholar Who Beat Adam Smith by Half a Millennium’

Blog-Reference

Dániel Oláh reports: “The biggest merit of Khaldun lies in his revolutionary methodological thinking. … Based on this it’s easy to understand that Ibn Khaldun presented very similar ideas as Adam Smith, but hundreds of years before the Western philosopher. But Khaldun said even more about the economy. He analyzed markets which arise based on the division of labor and examined market forces in a simple didactic way which is very similar to the attitude of Alfred Marshall. The invention of supply and demand analysis wasn’t invented in the 19th century …”

The fault of this argument lies in the fact that economics is, to begin with, NOT a social science.#1 Worse, to define economics as social science has been the foundational blunder 200+ years ago. Worst, not to realize this to this day is the very proof of utter scientific incompetence of the representative economist.

Adam Smith was NOT a scientist but a storyteller: “… he had no such ambitions; in fact, he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

Schumpeter had to argue against the plain fact that the supply and demand story is not much better than the commonsensical story of how the sun travels from east to west over the firmament: “The primitive apparatus of the theory of supply and demand is scientific. But the scientific achievement is so modest, and common sense and scientific knowledge are logically such close neighbors in this case, that any assertion about the precise point at which the one turned into the other must of necessity remain arbitrary.”

Neither Smith nor Marshall ever rose above the level of proto-scientific storytelling.#2 The same holds true for Ibn Khaldun. To put this in perspective is not to deny that Ibn Khaldun marked progress in comparison to his precursors who limited themselves “to transmit knowledge without modifying, editing or adding any remarks to the tradition.”

Ibn Khaldun deserves credit as a forerunner of Adam Smith. But Smith was more a political blatherer than a scientist. So Ibn Khaldun is not the forerunner of economics as a science. The current state of economics is this: the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. With the pluralism of provably false theories economics sits squarely at the proto-scientific level.#3

It is, first of all, of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Theoretical economics has to be judged according to the criteria true/false and nothing else. The history of political economics since Adam Smith can be summarized as a perpetual violation of scientific standards. Theoretical economics had been hijacked from the very beginning by the agenda pushers of political economics. Smith and Ricardo fought for Liberalism, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Keen.

Political economics has produced NOTHING of scientific value since Adam Smith. This is not the fault of Ibn Khaldun, of course, but of scientifically incompetent economists who have not realized to this day that economics is NOT a social science but a systems science.#4 What is required since Ibn Khaldun is to double down on revolutionary methodological thinking.

Egmont Kakarot-Handtke


#1 Economics is NOT a social science
#2 Marshall and the Cambridge school of plain economic gibberish
#3 Economics: 200+ years of scientific incompetence and fraud
#4 First Lecture in New Economic Thinking

***

AXEC179

How to save the economy from storytelling economists

Comment on Simon Wren-Lewis on ‘The F story about the Great Inflation’

Blog-Reference

There are political economics and theoretical economics. In political economics, it suffices to tell a good story; in theoretical economics, scientific standards are observed. Because economists, since Adam Smith, pursued these two hares with varying intensity and consistency eventually got out of sight. More precisely, economists failed to develop a theory about how the market economy works that satisfies the criteria of material and formal consistency.

The Phillips Curve debate is a case in point. Originally, Phillips presented an astounding empirical relation between the rate of unemployment and the rate of change in the wage rate. After a little conceptual shell gaming, it was about unemployment and inflation. And after some additional wish-wash about expectations, the ending of the story was that there is no way to escape natural unemployment.

