October 18, 2017

Joan Robinson and the early death of Behavioral Economics

Comment on Lars Syll on ‘Joan Robinson and the inadequacies of revealed preference theory’

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)

How do scientists eventually arrive at the true theory? “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

Neither orthodox nor heterodox economists have developed anything resembling the true = materially/formally consistent theory.

Samuelson, to his credit, at least realized that utility is a NONENTITY and that, by consequence, marginalism had no sound scientific foundations: “The very raison d’être for developing revealed preference theory in the 1930’s and 1940’s was to be able to ascertain people’s preferences by observation of their actual behaviour on markets and not having to make unobservable psychological assumptions or rely on any utility concepts.” (Lars Syll, Intro)

What Samuelson did realize was that economics cannot be based on a behavioral axiom like constrained optimization but he did not realize that it cannot, as a matter of principle, be based on any other behavioral assumption whatsoever. The economy is a system and economics has to be based on objective-systemic macrofoundations and not on subjective-behavioral microfoundations.

The significance of the failure of revealed preference theory lies in the fact that economics is not a science of behavior and that microfoundations is the methodologically wrong approach.#1

It was Joan Robinson who drew the correct conclusion: “Scrap the lot and start again.”

However, Keynes’s attempt to move from microfoundations to macrofoundations failed.#2 Thus, the propagation of silly orthodox and heterodox economics goes on and on. The scrapping of the false micro-behavioral paradigm did not happen. What indeed happened was the pseudo-progress from the entirely vacuous behavioral assumption of utility maximization to more ‘realistic’ assumptions under the label of Behavioral Economics.

For Behavioral Economics, though, holds what held already for the microfoundations of Jevons, Walras, Menger: Scrap the lot and start again. In other words, if it isn’t macro-axiomatized, it isn’t economics.

To award in 2017 the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” for Behavioral Economics is the point were the abysmal scientific incompetence of orthodox and heterodox economists since 140+ years turns into a deception of the general public. Economics is not a science but what Feynman called a cargo cult science.

Egmont Kakarot-Handtke

#1 A social science is NOT a science but a sitcom
#2 From false micro to true macro: the new economic paradigm


Related 'The father of modern economics and his imbecile kids' and 'What makes economics a failed science?' and 'Hunting down the economics body snatchers' and 'You are fired!' and 'Joan Robinson and the ‘throng of superfluous economists’' and 'Why don’t you do what Joan Robinson told you to do?'

October 17, 2017

Note on Asad Zaman’s ‘Supply & Demand’

Blog-Reference

To criticize silly supply-demand-equilibrium again and again is itself silly. For the FULL REPLACEMENT of the proto-scientific nuisance see
 Essentials of Constructive Heterodoxy: The Market
 The Law of Supply and Demand: Here It Is Finally
 How to Get Rid of Supply-Demand-Equilibrium

Egmont Kakarot-Handtke


Related 'Refutation of Asad Zaman’s heterodox methodology: all arguments you ever need' and cross-references Failure of Heterodoxy

When non-thinkers rethink

Comment on Carola Binder on ‘Rethinking Macroeconomic Policy’

Blog-Reference and Blog-Reference and Blog-Reference on Oct 18

This is the track record of economics: provably false
• profit theory, since 200+ years,
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S, IS-LM), since 80+ years.
The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept profit wrong.#1

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

What is entirely missing among economists is scientific competence. The familiar research programs have produced nothing but proto-scientific rubbish but neither orthodox nor heterodox economists have any clue of how to get out of the mess: “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.)

This is why rethinking-this-and-that-and-everything is all the rage.#2 It cannot produce anything worthwhile for obvious reasons. Those economists who in their Econ101 youth unthinkingly swallowed supply-demand-equilibrium, which is one the worst proto-scientific idiocies of all time, are in NO position to perform the necessary paradigm shift: “A new idea is extremely difficult to think of. It takes a fantastic imagination.” (Feynman)#3

Carola Binder maintains: “The fact that the conference speakers are so distinguished is both an upside and a downside. They have the greatest understanding of our current models and policies, and in many cases were central to developing them. They can rethink, because they have already thought, and moreover, they have large influence and loud platforms. But they are also quite invested in the status quo, for all they might criticize it, in a way that may prevent really radical rethinking (if it is really needed, which I’m not yet convinced of).”