This conclusion lacks a sound theoretical foundation. To make a long argument short, the most elementary version of the correct Employment Law is given with Graphic AXEC62a

From this equation follows inter alia:
(i) An increase in the expenditure ratio ρ_E leads to higher employment. An expenditure ratio ρ_E>1 indicates credit expansion, a ratio ρ_E<1 indicates credit contraction/debt repayment.
(ii) Increasing investment expenditures I exert a positive influence on employment; a slowdown of growth does the opposite.
(iii) An increase in the factor cost ratio ρ_F≡W/PR leads to higher employment. This implies that a higher average wage rate W leads to higher employment. This explains the original Phillips Curve but is contrary to conventional wisdom. It is, though, easy to prove that conventional wisdom is a mere Fallacy of Composition (2015).
(iv) A price increase lowers the factor cost ratio and is conducive to lower employment. This explains stagflation.
(v) The complete Employment Law is a bit longer and contains, in addition, profit distribution, public deficit spending, and the trade balance with the rest of the world. All variables are measurable, and the structural Employment Law is testable.

Points (i) and (ii) are old Keynesian stuff. Let us focus here alone on the factor cost ratio as defined in (iii). This variable formally represents the price mechanism, which, however, does not work as Orthodoxy imagines. As a matter of fact, overall employment increases if the average wage rate W increases relative to the average price P and productivity R. This gives one the lever to improve the employment situation all over the world and to fend off deflation without rising debt and without artificial capacity growth.

According to pre-Keynesian Orthodoxy, the price mechanism as embodied in ρ_F should spontaneously establish full employment. More precisely, a falling average wage rate should restore full employment. The consistent structural Employment Law says that the opposite is true.

The overlooked irony of the original Phillips Curve is that it clearly shows a positive correlation between average wage rate and employment that should have cast doubt on the familiar supply-demand-equilibrium story.

The core of the employment problem is that the price mechanism does not work as orthodox economics says, and this has nothing to do with wage or price stickiness but with the fact that theoretical economics never could really emancipate itself from political economics and thus arrive at a consistent theory of how the monetary economy works.

Egmont Kakarot-Handtke


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

Related 'The end of storytelling' and 'Storytelling and facts'.

The subtle distinction between storytelling and science

Comment on Simon Wren-Lewis on 'Saving Equals Investment?'

Blog-Reference

The I=S discussion is the widely visible monument of a lack of genuine scientific instinct of both orthodox and heterodox economists. In order to make this perfectly clear, it is necessary not to accept the familiar premises but to dig deeper. As Keynes already recognized: “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)

That an error/mistake is almost always located in the premises is well-known from methodology: “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)

So, what has, first of all, to be replaced is this formal description of the economy: “In the most simple model of a closed economy without government, income (Y) = consumption (C) + saving (S), but also expenditure (Y) = consumption (C) + investment (I). So S=I by definition. But here investment includes what is called ‘stockbuilding’ or ‘inventory accumulation’, which includes goods that firms wanted to sell but could not.” (quote from intro)

Instead: The most elementary economic configuration, i.e., the production-consumption economy, is defined by (i) Yw=WL wage income Yw is equal to wage rate W times working hours L, (ii) O=RL output O is equal to productivity R times working hours L, (iii) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

This is the formal minimum, and there is no way to reduce it further. For the optical representation, see Graphic AXEC31

At any given level of employment L, the wage income that is generated in the consolidated business sector follows by multiplication with the wage rate. On the real side, the output follows by multiplication with productivity. Finally, the price follows as the dependent variable under the conditions of budget balancing, i.e., C=Yw, and market clearing, i.e., X=O. Note that the ray in the southeastern quadrant is not a linear production function; the ray tracks any underlying production function.

If the wage rate W is lowered, the market-clearing price P falls. If the number of working hours L is increased, the price remains constant, provided productivity R does not change. If productivity decreases, the price rises. In any case, labor gets the whole product, the real wage is invariably equal to productivity, and profit for the business sector as a whole is zero. All changes in the system are reflected in the market-clearing price.

In the next period, the households save. The result is shown with Graphic AXEC33.

Consumption expenditure C falls below Yw and with it the market-clearing price P. With perfect price flexibility, there are no unsold quantities and no changes in inventory. The product market is always cleared, and there is no such thing as an inventory investment. So we have household sector saving but no business sector investment, that is, saving which is given by Sm≡Yw−C is not equal to investment I=0.