Obviously, Carola Binder is still in a hallucinatory state. The only thing the Blanchard’s and Summers’ and Bernanke’s and the rest of the rethinking-macro crowd can do for the advancement of economics is to get out of the way.

Egmont Kakarot-Handtke

#1 Where modern macroeconomics went wrong
#2 New Economic Thinking, or, let’s put lipstick on the dead pig
#3 Fact of life: your econ prof is scientifically incompetent


Related 'New Economic Thinking = old scientific garbage'

October 16, 2017

Proof of the inherent instability of the market economy

Comment on Simon Wren-Lewis on ‘How Neoliberals weaponise the concept of an ideal market’

Blog-Reference and Blog-Reference and Blog-Reference on Oct 17

The foundational tenet of economics is that the interaction of free markets tends, in principle, to produce an inherently stable optimal outcome with all factors fully employed or, with regard to labor, at worst ‘naturally’ unemployed.

This tenet has NEVER been proven. General Equilibrium Theory is known to be a methodological disaster and economics is known to be in need of 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.)

As a result, economic policy guidance in ALL variants between outer right-wing and outer left-wing has no sound scientific foundations since 200+ years. It can be proved that the market economy is inherently unstable.

Economics is a system science. Accordingly, the correct approach is not microfoundations but macrofoundations.#1 The elementary version of the objective, systemic, behavior-free, macrofounded employment equation is shown on Wikimedia.


From this equation follows:
(i) An increase of the expenditure ratio ρE leads to higher employment L (the Greek letter ρ stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio ρF=W/PR leads to higher employment.

Item (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρF as defined in (iii) embodies the macroeconomic price mechanism. Fact is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R and vice versa. This is the OPPOSITE of what microfounded economics teaches.

“We economists have all learned, and many of us teach, that the remedy for excess supply in any market is a reduction in price. If this is prevented by combinations in restraint of trade or by government regulations, then those impediments to competition should be removed.” (Tobin)

This is false: a reduction of the average wage rate W in the situation of unemployment INCREASES unemployment. In general terms: at the heart of the market economy is a positive feedback loop, i.e. the very OPPOSITE of what is required for a self-stabilizing system.

The lethal methodological blunder of the microfounded market theory consists in the Fallacy of Composition, i.e. the illegitimate generalization of truths that hold for one firm/market for the economy as a whole.

The free market system is neither efficient, nor self-correcting, nor stable. Neoliberalism has no sound scientific foundations.

Egmont Kakarot-Handtke

#1 New Economic Thinking: the 10 crucial points


Related 'How to overcome the manifest silliness of Econ 101 and save the economy'

October 14, 2017

Why does Heterodoxy not abolish the fake Nobel?

Comment on Lars Syll on ‘Thaler and behavioural economics — some critical perspectives’

Blog-Reference and Blog-Reference on Oct 15

The core message of Heterodoxy is that Orthodoxy has failed on all theoretical and empirical counts and that New Economic Thinking is required. Heterodoxy claims to be the living example of New Thinking which, however, has NOT produced the true economic theory but the pluralism of provably false theories. Worse, Heterodoxy argues that the criteria of science do not literally apply to economics as a social science and that to insist on the well-defined standards of material and formal consistency is merely physics envy.

While it is true that Orthodoxy has abysmally failed, it is important to stress that Heterodoxy, too, has achieved nothing of scientific value.#1 The simple reason is that orthodox and heterodox economists share the same mental handicap: they do not understand what science is all about. What we have underneath the conspicuous hick-hack of the diverse schools is the grand unity and solidarity of the scientifically incompetent.#2 Well knowing that economics is not a science, no economics school puts the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” in earnest into question.

What the Bank of Sweden does, though, is either (i) a self-delusional overreach, (ii) an arrogation of scientific competence, (iii) an arrogation of legitimacy, or/and (iv), a deception of the general public.

The question is, why have heterodox economists never made a serious attempt to abolish the fake Nobel which makes the ridiculous claim that economics is science[s]. There is a blatant contradiction between reality and what the Bank of Sweden declares.

The Bank of Sweden has no legitimacy whatsoever to elevate a proto-science to the status of a science. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economists do not even understand the foundational concept of their subject matter, that is, macroeconomic profit. Economics is not a science, and economists are not scientists.

What neither orthodox nor heterodox economists have realized until this day is that economics is NOT a science of behavior. Behavioral Economics from Adam Smith’s Theory of Moral Sentiment, to homo economicus, to bounded rationality, to game theory, to Richard Thaler’s nudge is not economics at all but the very subject matter of sociology, psychology, anthropology, Political Science, history, etcetera. The subject matter of economics is the economic system.

Lars Syll entirely misses the point with his patronizing critique: “So — although it is good that people like Kahneman and Thaler are rewarded ‘Nobel prizes’ and that much of their research has vastly undermined the lure of axiomatic-deductive mainstream economics, there is still a long way to go before economics has become a truly empirical science.”

There is no other way to go for failed/fake scientists than to apply for immediate retirement. This, of course, includes the misdirected methodologist, confused blatherer, and clueless heterodox prophet Lars Syll.#3

Egmont Kakarot-Handtke

#1 Economics: 200+ years of scientific incompetence and fraud
#2 For details see cross-references Scientific incompetence
#3 The stupidity of Heterodoxy is the life insurance of Orthodoxy


Related 'The economics Cargo Cult Prize' and 'A social science is NOT a science but a sitcom' and 'Schizonomics' and 'There is NO such thing as an economic expert' and 'The economist as standup comedian'. For details of the big picture see cross-references Not a science of behavior and cross-references Heterodoxy

October 12, 2017

The economics Cargo Cult Prize

Comment on Barkley Rosser on ‘On Richard Thaler Receiving The Nobel Prize’

Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference

Economics is a failed science and because of this the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is an absurdity ― or worse.#1 The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Today’s economics is nothing but the pluralism of provably false theories or, in Feynman’s words, 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 economists have not realized until this day is that economics is NOT a science of behavior.#3, #4 Behavioral Economics from Adam Smith’s Theory of Moral Sentiment, to homo economicus, to bounded rationality, to game theory, to rational expectations, to Richard Thaler’s nudge is not economics at all but the very subject matter of sociology, psychology, anthropology, Political Science, history, etcetera.#5 The subject matter of economics is the economic system.

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

After 200+ years of behavioral economics, economists still have no idea of how the market economy works. It is common knowledge that all profit theories are defective: “A satisfactory theory of profits is still elusive.”#6

This means, to this day, neither the Walrasian, nor the Keynesian, nor the Marxian, nor the Austrian cargo cultic sect can tell what macroeconomic profit is.#7 Hence, they all fail to capture the essence of the market economy. This is not exactly a noteworthy scientific achievement of the economics profession.#8

Does the world expect from economists to find out how people behave? No, this is the very job of psychology, sociology, anthropology, etcetera. Does the world expect from economists to figure out what profit is? Yes, of course, no philosopher, psychologist, biologist, or sociologist will ever try to figure this out.

Have economists done their proper job? No. Do economists know what profit is? No. Does behavioral economics help to find out what profit is? No.

It is not the task of economists to dabble in the so-called social sciences. The subject matter of economics is the economy. Economics is a system science and has to be based on macrofoundations. Economists are still caught in a cargo cultic paradigm. They do not deserve any prizes but to be thrown out of science.