Of course, we could also consider the case where the price is sticky, and part of the output O is not sold, i.e., O−X>0 (see 2014a). This, however, would not alter the crucial conclusion.

The crucial conclusion is indeed that the business sector makes a monetary loss that is exactly equal to the household sector's saving, i.e., Qm≡−Sm. Therefore, loss (and not investment) is the exact counterpart of saving; by consequence, profit is the exact counterpart of dissaving.

And this is why almost everything that conventional professors tell their students is false. Household sector saving has never been equal and will never be equal to business sector investment.

The general relationship between monetary profit, distributed profit, investment, and monetary saving is given with Graphic AXEC09

How could economists get the basics so wrong? Because they cannot tell the difference between income and profit. This is like medieval physics before the pivotal concepts of force and mass were properly defined and understood.

As a matter of fact, Keynes' conceptual problems started with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010, p. 12)

This kicks off the chain reaction of errors/mistakes: When profit is not correctly defined, income is not correctly defined, and then saving is not correctly defined. It is with profit that the confusion about saving “equals” investment starts. The conceptual mess has been verbally papered over with capital investment/inventory investment or ex-ante/ ex-post, and the representative economist has swallowed all this hook, line, and sinker. For the formally correct solution, see (2014b).

Because neither the Post-Neo-New Keynesians nor the Post-Neo-New Classicals have solved the profit puzzle and with it the saving-investment puzzle, they are collectively outside of science (2013).

Egmont Kakarot-Handtke


References
Georgescu-Roegen, N. (1970). The Economics of Production. American Economic Review, Papers and Proceedings, 60(2): 1–9. URL
Kakarot-Handtke, E. (2013). Why Post Keynesianism is Not Yet a Science. Economic Analysis and Policy, 43(1): 97–106. URL
Kakarot-Handtke, E. (2014a). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL

Occasional Tweets: The role of narratives and storytelling in economics (I)

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

Narrative economics and the imperatives of the sitcomhttps://t.co/zc99rWEnTK

— E.K-H (@AXECorg) August 31, 2022

For more about communication see AXECquery.

Occasional X: Another example of economic storytelling/filibuster/blather (IV)

 

#Economics#AllYouNeedToKnow

For 200+ years, economists have claimed to do science, but it was only Cargo Cult science. The representative economist is NOT a competent scientist but an agenda-pusher / clown in the political Circus Maximus. Friedman is a relevant example. pic.twitter.com/QjQAAsTgTt

— E.K-H (@AXECorg) January 27, 2025

Around the world: storytelling vs science

Comment on Simon Wren-Lewis on ‘What is it about German economics?’

Blog-Reference

It is important to distinguish first between political and theoretical economics. The goal of political economics is to push an agenda, and the goal of theoretical economics is to explain how the monetary economy works. Theoretical economics has to be judged according to the scientific criteria true/false and nothing else.

When economics is understood as a science there is, first of all, no such thing as German or UK economics. When economics is understood as a sub-discipline of politics then, of course, there are at least as many “economixes” as there are nation-states.

The scientific value of these political variants is zero. As a matter of principle, there is no such thing as national mathematics or physics or, for that matter, economics. True scientists transcend the trivial fact that they are born into some specific regional entity.

Political economics consists mainly of the reshuffling of psycho-sociological stereotypes. The standard explanation of folk psychology is childhood trauma, in the collective variant it then reappears as depression- or inflation- or debt trauma. All this is ridiculous as an economic explanation, but most people are happy with it.

Yet, even if political economics aims at a scientific explanation it could at best explain the functioning of society but not the working of the economic system. In a strict sense, therefore, political economics has not much to do with economics proper.

Broadly speaking: whether German economists are more Keynesian or more Walrasian, or whether Ordo-Liberalism is for all practical purposes better than Neo-Liberalism, or whether they are for or against a minimum wage is a matter of indifference because they, too, do not realize that they have no proper scientific understanding of how the monetary economy works. German economists are in the political storytelling business just like their colleagues elsewhere.

Egmont Kakarot-Handtke