Egmont Kakarot-Handtke

#1 Economics: 200+ years of scientific incompetence and fraud
#2 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#3 Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
#4 For details see cross-references Not a science of behavior
#5 PsySoc — the scourge of economics
#6 Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online
#7 You are fired!
#8 The real problem with the economics Nobel


Related 'A social science is NOT a science but a sitcom'

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REPLY to Barkley Rosser on Oct 12

You are way behind the curve. For a quick Hudík-check see my 2013 post ‘Economics is NOT a science of behavior

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REPLY to Barkley Rosser on Oct 16

Economics is NOT about human behavior but about the behavior of the economic system. The lethal blunder of economics is methodological individualism which comes in many psycho-sociological flavors and constitutes as the axiom of constrained optimization the core of Orthodoxy.

Science is well-defined since 2000+ years but economists somehow did not get it: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

Only certain knowledge (= materially/formally consistent) can be admitted to the corpus of science. And here is the crux of the so-called social sciences: “By having a vague theory it is possible to get either result. … It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (Feynman)

So, to begin with, economics cannot be built upon a behavioral axiom like constrained optimization or any other psycho-sociological premise.

This is the current state of economics: PsySoc-economists do NOT know how the economy works. Economists have not realized until this day that they are in a research program that has already been dead in the cradle: “Indeed, Alexander Rosenberg maintains that there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman)

What has economists contributed to the trash heap of the so-called social sciences? Utility maximization, bounded rationality, game theory, rational expectations, and so on until Behavioral Economics.

What the blathering dilettantes of PsySoc and soapbox economics cannot and do not grasp is: if it isn’t macro-axiomatized, it isn’t economics. And because of this proven incompetence they have to be expelled from the sciences.

October 8, 2017

A social science is NOT a science but a sitcom

Comment on David B. Feldman on ‘Is Psychology Really a Science?

Blog-Reference

The so-called social sciences have been identified by Feynman as cargo cult sciences: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

What is missing is the true theory, with scientific truth well-defined as material and formal consistency. The problem is this, psychologists, for example, know that they do not satisfy scientific standards but they insist nonetheless on the title social science. It has immediately been obvious that Freud’s storytelling and adoption of Greek myth had not much to do with science (for example to Popper) but more with a modern alternative to religion/superstition and with a new format for the entertainment industry. The similarity of a therapy setting and a sitcom simply cannot be overlooked.

All problems would end immediately if the social sciences could stop calling themselves sciences. For whatever reason, they cannot. And because science relies on self-government and the voluntary adherence to scientific ethics and because there is no such thing as a science police who expels cargo cult sciences and jails fake scientists the so-called social sciences continue with what is in commonplace terms a fraud, i.e. with pretending what they not are.

As far as economics defines itself as a social science, the same untenable situation prevails. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong. It is fraudulent to present this indefensible proto-scientific rubbish as science.#2

Because economists lack the true theory their economic policy guidance has NO sound scientific foundation since Adam Smith/Karl Marx. In order to become a science, economics needs a paradigm shift from false Walrasian microfoundations and false Keynesian macrofoundations to true systemic macrofoundations. Economics is NOT a social science but a system science.

The simple reason why economics is a failed science is that both orthodox and heterodox economists share the foundational self-delusion that economics is a social science.

Until this day, economists have NOT gotten the foundational concepts of their subject matter, i.e. profit and income, right. This is like medieval physics before the foundational concept of energy was properly understood.#3

When economists are told that economics does not satisfy the scientific standards of material and formal consistency they invariably fall back on J. S. Mill’s slogan of economics as ‘inexact and separate science’. This, of course, is merely one of economists’ numerous unacceptable excuses.#4 There is NO such thing as an inexact and separate science. There is only science and non-science respectively cargo cult science. The so-called social sciences and economics fall into the latter category.

Egmont Kakarot-Handtke

#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 The real problem with the economics Nobel
#3 Economists’ three-layered scientific incompetence
#4 Failed economics: The losers’ long list of lame excuses


Related 'Economics is NOT a social science' and 'Still on the wrong track' and 'PsySoc — the scourge of economics' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy'. For details of the big picture see cross-references Not a Science of Behavior

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REPLY to Matt Franko on Oct 8

You say: “Economics and some of these other unsuccessful disciplines dont attract the best people...”

In order to understand the obvious lack of scientific success it is crucial to realize that there is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics the scientific standards of material and formal consistency are observed.

Theoretical economics (= science) has been body-snatched by political economists (= agenda pushers). Indeed, it is a fact that political economics does NOT attract the best people. Political economics has achieved NOTHING of scientific value in the past 200+ years. Political economics attracts people that are stupid or corrupt or both.

Science consists of two essential elements: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant) Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing.

Science is well-defined since 2000+ years. Economics is a failed science because economists are incompetent scientists. This applies to both Orthodoxy and Heterodoxy.#1 MMT is part of the mess.

What has been proven is that the formal foundations, i.e. the balances equations, of MMT are false.#2 Because of this, the whole analytical superstructure of MMT is false.

So, how MMTer in general and Stephanie Kelton, in particular, think and op-ed about the deficit is mostly wrong.#3 Obviously, MMT attracts the wrong folks. These underperformers and storytellers do not even get the elementary math of National Accounting right.

#1 The stupidity of Heterodoxy is the life insurance of Orthodoxy
#2 Rectification of MMT macro accounting
#3 MMT: Redistribution as wellness program

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REPLY to Ignacio on Oct 9

You ask “Is psychology a science?!?!?!" = ‘is gold money?!?!?!’ something can be analyzed by ‘the scientific method’ but it may be just a figure of speech to say something IS a ‘science’.”

Psychology is NOT a science, neither is economics. Science is well-defined since 2000+ years by material and formal consistency. Neither psychology nor economics satisfies these criteria. Because of this, they are cargo cult sciences: “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.” (Feynman)

The problem with economics is that each year the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is awarded.#1 In order NOT to mislead the general public, the word ‘sciences’ has to be deleted from the title.#2

#1 The real problem with the economics Nobel
#2 Economics is NOT a science of behavior

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REPLY to Tom Hickey on Oct 9

Every layperson who is confronted with the statement: Mr. A has been murdered and you are the murderer, understands immediately the concept of scientific truth. Truth is (i) binary true/false with NOTHING in between, and (ii), truth is objective, that is provable in principle, and (iii), that it is worth every effort to find out the truth even if we cannot be absolutely sure that we will be successful. As Popper put it “Although nowadays we have given up the idea of absolutely certain knowledge, we have not by any means given up the idea of the search for truth. (Popper)

Admitting that there is no absolute certain knowledge is compatible with the assertion that the Law of the Lever represents certain knowledge. In fact, science is defined as the body of certain knowledge.

While genuine scientists have no problem with the idea of certain knowledge philosophers, who are known for having produced blather instead of knowledge throughout recorded history, desperately try to keep things in the morass between true and false where ‘nothing is clear and everything is possible’ (Keynes). This insistence on inconclusiveness is a survival strategy of incompetent scientists and political agenda pushers, in other words, of failed and fake scientists. Needless to emphasize that these folks are the most enthusiastic followers of Feyerabend and tireless proponents of anything-goes.

Philosophers, social scientists, and economists are the traditional clientele of political clowns like the younger Feyerabend. How can science keep these folks at bay?

Let us make a thought experiment. There are two aircraft called PHI and SCI waiting on the maneuvering area. PHI has been designed/constructed by philosophers, psychologists, economists, and other fake scientists. SCI has been designed/constructed by folks who subscribe to the methodology of material/formal consistency as explained in the foreword of every physics textbook. Which aircraft will the fake scientists try to board? Clearly, in order to get rid of these folks, one has to make sure that they risk their lives with their own crappy constructs.

Of course, there is certain truth in economics but after 200+ years economists still have no idea what it looks like. The four main approaches ― Walrasianism, Keynesianism/MMT, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent, and all got profit wrong.